Property investing is one of the best ways to earn extra income. if you do it right, it can give you steady cash flows and great returns, and protect you from inflation.
In this article, we’ll share the best strategies for you to get started in 2022.
#1 Buy to Sell
Buy-to-sell is a property investment strategy where you purchase a house then quickly sell it for a profit. There are two main ways to do it.
- You can buy the property for less than its current market value, usually when the owners are in financial distress, then sell it at a higher price.
- You may also purchase property with design or structural problems that can be rectified to increase its value.
If you prefer the first option, you can find distressed properties by targeting landlords who are unable to manage their responsibilities or making offers on buildings that are overleveraged and at risk of defaulting.
Taking the second option means you will rely more on invested labor to increase your asset’s value than market dynamics. However, you should ensure you have the resources to repair the building before you commit to an investment.
Benefits
Relatively quick returns
One of the biggest benefits of buy-to-sell is that you get fast results. It lets you recover your capital quickly so you can use it for other purposes. On average, investors sell such properties in six months, but it may take longer if you’re inexperienced.
It is a safer way to invest
Buy-to-sell is a relatively safe investment strategy because it’s less complicated than other approaches. Unlike stocks, whose values can change dramatically every few hours, your property will retain its value.
It also minimizes the amount of time that your capital is at risk, and eliminates the challenges that come with leasing, finding tenants, collecting rent, and maintaining a property.
Drawbacks
Cost
Buy-to-sell often requires a significant up-front investment, so it may be difficult for you to find the money you need. There are also significant transaction costs for both the buyers and sellers and these will diminish your profit.
#2 Buy and hold/buy to let
Buy and hold is a long-term investment strategy where you purchase a property then keep it for a long period so its value can increase (appreciation). The ultimate goal is to sell but the owner will keep the property, renovate where necessary, then rent it out to generate income.
Benefits
Regular cash flow
Buy and Hold gives you regular income, regardless of where you are. It’s a great way to acquire large amounts of wealth because property values will always recover from market crashes.
It protects you from inflation
Buy-and-hold counter inflation. Your real estate assets will appreciate over time, countering its effects. They will also provide significant returns on your investment when you sell.
If you live in the property you purchase, your investment will protect you from inflation-related expenses, like rising rent prices and unfavorable changes in the rental market. On the other hand, if you’re an investor, you’ll reap the benefits of rising rent as you earn extra income.
Owning property through buy-and-hold also helps curb inflation because of its effect on debt. Your property’s value will likely increase over time, so it will reduce the amount you owe the bank (if you have a mortgage).
Note:
There’s a more in-depth analysis of inflation in the UK in the video below, so you can learn more about how it works and what you can do about it
Low taxes
Owning property makes you eligible for tax benefits that aren’t given to buy-to-sell investors (rental properties usually have low taxes).
Disadvantages
Potential vacancy problems
There is a risk that will not find tenants for your property. Unfortunately, it’s a problem that you cannot truly avoid, whether you hire an agency or choose to do it yourself. You’ll be responsible for your property’s mortgage even if it remains empty for months or years.
Management and legal problems
Long-term property ownership is a demanding exercise. You may lack the resources or knowledge to deal with the responsibilities and challenges that come with being a landlord
#3 Real estate crowdfunding
Real estate crowdfunding works a lot like other crowdfunding projects. You, along with other individuals, invest money into a property or some other kind of real estate asset so you can make a profit in the future.
This approach always had significant barriers to entry due to high startup costs. But, it’s a lot easier now. Online real estate crowdfunding platforms are lowering the minimum amounts required to participate.
Benefits
Significant financial rewards
Most real estate crowdfunding projects focus on REITs (Real Estate Investment Trusts). These entities are legally required to distribute 90% of their taxable income to investors, so they are known to pay steady dividends.
Diversification
Crowdfunding allows you to participate in multiple projects at the same time, so you can spread out your risk among different property types
Low minimums
Most crowdfunding platforms have low investment thresholds. Some go as low as $500. This may seem expensive, but it’s a lot more affordable than the minimum requirements set by private REITs.
Convenience
Real estate crowdfunding spares you the challenges that come with being a landlord. you can invest in huge properties while avoiding the challenges of addressing building maintenance problems and troublesome tenants.
Disadvantages
Fees
Most crowdfunding platforms will take between 1% and 2.5% of your earnings each year. Although this may seem lower than similar fees for other services, it may be a lot more than you are willing to pay. So, you should study the conditions carefully before you commit.
Non-liquid assets
Most Publicly traded REITs take a long time to sell-off. While it’s okay for long-term investors who’re sure they won’t need the money, it’s a problem if you want to sell your assets quickly.
That’s all for this article! Now, you know the best ways to start property investing in the UK. But, there’s a lot more for you to learn.
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