Beyond Buy-to-Let: Alternative Investment Opportunities in the UK Property Market

In today's fast-paced and ever-changing economic climate, investing can be a daunting prospect. It can be challenging to know where to invest and which investments will provide a solid return. However, one couple's story shows how diversifying your portfolio can lead to impressive gains.

Richard White and his wife, Laure Isfording, bought a flat in East London in 2012, thinking it would be a rock-solid investment. However, by 2018, they realized that various tax changes were looming, and their investment was losing its appeal. They decided to get ahead of the curve and make the warehouse flat in Hackney their main home, selling their house in nearby De Beauvoir Town and reinvesting the capital elsewhere.

Disillusioned with the UK's buy-to-let market, they looked overseas for their next investment. They chose to invest in Barbados and bought a three-bedroom villa, which has been a great success. The villa earns them an annual income of 5%, and they can enjoy free holidays there when it's not rented out. Additionally, they've seen an impressive capital growth of around 40% on their initial investment over the past five years.

The current state of the British property market is a far cry from the dream scenario that many property investors had hoped for. Over the years, tax loopholes have been closed, procurement costs have increased, and there are new rules to comply with, all of which have put a strain on the buy-to-let market.

In addition to this, upcoming rule changes are expected to strengthen tenant protection against eviction, further complicating matters for landlords. As a result, yields are being cut, and many landowners are leaving the sector altogether.

According to the Essential Information group, which tracks property auctions across the country, the number of homes going under the hammer increased by 44% in the year to March. The group attributes this spurt mainly to landlords selling properties as they are struggling to break even. With the property market now stagnant, they cannot even comfort themselves with the promise of capital appreciation.

It's interesting to note that despite the challenges faced by the UK's buy-to-let market, many investors are turning to overseas property investment. According to estate agent comparison site GetAgent.co.uk, overseas property searches have increased, with searches for "holiday homes overseas" rising 156% in the year from January.

This trend is exemplified by the story of Richard White and Laure Isferding, who chose to invest in property in Barbados for sentimental reasons. They had their first vacation together on the Caribbean Island, loved it, and have been back regularly ever since. During a vacation in 2018, they decided to look at a few properties, justifying the expense with the hope that they might be able to recoup some of the cost by giving up their second home for part of the year.

Impressed with the Westmoreland Hills development under construction on the west coast of the island, White put down a $10,000 (£8,000) deposit on a three-bedroom, $600,000 villa.

Barbados, with its friendly policies towards foreign buyers, has proved to be a profitable investment for White, 49, and Isphording, 52. The couple hired a local lawyer to manage the paperwork and paid for their three-bedroom villa in five instalments, with the final payment made in March 2020. Unfortunately, the timing coincided with the start of the UK’s first national lockdown and the pandemic had a negative impact on the Barbadian tourism industry.

To mitigate the effects, the couple rented out their villa to long-term digital nomads at slightly lower rates than they had anticipated. However, this move proved to be a smart decision as it covered their monthly costs, which include service fees, insurance, pool maintenance, housekeeping and utilities, of approximately $3,000.

As tourism gradually picked up and demand increased, the couple was able to increase the nightly rental rates for their villa. During low season, it rents for $450 per night, while during high season, it rents for $650 per night, and around Christmas, it rents for $950 per night. In the past year, they have been fully booked from October to April and expect to earn approximately 5% from their villa this year.

The villa is rented through a local agent, One Caribbean Estates, which minimizes the leg work required for the couple. The investment has proven to be a success as the property is now worth approximately 40% more than what the couple paid for it.

Aside from the financial benefits, owning a villa in Barbados has given the couple the freedom to spend more time on the island. White is already planning a two-week family celebration for his fiftieth birthday in October, and the couple enjoys the flexibility of having their own place to stay rather than renting a villa, which can be costly.

Meet Carl Wilde, a 57-year-old entrepreneur who recently made a smart overseas property investment. After selling his taxi company in 2020, Wilde and his wife, Cindy, decided to buy a holiday home in their favorite vacation spot, Dubai. In November 2021, they reserved a stunning three-bedroom apartment on the fortieth floor of a tower block in Dubai Marina for over four million UAE dirhams (£900,000). The buying process was easy, and there are no restrictions on foreign buyers purchasing new or resale properties in Dubai.

Initially, the couple saw the investment as a treat, but while researching Dubai’s property market, Wilde became convinced that a new business opportunity was waiting for him. Last year, he teamed up with the estate agent who sold him the flat and established a new agency targeting UK-based property investors. 

With his business acumen and insider knowledge, Wilde is poised to make a killing in the booming Dubai property market.

Wilde is now planning to rent it out for long-term to make it less work for him. He estimates that the three-bedroom apartment will rent for nearly £90,000 per year, which will result in a 9% yield after accounting for service charges and other costs. Wilde is also in the process of purchasing a two-bedroom apartment in The Palm Jumeirah, a man-made archipelago in the Persian Gulf. He plans to rent out this luxury property through the development's official pool of residences and expects a net return on investment of approximately 14%.

Investors are interested in capital growth, and Dubai's market has seen a significant increase in prices. Knight Frank, an estate agent, predicts that prime prices will increase by 50% in 2022, while Savills forecasts a growth pattern of 6-8% per annum this year. Savills has ranked Dubai as one of the cities with the highest growth forecast this year.

For those interested in investing in Dubai, Wilde suggests choosing an upscale location like The Palm or Dubai Marina and researching the track record of the developers to avoid problems with snagging.

As for investors looking for solid returns and low entry costs, Lewis Reynolds, director of Property Ventures, recommends investing in Krakow, Poland, where a one-bedroom apartment in the city center costs between £130,000 to £150,000 and has potential for smaller rents due to its popularity as a weekend getaway destination.

However, investing in Polish real estate is only an option for cash buyers, as it is challenging for British investors to get mortgages in Poland. Reynolds, who purchased a one-bedroom rental in Krakow in 2007 for £56,000, attests to the city's steady, sustainable growth and low rents due to high demand throughout the year.

Investors in any location will need to familiarize themselves with the local tax system, as rental income is taxed locally, but Poland has a double taxation treaty with the UK, meaning tax paid there can be offset against tax payments in the UK.