Investing savings into property is one of the most common ways to create a higher return of investment. With so many wanting to become property investors, it may seem easy. However, there is a lot to consider before making the plunge; one of these considerations being the type of strategy adopted.
Breaking down property strategies, there are two main reasons why people invest in property. One, buying a property to then rent out and two, buying a property to then sell on for profit. Although, if it was as simple as this, then there wouldn’t be articles giving advice.
This piece will look at different strategies regarding how property investors could use their newly bought property and their pros and cons.
To start, there are a few different ways to choose how to let your property out:
- Single lets to professionals
- Student Lets
- Holiday lets
- Buy to sell
- Lease options
- Commercial lets
- Single lets to tenants on benefits
Single Lets to Professionals
This type of renting that most would class as being the ‘traditional’ method. Single lets to a professional are basically renting to a person, couple or family unit. To be in the correct position to implement this strategy, you need to make sure your finances are in order. Also, the property an investor buys needs to be in the right location, has the right tenants wanting to rent and the pay a fair price.
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One of the easier strategies to use
Returns aren’t always as high as other strategies
Applying for mortgages with this strategy is easier
Choosing the wrong type of tenant can be detrimental
Doesn’t take a lot of time to manage
|The returns can be predictable
Letting to students is, realistically, a sub-type of HMOs renting (see further down regarding HMOs). It is worth bearing in mind that the student market has its own types of characteristics to understand before investing in.
Usually the market for student lets is easy to predict as students will need to rent a property for a certain time (nine months to a year) and will sign up at a certain time. Also, students usually come under one joint contract so if one student leaves, the other students letting the property will have to cover their rent.
Predictable that students will always need properties to let
Pressure from purpose-built accommodation built near
|Less management overhead
May be more wear and tear as some students may not look after the property well
As the name suggests, this is a short-term rental to holidaymakers. This can easily be mixed with ‘serviced accommodation’; however serviced accommodation is aimed more so at business travellers from urban areas. As previously said, the two can get mixed up although the only difference is the customer a landlord targets.
Don’t have to go through the eviction process
|Lots of work involved in managing the property and marketing
|There are better tax treatments with this strategy compared to others
Can be difficult to apply for a mortgage
|Can be high yielding is the occupancies are high
Buy To Sell
Also known as ‘flipping’, buying a property to sell is obviously different to buying to let. The main aim with this method is to buy at a price, make profit, sell and go again. The main attraction to flipping a property is the gaining cash quickly.
There are two key tips needed to successfully flip a property. The first is top buy the property for the right price to start. The second is to stay within a budget when renovating the property.
Generates lumps of cash quickly
Very hands on and time consuming
Don’t have to deal with the maintenance and tenants as you would with a rental property
Investors only make their money if the projects are executed properly
Don’t need to worry about the long-term health of the property market
May be forced to sell
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HMO stands for houses in multiple occupation, so simply it is a house share were rooms are rented out. However, there are different types of HMOs so if a landlord decides to choose this method of renting, they need to research into this well.
Even though a landlord can generate more income from using this rental strategy, there can be larger costs involved. This is because HMOs tend to be rented out with bills included and because there will be more occupants there is more room for wear and tear.
|High yield compared to single lets
Higher costs with HMOs
Can charge more due to room by room
More regulations that the property has to comply with
|If one tenant stops paying, then there will still be income from others
Not as easy to get a mortgage on in comparison
Usually harder to manage
As it says on the tin, rent-to-rent is where a landlord rents to a tenant to then let them rent a property. This is becoming a more so common strategy and can be used in conjunction to a HMO strategy.
|Way of gathering income from property without a big cash input
In the long-term, there will be no capital growth
|Can be started quickly if you find the correct opportunities
Hard to find landlords who will want this arrangement
Not enough margin as this can be a very hands on job
A lease option is similar to a rent-to-rent, however with this option the investor also has the ‘option’ to buy the property for a set amount of time and a fixed price.
For example, if a property costs around £200,000 then an investor may have the option to buy the property outright at £220,000 in the next three years. Whilst the new investor pays to own the property, they also take over the expenses and obligations for the property.
|Generates cash with the possibility of capital growth
Not all landlords will sign up to this type of agreement
Don’t need a big cash sum to start
Very mads on to manage this type of rental
The owner that a landlord agrees to do with this deal could try back out. This could then create a big and expensive legal battle
As it reads on the tin, commercial letting is renting a building that has the purpose to hold a business. This is very different to any of the other methods spoken about in this article. The whole market is subject to economy and if landlords were to rent a commercial property, it can be hard to find a tenant.
|Tax advantages – can be held with a pension
Can be hard to find a tenant to rent the property
|Less ongoing work in terms of maintenance. Tenants can be responsible for the maintenance instead of landlord.
All dependent on the economy. Can be harder if there is a recession
|Longer term tenancies
Mortgages on a repayment basis
Voids can be longer
Single lets to tenants on benefits
There are different routes and types of ways to rent through this method and overall the terminology can be tricky. Some areas have rent calculated by a Local Housing Allowance (LHA), others by Universal Credit (UC) and many tenants still refer to this strategy as DSS.
Even though there are different terms, they all relatively mean the same thing, renting to those who have housing paid for them by a local authority.
Always a high tenant demand
Specialist management is required
Predictable levels of rent
Some properties can tend to be less desirable and will benefit from less capital growth
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I started writing for PPO back in August 2019. I particularly enjoy writing about new housing developments and upcoming property events.