As an investor, you’ll have your own property investment strategies when it comes to operating in the UK real estate sector. This may partly be influenced by the ambitions and goals for your investment, your style and preferences along with your financial capacity and how much financial risk you can shoulder.
For instance, if you are a part-time investor with half a dozen properties then your strategy could be very different to that of a full-time investor with a large portfolio of both residential and commercial property assets.
With this in mind below are some top property investment strategies for the UK market employed by investors.
Buy a property and rent in order to let it out
This is perhaps one of the simplest and most common strategies for property investment.
With a buy-to-let property, you can earn from the monthly rental income, the growth in capital value of the property over time or a combination of both. If you are able to buy the property in a good location and secure reliable tenants on a regular basis.
The potential drawback of this method is that returns may not be as high as some of the other investment methods. Also, your capital will be tied up in a single asset and depending on how the market performs, you could end up being stuck with a poorly performing asset if you can’t find tenants to rent out your property. In some cases you might end up in a situation where you are forced to lower your rent to a point that it doesn’t cover your mortgage repayment costs.
A HMO is a property that a number of different individuals rent out. Essentially, it involves sharing a house and often, these individuals tend to be unrelated. In general, if you rent out a property by the room, you may be able to generate more revenue overall than if you were to rent out the property as a whole to one individual.
A common strategy is to turn the living room of an HMO into another bedroom to maximise how much you can make from the rent each month. However, there are a number of additional costs associated with HMOs and some added responsibilities. For instance, HMOs tend to be let furnished with bills included, plus there’s likely to be more wear and tear on the property requiring you to pay for regular maintenance and repair work.
Also, depending on whether you hire a letting agent to handle the day-to-day management of the HMO property, you may find this type of investment strategy more time-consuming. However if you get this method right, you could enjoy a higher yield than single lets as well as a more diversified income stream with the potential for your property to keep generating revenue even if one of your tenants decides to leave.
The student market in the UK continues to be strong. While this type of investment is not so different to HMOs, there are a few added considerations to make if you’re thinking of expanding your portfolio into student territory.
Firstly, the management of student property is more predictable as they are based on term times. You’ll generally know when tenants need to move in and when they’ll be moving out. Also, the tenants will usually be on one joint contract. This means that if one student leaves, the others will still continue paying for their share of the rent.
A holiday let is a property that’s rented out only for a short period of time to holidaymakers. Serviced apartments are a similar property investment model, however, the investment is focussed on professional and business people. Depending on the location of your property, you can realise a decent return.
With more and more people preferring to live in a furnished home or apartment rather than a hotel, the demand for holiday lets is increasing. Investors using this strategy can benefit from better tax policies than single lets as well as a shorter occupancy period, which means there is less of a need to evict your tenants.
The downside is that finding tenants to fill your property is an ongoing task for any landlord, as there will be a frequent changeover to occupancy on a monthly, and sometimes, weekly basis, which can create added pressure.
Buy a property in order to sell it on for profit
Buying property with the purpose to sell it on is often known as ‘flipping property’. The aim here is to sell your asset at a higher value than what you bought it for. This could involve renovations or repair work to increase its value in the short-term.
Unlike other property investment options, there is no steady income involved here or responsibilities for managing the property. The ultimate goal is to generate significant amounts of cash quickly, with minimal effort over a short period of time.
The downside is you won’t be generating any residual income or benefiting from the long-term capital appreciation of the property. Additionally there is no set time as to when the property could sell. If the property does not sell quickly you will be responsible for the upkeep of the property until it does which will eat into your profits
While investing in this asset type might not be possible for a beginner, those with the knowledge of the market or with experience of investing in commercial properties can benefit from a number of characteristics that are unique to this area, making it an attractive property investment strategy.
Tenancies tend to be longer-term with commercial units and the tenants are usually responsible for any maintenance or repair work that is necessary. There are more options available today for investing in this type of property through alternative finance platforms that give you access to property crowdfunding schemes.
It’s worth noting however that commercial properties can be more severely affected by the current economic climates and factors such as socio-economic demographics.
This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.