The Property Investment Chessboard: Every Investment Strategy, and Which One is Right for You

Investing in property is akin to playing chess. While you have no direct competitor you are playing against, you have to think strategically. Each piece (or investment strategy, in this context), has its own strengths and weaknesses that you have to be aware of if you want to play to win.

For example, some investment strategies will pay you a large monthly income. However, their drawback is that they are time-intensive, and you can soon become overwhelmed if you’re trying to spin too many plates at once.

On the other hand, you can opt for more ‘passive’ investment strategies, but the downside to these can be that the monthly income just about keeps you ticking over, paying off the mortgage, but never amounting to a lifestyle-changing income stream.

There are so many different investment strategies to choose from, and so many different ways to invest, that it can be easy to succumb to ‘analysis paralysis’. That’s why we have created this guide to help you pick the property investment strategy that suits your needs and moves you towards your goals faster.

What Strategies Can You Use to Invest in Property?

There is an almost endless list of ‘creative’ and ‘low-money-down’ strategies out there. However, for the sake of this article, we are going to focus solely on investment strategies that involve buying property, not trading it or controlling someone else’s asset.

The primary investment strategies that involve buying property are as follows:

Buy-to-Let (BTL): This is the most common, and well-known, strategy for investing in property. You buy a residential building and then place a tenant in it who pays you a set, monthly rent.

House in Multiple Occupation (HMO): An HMO is a property that is shared by more than one household. Typically, this means that you have tenants who rent individual rooms in the house, but they share a kitchen, living area, and sometimes, a bathroom. Student lets are a popular example of this.

Serviced Accommodation (SA)/ Holiday Lets: An SA is a property that is rented to a guest for a short-term period, typically ranging from a few days to a few weeks, or even a couple of months. The guest is charged nightly, and you are responsible for cleaning the property during the duration of their stay. Look at Airbnb or Booking.com for examples of this.

‘Flipping’: Flipping is the process of buying a run-down property, refurbishing it to a higher standard and then reselling it for a profit.

Buy, refurbish, Refinance (BRR): Like flipping, BRR involves buying a run-down property and adding value to it through refurbishment. Then, rather than selling the property for a profit, you remortgage it, using the remortgage to repay your initial investment back.

The Pros and Cons of Different Investment Strategies:

Every strategy has its own advantages, and in some cases, its own drawbacks. The information below will give you an idea of each strategy’s strengths and weaknesses. Please be aware that this can change on a deal-by-deal basis, and the below is based on your typical investment. There are deals out there that beat the system, so to speak.

Buy-to-Let: To many, buy-to-let isn’t seen as the most exciting investment strategy, but that’s part of the appeal. If you do it right, you’ll have a long-term tenant that you barely hear from, and your mortgage will be paid every month.

You won’t make much profit from your rental income, but you can make a healthy return on investment if the value of the property rises in a few years. At this point, you can choose to sell or refinance it.

House in Multiple Occupation: Because you receive rent from each individual room, you tend to receive a higher monthly income from HMOs. However, you’re dealing with multiple tenants, and tenant turnover tends to be higher than a BTL, so HMOs can be hands-on and require more regular attention.

With multiple tenants moving in and out, you also tend to find wear and tear on the property, meaning you’ll have to make repairs and give the place a touch-up more frequently.

Serviced Accommodation/Holiday Lets: If you get the right property in the right area, then you can make thousands of pounds a month through SA. However, this is possibly the most time-intensive of all the strategies, as you need to organise weekly cleans (sometimes multiple cleans a week) as well as deal with constant new guests.

Unlike BTLs and HMOs, you don’t have a signed contract where you have someone staying for months at a time. This can happen, especially with contractors and students, but you have to be in the right area.

Because guests normally stay for a few days to a couple of weeks, you constantly need to be on the hunt for new customers, meaning increased stress. However, direct booking sites, like Airbnb, have made this process much easier.

‘Flipping’: Flipping properties is a method of investment that can prove useful for generating large chunks of cash over a relatively short space of time. Depending on how much work needs to be done to the property, and how quickly you move, you can complete a project in 3-6 months.

However, this strategy can take a lot of initial upfront investment, as you have to pay for the property and the necessary refurbishment work.

Buy, Refurbish, Refinance: Similar rules apply to this strategy as they do to flipping. I.e., you’ll need more money upfront. However, rather than getting large chunks of cash, you get a new addition to your property portfolio.

Like BTL, you can expect a small amount of residual income from rent. However, the real power of this strategy means you can ‘recycle’ your cash through the refinance, using the remortgage of the property to buy a second investment, and repeat the process, if you so wish.

What Strategy Should I Use to Invest in Property?

This is a personal question, and one that only you can answer. It depends on what your life goals are. Whether you want long-term wealth that requires minimal day-to-day work, or you prioritise cashflow, in exchange for a more hands-on role within your portfolio.

Our first piece of advice is to identify your goals. Maybe you’re happy in your job, or you just want a stress-free life. Maybe your main priority is a pension pot you can retire on, or having something you can pass on to your kids.

If this is the case, then you could look at investment strategies that are typically less time-intensive, like buy-to-lets.

On the other hand, if you want high cash flow so you can leave your job or live a bigger lifestyle, then you could look at income-generating strategies, like holiday lets or HMOs. But, bear in mind that, like a business, these strategies will eat into your time, especially in the early days, so be prepared to take more work on.

Investing in property takes time and money. It can transform your life, but it can also bring risks, like unpaying tenants and unexpected repairs. Ensure that you take the time to educate yourself before investing any money and are prepared for the road ahead.

How Much Money Do I Need to Invest in Property?

This is as close to the question of ‘how long is a piece of string’ as you can get within the industry. There are a lot of varying factors at hand, like where your investment property is located-London comes with a higher price tag- and how much (if any) refurbishment work needs undertaking.

If you want to get an idea of costs, then start by looking at the average house price in your area. Speak to local agents and see what the going rate is. This should give you an idea of your budget, and maybe you’ll need to start small, with a two-bed terrace house, before looking at larger projects.

You’re also going to need to account for build costs. This will need to be calculated on a project-by-project basis and will depend on how much work the property needs. Don’t stick your finger in the air with this. It’s worth the investment to get a quote from a builder or an accredited quantity surveyor so you know what your costs will be. This is especially true in the early days if you don’t have the experience to price up a refurb yourself.

You also need to prepare for purchasing costs. These are things like Stamp Duty (if applicable), legal fees and surveying fees. This should be a few thousand pounds in total, but it’s important to include them in your figures so you’re not surprised when they pop up.

You’ll also have finance costs. If you’re using a buy-to-let mortgage, then you will normally need around 25% of the value of the property you are purchasing as a deposit. This will vary, so speak with a finance broker or lender for a better idea of what to expect.

You can use bridging finance, but again, you should speak to a broker or lender about this, as interest rates can vary, and can become quite expensive.

What Are the Different Financing Options for Purchasing A Property?

If you have a nest egg, then you can always buy a property with cash. This way, you cut out any finance fees and deposits. Sometimes, buying in cash is the only option if a property is unmortgageable. The more run-down the property, the higher the likelihood that this will be the case, especially if there is structural damage or the property has no kitchen or bathroom.

Using the more traditional route, you can use mortgages to purchase property. Buy-to-let mortgages usually come with a 25% loan-to-value (LTV), but this depends on the lender you use, and the package they offer you.

There are different mortgage options, like fixed-rate mortgages and tracker mortgages. Many investors use interest-only mortgages, as this comes with lower repayment charges, meaning increased cash flow. However, it does mean that you are never paying down your debt.

Some investors, especially more experienced ones, use private finance. This involves borrowing somebody else’s money and repaying them with a fixed interest rate, or a share of the property’s profits once it has been refinanced or sold.

You can also use a bridging loan, which is a short-term loan, to finance investment opportunities. Be aware, the interest rates can be quite high on these. But on the plus side, they can be a useful tool for funding property projects that are unmortgageable.

If you’re unsure what the best option is for you, or what capital you have available to invest, then speak to a Financial Conduct Authority (FCA) regulated finance broker who can give you a better idea of your budget, and the different finance options that are open to you.

Ideally, you want to speak with a broker who can deal with both mortgages and bridging finance so that they can give you an idea of both options, rather than just recommending the one product that they offer.

Finally, SSAS Pensions are gaining popularity as a method for funding purchases, with some people using their own pension like a private bank. You need to get highly-specified information from a trusted source before pursuing this option, however.

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*Please note that the content contained in this article is not financial advice, nor should It be treated as financial advice. We are not financial professionals, and you should always seek the advice of FCA-registered and accredited professionals before making any financial decision*