The best property investment strategy

There are so many ways to invest in property. Lots of different strategies each with their own pros and cons. But which is the best property investment strategy?

If you speak to lots of different investors, you’ll probably get lots of different answers. That’s because it depends on your own personal circumstances and what you’re trying to achieve. The best strategy for one person could be a terrible strategy for another.

In this article we help you to understand all the considerations to find the best property investment strategy for you.

The best strategy for you

The best property investment strategy will be different for everyone. This will be determined by your own personal goals, circumstances, resources, and skill set. Here are the first things you should consider.

Your goals

Each strategy will be aimed towards different outcomes. Some may be more focused on building equity over the long term. Others may be more focused on maximising cashflow in the shorter term.

Although it’s tempting to want everything, there is always a trade-off. The type of property that has the best likelihood of capital growth is unlikely to also have the highest yield.

Start by considering your priorities and what a successful outcome would look like for you.

Your time

Some strategies will naturally require more time input than others. That’s why it’s also important to consider how you want to spend your time.

If you have plenty of spare time, you might consider a hands-on strategy to create more value. Or maybe you already work long hours and have a busy family life. In that case, a hands-off strategy might be more suitable.

Remember to consider your time in future, not just your time now. If your goal is to have more time freedom, you need a passive strategy in the long term. However, you may still decide to commit more time now to accelerate your progress.

Your skills and resources

In addition to time, you will also require money and skills to invest in property.

All property investment strategies will require some money. The more you have available to invest, the more options you will have. If you have less money, you may need to make up for that with more work.

If you have relevant skills, refurbishing a property to add value could be a good strategy. Particularly if you work as a tradesperson and can do the refurb yourself. This gives you a big advantage over somebody who would need to pay for trades.

If the idea of even the most basic DIY scares you, a hands-off strategy will be better.

Even if you do have the skills, remember to account for the cost of your time. If working on a property takes you away from paid work, that is a cost to factor in.

Property investment strategies

You are clear on your goals and have considered your time, money, and skills. So, now you can begin to consider the best property investment strategy for you.

Whichever strategy you choose, keeping yourself well informed is vital to success in property. I post helpful tips and strategies every day on LinkedIn. Follow my page and reach out if you need further advice.

Here are the most common strategies you may consider.

Buy-to-Let (BTL)

In its simplest form, BTL is just buying a property and renting it out. It’s therefore the simplest strategy to understand and the easiest to implement.

You will typically make money from both rental income and capital growth. It should be considered as a long-term investment. Capital growth is where the biggest returns are made and this happens over time. Steady rental income provides cashflow in the short term and this will grow over time too.

If your goal is “passive income” or time freedom, this could be a good option. BTL is the most passive strategy so is great for investors wanting to be relatively hands off.

Risk here is relatively low and easier to manage. It mostly comes down to getting the right property in the right area.

Buy-Refurbish-Refinance (BRR)

This strategy is very similar to Buy to Let. The difference is that you try to force the capital growth by adding value at the start. This is usually through a refurbishment.

You then refinance, taking a mortgage at the new increased value, and rent out as normal. The refinance allows you to release some of the equity you have gained. This can then be used to reinvest into your next project to scale faster.

This is a very hands-on time intensive strategy at the beginning. However, the time input is front loaded, then it can become a passive BTL once it is rented out. It suits a tradesperson or somebody with the time and skills to do the refurbishment. It can be possible to project manage a refurb and pay tradespeople to do the work. However, remember that is extra cost that will eat into your profit.

You will need more capital for this strategy. There is also more risk. If you overspend on the refurb, you could spend more than the value you add.

Flipping

Property flipping is like BRR in that you are attempting to add value, usually through refurbishment. The difference is that you then intend to sell rather than rent out afterwards.

This allows you to release all the profits, rather than just part of them through refinancing. It’s common for investors to do the occasional flip in between BRR projects when building a portfolio. This helps to rebuild their cash pot as it’s rare to get all cash back out of a BRR project.

This isn’t really an investment strategy. It is a business or a job in property, since income relies on continually working. However, it can be a good way to make extra money if you have the relevant skills.

This strategy requires more upfront capital or access to short term financing. The risk comes from market fluctuations. You may struggle to sell quickly for the price you expected. That could mean an extended holding period incurring costs.

Houses of Multiple Occupation (HMO’s)

HMO’s are where you rent out a property by the room to individual tenants, rather than to a single family. This allows you to generate more rent, so it’s typically a cashflow focused strategy.

Although gross income will be higher, you will also have higher overheads. Unlike a BTL, the landlord is usually responsible for paying council tax and utilities. There is greater cost of compliance too. There may be planning considerations, licensing fees, and additional safety requirements.

The income you can generate, even after the extra costs, should be higher than typical BTL. However, management will be harder too. Multiple unrelated tenants in the same property can cause challenges. Tenant turnover will be more frequent than a BTL, although you get reduced impact from voids. If you plan to use a letting agent, HMO’s require specialist management. This will be more costly and may be harder to find than a typical BTL agent.

Capital growth is less reliable with HMO’s. Since they only appeal to investors, their value is usually judged like a business. That means the asset value depends mostly on how much income it generates. It therefore only increases in value if rents increase significantly.

If you live locally and are happy to self-manage the property, HMO’s can be very profitable for cashflow. However, if you want to be a hands-off investor, they may not be the best option.

Serviced accommodation (SA)

This strategy is based upon renting out a property on a short-term basis rather than to a long-term tenant. The main advantage of this is the potential to generate a much higher income stream.

You can make money with both rental income and capital growth with this strategy. The property should still appeal to an owner occupier upon resale. This means it should experience capital growth typical to the local market.

The property will need to be fully furnished, and you will be responsible for all bills. You are usually competing with hotels. You might be targeting holidaymakers, or maybe business travellers, depending on the property and location.

The upside for income is higher, but there are some downsides too. Higher running costs and overheads. Specialist more intensive management is required. You will need regular cleaners and maintenance. The income is less reliable and there can be seasonal fluctuations.

Success relies on excellent management, so it’s best suited to somebody comfortable with being hands-on. You could employ a specialist management company, but you should expect to pay more for that service. Think of this as a business. If something goes wrong, bad reviews can kill your business and investment.

The best property investment strategy

Now you know the various options, which is the best property investment strategy for you? Remember to consider your goals, your time, your skills, and your resources.

If your priority is cashflow, consider HMO’s or SA. Both require specialist hands-on management so remember to consider your time input. If you are looking for passive income, BTL might be a better option.

If you have the time and skills to be hands on, consider a refurbishment strategy. A combination of flips and BRR can help you to scale a portfolio faster. It’s hard work and very time consuming. However, if you use it as a route to build a BTL portfolio, it can transition to be passive later.

If your goals are long term, most of the gains from property will come from capital growth over time. Therefore, a simple BTL strategy is probably best.

For more help and guidance to pick the best strategy, you can book a free call here. We provide advice, guidance, and services to help you build your ideal portfolio. This includes a 1-2-1 mentorship service to help you implement your chosen strategy successfully.