There are numerous ways in which you can invest in property in the UK. Many industry professionals refers to these unique ways of property investing as strategies.
Different investment strategies include; Buy to let (single-let), Rent to Rent (R2R), Serviced Accommodation and holiday lets, House of Multiple Occupants (HMO) and Lease Option Agreements (LOA).
1. Buy to Let - (Single-let)
A single let is a fantastic investment strategy for investors who want prefer a low maintenance investment. Single lets are done through one tenancy/AST agreement. A Single let is a great place to start if you are new to property investing.
Advantages to a single let include:
Tenants are likelier to stay longer for a longer period of time.
2-4 bedroom properties make great single lets. This is because the target demographic of single lets are normally families or couples that could want the extra room to 'grow into' or expand. It's important to do your due diligence and to pin point properties with highest demand in your area before committing.
Disadvantages to a single lets:
As there is only one stream of rent meaning ROI and Yield are relatively lower in single-lets in comparison to HMOs which have multiple streams of rent.
2. House of Multiple Occupant (HMO)
A house of multiple occupants simply means a house occupied by multiple tenants on a multi-let basis, more colloquially known as a HMO. It is rented out room by room on separate AST contract per tenant. An example of this would be a student house or a house of working professionals. HMO’s generate a higher level of passive income in comparison to the single-let rent scheme-the more rooms the more streams of rent!
Advantages to HMO's
Multiple streams of income- higher profit
The house will be worth more and if within a city or town like most HMO's will likely benefit from capital appreciation.
Disadvantages to HMO's
More tenants in the house potentially more damaged
Higher letting agency fee
The tenant turnaround will most likely will be higher and you could potentially have voids for 3 months in the summer months of a student let.
Increased likelihood of voids if you cannot fill all of the rooms.
HMO's can be advantageous for cash-flow, however they are also more expensive and there are a lot more regulations that must be followed. Please see our HMO price and regulations blog post for more information. If you are considering student lets you might want to counter for an increased amount of damage to the property. Alternatively, you can hand pick the tenants yourself. Overall, HMO's generate a higher cash flow, but they also require a lot more work.
3. Rent to Rent (R2R)
Rent to rent is a strategy in which an individual or company takes over an existing property for a period of time i.e. 1-5 years and guarantees a fixed rent to the landlord. It is essentially sub-letting. This can be appealing to a Landlord as they will be void free for the fixed term.
The individual pays the landlord the fixed rental sum, while they re-rent the existing property either as a house of multiple occupants (HMO) or alternatively a serviced accommodation. This is a good cash-flowing strategy. IF DONE RIGHT -little to no capital is needed on a lot of Rent to Rent deals hence why it's become quite popular. Furthermore, a Rent to Rent can be set up without legal aid as you are not buying the property outright. No solicitors, less fees, more profit!
Advantages of a Rent to Rent
Little to no capital required-just the rent needs to be paid per month.
No debt or mortgage payments
Disadvantages of a Rent to Rent
The property is not actually yours so you will not benefit from capital appreciation.
You will need to be able to cover your rent every month despite voids.
You might need to pay for a light refurbishment of the property to achieve maximum rental income.
If you are planning on renting it out as a serviced accommodation you will also need to pay for a cleaning service as well as insurance.
4. Serviced Accommodation/Holiday Lets
Serviced accommodation is a rental strategy in which the property is rented out in shorter periods of time rather than fixed contracts. Usually listed on sites such as Airbnb and Booking.com they can be marketed to tourists and business contractors. This is why the location of the property is key to its financial success. Serviced apartments do great in cities and as it ensures the least amount of voids.
Advantages of Serviced Accommodation
Great cash flow potential
Can be done through a Rent to Rent
Disadvantages of Serviced Accommodation
Shorter tenancies higher risk of voids
Cleaning company fees
Higher risk of damage between stays
Serviced apartments can yield great rewards. However, they do require a lot more maintenance than your standard buy to let property. Serviced apartments will require a cleaning company and you will also need to decide how to let your guests into the property, if you decide to do this yourself, this can be very time consuming. Alternatively many people use lock boxes so they do not have to meet or greet guests, making the investment a lot more passive.
5. Lease Option Agreement (LOA)
What is a Lease Option Agreement or LOA? A lease option agreement is where a buyer offers to pay the vendor a certain amount of money per month for a fixed term, usually around 5 years. The buyer then takes full control and management of the property, taking it off the sellers hands whilst paying the amount agreed monthly. The property is then usually rented out. After the term is finished the buyer then has the option to purchase the property for the same price agreed, minus the amount of money they have already paid the vendor over the term. Depending of the area of the property it may have benefited from capital appreciation within the term which means if you decide to purchase it you will have got it at a discounted price. To draw up a Lease Option Agreement a solicitor must be used so you will have to pay the legal fees.
Advantages of a Lease Option Agreement
Property may have benefited from capital appreciation meaning you would have had a further discount on the property.
The down payment for a Lease Option Agreement can be as little as £1. However you will still be required to pay for the solicitors contract.
You can negotiate the amount you pay the vendor per month.
Disadvantages of a Lease Option Agreement
Vendor could potentially change their mind and challenge the agreement within the term (so make sure the contract is air tight)
When picking a strategy it's very important to pick one that best links with your goals , experience and financial