Those who have experience in property and have continued to self-educate will understand that there are various property investment strategies that can help build your income and capital growth. Each strategy may provide different benefits but also varying risks. Below is an explanation of three of the most popular strategies used in the world of property investment.
BUY TO LET
This strategy involves buying a property for the sole purpose of leasing the whole property out. "Renting" is a popular option of accommodation for a large number of the population and therefore creates demand for property to be available to rent. You will require a special buy to let (BTL) mortgage, not a normal residential mortgage when purchasing this investment property. These BTL mortgages normally require around 25% deposit and will have higher interest rates than residential mortgages. Many investors choose to take out an interest-only mortgage so their monthly payments are lower, therefore they have the higher cash flow available.
The goal is to create a positive monthly cash flow from the rental income and also to create large sums of money if the house increase in value over time, allowing you to remortgage or sell to release this equity.
Financial freedom is very possible through buy to let properties, but often investors will need multiple BTL properties before they are financially free due to lower monthly cash flow figures when compared with other strategies.
HMO (HOUSE IN MULTIPLE OCCUPATION)
House in multiple occupation explains itself - it is a property strategy that involves renting out a property to multiple different individuals, usually on a room by room basis. This is very popular amongst students or young professionals who are studying or working within larger towns or cities. The properties do normally have at least 3 bedrooms and must meet specific requirements and criteria in order to be classified and rented out as an HMO. Each tenant will pay a monthly sum and that will cover all of the rent and bills such as gas and electric, internet, etc. This differs from your normal BTL.
Mortgage lenders will take into consideration many different factors when offering finance for an HMO, so it is best to talk to a mortgage adviser and receive specific advice.
The benefit of this strategy is that the monthly rental cash flow can be high if you can keep high occupancy rates high. The downside can be high tenancy turnover rates due to the nature of student turnover.
Overall, this strategy can provide you with great cash flow and still has the capital growth element but generally requires more work due to the nature of the tenancy turnover.
Becoming increasingly more popular is the serviced accommodation strategy. Serviced accommodation involves renting out either a room or a whole property per night as opposed to the normal longer-term contracts. Effectively, you are turning your property into a hotel and thus placing yourself in the market as an alternative to hotels, B&B's, Guesthouses or hostels. With the rise of AirBnB and Booking.com, this strategy has blown up in popularity due to its potential for large monthly cash flow. This is due to the demand for short-term accommodation which means prices remain competitive but profitable.
Unlike the BTL or HMO strategy, the quality, cleanliness and service given must be of the highest standard if you are to receive continuously high occupancy rates. Your customers will expect the property to reflect the price they have paid but at a basic level must be clean, warm and provide all essentials that would be found in a lived-in home. This means that you would need to clean the property or room after each visit and replenish any consumables used.
The work required in this strategy is far greater than the previous two but again, the rewards are higher. One or two well-run serviced accommodation properties could well provide financial freedom for the investor.
If you would like to learn more about these strategies and how you can get involved in property investing, please contact me.