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

Buying an investment property often feels as though it begins with the property search.

Open Rightmove. Choose a location. Look at some houses. Work out the rent. Make an offer.

I increasingly think that's almost backwards.

By the time I seriously start looking at properties, I want quite a few decisions already made. I want to understand why I'm buying, how much capital I'm prepared to commit, what I can sensibly borrow, where I'm interested in buying and who I need around me.

This becomes even more important if you're buying UK property while living overseas.

The objective isn't to remove the excitement from buying. Quite the opposite. Do the preparation properly and, when the right opportunity appears, you're actually in a position to act.

1. Why are you buying UK property?

Before deciding what property to buy, decide what you want the investment to do.

That sounds obvious, but different objectives can lead to very different investments.

You might want additional income now. You might be building assets for retirement. You may want long-term capital growth, diversification away from other investments, or an asset in the UK while you're living overseas. Perhaps you eventually expect to return to the UK and want to begin building your position before you do.

For many investors, the answer will be a combination.

The important thing is to establish the objective first because “Is this a good property?” isn't really a complete question.

The better question is: “Is this a good property for what I'm trying to achieve?”

2. How much money do you actually have available to invest?

Your deposit is not your property budget.

If you have £60,000 available, that doesn't necessarily mean you can use £60,000 as the deposit.

You'll potentially need money for Stamp Duty Land Tax, legal fees, mortgage and valuation costs, surveys and any work required after completion. You should also think about the cash reserve you want to retain once you've bought.

That last part matters.

A property investment shouldn't become a financial crisis because the boiler fails shortly after completion or because the property sits empty for a few weeks.

So I distinguish between capital available and capital I'm comfortable deploying.

They're not necessarily the same number.

3. How much can you borrow for a UK investment property?

I would speak to a mortgage broker before becoming too interested in individual properties.

You want to understand approximately how much you can borrow, what the borrowing is likely to cost and what sort of properties lenders will finance.

If you're buying from overseas, this deserves particular attention.

Not every UK mortgage broker regularly deals with overseas borrowers, and the lenders available can depend on where you live, how and where you're paid, your tax position and whether you're purchasing personally or through a company.

The property can narrow the field further.

I've learned this the hard way. A conventional buy-to-let property may have a reasonable selection of potential lenders. Start looking at HMOs, multi-unit blocks or other less conventional investments and the lender pool can become considerably smaller.

Combine an unusual property with an overseas borrower and specialist advice becomes particularly valuable.

This is one reason I tend to prefer referrals to simply searching online. Finding professionals who already understand your circumstances can save a surprising amount of time.

4. Do you need a Mortgage in Principle before viewing properties?

It is sensible to have your financing sufficiently advanced that you can demonstrate you're a credible buyer.

Selling agents may ask about your financial position and evidence that you can proceed before arranging a viewing or putting an offer to a seller. If you're thousands of miles away, being organised also helps demonstrate that you're a serious buyer rather than someone casually browsing the UK market.

A Mortgage in Principle isn't the same as a final mortgage offer. The lender will still need to assess you, the property and the full application.

The objective at this stage is simpler: know whether you're genuinely executable before you find something you want.

5. Should an overseas investor arrange a solicitor before finding a property?

I would.

An overseas buyer can face more involved anti-money-laundering and source-of-funds checks, particularly where income, savings or banking relationships span different countries.

I'd rather understand those requirements before making an offer than discover them while everyone is waiting for the transaction to progress.

You don't necessarily need the solicitor to have completed everything. You simply want to know who you're using and what documentation they're likely to require.

The same principle applies to your broker and other advisers.

Build the team before you need the team.

6. Where should you buy an investment property?

This is where I think spreadsheets become less useful.

You can compare purchase prices and rents from anywhere in the world. What is harder to understand remotely is why people want to live on one street but are much less enthusiastic about another one half a mile away.

When I first started investing around Liverpool, Shaun — who later became a business partner — drove me around areas close to Goodison Park. Street by street, he could explain where he was comfortable buying and where he wasn't.

I eventually bought on the other side of Stanley Park in Anfield.

That local knowledge mattered.

If you're investing from overseas, I'd want someone on the ground whose judgement I trust. Not simply someone who can find property, but someone who understands local rents, tenants, streets, demand and the small differences that rarely appear on a property portal.

7. What is a property investment “buy box”?

A buy box is simply a set of criteria describing the type of investment you're looking for.

It might include location, price range, property type, likely tenant, minimum cash flow, acceptable refurbishment and things you simply won't buy.

It doesn't have to be rigid.

My own experience is a fairly good argument against being too rigid: my first investment was an off-market former cannabis grow house in Anfield which we converted into a six-bedroom, six-ensuite HMO.

It worked rather well.

Unfortunately, that early success may also have made us slightly overconfident.

Not long afterwards, Peter, Shaun and I tried to buy a pub in Wigan. We had plans for an HMO and multi-unit block, an enormous spreadsheet and, at one stage, a fairly strong conviction that we'd discovered something that was going to make us rich.

There were a couple of complications.

It had no parking.

And we didn't have planning permission for what we wanted to do.

We didn't buy it.

The lesson wasn't that unusual properties are bad investments. It was that once you become excited about an opportunity, it's surprisingly easy to start changing your assumptions until the investment works.

A buy box gives you something decided before the enthusiasm arrives.

8. What numbers should you check before buying a rental property?

Gross rental yield is useful, but it isn't enough.

Suppose a £200,000 property rents for £1,200 per month. That's £14,400 of annual rent and a 7.2% gross yield.

I then want to follow the money.

There will potentially be voids, management costs, maintenance, insurance and compliance expenditure. If I've borrowed £150,000 at 5.5% interest-only, that's another £8,250 a year in mortgage interest.

Using fairly ordinary assumptions, the £14,400 headline rent might leave something around £2,300 a year before tax.

That sounds rather less exciting.

But there's another side to the calculation.

I've put down a £50,000 deposit rather than buying the £200,000 property entirely with cash. The £2,300 therefore represents around a 4.6% pre-tax cash return on the deposit, although the return on all capital committed will be lower once acquisition costs are included.

And cash flow is only one part of the investment.

The £50,000 deposit gives me exposure to a £200,000 asset. If that asset appreciates over a long holding period, I benefit from the change in value of the whole property.

That's why I don't think about property purely as an income stream.

I want to understand cash flow, resilience, leverage and long-term return on my capital.

9. Who will manage the property after completion?

This question is particularly important for an overseas investor.

Buying is an event. Owning is the bit that can last twenty years.

Who will find the tenant? Who collects the rent? Who deals with maintenance? Who keeps on top of compliance? What happens when the tenant stops paying or something goes wrong on a Sunday morning?

I've lived overseas for several years, and distance has made me much more interested in whether an investment can operate properly without me.

Good management isn't simply a convenience. For a remotely owned investment, it's part of the investment model.

I want to know the answer before I buy.

10. What should you know before you start looking for an investment property?

My own pre-search checklist is fairly simple. Before becoming seriously interested in what's for sale, I want to understand:

• Objective: What am I trying to achieve by buying property?

• Capital: How much cash am I actually prepared to deploy?

• Reserve: What will I keep back after completion?

• Finance: What can I sensibly borrow and approximately what will it cost?

• Team: Do I have the right broker, solicitor and local expertise?

• Location: Where am I buying, and why do people want to live there?

• Tenant: Who am I expecting to rent the property?

• Property: What sort of asset am I prepared to own?

• Numbers: What cash flow and long-term return am I looking for?

• Management: Who operates the property once I've bought it?

• Red lines: What would make me walk away?

Once I can answer those questions, property hunting becomes much easier.

I'm no longer scrolling through hundreds of listings wondering whether something might be a good investment. I'm comparing opportunities against decisions I've already made.

And that doesn't make the process less exciting.

It means that when Rightmove, an agent or someone I trust puts something genuinely interesting in front of me, I'm ready to do something about it.

Right. Now we can buy something.