How to Prepare to Buy a UK Investment Property: A Practical Checklist

One of the easiest mistakes to make when thinking about buying an investment property is to start by looking at properties.

Rightmove makes that particularly tempting. Within five minutes you can be comparing a two-bedroom terrace in Liverpool with an apartment in Manchester and wondering whether an HMO in Leeds might be a better idea altogether.

I think the property itself should come rather later in the process.

Before I become particularly interested in what is for sale, I want to understand why I am investing, how much capital I can genuinely commit, what I can borrow, how much cash I need to retain, where I want to invest, who is likely to rent the property and who I trust to help me on the ground.

That doesn't mean everything has to be decided in advance. My own first investment property certainly wasn't what I might now describe as a conventional first purchase.

But good preparation gives you a framework against which to judge an opportunity when it appears.

Why invest in property in the first place?

For me, one of the attractions of property is leverage.

Property is one of the relatively few asset classes where an ordinary private investor can potentially borrow a substantial proportion of the purchase price on conventional terms.

Imagine buying a £200,000 property using £50,000 of your own capital and a £150,000 mortgage.

You have contributed a quarter of the purchase price, but any increase or decrease in value occurs across the whole £200,000 asset.

That can have an interesting effect over a long period.

Suppose, deliberately conservatively, that the property simply keeps pace with inflation. There is no assumption here about finding the next property hotspot or benefiting from spectacular house-price growth.

In real terms, the underlying property hasn't really become more valuable.

But the investor has only provided part of the capital used to buy it. Meanwhile, the rent has the job of servicing the debt, paying the costs of ownership and, ideally, leaving some free cash flow.

Of course, leverage works in both directions. Property values can fall, interest rates can rise and properties can sit empty or require expensive repairs. Debt magnifies mistakes as well as successful investments.

That is why I don't think the question is simply, “What return could this property make?”

It is also, “Will this investment remain financially resilient when things don't go according to plan?”

How much money do I need to buy a UK investment property?

Your deposit is not your property investment budget.

Using that same £200,000 property, a 25% deposit would be £50,000. But having £50,000 available doesn't mean I would regard myself as having enough money to buy it.

There may also be Stamp Duty Land Tax, solicitor's fees, mortgage and valuation costs, surveys, insurance and work required before the property can be let. The precise costs will depend upon the investor, property, ownership structure and finance being used.

Then there is the money I deliberately don't want to spend.

I want reserves.

Boilers break. Tenants leave. Roofs leak. Refurbishments uncover things nobody noticed during the viewing.

Completing a property purchase with almost every available pound invested might maximise the amount of property I can buy, but it can also leave a very fragile investment.

So before looking at properties, I would ask:

How much capital can I invest while still retaining a sensible reserve?

That number, rather than the size of my deposit alone, starts to determine what I can actually afford.

Should I speak to a mortgage broker before finding an investment property?

I would.

I don't necessarily need a formal mortgage offer before beginning a search, but I want a reasonably clear understanding of the finance available to me.

What can I borrow? What might it cost each month? What information will lenders require? Are there features of my circumstances that could restrict the available lenders or products?

For overseas investors, this can be particularly important because lender choice and underwriting requirements may differ from those applying to a UK-resident borrower.

I would also rather establish a relationship with a broker before I urgently need one.

If I find a property first and think about finance afterwards, there is a danger that I start trying to make the finance fit a property I have already decided I want.

I'd rather understand the financial parameters first and look for investments that work within them.

How do I choose where to buy an investment property?

This is where data becomes important, but also where data eventually stops being enough.

I want to understand why people live in a particular area and why they are likely to continue wanting to live there.

Where are the jobs? What do people earn? What rents can they realistically afford? What transport links matter? What types of households rent locally? Are employers investing? Are there schools or other amenities creating sustained demand?

But “Manchester” isn't really a property market. Neither, in many cases, is a particular town.

Eventually you get down to neighbourhoods, individual roads and sometimes differences between streets only a few hundred yards apart.

That information is much harder to obtain from national statistics or a property portal.

Why does local knowledge matter when buying property from overseas?

When I first started investing in Liverpool, Shaun — who later became a business partner — drove me around the streets near Goodison Park.

He could point to one street and be perfectly comfortable with it, then explain why he wouldn't buy on another street only a short distance away.

I could have spent weeks studying rental yields, historic sale prices and demographic information without acquiring that knowledge.

This isn't exclusively an overseas-investor problem.

Someone sitting in London and buying in Liverpool, Manchester or another unfamiliar market can face exactly the same information gap.

You therefore need to think not only about where you trust your capital, but also whose judgement you trust on the ground.

That could be a local letting agent, property manager, experienced investor or property adviser. What matters to me is that they genuinely understand the local market and are prepared to tell me when they think I shouldn't buy something.

Someone who only ever finds reasons why a property is a wonderful investment isn't providing much protection against a bad decision.

What should be in a property investment buy box?

Once I understand the location, I can become more specific about the investment itself.

I want a broad view of the price range, property type and likely tenant. I want to know how much work I am prepared to undertake, how the property is likely to be financed, what cash flow I expect and what would make me reject an investment.

I don't regard that as an inflexible set of rules.

New information should be allowed to change my mind.

The purpose of a buy box is not to prevent me from seeing opportunities I hadn't anticipated. It is to give me enough structure to distinguish between changing my mind for a good reason and simply becoming excited about a property I've seen.

Those are very different things.

Should I only search for investment properties on Rightmove?

No. Rightmove is an extraordinarily useful window into the UK property market, and I use it.

But my first investment property wasn't on Rightmove.

After being shown around the streets near Goodison Park, I actually ended up buying on the other side of Stanley Park in Anfield.

The property came through someone I trusted. It had previously been used as a cannabis grow house and required a fairly heroic refurbishment.

We converted it into a six-bedroom, six-ensuite HMO.

It was hard work, occasionally stressful and probably not the route I would recommend to every first-time investor. But I learned an enormous amount from it, and the property ultimately made me a fair amount of money from both the rental income and its eventual sale.

There is an important distinction here.

Preparing properly doesn't mean deciding exactly what you're going to buy.

Good preparation should make you better at recognising an unusual opportunity when somebody puts one in front of you.

What should I know before I start searching for an investment property?

Before I become particularly interested in individual properties, I want reasonably clear answers to these questions:

• Why am I investing in property, and what am I trying to achieve?

• How much capital am I genuinely prepared to commit?

• What can I realistically borrow?

• How much cash will I retain after completion?

• What return and cash flow do I need from the investment?

• Where am I buying, and why does that location make sense?

• Who is the likely tenant?

• Who will manage the property?

• Who do I trust locally to challenge my assumptions?

• What are my red lines — the things that would make me walk away?

None of those answers has to be permanent.

In fact, I'd be slightly worried if I went through years of investing without changing any of them. Experience should change the way we invest.

But having answers before starting the search makes it much easier to assess what appears afterwards.

What is the first step when buying a UK investment property?

I wouldn't start with:

“What properties are available?”

I'd start with:

“What am I trying to achieve?”

From there, work out the capital available, understand the finance, retain appropriate reserves, develop a reasoned view of location and find people whose judgement you trust in that market.

Then start looking at individual properties.

Sometimes the opportunity will be sitting on Rightmove.

Sometimes somebody on the ground who understands what you're trying to achieve will say:

“I've got something you might want to see.”

That's where preparation and opportunity meet.

And occasionally, as I discovered with my first investment, it might require crossing Stanley Park.