Multiple factors influence the success of a property investment, meanwhile, often bringing great benefits. Investing in residential property brings an array of opportunities to investors from continuous cash flow to opening greater opportunities.
Over the years we have determined there are three major players which offer benefits to property investment.
Demand for property brings significant benefits to investors and in a market with low supply investors are likely to experience success.
Investors can experience benefits through property appreciation. Investors can partly control the appreciation of their property through adding improvements. Furthermore, appreciation can be impacted through market effects.
Lastly, holding a diverse portfolio through location, strategy type etc. benefits an investors success greatly.
DemandBy spending more time at home due to lockdown, people soon realised they wished to be closer to family or held the desire for increased interior space or larger outdoor space. This consequently led to people looking for new homes, encouraging house moves.
Meanwhile, pairing the unexpected influence of lockdown on rental properties with the preferences of millennials - now branded ‘Generation Rent’ - the demand for properties to rent has grown. Research by Seven Capital has found rental properties are the preferred option for millennials due to the flexibility they offer and they predict this will consequently lead to renters outweighing home owners by as early as 2039.
Furthermore, with the pressures of a growing population, demand for housing is rising. Alongside this growth, the UK’s undersupply of housing places extra demand on the market. This opens up opportunities for investors to provide a solution.
By utilising these opportunities and investing in residential property investors can increase their cash flow. Buy-to-let investments bring investors consistent monthly income while flip properties offer a more instantaneous return of investment. This brings the potential for investors to grow their capital, saving for the future.
Property AppreciationMany properties increase in value over time, bringing significant benefits to owners. For those buying property under market value, well, they experience instant appreciation.
Appreciation of a property can occur in many ways.
Firstly, a popular option, an investor can add value to a property through renovations and improvements, influencing the appreciation. This is considered as ‘forcing the appreciation’.
Next, supply and demand contributes massively to the appreciation of a property. Many factors can contribute to this, however, these are factors which are not guaranteed. Market appreciation can be typically influenced by a property’s surroundings and location.
A property can appreciate in value as a consequence of development in its local area. This gives landlords the potential to increase rent on their property. Meanwhile, development within an area can cause population growth as it increases in popularity. This leads to a rise in demand, also permitting rents to increase.
Portfolio DiversityPortfolio diversity is important to many investors and rightly so. As no investment type guarantees 100 percent security diversifying your property investment portfolio lowers your risk of ‘placing all of your eggs in one basket’.
With a range of investment options available, investors hold the opportunity to diversify their investment types. This diversity offers better security to their investment income through being non-reliant on one strategy type. This means, should one strategy experience poor performance as a result of market influences etc. you have other strategies to assist your portfolio recovery.
You can diversify your portfolio in multiple ways. Adding different investment types such as buy-to-lets, flips etc. brings the opportunity of multiple revenue streams.
Another diversification can be location. Investing in properties within a range of locations can lower the effect of negative external and market influences which are location dependent on your portfolio.
ConclusionIn our experience we have found supply and demand has a direct impact on property investment. As supply reduces, demand increases - great news for property investors. Meanwhile, market trends and current events have also contributed to the growth in demand for rental housing. As population grows and attitudes change, investors will be in a fortunate position to offer a solution to rental preferences.
An investor can gain great benefits by adding value to a property. By giving a property a cosmetic uplift, an investor increases its appeal. To further increase the value of a property an investor can renovate a property, modernising it. In some cases, renovations can open up space within a property or even add an extra room. These additions can provide a great increase to the appreciation of a property.
External factors such as development within an area contribute to the appreciation of property due to a soar in demand often occurring. This demand positively benefits investors as the opportunity to rent or sell their property grows while they also have the potential to increase their monthly income through rent increases.
Portfolio diversification helps investors lower their risks while investing. By opening up their investment paths they limit the opportunity for unfortunate events to impact their investments. This allows investors to benefit from other avenues of incomes should one route be unsuccessful.
Disclaimer: This is information based on our knowledge gained throughout years of experience, education and learnings. This information is open to interpretation, therefore, you must carry out your own due diligence regarding the subject.