Investment strategies:

Income Investment: What You Need to Know

With the right strategy in place, an income investment can provide a reliable, long-term income stream. In this feature, Experience Invest breaks down all you need to know about investing in UK property to generate a passive income.

  • Last updated: Jan 2019

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With the right strategy in place, an income investment can provide a reliable, long-term income stream. In this feature, Experience Invest breaks down all you need to know about investing in UK property to generate a passive income.

What is an income investment?

For many investors, one of the most appealing aspects of the UK property market is the potential to gain a regular, reliable income from a tangible asset with good prospects for value retention and growth.

Income investment can certainly offer many benefits, especially if you're looking for ways to bolster your income in retirement.

If this is an option you're considering, it's a good idea to gather as much information as possible before making any sort of financial commitment. Read on to find out more about income investment and get answers to some of the questions you're sure to have.
  • What is the best investment for monthly income?
    Real estate is one of the best investments that pay monthly income. The tangible nature of property has a wider appeal than stocks and shares, plus the simplicity of the asset class makes it more accessible to investors. From commercial to residential property, to niche to traditional asset classes, property is an ideal option for investors who wish to generate an additional monthly income.
  • What are the 4 types of investments?
    If you’re new to investing, it might interest you to know that there are four types of investments; equity/stocks, bonds, property and cash. In this feature we will look at how you can invest to generate a second income stream.
  • How do you calculate investment income?
    On a basic level, investors can calculate their investment income by calculating the NET investment income received from the asset and then deducting related expenses. The return will vary depending on tax liabilities and individual circumstances. Every investor should carefully consider their financial obligations before entering an opportunity.

How to invest for income?

Investing for income is a great way to diversify your portfolio, secure a second income stream or to build a nest egg for your retirement.

Income investment in the UK

There are a number of reasons why the UK is a prime destination for income investment, not only for British citizens but for overseas investors too.

The country is widely viewed as a safe haven for real estate investment, largely because of the property market's well-established track record for delivering returns and its proven resilience to adversity.
If you're investing for income, one of your key considerations will be the potential for regular, healthy yields. One of the most significant trends in the UK in recent years has been the growth in yields available in asset classes like purpose-built student accommodation, driven by increasing student numbers at the country's higher education institutions.

It's a diverse market, with a wide range of assets and property types to choose from and lots of options to find the right investment for your needs.
Where capital growth is concerned, the only time in the last 20 years that UK property has experienced a sustained decline in prices was during the 2008 financial crisis. Since March 2009, the average property price has risen from £154,452 to £234,370, according to Land Registry data.

Between January 2000 and January 2008, the average price more than doubled from £84,620 to £185,782. The scale of change underlines how much property owners have seen the value of their assets grow over the long term.
Between January 2000 and January 2008, the average price more than doubled from £84,620 to £185,782. The scale of change underlines how much property owners have seen the value of their assets grow over the long term.
There have been fresh challenges for UK real estate in recent years - most notably Brexit. There's no doubt the questions and uncertainty surrounding the country's exit from the European Union have affected the property market, but it's also clear there is still a strong appetite for property investment.

Key trends that have emerged since the June 2016 referendum should give investors confidence that UK property has the fundamental strength to continue growing and delivering returns after Brexit.
Key trends that have emerged since the June 2016 referendum should give investors confidence that UK property has the fundamental strength to continue growing and delivering returns after Brexit.

The appeal of income investment

Income investment in property can offer many benefits, but there is one advantage that really stands out: if you have money to invest upfront, you can acquire a tangible asset that generates an ongoing, passive income.

Once you have completed the acquisition, you can look forward to receiving regular returns. Taking buy-to-let property investment as an example, the returns will come in the form of rental yields.
This could be a particularly appealing route to go down if you're approaching the end of your working life and you're looking into investment options to boost your retirement income.
This could be a particularly appealing route to go down if you're approaching the end of your working life and you're looking into investment options to boost your retirement income.

Furthermore, the UK property market provides a range of options to invest in fully-managed buy-to-let projects and developments. This takes all of the work and responsibility usually involved in being a landlord out of the equation; you simply have to provide the upfront capital to secure the investment and look forward to receiving a second income stream.

Your strategy

Like any major financial decision, it's important to plan your income investment carefully and go into the process with a clear strategy.

There are various strategic considerations to take into account, one of which is whether to enter at the off-plan stage, which involves committing to a particular property before it's been built.

This approach has various pros and cons. As far as the potential benefits are concerned, one of the most attractive advantages is the capital growth on offer. By buying off-plan, you can usually secure a lower price, which means less to pay upfront and more scope for growth on your initial investment once the property is complete.
However, it's also important to consider that you'll be buying a property you can't physically see or examine yet, and there will be some time to wait before it's ready for occupation and you can start to receive an income.
However, it's also important to consider that you'll be buying a property you can't physically see or examine yet, and there will be some time to wait before it's ready for occupation and you can start to receive an income.

Another strategic priority is your exit strategy. Experience Invest research has shown that 20% of investors don't think about how they will exit their investment before committing to it. Having a clear plan in this regard can help you avoid investment lock-in and be fully prepared for the future.

Asset classes

Finding the right asset class is another key strategic element that will be central to your income investment.
As mentioned above, one of the most attractive features of the UK for property investors is the wide range of asset types and investment opportunities it offers. Two particularly appealing segments for an income investment portfolio are student housing and hotels.

Savills has explored the recent evolution of student accommodation, noting that an increasing number of investors have been drawn to the market by its typically high income returns. The sector also offers what the firm called a "counter-cyclical income stream".
Savills has explored the recent evolution of student accommodation, noting that an increasing number of investors have been drawn to the market by its typically high income returns. The sector also offers what the firm called a "counter-cyclical income stream".
"In economic downturns, demand for student housing tends to increase as students prolong their studies while they wait for the job market to improve, while those out of work return to university to upskill," Savills said.
The UK has established itself as one of the leading international student property markets, attracting higher investment volumes than the rest of Western Europe combined in 2018.

Hotel suites have also become an increasingly attractive prospect for many buyers in recent years, particularly those investing for income. Research by PwC has shown ongoing growth in typical rental income from occupied hotel rooms and record high occupancy rates.
Knight Frank data revealed approximately £4.9 billion of international investment in UK hotels in 2018, more than double the previous year's figure.
Generally speaking, student accommodation and hotel suites are attractive targets for income investment because of the typically high yields available, while property in the private rented sector (PRS) is a better option if you're looking for capital growth.

If you're interested in taking a look inside some of the student accommodation and hotel investment opportunities available right now, you can watch Experience Invest's video tours of properties like Opto Student Cardiff and the Epic Hotel & Residence.
If you're interested in taking a look inside some of the student accommodation and hotel investment opportunities available right now, you can watch Experience Invest's video tours of properties like Opto Student Cardiff and the Epic Hotel & Residence.

Financial factors

It goes without saying that committing to a property investment is a major financial decision, so it's important to do a thorough examination of the various financial obligations and factors involved before going ahead.

Investors often have questions about the amount of upfront investment required to acquire particular assets.
Here is a rough breakdown of the property types available in particular budget ranges:
Student Accommodation
Up to £100,000
Hotel suite investment
£100,000-£125,000
PRS and build-to-rent property
£125,000 and over
These are general guidelines and it's important to do some thorough research and find out which assets and investments are best-suited to your financial situation and your personal goals. Experience Invest offers one-on-one consultations that could help you make a plan that suits your unique situation.

Researching and preparing carefully can ensure you're ready to manage some of the risks that can arise with any property investment, such as dealing with void periods (when the property is unoccupied) and lapses in rental income.
You should also take the time to gather the information you need about other finanacial factors linked to property investment, such as:
  • Stamp duty
  • Ground rent
  • Taxes
  • Bills
  • Management fees

Income investment in the long term

The UK economy experienced its fair share of challenges during the first two decades of the 21st century, from the financial crisis to the disruption and uncertainty caused by the Brexit vote.

But as far as property is concerned, the country has demonstrated many times that it has the resilience to come through periods of turmoil and adversity relatively unscathed. There is every reason for investors to feel confident the market will remain steady and witness some growth in the 2020s and beyond.
Prospects are particularly positive in regional locations like Cardiff and Liverpool, which have shown their potential to outpace London and southern England in house price growth.

These cities are also home to growing student populations and attract high numbers of leisure and business travellers - positive signs for those looking for income investment opportunities in student housing and hotel units.

Whatever the future holds, it's safe to say that UK property - with its strong fundamentals and proven track record for delivering returns - has enough going for it to make investors feel confident about securing a steady income from real estate.
Whatever the future holds, it's safe to say that UK property - with its strong fundamentals and proven track record for delivering returns - has enough going for it to make investors feel confident about securing a steady income from real estate.

If you would like to learn more about the UK property market and income investment opportunities, you can browse through Experience Invest's range of in-depth guides, which explore a range of topics.
For a more detailed discussion about building a monthly income portfolio, you can book a no-obligation meeting or give us a call on +44 (0) 207 834 1113.
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