Property Investment – Strategies and Fundamental Drivers

Investing in property, be it residential, commercial, agricultural, leisure, healthcare, student accommodation or some other niche property sector, is ostensibly the most popular and common form of alternative investment, and has been used as a low risk, long-term investment asset by many Investors. The main aim of the property investor is to capture income from rentals, and/or capital growth either through natural attrition or by adding capital value through development. Whatever the form or sector, property investments are solid, tangible and ‘real’ in that a property is unlikely to depreciate in the long term provided due care and consideration is given to due diligence in the acquisition stage.

Investment Strategy

The traditional form of property investment is the simple leveraged buy to let, where an Investor will acquire a property using a combination of cash and mortgage debt, and seek to cover the mortgage costs with rental income. This strategy is ideal for the long-term Investor with ample time to allow the rentals to completely pay off any mortgage debt. Older Investors should be wary of taking on long-term debt to fund property acquisitions. The buy to let strategy can be applied to residential, commercial, agricultural and other sectors including student accommodation and healthcare properties.

A more opportunistic approach is to identify and acquire distressed assets at heavy discounts, and aim to resell quickly in the open market in order to capture the inherent profit. This strategy removes the long-term financial liability associated with property ownership, and also removes reliance on capital growth as the main driver for profit.

Land development and planning are also valid property investment strategies, although these are often large and complex projects and not suitable for inexperienced Investors. One way for smaller Investors to participate in property development is to buy off-plan, where they receive a discount for agreeing to purchase the property before it is built, this again capture inherent profit, and the investor may choose to sell the property on completion of the building works, or they may choose to rent the property out. Other options for Investors seeking exposure to development property are smaller developments or refurbishments involving the renovation of property in order to add value.

Each strategy carries its own set of risks, and Investors considering adding property exposure to their portfolio should consider their end goals, be it income, growth or both, and seek out investment opportunities likely to deliver on those goals. As always, due diligence is required in the research, investment planning and acquisition phases of property investment, and often Investor will require expert help for legal and property professionals in order to properly identify the risks associated with the property or project in front of them.

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