Even in these challenging economic times it is still possible to achieve a 20% return on an investment in the UK property market. There are a number of opportunities which can help you achieve this aim although there is a varying degree of risk associated with each option. We will now take a look at some of the strategies and products that allow you to invest with predicted returns of 20%. They include:-
HMOs
Houses in Multiple Occupation (HMOs) offer the ability to rent out multiple bedrooms in one property on a stand-alone basis with an array of common areas such as a kitchen, living room, etc. This strategy allows you to create a rental income stream which is substantially higher than that available through standard buy to let properties. This type of rental arrangement is particularly popular among students and young professionals. While there may be licensing obligations and further safety measures required, even after any additional investment it is still possible to achieve a return of 20% on your investment.
Once you have experience in the HMO market there is nothing stopping you from building an HMO portfolio with the potential to lock in rental yields in the high double digits. The management of these properties will take up some of your time but if the paperwork is correct, contracts are in place and there is a line of communication between all parties then the time requirements do not need to be too onerous.
Development
As with any investment opportunity with a potential return of 20% there may be additional risks attached and detailed market research required. Self-development of a property project is not for everybody but there are many property investors out there with experience in the construction industry who have the necessary skills. This type of investment strategy will require additional upfront investment although there are many financing products on the market for this particular scenario. It is simply a case of balancing the risk/reward ratio against the required investment, your experience and ability to finish the job.
One route used by many people in the property development market is to acquire land/property for development and use a short-term bridging loan to begin the development process. As the project nears completion the perceived value will rise, the risk factor will fall and there will be opportunities to refinance with a higher base valuation for the overall project. In many cases this can create a significant return on initial investment even after taking into account finance costs.
Joint Venture
One area of the property investment which is becoming more popular is the creation of joint ventures utilising an array of skills between different parties. There may be individuals who have a particular skill in construction but lack the finance required and another party with cash to invest but limited skills in construction. In this situation you would consider what each party has to offer and negotiate a split of profits as well as a detailed investment/development plan. The obvious risk is that due to a shortfall in input from one particular party the project could be delayed or additional costs could be incurred. It is probably best to work with individuals you know and trust or else those who have been recommended to you by a trustworthy source.
If you’re looking to go down the joint venture route it is imperative that legally binding contracts are in place and everybody is aware of their particular role, liabilities and obligations. One of the main barriers to success in a property joint venture is miscommunication or a lack of communication.
Equity Finance
Historically the equity finance route for property investment has not always been available to the general public. The Internet has changed the way we operate on so many different levels in the financial markets and therefore equity finance is now a real and viable option for investors large and small. There are many advisers out there who bring together those offering equity stakes and those looking to acquire equity stakes in property ventures. If you are a developer the potential to sell an equity stake to a third party can allow more flexibility on the perceived “valuation” of the project compared to traditional banking methods. In simple terms you can take the potential for the project into consideration giving you a higher basis on which to raise additional capital.
On the flipside of the coin, those looking to acquire equity stakes in property projects with good long-term potential will likely come across an array of opportunities. It may be that a property project requires additional finance which is not readily available via traditional banking methods, hence offering the opportunity to negotiate an attractive basis for investment. There may also be opportunities to negotiate favourable terms if you have experience, expertise and contacts which are perhaps in short supply. What you may class as run-of-the-mill experience, expertise and contacts could be priceless to another party – one man’s rubbish is another man’s gold.
Auction property
Auction property is now more high-profile than it ever has been due to both the Internet and an array of TV property programmes. While it would be wrong to suggest there are not excellent opportunities to obtain a 20% return on your investment there are pros and cons to acquiring property via the auction route. One thing to bear in mind is that the prime reason for auctioning off a property is to speed up the payment process and raise funds as quickly as possible, whether this is a traditional bank selling on repossessed property or a distressed private seller. As a consequence, you will come across an array of very attractive deals from time to time although there may be competition from other buyers. When attending a property auction you need to be acutely aware of your finances, how far they can stretch and the potential return on the properties in question. This is the time when you let your head rule your heart, and remove emotion from the bidding process.
When looking towards property auctions it is also vital that you research all properties in which you have an interest, visit the property where possible and also make yourself fully aware of the local property market and any potential price glass ceilings.
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