Other ways to invest and why a varied portfolio can be beneficial

When people think of property investment, nine times out of ten they will probably think of buy-to-let residential property investment. This is where you put down a down a deposit on a property, let it out and then your tenants will pay back your mortgage with hopefully a bit of money returning your investment each month. Some people have referred to this as the ‘vanilla’ form of property investment as it is very popular and it is something which is commonly chosen by investors. However, once you have built up a successful portfolio of buy-to-let properties and you know how to invest safely, you may want to explore more adventurous flavours of alternative property investments to vary your portfolio. Other investments may give you a bigger return on investment in a shorter period-of-time whilst having higher risks involved with them.

One alternative to buy-to-let (vanilla) property investments is co-living investments. Co-living is a housing arrangement where groups of people live together in a shared apartment or house, sharing communal areas such as kitchens or living rooms. This is popular with students and younger people who are finding their first place to rent. These are sometimes referred to as HMOs and they are appealing to investors because you can generate a higher rental income than vanilla buy-to-let investments as you have multiple tenants. Each tenant will not pay as much as if they were renting the apartment on their own but overall, you will likely earn more money from having multiple tenants paying a lower rate than one paying the full rental rate. Also, these can be viewed as a safer investment in some cases as co-living properties are in high demand in cities as they are the cheapest rental properties available, so you are less likely to have vacancies. If there are any issues with overdue rent, you are still likely to have other incomes from the other tenants so this is another way it can offer more security. A lot of these properties have been built in up-and-coming areas which may mean that the property value is set to increase over the next few years, which would benefit you if you ever come to sell. On the other hand, one thing to consider with co-living investments is that due to regulations being stricter with this form of property, they may change in years to come which may reduce the turnover you should hope to make, so keep this in mind. These properties may be harder to sell as they are sometimes a lot more expensive than a normal buy-to-let. Also, multiple tenants may lead to domestic disputes which is something that can cause headaches. 

Another alternative to vanilla property investments is branded residences. Branded residences are luxury properties which are linked to high-end brands such as hotels. Unusually residents have access to amenities in these properties such as housekeeping room service and an on-site spa or pool. Typically the furnishings in these properties are supplied by the brand or department store, and all tend to be luxury-orientated. Branded residences differ from traditional serviced apartments in that the occupier purchases a freehold or long leasehold interest in the apartment, whereas serviced apartments are typically rented on shorter leases. The appeal of these investments over letting out luxury apartments is that typically the value is increased with the high-end brand affiliation, and maintenance and management are usually done by the brand also. There are also caveats in these properties as the luxury brand will not want to scare off other investors in the renting pool so there may be rules stipulating that the property can’t be vacant for long periods of time. So there are added pressures with dealing with another party and make sure you understand all the terms before investing. 

Something to consider may be social housing investing as it offers a great deal of stability and profitability in your investment. Social housing investing involves investing in affordable housing projects which are usually provided by housing associations that are designed for individuals and families in need. For the occupant, they offer lower-priced accommodation with more rights to protect the tenant as an alternative to private renting. The aim of social housing is to provide a less expensive and more secure alternative to private renting. Even though the government invests billions in social housing every year, it is still not enough to fund all the social housing needed in the UK, which is where private investors bridge this gap. Investors purchase the property and then lease it back to the provider. This is a tempting investment as the social housing market is always in demand so you are not likely to have a vacant property and the provider such as the local council would carry out work needed in the property so you would not have to get involved as much as a private rental. 

Another alternative could be property bond investments, which are a type of loan from investors to property developers to help fund the building or design process of a building development. The appeal of property bonds from an investor’s point of view is the higher fixed annual interest rate, in an investment which should be quite secure. Property bonds are also appealing as it allows you to invest in property at a lower price than the traditional way of investing in properties, opening investment up to more people. This is appealing as it gives a fast turn on investment but there are some risks involved, as with any investment. Property bonds are usually fixed terms, with not many ways of getting your initial investment back if you change your mind without affecting the interest payments as it is locked in. They are neither regulated by the Financial Conduct Authority nor will be compensated by the Financial Services Compensation Scheme.

Finally, the last alternative we are going to talk about is rent to rent, where an individual or company takes over a property for a period of time from a landlord and guarantees to pay a fixed rent to the landlord. Then you are able to rent the property out to other tenants in this period and the benefit for the landlord is that you are guaranteed a fixed rate every month, regardless of if you have tenants or the economy. This is a safe way of investing as you can more or less guarantee the same rent coming in, which will definitely cover mortgage repayments. The potential earnings from this may be not as much as the third party will be taking some money from renters to make it worth their while so you will not get the full rental amount but it is a lot safer. So the lower rental income may be something which you decide is worthwhile for the security that you will get that money each month. 

Overall, there are many different ways to invest in property, so you don’t have to pick vanilla (by-to-let), but it is down to your circumstances which you should pick. As with any investment, there is very rarely a guarantee that you will make any money on it, you need to evaluate if it is a possibility you will. If you do not have as much money to invest, property bonds could be a good way to start your investment journey, or add to an existing portfolio. The lower amount of capital you have, or higher dependence on the capital you have invested requires a higher safety on your returns, so you will be looking at the lower-risk investments, but these tend to have a lower reward. Before you invest in anything, talk to a professional advisor and do your homework by researching everything, do not go in blind.

Photo of a tablet screen on a wooden table showing two graphs on a black background. This is to represent investment as Harbour Property Group talks about different ways from buy-to-lets to invest your money.
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