What Is Property Investment?
So you’ve heard the term “property investment” a thousand times before but you’re unsure as to what it actually means. In this article, we simplify and break it down for you.
According to Wikipedia “property investment involves the purchase, ownership, management, rental and/or sale of property for profit.” In short, they’re correct! Now let us explain in more detail.
Yes investing money into property with the hope of turning that money into more money is the end goal, but what happens in between is important and there are many different types of property investment. To keep things really simple we are going to run through the main two property investment strategies.
Residential Buy to Let
A residential buy to let is pretty much as it sounds – buying a property in order to rent it out to tenants. Relatively safe long-term investment.
Once you buy a property, you aim to make money in two different ways:
Rental yield – what your tenants pay you for rent, take away any maintenance and running costs, like repairs and agent fees.
Capital appreciation – the profit you make if you sell your property for more than you paid for it.
Pros
- One of the least risky property investment strategies.
- Easy to get started without expert knowledge.
- Allows you to make consistent rental income, with high rental yields available in certain UK areas.
- Generates two types of return – rental returns and capital growth returns when you sell the property.
Cons
- Long-term strategy, therefore not the best choice for those seeking to make large short-term returns quickly.
- Potential quiet periods with no tenants if it’s in an area without high rental demand.
Buy to Sell (Flipping Property)
Buy to sell also known as flipping property is when you purchase a property that is in need of renovation work, this could be a property that is run down and needs renovating completely or features outdated designs and could do with an update. You would then make the necessary renovations to add value to the property and sell it for profit.
Unlike the buy-to-let strategy, this kind of property investment strategy doesn’t involve renting the property out to tenants meaning it’s a short-term investment. This also means that the only return on investment comes from growth in the property’s value.
Pros
- Potential to make large short-term returns if you can add value to the property with renovations and capital growth.
- Don’t have to deal with tenants and rental property management duties.
Cons
- A very practical method of property investing, requiring time and expertise to succeed.
- Could lose money if not done correctly.
- Can be costly depending on the level of renovation work needed to increase property value.
Conclusion
You should now have an understanding of what property investment is and two of the most popular property investment strategies. Property investment is by no means an overnight success venture or a get rich quick scheme but if you’re willing to do the research and put in the hour’s property is known to be one of the most risk-averse ways of investing and can be very lucrative and rewarding.
What’s holding you back from starting your property investment journey? Let us know in the comments below.
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