There are many ways to make a living from property. Having money broadens your options but not having the money to invest is not a barrier to getting to getting started in the industry. Here we look at common investment, rental strategies that you could use to get started and on your way with this popular asset class.
Property Investment Strategies
1. Vanilla Buy To Let
Vanilla Buy To Let is the strategy most property investors start with and is by far the most popular and better known. At its heart, a buy to let is a property purchased with the intention of renting it out, typically to a couple, a family or a single person.
In other words, it is the ‘traditional’ way of investing in property.
Who Does This Strategy Suit?
Investors who have the ready funds to spend on deposits and who have a good credit rating to enable them to raise finance.
Alternatively, investors who are in a position to buy a property outright.
* It is still a common practice for buy-to-let landlords to grow their portfolios by leveraging mortgage finance. But, recent legislative changes to mortgage tax relief and stamp duty increases on second homes have made this practice much less straightforward. Nonetheless, we, at Property Investments UK, think that recent pronouncements in the press to the effect of ‘the death of buy-to-let’ are nothing more than hyperbole.
For more information see our article on buy-to-let in 2017.
For More Information On Vanilla Buy-To-Let See:
Straight forward Vanilla Buy-to-Let’s is the strategy most investors start with or aim for, when growing a property portfolio, planning their pension or starting a property business.
2. Selling Leads
Working with property doesn’t always have to involve large deposits and deep pockets. By choosing the right strategy, you can create a property business with very little.
What Does This Strategy Involve?
Building a rental property portfolio, whether you have a lot of cash or none at all, starts with your ability to find the right properties and deals.
When you are just starting out you might want to build up your income by deciding to trade these leads and deals with other investors.
To be successful at this you will need to do your own marketing and get sellers to contact you directly. You will also want to increase the value of the leads you collect by qualifying them or even negotiating the deal before you sell it on. The more work you do on a lead, the more you will be able to sell it for.
Who Does This Strategy Suit?
This strategy will suit people, skilled at finding and negotiating property deals, who do not yet have the ready funds to invest in property but nonetheless want operate in the property investment industry.
For More Information On Selling Property Leads See:
Property doesn’t always have to involve large deposits and deep pockets. By selling leads you can get started in property at no cost all the while building the skills you will need to manage a portfolio later down the line.
3. Buy-Refursh-Refinance
The cornerstone of this strategy is leverage and how it can be used to grow the money in your bank and the equity in your portfolio, quickly.
What Does This Strategy Involve?
The buy-refurbish-refinance strategy involves taking your original deposit and recycling it, so, over time, it can be used to buy multiple properties.
The method is to purchase a property, in the normal way, and then force the appreciation of that property through a refurbishment.
When you increased the value of the property you then remortgage, pulling out your original deposit and your refurbishment costs to use on the next property.
Who Does This Strategy Suit?
This strategy is not for beginners and requires experience in managing refurbishment costs, knowledge of how mortgage products work, having a good refurbishment and of course the requisite skills needed to find suitable properties where significant value can be added.
For More Information On The Buy-Refurbish-Refinance Strategy See:
Purchase a property, force its appreciation through refurbishment, and then recover your deposit and costs to use for the next one. In principle the stratgey is simple but in practise there is a lot that can go wrong.
4. Property Joint Ventures
Property joint ventures involve two or more parties coming together for a property project. Typically, one partner will supply the money while the other supplies the skill. If you don’t have much in the way of funds this can be a fantastic way of building a property business using OPM (other peoples money) and if you do, this strategy will give you access to the skills and contacts needed for success.
What Does This Strategy Involve?
Property joint ventures are a coming together of different parties to work on a collaborative project in property (a JV deal). Often, each party will contribute something different, whether it’s capital, skills, contacts or resources. The risk is also often shared.
There are 6 steps:
Understanding, fully, what you have to offer.
Understanding exactly what you are missing.
Finding a partner who compliments your skills or situation.
Finding a project to work on together.
Putting a partnership agreement in place.
Sharing the risks and rewards.
Who Does This Strategy Suit?
There is certainly no one-size-fits-all for joint ventures but a successful partnership requires honesty between partners, good communication and complementary skills, assets or contacts. If one of the partners lies or overestimates what they can do then the partnership will run into a lot of trouble.
The chances are, however, that someone putting this strategy into practice will either be the person with the money or the person who is guaranteeing the success of the project. If you are to be the project manager, then you need to be very confident that you can get the job done.
For More Information On Property Joint Ventures See:
If you don’t have the capital to invest, joint ventures can be a fantastic way of building a property business using other people’s money. If you do, then this strategy will give you access to the skills and contacts needed for success.
5. HMOs
An HMO is any property with shared facilities (such as bathrooms and kitchens) which is tenanted by three or more people who are not a family. They make fantastic investments, not least of all because they can generate a rental yield that is far higher than that which can be achieved from a more straightforward buy-to-let.
What Does This Strategy Involve?
HMOs can be bought as HMOs or more standard houses can be converted to accommodate more tenants. But, of course, HMOs are more complicated to manage than more straightforward buy-to-lets. Not only are there more tenants to manage but HMOs have more rules and regulations attached to them as well.
In a nutshell, the HMO strategy involves:
If you are looking to convert a property into an HMO then there will be a development process, where decisions will need to be made about how many bedrooms there should be. You will need to think about how many bathrooms you need, the communal spaces, en-suite bathrooms and decor – right down to nitty-gritty items like smart thermostats, LED lighting and TV licences.
Who Does This Strategy Suit?
To invest in HMOs you will need cash, either for a deposit or to buy the house outright. If your intention is to convert an existing property into an HMO then you need to be able to fund that project as well.
If you are new to investing in property, there is no reason why your first investment can’t be an HMO but HMOs are more complicated than straightforward buy-to-lets. As such, you will need to ensure that you do your due diligence, making sure that there is rental demand in the area in which you are looking and that your finances are properly organised.
For More Information On HMOs See:
With the returns on investment, they deliver it’s easy to see why houses in multiple occupation (HMOs) have become so popular over the last few years.
6. Lease To Let
Getting started in property does not necessarily require a great deal of money. There are strategies where a lot of money can be made without the need for capital investment. Lease to let is one of those strategies.
What Does This Strategy Involve?
Lease to let is where you take over the managing of a property from a landlord and then rent that property out as single room lets.
You pay the landlord a set monthly fee, agreed under a lease or management agreement and take the property over, covering all void periods, rent arrears and maintenance costs, after which any remaining income is yours.
Who Does This Strategy Suit?
Lease to let is not advisable for beginners. This property strategy will require you to be an expert at managing tenants and you will need to navigate something of a legal mine-field. Because lease to let is not that common in UK residential property it can be difficult to put lease agreements in place.
For More Information On Lease To Let See:
Lease to Let works by effectively taking on the managing of a property from a landlord and then renting it out as single room lets. You, therefore can generate an income from managing the property.
7. Property Sourcing
Property sourcing is similar to selling leads but it involves more work with greater rewards. This is a great property strategy to get started. If you have the skills to find and negotiate deals you can start earning very quickly.
And on the other side of the coin, if you are a seasoned investor, hiring a property sourcing agent will allow you to grow your portfolio much faster than you could manage on your own.
What Does This Strategy Involve?
Property sourcing involves a property sourcing agent finding and negotiating property deals which they then sell to property investors.
The amount a property sourcer can charge for their services depends on both their level of experience and the amount of work they have put in. For instance, a property sourcer that has put together a deal whereby a fully tenanted property, negotiated at a discount, with a letting agent and perhaps a refurbishment team already on-board will be able to charge more than a sourcing agent that hasn’t got one of these elements in place.
Who Does This Strategy Suit?
Although property sourcing requires that you to know how to find and negotiate a good deal, not to mention have an understanding of how the property market works and what investors are after, it is also a good way to learn the ropes in a relatively risk-free manner while securing an income from property, quickly.
For More Information On Property Sourcing See:
Property soucing involves finding and negotiating property deals which are then packaged and sold on to property investors. This is the perfect strategy for new comers into the market looking who want to start earning quickly.
8. Social Property Investment
Social property investment deals with social and affordable housing solutions to the UK’s housing crisis and the recent spike in homelessness. Although this property strategy focuses on adding social value to property investments it is nonetheless a very profitable market and set to become more so.
Over the next few months and years, the Homelessness Reduction Bill will come into force and with it the Housing First Homelessness Strategy. These changes will require an increase in housing stock across the UK and in response, housing associations, local authorities, and other connected government and non-government organisations, are starting to be much more flexible in their thinking, when it comes to housing.
What Does This Strategy Involve?
Social property investment means housing people on Local Housing Allowance (or, increasingly, Universal Credit), those that were previously homeless or are classified as vulnerable. It is inadvisable for property investors to try and go it alone with social tenants. This strategy requires a deep level of involvement between the landlord, the local authority and other, third sector organisations.
Who Does This Strategy Suit?
Property investors with available HMOs, in the right locations, to satisfy the increasing demand for social housing. We advise that anyone wanting to attempt this property strategy only does so after they have built significant relationships with supporting services and organisations.
For More Information On Social Property Investment See:
The first in an 11 part series on social property investment with social entrepreneur Amy Varle who teaches investors how to work with social housing providers to create win/win outcomes for all parties involved.
9. Serviced Accommodation
Serviced accommodation refers to property which is fully furnished, offered for long or short-term let which may also include facilities similar to those offered by hotels. Most commonly, this type of property will be rented by companies who need to provide their employees with temporary accommodation away from home.
What Does This Strategy Involve?
There are different ways of approaching this property strategy but for the investor, the process is typically very hands-off. An investor hands their property over to a specialised rental agent for management and the agent takes care of everything, from bookings to meeting and greeting clients; even down to furnishing the property.
Who Does This Strategy Suit?
Although anyone who owns a property can theoretically turn it into a serviced property this strategy is very location specific. As it is dealing with corporate clients serviced flats need to be in cities or places with a strong commercial base.
For More Information On Serviced Accommodation See:
The second in a 16 part series on serviced accommodation (and how big profits can be made from this business model) with Paul Winder from Residential Estates in Chester.
10. Property Crowdfunding
Property crowdfunding is the practice of funding a property investment, project or business by raising money from the ‘crowd’ (meaning a large number of people). Typically funds are through an online platform and each contributor will only put forward a small percentage of the overall amount.
What Does This Strategy Involve?
Investment opportunities are advertised on a crowdfunding platform with terms and expected returns on investment and investors are invited to invest. Often there is a minimum amount to go in on the deal but this can often be very low (sometimes as little as ten pounds).
These kinds of investments are entirely hands-off. There is no expectation for investors to deal with refurbishments, tenants, agents or any other third party. It is simply a case of putting in money for a given length of time and recouping the rewards. But, like all investments, it is important to note that this is not risk-free. If the project does not work to plan then the investor does stand to lose their capital.
Who Does This Strategy Suit?
This strategy is open to anyone. If an investor can not afford deposits, does not have the money to buy a property outright or does not have the skills to get involved with property sourcing or selling leads then crowdfunding is a very good method for getting involved in the industry.
It is also a good way of diversifying your portfolio and spreading your money across a variety of different properties and projects.
For More Information On Property Crowdfunding See:
Crowdfunding allows you to invest very small amounts, whilst having the above processes taken care of, and allows you to invest in a flexible way with small amounts across different properties instead of all your investment in one property.
11. Off-Plan Properties
Off-plan properties are new build developments, that are not ready for tenants to move in. An investor, therefore, buys them unfinished and waits for them to be ready for the rental market before either selling or renting out.
What Does This Strategy Involve?
Off-plan properties can often be bought at a good discount and are often seen as good investments due to the level of capital growth that they can see between the time they are bought and the time they are ready for the rental market.
But growth can’t be guaranteed. So, while new builds are great investments in 2017 you will still need to do your due diligence and make sure that the numbers make sense before you start to factor the growth in.
Who Does This Strategy Suit?
This is an advanced strategy that requires an investor to have cash available for deposits or full the amount. With new build developments, an investor will need to have a very good understanding of the development and the area it is in and, as many off-plan properties are also off-market an investor will also need good industry contacts or be working with a property sourcer.
For More Information On Off-Plan Properties See:
Off plan investments work very well in 2017 and will almost certainly continue to do so well into the future. You can buy them at a discount and often the capital growth can be excellent.
12. Purpose Built Student Accommodation
Purpose built student accommodation (PBSA) tends to mean new-build blocks of small, one-bed apartments that have been designed for students. There is a national shortage of residential housing and students are now asking for more from their accommodation. As such, they are increasingly living in PBSA, where not only do they not put a strain on the local housing stock but they can also enjoy the benefits of living somewhere where they have a kitchen and bathroom for themselves, their bills are included in the rent, their accommodation is fully furnished, there might be a gym, a common area, and there are staff, on hand to help them should they need it.
As an investor, PBSA works in much the same way as with serviced accommodation. The investor buys one or more flats in the building and pays the management company, in charge of the building, to take care of everything else. The management company will find the tenants, collect rent and deal with maintenance issues. The investor’s only real concerns are with buying the property and selling it when they want to release their capital.
Who Does This Strategy Suit?
Hands-off investors who do not want to have anything with the running of their property but who have the cash to buy a property out-right. These types of properties can be relatively cheap, maybe as little as 60k, even in great locations with high demand. But they cannot be mortgaged.
Parents of children going to university who feel it is easier and makes more financial sense to buy a property for their son and daughter to live in while they are studying, rather than simply giving them the money for rent.
Buy-to-let investors and portfolio managers who are looking to stabilise their portfolio by adding in cheaper properties without the use of financing.
Things to Bear in Mind
Purpose built student accommodation can give great yields (10%, in some areas), the landlord is often paid well in advance and the tenants tend to be lined up well in advance of their tenancies. But, despite it being hands-off a landlord must still do their due diligence when they buy.
Demand for PBSA is high but it is not the same for everywhere. It is important to do research into the housing supply in an area and the demand for rooms in the building you are looking at. You will also want to be taking into account the performance and desirability of the universities near to the development and be making predictions about the future of the student population that lives locally.
You will also need to work out your exit strategy. This kind of investment is still niche and you will be limited to selling to cash-buyers only.
All this said, though, PBSA is a growing market and it seems unlikely that students are going to start returning to the more traditional shared housing arrangements of yesteryear.
More Information On PBSA See:
PBSA (purpose built student accommodation) could make a fantastic investment choice over the next few years. It’s an entirely hands-off investment that can also see great returns.
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