Scheme 1. We buy an apartment at our own expense and rent it out VS place the funds on a bank deposit

How to make money on real estate investments? What is more profitable – buying an apartment for savings with subsequent renting out or placing funds in a bank deposit? Is it possible to make money by repairing and selling the “grandmother’s” option? Black Stone Estate Agents is studying common investment schemes.

How it works

In the UK, demand for rental housing in 2019 grew by 18%, therefore, as long as the trend continues, this type of investment can be potentially profitable. 

The average cost of a one-room apartment in the UK is 6.8 million. For this money, you can buy a small one-room apartment in an old house, for example, in Manchester, not far from one of the terminal metro stations, or an apartment in a new building – even further, perhaps already beyond the Stockport road. Renting it out for 350 GBP a month, you can get 4200 GBP a year.

If the same amount, 6.8 million, is put on a bank deposit at 6.03% per annum (this is the average rate in November 2019 according to the Bank of UK), at the end of the year you can earn 4,118  GBP on interest.

Quite comparable figures.

But an apartment is an asset whose price changes. And in recent years it has been growing: over the year, single-room apartments in The UK  have risen in price by an average of 15.9%. We get 4218 GBP  from the lease + 10,856 pounds due to the rise in the price of the asset. Total – almost 1.5 million. But it’s not that simple.

Even if nothing breaks down in the apartment in a year and you don’t have to invest in it, you need to pay taxes on the income from renting the apartment. In our case, it is most profitable to become self-employed in Manchester and pay 4% of “net” income – 168 GBP minus the tax deduction (if it has not yet been used), for a total of 126 GBP taxes. In the regions, it is still more profitable to pay as an individual entrepreneur with a simplified taxation system – 6% of income

Pros of buying an apartment for rent

Investment In Real Estate: Analysis of The Pros, Cons, and Risks

Passive income. You earn with minimal participation on your part.

Liquid asset. In the long term, the apartment grows in price and can be sold at any time. But this is not true for all apartments: for example, housing in an emergency building will not increase in price and it will be difficult to find tenants. Therefore, the “investment apartment” must be chosen exactly following your goals.

Olga Mazut, realtor, real estate expert: “ One -room apartments and studios are the most liquid for rent: small apartments have the highest price per square meter of rental space. Therefore, if you have a certain amount of money and choose between buying two studios or a three-room apartment, you should choose the first option.

The main condition for successful leasing is transport accessibility: proximity to the metro or railway station. At the same time, 10 or 25 minutes walk from the metro is a big difference for tenants without a car, and greatly affects the demand.

When buying an apartment, the availability of infrastructure also plays a role. It is also important to understand who your potential tenants are. If there are several universities nearby, most likely they will be students; apartment close to kindergartens or schools – young families with children. “

An apartment cannot depreciate quickly. In a financial crisis, real estate is better protected than other assets from rapid depreciation. 

Cons of buying an apartment for rent

Low profitability. 5-7% “net” profitability. And yet even though in the long term the apartment may rise in price, at certain intervals of time its price may decrease.

Depreciation of the apartment. You will have to periodically invest in housing, as everything in it will wear out. If you do not do this regularly, the apartment will begin to lose its attractiveness to tenants, and its value will stop growing (or even decrease).

Decreased liquidity of the object. In the old fund, some apartments rise in price more slowly. For example, Khrushchev and panel five-story buildings are becoming less and less attractive in the eyes of buyers and even tenants. An apartment even in a new building may generally drop in price if, in a few years, a nearby forest is cut down and a multi-lane highway is built.

Irina Gaidash, real estate agent: “Liquidity can also fall if antisocial personalities are living next to you. For example, if a buyer finds out that a person with an alcohol addiction lives in the apartment opposite, who does not allow the entire entrance to living in peace, he is unlikely to be ready to transport his family.

Ideally – to find such an object for investment, with which “everything is clear”: the house is new but has shrunk, repairs at the neighbors are over, the infrastructure of the district is established. “

Paying taxes and keeping records. If you rent an apartment as an individual and are a tax resident of the UK, you are required to pay tax at a rate of 13%. You can also register as an individual entrepreneur, switch to a simplified taxation system, and pay 6%. In some regions, you can become self-employed – their rate is generally 4%. But in any case, you need to pay: If the state finds out about the incomes hidden from it, you will have to pay both taxes and fines.

You cannot quickly get access to “real” money. It takes time to sell an apartment profitably.

Risks when renting an apartment

Unscrupulous employers. Anna Ivanova, real estate expert: “Often, when renting out budget housing, people do not sign a lease agreement, and everything is recorded only“ with a kind word ”. If the apartment is damaged, it will be impossible to recover something from the tenants.

Recently, my friends rented out an apartment in Yekaterinburg with a decent repair for 150 GBP a month. The tenants moved out six months later and left their housing in a terrible state: about 3012 GBP was required for repairs, while the rent was paid three times less.

Therefore, choosing between a bank deposit and such an investment scheme, I would prefer the first option or recommend renting an apartment with a basic inexpensive repair and a minimum of equipment and furniture. “

Alexey Fomich, real estate expert: “Many landlords make a mistake – they agree to the“ deposit amount against the last month of rent ”scheme. As a result, the tenants move out, and the owner discovers a lot of minor damage to the apartment, which comes to him just for the amount of the monthly payment. Therefore, ideally, check the apartment after the departure of the tenants, then sign the act of acceptance and transfer of the property and only then return the deposit. “

Also, employers can stop paying. And it will be very difficult to evict them from the apartment because this can be done legally only after a court decision. We wrote in detail about what other problems landlords may face, and how to solve them.

Loss or damage to the apartment. Residents can not only spoil the renovation and furnishings of the apartment but also set up a flood or severe fire in it. Even if the lease agreement and the act of acceptance and transfer were, not everyone will agree to immediately return the amount of the loss. The court can take a long time, and the payment of debts – even more.

The worst thing that can happen: the apartment will be rented by scammers or criminals to do something illegal in it. In the first case, the apartment can be sold under fake documents and justice will have to be restored in court. In the second – to prove that they did not know what was happening in the apartment to avoid criminal punishment.

Pros of placing funds in a bank deposit

Investment In Real Estate: Analysis of The Pros, Cons, and Risks

A very simple procedure. As a rule, an investor just needs to come to the bank with a passport and money. Compared to the process of buying and renting real estate, it is much faster and easier.

Guaranteed income. When placing funds in the bank, you know in advance how much and during what time you will receive as income.

Safety. Bank deposits are insured by the state, but here it is worth considering the insurance rules – we talk about them in the “Risks” section.

Cons of placing funds in a bank deposit

Low profitability. Taking into account the rate of inflation, the average rate of 6% on a deposit is more of a preservation of funds than an increase in capital.

Loss of income in case of early withdrawal of funds. If it becomes necessary to receive funds before the end of the deposit agreement, you risk losing interest income.

Nadezhda Ivanova, an expert in finance, Ph.D. D.: “Banks offer several types of deposits with different conditions for replenishment and withdrawal of funds. Today there are deposits on the market that involve early withdrawal of funds, but there are not many of them, and they, as a rule, have a lower interest rate than the replenished deposits. This is understandable: the bank must either be sure that you keep funds with it for a long time, or it gives you freedom of action but does not promise high profitability. “ 

Risks of placing funds on a bank deposit

The bank could go bankrupt. The good news: all bank deposits are insured. However, ABC (Deposit Insurance Agency) guarantees payment of insurance placement for not more than 1.4 million GBP. Plus: the payment procedure begins only on the 15th day after the bank’s license is revoked or a moratorium is imposed. Therefore, the main advice for depositors is not to keep an amount in one bank that exceeds the amount of insurance.

Scheme 1 – alternative: we buy and rent apartments, which will be managed by the MC

How it works

Apartments and apart-hotels have appeared on the real estate market recently, but have already become popular investment properties. The main difference between this type of housing: from a legal point of view, it refers to non-residential real estate. According to the documents, you buy square meters in a hotel-type building or a public and business facility. Some nuances that are important for an investor are associated with this fact. Apartment management and rental can be transferred to a special company that will charge a commission for its services. 

Investment In Real Estate: Analysis of The Pros, Cons, and Risks

Pros of buying an apartment for rent

Apartments are cheaper than apartments. A square meter in an apartment, as a rule, costs less than in an apartment of a similar area, by 20-25%.

You can transfer the issues of rent to the management company Sometimes a developer company offers apartment buyers various income programs, usually based on a short-term apartment rental scheme. Apartment owners do not deal with issues of maintenance and maintenance of order in apartments, search for tenants, and settlements with them – this is done by the management company, which receives a percentage of the income.

It is more beautiful and more comfortable than the apartments. Apartments are often built-in central areas – sometimes they are located in the same building as a hotel or business center. Such objects are rented, as a rule, fully finished, sometimes even with furniture. And in some apartment complexes, you can get additional “hotel” services like ordering food, visiting a fitness center, or cleaning. 

Cons of buying an apartment for rent

Lack of permanent registration. You will not be able to register in the apartment as an owner – if this question is relevant to you. Since the apartments are classified as commercial real estate, only temporary registration is possible.

Higher utility bills. Due to the status of non-residential real estate, utility bills will be about 15% more expensive than apartments.

Possibly poor quality housing and lack of infrastructure. Housing regulations do not apply to apartment buildings. Therefore, the developer can use cheaper materials, and also has the right not to provide the residents of the complex with infrastructure facilities. Therefore, apartments can lose liquidity faster and are not suitable for all tenants: for example, families with children may not consider this option due to the lack of a playground and a garden nearby.

Alexey Piskorsky, real estate expert: “The average cost of daily rent of apartments in Manchester is 35 GBP. Thus, the owner of a small studio apartment in the center can earn, minus the costs of maintenance and remuneration of the management company, 700-800 GBP a month. At the same time, the “occupancy” of apartments in the northern capital in the season is close to 100%. “


When choosing this type of investment, you can count on a 5-7% “net” annual income. Renting is more profitable than a bank deposit, provided that the apartment is rented out to bona fide tenants who will not cause damage to property. Choosing between an apartment, today it is more profitable to buy and rent an apartment.

Scheme 2. We buy an apartment at the initial stage of construction, wait until the house is built, and sell it at a higher price

How it works

The construction of an apartment building takes several years. At different stages of construction, housing costs differently. The cheapest way is to buy at the zero stage, the so-called foundation pit, immediately after the official announcement of the start of sales. As the object is ready, the price increases, and the risk that the buyer of an apartment in a building under construction takes on decreases proportionally.

Investment In Real Estate: Analysis of The Pros, Cons, and Risks

Alexey Piskorsky, real estate expert: “With this investment scheme, if everything is done correctly, the growth is on average 10-15% per year. But it happens that the investor earns up to 50%. I had a client who bought an apartment of 40 sq. m in the residential complex for 45194 GBP. – at that time it was not cheap, but the developer launched the action “Parking as a gift when buying an apartment”. Today for this apartment – and the residential complex turned out to be very successful – the owner is offered 6.5 million plus the cost of a parking space. Total: 7.3 million GBP is even more than 50% per annum ”.

Pros of buying an apartment in a new building for subsequent resale

High potential profitability. Ruslan Soeshev, owner of MegaAgent, real estate market expert: “During construction, the price of real estate will increase by an average of 20-30% of the value of the object at the excavation stage. Much depends on the class of the residential complex: “economy” will add about 15% to the price, “comfort” – 15-20%, “business” – 20-40% “.

And an apartment in a new building can rise in price after the house is delivered if a metro station opens next door: in 2019 alone, 8 new stations appeared in Manchester, real estate next to them has risen in price by 20% or more.

Possibility to buy an apartment below market value.  Ruslan Soeshev, owner of MegaAgent, real estate market expert: “Usually in the first few days, maximum 1–2 weeks after the start of sales, the developer does property valuation – conducting a kind of marketing research. At this moment you are offered the lowest prices in the residential complex and the opportunity to choose from a variety of apartments. “

Cons of buying an apartment in a new building for subsequent resale

You have to wait for several years. During which time your life circumstances may change.

Income will decrease by the amount of tax. It is necessary to pay taxes both when selling a finished apartment, and when assigning rights under a DDU. The 13% tax is levied only on the income you received as a result of the transaction, minus the cost of purchasing an apartment. For example, if you bought an apartment in a building under construction for 5 million GBP, and sell for 5.5 million GBP, then the taxable income will be 500,000 GBP. We have written in detail about taxes on the sale of an apartment and how they can be reduced.

And the developer can set their compensation commissions.

Additional expenses. Any purchase of real estate involves the cost of state fees, bank commissions for transferring funds to the developer, notary services, and, possibly, the services of an investment selection agency.

Risks of buying an apartment in a new building for subsequent resale

The probability of making a mistake when choosing an object. Even in one residential complex, not all objects have the same liquidity. And choosing an apartment on the market taking into account many factors can be difficult for a beginner.

Alexey Fomich, real estate expert: “When buying an apartment in a new building, it is difficult to estimate how many apartments in a particular residential complex have already been purchased for subsequent resale. So, if 50% of the objects in the house are an investment, it is likely that in conditions of high competition, apartments will sell worse.

According to market experience, the buyer does not always receive the infrastructure that the developer talks about at the initial stage of sales. For example, they promise a refined closed area, but after the commissioning of the object there is no place for walking for a long time and construction is underway nearby. “

Ruslan Soeshev, owner of MegaAgent, real estate market expert: “An inexperienced buyer can make a typical mistake – to buy an apartment“ as for himself ”. However, it is important to understand the portrait of the “average” buyer to choose the right area, layout or floor. ”

Prices may barely rise. The value of the real estate in areas of mass development may not increase significantly.

Roman Chikovani, owner of a real estate agency:

“If the complex has 20 apartments per floor, of which 12 are studios, then, of course, a high increase is unlikely. Besides, three-room apartments often do not grow well enough. Much depends on the location, building density, layout, number of apartments in the complex. “

The developer may go bankrupt, but the house will not be completed. In the UK, in 2019 there are more than 70 thousand unfinished projects. If construction has stopped and the developer is officially declared bankrupt, equity holders can demand either a refund or registration of ownership of the unfinished object.

The realities of the market indicate that it is unlikely that it will be possible to receive funds from a bankrupt developer, therefore, most often, equity holders require recognition of the unfinished property as their property, form a housing construction cooperative, and complete construction – by attracting a new developer or funds received from the state.

Anna Ivanova, real estate expert, Yekaterinburg: “It is important to know the reputation and history of the developer: what quality objects have already been sold, whether they were delivered on time, how the developer usually changes prices at different stages of construction.

The buyer risks the most if the developer is a newcomer to the market, and less if he turns to a company that has been on the market for a long time and has already implemented more than one project. “


When buying an apartment in a new building at the early stages of construction with the subsequent resale, you can count on an income of 10-15% per year, but it is important to choose the right object and study the developer’s reputation.

Scheme 3. We buy a “problem” apartment – in poor condition or with legal difficulties. We make repairs, solve problems with documents and sell at a higher price

How it works

Housing with complexities turns off many buyers. Objects “with defects” include apartments with legal difficulties (for example, problems with property rights, violations of privatization rights, or recognition of the seller as incompetent) or apartments in poor condition, when only cosmetic repairs cannot correct the situation.

The investor solves problems with documents or puts the apartment in order and sells for more than the total amount of his investments in this object.

Investment In Real Estate: Analysis of The Pros, Cons, and Risks

Advantages of buying a “bad apartment” with its subsequent resale

The ability to quickly get a high income. It can take only a few months to resolve the issue with documents or repair.

Anna Ivanova, real estate expert, Yekaterinburg: “I am not a supporter of investing in apartments with legal difficulties, but the situations are different. For example, you can buy an apartment from equity holders who are unable to pay the mortgage. Instead of selling an apartment to a bank at an extremely low cost, people prefer to sell the property for a little more, even if not at the market price. “

Cons of buying a “bad apartment” with its subsequent resale

The income will be lower due to taxes. Income from the sale of real estate that was owned for a short time (from January 2020 – up to 3 years, subject to certain conditions), are subject to personal income tax at the rate of 13%. This should be taken into account when planning to sell an apartment “quickly”.

Buyers’ concerns about the “fresh” monetary policy. Often, potential buyers are afraid of some kind of fraudulent scheme if an apartment is resold several times within a short period. Therefore, with a “fresh” sales contract, there is a possibility that the apartment will be on sale for a long time or you will have to make a discount.

Unpredictable timing. Sometimes it is difficult to predict how long a renovation will take or legal issues to be resolved. At the same time, if the average buyer can estimate the cost of repairs, then it will not be possible to carry out a legal examination without involving a specialist.

The costs may be more than you bargained for. Repair is often more expensive, especially when it comes to old apartments.

Risks of buying a “bad apartment” with its subsequent resale

Ownership can be challenged. Roman Chikovani, owner of a real estate agency: “It is always worth remembering that any transaction can be challenged. The general limitation period is 3 years from the moment when it became known about the violation of rights. Therefore, it is important to study the history of the object’s sales, to understand under what conditions the property was resold. “

Delaying the terms of sale. Even after the apartment is put in order, there is no guarantee that there will be a great demand for it. You can evaluate the attractiveness of a particular object in the eyes of buyers by examining the apartments that are currently being sold in a particular area of ​​the city – there are special real estate cards for this.


Such an investment scheme can only be considered if you have an experienced lawyer or agent specializing in such transactions – if we are talking about apartments with legal difficulties, or you can make repairs with high quality and relatively budget – if the apartment is in poor condition.

Scheme 4. We buy an apartment on a mortgage and rent it out to repay the loan

How it works

Alexander Bagdagulov, founder of the Bureau of New Buildings: “Any investment is mathematics. The investor must select such a property so that the amount of rental income is equal to or exceeds the amount of the mortgage payment. “

Suppose you buy an apartment for 6.8 million GBP, with an initial payment of 3.5 million. A mortgage of 3.3 million GBP. at 9.2% per annum, you pay for 20 years, with a monthly payment of 30.1 thousand GBP. During these 20 years, you rent an apartment for 35 thousand GBP.

After 20 years, without much effort on your part, you have an apartment.

Especially often this scheme is used by parents wishing to provide housing for growing children.

Advantages of buying an apartment on a mortgage for renting

A property without a large monthly investment.   The money that you give to the bank to pay off the loan payment, you receive from the lease – which means that you do not fit your budget. And in 15–20 years, you become the owner of real estate.

Liquid asset. An apartment – even in a mortgage – is a liquid asset. If necessary, you can sell it (perhaps even more expensive than you bought it) and quickly return the debt to the bank.

Usually, mortgage apartments are not recommended to be sold because in the first years the owners pay the bank mainly interest on the loan, while the main body of the debt decreases very slowly. And when selling, it turns out that the total cost of housing exceeds income. In the case of the “mortgage + rent” scheme, this is not so “offensive”: the tenants also paid the interest, the owner gets back his down payment plus the amount by which the housing price has risen.

Cons of buying an apartment in a mortgage for renting

All the disadvantages that we have listed in scheme # 1 apply to this one as well. But there are additional ones.

When buying an apartment in a new building, you need to pay the mortgage yourself until the house is built. Alexander Bagdagulov, founder of the Bureau of New Buildings: “If an investor is not ready to pay off the mortgage loan for a long time, it is more logical to choose an object in the secondary market or a“ primary ”at the final stage or with finishing.”

Bank’s consent is required. Even though you are the owner of the apartment, it is pledged to the bank, which is worried about the safety of its assets. If you are planning to rent out a property that was bought for rent, you should discuss this issue with the bank before signing the mortgage agreement.

You have a mortgage. Of course, you are not “paying” it, but it is displayed in your credit history, which means that it can be more difficult to get other loans.

Risks of buying an apartment in a mortgage for rent

You will have to pay the entire amount of mortgage loans yourself. If the tenants move out, and it will be problematic to find new ones (for example, noisy major repairs will begin in the house), you will still have to pay the mortgage.


The profitability of this investment scheme largely depends on how much you have at the start and, accordingly, on the mortgage lending conditions provided by the bank. But she is quite working and allows you to get an apartment without much effort, having in her hands an amount that is insufficient to buy it.