Popular property investment strategies - which one should you choose?
Posted on 1st December 2020 at 10:46
Why invest in property?
There are many reasons why someone would choose to invest in property. It can be a lucrative investment with the right knowledge, experience and/or advice.
Having a solid investment portfolio can provide investors with enough of an income to focus solely on property management, allowing them to carve out a career doing something they enjoy.
It can give someone a constant source of projects to work on by buying, flipping and reselling properties.
Or it can provide a group of investors with the knowledge that, while they are earning very good returns on their investments, they are also making a difference and improving young people’s lives by not only providing them with affordable housing, allowing them to save for their own future, but also by providing them with a community and support network to help them transition effectively into the ‘real world’ of responsibilities, work and money management.
Whatever your reasons for investing or considering investing in property; having a clear understanding of what you want to achieve and having a strategy in place, detailing how to get there, is vital to ensure a sufficient return on your investment.
There are various investment strategies that you could choose from, and having a clear view of your investment goals will help you make the right choice when choosing which strategy to invest in.
Property investment strategies
For the purposes of this article, I am going to talk about residential property only. Commercial property can be a very good source of income, but “commercial” can mean many different types of investment, and each require a deep and specific knowledge.
There are numerous different residential property investment strategies that can be explored but some of the main, and most commonly referred to, can be categorised into two groupings; Buy-to-let schemes and buy-to-sell (flip) schemes.
Buy-to-let schemes generate regular income, along with capital growth over time, while buy-to-sell schemes usually offer a larger sum of money over a shorter period of time from the profit from the sale of the property once you have added value to the property and then sold it.
While there are two main categories to consider when choosing the best property investment strategy for you based on your investment goals, within each category there are also a number of further strategy types to consider, each offering something different for the investor.
Some of the more common strategies are listed below, along with a brief description of what each strategy entails.
Single occupancy buy-to-let: This approach is a very common investment strategy and focusses on finding a single occupant, perhaps a family or a couple - depending on the size of the house. This strategy provides a regular rental income with the aim of achieving a reliable monthly return on the property value over the long term. If you can find the right location, purchase at a good price, generate a good rental income and secure long-term tenants, then this is a fairly straightforward strategy.
Buy to sell (flipping property): This strategy focusses solely on maximising profit from the quick resale of a property. The return on investment from this strategy comes from your ability to find property either at a discount, or which needs sufficient refurbishment that is both swift and as cost-effective as possible to generate quick profit. As long as refurbishment costs are kept to a minimum and the time it takes to complete any works required are as short as possible this can be one of the fastest ways to secure a good return on investment with property investments. It does not provide an ongoing passive income, however, and requires a lot of time and effort on a regular basis to continue to generate income through this investment strategy. Further factors that may put investments at risk when flipping property are; market fluctuations - if the market decreases during the time taken to refurbish or becomes stagnant when it comes time to sell, it may be necessary to drop the sale price, reducing the profit margin; length of time and requirements to refurbish – if it takes longer than anticipated to refurbish or there are significant additional requirements for the completion of the refurbishment, the cost of refurbishment or cost of borrowing money would again reduce the profit margin.
Buy, Refurb, Refinance: Sometimes referred to as “momentum investing” in property circles, this strategy is a good way to begin building a portfolio of properties, if that is the investment goal you wish to achieve. Buying a property, refurbishing it to add value and then re-mortgaging based on the new, increased value can allow you to retrieve some of the original money invested and use it as a deposit on the purchase of a further property, increasing your portfolio. This can be a quick way to build a portfolio of properties if; you can find the right balance between the time it takes to refurbish a property, the level of investment to put into the property and the return on investment you can make to fund future property purchases.
Holiday lets and serviced accommodation: This investment strategy can provide high profit levels through accommodation for holiday makers or travelling businesspeople due to the higher rental prices. But highly regular occupancy levels must be maintained in order to capitalise on the higher price of rent. This strategy often requires much more of the investor’s time marketing and cleaning the property to increase and maintain occupancy levels or requires the necessity to work with an agency that is able to manage the lets, which reduces the profit margin.
Student accommodation: This type of investment strategy is based upon the classic HMO (explained below) but designed specifically for students. By targeting a property in the right location for student accommodation you can maintain a regular rental income structured around the academic year. But, be prepared to compete with purpose-built student accommodation, which is becoming increasingly more common and the demands of student tenants themselves.
Buy off-plan property: Purchasing a new development off-plan is another strategy that can enable you to obtain discounted new properties with the aim to either resell at a profit or rent out, depending on market conditions at the time.
Houses of multiple occupancy (HMO): This strategy focusses on purchasing larger properties and refurbishing them, if required, with the aim of renting the rooms on an individual basis to three of more separate people. Usually the rent paid by tenants is inclusive of all household bills such as utilities, council tax and TV licence. This strategy is beneficial to the investor in that it generates rental income from each room with the potential to make much greater revenue, and return on investment, than if it were let as a single occupancy. By following this approach to property investment, the investor isn’t relying on a single occupant to provide them with an income - even when the property isn’t let at maximum capacity there is still a regular income coming in, which reduces the risk of the property standing empty or a bad tenant leaving you with no income. However, planning permission may be required, and licencing is now mandatory on all HMOs across the UK.
Taking time to understand property investment strategies
If any of the above strategies sound like they would suit you and your property investment goals, it would be worth looking into it deeper to fully understand the pros and cons.
As with any investment, there are risks associated with each strategy outlined above, but the bigger risk is choosing a strategy without fully researching how much work is involved, how it is regulated and what is required to make it work. Entering the property market without a clear plan in place and either changing your mind or being forced to alter your approach due to lack of understanding or proper planning could be the most costly mistake of all.
Almost all property investments, if you decide to manage it yourself, take up a lot of time and a lot of effort and if you’re not aware of all the aspects involved, costs including taxes can quickly spiral out of control, drastically reducing your return on investment and, sometimes, even leaving you out of pocket at the end. It can be, however, an incredibly rewarding experience when you get it right, both in monetary value and emotionally.
When you are first getting into property investment, it can be beneficial to go through an investment company, like JIMENY, who will do all the hard work for you with a greatly increased chance of higher returns on your investment, and is a great way to both enter the property investment market as well as learning more about it as the partnership develops over time.
When I first began my career in property, I decided upon the strategy model I was going to choose based on my financial needs, my lifestyle and the objectives I wanted to achieve.
I wanted to achieve the social and ethical quality that my current property portfolio allows me to – providing good quality, safe and sociable rental accommodation that I would have liked when I first left university and that I strongly believe would help those current and future leavers to learn how to fend for themselves after university, helping to set them up as the leaders of tomorrow that they could become.
Every investor’s circumstances are different, as are the reasons for choosing a property to invest in, but consistency in your approach through a proper strategy gives you the clarity to make the right business decisions at the right time, maximising on your potential return on investment.
If you’re looking to make a good return on investment, while also making a positive difference to young people’s lives, and don’t necessarily have the time to spend managing every aspect of a property investment, then give JIMENY a call today and find out how you can invest in both property and the future of our society – young people.
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