Last month I took a moment to reflect on some of the most profitable types of investment strategies available to investors in the UK property market. As I had expected, some of these strategies were perfectly suited to some of you as my readers, but others wanted to investigate some other methods of generating income through property. Therefore this month, I wanted to dive into the second part of the types of profitable investment strategies in the UK.
I always find it fascinating speaking with like-minded investors to see what makes them tick; their strategies, objectives and methods of getting there. Property portfolio sizes. Commercial or residential.
There are so many variables in this sector that provide a number of strategies, whether or not they work for you and your property portfolio.
As with every strategy, ensuring you carry out your due diligence beforehand is crucial to ensure the figures stack up, and give you the returns you deserve.
In my last article, I looked at a number of options including Houses of Multiple Occupation (HMO), Property Flipping, R2R and the R2SA strategies, many of which are the bread and butter strategies for plenty of investors. But what other successful and proven property investment options are there in the UK?
BRR (Buy, Refurbish, Refinance)
If you are looking for a method of building a portfolio quickly, and have the cash up front to do so, the BRR strategy is a great way to achieve this. By adding value to a property through refurbishment, you are able to re-mortgage and recycle your original deposit to buy further properties.
The key to being successful with this strategy is buying properties you are capable of being able to add a genuine value to by refurbishing them.
You will need to be realistic about the amount of refurbishment you are able to do, whether that be from a cash perspective or the availability of resources to carry it out.
What are the benefits of BRR?
It's an easy strategy to put a copy/paste template in place for.
You have flexibility with the end product, whether you wish to keep it in your portfolio or sell it on.
It allows you to grow your portfolio quickly (subject to turnaround times on the works that need to be carried out).
The main thing is to ensure you don’t get caught out and spend more time and money than you will recoup.
Once the refurbishment has been completed you can ask for a surveyor to revalue the property. Use evidence such as before and after images to compare the quality of the work, as well as a schedule of the works. You would then re-mortgage according to the new property value using the difference as a deposit on your next property.
The guaranteed rent strategy works twofold depending on which side of the coin you fall. You can either let your property out to a guaranteed rent individual company (who will give you a fixed fee rental income for an agreed period), or you can act as the property manager for a landlord and rent their property out to individuals in order to generate a higher rental income.
What are the benefits of Guaranteed Rent?
As a property owner, it allows you to receive a fixed income without having to worry about void periods, maintenance, or having to communicate with tenants.
This is a relatively easy strategy to implement with minimal costs upfront compared to other strategies if you are taking over a property from an owner.
If you are acting as a property manager, you can generate higher rental income per tenant than the property would as a traditional single let.
Whilst the guaranteed rent scheme is relatively easy to implement, this particular strategy is tarred with copious amounts of self-proclaimed gurus. These individuals or companies prey on first-time property professionals, offering paid-for courses with very little insight, poor communication templates and ultimately false promises.
If you are looking to pursue this avenue as an income generator in property, you need to be sure you surround yourself with credible individuals who can demonstrate the steps to attaining success and guide you through the process.
B2SA (Buy To Serviced Accommodation)
This method of property investment involves purchasing a property (typically one not requiring a refurbishment), and letting it out as serviced accommodation as typically seen on platforms like AirBnB and Booking. These platforms are ideal for travellers who are looking for short-term accommodation, be that for a couple of nights or weeks.
As an investor, it means you can let your property out without committing to long-term tenancies and having to sign the necessary documentation that comes with it.
What are the benefits of B2SA?
The potential to generate a much higher income per night than you would with a traditional tenancy.
You can accept/decline requests to stay in your property based on users’ profile reviews.
The sector is outpacing traditional hotel stays in many areas.
You aren’t forced into one particular investment area and can own many different SA properties in varying locations.
Flexibility is one of the greatest advantages of this strategy, both for you and prospective guests. As with all property strategies, however, there are drawbacks. The most notable hurdle to this strategy is the greater potential for void periods than traditional rental properties. Unless in a prime location where the value of the property to purchase outright is incredibly high, it will be a large challenge to ensure the property is inhabited each day.
You will also need to factor in the time to clean the apartment between stays, as well as communication with guests before and during their stay. There are specific SA management agents you can liaise with, but this will come with a fee which will eat into your income.
The final type of profitable investment strategy I wanted to cover is lease options. This type of investment strategy whereby you can take control of a property and produce an income from it, with the right to purchase the property at a later date but are under no obligation to do so.
What are the benefits of Lease Options?
This strategy requires no money being placed onto the table, or very little at the outset.
If the property value goes beyond the agreed purchase price, you may purchase and generate instant equity.
As a purchaser, you can pay cash or take out a mortgage to purchase the property, and can potentially look to flip the deal.
You are not obligated to carry out a purchase such circumstances change.
Lease options are ideal for sellers with financial difficulties, a property is acquired out of probate, or if they no longer wish to manage their property (or portfolio) themselves but aren’t willing to enter negotiations with a letting agent. You can also further entice owners into a deal by committing to a share of the profits should you wish, although this will of course impact your income.
Lease options are usually best negotiated with a solicitor, in order for specific clauses to be entered into the lease agreement. This strategy isn’t ideal for investors looking to hit the ground running, due to the amount of paperwork involved and reliance on other parties. With that said, it is still a viable option if you are prepared to carry out the necessary requirements in order to make the strategy work.
Whether you are a first-time property investor or a seasoned portfolio owner, I hope these two articles have been insightful and opened up a number of possibilities for your investment strategy.
If you’d like to discuss them further in detail, and how they can help you grow your income from property, I’d be more than happy to have a chat. Please feel free to contact me and let’s see if we can get the returns you deserve.