If you are looking to invest in property, you need to work out what type of investor you are and what your goals are. You will then be able to determine which investment is best for you. Firstly, look at the below to categorise yourself.

Types of investor you may be…

  1. You’re looking to build and manage your own property portfolio/empire
  2. Just someone with extra cash who wants it to go to good use
  3. You are a builder or someone wanting a project to fix and flip for a quick return
  4. You want to buy somewhere for your children’s future

Types of goals you may have

  1. Just want a steady supplement to your income
  2. Want to make a good capital return as quick as possible
  3. Need/Want to be a full-time property professional
  4. A mix of all the above

 

Now you may or may not have an idea of what type of investor you are, go through the below and think carefully about the assets you are looking to invest in.

 

List of property investment types…

  1. HMO
  2. New build
  3. Off-plan
  4. Houses
  5. 2nd hand property
  6. Shared office space
  7. Retail
  8. Office
  9. Hotel
  10. Staycation
  11. Abroad
  12. Serviced apartments
  13. Land
  14. Refurbishment

Many of these property investment types cross over in many places, but it is important to understand the slight differences in each.

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Residential

HMO

HMO stands for House of Multiple Occupants. Typically, these work by renting each room out in either a house or apartment individually to each tenant. The best example of HMOs are student houses where each tenant in each room is responsible for their own rent.

As these are often houses that you own as a freehold you will have a lot of flexibility as to how you manage this investment. You could change its purpose and rent out to a family for a long-term tenant, or you could sell it to end users or investors, giving more opportunity for an exit strategy.

 

Pros

  • Higher yields than most other investment opportunities
  • Mostly freehold property (houses)
  • Conversions and extensions can allow for extra rooms and higher income
  • Options to sell to investor or end users (homeowners) if you want an exit strategy
  • Option to rent out as normal house.

Cons

  • Tenants can cause high maintenance cost
  • Tenants will only stay for around 1-2 years
  • You will need to obtain your own management company to take care of the property and its tenants for you, or do it yourself

 

Possible Yields: 12% NET

 

Who does this type of investment suite?

HMOs can achieve some of the highest yields, however only under specific scenarios. If you are living within the same city or town as your HMO in a popular student location and you manage or own your own management company, then you can cut the costs of maintenance and management significantly.

Many successful HMO investors will often purchase as many as they can over a period of several years and have their own management company setup. If this setup is successful yields can reach 15% or even more. Please remember though, to be this successful you will likely need to be fully involved full time to begin with if not several years. This is less of a passive income but a full-on business to make these yields.

Ultimately if you wanted to build a property empire with smaller capital and willing to go full-time HMOs may be the best option for you to start.

 

Who is this type of investment NOT for?

Although HMOs can still bring yields of 6% to someone who is hands-off and hiring a management company at a high price, these properties can still bring a lot of problems with tenants and condition in comparison to other alternative properties such as new build.

So, if you are abroad and just want to enter the UK property market with a steady hassle-free investment then a HMO should not be your first choice unless you are able to secure a very good deal.

HMOs are often placed away from city centres where although prices can rise significantly, they can be more sporadic, whereas other investments in city centres may provide a more modest but more stable yearly price increase for capital appreciation.

New Build

Any property can be referred to as a new build when it is new. However, typically it relates to brand new apartment blocks and developments, often with mod-cons including a gym, laundrette, and other luxury amenities. Quite often these are built in or near city centres for convenient living.

New builds can refer to student flats or residential flats, but more often, they will refer to residential blocks for working professionals.

Yields will range between 3%-7% for these types of properties but can often come with rent assurance or even a contractual guarantee, making it a good choice for easy passive income for a hands-off investor.

 

Pros

  • Less maintenance as they are new
  • Often come with block management
  • Can attract higher paying tenants (working professionals)
  • Appeal to hands-off investor
  • No renovation needed
  • It can come as part of an investment package which assures or even guarantee yields

 

Cons

  • Can command a higher price
  • Less opportunity to renovate and expand
  • High management fees
  • It comes with additional charges such as service charges and ground rent

 

Possible Yields: 7% NET

 

Who does this type of investment suite?

These investments are ideal for people with extra cash that they need to utilise and ensure they do not lose it to standard inflation. The process is easy, and the investment requires very little work after the initial purchase.

Examples of these investors are

  • Anyone with spare cash of 100k plus
  • Non-experienced property investor
  • Expats
  • International investors looking to break into the UK market
  • Those seeking a passive retirement income 

 

Who is this type of investment NOT for?

Those looking to go into property investment as a full-time business have little need for these types of properties. As often, they will want to be hands-on and cut costs by running the properties themselves. 

Some examples may be…

  • Builders looking to fix and flip
  • Owners of Property Management Companies
  • Anyone looking for a project

Residential

HMO

HMO stands for House of Multiple Occupants. Typically, these work by renting each room out in either a house or apartment individually to each tenant. The best example of HMOs is student houses, where each tenant in each room is responsible for their rent.

As these are often houses you own as a freehold, you will have a lot of flexibility in managing this investment. For example, you could change its purpose and rent out to a family for a long-term tenant, or you could sell it to end users or investors, giving more opportunity for an exit strategy.

 

Pros

  • Higher yields than most other investment opportunities
  • Primarily freehold property (houses)
  • Conversions and extensions can allow for extra rooms and higher income
  • Options to sell to investors or end-users (homeowners) if you want an exit strategy
  • Possibility to rent out on a traditional long-let basis

Cons

  • Tenants can cause high maintenance cost
  • Tenants will only stay for around 1-2 years
  • You will need to obtain your own management company to take care of the property and its tenants for you, or do it yourself
  • You must abide by strict local licenses for HMOs 
  • A lot of admin - Tenant checks, multiple deposits, health and safety checks 

 

Possible Yields: 12% NET

 

Who does this type of investment suite?

HMOs can achieve some of the highest yields but only under specific scenarios. For example, suppose you are living within the same city or town as your HMO in a popular student location, and you manage or own your own management company. In that case, you can significantly cut maintenance and management costs.

Many successful HMO investors will often purchase as many as they can over a period of several years and have their own management company set up. If this setup is successful, yields can reach 15% or more. Please remember that you will need to be involved full-time. This approach is less of a passive income but a full-on business to make these yields.

Ultimately if you want to build a property empire with smaller capital and are willing to go full-time, HMOs may be the best option for you to start.

 

Who is this type of investment NOT for?

Although HMOs can still bring yields of 6% to someone who is hands-off and hiring a management company at a high price, these properties can still get a lot of problems with tenants and conditions compared to other alternative properties such as new build.

It is also worth noting that regulations for HMOs vary across the country, meaning landlords and investors will face stronger laws when compared to regular long-term lets. As with all rules within the property sector, there are associated fines in place should your property not meet the strict criteria. 

So, if you are abroad and just want to enter the UK property market with a steady hassle-free investment, then HMOs should not be your first choice unless you can secure a very good deal.

HMOs are often placed away from city centres where although prices can rise significantly, they can be more sporadic. In contrast, other investments in city centres may provide a more modest but stable yearly price increase for capital appreciation.

Off-plan

Off-Plan is like a new build in many aspects. They are Ideal for hands-off investors looking for a passive income and no hassle. However, there are some key differences. For example, off-plan properties are purchased before construction and are often priced below market value. This allows room for capital appreciation once completed. However, this can come with additional risks of the development being delayed or never fully built. This risk factor can turn away investors. However, it also gives a huge opportunity to make money within just a short period.

With these types of investments, we recommend using a well-established developer. This reduces the risks for those looking to benefit from these off-plan products.

 

Pros

  • Can give a significant profit in a short amount of time with capital appreciation
  • Less maintenance as they are new
  • Often come with block management
  • Can attract higher paying tenants (working professionals)
  • Appeal to hands-off investor
  • No renovation needed
  • Can come as part of an investment package with assured or even guaranteed yields
  • Often delivered with a 10-year warranty

Cons

  • Can come with risks if choosing a lesser-known developer
  • Less opportunity to renovate and expand
  • High management fees
  • Comes with additional charges such as service charge and ground rent

 

Possible Yields: 7% NET

 

Who does this type of investment suite?

These investments are ideal for those looking for a new build with one key difference: it requires a small level of risk since they are under construction, and often the investors are funding the build itself.

  • Anyone with spare cash of 100k plus
  • Non-experienced property investor
  • Expats
  • International investors looking to break the UK market
  • Hands-off investors looking for short-term capital appreciation

 

Who is this type of investment NOT for?

If you are looking for low-risk and just passive income and not worried about capital appreciation, then this may not be right for you. In addition, in the same way, anyone looking at new builds, those wanting a project or to manage themselves, will not suit this asset.

2nd hand property

The 2nd hand market can relate to any kind of property. A few things worth noting about all 2nd hand properties are: they will most likely cost the full asking price, they may need some renovating, and they may already be tenanted. It is always essential to check things like EPC, EIRC tax bands, past planning permission, past sales prices, and any past surveys just to ensure there are no hidden issues.

Possible Yields: 4 - 12% NET

 

Pros

  • It may already be tenanted and creating income
  • No risk of property not being built

Cons

  • It may need some renovation
  • Will need to check out historical documents relating to the building to uncover any issues
  • Will come at the full asking price, but an experienced investor will know when a good deal can be found

 

Who does this type of investment suite?

Houses are great for anyone looking for a bit of flexibility in terms of exit strategy (capital appreciation) and anyone looking to add value. In the right circumstances of managing the property yourself, they are also fantastic for anyone looking for high yields.

 

Who is this type of investment NOT for?

Hands-off investors looking just for easy passive income and minimal hassle would be better off with a fully managed apartment. With houses, you are responsible for all elements of the building. Whereas a flat you would not be responsible for many things such as cladding, communal areas and even shared plumbing, leaks from above flats etc.… It will often be covered as part of the block management

Commercial

Shared Office space

In the past shared office space has offered extremely high yields at a very low entry point. It is however dependent on the occupancy of the office space. The most extreme example was the pandemic when income got wiped out for over a year. These investments are also going to be cash only, so you will need the full purchase price to purchase.

As a company in this current climate, we do not offer this type of investment as there are just too many unknowns at this stage after the pandemic. Ultimately this is more of a share of a larger office or even a share of a working space company

 

Possible Yields: 10 - 20% NET

 

Pros

  • If occupancy is good, then very high yields can be achieved
  • Low entry for cash buyers
  • Almost nothing required from the investor in terms of ongoing work/management

Cons

  • Seems riskier after pandemic
  • Cash only
  • No real exit as difficult to sell it on, so no capital appreciation

 

Who does this type of investment suite?

A hands-off investor who is currently looking to take the risk for a very high return. Again, hands-off will be international investors or anyone who has free cash they wish to utilise looing for a good passive income.

 

Who is this type of investment NOT for?

Anyone looking for a project or anyone who wants to make quick money on capital appreciation will not suite this type of investment. Same as with Houses or HMOs if you are hands on and have a management company then this will not be what you are looking for.

Retail

Retail can be a tricky investment and will often take someone with real experience to pull off. Buying a shop unit and then knowing what to do with it from that point. There are a lot of options you face here.

You could renovate it as a very generic layout and then rent it out to anyone looking to run a shop or have it so it may only suit one type of tenant (a restaurant owner, a hairdresser etc…). Or maybe you leave it as is, and your commercial tenant will have to renovate it as per their requirements.

You may even be purchasing to run your own retail business, in which case it becomes more of a business asset than part of an investment portfolio. However, one thing for sure is there is a lot more involved in this investment type.

Location can make a huge difference also, where would bars and restaurants do well and what type of shop would do well in the area. There is also the consideration that retail business has dropped thanks to internet shopping and the pandemic.

 

Potential yield: This is a tricky one. When done well, yields can be huge at 20% net +, but a lot of pitfalls can put this to the low single figures.

 

Pros

  • Potentially massive yields
  • Choice to run your own retail business or rent out
  • Business tenants are often more respectful

Cons

  • A lot to research and consider when purchasing
  • Risky with the decline of retail over the last decade

Who does this type of investment suite?

A retail investment would be best for someone who wishes to build their own retail business or someone already with an extensive portfolio and wishes to be diverse. Ideally, you will need to be well experienced and have done your homework on the investment opportunity to know what you are getting into.

 

Who is this type of investment NOT for?

This is not ideal for smaller investors, beginners, or anyone who just wants hassle-free hands-off investments to generate passive income.

Office

Office rental is an easy way for someone with extra space to make some extra cash. You can run this as a fully inclusive product where everything is provided for your tenants or just rent out the space for them to do with as they will.

Tenants can rent these spaces out for years or even longer if you have a successful business renting them out. And like residential investments, yields run closely similar with London being around 3% but typically, they can run from 5-10%. 

 

Potential yield: 10%

 

Pros

  • Decent steady yields from long-term tenants
  • A good alternative asset if you already have residential property in your portfolio

Cons

  • High entry as office space needs to be large in sq.ft.
  • Pandemic has reduced the need of office space

 

Who does this type of investment suite?

If you have a larger budget and are looking for a long-term reliable income, this can be a fantastic option for you. However, you will need greater funds and perhaps already well experienced in property investment and adding this to diversify your already successful portfolio.

 

Who is this type of investment NOT for?

If you are a beginner, I would recommend steering clear of this until such as the time that you have built a small portfolio. It may also be more hands-on during the initial set-up, so if you are just looking for somewhere to put your cash, again, this may not be for you.

Hotel

Investing in a hotel or just a hotel room can be another great alternative property to add to a portfolio. A room would be fantastic for a hands-off investor similar to a new build, however your exit strategy may be more difficult as you will only be able to sell to another investor. The flip side of this is you will get a higher yield.

If you are buying a whole hotel then you are taking on a whole different beast. At this stage you will be a professional investor with lots of experience. You can renovate and flip it or just rent out and benefit from huge rental returns. This takes real expertise to pull off this form of investment.

One other major factor to consider is seasonality. In the UK summer months will bring much higher yields than the winter months, so it is important to consider this. It does, however, balance out throughout the year to be a very high yield.

Potential yield: 13%

Pros

  • Very high yields
  • Good way to diversify your portfolio
  • Massive fix and flip potential for builders and developers
  • If you purchase an entire hotel you can potentially sell individual rooms to help draw out profits

Cons

  • Hard to sell on as you can only sell to other investors, if it’s a whole hotel then you have a very slim market to sell to
  • A lot of set-up and work if buying a whole hotel

Who does this type of investment suite?

A hotel room or an entire hotel will appeal to completely different types of investors.

A single room will suite hands-off investors just wanting a good passive income but that are not worried about an exit strategy/capital appreciation.

An entire Hotel will suite a developer, experienced investors or builders looking for a big money-making opportunity.

 

Who is this type of investment NOT for?

Take what I have said above and flip it around…

A single room will not suite a develop, experienced investors or builders looking for a big money-making opportunity.

An entire Hotel will be almost impossible for a hands-off investor just wanting a good passive income but that are not worried about an exit strategy/capital appreciation.

Holiday Let

Staycation

The Staycation market in the UK has boomed over the last year since the pandemic has allowed many Brits to re-discover their doorstep beauty spots. Staycation investments can be anything from hotel rooms, serviced apartments, Lodges, caravan parks and even camping sites.

They will almost all have a peak period in the summer and, on average, offer higher rental yields than residential property.

 

Potential yield: 11%

 

Pros

  • Very high yields
  • Great way to diverse your property portfolio
  • Many come fully managed
  • Lots of different options to consider

Cons

  • Harder exit depending on the type of staycation property
  • Lower occupancy in off season

 

Who does this type of investment suite?

This can vary wildly depending on the type of investment, you will need to look at the product being offered. Is it fully managed cash purchase which is hands off or is it a house in a holiday location. So, as we have explored depending on the product will determine who will suite this property best.

As a company we find a lot of our staycation investors are those also wanting to use it for personal use and are often fixated on a particular area of the UK such as the Lake District or Norfolk.

 

Who is this type of investment NOT for?

Again, as above look at the type of property it is as staycation property can be any type of property. Are you hands-off or looking to build and manage this portfolio yourself?

Abroad

One of the main reasons for investing abroad for Brits is simply to have a second holiday home that essentially pays for itself by allowing holiday renters to use it when you are not.

There is a lot to consider here, firstly you are likely to pick a spot you already love, therefore you may not be investing in the best area as an investment. There are also then lots of other taxes and deposit laws that may differ depending on where you invest.  A good example would be buying property in Spain. You will ultimately need around 40% of the property price to fully complete the investment with a mortgage.

There are, however, still fantastic opportunities to invest in the right places at the right time. A great example may be somewhere such as Dubai before the Oil boom or even Dubai in the next year or so as it becomes less oil dependent and is turning steadily into an international tourist mecca.

Ultimately unless you follow the trends on best places world-wide, it is likely to be a purchase made with your heart rather than your head, which is fine if that is what you want.

 

Potential yield: 4%

 

Pros

  • Great way to buy and enjoy an investment abroad and go on holiday for free
  • If you follow the trends and do your research, you can gain massive capital appreciation
  • Typically, property is cheaper abroad

Cons

  • More barriers depending on location
  • Would be better off buying with cash than seeking a foreign mortgage
  • Lower investment returns in lots of scenarios
  • More research and due diligence recommended

 

Who does this type of investment suite?

This will largely depend on the market you are buying into and the reasons for it. So, if you are looking for something to enjoy yourself with a couple of weeks personal use then this will be a real option for you. If you are looking for a hands-off investment with good yields, then you will need to be careful with your timing and location.

 

Who is this type of investment NOT for?

If you are just looking for a great capital appreciation or passive income, you are far safer and better off currently looking at the UK market.

Serviced Apartments

Serviced Apartments are currently seeing huge returns within the UK market, largely thanks to the huge need for short-term tenants and staycation trips. For example, if you take an apartment that can be let out as a serviced apartment on a short-term-let model or a long-term tenant basis, then your yields could go from 5% to 12%. It does cause other issues, though, as it will need a lot more management.

Serviced apartments are different to hotel rooms as they are often fully catered apartments. Still, they do have all other amenities and services sorted before your guests arrive, such as internet, bedding, and all other furnishings. In addition, they can be let out for days or weeks at a time with a large rental price per night.

 

Potential yield: 12%

 

Pros

  • Fantastic yields
  • Can sell to investors and end users

Cons

  • High management and maintenance
  • Low season periods
  • Service-based reviews - if the management company is unprofessional, your yields may decrease

 

Who does this type of investment suit?

This is a great combination for those looking for high yields and capital appreciation. If there is a professional management company in place, then its great as a hands-off investment. Equally, if you are in a popular tourist destination, you can manage them yourself and get an even higher yield. Even if you are a developer or builder, there are so many opportunities to purchase a run-down property, fix it up, and then run it as a serviced apartment.

 

Who is this type of investment NOT for?

A serviced apartment can be an excellent opportunity for most investors. However, serviced apartments often require a professional management company, which will come at a cost. Should they fail to deliver a good service, your returns could be impacted by less favourable reviews of the property. 

It is therefore vital that you get a well-established management company in place. 

If you are buying with a specific reaon in mind, such as for your child to live in, it would not be suitable. 

Land

Fairly straightforward on what this investment is. You will need to know what you are doing and most likely be a developer to invest in land. Other than that, there is no real opportunity for other investors.

Who does this type of investment suite?

Developers only.

Who is this type of investment NOT for?

Anyone else who is not a full developer.

Refurbishment

Refurbishments are fantastic for a quick return, as you can take a cheap beat-up property and turn it into a luxury product. The potential from there is endless; you can sell it fast to end-users, rent it out or sell it to other investors.

Any 2nd hand property can be a refurb. We highly recommend a location popular with tourists and rent out as a serviced apartment.

 

Pros

  • Huge choice in what kind of investment you create
  • High yields once completed
  • Quick cash if you wish to sell

Cons

  • You will need to be a builder or developer to make this a big success
  • If you are not a builder, you will need extra cash to turn it into a real money-making investment
  • The best opportunities are hard to come by as savvy investors buy these quick

 

Who does this type of investment suite?

Builders and developers or anyone who has not just cash to buy the property, but is willing to spend the money to have it refurbed. If you are highly experienced, this is one of the best property investments you can make.

 

Who is this type of investment NOT for?

Hands-off investors who are just looking for passive income. It will take a lot of work to get it to a good standard and a lot of knowledge also.

Thank you for taking the time to read this feature on the 14 types of investment property. As one of the UK’s leading investment consultancies, our team is passionate about property and is ready to answer your questions about investing. 

If you are now clear on the type of asset, you would like to purchase, contact the Fabrik Invest team to discuss your options and potential locations for your consideration.