What's the best property investing strategy for you?

• Posted by Ben James
• Date 4th July 2016
• Leave a comment

Whether you're just starting out investing in property or you've conquered one particular strategy and have got some spare cash to invest (spreading risk), deciding upon the next best strategy for you can be a bit of a minefield. There are many strategies available to create wealth from property and it can be quite confusing to find which strategy or finance option is going to get you to where you want to be within the timescale in which you want to be there. 

To help you decide which one is best for you we've put together this blog outlining your options. These include:

Buy To Let

This buy and hold strategy is the least innovative but most proven way to make long term cashflow and equity by buying houses or apartments with good yields (monthly cashflow) in local areas, that the majority of tenants would want to live in. 

Recent times have seen an expansion from single-let into multi and holiday lets due to the ability to earn more cash income thus increasing the annual yield and making the property worth more than you originally paid for it.  

Typically you can get lending on them more easily than other strategies and they are the relatively easier to manage should you have the correct systems set up - remember it's important to run buy to let like a business. Estateducation is able to help investors build property portfolios using a cash deposit as little as GBP 40,000 which within a relatively short space of time - 24 months - can build you up a good sized portfolio utilizing fixed low interest only rates thus protecting you from inflation.

Property Investing Strategy:

Buy-Refurbish-Remortgage: This allows you to force the appreciation of the property through refurbishment, and cycle one deposit pot, getting all of your own money (or Joint Venture partner’s money) out upon remortgage, and relating the process again otherwise known as rinse and repeat. Be careful not to make the mistake many do and that's refurbishing the property to your own tastes, it's important to cater to what the specific market wants for where the property is located. Concentrate on timeless and neutral colours. Don't get carried away and decorate the property in a 60's style because in three years time it will be out of fashion (meaning no one will want to live there) and you'll have to pay to re-decorate the property which isn't good business. Remember a good business is one that keeps its costs down and in business accounting terms, re-decorating would be considered research and development costs which no one likes to see on the balance sheet. 

Buy-Refurbish-Hold: This is where you purchase a property in an expensive area (lower yield), refurb to a high specification, and hold out until the value appreciates. If the property is in negative cash flow, you can use cashflow from some of your positively geared properties to supplement.

Office space: Buying commercial buildings and renting out office space to business professionals on an FRI (full repairing and insuring) lease. 

New build to let/sell: The process of buying land, building houses with the intent of reselling or holding for the long term. Considered to be cheaper than buying a block of houses as paying stamp duty only on the purchase of the land. 

Release profit in short leasehold apartments: Buy the property for cash, increase the lease, or get indemnity insurance, and set up or take over the management company (if there is a missing freeholder). This allows you to increase the value, remortgage (get back some of the cash) and rent the unit out.

HMO’s (Houses of Multiple Occupation)

As mentioned above, recent times have seen a demand for multi-let investing otherwise known as HMO's which instead of letting the property by the house or flat to one tenant, you let out individual rooms to increase the monthly income, cashflow and annual rental yield. The more rooms you can create in a property, the higher the income, the higher the property value when selling or re-mortgaging because HMO's come under commercial mortgages and commercial valuations are based on the income method rather than the comparable. Please note: When re-financing most commercial mortgage lenders require a joint tenancy agreement. 

Property Investing Strategy:

High-end Boutique: The most profitable model is the ‘Boutique' strategy because it allows you to target higher income earning tenants that are able and glad to pay more to stay in quality accommodation. It is also the strategy that requires the largest initial outlay of cash because of the expense occurred with purchasing more boutique furnishings. This strategy works well for high-end professionals near the town centre or more affluent parts of a town or city. 

Post grad/professional: This strategy doesn't require as much outlay as the Boutique one and it because there are a lot more people in the world with GBP 600 to pay in rent per month than GBP 2,500 you're targeting a larger market thus meaning demand outweighs supply. 

Blue collar: This is considered a larger market than professional/post graduate because tenants are less fussy about the quality of the accommodation or the sizes of the rooms thus meaning you're about to create an extra room and increase your monthly income, yield and overall value of the property. When it comes to blue collar, the property doesn't have to be in town centres, instead you can target local business parks, hospitals or industrial zones. Location, location, location. 

Student: Especially effective in University cities, and usually within one mile of campus though we recommend you check the demand via contacting the Accommodation Officer for the University and doing a quick check on Spare Room of rooms wanted versus rooms available. Voids can be higher because of holidays though this can be avoided by signing the students into an annual lease. Maintenance and management costs could also be higher due to the general cleanliness of Students though their expectations are lower thus meaning they're happy to live in shared accommodation of higher numbers. Further ideas for avoiding the voids during the summer months are to rent the property out as a holiday let using websites such as booking.com.  

LHA/DSS: Considered the ‘lowest’ end of the market, needing the lowest amount of capital outlay, but commanding the lowest rent per room, and requiring the highest management in time and costs. That being said, many councils are currently offering incentives to rent the property from you and cover both the management and maintenance costs therefore providing you with a consistent monthly income. Space can be maximised to great effect, and there is currently strong demand for providing the councils with these type of units. 

Rent to rent: We're not a big fan of this strategy ourselves as we believe it's open for the Government to change its legislation at some point in the future and like any business, it doesn't make sense to build a business that can be taken away from you in a second. Basically you rent a property that you could be converted into a HMO from a Landlord on a single let basis, and then you pay for the property to be converted into a HMO, which allows you to rent out multiple rooms with a management agreement. This enables you to generate the cash flow of a HMO, yet you don’t own it so there's no deposit, finance fees, legal or stamp costs, just  the cost to convert the property into a HMO. 

Bed & breakfast: This is where you can rent out rooms on a nightly basis inclusive of breakfast. Typically B&B’s involve private and family homes offering accommodations between 4 and 11 rooms. This strategy can be quite costly with operational overheads for providing food and drink on site. 

Serviced Apartments: According to reports, British companies have registered an ‘86% increase in the use of serviced apartments’ due to an unrelenting appetite for corporate accommodation as the key driver of this growth. Rather than staying in a hotel or B&B, tourist and professionals are looking to stay in short term accommodation that provides more of a home experience on a nightly basis. Because you're able to charge on a nightly basis, this means you're able to create more monthly cashflow thus providing a higher yield and return on investment. Beware though, the style you decorate and furnish the property is key, don't make the mistake many are of styling in a 60's or 70's look because in 3 years time the property will be out of date and no one will want to stay there meaning you'll need to pay out of profits to re-decorate which as mentioned previously isn't good business. Stick to time-less and neutral colours that appeal to the masses. 

Buy to Sell

If you're motivated by bigger lumps of cash in the short term or you want the maximum return on time invested (when exchanging time for money) then 'flipping' can fit your strategy. Its viability depends on market conditions such as being easier to flip in growing market but experienced investors are able to flip property through the entire cycle (expansion, equilibrium, decline and absorption). The trick is to sell early.   

Property Investing Strategy:

Re-modelling property: Find an apartment with a large living room and move the kitchen into the living room to create open plan living. You can then turn the kitchen into an extra bedroom and sell as a 2 bedroom flat.

Assisted Sale: The strategy, as the name suggests involves you (the investor) ‘assisting’ a seller (or representative of a probate sale) to sell their property. You are effectively doing a joint–venture agreement with the seller and getting paid for helping them sell their property. Typically, you'd agree a price that you'd pay for the property in its current condition then you'd pay out of your pocket the cost of the refurbishment to add value and any uplift from the price you agreed to pay to the value you've added, you keep as a profit. This is very attractive because your return on capital invested can be so much higher and usually within a 4-5 month turnaround. 

Cash purchase, sell on via vendor financing: Buying properties for cash then immediately re-selling them to investors who may not be able to conventionally get a mortgage but have a larger deposit. Enables you to earn interest if you've not got another property to invest into after selling. Similar to that of a bridging loan. 

Subject to planning permission: De-risking larger purchases by exchanging contracts subject to planning permission to convert commercial units to flats to sell on to first time buyers, owner occupiers or ma and pa landlords.

Converting into leaseholds: Buying a property on one freehold where the units are already carved up (or not), apply for retrospective planning permission/building regs certificate of lawful use, split the freehold and leasehold, create new titles and long leases and either sell or remortgage and rent out under a restrictive management agreement. 

Title splits: Purchasing land doesn’t produce monthly cash flow but can produced large sums of cash upon adding value. You sub-divide the land and sell the planning gain for profit after planning permission has been agreed. This is also known as increasing value through intellectual capital.

Commercial To Residential Conversions

With new relaxed planning laws, a specific niche opportunity has opened up whereby converting offices into residential comes under permitted development rights. Commercial (B1 use) property (offices) are now easier to covert into residential (C3 use) apartments. Previously planning applications, section 106 contributions (affordable housing taxes), community infrastructure levy (CIL) and other restrictions meant only seasoned developers could make any margin out of this niche. Profits can be made in one of two ways, upon obtaining the planning gain (change of use) sell the gain to another developer or convert the property yourself either keeping the apartments for rental income or selling/flipping them on for a more immediate profit.

Delayed Completions

Also known as EDC's or Installment Contracts, Delayed Completions is a variation on an option where you exchange on a property, thereby negating the risk of lost refurb costs. Once you exchange on either a 5% or 10% deposit, you basically own it, but you can then ‘delay’ completion, or own in ‘instalments’ over a period of time, often many years. This usually allows you to negotiate a works access and reinstatement clause so that upon exchange, you can start the work without yet having paid in full for the agreed purchase price of the property. 

Property Lease Options

This is similar to the Rent-to-Rent strategy we discussed above with the difference being that you take an option to buy the property at a later date. That options allows you to take control of the property giving you the right but not the obligation to buy it. You don't pay for it until the completion date which could be many years down the line. During the interim period, you would then generate significant cashflow by renting the property out via one of the many options discussed above. 

Joint Ventures

Joint Venture Property Investing really comes into its own as it allows leveraging the skills and experience of an experienced property investor with the funds of a joint venture equity partner to produce property profits that otherwise would not be achieved by either party without the other. Estateducation’s ‘hybrid joint venture model’ has a legal framework that provides the most tax-efficient way whilst also not entwining each parties personal and business finances too closely together. The ownership is shared via an LLP with a deed of trust protecting both parties interest.

Property Investing Strategy:

Crowdfunding/Peer to Peer lending: An alternative way of raising finance by asking a large number of people each for a small amount of money.

Private loans: These are loans not funded by the banks or larger institutions but instead from private individuals where favourable rates and terms can be negotiated with a loan agreement signed between both parties. 

Bridging loans: Short term funding options used to purchase a property quickly or where it cannot be purchased through traditional finance and where the rates can be rolled up or paid monthly.

Vendor (Seller) financing: Enables you to buy a property without the hassle and costs of going through a bank or other leading institutions. A great way to buy bigger buildings so the owner can receive a great income & interest without the hassle of dealing with tenants.

Property Sourcing / Deal Packaging

A packaged deal is a deal you sell a property you've sourced for a fee, for someone else to buy. This is also known as wholesaleing or property facing where you sell the lead using assignable contracts, sub-sales & option agreements. Client facing is where the clients pay you more to manage the process (purchasing, legals, refurb) and assist them building up their portfolios.

Property Investing Strategy:

Turn-key investing: This is where you buy, refurbish and sell properties to overseas investors seeking a great place to park their money. You will handle the management making the investment truly passive for the purchasing investor. Upside: you can charge higher fees.

Summary

If you would like any assistance on how we can help you move forward with any of these strategies or would simply like more information on how we can help you get closer to your property goals, then feel free to get in touch or simply leave a comment below, we would love to help.

Thanks for reading, 

The Estateducation Team.