I outline in simple terms, a menu of 15 property investment strategies that you can pick from and combine in different ways to make money.
Just like other sectors of the economy, there are many ways to make money in property. This is great as it means that almost anyone can find something that works for them. The best strategy for YOU very much depends on your personal situation and really and truly, only YOU can decide. Factors to consider include your goals and aspirations, the current state of your finances, how much time you have, your risk appetite, how much hassle you can tolerate and whether you want property to be your main job/career or a side hustle.
Some strategies require you to be a property worker and will take a LOT of your time, while others are for hands-off investors. A general observation is that the less of YOUR OWN money you use, the more of YOUR OWN time you will need to give up. You can of course convert from property worker to hands-off investor via SYSTEMISATION and OUTSOURCING but it’s harder to do in practice than it sounds.
Please note that I’m only covering residential property here. There are also opportunities in commercial property, peer to peer lending and Real Estate Investment Trusts (REIT) for example. For some of the strategies, where I haven’t been able to find commonly used acronyms/short phrases in the property community that briefly describe the strategy, I’ve had to make up my own….. Enjoy
1. BuyResi 2 Lodge
Buy your own home (Residential) and let out a room or two to a Lodger. This is a great strategy for those starting out in property as it allows you to test your property investment appetite with less risk. You benefit from the government’s rent a room scheme, which allows you to earn up to £7,500 a year completely TAX FREE, with no paperwork required. You can also do work (e.g. add an extra room) on the property to increase its value and laugh all the way to the bank knowing that there’s no Capital Gains Tax to pay when you sell. Do remember to check that your mortgage lender allows lodgers and that you can get home insurance with the right cover.
2. BuyResi 2 SA
Buy your own home (Residential) and let part of it out as Serviced Accommodation. This is a variation of the previous strategy, except that you are renting out a room/annexe on a per night basis via the likes of Airbnb or booking.com. Imagine buying in an area that has a lot of contractors working on a massive infrastructure project. Say you charge £75 a night and a contractor needs to stay in your home 5 days a week for four weeks. That’s 20 x £75 = £1,500 – sweet……..I’ve seen some very well designed homes where a side entrance has been created to a self-contained ensuite room, with a kitchenette so that guests never need to access other parts of the house.
3. Buy 2 Let
Buy a property and Let it out as a single unit. This is a tried and tested strategy that has stood the test of time. Some perceive it to be boring and lacking in innovation. Yet, it has created a sizeable number of millionaires. Things have become quite tough though – the government seems to have Buy 2 Let firmly in its cross hairs, with a spate of aggressive tax changes that have made Buy 2 Let much less profitable than it used to be. Having said that, with the right due diligence, it is still a great long term buy and hold strategy. You can be hands-off or hands-on, you can get lending relatively easily and build a portfolio over time.
4. BRRR
Buy a property, Refurbish it, Refinance to release the money you spent on it and then Rent it out as Buy 2 Let. This is an excellent strategy for building a property portfolio very quickly. If done well, you can end up acquiring lots of properties with very little or none of your OWN (or investors’) money left in. For example, say you buy a property that is a real dump in Durham for £50,000, using £10,000 from 5 investors. You’ve promised each investor 10% return on their money in 3 months. Then you spend £10,000 of your OWN money refurbishing the property and 2 months later it now looks amazing and is valued at £100,000. You get a mortgage where the lender lends you £75,000 (deposit is £25,000). From the £75,000 you pay (£50,000 + 10% of £50,000) = £55,000 to the investors. This leaves you with £75,000 - £55,000 = £20,000 for yourself. You spent £10,000 on the refurb and so the profit is £10,000 plus a ‘FREE’ property to generate rent of £500 a month from. Well done – I’m clapping and cheering very loudly for you. Now you can do it again and again and build a large portfolio.
5. BuyResiRRR
Buy your own home (Residential), Refurbish it, Remortgage it and then Rent it out. This is a variation of the BRRR strategy but likely to be done at a snails’ pace in comparison. This is my personal favourite. It may suit people for whom property is a side hustle rather than their main career and who want to take it slow. Basically, you buy a home in an area with all the right property investment FUNDAMENTALS and take on a lodger if it helps your financial situation (see Strategy 1 – BuyResi 2 Lodge). Then you take your time to understand your home and when ready (could be months or years later), refurbish the house to make it tenant ready: this could include updating the kitchen, or adding an extra room. You then get a CONSENT TO LET from your existing mortgage lender which allows you to let out your property, then Remortgage to a Buy 2 Let and use the released equity (which could be all your money back plus a profit – thanks to the refurbishment work and growth in house prices) as a deposit towards your new home.
Repeat this 2 or 3 times over say a 10 year time horizon and you would not only have a portfolio of properties that you understand very well, but also your carry-over equity following each move, may grow to the point that you can finally afford a house in the expensive area you always wanted to live in and raise your kids – you could even be MORTGAGE FREE. For each property, you also benefit from PRINCIPLE PRIVATE RESIDENCE RELIEF, which means that you don’t pay CAPITAL GAINS TAX on any growth in property value, while you lived in the property and for 18 months (9 months from April 2020-21 Tax Year) after you stopped living in the property.
6. BRS (aka Flip)
Buy a property, Refurbish it, and Sell it for a profit. Easy to understand but not so easy to implement. You could target really tired properties that need work to bring them up to scratch. Perhaps you love watching Homes Under the Hammer and fancy yourself as an auction property aficionado. With a good POWER team (builder, architect, electrician, solicitor e.tc) you can do all manner of amazing things like remodelling a house to add more rooms or split a house in to two flats. Do stay on top of costs though as they could quickly spiral out of control. Also set things up properly so you don’t end up paying more tax than you need to.
7. Buy 2 HMO
Buy a property and let it out as a House in Multiple Occupation (HMO). Take a 4- bed house in Sheffield for example. Rather than earning £800 per month, renting out the whole house as a single unit Buy 2 Let, you could let out each bedroom separately, plus convert the dining room and lounge into rooms so that you now have 6 rooms earning £300 per room (£1,800 per month in total). The numbers in some parts of London can blow your mind. You could either Buy an HMO ‘off the shelf’ or use the BRRR strategy to convert a standard 3 or 4 bed house to a 5 bed HMO that suits your target tenant type (e.g. high end professionals, blue collar workers, students e.tc). You’d need to be on top of all the HMO rules, including HMO licensing, Article 4 direction, HMO minimum room sizes and safety requirements. Not to mention having a good management agent as there could be a high turnover of tenants.
8. Buy 2 SA
Buy a property and let it out as Serviced Accommodation (SA). Take a 2-bed apartment in the centre of Manchester for example. Rather than earning £900 per month renting out the whole apartment as a single unit Buy 2 Let, you could earn an average of £150 per night. Assuming you do your homework and your target clients (e.g. contractors, tourists, NHS workers e.tc) love the property, you could have a 75% occupancy on average (75% of 28 days per month = 21 days). £150 a night for 21 days a month = £3,150 a month. Lovely jubbly.
Wait a minute; don’t dance into the sunset just yet. There’s more good news. If set up properly, SA helps to avoid section 24 – the dreaded new mortgage interest rule that has dramatically reduced the profitability of Buy 2 Let. SA also helps you to claim CAPITAL ALLOWANCES and this could significantly reduce your tax bill. If you like solving problems, a niche strategy could be to target properties that have Japanese knotweed infestation, resolve the problem, optimise for SA and them claim LAND REMEDIATION RELIEF, which attracts 150% relief from corporation tax for qualifying expenditure.
SA can be quite labour intensive as it is kind of like running a pseudo hotel. Enterprising folk will see opportunity in the challenge of running an SA. Rather than just managing your own SAs, you could scale up and offer services to other SA owners, including SA management, SA cleaning, photography, online marketing, laundry service e.tc
9. Rent to HMO
Rent a property and Let it out as a House in Multiple Occupation (HMO). Let’s face it, running a Buy 2 Let property can be a real hassle. Many landlords/investors would gladly agree to a 2 to 5-year CORPORATE LET term whereby you pay them a guaranteed rent a month and maintain the property in a good condition. Let’s return to the example in Strategy 7 (Buy to HMO) above. Instead of buying the property, you could promise to pay the landlord £800 a month and get a signed agreement. Then let it out as a HMO and generate £1,800 a month. After paying the landlord £800 a month and after expenses of £250 a month, you have £750 monthly profit. You don’t own the property and yet you are making £750 a month profit from one deal. Life is wonderful isn’t it?
Now imagine doing such a great job that the landlord tells her network of landlord friends about you and they’re all queuing up to hand you the keys to their properties. 9 months later and you have 10 properties you don’t own generating £7,500 a month
10. Rent to SA
Rent a property and let it out as Serviced Accommodation(SA). This strategy is similar to Strategy 8 (Buy to SA), except that you don’t own the property. Why would the Landlord be keen to let their property to you as a CORPORATE LET, knowing that you’ll be using it for ‘Airbnb’ stays? Well, for starters, you’ll help them Avoid Section 24, which will be music to their ears. You’ll also keep the property in Show Home Condition to attract the highest nightly rates. The Landlord Does Not Have To Worry About Voids, Management or Minor Repairs and you can even help them Claim Any Unclaimed Capital Allowances. You can Rent to SA by going directly to the Landlord or you can Rent to SA by going via a letting agent.
11. Rent with Option 2 Buy (aka Lease Option)
Rent a property from an owner and ask for the Option to buy the property at some point in the future at an agreed price that’s been set TODAY. This one is complicated and best explained with an example. The year is 2009 and Adewale is having great difficulty paying his mortgage: he is at serious risk of being repossessed. He owes £200,000 to the mortgage lender, but thanks to the market crash of 2008, his property is valued at £175,000 and so he’ll still owe the bank £25,000 if he sells the property.
He spots an interesting leaflet pinned to the wall while getting a fresh cut at the barbers: the leaflet says there is a specialist company in the area that would buy any property. Adewale phones the company and a few days later he meets up with the company’s managing director; a young 19 year old lady called Tolu. Adewale explains his predicament to Tolu and she listens patiently and with empathy. She offers to pay his monthly mortgage of £800 a month (so long as he moves out of the property) and asks for the OPTION to buy the property in 5 years for £200,000. Adewale is ecstatic – he can get on with life now. Tolu gets her solicitor to draw up the contracts and ensures that Adewale has a different solicitor to represent him. She pays Adewale £1 for the OPTION to buy the property and ensures that Adewale’s existing mortgage lender is happy with the arrangement. Tolu will take on the mortgage debt.
Tolu gets to work and does some painting and decorating to get the property ready to be let. She lets the property out as a Serviced Accommodation and generates £80 a night. She manages to earn £2,000 a month on average and after all costs, she is left with £1,500 a month. She pays Adewale’s mortgage of £800 a month, which leaves her with £700 a month profit. After three months (£2,100), she’s able to recoup all her start up costs (solicitor fees, painting and decorating the property, etc). She continues making £700 a month for the next 57 months (4 years and 9 months). £700 x 57 = £39,900. In year 5, she decides to exercise her OPTION to buy Adewale’s property, which is now worth £300,000 thanks to the crazy growth in house prices in London between 2009 and 2014. Tolu saved her £700 a month profit and so now has £39,900 to put towards buying the property for £200,000. She’s essentially bought a property for a £1 and made £139,900 profit. I salute you Tolu. You are a Super Star.
If Tolu was feeling generous and wanted to give it all to charity, she could sell the OPTION to buy the property for £200,000 to an investor for say £75,000. The investor would be happy, knowing that he is getting a property worth £300,000 for £275,000 (£200,000 + £75,000). Tolu now has £75,000 to give to charity.
12. Deal Sourcing (aka deal packaging)
No matter what your property investment strategy is, one of the first tasks is to find what you consider to be a deal. Hands-off investors may not want to pound the streets, viewing 100 properties just to find a good buy. They may not want to distribute thousands of leaflets or spend an inordinate amount of time marketing online or via social media platforms.
You’ve spent a lot of time honing your craft and now you are amazing at finding good property deals. Why not profit from this and begin to package deals and sell them to Hands-off investors? You could dominate a geographical area or a specific strategy (e.g. HMO) and be the go-to-person for good deals. Perhaps you have good relationships with big developers. You could approach them and let them know you have a list of serious investors who would be willing to buy say 50 units, so long as a discount of 15% is offered on each unit. The developers are nearing the end of their financial year and are desperate to close a certain number of sales to make their books look good – for the benefit of their share price. You charge each investor £4,000 for the deal. That’s 50 x £4,000 = £200,000. Wow wow – you’ll be a millionaire soon.
If feeling energetic, you could go a step further and monetise add-on services such as getting the property ready for the investor (e.g. take on the refurb work to make it HMO ready).
13. Set Up A Lettings Agency
There may come a time when your property portfolio or the combined portfolio of you and a group of mates becomes so large that it makes sense to employ someone full time to manage the entire portfolio rather than utilising the services of different local/online lettings agents. Why stop there though? You could formally set up a lettings agency and have your full-time employee managing not only your portfolio but also that of other landlords in the area. It could get so juicy that fees generated from managing other landlords’ properties more than compensate for the cost of your full-time employee such that your own portfolio can be managed for FREE. This strategy can also help make you even more connected with your investment area: you’ll get to know landlords in the area and you’ll understand market dynamics at a street by street level.
14. Assist The Sale of a Property
Uncle Chijioke is tired of the cold UK weather and wants to relocate to Nigeria but needs to sell his 3-bed house first. The problem is that his house is in a real state after years of neglect. Other 3-bed houses on the road are worth £400,000 but the estate agent has valued uncle Chijioke’s house at £350,000 because it is in such a poor state. My dear uncle really can’t be bothered to do any work on the house as it is such a hassle. He is about to cave in and sell for £350,000. I stop him as I have a friend called Blog Reader Deji, who specialises in assisted property sales.
Blog Reader Deji proposes a solution, which uncle Chijioke is willing to accept. Contracts are drawn and signed. Blog Reader Deji spends £20,000 refurbishing the property and does such a great job that the property sells for £430,000. The agreement was to split any profits over £350,000…. 50:50. The profit is calculated as £430,000 – (£350,000 + £20,000) = £60,000. Blog Reader Deji walks away with £30,000. Uncle Chijioke is very very happy as he’s gotten £30,000 more than he would have gotten had he sold at £350,000. He takes me to Enish Nigerian restaurant and treats me to some palm wine and suya as a thank you for introducing him to Blog Reader Deji.
15. Exchange on a Property and Delay Completion
Typically, when you buy residential property, you first Exchange contracts and then you Complete the purchase within 2 weeks. Sometimes, it is financially beneficial for both the buyer and the seller to Exchange but delay the Completion date to 6 to 12 months after Exchange. Take for example a landlord trying to dispose of a property during a market downturn, or perhaps a property that can’t be bought with a mortgage because it has structural problems. You have a good look at the property and decide that value can be added. You agree to exchange with 5% deposit and delay completion for 12 months. You can then refurb the property and resolve any structural problems during those 12 months – thus adding value. You could even line up a tenant in readiness for completion so that there is no void period. 12 months later, you complete on the purchase using a mortgage at the higher value - thereby releasing the money invested.
An example helps. Say a property is valued £80,000 but un-mortgageable. You exchange with 5% (£4,000) having found a specialist mortgage lender that understands what you are trying to achieve and is happy to lend subject to the valuation when works are completed. The contract is watertight legally binding as you’ve Exchanged. Then you spend £15,000 refurbing the property, including a loft conversion to add an extra bedroom. The property is now worth £150,000. Your mortgage lender lends you £112,500 (75% of £150,000) and you pay the Landlord the outstanding balance of £76,000 (80,000 - £4,000) at Completion. You now have a profit of £112,500 – (£80,000 + £15,000) = £17,500. How amazing is that? You’ve got a property generating rental income and have managed to pull all your money back out and also generated a cash profit of £17,500.
And now to conclude……..
Pick YOUR Colours and Paint YOUR Picture
Property investment is kind of like a painting palette on which you mix the paint colours (investment strategies) as you see fit to suit your artistic taste. It is really important that you find what works for YOU, remembering that life is all about BALANCE. You will have spotted that I’ve only provided a brief introduction to each strategy and that I’ve used highly optimistic examples just to illustrate the potential if done properly.
Property is often touted as a way of generating passive income, which is true for some simple strategies involving buying and holding property for the long term. However, a good number of the strategies mentioned above require you to trade Time for Money, albeit perhaps only for a defined period of time.
Some of the strategies are highly specialist and downright risky if you don’t know what you are doing. Should you pay for property training? It is hard to say since unlike say a university degree or professional qualification, I’m not aware of a peer-reviewed or accredited training program that teaches these strategies. The only option seems to be reviewing the range of heavily promoted (usually online or via social media) self-declared training providers and praying that the one you have selected is the real deal. Even if the training provider is the real deal, you will need to decide if you’re the type of person that will DEFINITELY take action, BEFORE paying for any training. Only YOU can make this work. No point paying £10,000 for a property training course if you know you’re not prepared to put in the work CONSISTENTLY… day in … day out … come what may.
The good news is that you can take it slow if you want to. Particularly if you start young. I started in my early 20s and being a guy of average intelligence and significant risk aversion, borne out of having ‘tasted’ homelessness, I took the slow, scenic route with plain vanilla Buy 2 Lets and BuyResiRRR. I survived the market crash of 2008 and kept growing slowly in property, but also in my main career and in other matters of personal finance such that the combined effect a decade and a half later was to put me in a relatively relaxed position. The point is that you don’t have to amass a huge portfolio in a very short space of time if you don’t want to. It is perfectly fine to take your time and grow slowly – but the key thing is to START.
Thank you for reading this article and I hope that it has been valuable to you.
Regards
Bemi