What Are the Different Types of Property Investment?

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 September 2024, the average price of apartments in more affordable areas like Liverpool stands at £186,000, according to HM Land Registry.

According to the Land Registry House Price Index, the average property price in the UK during the same period stood at £291,828 (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.

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.

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.

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.