Hi, my name is David one of the founders here at Benchmark Property Group, welcome to our property blog! We will aim producing an article every week or two based on the current market trends, we hope you enjoy what we put out. Today we are starting off with a basic overview of the most popular property investment strategies used in the UK.
Property investing has become increasingly popular in recent years, as investors look for ways to earn passive income and grow their wealth. In the UK, there are several main property investing strategies that investors can use, including buy to let, buy to flip, BRRR (Buy, Refurbish, Rent, Refinance), serviced accommodation, and commercial property. In this article, we will explore each of these strategies in detail and explain what property investing is all about.
Buy to Let (BTL)
Buy to let is perhaps the most well-known property investing strategy in the UK. It involves purchasing a property with the intention of renting it out to tenants and generating income from the rental payments. This strategy can be profitable if done correctly, as rental income can provide a consistent source of relatively passive income, while the property itself can appreciate over time and ultimately build generational wealth.
It is generally thought that BTL is more for the long-term investors, as the positive cash flow generated from your BTL properties is relatively low (approx. £250-£300p/m) in comparison to some of the other strategies and therefore it can take a while for an investor to get to a point where the income from their rental portfolio will replace their 9-5 income and reach the holy grail of financial freedom.
To succeed in buy to let investing, investors should carefully consider the location, rental market and potential return on investment of the property they are considering. They should also be prepared to handle the responsibilities that come with being a landlord, such as managing tenants, maintaining the property, and dealing with any legal or financial issues that may arise.
BRRR (Buy, Refurbish, Rent, Refinance)
BRRR or momentum investing (I heard this phrase being used on a podcast last week and really liked it) is a popular property investing strategy that involves purchasing a property, renovating it to increase its value, renting it out to generate income and then refinancing the property to access the increased equity.
This strategy is essentially BTL but allows investors to leverage their initial investment to generate cash flow and build their property portfolio and can really help scale their portfolios without needing massive amounts of capital behind them. This is a strategy that Benchmark will be implementing in the future.
To succeed in BRRR investing, investors should carefully research the local property market and understand the potential rental income of the property. They should also have a solid plan for financing the renovation and be prepared to manage the property effectively to ensure a profitable rental income stream. Ideally investors want to try and secure properties BMV (below market value), this way they can ensure that they can add enough value to the property to pull their capital back out with a 75% LTV (loan to value) mortgage.
Buy to Flip
Buy to flip, also known as property flipping, involves purchasing a property with the intention of renovating and reselling it for a profit. This strategy can be risky, as it relies on the investor’s ability to accurately estimate the costs of renovation and the potential resale value of the property. However, if done correctly, it can result in a significant return on investment.
This strategy is considered to be more of a midterm investment strategy, as the cash flow from this strategy is lump sums every few months unless you can have systems in place to allow multiple projects at one time. In my opinion the key to this strategy is have a clear exit plan, therefore, an investor needs to be very good at planning and scheduling the works to be done, this is where it would be good to have a team of builders that you trust to get the job done as fast as possible, ideally you are looking to get in and out of flip in approx. 4-6 months.
To succeed in buy to flip investing, investors should carefully research the local property market and understand the potential resale value of the property after renovation, this might involve a bit of prediction as well, especially if the property is not going to be re sold until 6 months down the line. They should also have a solid plan for financing the renovation and be prepared to manage the project effectively to avoid going over budget.
Deal Sourcing and Deal Packaging
Deal sourcing and deal packaging are similar strategies within the property investment market, some people may disagree and say they are the same thing. The way I see it though is when sourcing properties for investors you have a set criterion from a client, the sourcer will go out and source the property that fits the criteria set by the client. Whereas the deal packaging is where you have a deal maybe that has come to you as an investor and you cannot take this deal on, you therefore do all the due diligence required to make sure that it is a deal, package the deal up and sell the deal to an investor for a fee.
To succeed with both these strategies require a deep understanding of the local property markets, strong negotiation and communication skills, and a thorough understanding of the needs and goals of the investors they are working with. They need to have a great network of investor around them to sell the deal on. A good sources/deal packager can provide valuable benefits for investors who are looking to diversify their investment portfolios and access a wider range of property investment opportunities, and can be a valuable service for investors who are new to the property industry or who do not have the time or expertise to identify and manage their own property investments.
Serviced Accommodation
Serviced accommodation is a property investing strategy that involves purchasing a property and renting it out on a short-term basis, typically through platforms like Airbnb or Booking.com. This strategy can be profitable, as short-term rentals can generate higher income than long-term rentals, but it requires careful management to ensure a consistent stream of bookings.
Another strategy within the SA strategy is called ‘rent to SA’ this is where you find a property for rent, approach the landlord and broker a deal where you will guarantee the rent for a fix term say 3-5years and with the permission to re rent the property on the short-term rental market.
The issue with this strategy now especially in Scotland is the new regulations that have been brought in by the government. It has made it extremely hard in some areas to get a new SA license especially within Glasgow.
To succeed in serviced accommodation investing, investors should carefully research the local property market and understand the demand for short-term rentals in the area. They should also have a solid plan for marketing the property effectively and managing bookings and guest experiences to ensure positive reviews and repeat business.
Commercial Property
Commercial property investing involves purchasing a property with the intention of leasing it out to businesses. This strategy can be profitable, as commercial leases typically offer higher rental income than residential leases, but it requires careful consideration of the location, type of property, and potential tenants.
To succeed in commercial property investing, investors should carefully research the local commercial property market and understand the potential demand for the property type they are considering. They should also have a solid plan for managing the property and attracting tenants, and be prepared to handle the legal and financial complexities that come with commercial leases.
In conclusion, property investing can be a profitable way for investors to generate passive income and grow their wealth in the UK. However, it is important for investors to carefully consider their investment strategy, research the local property market, and understand the potential risks and rewards before making any investments.
Each property investing strategy has its own unique set of challenges and considerations, and investors should choose the strategy that best aligns with their financial goals and risk tolerance. For example, buy to let investing can provide a consistent source of passive income, but requires a long-term commitment and careful management of tenants and property maintenance.
Buy to flip investing can result in a significant return on investment but carries a higher level of risk and requires a deep understanding of the local property market and renovation costs. BRRR investing allows investors to leverage their initial investment and generate cash flow but requires effective property management and a solid plan for financing renovations and refinancing the property.
Serviced accommodation can generate higher income through short-term rentals but requires careful management of bookings and guest experiences to ensure positive reviews and repeat business. Commercial property investing can provide higher rental income than residential leases but requires a deep understanding of the local commercial property market and potential tenants.
Ultimately, property investing can be a rewarding and profitable way for investors to build their wealth over time, but it requires careful consideration and effective management to ensure success. Investors should work with a reputable property investment advisor and seek professional guidance when making investment decisions to ensure the best possible outcome.
We welcome any feedback on our content and encourage anyone to leave a comment and engage with us.
Davidbrown@benchmarkpropertygroup.co.uk
www.benchmarkpropertygroup.co.uk 