So. You’ve decided to invest in property. Good decision! Property investment has consistently proved to be a sound and rewarding route to long-term financial security. But –and it’s a big ‘but’, investing in property without a well-researched strategy could be your first and biggest mistake.
Many believe that there are only two options – buying for rental income or buying to sell on for a profit (often known as ‘flipping’). In reality, property investment is much more complex.
There’s no single ideal property investment strategy. We’re all unique. We have unique goals ,lifestyles, successes and challenges. The result? You need an investment strategy that’s right for you and which best serves your needs and aspirations. Let’s take a look at the pros and cons of five property investment strategies.
Single Let Properties
A single let property is a house or apartment that you let to a single tenant. These are relatively simple to set up and manage.
First, you need to choose your location and your property. Next, find your ideal tenant. Then do your research and your maths and make sure everything adds up. Finally, keep your tenant happy, and you’ll enjoy a steady stream of rental income.
A for tenants, single let properties will usually attract families or working professionals - especially if you’re looking at a city-centre property, where workers need to be near their workplace and local amenities.
The Pros -
- They’re simple to understand
- They are simple to manage, especially when partnered with a letting agent
- They usually deliver steady, consistent rental income
- Overtime they give you capital appreciation as the value of the property increases
The Cons -
- The returns can be lower than alternative strategies
- Expect ‘void periods’ – when you’re between tenants and no rent is coming in
HMO investment
Sometimes known as ‘house sharing’ and well-suited to larger properties, HMO is when each room is rented out to an individual tenant.
They usually work best in large urban areas. These are a popular strategy as they usually attract higher rental income. On the other hand, HMOs tend to take more time to manage and are more costly to maintain.
The Pros -
- High rental income
- Diverse rental streams, so that, when a tenant leaves, you still have income from the other tenants, so no serious ‘void periods’
- Overtime they give you capital appreciation as the value of the property increases
The Cons -
- Relatively high maintenance costs
- Mortgages can be harder to come by
- The regulations (such as fire safety) can be tougher
Student Accommodation
Investing in student properties is a lot like HMO, with the single difference that, as a landlord, you’ll know exactly how long each tenancy will be – usually the length of an academic year. You also have the benefit that there’s usually a steady stream of students to take over each year.
The Pros -
- High rental income
- A
- predictable cycle of tenants providing a consistent income stream
The Cons -
- Maintenance/ wear-and-tear can be high
- You might find yourself competing with purpose-built university-owned student accommodation
Buy-to sell strategy
Otherwise known as ‘flipping’, this is when you buy a property, renovate it and sell it on. Clearly, there’s no rental income, but your ROI (Return On Investment) can be rapid (often just a few months) and considerable – provided you make the right decisions regarding location, buying price and renovation costs.
The Pros -
- Quick results which might suit you if you have short-term goals
- No hassle with dealing with tenants
- You’re not over-dependent on the long-term health of the property market
The Cons -
- Rental strategies give you steady passive income – with ‘flipping’, you only make a profit once you’ve sold the property.
- You often have to do much of the renovation work yourself
- If you use poor judgement in anticipating the renovation costs and the resale value, you could end up with a poor return or even a loss.
Off-Plan Property Investment
This is when you purchase a property that hasn’t yet been built.
You might buy the property unfinished, research the market and, only when it’s completed, decide whether to rent or sell. This gives the benefit of flexibility, but it needs experience, a good deal of management and serious due diligence.
With off-plan property investment, you can’t guarantee a decent ROI. You’re very much at the mercy of the market. You need to research the area and the market conditions making your move.
The Pros -
- Buying in advance will give you a discount on the purchase price
- There’s a good chance of capital growth during the build period
- This is a flexible strategy
The Cons -
- You’ll need to come up with a deposit when you make your advance purchase
- There can be a lot of time and effort involved with the due diligence
Talk to a property investment specialist
These five property investment strategies have three things in common –
- They each have the potential for providing a healthy return
- They all carry a degree of risk
- Especially if you’re new to property investment, you will always benefit from taking specialist advice
That’s where we come in. Talk to us at Donelan Property. We know property. We know investment – and we’re here to help.
Call - 0161641 8700
Email - info@donelanproperty.com
