What Are the Different Types of Property Investment?

Residential Buy to Let 

Residential buy to let is arguably the most common type of investment property. With many benefits behind it and a lot of opportunities to keep costs low, this type of rental property is a good option for a range of investors. 

Residential buy to let is basically a property purchased by an investor and let out to tenants. It can come in the form of an apartment, house, or really any type of property that can be lived in long-term. 

Pros of This Type of Investment Property 

• There’s a lot of choice for investors, with many buy to let opportunities often available on the market. 
• Tenant demand is high in the UK for residential rental homes, so investors can expect a steady stream of renters with few void periods. 
• There are often low-priced opportunities for residential buy to let properties, depending on the area you buy in and the type/characteristics of the property itself. 
• Residential properties are easy to sell, and capital growth returns are strong in the UK right now. 
• Residential property investment offers one of the most low-risk strategies due to the strength and resilience of the residential market. 

Cons of This Type of Investment Property 

• If you invest in the wrong area, such as where rental demand is low and house prices are stagnant, returns could be limited. 
• This is a long-term strategy, so investors who aren’t prepared to hold onto their property for a long time should avoid traditional buy to let options. 

The Returns 

The returns offered by residential buy to let are: 

• Rental income, which is paid by the tenant every month. 
• Returns through capital appreciation. Only earned if the property has grown in value by the time it is sold. 

The Cost 

The price of residential properties can vary depending on location and type (e.g. a studio flat is generally priced lower than a two-bedroom apartment). 

As of November 2021, the average price of apartments in more affordable areas like Liverpool stands at £161,599, according to Zoopla. 

According to the Land Registry House Price Index, the average property price in the UK in September stood at £269,945 (the latest data available). 

Student Buy to Let 

Like residential buy to let, student buy to let is when an investor purchases a property with the plan to let it out to tenants. 

The main difference between residential and student property investment is the group of people who rent the property, as student buy to let only accepts student tenants.  

Pros of This Type of Investment Property 

• The UK attracts many students each year from the UK and overseas, leading to high demand for student rentals. 
• Property prices for student investments are often low due to a tendency to be studio flats. 
• Rental yields can be high with this type of real estate investing due to the pairing of low property prices and high rental costs. 
• Student investments are often hands-off as they will be managed by a property management company, making this a good rental property to invest in if you want to keep your investment as hassle-free as possible. 

Cons of This Type of Investment Property 

• Student properties can sometimes be more difficult to sell when exiting the investment since they’re generally purchased by other investors. 
• Capital growth returns may not be as significant as those that come with residential property. 
• The property can only be rented out to one tenant group, so if student renter numbers are low in one area, this can make finding a tenant tricky. 

The Returns 

Like residential buy to let, the returns that come with student investments are: 

• Rental income paid by the tenant every month. 
• Returns through capital appreciation, provided that the property has grown in value by the time it is sold. 

The Cost 

Due to student buy to let properties often being studio apartments, prices are generally low. 

Manhattan studio apartments are also becoming a popular choice as a studio with a secluded bedroom giving tenants a mix between traditional studio flats and one-bedroom apartments.

In the past, we at RWinvest have sold student flats for less than £60k, such as with our City Point development which had units priced from only £59,995. 

Off-Plan Buy to Let 

You may or may not be familiar with off-plan property investment. If you’re not sure what the term means, it is basically a property that can be purchased before it is actually complete and ready to be lived in. 

This is a very common type of investment property in the UK and one that many investors opt for. Take a look at the benefits below to see why. 

Pros of This Type of Investment Property 

• Off-plan properties can be found at below-market prices, allowing investors to make some huge savings. 
• Off-plan properties can be residential or student, meaning they can be rented out by a range of tenants. 
• Since the property is brand new, it’s very desirable to tenants who want a more modern property with no need for refurbishment. 
• Off-plan properties are some of the most environmentally-conscious real estate investments you can make, with most new builds being more eco-friendly. 
• Often you can split the cost of your purchase into smaller cash instalments rather than paying for the whole property at once or worrying about mortgage payments. 

Cons of This Type of Investment Property 

• The property won’t be ready to rent to tenants until it’s completed, so you’ll need to be prepared to wait. 
• Some mortgage lenders won’t offer mortgages for off-plan properties. 
• A degree of risk comes with buying off-plan properties from unreliable or inexperienced developers, so due diligence is essential. 

The Returns 

Off-plan properties offer the same type of returns as typical residential/student buy to let: 

• Rental income returns. 
• Capital appreciation. 

With off-plan investments, capital growth can often be more impressive as the property’s value can increase before the development is fully complete. 

The Cost 

At RWinvest, our off-plan properties are offered at up to 55% below market value. Prices start at just £74,950 for our exciting off-plan Liverpool property, ELEMENT – The Quarter. 

Finding off-plan properties at low prices is extremely common, making this an ideal type of investment property if you have a low budget. 

HMOs 

HMOs are Houses of Multiple Occupancy. This residential real estate venture involves purchasing a house with multiple rooms in it and renting out each room to a separate tenant. 

This type of strategy is most commonly found as a student investment but can be let out to tenants of any target group. 

Pros of This Type of Investment Property 

• Since rental payments are being made by multiple people, overall returns can be higher than with other strategies. 
• You can invest in real estate for a lower price, with many properties suitable for HMO investments sold at property auctions. 
• You have the choice of renting to students or non-students, taking advantage of the full rental market. 

Cons of This Type of Investment Property 

• It can be hard to get a buy to let mortgage, so many buyers of HMOs purchase their property with cash. 
• Since there are so many tenants in your property, there can be more management and upkeep involved. 
• There are more complex rules and requirements that come with HMOs, including tax rules and legislation. 
• People are less inclined to rent out shared homes, particularly students who now favour more luxury student accommodation. 

The Returns 

HMOs generate returns through: 

• Rental income from each of your tenants. 
• Capital growth returns once you decide to sell the property. However, keep in mind that it could be more difficult to sell a house that’s been turned into an HMO, so you may wish to renovate the property before selling. You can also list it for a below-market price. 

The Cost 

HMOs are commonly sold in property auctions, making them an affordable option for those looking to grow their investment portfolio. 

An article from Property Reporter revealed that auction houses cost 40% less than the average property in the UK in 2020. Keep in mind that auction properties often require cash buyers, so you may need to have the full amount available upfront. 

Buy to Sell 

Not every investment property owner is interested in collecting rent and generating a monthly rental income, and that’s where buy to sell properties come in. 

Buy to sell (also known as ‘flipping houses’) is a strategy in which an investor buys a property to sell it for a higher price. The property may need some renovation before it can go on the market, which allows the investor to purchase it for a low price. 

Pros of This Type of Investment Property 

• Property prices can be low depending on how much renovation is needed. 
• This is a good option for more experienced real estate investors who know how to add value to a property.

Cons of This Type of Investment Property 

• This strategy only offers returns through capital appreciation, which means investors miss out on both rental income returns and capital growth that come with buy to let investments. 
• A lot of time, in-depth knowledge and experience are needed for this type of property investment to succeed. 
• If done wrong, the investor could end up losing money. 

The Returns 

Buy to sell generates returns through just capital growth.  

If the property appreciates in value by the time they come to sell it, thanks to renovations and the property market at the time, the investor makes a profit.  

The Cost 

Like HMOs, buy-to-sell properties are often purchased at property auctions, making them potentially affordable. 

However, you must remember that while the initial property price may be low, the cost of renovation can end up being high. A lot of the time, buying an off-plan buy to let property for a similar cost works out more affordable in the long run and with better returns. 

Holiday Lets 

As the name suggests, holiday lets are properties that are let out to people on a short-term basis by providing a place for them to stay during a holiday or trip. 

These properties can come in many forms and are often rented out during the peak travel seasons, such as in the summer. However, some city-centre properties may see high traffic all year round. 

Pros of This Type of Investment Property 

• This type of property can offer lucrative returns depending on the location, with rentals in popular locations having higher costs. 
• This option can come with better tax benefits than some other strategies. 

Cons of This Type of Investment Property 

• Void periods can be high depending on the area and the popularity of the property. 

• Maintenance costs can be high due to the property needing to be cleaned in between stays. 
• These properties require a lot of management and marketing, which can be time-consuming. 

The Returns 

The returns that come with holiday lets are from: 

• Rental income paid by each short-term tenant. 
• Capital growth returns if the holiday let property grows in value. 

The Cost 

There’s really no set cost for holiday lets, as any type of property can be let out on a short-term basis. 

For example, for a property in a typical UK holiday location such as Cumbria, a caravan can cost as little as £37,995, while a 14 bedroom detached house costs almost £5 million based on current listings. 

Commercial Property 

Commercial real estate properties are properties that are rented out to people running a business. Examples of what these properties can function as include office space, retail space, or warehouse. 

Much like residential buy to let, commercial property investments can have long-term tenants that bring in regular rental income. 

Pros of This Type of Investment Property 

• Commercial properties can generate attractive rental returns, with average rental costs that are often higher than residential buy to let. 
• Tenants tend to stay for long periods as businesses are often reluctant to uproot and move offices. 

Cons of This Type of Investment Property 

• Demand for commercial properties can plummet depending on certain economic factors. Right now, fewer people need office space, for instance, due to the rise of remote working. 
• Finding a suitable tenant can be more complicated than with residential properties, causing longer void periods. 
• Commercial properties are considered overall more high-risk of a strategy. 
• It can be harder to sell commercial properties when you wish to exit the strategy. 

The Returns 

Commercial real estate can bring in returns through: 

• Rental income that is paid monthly by your commercial tenants. 
• Capital growth returns if you sell your property and it has increased in value. 

The Cost 

Commercial property is priced higher than your standard residential property. This is because commercial properties are often very large and can be rented out to multiple commercial tenants at once.  

Based on current listings for commercial office spaces for sale in Manchester, investors can expect to pay between £400,000 – £3,500,000 depending on the building’s size, quality, and location.