I have invested in the stock market for over a decade with success. The process got pretty easy and straightforward. My current investment strategy is buying and holding ETFs and Mutual Funds. I use “dollar cost averaging”, which means that each month when the salary comes in, I dedicate the same amount of cash, regardless of the direction of the stock market. I buy if the stock market goes up, I also buy when the stock market goes down. Statistically, this is a well-proven strategy, and it worked well for me over the last few years.
With the current amount of money I was able to save and grow, I’ve decided that it’s now time to diversify additionally into real estate, to be diversified not only into different securities but also into bricks and mortar.
Even though in history the stock market has performed better than the real estate market, I think it’s good to also have some investments, which aren’t stock or bond market-related, as past performance doesn’t guarantee future performance, and for a stable portfolio, it’s also good to have some positions with less aggressive growth, but less risk.
Due to my financial education, I was also interested to learn more about how to utilize financial leverage, how the process to buy and manage property works, and to see how good an investment it is.
A friend of mine, who is already invested in property in the UK hooked me up with a company, which has its headquarters in Hong Kong, but sells properties in the UK, specialized to attract foreign buyers.
It’s a company that is providing property management, which basically means, that you as an investor don’t need to manage the property yourself. The property company claimed that they will lead me by the hand, as I was new to property investing, and help me with the purchase and the management of the property.
- Helping me to secure and purchase the property
- Finding new tenants
- Making sure the rent is paid
- Organizing handymen if anything requires repairing
- Helping me to deal with the finances
Property in UK vs Thailand vs Singapore
I was first thinking to buy a property in Thailand, as I’m living in Singapore, but when I compared the prices I’ve discovered, that I’ll get more square meters in the north of the UK than in Thailand for the same price, better build quality, better infrastructure, and better laws that protect me as an owner.
The surrounding infrastructure in the UK is generally better and protected against floods. I have seen many Condo buildings in Thailand where the basement and car park got flooded during the rainy season. I have also seen many condos that had minor defects, which were never repaired.
The properties in the UK usually have a leasehold of 100 to 250 years, while in Thailand the leasehold is usually only up to 30 – 50 years (with a potential option for renewal).
Mortgages in Thailand are usually not possible, or only for a very high-interest rate of up to 10 percent.
There are options, to buy a Condo in Thailand through Singapore property management companies, and apply for a loan in Singapore. But I was looking at Thailand to be riskier than investing in the UK.
I’ve also looked at Singapore, as I’m currently renting a condo. However, Condos in Singapore are relatively expensive and the rental yield is around 3% max. It requires a substantial investment of up to 300’000 SGD in own capital or more to purchase a property. This is a big sum of money, which can’t be easily turned into cash again, in case it’s needed. Due to the high initial cost and low rental yield, I was reluctant to purchase property in Singapore at this time. However, after turning down the property deal in the UK (more on this later), I think the best investment into property is an investment into one’s own living space. Because while living in your property, you can spend the rent, for paying off the property, which will save you money in the long run. As a new Condo buyer in Singapore, there is usually a margin of around SGD 50’000 – 200’000 when you sell your flat after 5 years or more.
But in this article, I’ll take you through the process as a new buyer, that thought the best option is to buy property in the UK.
The UK property management company
Researching the property management company
I’ve researched the company through Google. The buyers, in general, gave good feedback about the company, but there was a higher percentage of renters who didn’t seem to be too happy. The renters had the concern that the response was unprofessional, and in certain cases requests to fix the property were declined. I spoke with the Sales representative, and they acknowledged that they had staffing problems but I was assured these were resolved.
According to the reviews, most buyers and rentees were satisfied, and the company existed for 17 years. This gave me the confidence to continue with them.
The Sales Representative
I was introduced to the sales representative of the company through my friend. The sales representative made a good impression. He was calm, friendly, and in a zoom call, he was showing me some of the properties which were currently in build. He explained to me the pros and cons of the different apartments available, and he also explained the differences in the quality of the builds themselves. He did a good job to figure out together with me what I wanted from a financial, and property point of view.
High-end vs Low-end properties
The properties come in different build qualities. There are high-end apartment properties, that will have a concierge, a lounge, and other amenities such as a fitness center outdoor area, and rooftop garden with a Grill, or there are lower-end properties, that don’t have these additional amenities.
I was a little shocked to hear, that the rental income is not much higher with a high-end property than with a lower-end property with the same square meters but a price difference of up to GBP 20’000 – GBP 30’000. The agent explained to me that while this is true, usually higher-end properties will gain more value over time.
Location and quality of the property
I was interested in the north of the UK, as it looked still pretty affordable to invest in, in comparison to areas closer to London and compared to other countries. The UK has planned to build a rapid train system which will connect Manchester and Birmingham with London. According to their communications, it will only take a 2.5-hour ride from Manchester to London.
I have looked at a lower-end property in West Bromwich which was mainly intended for bachelors that need to commute to London from time to time and is about a 15 minutes tram ride away from the Birmingham railway station, and a higher-end property in Preston, which is about a 30-minute train ride away from Manchester.
The West Bromwich property was selling out fast, as the flats were very reasonably priced. As I had to pull some money out from Switzerland, by the time the funds were transferred, most of the good apartments were already sold.
I had my mind therefore set on a property in Preston. Even though Preston is further to the north, and traveling to London would take a 30-minute train ride to Manchester, and then a 2.5-hour train ride to London, the quality of the building was very high.
Additionally, Preston is still reasonably priced, the city has plans for several infrastructure upgrades, and it’s an area, that has several property projects underway.
Preston itself is a very idyllic place with a nice town center, a river that flows through it, a very good university, and it is very close to the sea, which is reachable with the train in about 20 minutes.
The building was located in the city center just a short ride to the railway station. The university and the river were not far.
The target customers for such an apartment are a person or a couple, working or studying at the university. Or professionals staying and living in Preston, that enjoy the idyllic country life, but want to have modern living standards, and the option of making occasional/regular trips to London within a reasonable time.
The apartment building offered a concierge, lounge area with collaborative working spots and sofas, gym, courtyard, and rooftop garden with Grill.
The apartment itself, a one-bedroom & living room apartment with 39 sqm space had full-height windows and unobstructed views on the 9th floor with sufficient sunlight, and it was the only one-bedroom apartment on the 9th floor. All others were on the 4th floor or below.
Initiating the purchase process
Costs outlined by the property company
The property management company outlined the costs, which included the costs of their property management. The monthly gross rental yield was set at 750 GBP. After deducting their management costs and the ground rent the net rent was around 550 GBP monthly.
I wasn’t made aware of any other costs, and an estimate from the salesperson indicated that with a mortgage, I’d still roughly make around GBP 350 in monthly profit.
As the inexperienced property investor as I was, I’ve decided to pay the reservation fee as I thought these were all the costs.
Reserving the apartment
I’ve decided that I want to reserve the apartment, and made the first payment of GBP 5000, to reserve the property. And from there on my life got a bit more interesting, and required a lot more of my time, cost, and nerves than I’d originally anticipated.
The solicitor contacted me on the following Friday and asked me to provide true copies and translation of the passport, the proof of address through a utility bill, and the source of funds. Additionally, they wanted a three months history of my account statements.
So I had to find a legal translation company and a local lawyer. Nobody told me upfront, that this was necessary, so I got a little annoyed but understood it was required.
Beginning of the following week (it was national holidays, Chinese New Year) I got a message at 10:30 pm if I’ve already sent back the documents to the Solicitor. I’ve responded no because it was a public holiday. I got another message, that I should hurry because the reservation will only be valid for 28 days.
I didn’t know this fact, they didn’t tell me. So I got slightly angry. At 1:30 am they tried to call me to put further pressure on me, and that’s when I got very angry. First of all, I would expect from a company dealing with Hong Kong clients, that they would be aware of the public holidays and time zone, and second of all, I felt that they didn’t give me sufficient information.
I was so angry, that I couldn’t sleep and at that point, I was very close to ending the whole deal. The company knew I was a first-time buyer without experience in buying property and promised to guide me through the whole process. As such, I was expecting to be informed about the process upfront.
After talking to the sales representative, they apologized, and he promised me that I don’t have that much pressure, and as long the process is moving forward, there won’t be any issue with the seller extending the reservation time. This calmed me down and I’ve decided to continue.
The Mortgage Broker
The property management company hooked me up with a mortgage broker. As I was an overseas first-time buyer, even though my financials looked solid (I could have easily purchased the apartment without a mortgage), the offered mortgage was relatively high. 3.89% on a tracker rate and 4.49% fixed for 5 years. I didn’t expect that, so it was an additional surprise given that the whole interest rate environment was very low.
The local Laywer and legal translation
I paid about SGD 175 to certify the passport and utility bill, and SGD 121 for the translation of 2 documents from German to English. This was a positive surprise. I thought the costs would be higher. Both companies were very swift and fast.
- Lawyer: I’ve used Loh Eben Ong LLP for the true copy certifications.
- Legal translation: I’ve used Lyric Technologies Pte Ltd for the legal translations of my documents.
The certification of the true copies took 2 hours, and the legal translation of the documents took 4 days going back and forth with some corrections.
Tax and Accounting
Initially, I was told that the property management company will take care of my finances and taxes and that I don’t need to pay any taxes of up to 12’000 GBP. However, when I talked with the Mortgage Broker, he pointed out, that I might have to pay taxes on the rental income and I should better seek assistance from the property management company to confirm.
So I got unsure. I’ve called the property management company again, and instead of assuring me that I don’t need to pay any taxes and all was ok, they’ve hooked me up with a company called GetGround.
GetGround is a company specialized in clients that are buying property for buy-to-let purposes, and need a company to manage the accounting and taxes. They are directly linked with the UK government servers and promised that they can set up a company and bank account in half of an hour with the following benefits:
- If buying a property with a partner, ownership can be held in shares, and distributed.
- It’s easier to transfer the rights for ownership of the company to loved ones.
- The tax rate is 19% but as it is a company, all the costs, such as administrative costs can be deducted from the tax.
- Accounting, Tax, and management of the company will be done by them.
- It’s legal and government approved.
The cost for GetGround was GBP 499 one time for the setup and was costing GBP 20 a month.
I was able to open the account fairly quickly, but the company registration wasn’t actually done as promised. It wasn’t registered with the clearinghouse, so I had to ask GetGround to look into it, to which they immediately responded.
The Solicitor did several searches and sent back the reports:
- Search Report (contains analysis on the property site)
- Title Report (contains analysis on the Freeholder)
- Contract & Lease Report (contains the contract and a summary)
The Solicitor was actually reading all the contracts and summarized all important points and risks in an easily consumable way. This was very valuable, and he was definitely worth his money.
Through the contract, I’ve learned about additional costs and risks when buying the property. And that was required to give a full picture of risks vs rewards and the costs.
One of the risks was that if the ground rent goes above 250 GBP it becomes easier for the Freeholder to repossess the apartment before the lease ends. There are various risks with that. Even though the ground rental price was below that, it was stated that the ground rent will increase according to the RPI, which is the Retail Price Index, similar to CPI (Consumer Price Index). It however didn’t mention by which factor the price will increase.
The Solicitor did another good thing, that first enraged me again, but it turned out to be good, as he set a new deadline, as he said that the seller wants to transact on Monday latest.
This was good because it kicked my ass to complete the analysis. I’ve spent the time on the weekend, to find each little piece of costs, and reading another time through the contract. After putting together the costs I came to the conclusion, that it won’t be worth it to proceed with the deal, as the service costs just piled up.
Summary of Financials
Here are the calculations I did, in case you get into a similar situation:
Price of the property
|Property purchase price||GBP 137, 886|
|25% Deposit||GBP 34’471.50|
|Fees up on Exchange||GBP 1’600|
|Land registry||GBP 20|
|CHAPS (bank transfer fee)||GBP 15|
|Total Payable||GBP 36’106.50|
|– GBP 5000 reservation fee & funds on account||GBP 29’606.50|
Additional One-time Charges
|True copy & translations||GBP 163.09|
|Accounting & Tax (Setup costs)||GBP 499|
|Stamp Duty (as non-resident)||GBP 7’170.07|
|Cost for searching tenant||GBP 500|
Annual Income / Expenses
|Net Rent per Annum||GBP 8270|
|Yearly Property Maintenance Fee||GBP 939.98|
|Yearly Ground Rent||GBP 142.15|
|Property Management (Tenant day2day care)||GBP 1’080|
|Property Insurance||GBP 230|
|Interest Payments||GBP 4’653.65|
|Total Gross Profit||GBP 984.22|
|Total Net Profit after Tax||GBP 797.22 (GBP 82.02 per month)|
Summary of my assessment
Risks vs Reward
The risks outlaid in the contract vs reward was not appealing to me. In the best case, I would have made around 0.5% per annum in profit. But additional costs would have piled up such as costs for structural damages, costs to find additional new tenants, costs for furnishing, and the list goes on and never stops.
Professionality/Guidance of property management company
Additionally, I wasn’t very happy about the guidance of the property management company. I would have expected them to make me aware of the full costs and risks earlier.
On the plus side, the property might have increased in value over time. Some predicted 7% growth a year, which I found to be a little too optimistic.
But with current geopolitical risks, I didn’t want to take this into consideration.
- The numbers said no.
- My gut said no.
- The contract was no-ish due to the fact, that the seller didn’t want to amend the contract.
- The outlook predicted more headaches.
Therefore I’ve decided to put the GBP 7’000 which I have invested under “Education” as I was learning much about how to not buy property in the UK. It was a valuable lesson, and I’ve canceled the deal, as I was mainly interested in income, not “potential” growth, even if this would have been an additional plus.
Does that mean it’s a bad deal for everyone? I think for someone that wants to live there, it might be worth pursuing, but as I wanted to have an income property, it didn’t check my boxes.
What will I do differently when another opportunity comes along?
- Ask for the contract, and all the costs upfront before considering anything else.
- Calculate the net profit, and let the property management company confirm.
- Once I’m happy with the net profit, pay the lawyer to point out additional risk.
- If still happy, then and only then reserve the property.
I’m sure that many people might consider the property and pay the reservation fee which is a good way for the Seller and the property management company to make some additional profit, in case the deal goes south like in my case.
I hope this will help you with your own property investments.