Profitable property investment strategies for all investors
Making money from property is one of the most satisfying ways of investing. And there are many strategies that you could use to do so. In this article, we describe five of the most popular.
1. Long-term buy-to-let property investment
When you purchase buy-to-let property, you are investing for the long-term potential in a growing private rented sector in the UK. By investing wisely and getting good tenants, you should profit from inflation-proofed rental income and long-term capital gains from rising property prices.
You can take advantage of the benefits of leveraging in property investment, which massively improves the returns on your invested capital.
You can pass on many of the duties and responsibilities of being a landlord by hiring an experienced and competent investment property manager. With effortless property management, you should benefit from perfect passive income.
2. Short-term flipping
Investors who want to profit from capital gain, without holding property for the long term, can do so by using a strategy commonly called ‘flipping’. Two ways you might flip property are:
- Buying a property that needs refurbishing, doing the work, and selling for a profit
- Buying off-plan property and selling before the property is complete (or shortly after completion)
If you choose the first method, making money from property this way takes discipline, a tight control of costs, and a systematic approach. You’ll need to consider that a short-term fall in property values could damage your forecast returns.
With the second method, you are somewhat protected against the potential for short-term price volatility – thanks to the discount when you invest in off-plan property. By the time you come to sell, this discount will act as a buffer against a fall in the market. If the market price has increased, this will be translated into a larger profit.
3. High-yielding holiday lets
Investing in holiday let property is similar to investing in buy-to-let property, except that making money from property this way relies on a steady stream of short-term vacationers rather than the more stable income from longer tenancies.
There are some tax advantages over buy-to-let investment. For example, you can offset all your mortgage interest payments against your letting income, and the cost of furnishings can be deducted from your income before tax is calculated. Also, because this type of investment is classed as a business, profits become ‘relevant earnings’ for pension purposes – meaning you can increase your pension contributions.
Holiday lets pay higher yields, but you will need to market your property effectively to take full advantage. (Read our article “Is holiday let property a good investment?” for more information.)
4. Fixed-term hotel room investments
For cash investors with a fixed timeline for their investment, and who want a guaranteed return, investing in hotel rooms may appeal. You gain exposure to a high-yielding property investment, without having to buy (and run) an entire hotel! In brief, this type of investment works as follows:
- Do your research and select a popular destination.
- Select a hotel that offers the benefit of location and good management.
- Buy the hotel room.
- Receive income from your investment (usually around 8%).
- Your capital is returned at the end of the fixed-term of your investment.
This could be a great way for making money from property if you have a cash pot that you don’t need now but will need in, say, five or seven years (for example, to pay school fees for your children).
5. Diversify with developer loan notes
Have you ever wished you could make the profits that banks make when they loan money to others? Developer loan notes allow you to do just that. In effect, you lend a developer money over a fixed term to help them fund their project. In return you get:
- A fixed (and high) rate of interest
- A guarantee on your capital invested
- The flexibility to take your capital back early
The amount needed to invest is smaller than for most other property investments, and you can build a portfolio of loan notes paying interest and maturing at different dates – allowing some exceptional budget planning.
There are many ways for making money from property. The five described here are among the most common. Which is best for you depends upon your personal circumstances, investment objectives and other factors. For a confidential, no-obligation discussion of your options, contact one of the team at Gladfish today.