Types Of Profitable Property Investment Strategies In The UK [Part 1]
There are many different avenues from which wealth can grow. Gold. Whisky. Stocks. The list is endless. Despite the sheer number of possibilities, it is property that has produced the most results for millionaires across the globe and indeed, the UK. What I also find perhaps the most exciting aspect about property is the number of strategies available to prospective investors. In this article, I’m going to be taking a look at four types of profitable property strategies in the UK.
Each and every property investor is different. We have our own unique property portfolio. Different investment area preferences. Different strategies.
It is these strategies that define how we achieve our income in this sector. Property is a proven vehicle to success for those with the willingness to learn, grow, and achieve the results they deserve.
In order to achieve these results, you need to be well versed in either a particular strategy, or multiple, depending on how much of an empire you wish to build.
When prospective first-time investors ask me for advice on how to get started, there are so many different factors to consider before being able to advise them. Time. Funds. Hands-on or passive. These numerous components can dictate which is the best property strategy for you.
But just which strategies are the most effective and ultimately, the most profitable? Well, let’s take a look at some of them:
Houses of Multiple Occupation (HMO)
The concept of co-living has taken a significant portion of the rental market over recent years. There are a number of advantages to both tenants and landlords when it comes to HMO properties, but also an additional amount of red tape that needs to be met in order to let them under compliance.
HMO properties traditionally comprise a number of bedrooms (usually no less than three) with shared bathrooms, or en-suites typically at a premium. Occupants will also have access to a communal kitchen/diner space, and any other area that an investor wishes for them to have (such as lounges, external spaces etc).
What are the benefits of a HMO property?
Even when a tenant leaves the property, there are still other tenants in situ to provide a continuous rental income.
They are usually cheaper for tenants compared to renting by themselves, with smaller deposits and bills included.
They typically appeal to working professional tenants, making them easier to target specific demographics.
They produce more rental income for investors per month than they would be let to one tenant or household.
Unlike traditional lets, however, HMOs require much more intensive hands-on management. The number of tenants to keep satisfied is far greater, and the usually higher tenant turnover rate means more time is consumed in marketing and pre-tenancy referencing.
There are also many considerations to take to convert a traditional let into an HMO. To obtain planning permission, you will need to ensure the property meets the standards of your local authority. This includes meeting minimum room dimensions, the right amount of communal facilities for the number of occupants, and meeting the local area's licensing criteria.
In areas where HMOs are high in demand, the oversaturation of rooms available can make it more difficult to secure prospective tenants. These areas can also fall under Article 4 regulations, which can make obtaining a license to operate an HMO almost impossible.
The key to being successful with HMO properties is to be meticulous with processes or to be able to work alongside a proven managing agent. Invest in areas that are plentiful for employment opportunities, have great local amenities and transport links, as well as offer a product that stands out from the competition. Many HMO investors choose to present their HMOs with boutique-style living in order to capture the attention and desire of prospective tenants, so you will need to have a property that is not only functional but desirable.
Homes Under The Hammer and Grand Designs are the perfect example of our infatuation with property as a nation. Seeing the journey of properties as they are radically transformed from dilapidated ruins into a truly stunning places to live is not only great televised entertainment, but also a proven investment strategy.
To be successful in this avenue of generating wealth from the property industry, you need to be able to identify properties at low prices that can generate a return on investment once the purchasing and refurbishment costs have been factored.
What are the benefits of property flipping?
It usually involves buying cheaper properties which can be done much quicker than buying a full-priced property through a mortgage process.
The returns are in a lump sum and deposited at once, rather than having to wait for returns to build up over time.
The more demand generated in the market, the better the results.
If property flipping appears to be your go-to strategy, you need to ensure you have a reliable team or the correct skills to pull off the refurbishment. The chances are that when finding the right people to carry out your refurbs to an agreed budget, you may have to kiss a few frogs along the way before finding the right contractors for you.
Additionally, it is critical to monitor market conditions. The key to success in property flipping is to buy low, refurb reasonably, and sell high. If you are buying in a market where refurbished properties aren’t selling for much more than properties requiring a refurb in the first place, then you may find yourself unable to achieve the ROI you desire, or even the ability to break even on the refurb cost.
R2R - Rent to Rent
Rent to rent is a relatively under-utilised strategy in the bigger picture.
Landlords/property owners will let the property to a third party, who in turn sublet the property and assume full responsibility of the management.
What are the benefits to the R2R strategy?
It is usually one of the cheaper ways to get into property investment.
No deposit is required upfront, nor any excessive costs.
Any refurbishment costs required are likely to be minimal.
Utilities are down to the tenants (unless the property is being utilised as a HMO)
As with all property investment strategies, it is always beneficial to surround yourself with knowledge and individuals who have experience with these strategies. One of the biggest red flags for the R2R strategy, however, is the number of scammers and false self-proclaimed experts who prey on vulnerable first-time investors.
You may have seen them advertising just how easy it is to make money from the strategy, whilst posing in front of fancy cars or properties to lure you in with the promise of immediate returns and a desirable financial free lifestyle. If you are a first-time investor and looking at the R2R strategy, it is thoroughly worth the while to carry out the due diligence and gain the knowledge and insight from reputable sources, rather than handing over your hard-earned money to cowboys.
R2SA - Rent to Serviced Accomodation
The final property investment strategy I want to cover in this article is R2SA. This strategy involves letting your property, but for the short-term as opposed to the long-run.
Platforms such as AirBnB have made this strategy incredibly accessible, exposing your property to a huge database of users looking for short-term lets; from holidaymakers through to digital nomads.
The major benefits to this strategy include:
Being able to determine the duration of stay for the occupants, be that days, weeks or months.
No lengthy referencing process is required to let to occupants.
You have the potential to make a greater income on a daily basis than you would on a monthly basis through a traditional let.
Passive income can still be attained through this strategy by using an effective RS2A managing agent or assistant.
There is certainly potential to draw huge returns from this strategy, but this involves either plenty of hands-on work or being able to shape the right team to attract the income for you. Managing the listings, availability and communication with enquiries is plenty time-consuming enough, before factoring in any cleaning and inspections that need to take place between occupants. If you are swapping occupants on a daily basis, the costs or time consumed in order to turn the property around can rack up.
In order to succeed with R2SA, investing in areas where there is high demand from travellers or desirable spots to work from for digital nomads is essential.
The major component that these strategies have, particularly if you are a first-time investor looking to get your foot in the door, is to surround yourself with the right people and immerse yourself in the right knowledge. A strategy that may work for someone else isn't guaranteed to be the best source of income for you, and you need to consider this when investigating each strategy.
In my next article, I’ll be taking a look at at some of the other profitable property investment strategies that are available in the sector. In the meantime, if you are unsure on which strategy is right for you and would like to explore your options, I’d be more than happy to speak with you in depth about your requirements, goals and how best to get there. Please do feel free to give me a call or drop a text on 07494237716.