Property Investment Strategies
Effectively, there are two simple forms of property investment strategy and these are to purchase a property with the sole aim of selling it on to make a profit, or to purchase a property to rent it out and make an income that way.
However, as simple as that sounds, there is more to it because there are a number of sub-strategies that can be used depending on the investor and their goals. So, what strategies are available?
When purchasing a property to rent, there are two ways to make money and they are to charge rent that covers more than the cost of expenses, or to allow the property to increase in value over time, covering costs and expenses.
This is what many would consider to be your standard buy-to-let as it involves renting out a property to an individual or a family. It is an easy option, and one that requires you to calculate the costs in relation to the rent, ensuring that the rent is in excess of the costs.
House in Multiple Occupation (HMO)
This involves the rooms within a property being rented out individually. This can often generate a large income than if the property was rented out as a single property. It is worth remembering that there are higher costs associated with an HMO such as wear and tear as well as the management aspect, which is also more labour intensive with HMOs.
Student lets are a form of HMO although the student market is very different from that of other markets. It is a more predictable market as students are only there for a certain time of year and the contract will be taken out jointly. If a student leaves, the costs get spread out among the rest of the residents in the home. Knight Frank also predict that 2019 will be a big year for the Purpose Built Student Accommodation sector.
Housing Benefit Tenants
This involves renting a property out to those who have their rent paid for by a local authority. What this means for investors is that they know what to charge and it can sometimes be more than the private rental market. There is the potential for difficult tenants and as the rent is passed to the tenant, it can often not be paid to the landlord.
Holiday Property Lets
This involves renting out a property on a short term basis to people on holiday. This is a strategy that can return significant yields and profits, especially if you have a property in a sought after, prime location such as a cottage by the sea. This takes an active management approach and there are things such as cleaning the property and maintenance that have to be taken care of.
To learn more, why not have a look at our Buy-To-Let Tips? Or, get in touch with our property investment specialists at Aspen Woolf to discuss adding to or creating your portfolio!
Also known as flipping, this is the purchase of a property where there is no income but instead the property is sold on at a higher price than it was purchased for. This can be a strategy that can yield good returns in a short space of time and they can often be higher than the returns seen with a buy-to-let property. However, one thing to consider is that the property will not generate an income while you own it. Therefore, you are only making money once you sell the property on. The key here is to purchase the property at the right price, and try to ensure that all work remains in budget and doesn’t eat into your margins.
This is a lot different to residential property as it is a market that behaves independently and is very much reliant on the economy and the success of tenants. While residential property relies on and thrives on demand from people needing somewhere to live, commercial property is different.
A commercial property will only be suitable for certain businesses and that means that once a property becomes vacant, it can remain vacant for some time. Despite this, once you have a tenant, the leases can be put in place for years and they will also be liable for repairing and insuring the property. So, if you have a reliable tenant, then it can mean that you can take a hands-off approach for some time.
This essentially involves renting a property from a landlord before renting it out to a tenant. It is a form of sub-letting but the aim is to charge a higher rent to the sub-tenant than you are paying your landlord. This is often something that is seen with an HMO strategy. So, you could rent an entire property from a landlord and then rent out each room in the same way as you would in an HMO. This will enable you to generate rent per room which will more than likely bring you in more income than what you are paying to rent the entire property.
You can find landlords who are open to renting properties at a discount, particularly if you can offer some form of guarantee that they will receive an income and no hassle. So, you could then choose to pay the landlord a lower rent as agreed. It is then possible to re-rent the property at the going rate of the market.
In a similar way to rent-to-rent, lease option provides the investor with the chance to purchase the property at a price for a fixed amount of time.
So, an investor would agree to take an option where they can buy the property at a fixed price at any time during the next three years. However, they can then take over the owner’s commitments as well as expenses and rent the property out. So, investors can then earn a rental income on the property while having the option to purchase it at some point in the future for a slightly higher price.
This is one strategy that has been seen in the past where properties were in negative equity and the owners could not sell their property at a value that would cover the remaining mortgage. So, by agreeing a future price, it enables them to forget about the property in the short term. However, this is an option that is very much market dependent.