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There are several ways to make a living out of properties. Having capital broadens the options, but not having money to invest is not an obstacle to getting started in the industry. Here we’re looking at common investment, rental strategies that you could use to get started, and on your way to this popular asset class.
Vanilla Buy To Let
Vanilla Buy To Let is the strategy that most property investors start with and is by far the most popular and well-known. At its heart, a purchase to let is a property purchased with the intention of renting it out, usually to a couple, a family or a single person.
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In other words, this is the ‘traditional’ way of investing in properties.
Who is this technique tailored to?
Investors who have the funds ready to spend on deposits and who have a good credit rating to allow them to collect finance.
It is still common for buy-to-let landlords to increase their portfolios by optimising mortgage financing. However, recent legislative reforms to mortgage tax exemptions and stamp duty increases for second homes have made this activity somewhat less straightforward. Nonetheless, at Property Investments UK, we agree that recent press articles about the impact of ‘death of buy-to-let’ are nothing more than hyperbole.
Selling Leads
Working with property does not always involve large deposits. By choosing a strategy that works for you, you can create a very small property business.
What is involved in this strategy?
Building a portfolio of rental properties, whether you have vast amounts of cash or not much at all, always starts with your ability to find the right properties and deals.
If you are only just starting out, you might want to build up your income by deciding to trade these leads and deal with other investors.
To succeed in this, you’ll need to do your own marketing and get the sellers to contact you directly. You ‘re also going to want to increase the value of the leads you collect by qualifying them or even negotiating a deal before you sell them. The more work you do on the lead, the more you’re going to be able to sell it.
Who is this technique tailored to?
This strategy will be tailored to people who are skilled at finding and negotiating property deals, who do not yet have the funds ready to invest in property but still want to operate in the real estate investment industry.
Buy-Refurb-Refinance
The cornerstone of this strategy is figuring out how to use leverage to grow your money and portfolio more effectively.
What’s involved in this strategy?
The buy-refurbish-refinancing strategy involves taking and recycling your original deposit so that it can be used over time to purchase multiple properties.
The method is to purchase the property in the normal way, and then force the appreciation of the property through renovation.
When you increase the value of the property you remortgage, you withdraw your original deposit and the cost of renovation for use on the next property.
Who’s this strategy suited to?
This strategy is not designed for beginners and requires experience in managing refurbishment costs, knowledge of how mortgage products work, good refurbishment and, of course, the skills needed to find suitable properties where significant value can be added.
Property Joint Ventures
Joint Property ventures obviously involve two or more parties in the joint Property Project. Usually, one of the joint partners will supply the money while the other will supply the skill. When you don’t have a lot of capital, this can be a fantastic way to develop a real estate business using OPM (other people’s money), and if you do, this approach will give you access to the expertise and connexions required for success.
What is involved in this strategy?
Property Joint Ventures are a joint venture between various parties to collaborate on a shared property project (JV agreement). More often, each of the parties involved will contribute something different, whether that be capital, skills, contacts or resources. The risk is often shared too.
There are six steps:
- Understanding, completely, what you’ve got to offer.
- Understanding exactly what you’re missing.
- Choose a partner who comments on your talents or circumstance.
- Finding a project to work together.
- Establishing a partnership agreement.
- The sharing of risks and rewards.
Who is this strategy suited?
There is no one-size-fits-all when it comes to joint ventures. A successful partnership requires honesty among partners which includes complementary skills, assets, contacts and the ability to communicate. If anyone of the partners lies or overestimates their abilities and what they can do, their joint partnership will be in a lot of trouble.
The chances are, however, that the person who puts the strategy into practice will likely either be the partner with the money or the partner who ensures the success of the whole project. If you want to be a project manager, then you need to be very confident that you can get the job done.
HMO’s
A HMO is any property that has shared facilities (like bathrooms and kitchens) that is owned by three or more individuals or companies who are not family members. They make fantastic investments, not least because they can generate a rental income that is much higher than what can be achieved through a simpler purchase-to-lease.
What is involved in this strategy?
HMOs can be purchased as HMOs, or more regular houses can be upgraded to allow more tenants. But, of course, the HMOs are more difficult to handle than the easy buy-to-lets. Not only are there more tenants to handle, but HMOs also have more laws and regulations attached to them.
In short, the HMO strategy involves:
- Research the best area for the HMO
- Talk to the local HMO officer.
- Ensure that the fire laws are complied with
- Renovate the property
- Add value
- Find the right tenants.
If you are trying to convert a property to an HMO, there will be a planning process where decisions need to be taken on how many bedrooms there will be. You’ll need to think about how many bathrooms you need, public areas, en-suite bathrooms and décor – right down to nitty-gritty things like smart thermostats, LED lighting and TV licences.
Who is this strategy tailored to?
You’ll need cash to invest in HMOs, either for a mortgage or to purchase the house right away. If you want to convert an existing property to an HMO, you need to be able to fund that project as well.
If you’re new to investing in properties, there’s no reason why your first investment shouldn’t be a HMO. HMOs are more complicated than a simple purchase-to-let. As such, you’ll need to make sure that you do your due diligence to ensure that there is a rental demand in the area you are looking for and that your finances are properly organised.
Lease To Let
Getting started in real estate doesn’t necessarily require a lot of money. There are strategies in which a ton of profit can be made without the need for any or very little investment. One of those strategies is a lease to let.
What is involved in this strategy?
The lease is where you take over the management of the property from the landlord and then rent the property out as a property with single rooms.
You pay a fixed monthly fee to the landlord, agreed under a lease or management agreement, and take over the property, covering all void periods, rent arrears and maintenance costs, after which any remaining income is yours.
Who is this strategy suited to?
The lease to let option is not recommended for those just starting their property investment journey beginners. It is an investment strategy that will require you to be an expert in handling tenants. You will need to manage a legal mine-field because leasing is not that common in UK residential property. It may, therefore, be difficult to put lease agreements in place.
Property Sourcing
This is similar to selling leads but requires more effort and the gains are very good. It’s a perfect property strategy to get started. You can start earning very quickly if you have the skills to find and negotiate deals.
On the other hand, if you’re an experienced investor, you’ll want to hire a property sourcing agent, this will enable you to grow your portfolio much faster than you could manage to do so on your own.
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What’s involved in this strategy?
Property sourcing comprised of a property sourcing agent who finds and negotiates property deals that they then sell to property investors.
The amount a property source charge often depends on both their level of experience and the amount of work they have done. For example, a property source who has entered into an agreement whereby a fully leased property, negotiated at a discount, with a leasing agent and possibly a refurbishment team already on board you will be able to charge a higher fee than a sourcing agent who does not have one of these elements in place.
Who is this technique tailored to?
While property sourcing needs you to know how to find and negotiate a good deal, not to mention knowing how the property market operates and what investors are after, it is also a good way to learn ropes in a fairly risk-free manner while securing property income quickly.
Social Property Investment
This strategy deals with social and more affordable housing solutions for those affected by the UK’s housing crisis. With the recent spike in homelessness, it has become evident that more affordable housing solutions need to be available. This property strategy does focus on adding social value to investment properties however it is a very profitable market and is set to grow especially in the midst of recent financial crashes, redundancies and loss of income as a result of the worldwide pandemic and social injustices.
Since the Homelessness Reduction Bill and the Housing First Homelessness Strategy has come into force. Local authorities and other related government and non-government organisations are starting to be much more flexible in their thinking about housing.
What is involved in this strategy?
Social property investment involves housing people on the Local Housing Allowance (or, increasingly, Universal Credit), those who were formerly homeless or identified as vulnerable. It is not advisable for property owners to seek to go with social tenants on their own. This strategy requires a high level of involvement between the landlord, the local authority and other third-sector organisations.
Who is this technique tailored to?
Land developers with available HMOs, in the right places, to meet the increasing demand for social housing. We suggest that anyone wishing to attempt this property strategy should do so only after they have formed comprehensive relationships with support services and organisations.
Serviced Accommodation
Serviced accommodation are properties that are fully furnished, available for long or short term use and which may also have amenities close to them, especially serviced accommodation that is provided by hotels. This type of property is usually rented by companies that need to provide temporary accommodation to their employees away from home.
What is involved in this strategy?
There are different ways to approach this property strategy, but for the investor, the process is usually very hands-off. An investor hands over his property to a professional management rental agent, the agent, then takes care of everything, including bookings, meetings and furnishing the properties for you.
Who is this strategy suited to?
While anyone who owns a property can potentially transform it into a serviced property, this strategy is very location-specific. As with corporate clients serviced flats, need to be located in cities or places with a strong commercial base.
Property Crowdfunding
Property crowdfunding is a practice of financing a property by raising money from the ‘crowd’. Crowdfunding platforms like The House Crowd. The funds for the property are provided through the online platform, and each investor will make up a small percentage of all of the contributions combined.
What is involved in this strategy?
Investment opportunities are marketed on a crowdfunding site with terms and projected returns on investment, and investors are encouraged to invest. There is often a minimum amount to be spent on the deal. Most are £1000; however, this can vary.
These types of investments are entirely hands-off. Investors are not expected to deal with refurbishments, landlords, agents or any other third party. It’s just a matter of putting in money for a certain amount of time and accruing the rewards. But, like all investment, it is important to remember that this is not risk-free. If the project does not work, the investor will lose its capital. Usual return on investment is around 10% per annum, and there may be a return of your investment after a said period of time after which you will no longer profit from the property. This could be as a result of the sale at the end of a refurb in which case you may also be eligible for a share of the profits rather than its rentable ROI.
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It’s an extremely smart way to diversify your investments and spread your money through a range of assets and ventures.
Off-Plan Properties
Off-plan properties are new construction developments that are not ready for tenants to move in. Therefore, the investor buys them unfinished and waits for them to be ready for the rental market before either selling or renting out.
What is involved in this strategy?
Off-plan properties can also be acquired at a reasonable discount and are also seen as reasonable assets due to the amount of capital appreciation they can see between the time they are purchased and the time they are ready for the rental market. But growth can not be guaranteed. So, while new buildings are big investments in 2024, you’ll still need to do some due diligence to make sure that the numbers add up before you start factoring in your growth.
Who is this strategy suited to?
Investing in off-plan property is an advanced strategy that requires investors to have cash available for deposits or to have the full amount available. As a result of new projects, a developer would need to have a very good understanding of the construction and the environment in which it is situated, and because many off-plan properties are also off-site, a developer would also need strong industry connexions or work with someone who sources land.
Purpose-Built Student Accommodation
Purpose-Built Student Housing (PBSA) appears to mean purpose-built student accommodation. There has been a nationwide shortage of accommodation for some time, and students are now calling for more from their rent. As a result, they are predominantly living in PBSA, where not only will they not place a burden on the local housing stock, but they may also enjoy the advantages of living where they have a kitchen and a bathroom for themselves, their expenses are included in the rent, their accommodation is completely furnished, there could be a gym, a recreational area, and there are staff available to support them in case they need assistance.
As an investor, PBSA operates in much the same way as serviced accommodation. The investor buys one or more apartments in the building and pays to the management company, which is in charge of the building, to take care of everything else. The management firm must locate tenants, collect rents, and deal with maintenance problems. The only real concern of the investor is to buy and sell the property if they want to release their money.
Who is this strategy suited to?
This strategy is best suited to investors who have a more hands-off approach to their investment portfolio. They usually don’t have anything to do with the property itself and can often afford to buy the properties outright. These types of properties can be fairly inexpensive, maybe as little as 60k, even in high-demand areas. But they can’t be mortgaged, so this type of investor is best suited to PBSA properties. These properties are also appealing to the parents of teenagers going to college who could benefit financially by actually buying student accommodation for their child rather than renting/leasing it and means they don’t have to give them money to pay rent!
Buy-to-let investors and portfolio managers who seek to stabilise their portfolio by adding cheaper properties without the use of financing could also benefit.
Things to be kept in mind
Purpose-built student accommodation can give high yields (10 per cent, in some areas), the landlord is often well paid in advance, and the tenants tend to line up well in advance of their tenancies. But, despite being hands-off, the landlord still has to do his due diligence when he buys.
The demand for PBSA is strong, but it’s not the same everywhere. It is important to carry out research on the supply of housing in the area you are interested in and check the demand for rooms in the building that you’re looking at. You will also want to take into account the performance and desirability of near-development universities and make predictions about the future of the local student population.
You’ll also need to work out your exit strategy. This kind of investment is still a niche, and you will be limited to selling to cash-purchasers only.
All of this said, however, that PBSA is a growing market, and it seems unlikely that students will begin to return to the more traditional shared housing arrangements of the past.