Investing in property is not as simple as it appears on the surface, particularly if you have done some research before making your crucial investment.
Investing in property is not a ‘one size fits all’ investment, there are many different ways to invest in property. There are a number of factors you have to consider before making an investment of this kind.
Hence the purpose of this piece. To make the investment that is best for you, as an investor, you need to ensure that you have done your research and worked out the most suited investment to you, and the factors that will have the biggest influence on your investment. The first, and perhaps most obvious, is the budget available to you.
Most come to the conclusion that property is an unachievable investment due to the start-up needed to make a real profitable return. With a number of additional costs on top of the purchase of a house, including but not limited to stamp duty, conveyancing and mortgage fees, it is no surprise that many are skeptical of when the returns can be achieved.
However, there are many ways to invest in property with a whole host of budgets. Sure, buying a property outright on a mortgage will likely see a long-term return (given you have followed the other tips recommended on this list!) but for more short-term returns, with less capital, there are more options such as loan note investments.
Loan notes are an extremely popular method of raising finance for development projects, and this popularity is seen with good reason. The form of investment means that it is flexible for developers without the need to go through the bank, but also secure for investors, given there is a charge in place over the project, allowing the investor security to act as a bank.
The major point though is that you can invest at a much lower level. Investments have been known to be from as little as £5,000, which ROI year on year being seen as high as 18%. With this being incredibly hands-off also, this highlights the ability to invest in property-based investments with a much lower start-up. This is just one of a number of options when entering the property market.
Size of the property
Somewhat linked to the previous point, the size of the property you are looking to invest in will have a significant impact on the success of the investment type you plan to make.
Take, for instance, an HMO property investment. HMO investments have the potential to provide great returns if you are purchasing a larger property.
With recent changes coming into place making the requirements slightly harder for HMO properties, you will need to ensure the property you are purchasing meets these minimum requirements. However, on a basic level, the returns from three or more separate renters in a single property will be noticeably higher than if you were to let out the entire property to one tenant.
Similarly, you may opt for a smaller property with reduced initial capital needed. If you can get a great level of rent with some refurbishments and in a great area (covered next), the potential here is also an option. You need to consider how much time you are willing to put into your property investment – generally speaking the bigger the task and initial outlay, the greater the potential for returns.
Location of the property
As touched on in the previous section, the location of your investment will also be an essential element to your property investment and can often be the cause for the success or failure of your investment.
A great example of this is focussing on growing, developing cities across the UK. Take the north for example – Manchester and Liverpool, in particular, are experiencing high levels of inward migration due to a substantial rise in employment and improved quality of life in the city. Catching onto trends such as this at the right time allows you not only to increase levels of rent with increasing demand but also realize a substantial capital gain.
Depending on the size of the property, you can also target particular demographics of individuals based on the location of the property.
Looking at trends in the property market, and in an attempt to match supply and demand, there are many options for property investors to target specific demographics.
Take, for instance, students. Letting your property and targeting students is a fantastic way to achieve high rental returns with relatively low start-up costs required. Targeting university towns and selecting properties that are within walking distance to the universities (or at least good public transport links) is a great way to increase rental yields from your property.
Similar to an HMO, you can rent your property out to multiple tenants, and with demand high for shared living near universities, you are highly likely to have a steady stream of tenants for your property. You are not stuck with ‘bad tenants’, and recent findings show students are becoming some of the best tenants you can have. Again, this is just one example of how the location of your property can attract specific target demographics.
Purpose of the property
When thinking of investing in property, most jump to the assumption of residential use. However, investment in alternative asset classes, such as hotel rooms or general commercial use, is another great way to see high returns for your property investment.
On top of this, new build and off-plan property is a fantastic way to invest in property. With off-plan, in particular, you can often invest in the project before construction has started for a greatly reduced price. Not only do you benefit from this reduced price, but you do not have to pay the increased price that you would have from inflation, you already profit from this.
There are many ways to invest in property. Be sure to do your own research before making your investment. The security of bricks and mortar has always been a popular and secure method of investing, there are now more ways to enter this attractive investment market.
Jamie Johnson is the CEO of FJP Investment