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What Are the Different Types of Property Investment?

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    Multiple Types of Property Investments for Savvy Investors

    It can be overwhelming knowing where to begin with investing in property as a beginner, and one of the most overwhelming aspects of a real estate investment is knowing what type of property to invest in.

    What type of property is an investment property, anyway? And what are the different types of property investments available to investors?

    There are many different property types available for investors to invest in, and the property investment strategy you choose will depend on many factors. To decide which type of property is right for you, you need to think about:

    • The kind of returns you expect.
    • The amount that you’re willing to spend.
    • The pros and cons of the strategy you’re exploring.

    In this guide, we’ll look at some of the most common types of property investment ventures in the UK and list some pros and cons.

    We’ll also explore the average cost of each property type and the type of returns they can generate.

    Keep reading to discover more.

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      Buy-to-let 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 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.
      • Rents are rising rapidly in the UK, meaning you can earn attractive rental income when investing in the right area.
      • 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.
      • You can likely find a buy-to-let mortgage to help spread the cost of investing over time.
      • 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.
      • Interest rates on buy-to-let mortgages have been rising as of late, meaning you may struggle to find a fixed-rate mortgage.
      • 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.
      • You will need to either be prepared to perform the duties of a landlord or use the services of a property management company.

      The Returns

      The returns offered by residential buy-to-let are:

      • Rental income, which is paid by the tenant every month to give you a consistent cash flow of passive income.
      • 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 January 2024, the average price of apartments in more affordable areas like Liverpool stands at £189,445, according to Zoopla.

      According to the Land Registry House Price Index, the average property price in the UK in October 2023 stood at £287,782 (the latest data available).

      This shows that there are bargains to be found, depending on what kind of property you are looking for and where it is located. Residential buy-to-let is often one of the most affordable property investment types available.

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      Students inside HMO Kitchen

      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.

      Therefore, student buy-to-let is often located in major cities or close to university campuses to help attract potential tenants. They may also be HMOs, which we explain further down in this guide.

      Many students prefer modern new build properties, however, with studio apartments being popular.

      Pros of This Type of Investment Property

      • The UK attracts many students each year from the UK and overseas, leading to a 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 properties are often located in major property investment hotspots such as Liverpool and Manchester.
      • 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.

      The Returns

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

      • Rental income is 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.

      With many new developers choosing to fit their projects with Manhattan studio apartments over traditional one-bedroom or studio flats, this trend is becoming one of the most popular property investment types in the UK.

      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.

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      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 value prices, allowing investors to make some huge savings.
      • Payment plans can be set up for off-plan properties to spread out the cost over time rather than paying in one lump sum.
      • 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.
      • Rising interest rates mean off-plan is more affordable than ever, as buy-to-let mortgages are more expensive now, making off-plan a preferred option for many investors.

      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 £164,950 for our exciting off-plan Liverpool property, Central Park.

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

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        Students inside HMO

        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 entire 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 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.

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        buy-to-sell

        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.

        Quite often, this type of property investment will see properties being modernised or extended to increase their value, which can be a lot of work depending on how long is needed.

        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.
        • Given the potential cost of renovations, this can be a very expensive type of property investment if things go wrong.

        The Returns

        Buy-to-sell generates returns through 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.

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          Holiday Home Rental

          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.

          Short-term rental 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.
          • The high turnaround of tenants means you can change rental costs easier to fit with current market trends.
          • This option can come with better tax benefits than some other strategies due to being classed as a business.

          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 is 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.

          Text 'commercial property' on a paper

          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 warehouses.

          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.
          • Quite often, it is the tenants who are responsible for maintenance rather than the owners, meaning there are fewer ongoing costs.

          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.
          • Due to their larger size, they are often far more expensive than residential properties and can come with additional costs.
          • 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.

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            Invest in Property With RWinvest

            Ready to invest in property? At RWinvest, we have some of the UK’s most lucrative residential and student buy-to-let opportunities, with recent developments like the Rice Works offering high rental yields of up to 7%, amazing capital growth potential, and high tenant demand.

            Chat to an agent today to find out how we can help you meet your financial goals with property investment.

            To read more about the possible investment types you could consider for your property investment venture, be sure to read our guide to property investment strategies.

            Click to read our property investment strategies guide now.

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            Author

            Dale Barham

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            Dale is a property content writer at RWinvest. Keeping a close eye on the UK property market, Dale helps our readers stay informed and up to date on the latest market news and statistics.

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