The Different Forms of Buy to Let Property

Investing in property is a popular way to acquire, secure, and grow wealth. Real estate is a widespread and mainstream asset class and, like most investments, comes in many different shapes and sizes with varying degrees of profitability and risk. There are several sub-asset classes under the buy to let property investment umbrella, the most common of which are off-plan property investments, residential buy to lets, student property investments, and hotel room investments.

 

Off-Plan Property Investments

Off-plan property is essentially property that is made available to the market for purchase either prior to or during its construction. Although considered riskier than buying completed properties, with appropriate due diligence and research, buying off-plan in the early stages of planning and construction allows investors to secure properties at discounted rates well below market value. This is an extremely attractive option particularly in a rising property market.

Investors intent on securing a short term profit may look to re-assign or ‘flip’ their investment prior to the completion of the development. More serious long term investors however, will take a medium to long term view, and will hold onto their purchased off-plan property beyond its completion. These investors will look to make further gains in time by way of rental income and capital growth. In order to invest in off-plan property investors need to be in a position to proceed quickly with their purchase, and should have their capital ready to avoid disappointment.

 

Residential Buy to Let Investments

Residential property is the most common form of buy to let and the most popular amongst investors due to reasonable and stable returns on investment, minimal risks, and the fact that with finance available you can leverage your investment using buy to let mortgages.

Residential buy to let investments are ready-made and completed properties, typically houses or apartments. This could be your average one bedroom apartment or three bedroom semi-detached home. Ideally they will be purchased in desirable locations with the intention of renting them out to private tenants who will usually sign renewable 12 month tenancy contracts. These properties will usually be purchased and sold at market value only.

Investors can manage their properties themselves or they can appoint an agent who they will pay to manage all their affairs in relation to the property, including but not limited to repair and maintenance, rent collection and the removal and sourcing of tenants.

 

Student Property Investment

Although a relatively new asset class, particularly in comparison with residential properties, buy to let student accommodation, also known as Purpose Built Student Accommodation (PBSA), is thriving. Popularity, demand and appetite amongst investors has increased significantly in recent years making student property investment one of the leading asset classes in the UK. This is in no small part due to the fact that the UK student population is increasing year on year, with demand for university places higher than ever.

With many of Britain’s universities struggling to accommodate the influx of students with quality accommodation, more and more students and their parents are looking to PBSA and high quality boutique living spaces within close proximity of university campuses to enhance their student experience. Investing in student accommodation typically requires much less capital investment in comparison with residential buy to let with majority of self-contained studios starting from around £50,000 and in most cases more than matching the annual returns on investment available.

Student accommodation investments provide investors with the opportunity to diversify their property portfolios. They are usually available to cash buyers only and are always hands-free fully managed investments which allows the investor to sit back and watch their investment pay dividends.

 

Hotel Room Investment

Similar to investing in student accommodation, the idea of investing in hotel rooms as opposed to the more traditional residential buy to let is beginning to gather pace and serves as another method of diversifying your property portfolio. With a hotel room investment the investor buys the hotel room from the respective developer. This room is then leased back to the hotel operator for a fixed period of time during which the operator continues to rent the room to guests as part of the hotel. The investor receives a contractually fixed return on investment for the duration of the investment term.

Investing in hotel rooms provides investors with several obvious benefits. Firstly, considerably less investment capital is required to enter the market with individual hotel rooms starting from as low as £45,000. Despite the comparatively low barrier to entry, investors receive returns on their investment as high as 10% per annum for fixed periods of 5 – 10 years, and sometimes longer. Beyond this there are clear and defined exit strategies providing significant capital growth at the end of the term. Most hotel room investment opportunities also offer investors a free personal usage option at the hotel, usually up to 14 days per annum.

These low-entry level and high reward investment opportunities are designed for cash-rich investors who are in a position to proceed quickly.

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