In every investment strategy, there are risks. If someone tries to sell you on an investment by calling it a “sure thing,” run away. The mortgage crisis of 2008 revealed the vulnerability in the strategy of “flipping” homes, as investors were stuck with homes they could not sell, and owed more than the homes were worth.
The 2020 COVID-19 pandemic has similarly hit the short-term rentals market. Airbnb is stuck in a dilemma where, if they refund renters’ money, they stand to lose many of the hosts who generate cash flow and depend on that income; but if they do not refund renters’ money, angry renters will decide never to use the service again. Either way, they lose.
What Can You Do?
The most important thing in investment is to understand the risks and your personal tolerance for risk. Many of the investors caught out in the 2008 crisis had gone into it because it was a trend, not really understanding what they were doing. With that said, here are several strategies, one or more of which may be right for you:
Housing With Multiple Occupants (HMO’s)
Instead of renting out an entire house to one family, split the house up into several bedrooms, rented out separately, with shared common areas. Say the house could be let to one family for £800; if its four bedrooms are let separately at £300 each, it will earn half-again as much, £1200. Within the HMO market, there are several sub-niches.
In a university town, one such sub-niche is renting to students. This has the advantages that students tend to come with student loans, out of which they can pay the rent, and that students have lower expectations of their lodgings compared to professionals. Letting Agent Software will help you to manage multiple tenants.
Commercial to Residential Conversions
Since 2015, the General Permitted Development Order (GPDO) has made it easier to obtain permission to convert vacant residential properties into residences. You should work with an experienced developer if you choose this route, but in the right location, it can prove a winning strategy. Market such residences to tenants who want to live near city amenities and workplaces.
What is true in the stock market is also true in real estate investing: holding different kinds of investments is usually safer than holding just one kind. This is because it is rare for every part of the market to go down at the same time. If single-family homes are down, office space may still be high. Holiday homes cater to one kind of renter; government-subsidized housing to another. Sound complicated? Fortunately, Letting Agent Software allows you to keep track of your entire portfolio.
No one investment strategy is right for everyone. By learning as much as you can about different real estate strategies, you can find the one most suited to your needs. Your level of knowledge, amount of investment capital, tolerance for risk, and personal preferences will all affect your decisions in real estate investing.