Property Strategy

It is common knowledge that investing in property is a safe way to invest your money against the corrosive effects of inflation, and to make your money work harder than sitting in the bank accumulating marginal interest. However, what is not common knowledge is that there are many different property strategies available to investors of all calibers, and with different levels of investment capital. Let’s briefly discuss the different property strategies that are available to us and their pros and cons.

The most vanilla brand of property investment is Buy to Lets (B2Ls). Usually requiring a minimum of a 25% deposit, and yields anywhere up to 10% depending on location, purchase price, management fees and several other factors. It is the least labour intensive, and arguably the least exciting in terms of ROI.

HMOs are B2L properties on steroids. The principle is much the same, however instead of letting the property out as a whole, we rent each room individually. This works very well in certain areas, especially near universities as students need accommodation and often want to live with friends. The advantages include a higher profit margin, but this in turn requires more time and effort.

Serviced accommodation is letting properties out on a short term basis for holiday makers, a day or two at a time or to corporate lets at a few weeks. This strategy can be classed as quite a modern strategy and was gaining popularity before the Covid pandemic hit and may see a revival once the majority of the population have been vaccinated. Advantages include no tenant issues, as residents are in effect the same as hotel guests and have no rights to stay. You will also get a much higher return on investment, possibly doubling or tripling potential income compared to if the property was let on a single AST, however, this is more labour intensive, as guests need looking after, sheets cleaned, and general continual organisation of the property is required, and this has associated costs.

As with B2Ls, we have to own the property to be able to bring it to the market for rental. With Rent to Rent (R2R), you could be earning an income from a property that is not yours. The strategy involves renting a property from a landlord or such, and reletting the property out and managing it yourself. Some of you are already thinking, why not do rent to serviced accommodation (R2SA), and this is also a great strategy for those who don't have a pot of cash to start out their property journey - or those who just want to leverage properties to cashflow quickly. The potential downside is you could be liable to pay rent to a landlord when you are not generating an income from the property, so instead of creating a cash flowing asset, you could end up with a money hungry beast!

The next strategy is a gander into property development territory. It involves buying an unloved property, and doing work to it to bring to a desirable and marketable condition. You may have seen Homes Under The Hammer or similar shows which showcase this strategy. It is great for making big chunks of money, however, a large capital pot is required to purchase the property in the first instance. This can be taken a step further and value can be added by adding rooms. This can be done by splitting up internal areas, converting garages, creating another bedroom above a garage or doing an attic conversion.

Commercial property involves anything that is not residential. This includes shops, offices and warehouses. Acquiring a commercial property and leasing to a long term tenant is a good way to build a passive income. Rents are paid quarterly in advance, tenants can be evicted after 21 days of non payment and tenants usually sign up for long leases often spanning a decade or two. There is no capital growth in the building, as value is dependent on the strength of your lease with your tenant, including length of the lease, the rent, break clauses and several other factors. Your pension pot can earn tax free income by owning commercial property through a SIPP or a SASS. For me, the upsides make this strategy a great long term strategy that is closest to a passive income as possible.

The final strategy to be discussed is commercial conversions. This is repurposing commercial space into residential units through planning or permitted development. It adds significant value and in the right area can make you “Ferrari Money”. It is highly complex and takes a skilled individual to negotiate the pitfalls, however, the profitability alone makes this a very intriguing strategy.