Even when times are good, investing in the property market is a tricky business.
What’s going on right now in the property market is particularly interesting. Prices of properties, relative to people’s incomes, are close to the record highs that we s#aw before the financial crisis.
But unlike back then, mortgages are far more affordable, at least according to data from the Halifax.
No single property investment strategy is right for every person: we all have different risk attitudes, goals, investment horizons and tastes. And so what you ultimately decide to do depends on a host of personal factors.
With that said, the UK property market is particularly amenable to a bunch of exciting investment strategies which you may not have considered. Here are a few of the best strategies around:
1) Diversify Your Property Portfolio
Many new investors make the mistake of concentrating their portfolio on a single type of property.
Property, however, is divided up into many submarkets, each of which can rise or fall depending on the overall market condition. Investors who are new to property should spread their risk more evenly over different investments that are less correlated with one another.
If you diversify your portfolio, you will be able to avoid the worst of a market downturn within a particular investment class or region.
An HMO, or housing with multiple occupants, is perhaps the best way to make a high return on your property, especially in a large city.
As a rule, an HMO is a large property divided into different living areas, where tenants pay to rent rooms and share facilities like kitchens and bathrooms.
In contrast to renting out the entire house by itself, this type of investment produces a much higher return.
For example, you might be able to charge a family £800 a month for a home, but renting out four bedrooms at £300 a month could net you £1,200, or a 50 percent increase.
Investing in HMOs has some downsides – including higher administrative costs related to tenant turnover, and more wear and tear – but usually these extras do not outweigh the income gains.
Because of their complex tenant arrangements, HMOs are also more time-consuming to manage. But if you can develop a lost-cost system for processing turnover, it’s usually worth it.
3) Rent Out To The Student Market
The student market is, in effect, a type of HMO investment. Nevertheless, it has some advantages over regular HMO investments.
Firstly, their income is more certain: they pay their rent from student loans (you can confirm that they have them), and you always know when old students leave and new ones arrive.
Students tend to have lower expectations from their accommodations, and renting to them is generally less risky than renting to professionals. For them to use your property, you don’t have to provide the latest kitchen appliances or accessories.
Be careful where you invest, however. If the universities provide enough accommodation on-site at affordable or subsidised prices, you may not be able to make a good return on your investment.
4) Investigate Commercial To Residential Conversions
There are many vacant commercial properties in the UK as a result of internet shopping and offshore production.
Investors stand to benefit, however, since it opens up new opportunities. Former commercial properties can provide excellent opportunities for conversion into residential properties because people often prefer city locations that are easily accessible to work and amenities.
In order to make a profit on a commercial to residential conversion, you’ll need a seasoned developer to navigate all the planning and tax issues.
5) Rent To Housing Benefit Tenants
Local authorities in the UK provide housing for many people who cannot afford to pay for it themselves. Depending on where they live, they receive the Local Housing Allowance or Universal Credit.
The good thing about housing benefit tenants is that the local council pays the rent on their behalf.
Therefore, you know what your monthly payments will be. Though be aware that not all councils will agree to pay you directly.
If you were to invest in a three-bedroom home, for example. You can immediately calculate whether the opportunity is profitable because the council sets the rent price for all three-bedroom homes by area.
Moreover, despite the low risk involved, rent for housing benefit tenants tends to be high, making this one of the best property investment strategies for beginners.
Is there a downside? Sometimes tenants are difficult to manage, rent isn’t always paid on time (in some cases, it’s not paid at all), and maintenance costs can be higher. Prices may also not rise as fast as in other areas because of the properties’ location.
When the financial crisis hit in 2008, people purchased homes, waited for the price to rise, and then flipped them for the higher price. However, as that episode proved, this is one of the riskiest strategies.
If you sold your property at the right time between 2000 and 2007, you would have enjoyed inflation-beating returns on your investment in London.
The buy-to-sell investor has the task of finding those rare properties where a surge in demand or a shortage of supplies will lead to exceptional price increases in the London property market.
Do your research first if you do decide to go the buy-to-sell route, to make sure that real economic factors are driving prices upward.
The last thing you want is a situation where prices are artificially high because of speculation and are about to plummet.
It is possible to make quick lump sum returns flipping properties and not have to deal with all of the difficulties that come with managing tenants. Nevertheless, there are costs, including, if necessary, refurbishment costs.
In addition, you won’t have to worry about the long-term health of the UK housing market when you buy-to-sell.
A house can be bought, renovated, and flipped in a matter of months, netting a substantial profit. Managing the renovation and paying for it out of existing capital is risky, however.
7) Buy Properties In Up-And-Coming Areas
Even though future prices are crucial for buy-to-sell investment strategies, they’re also crucial for other kinds of investment strategies. You can raise rents or take out a larger mortgage when prices rise.
Due to this, it’s crucial to invest in properties located in up-and-coming areas, areas that are expected to become desirable within five or ten years.
London, for instance, includes places that will soon become Crossrail stations. There are also examples near the proposed route of HS2.
What are the signs that an area is on the rise? Observe the businesses settling in an area. It’s a good sign when a town doesn’t have a Waitrose but is planning one, since it signals that wealthier people will soon move to the area, which will eventually increase prices.
8) Make Extraordinary Returns With Holiday Homes
In the UK, holiday rentals are among the most lucrative property investment strategies. It’s important to note that not all holiday lets are profitable.
Keeping occupancy high is the key to making money from a holiday rental. When compared to a residential rental, holidaymakers usually pay much higher rents for short stays.
After accounting for the mortgage, you’ll struggle to get a decent return if the let isn’t filled year-round – say outside of the summer months.
You should choose a location that is able to attract tourists all year round in order to ensure a high occupancy rate. Off-season discounts are a great way to attract budget-conscious customers.
As a final step, you should promote your property on popular holiday home websites in order to keep interest high, show availability, and promote positive reviews.
An investor should choose a strategy based on his or her own needs and goals.
For those with a higher risk appetite, holiday letting might be the best option, while those who are looking to play it safe might consider renting to benefits tenants.