Beginner's Guide To Property Investment
Posted on 18th November 2019 at 13:19
There are lots of factors to take into account before buying an investment property. It’s important to do your research and carefully consider what type of property investment you want to make. Your aim may be to purchase a property to rent out long term, or you may want a quicker return on your investment and prefer to buy a property to renovate and sell for a profit.
Here are some of the benefits of various different types of property investments:
Buy To Let
Buying a residential property to rent out to tenants can be a great investment with long term potential. It’s also a great passive income strategy as there is potential to make a profit each month whilst the property is tenanted. By owning a property and renting it out, you’ll also benefit long term by any growth in equity should the property value increase over time. Investing in a property to rent is a fairly low risk strategy.
As a landlord of a residential property, you will be responsible for collecting rent, resolving any repairs and maintenance issues and ensuring the property meets the relevant safety regulations and guidelines. You can of course utilise the services of a property management company to take care of everything for you.
Buy a Property to Renovate and Sell for a Profit
There are many pros to buying a residential property to renovate and sell. The fast return on the initial investment is one of the main plus points to this type of investment. Adding value to a property by undertaking renovations can result in a significant profit. By purchasing a property that requires some modernisation, completing the work within budget and selling the property for more than your total spend you can make a great profit relatively quickly. Some properties may require structural building work, whereas others may just need some cosmetic improvements.
Knowing your numbers and keeping track of your spend is essential with this type of investment. It’s important to set a budget and stick to it in order to maximise profits. Finding reliable tradesmen and suppliers is crucial to ensure that the project runs smoothly and within the required timescale. It’s worth considering using a managing agent as they will be able to source skilled tradesmen at the best possible price.
There are a few additional things to consider. Every street has a ‘ceiling price’. Whilst a property that is renovated to an exceptional standard can ‘break’ the ceiling price, it’s important to make sure that you don’t spend too much. This can result in the property being listed at a price that is considerably higher than the rest of the neighbourhood. It’s also important to factor in all of your costs including solicitors fees, estate agency fees and stamp duty.
HMOs, (house in multiple occupation) generally offer a good yield but can require a bit more time and attention than a typical buy to let. An HMO is a property that is let to multiple people (3 or more) that are not from the same family. The occupants will usually share bathroom and kitchen facilities but will each have their own bedroom. HMO’s are popular in areas with a high population of students but are also a popular choice amongst young professionals due to the lower costs involved when renting a shared property.
There are some important factors to consider if you are interested in renting out your property as a HMO. Funding can often be more difficult with an HMO due to the fact that there is considerably more legislation than a regular buy to let. It’s important to ensure that there are enough cooking facilities and bathroom facilities to accommodate all your tenants and all the bedrooms must be of a certain size. You may also be required to obtain an HMO licence from your local council. You can read more about HMO legislation here.
Buying Off Plan
Buying a property off plan means that you purchase the property before it has been built. You might purchase the property before construction has even started or whilst the property is under construction. As an investor, there are many benefits to purchasing off plan. You will often be able to secure a discount on the property, meaning that the property could be worth more than what you have paid once the build is complete. Purchasing off plan is also a great option when purchasing for buy to let purposes as the property along with all its fixtures and fittings will be brand new with no work required. New build properties usually come with the added benefit of an NHBC guarantee. The NHBC can last up to 10 years and will cover any structural issues. Natural wear and tear and weather damage are not usually covered.
Investing in property doesn’t necessarily mean buying a property. Purchasing land for a property (or multiple properties) to be built on is also a great investment opportunity. It’s important to do your research before purchasing land to make sure that you can meet your objectives. Make sure you are aware of any restrictions as there may be specific rules regarding what you can and cannot build. You will need to obtain planning permission and may face restrictions regarding the size, height and the number of buildings that you can construct. There are also many other factors to consider such as whether the land is located on or near a flood zone, how easy it is to provide utility services and a water supply for the property and any other environmental restrictions.
A joint venture is where two or more people combine their skills and resources in order to purchase a property or execute a development project. Joint ventures are usually mutually beneficial with each party benefiting from the partnership. You may decide to enter into a joint venture for financial reasons or to utilise the skills of someone who has more experience and resources at their disposal.
Joint ventures can be a great option when making an investment, although they aren’t always the best choice. Joint ventures are most successful when both parties bring something different to the table (for example a builder may partner with an investor who can help fund a development project whereas the builder will provide skills, expertise, contacts and resources).
When entering into a joint venture, it should be very clear who will do what from the outset. Make sure you agree on how the joint venture will be structured, have a clear plan in place and get a solicitor to draw up the agreement for you.
There are many benefits to investing in commercial property rather than residential. Commercial leases tend to be for a longer term, resulting in more long term tenants. When renting commercial property, the tenant will often be responsible for any maintenance or repairs that are needed on the property. Problematic tenants are also less of a concern with commercial property as the process to evict a tenant is a lot more straightforward and less time consuming than it is with a residential property.
Investing in industrial property such as warehouses and storage units provides a great investment opportunity. With the rise in online businesses and startups, more and more businesses require storage and distribution space rather than customer facing shop fronts. There are many business sectors that require industrial space such as manufacturing businesses, mechanics and large scale distribution and logistics businesses. Industrial properties are generally low maintenance buildings with the added benefit of the tenant holding full responsibility for any repairs or alterations needed.
Retail units and offices also have great investment potential. Retail property includes shops, restaurants and shopping centers. Retail property may be multi lets or stand alone properties rented to one tenant. Offices may also be multi tenanted or single lets. Office premises can vary in size from a single office to a large office block consisting of multiple units.
There aren’t many downsides to investing in commercial property, although it may be more difficult to acquire a mortgage due to the fact that commercial mortgages generally require a higher deposit. It can also take time to find a tenant resulting in longer periods of the property remaining vacant. You may also experience less capital growth with a commercial property than a residential property.
Commercial leases are often more technical than residential leases so it’s worth using a commercial agent who can offer expert advice and take care of the legalities for you.
Whether you decide to invest in residential or commercial property, it’s important to consider how you will manage the property and whether you want to do this yourself or utilise the services of a property management company.
There are definitely benefits to using a management company as you won’t need to worry about collecting rent, dealing with difficult tenants, resolving maintenance issues or finding new tenants for your properties.
At Amco, we can take care of everything for you. We are experts in all areas of property management, specialising in both commercial and residential property.
Tagged as: Investment
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