How do property investors increase their rental income?
‘Invest in property for positive cash flow’ is an important strategy for income-seeking investors. The higher the cash flow, the better. The question is, how do you maximise your cash flow from property investment opportunities?
In this article, we highlight the pros and cons of six strategies that can be used to increase cash flow in your property portfolio.
1. Investing in high yield locations
There are some locations where buy-to-let property pays what looks like exceptional rental yields. The upside is that a rental yield of, say, 9% or 10% is 50% higher than the national average. The downside is that property prices in these locations often lag the general market. What you gain in rental income, you lose in portfolio value.
An example is a property in Hull. The current rental yield on a flat here is around 8% or 9%. However, the median selling price in 2008 was £106,000. Today, the median price is £74,000. Over those nine years, a landlord has benefited from rental income of around £45,000 but lost £32,000 in capital value.
Of course, not all high-yielding areas suffer from low property price growth. To ensure you buy in the best places to invest in property UK, you must do your due diligence and consider the future as well as the present.
2. Buying off-plan property at a discount to market value
When you invest in off-plan property, you could benefit from a sizeable discount to market value. Plus, if the market is rising, by the time you complete you could be sitting on a sizeable capital gain. When it comes to the time to find tenants, a new, modern property is more rentable. People like new. Plus, you should have fewer maintenance issues. So, lower costs and higher demand.
On the downside, you must wait until you complete to benefit from positive cash flow.
3. Target student accommodation
Student accommodation offers a hassle-free property investment. There’s a huge pool of demand, and it’s a recession-proof sector. On the downside, tenant turnover can be high, and you may have to modernise a student apartment every few years to keep its appeal. Net rental yields are good – often around 7%. That’s a good stream of passive income.
4. Invest in hotel rooms
Hotel room investment is similar to student accommodation, insofar as it offers high net yield. What you need to know about hotel room investment is that it’s a straightforward strategy – you buy a hotel room from the hotel owner/management company. They agree to pay you a fixed income, and at the end of a set period, they buy the hotel room back, usually with pre-agreed capital growth.
While you benefit from a net yield of around 8% and capital growth, the downside is that it is a fixed-term investment. After a period of, say, five years, the hotel room will be bought back from you. You may have been able to make a higher capital growth investing elsewhere. Finally, at the end of the fixed term, you’ll need to reinvest in a new opportunity.
5. Buy older properties to renovate
Older properties are usually cheaper than new build properties. If you buy an older property in a good location, you may be able to renovate, modernise, and increase its appeal and rental income. However, before you rush out to do just this, there are 35,000 reasons to laugh at the new build premium – that’s about how much the average refurbishment costs, as well as the lost rent while refurbishing. The average 15% new build premium may not be so expensive after all.
6. Fix your mortgage rate when its low
We’re currently witnessing the lowest mortgage rates in history. If you think they have bottomed, you could fix the rate on your buy-to-let mortgages. As rents rise, you’ll benefit from mortgage payments that don’t rise. Your net yield will increase.
The problem with this strategy is that you may miss out on lower interest rates. Also, when you fix your rate, you may pay mortgage fees. And should you wish to sell your property, there could be penalties for early repayment.
As you can see, if you are investing for income there are plenty of strategies to increase cash flow on your property portfolio. We’ve touched on only six of them. Which strategies are best for you depends on your investment objectives and personal circumstances. You’ll need to consider other factors, too, such as tax, your risk tolerance, your credit scores, and access to emergency funds.
If you find the best investment for you, you’ll take advantage of investing with other people’s money. And that might be the best investment strategy of all.
Contact one of our team on +44 (0)207 923 6100, and we’ll be pleased to discuss positive cash flow investment opportunities. You’ll discover how property investment could bring your financial goals closer, and why so many property investors choose Gladfish as their property partner.
Live with passion