Property investment is a business that many choose to enter as a way of earning a side income. Property investment usually involves an investor purchasing a property that is below market value. This investor will then add value to this property through improvements or renovations.
By adding value to their property the investor can then sell it on and gain immediate return of investment (ROI) or they can rent they can become a landlord and rent their property out to tenants, earning income on a monthly basis.
Types of Investment PropertyThere are many types of property that bring the opportunity of investment from commercial to residential - today, we’re going to focus on residential.
In residential property investors have potential to invest in multiple types of property - each bringing their own advantages. Investors can choose to invest in apartments (flats) or houses, each of different quality and sizes. An investor's purchase of a property will be highly dependent on their property investment objectives.
An investor’s property investment objectives will be influenced by whether they are committing to a single investment only or if they are building their property investment portfolio.
Single investments are typically carried out by first time investors unsure of what to expect, therefore, taking things slowly. This single investment will give a new investor experience in carrying out an investment in property and allow them to gain learnings of dos and don’ts throughout their journey.
Experienced investors are often found to be handling more than one property investment at any given time. This is a result of having property investment experience, allowing them to effectively grow their property portfolio in line with their goals. A strong property investor will ensure their portfolio incorporates multiple types of property investments - buy-to-lets, flips, serviced accommodations - in the style of apartments or houses.
Short-termAs aforementioned, investors use their objectives to determine which properties and strategies will fit best. As property investing is most often an avenue for earning a side income many investors typically have other commitments, meaning their time available to focus on their investments is limited.
A great solution for investors with time constraints is flip investments. Flip investments are considered short-term investments as they involve securing a property and increasing its value (often dramatically) through renovations and cosmetic improvements and then selling it on, freeing an investor’s time and focus for their next investment.
This is usually the preferred option for time poor investors as they gain their ROI quicker through this strategy than in others with less commitment. Investors must be prepared for the financial commitment that is paired with flip investments as they potentially require a larger sum of investment overall.
Long-termInvestors who hold the ambition of growing their property portfolio will most often invest in long-term investments. There are many long-term investment options available for investors with this objective. Investors can opt to invest in buy-to-let properties, serviced accommodation or HMOs (house of multiple occupants).
Each of these investments involves purchasing a property and adding value to it in the same way an investor would with a flip property, however, the extent of adding value may be lower. These strategies are considered long-term investments as an investor will hold these properties for a number of years, earning their ROI over months rather than immediately.
Buy-to-let investments involve bringing up the standard of a property and then letting it out to a tenant, receiving rental income on a monthly basis. This style involves a larger time commitment than other strategies as an investor is required to be a landlord for the property. A key bonus of utilising a buy-to-let strategy though is property appreciation over time - thiscould potentially add to the investors future profits.
HMOs are a similar strategy to buy-to-let properties, however, in this case a property is let to multiple, non-related occupants. This style of strategy is typically popular in areas loaded with students. This type of property is popular in these areas as an alternative to student accommodation. An HMO investment can potentially earn a higher monthly income than a buy-to-let investment as each occupant is required to pay towards the rent. Meanwhile, this property investment has a lower time commitment than buy-to-lets as investors can often partner with companies that specialise in the rental process of these properties.
Serviced Accommodations are rented to occupants in a hotel style - think Airbnb. An investor would purchase a property suitable for this style of investment, typically in a popular area, a property which meets the needs and desires of their market. After adding value an investor will then furnish their property and rent it out on a night by night basis. Similar to HMOs, this style of investment is less time hungry as there are companies whom investors can trust to manage their rentals. In this strategy an investor will earn on a night-by-night, rental-by-rental basis rather than monthly.
ConclusionThe ultimate goal of property investing is to secure a property that is considered to be below market value, add value to this property and then earn a profit either through selling it on or letting it out to tenants.
There are multiple options available for investors in residential property investing ensuring they can effectively meet their objectives.
Investors have the opportunity to invest in a property and sell it on, moving onto their next investment or they can keep their property after adding value and rent it out on a basis that suits their ambitions. This will earn an investor a monthly income rather than an immediate ROI which is possible with the previously mentioned option.
Each strategy brings their own advantages and disadvantages, therefore, it is important an investor is clear on what they would like to achieve before committing to an investment. It is useful to set out a plan, outlining objectives and determining what action is needed to get there. This will also help investors envision the success of their investment.
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.