What is a Property Investment Strategy and why do you need one?
Understanding the benefits of investment is straightforward, and many clients understand this well. Indeed, if you’re reading this, it’s almost a given that you understand this too.
But there’s one essential component of any investment in property, that is not always clearly understood: the need for a coherent investment strategy.
Ask any investor and they’ll tell you that this is one of the most important things to consider.
Specifically: why are you investing, and what do you hope to achieve?
Two fundamental strategies
Property is always a popular investment vehicle, providing a tangible asset and the potential for two separate income streams.
But when all is said and done, there are only two investment strategies.
Either: an investor buys a property and rents it out to create a future income stream
Or: an investor buys a property (possibly off-plan) and aims to sell it at a future date to make a profit off the back of rising house prices.
In this article we’ll consider the first of these: the buy-to-let strategy.
The Buy-to-Let strategy
At its heart, this strategy is all about the power of rental yields and passive income. It’s a popular choice and at its core, represents one of the fundamentals mentioned above.
Most likely you’ll be aiming for two different outcomes, a monthly rental income and an increase in the value of the property over time in case you’re looking to sell up. While there are a few different ways you can go about a Buy-to-Let investment, they all follow this basic model.
The Single Let
This is one of the most common forms of buy-to-let and is one of the easiest ways of getting into the property market.
Start by finding the perfect location. Then, find the ideal tenant. Do the maths and ensure that everything adds up. Finally, keep the tenant happy and ensure a consistent stream of rental income. In terms of tenants, you’ll commonly be looking at families and working professionals.
While this is a huge oversimplification of becoming a landlord, the basics are simple and represent one of the easiest ways to get into the property investment market. There’s a lot to be said for the classics and many landlords earn excellent returns by having a portfolio of Buy-to-Let properties.
Tip: Location is the vital indicator of success. By finding a great location, you improve the chances of finding a happy, motivated tenant, you can ensure a great rental income and if the area is up-and-coming, positive capital growth is never far behind.
Easy to understand
Minimal management time (especially if you consider a letting agent)
Lower returns than other Buy-to-Let opportunities
The HMO/House Share
An HMO/House Share is a property where each room is rented out on an individual basis. For this reason, HMO’s are popular as they allow for higher rental income. A bigger property can have rooms converted into bedrooms, creating the potential for more tenants and thus more money.
Unfortunately, a by-product of more tenants is more time spent managing the property. There’s also the potential for more wear and tear. The more tenants, the higher the chance the property may need maintenance down the line.
That said, the higher rental yields mean this type of buy-to-let has grown in popularity over the last few years, especially in the capital and larger regional cities.
Tips: Most HMO’s are let furnished and usually have bills included to avoid any confusion. Consider this if you’re looking at this investment strategy.
Higher potential rental income
Diversified rental streams – if one tenant leaves, you still have others to avoid void periods
Increased chance of necessary maintenance Harder to find a mortgage
Tighter regulations than a single let
Although targeting student tenants could technically come under the HMO strategy, it’s a vastly different market and warrants individual consideration. Many investors choose to opt for a strategy built around students as they represent a predictable and consistent stream of rental income.
Management is generally easier as landlords know that each tenant will be signing up for a certain period of time and they’ll always be a stream of new students to take their place. If you buy into popular stereotypes about students, then the idea of housing several students may cause you to think twice – but the potential for income is considerable.
Tips: With the increase in purpose-built student accommodation being built, it can be difficult to market a more traditional student property, so location is important (particularly as many student accommodation buildings are in prime city-centre spots). Focus on areas that offer amenities or facilities that suit students.
Increased rental income
Predictable cycle of tenants
Consistent stream of tenants looking for accommodation
Potential for more wear and tear
Challenging market with purpose-built accommodation
The BTL strategy makes sense for many investors, but there are more variants of it than just the single let. Make sure you consider the pros and cons of your chosen strand, and don’t hesitate to reach out to one of our team for further discussion.