Property investment for those long on cash and short on time
Property investment is particularly attractive for people who are long on cash but short on time. Before you invest in property, you should be certain about your investment goals. Whether your aim is capital growth or income, when you invest in property you could benefit from five streams of passive profit from property investment.
In this article, you’ll discover the pros and cons of the five most common strategies used by professional investors to reap the passive rewards of property investment.
1. Flipping*
Flipping properties is the strategy used by the more active property investor. They look for a property that can be bought below market value and then seek to sell quickly after completing the purchase.
If you have the time to do some extensive research, visit auction houses, or negotiate the selling price down to the level where you think you could make a decent profit, then this strategy could be for you. It can be exciting and can lead to big profits. However, capital gains tax will take a chunk of those profits away. You also risk:
- Buying a property and discovering unknown (and costly) problems which eat into your profit margin
- The market turning against you and being forced to hold property in negative cash flow
Often, this strategy is combined with the renovation of properties, described a little later.
2. Buy and hold
Some investors will invest in property with the aim of making a capital gain over a longer period. By doing so, you could time your entrance and exit to use current capital gains tax allowances, and take advantage of market timing. Knowledge of the property and economic trend cycle is imperative to maximise profits and avoid potential losses when employing this strategy.
This strategy can build substantial capital gains – the longer you hold property, the smoother and more definite is the potential capital gain. However, you should realise that if you choose not to let your investment property to tenants, you will have to subsidise a negative cash flow. You might have mortgage payments to make, and be subject to council tax and utility bills. Empty properties are also targets for squatters and often suffer higher deterioration problems.
Personally, why would you buy an investment and then not rent it out, it's a stupid concept, sorry if that gets some backs up but the whole purpose of investing is to maximise your investment. Just make sure you get a good property lettings and management company.
3. Renovation
Investing in property in need of some tender loving care has been romanticised by property investment television programs such as ‘Homes under the hammer’. If you have the knowledge, time, and contacts, buying a property which needs renovating can be very profitable. The basic strategy is:
- Find a home which is in a state of disrepair
- Renovate the property
- Enjoy the benefits of a higher property value and/or attractive rental income
In reality, the renovation strategy is rarely as straightforward as portrayed:
- These properties are often in unpopular locations, without the property fundamentals which support high rental income and uplift in property values.
- You are dependent upon your ability to do renovation work within a set budget, and profit from the difference between market value and what you have paid to buy and renovate the property.
- If you don’t do the work yourself, you will have labour costs to pay, which can escalate quickly.
- It can be difficult to finance such a property investment, and you may need more cash available for a deposit and renovation costs than you expected.
4. Buy-to-let investment
Buy-to-let investment is the strategy chosen by most investors who want to benefit from substantial capital gain and rental income over the long term. Investors in this category are also benefitting from the advantages of a buy-and-hold strategy. Some will seek to buy the best candidates for renovation, hold for a long time, and rent out while doing so.
Buy and hold is probably the ultimate passive investment strategy, especially if you have the property managed by investment property managers.
On the downside, you could find that void period turn a positive cash flow property into a negative cash flow property. Any extended void period could put your investment at risk if you don’t have the reserve fund available to subsidise it. Additionally, should you buy an older property, your maintenance costs are likely to be far higher than they are for a new-build.
5. Off-plan property
Off-plan property investment is a strategy which allows the investor to take advantage of the benefits of most of the above strategies while reducing their risks:
- You get to buy a property at below current market value, with the discount negotiated with the developer. It increases potential capital gain while providing a cushion against a falling property market.
- If the market value rises between your purchase date and completion date, you could make a substantial capital gain in a few months or years. The pricing dynamics often make the off-plan property a better investment for flippers.
- New build tends to be better for rental income. Tenants like to live in properties where everything is fresh. You should be able to charge a premium rent compared to existing properties in the same area and suffer fewer and shorter void periods.
- You could also benefit from rental guarantees offered on off-plan property.
- Many off-plan property investment opportunities are to be found in town and city centres. These often benefit from the best property fundamentals (shops, schools, transport links, major employers and major investment) which support long-term capital gain and rental potential.
Off-plan property – the perfect passive profit investment?
There are risks involved with all forms of investment. It includes the risks associated with investing in off-plan property. You reduce these risks when you buy in the best places to invest in property UK. For the best passive profit potential – potential which could provide the lifestyle you want without the slog to get it – off-plan property investment might be the effortless opportunity you’ve been searching for.
Have the discussion that could change your life today. Contact one of the Gladfish team on +44 207 923 6100, and discover how to invest in property to achieve all your financial goals and live the lifestyle you desire.
Live with passion,
Brett Alegre-Wood
* Be careful wth Flipping, it's a strategy for the right time in the market, personally I would act as if you are going to complete on every property you buy.
