Powerful Investment Strategies for Purchasing or Leasing a Property
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There are many strategies to create wealth from a property. But it can be confusing for you to decide which strategy is right for you especially if you have just planned to invest. The best thing about using a property as a vehicle to achieve your goals is that you can tailor it to fit your circumstances. The best property investment strategy will depend on the number of factors like your financial situation, attitude towards risk, hassle skills, and experience, and whether if you are looking for short or long term gains. There is no one size fits all approach in property investment strategies.
With falling interest rates, one will always search suitable investment options where the return is more. Stocks, Mutual funds, etc. are attractive, but there is a risk of loss too. Hence many prefer the option of renting as a safe and profitable option.
As you know there are only two property investment strategies:
- Buy a property and lease it
- Buy property and sell it for a profit
Let us explore some of the best real estate investing strategies that will give you a better idea of how to make money in investing in real estate. We will mainly focus on only residential properties. Hopefully, one or two might be good for you.
Purchasing a Property for Leasing Purpose
The purchasing of property for leasing purpose strategy is considered as the best real estate investment strategy. This means you purchase a real estate property and rent it out for the long term. This will result in monthly cash flow and long term appreciation. The cash flow will help you to earn return on investment and create wealth and help the investors to pay down their mortgage through the monthly rental payments.
Any decrease in the value of the property won’t be severe. Even if the property value decreases you won’t be affected largely as long as you do not want to sell the property. Simultaneously, you can enjoy the monthly income.
Purchasing the property to lease includes the below strategies as shown below:
The advantage of renting is that, while you continue to earn return on investment, the property value will also continue to appreciate over a time.
There are many different types of lease. Here’s to know them:
The buy-to-let strategy is favored by those who want to expand upon or build a property portfolio as quickly as possible. This usually has a long term approach and are ready to take on or more risk and debt. Here rather than investing your surplus wealth, you can borrow, pay EMI and still earn on rents. Always evaluate your EMI + Taxes + Repairs Vs Rent.
- Buy-to-let involves just buying a property, getting a tenant, and collecting the rent. But there are different choices. For example, if you decide to buy the property using a mortgage for buying using 100% cash.
- The buy-to-Let strategy contains less risk as you can easily get lending and also manage it. Thus saving your money from lower interest rates and inflation.
- Investors can make bad deals through incorrect evaluations which can result in buying the property that exceeds their value.
HMO refers to Houses of Multiple Occupation. This means instead of letting out the property to one family tenant, you let individual rooms of the house giving you an increase in the income and cash flow.
- The more rooms you carve in the house, the more money you make.
- Renting out the property as per the room will lead to generating more money than letting it as a whole.
- It is always a better option for singles and short time stayers.
- The costs will be higher like it will have to be furnished with bills included.
- There will be more wear and tear in the house.
- The management of the house will be more time-consuming.
Despite all this, HMOs generally offer a higher yield with good results and have grown over globally the last five years.
Student Property Strategy:
Student lets are similar to HMOs, but the student property strategy has its characteristics.
- The management of student property is well known as they sign up for a certain amount of time and you are aware when they will be moving in our out.
- They usually leave on one joint contract. Thus, even if one leaves, the other students will continue to pay their share of the rent.
- This strategy leads to increased revenue with less management overhead.
- The challenges that you can face is the pressure from new purpose-built student accommodation as students these days are mostly attracted to high-spec city flats with lots of facilities.
Housing Tenants Strategy:
The terminology of Housing Tenant’s strategy is calculated using the Local Housing Allowance (LHA). In many areas, this has been rolled into Universal Credit (UC) and still mostly tenants refer to it as DSS. With all such terms, it means the same thing that allows renting the tenants who have the local authority to pay for their housing tenants. The positive part is that the rent paid by the local authority will be the same for all houses in the area.
- It is high yielding
- You can predict the rent
- There will be high demand for tenants
- More management will be required
- Properties become less desirable and can benefit from less capital growth
If you are in process of finding the right tenants for your rental property, here are some points which will surely help you in making a correct decision:
Short-term Strategy (Holidays):
The Holiday strategy is a property that is rented out to holidaymakers for the short-term. This is somewhat similar to serviced accommodation but it is aimed more at business travelers in the urban areas. The model of the two is the same; it’s just the difference in the type of customer being targeted.
- A short-term strategy is profitable if a high level of occupancy is achieved.
- There is no possibility of having evicted as the tenure is not secured.
- Gives better tax treatments than single lets.
- But this strategy requires lots of work with continuous marketing and changeovers.
- It is also very difficult to find a mortgage that allows a Holiday strategy.
You must speak with different people with experience in the subject. The more information you gain, the smarter decisions you will be able to make regarding your leasing property business.
Buying At Right Price
The world is more transparent, and at the same time more competitive. The margin of profits is narrow and declining. Hence anywhere, the profit will lie in purchase. Hence if you buy at a competitive price, you will always earn more, and if you buy at a higher price, you will never earn good returns.
Purchasing a Property for Reselling
Buying a property, refurbishing it, and reselling the residential property is known as the trading, and one using this strategy is known as traders rather than investors. If you want a bigger amount of cash in short term or if you are looking for maximum return on the time invested, then purchasing the property to resell will the best fit for you. Its viability depends on market conditions.
The property investing niche includes re-modeling the property, assisted sale, cash purchase, studio flats, or garden development, or even land banking.
Purchasing Property for reselling might include the below strategies:
Buying a property to sell is also known as flipping. There is not much difference from buy-to-let. It is a strategy where you buy and move in the house, fix it up and wait for two to three years to resell it and gain a profit.
- You can generate quick lump sums
- You will not have to deal with tenants and maintenance
- You will not have to worry about the long-term health of the property market.
- No permanent, regular residual income
- Complex work, needs lot of skills.
- Can be forced to sell at a loss if you go wrong
Buy-to-sell is a property investment strategy where you buy a property and add value through refurbishing or renovation and then resell it quickly to achieve a profit from the increase in the capital value. To be successful, you will require a lot of knowledge of the local property market to ensure that you make the right purchase.
- You will be able to achieve a great profit return on your investment that can enable you to quickly move onto the next property and you can repeat the process
- You will achieve quicker capital growth without being concerned about furnishing the property or searching for a tenant or maintaining the property
- You will not be able to achieve the profit you must have expected due to overspending on renovation or drop in market prices
Deal Packaging Strategy:
A packaged deal includes a deal that is sold for a fee for someone else to buy the property. This is also known as wholesaling or property facing. It is used to sell the land using assignable contracts, agreements, or sub-sales. Client-facing means where the client pays you extra for managing the process either purchasing, legal, or refurbishing the property and help to assist them in building up their portfolios.
- You can buy, refurbish and sell properties to overseas interiors to earn a great amount of money.
- You can charge higher fees for the complete process.
- Voids can delay
Be realistic with your expectations. With any investment picking the wrong property can prove to be a catastrophic mistake.
Buy Properties under Bank’s Foreclosure/Under Run down Conditions
Buying at cheapest rates, assures higher return. There exists such an opportunity if you buy houses which are under auction sale – Foreclosure sale by banks. These may be slightly in run down condition. You need to have skills for fixing it. Most people avoid such house because they lack such skills. Same thing will apply to “Run Down” properties too.
Property under Dispute/With Defective title
There are hardly buyers for a property which are under dispute or lack a clear title. If you have skills to manage such complex issues, you have opportunity to earn more; as such properties can be bought at fantastically lower rates.
Instead of buying a property and requiring big deposits, you can take the option to purchase the property. You take the control with an option that will exclude all other potential buyers that gives you the right but with the obligation of not buying the property, but you do not pay for it until you complete the payment. This can be many years down the line. This is a great way to generate good cash flow with limited funds.
- You can generate good cash with the possibility of capital growth
- You get to start with limited cash
- The owner can back out the deal
- It is very difficult to find such landlords who will agree to this arrangement
- Do not have enough margins to employ a managing agent.
Real estate investment can make the newcomers lost in the market. With the right guidance and research, you can learn the basics. It is very important to select and choose your steps correctly. Anyways loss is a natural path in any investment decision; you should always avoid repeating such mistakes. Every strategy will have its pros and cons.
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Do your research and get more information on how you can get closer to your property goals.
Sai Charan Gundreddi – Sai Charan Gundreddy is an author and a freelance content writing specialist with over 3 years of experience in the field. A writer by day and a reader by night, he is loathe to discuss Hinderer in the third person, but can be persuaded to do so from time to time.