The best way to start investing in properties as a beginner is to learn about the types of property investment available in the market. Deciding on how to invest your money in properties can be overwhelming, with so many things to consider. As a beginner, this is understandable; that is why we created this guide to help you learn all that you need. So, before we get started, let’s look at the meaning of property investment.
What is Property Investment?
Property investment is buying properties to earn a return or a profit. The property may be purchased by a group of investors, an individual investor or a corporation. It could also be a long-term or short-term investment. With short-term investments, the investor will often engage in flipping, which means you will have to renovate or remodel the property and resell it within a short time to make a profit. For long-term investment, the property can be rented out or left vacant; the value is expected to increase with time.
Investment property can also mean buying an asset such as art, crypto, securities, land or other collectables for future appreciation.
See also: Real Estate Investment: How to Avoid Scammers When Buying a Property
Types of Property Investment
Here are the different types of property investment you can engage in, as well as their pros and cons, to help you compare and contrast.
Residential Buy-to-rent
This is one of the preferred types of property investment for many investors; it is very common because it has a lot of benefits and opportunities. The residential buy-to-rent is a property purchased and let out to tenants. It can be a house, apartment, or any property that can be lived in as long as you buy it so you can rent it out to tenants.
Pros
- Consistent income from rents.
- It is more affordable than commercial property investment.
- It is high in demand because everyone needs a place to live.
- There are many options for this type of investment.
Cons
- High maintenance cost.
- You will face vacancy risks because you can’t make a profit when the house is vacant.
- It requires active management due to the frequent tenant turnover.
Students Buy-to-rent
Student buy-to-let property investment is just like residential buy-to-rent; it is when an investor buys a property to lend to tenants, except in this case, the tenants will be students. So, such properties are best located in school environments or big cities to attract potential tenants. Many students prefer studio apartments or shared apartments because they are more affordable.
Pros
- It is high in demand.
- There is a reduced risk of vacancy.
- Property prices for student investments are often low.
- Rental yields can be very high for this type of property because one house can have many studio apartments with many tenants.
Cons
- It has higher maintenance costs because students tend to be more reckless with properties.
- It requires a more active management.
Buy to Sell
With property investment, you don’t have to buy and rent it out to anyone; you can sell it too. This is a good option if you prefer a short-term investment. Buying to sell is simply purchasing a property at a higher price. However, there may be a need for some renovations before you can put it on the market; this will allow you to purchase it at a lower price and choose the resale price.
Pros
- Depending on the renovations needed, property prices can be low.
- You can set the value of the property after renovation.
Cons
- If done wrong, the investor may end up losing money.
- It can be very expensive to renovate a property.
- The returns on this type of property can only be through capital appreciation so that the investor will miss out on rentals and a long-term property value increase.
- Experience and in-depth knowledge are needed for this type of investment.
HMOs
HMO is an acronym for houses of multiple occupancy. HMO property investment involves purchasing a home that multiple tenants can share; it can be an apartment with numerous rooms, so you can rent it to separate tenants. It is very profitable in a student environment but can also be let out to tenants of any target group, especially young people.
Pros
- Overall returns can be higher since multiple tenants are paying for one property.
- You can rent out to students or non-students to take advantage of the rental market.
- You can buy properties suitable for HMO at a lower price at property auctions.
Cons
- It requires more maintenance and active management due ot the many tenants.
- People may be less inclined to rent shared homes.
- HMOs have more complex rules and requirements, including tax and legislation.
Off-plan Buy-to-let
This is one of the least common types of property investment; it is purchasing a property before it is completed and ready to live in, which means you will have to complete it before it can be helpful to you. It can be very profitable, but it is equally expensive.
Pros
- These property types can be found below market-value prices so that they can yield some huge profits.
- Off-plan properties can be for students, commercial, or residential, so you can rent them out to a wide range of tenants after completing them.
- New properties are very desirable to tenants.
- Payments can sometimes be made in instalments.
Cons
- The property won’t be ready to rent out until it is completed.
- Some mortgage lenders won’t offer mortgages for off-plan properties.
- After buying the property, you will need to spend more money to finish it, and it will take some time before you start making profits.
Holiday Lets
As the name implies, holiday lets are properties that an investor can purchase and let out to people on a short-term basis; they are solely to provide accommodation for people on trips, vacations, and holidays. This type of property is highly sought after during peak travel seasons such as summer, but with a good location, it can get year-round traffic.
Pros
- This property type may have more tax benefits since it is seen as a business.
- You can change rental costs according to current market trends.
- Holiday lets offer lucrative returns if it is located in a popular location with a high cost of living.
Cons
- Maintenance costs can be high because properties must be cleaned after each stay.
- Some seasons and locations can make the business very slow.
- This type of property also requires a lot of marketing and management, which is time and money-consuming.
Commercial Property
Commercial property investment involves purchasing and renting a property out to businesses or for commercial purposes. This includes office space, warehouse, retail space, etc. With this investment, you can have long-term tenants and a steady income stream from rent.
Pros
- Tenants tend to rent the property longer as it is not easy to move a business.
- Commercial properties generate higher returns than the average residential property.
- Most often, the tenants are responsible for the management and maintenance of the properties.
Cons
- The demand for commercial property can plumate due to economic factors like increasing remote working.
- They are often more expensive to purchase due to their larger size.
Land Investment
Property investment is not all about buildings or spaces created to live or work in; it also includes land investments, one of the most profitable types of property investment. It involves purchasing and leasing land, developing it or reselling it to make a profit.
Land investment is very profitable because it doesn’t depreciate, doesn’t require active management and doesn’t need maintenance. However, it may take a while for you to make a good profit from it.
Pros
- Low maintenance cost.
- It doesn’t require active management.
- Land never depreciates; the value will keep increasing over time.
- You have many options to explore with the land; you can resell, lease, build on, or leave it; either way, you will make profits.
Cons
- Turning raw land into something profitable can attract development costs.
- There is no immediate profit unless you do something with it.
See also: How to Start Investing in Real Estate
So here you have it, the 8 types of property investment you can choose from; they are all profitable and have their unique advantages and disadvantages, so you need to carefully consider your options and think of what you can handle before investing in any property.
