Alternative Property Investments – What To Know Before Investing In Property
What To Know Before Investing In Property – Investment Property provides investors steady and passive income, long – term financial security, equity build up, along with many other benefits. For beginners, they may be asking, What is An Investment Property? An investment property is a property that has been purchased with the intention of earning a return. Investors obtain their return either from renting out the property and collecting the income or from reselling the property at a higher value.
Most investors primarily consider residential investment properties or commercial investment properties – however, in recent years, new, alternative property investment opportunities have become available. These include hotel room investments, purpose-built student accommodations (PBSA) and care home investments.
Hotel Room Investment
Purchasing a hotel room can be a much cheaper alternative than investing in a hotel. A hotel room investment is a “hands-off” investment, offering individuals the opportunity to collect passive income.
Purpose-Built Student Accommodation (PBSA)
PBSA’s are exactly as they sound – housing units for university students. They include clustered flats and studios, plus each PBSA may offer a unique set of amenities such as laundry, shared kitchen, and other communal spaces. Universities primarily own most of the PBSA’s. Some private developers are penetrating the sector as well, providing a rare opportunity for investors to get into the market.
Care Home Investment
Retirement communities in the UK are selling individual studios within their developments to obtain funding for future facilities. Due to the fast-growing demographic of individuals over the age of 65 in the UK, nursing homes are rising in demand, resulting in the need for capital for more development projects. The private sector has turned to this method of investing to overcome the lack of funding available.
What To Know Before Investing In Property – Which to Invest In?
Each of the options makes a good investment property because they offer investors the opportunity to get in at a lower price, reduces the responsibility of the investor and allows for a higher return compared to other investment options. In addition, in each investment strategy mentioned above, investors will own the property according to the Land Registry but will then lease the property out to the identified source (hotel, university, or retirement home). This creates a simple opportunity for investors to earn passive income with minimal involvement.
Additionally, they do not require investors to pay a stamp duty charge. A Stamp Duty on investment property is limited to residential properties. Since the aforementioned do not fall within these criteria, investors are exempt from paying the additional charge.
Where to Buy? – What To Know Before Investing In Property
When looking at the United Kingdom, there are four countries to consider: England, Wales, Scotland, and Northern Ireland. However, when assessing out of the three options above in which country you should buy, what should be considered are the demographics of the neighbourhood, future development plans, and potential risks.
Hotel Room Investment
If considering this investment type, investors will want to identify an opportunity in an economically strong neighbourhood – one in which tourists will stay at the hotel. Large cities are the hotspots for hotel investment where it is more of an affluent area. Due to the risk factors associated with these investments, such as how tourism is impacted during an economic downfall. Hotel room investments located in major cities such as London and South Wales may be the safest. These areas provide opportunities with greater value and a higher return on investment (ROI). An investor should identify the type of hotel they want to consider – luxury or budget two-and-three-star hotels. This can help an investor narrow down potential neighbourhoods for consideration as well. Large cities are the hotspots for hotel investment where it is more of an affluent area.
Purpose-Built Student Accommodation (PBSA)
Between 2017 and 2018, over 2 million students enrolled in a higher education program in the UK, with approximately 1.5 million of them being in an undergraduate program. With this massive number of students moving to college towns. The universities are facing a housing problem – the population of students is on the increase every year and there isn’t enough housing to accommodate the students. With this, private investors are seeking out universities with a disproportionate number of students to housing units, and using these statistics as development opportunities. Any investor interested in this sector should conduct similar research to determine the best option for where to invest.
Care Home Investment
In the UK, if an individual is considered low-income (has less than £23,250 worth of personal assets), the government will help cover the cost of elder care. This means that no matter the economic state of the country, there will always be a demand for care homes. However, the abundance of them and the return on them may vary depending on the location. For those looking for a secure investment, then it would be a good idea to invest in a community with higher wealth. Private pay individuals tend to want more amenities and have more expendable cash to spend each month on their housing – therefore, providing investor’s a higher return. Additionally, seeking out a luxury care home with a longer-term lease can also be a wise option, regardless of location.
What To Know Before Investing in Property – Other Considerations
Investors must also complete a thorough round of due diligence on the company that is developing and managing each project. They need to understand the risks of each investment option and understand the pros and cons of each location.
Invest in an Alternative Property
Alternative properties provide an investor the opportunity to diversify their portfolio. Each of the above has similar characteristics that may match an investors criteria. They are hands-off, provide passive income, and allow investors to get in at a lower price. There are additional factors to consider when determining which sector to pursue, including assessing your personal goals as an investor.
Request a callback from one of our property investment experts and ask us anything, or to share your feedback.