One of the biggest mistakes, particularly with new investors, is when you pick a strategy and run with it – without really thinking about your why. What are you trying to achieve? We're here to help...
Don't worry if the thought of tax trouble and terrible tenants fills you with dread because buy-to-let is not the only way to get involved in property. There are lots of different investment strategies out there to choose from and we’ll walk you through them so that you have the tools to make a choice that’s right for you.
Why invest in property in the first place?
Rental income – especially useful for the self-employed or retired to have a regular and dependable income stream
Capital growth – property prices often rise so you can expect to sell for more than you paid for it
Diversification – diversifying your portfolio means you won’t have all of your eggs in one basket
Beat inflation – with costs rising, property has typically been a great investment vehicle to make real gains
Houses of multiple occupation
HMO means house of multiple occupation. This is where you rent out a property by the room. This approach tends to generate more revenue than letting it as a whole. For example, you could take a three-bedroom house with two reception rooms, create a fourth bedroom, and rent out each room for £400 per month. As a single property, you might only get £1,000 – so the HMO makes £600 more in rent per month.
On the other hand, a HMO takes a lot more work to manage. You’ll get more wear and tear and there are more licensing requirements around it. You also might find it harder to get a mortgage than for a single let. These are all things to factor into your decision.
Programmes such as Homes Under the Hammer have inspired many people to renovate and sell homes on. Buying to sell, also known as “flipping”, is very different from other varieties of buy-to-let. There's no steady income or long-term growth. But if your aim is to make a profit quickly by buying at one price and selling at another, then this method could work well for you.
A rule of thumb for many flippers is to aim for a minimum profit of 20%. This is because there’s lots that can go wrong with flipping a house, including underestimating renovation costs and small fluctuations in the market. Unlike buy-to-let, a successful flip project could make tens of thousands of pounds in a matter of months, whereas you’re unlikely to make the same profits with a standard let. But you need to remember that flipping can also be very hands-on and there’s no regular income that comes with it. Different strategies work for different people and you’d need to evaluate what works best for you.
This is the Buy, Refurbish, Refinance, Rent strategy. It’s a popular model and a great way to build a large property portfolio quickly. By adding value to a property through doing it up, you can re-mortgage and sometimes pull out your original deposit in order to buy further properties.
Remember, one of the most important aspects of making money through property is the short term rental yield but also the capital appreciation. If you have a property in mind that you’re thinking of buying or renting out, why not see what it’s worth in the current market? It takes 60-seconds and is a great starting point for your investment journey.