I’m at that stage in my life where everybody is talking about pensions and investments. We’re all thinking about our future and already everyone’s wondering when we can retire. I’ve recently been looking at investing my savings in premium bonds, it’s better sitting there than in a 1% interest saving accounts, right? In the long-term though, the occasional lottery ticket or even bonds aren’t a realistic way to reach the ‘retire at 50 dream’.
It’s no secret that property is the best investment you can make. Granted, this isn’t going to make you rich overnight, and nobody said it was going to be easy. But it’s certainly worth thinking about in terms of long-term goals. Most people automatically associate property investment with rental property, but this isn’t the only way to make money out of real estate. Here are five ways to invest in property and make a return.
Rent out residential property
Ok, well we won’t ignore it completely… Renting out a property for tenants to live in is the most common way to invest in real estate. By charging rent, you can help to pay off the mortgage and make a small profit each month.
Making your investment a success relies on buying the right property and taking on the right tenants. The property needs to be in a good condition otherwise you’ll be constantly spending money to maintain it (this is your responsibility and not the tenants unless you specify otherwise in a contract).
You’ll want to buy an area in a location that people want to live, otherwise, you could struggle for find tenants. If it’s a big property, there may be the option to rent out single rooms rather than renting the whole building out to one family – this is likely to attract more tenants by splitting up the monthly rental costs amongst lots of people.
You should screen your tenants before taking them on so that you can guarantee they won’t lose you money. A credit check could help to identify if they’re good spenders and whether they’re likely to pay rent on time. You may also want to set certain rules such as no smoking in the property and no pets.
Many landlords go through an agency that can help to find and screen new tenants, as well as ensuring rent is paid on time, however, this may involve paying an agency fee. All in all, it’s worth educating yourself before getting into this form of investment. Sites like Residential Landlord have lots of information and news aimed at landlords. You can also hire legal and financial advisors to help you through the process.
Rent out commercial property
Another method of buy-to-let property investment is to rent your property out to a business. This could be anything from a shop to a warehouse. Many of the same rules of residential buy-to-let property apply to a commercial property.
You’ll want a property that requires little maintenance and you’ll want to take on a business that you trust will pay rent on time. You could rent the property out to a business on a lease, or you could rent it out for events.
For example, if you own a converted barn, you may be able to rent it out for weddings and parties and business functions. This latter method is likely to be much more difficult than renting to a company on a lease as you’ll constantly have to be looking for business.
Own a holiday home
You could also make money by owning a holiday home. By renting the property out to guests on vacation, you can cover the mortgage and make a profit. This does involve more heavy marketing than other buy-to-let investments, although the likes of Airbnb have made it easier to advertise your property, screen guests and accept payments.
A holiday home will likely need to be done up to a better standard than usually property to give it vacation appeal and it will have to be furnished. A holiday home also needs to be in an area that attracts tourism, although you may be able to attract business from traveling professionals and visiting relatives.
If you don’t live near the property, you could hire a property manager to clean and maintain it for you, as well as giving keys to each guest as they arrive. You could even use the holiday home at your own leisure when no-one is staying there – which is the biggest incentive for most people!
Try property flipping
Flipping can make you a lot more profit in a quicker amount of time, but it requires a lot more work, plus it can be riskier. Flipping a property involves buying it cheap and then selling it at a much higher price.
The most effective way to raise the value is to make improvements to the property. This could involve converting an attic or garage into a bedroom, building an extension, updating old parts, repairing damage and adding green improvements such as insulation and solar panels.
You could do this work yourself to save money, or hire professionals to do it. Some people will buy properties that are uninhabitable due to having major damage and do them up to a liveable standard with the help of a special mortgage.
Other people may convert buildings like barns and sheds into homes to make a profit. The aim is to add value in the cheapest way – you don’t want to spend lots of money renovating only to add a little amount to the property’s value as this could lead to a loss.
Build your own property and sell it
Building a property and selling it is a much less common strategy – most people who opt for a self-build do it with the intention of building a home for themselves. It’s the longest and hardest property investment strategy, but it can be the most lucrative.
This strategy usually works best if you already have the land to build on. Buying land can be expensive and is often a cost not covered by self-build mortgages (although you can take out land buying loans as detailed on The Balance website). Those with a large garden or driveway may be able to build a separate property on this land and sell it as a separate property. Alternatively, the land could be in a completely different location to your personal property.
Unless you have construction experience, it’s unlikely you’ll want to build the property yourself. You’ll want to hire an architect and some construction contractors to take care of your project. Building a house can take nine months, so factor in this time (you may have to start paying the mortgage off before the property is completed, which could mean making enough income to afford these payments).