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Choose your property investment strategy

strategic planning Apr 24, 2020

When most people think of property investors, they think of buy-to-let landlords - but there are many different strategies to generate an income from property besides that.  Let’s look at a few of these:

Buy-to-sell

Also known as ‘flips’, this strategy involves buying properties with a view to reselling them at a higher price.  In its purest form this strategy doesn’t involve any refurbs, you literally buy a property and then put it up for sale again.  It works well using auctions to buy at - and you can relist your purchased property for auction with a higher reserve price. 

Experienced buyers at auction know that bridging finance means you can complete quickly and may even sell the property on within the 28 day completion period.

Buy-refurb-sell

This involves buying a property and then ‘doing it up’ and putting it up for resale.  This is a great strategy to use bridging finance for, as it means you get your money out for both the purchase and refurb when you sell.

If you use bridging finance to fund your property purchase you can buy properties that are unmortgageable and, consequently, are likely to be much lower in price - often up to 50% below market value.  The cost of refurb is unlikely to be anywhere near the amount you can get for a well-refurbed property.  This means that healthy profits can be made fairly quickly.

HMOs

This is a variation on a straightforward buy-to-let strategy.  The difference is that you’ll need a mortgage lender who is willing to recognise your property as different to a normal family home.  This takes you into the realms of commercial mortgages and you’ll need to ensure your property is a proper HMO - not just a normal house with numbers on the bedroom doors!

Using bridging finance to purchase your initial property, then doing a proper conversion with ensuite bathrooms, locks on the doors, a communal kitchen with appropriate storage and cooking/washing up facilities is essential.  You’ll only get a commercial mortgage if the surveyor can see the property couldn’t easily be a normal family home without significant structural work.

HMOs make higher rents per property and are a lucrative strategy if you’re prepared to do the conversion work properly.

Serviced accommodation

Realistically, this probably isn’t a strategy for a novice.  Getting finance for short-term lets can be challenging.  The lender will need some evidence of occupancy records and income per month before agreeing to lend. 

While becoming an Airbnb landlord may sound attractive, there’s more to it than just sending in a cleaner with fresh linen after each let.  If you’re planning to go into SA as a strategy, do your homework first and be sure you aren’t heading for financial difficulties if you don’t get the occupancy you’re hoping for.

These are just a few strategies, there are all kinds of others and some property investors use a mix of strategies.

 

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