The term “property investment” covers a wide range of different options with very different characteristics. This is great news for property investors because it means that there is a range of different options to suit different budgets, investment styles and risk profiles.
As a result, most new property investors start their property investment journey by learning about the various options and deciding which investment is best for them. Director of Indlu, Manchester Estate Agents; Mark Burns shares his advice on how you get started with your next property investment.
For years, if not decades, residential buy-to-let has been the bread-and-butter of property investment in the UK and despite all the changes in the sector it still is. The simple facts of the matter are that everyone needs somewhere to live and that many people either want or need to rent.
There is still plenty of profit to be had in the residential buy-to-let market, but there is also a lot of regulation to navigate as well as a complex tax landscape. This has led some property investors to exit or avoid this sector and those who remain, are increasingly having to work in a highly professional and formal manner, for example operating as limited companies and using lettings agents.
Over recent years, commercial property has become something of a refuge for property investors who prefer to avoid the heavy regulation of the residential buy-to-let market. Rather ironically there is high demand for property which is effectively residential but is treated as commercial, such as purpose-built student accommodation and retirement homes.
There is, however, also high demand for commercial property which works for modern businesses especially those of SME size or smaller. This includes serviced offices (co-working spaces) and short-term serviced accommodation.
The advantage of commercial property is that it can provide a reliable, passive income, as it is entirely managed. The disadvantage is that investors do not usually benefit from capital appreciation the way they can in other sectors of the property market.
Short-term lets are a specific niche of commercial property, but as they are usually wholly-owned by one investor, that investor can benefit from capital appreciation. Short-term lets can generate outstanding yields but they are very high-maintenance and are also becoming much more tightly regulated.
A house in multiple occupation is a residential property which is rented by three or more tenants, who aren’t part of the same household but share toilets, bathrooms and/or kitchens.
Rooms in HMOs are generally in high demand from tenants, especially those on a budget. This means that, with careful tenant selection, investors can achieve solid returns while spreading their risk.
Rather ironically, however, HMOs are not necessarily popular with local authorities and when they are permitted they are often subject to strict licensing requirements.
This sector of property investment may make for great TV but it’s so hands-on and has such a high potential for expensive mistakes that it’s probably the absolute worst place for anyone to start in property investment.
The sole exception might be people who already have extensive experience working in the property sector and are now branching out on their own.