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June 2, 2020

Property Investment Strategies – Part 1

Read the first half of our 2-part guide to property investing.

There are plenty of property investing strategies out there with varying degrees of complexity.

Knowing the one that is right for you can mean the difference between success and failure.

For the sake of relevance, we’ll focus on the main ones that are promoted to overseas investors in this article. While covering some of the more complex options in part 2, giving you more clarity on which may be right for you.

By far, the most popular strategy promoted to the overseas market is buy-to-let. Usually, the properties will be either off-plan or already built. But, before we cover the difference between the two, let’s look at what buy-to-let means.

Buy-to-Let

Buy-to-let means you are purchasing a property to rent it out. These properties are usually residential. However, the term can sometimes encompass student accommodation and hotel room investments. We will cover both of these more thoroughly in part 2 of this article. But for now, let’s focus on the traditional buy-to-let that you would rent out to a family, young couple, or working professional.

It’s one of the most straightforward & hassle-free ways to invest in property, and if you research it correctly, get the numbers right, buy a decent place and treat your tenant well, then it’s pretty hard to go wrong.

Through this type of approach, you will be looking to make money in two ways:

  1. The appreciation of the property over time
  2. The rental income you receive after costs

The good thing about this strategy is that it doesn’t take much time to manage. Plus, it’s simple to understand and easy to finance compared to other approaches.

If you are looking for a predictable way to build a portfolio that will grow over time and produce a steady income, this could be a good option. It might not offer the highest returns compared to other strategies. However, historically it has performed strongly and is relatively low risk, that’s why it’s the majority of investors use.

In the overseas market, these investments are often promoted as off-plan/new-build, or already build.

Off-Plan/New-Build

Off-plan/new-build means that a building is still in the development phase or has just been built. When buying off-plan, what you are buying is the right to purchase a property on completion of the project.

To give the buyer an idea of the investment, the developer will provide architectural designs, floor-plans, amenities details and an investment case of the project and the area it is located. They will also provide a price list and details of the purchase process.

If it’s still off-plan, you won’t be able to physically see this property as it could be a couple of years away from completion.

Pros

  • You can secure purchase below market value
  • Capital growth can be locked in from the start
  • You may have the ability to resell the property at a profit before completion
  • Ability to buy with a small deposit
  • More flexibility to plan and save
  • The property will usually come with a warranty covering any construction issues
  • You gain peace of mind knowing you have a new property

Cons

  • If there is a market downturn the property could lose value
  • A change in employment could impact the purchase
  • The mortgage market may change
  • The developer could become insolvent
  • The property may not meet your expectations
  • The contract may not allow you to resell before the completion date
  • There may be delays in construction
  • If the project is phased, you risk living next to a building site

Existing property

If new-build isn’t your thing, there is also the option of buying something that is already built. The UK has a lot of stunning properties on the market, from Edwardian properties to Victorian terraced houses and everything in between.

Here are some of the pros and cons of investing in an already built house or flat:

Pros

  • Existing properties are more likely to have developed communities
  • Older homes tend to be larger and offer more space
  • You get what you see
  • Potential to add value through renovation

Cons

  • The seller may be harder to deal with than a commercial developer
  • There could be the drawback of higher maintenance costs
  • The property might not be as energy-efficient as a new-build
  • The property could require a lot of renovation to make it livable

Conclusion

There is no right or wrong choice when it comes to choosing between a new-build or an existing property. It depends on your personal preference and what you want from the investment. The key is to have all the information about your preferred option before you agree to exchange contracts. If you are buying new-build, it’s important to buy from a developer with a proven record to avoid disappointment.

Understanding the pros and cons will save you time, stress, and money. Working with experienced companies and advisors in any approach is the best way to succeed. You need people that know the local market and the rental dynamics and know that what you’re considering meets your budget and investment goals. Follow all of these points, and either option can be a great way to invest.

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Article by: Rory van den Berg