The UK housing market has been heating up rapidly of late, with surging demand and double-digit price growth being reported nationwide.
While this is causing some concern amongst economists pertaining to a potential housing market bubble, for now the sector is offering a viable opportunity for proactive and forward-thinking investors.
But what are the best business models for investing in real estate? Here are some of the best examples.
Get in at the Ground Level With Renovation Projects
We’ll start with the most immersive model, and one that sees you identify run-down and underpriced properties before purchasing these, renovating them and ultimately selling them for a viable profit.
This requires at least some knowledge of the property market, as you’ll need to identify value both from the perspective of price and future resale value within a specific area.
Similarly, it would be ideal if you have experience of renovating properties and budgeting for this type of project, as this enables you to create accurate financial plans and make the most of your available capital.
There’s no doubt that the UK’s buy-to-let market is less favourable and slightly riskier than it once was, thanks to the cessation of tax breaks and the nature of demand in the modern-day marketplace.
However, this remains a viable investment option in some cases, as you procure a property with a specialist, buy-to-let mortgage and rent this out to a tenant for an agreed monthly payment.
Once again, you’ll need to identify properties that enable you to profit through this medium, by allowing you to apply a price premium to the monthly rental fee so that it covers more than your basic mortgage repayment.
On a similar note, the build-to-rent model is one that focuses on a new property development that’s designed from the sole perspective of appealing to the private rental market as opposed to long-term home ownership.
This also represents an investment model that scales from the ground up, although it may require higher levels of investment than simple renovations and require a far more significant time commitment.
You’ll also have to invest in build-to-rent furniture and potentially work closely with interior designers through this model, so once again you may benefit if you have some experience of renovations or the housing market as a whole.
With this type of model, you’ll invest in property that exists in multiple occupation (HMO) structures, with this typically defined by houses that feature at least three tenants in a single household (and share a toilet, bathroom and kitchen facilities).
HMOs certainly offer rental yields that simply can’t be achieved through standard buy-to-let agreements, with these approximately three-times higher on average. There are also less impactful rental void periods associated with HMOs, which means less idle time and more sustained revenues over time.
However, HMOs are subject to more legislation and building regulations, while it’s often far harder to raise mortgages or finance for this type of investment.