Originally written for What Investment magazine
UK residential property remains one of the most attractive investments available to many investors, seeking long term returns, without too much hassle. But the market has changed thanks to political, economic, social, technological and legal and regulatory shifts. Right now, investors of all scales are facing the prospect of no, low or negative real returns, uncertainty about the future, and the difficulty of accessing opportunities that suit their needs, resources and the market context.
The kinds of investors I’ve worked with over the years often have strong ties to the UK, and a real passion for property. Whatever the source of wealth – savings, a business, or well-paid profession – the investors I’ve worked have three things in common:
Firstly, they know UK residential property has the ability to solve a very real problem for them. For many potential investors, property feels like the best approach to achieving the outcomes they want. Over the last 20 years, it’s offered great rewards – in absolute terms, and relative to alternatives. It’s relatively easy to understand, and implement. The reality is, for many investors, property investing is not really about property, or investing. Property investing is a tool for fun, freedom, safety and security.
Secondly, they know they want access to UK residential property, as a means to preserve and grow their wealth profitably and safely for their or their families futures, without sacrificing the present.
Thirdly, they know they need help to invest in property properly, in this increasingly regulated, uncertain and complex environment. Typically, the kinds of investors I’ve worked with are not only highly intelligent, but they have access to capital they want to invest. What they lack is a clear strategy suited to this complex environment, specific local and national sector knowledge, and teams ‘on the ground’ that they feel confident will deliver.
If you share the 3 commonalities I outlined above, then this article is for you. It highlights 5 questions you need to answer, before you invest. And it is not just for investors whose wealth and incomes bring them into the top percentile, financially. The key ideas are relevant for investors of all scales, who want to:
- More confidently navigate a complex UK property market
- More easily and efficiently access opportunities, without wasting time, money or effort
- Drive sustainable, value-driven rewards.
The truth is, residential property is not as ‘easy’ as it once was: investors need to understand and navigate a complicated market. To succeed in this fast-changing, uncertain context with so many new regulations to comply with, investors of all scales need to be more strategic, value-focused, and professional in their approach. As market and regulatory pressures have grown, so have the chances and costs of making poor decisions, and expensive mistakes. Investors with access to funding run the risk of missing out on opportunities, and even losing out on hundreds of thousands of pounds each year by not making the wrong decisions, making no decisions at all, or not acting strategically and professionally.
Answering these questions will help you to define a clear strategy, suited to your goals, situation and the market. Ultimately, the answers will help you to answer the question that I am often asked: how can I invest in UK property residential property, grow wealth and leaving a lasting, positive legacy, in this complex market?
Over 10+ years focused on the property industry and as a professional consultant, across many millions of pounds worth of deals and strategies, I’ve developed a methodology for designing property strategies that give investors a clear approach, even in a context of uncertainty. These questions are at the heart of that methodology, and come up repeatedly in the investor conversations I’ve had over the years.
1. What approach should you take, given what you are hoping to achieve, the resources you have available, and the market context?
There’s three key steps to answering this question:
Step 1: Set clear goals
Step 2: Know your starting point – in terms of time, money and industry expertise
Step 3: Find an efficient, effective and logical path suited to current market circumstances, and your goals and starting point, that takes into account rewards relative to risk, effort and alternatives
This question requires you to truly understand your goal with investing. If you are looking to create income, and preserve and grow your wealth, you’ll want the investments to have a long term focus. But in this new market context, you need to structure things right. Thanks to cross-party political will encouraging professionalisation, holding properties in your personal name is generally no longer viable. You also need to understand your current situation. In this increasingly regulated environment, and taking into account your tax circumstances and liquidity preferences, do you want to take on the responsibility of investing directly and complying with new regulations, or should you focus on indirect investment? Increasingly, I see many investors preferring not to take a hands on role. This might mean partnering with a joint venture operator, investing in listed property vehicles or investing via alternative finance platforms to get access, rewards and greater confidence, without sacrificing the present. If you do want to invest directly, will you take a ‘vanilla’ approach, or focus on a specific niche?
2. How are you going to access the right opportunities, that fit with your approach?
First, you need to decide whether you want to do the work yourself (DIY) and invest directly, to invest with some professional support using a ‘Done With You’ or DWY service, or to have the work done for you (DFY). Next you need to work out if you currently have a good enough understanding of the market and the right contacts in the industry – both nationally and locally. If you’re investing directly, do you have the contacts and local knowledge you will need in the places you want to invest? If not, who do you know who can help you so that you can minimise the chance of wasting time and money, or making expensive mistakes?
3. How are you going to assess opportunities?
This question requires some thinking: you will need clear criteria. For many of the investors I work with, seeking a passive strategy, they target an ongoing return of 3-6%. Knowing this makes it easier to identify and capitalise on opportunities that fit with the approach you have defined. Again, when it comes to assessing opportunities, your can do the work yourself (DIY), seek some professional support (DWY) or get someone to do the work for you (DFY) and invest indirectly. It’s worth considering 3 Ds: diversity, due diligence, and delivery capabilities. Make sure you have these three covered.
4. How are you going to manage your assets?
In an increasingly regulated environment, it has never been more important that property investments are managed professionally and safely, to enhance returns and minimise risks. How are you going to make sure your investments deliver what you want, without taking on hassle, effort or time commitments? For many of the investors I work with, the answer is not what it once was: increasingly, I see investors looking to allocate funds indirectly, investing in businesses whose focus is on getting these things right.
5. How will you adapt to future market changes and trends, if and when required?
For investors who just want to put money in, and then in the future take more money out, the idea of having to keep up with market trends and changes does not appeal. But they do need to make sure they are ready and able to shift if the market changes on a structural level. Many of the investors I work with are preparing for this by focusing on more liquid indirect investments, rather than properties, which are relatively illiquid, especially in a slower, less confident market. Investing in shares can have the added advantage of being more favourable from a tax perspective, though you must seek tax advice on your circumstances.
The fundamental drivers of the UK residential property market remain strong: we have a shortage of supply, and strong demand for housing. In this complex environment, it has never been more important to define a clear strategy, before you invest. By answering these questions, you will have the bare bones for a strategy. If you are interested in finding out more about defining a property strategy, I am currently writing a book, ‘Strategic Property Investing’, which will share the methodology I developed through experience across many millions of pounds worth of deals and strategies, in 10+ years focused on property and strategy, including through leading her own investment businesses, RICS-accredited academic study of the market at Cambridge, and as a professional consultant in Strategy and Private Equity, at Deloitte.
Sign up or get in touch at annaclareharper.com to hear more.
About the Author:
Anna Clare Harper is a Property Investment Strategist and CoFounder of Anglo Residential, a UK residential fund that has secured seed funding to build a £100m+ portfolio of high yielding housing. She also heads up Strategic Property Investing, a boutique consultancy that works with a small number of private clients seeking a clear approach, in this complex environment. She hosts one of the highest-rated podcasts in the UK ‘property investment’ space on iTunes.
Her upcoming book will share what she has learned across many millions of pounds worth of deals and strategies, in 10+ years focused on property and strategy, including through leading her own investment businesses, RICS-accredited academic study of the market at Cambridge, and as a professional consultant in Strategy and Private Equity, at Deloitte.