The Investor’s Guide: 5 Property Investment Strategies for Success in 2024
Forth Action Invest on January 7, 2024
The year 2023 presented considerable challenges for property investors, as they faced soaring interest rates, stricter lending policies, and a limited supply of available properties. However, it’s important to recognize that the property market operates in cycles. By embracing a long-term investment approach and employing diverse and innovative strategies, Property investors can uncover profitable opportunities in any market.
To achieve financial goals and maximize returns in 2024, investors must carefully choose the right investment strategy aligned with their long-term objectives. In this article, we will explore proven property investment strategies that can be implemented in 2024 to optimize returns and expand your property investment portfolio.
- Buy to let
- Commercial conversion
- House of multiple occupation (HMO’s)
- Social housing
- Short let let’s
1. Buy to Let
In 2023, the ‘Buy to Let’ market in the UK witnessed an intriguing shift. According to data from the “Council of Mortgage Lenders,” approximately £42.7 billion was loaned to ‘Buy to Let’ investors. This marked a 13% increase from the previous year, despite challenging market conditions. This trend indicates a resilient demand in the ‘Buy to Let’ sector, instilling confidence in this investment strategy for 2024.
Furthermore, we observed a significant rise in rental income throughout the UK, presenting a lucrative opportunity for ‘Buy to Let’ investors. According to a report from the “Office for National Statistics,” average rents in the UK increased by 2.7% compared to the previous year. This upward trend in rental income, combined with the growing demand, makes it an increasingly attractive investment strategy for 2024.
It is evident that buy-to-let property investments continue to offer a sustainable and relatively hassle-free source of income, with the potential for long-term capital growth.
In summary, the ‘Buy to Let’ strategy is a gradual and reliable approach to building wealth while providing flexibility in investment. It caters to different investor styles, whether you prefer hands-on management or delegating responsibilities.
2. Commercial Conversion
The commercial conversion strategy has gained significant popularity, particularly in light of recent changes to permitted development rights in the UK. Before 2020, property developers were required to obtain planning permission for converting commercial properties into residential dwellings. However, the new legislation now allows developers to change the use of certain types of commercial properties to residential without the need for full planning permission. This reform aims to stimulate the housing market and address the shortage of homes in the UK. Furthermore, these changes can result in substantial cost and time savings, making commercial conversions a potentially lucrative investment strategy. It is important to note, however, that while planning permission may not be necessary, developers must still adhere to building regulations and standards.
Commercial conversion involves the transformation of commercial properties, such as warehouses, shops, or offices, into residential units. This strategy capitalizes on the growing demand for housing in the UK. It does however still require a comprehensive understanding of local planning regulations and a thorough understanding of the local residential property market. Still, we believe that commercial conversions can be a swift means to multiply your capital in a short space of time while generating a high cashflow from a valuable asset.
Clarendon House Commercial Conversion, Altrincham, Manchester
Clarendon House, situated in the heart of Altrincham, Manchester, is a prime example of a successful commercial conversion venture. Previously, the property served as a busy office block, playing host to a range of businesses. However, the shift in market demand and changes to permitted development rights opened up the opportunity for its transformation into residential apartments.
In 2021, the property was purchased by an investment group with a vision to create a modern, comfortable living space that would cater to the growing demand for housing in the area. The developers recognized the potential of this centrally located building, surrounded by a bustling town centre and excellent transport links, as an ideal location for residential flats.
Over the course of 12 months, the developers worked meticulously to repurpose Clarendon House. The conversion involved extensive planning and renovations, ensuring compliance with building regulations and the preservation of the building’s original structure. The end result was the successful transformation of the former office block into 12 high-quality, one and two-bedroom flats, complete with modern amenities and fixtures.
Commercial conversions are well-suited for sophisticated investors, including experienced property developers, companies, or individuals with substantial initial capital for property acquisition and renovation. These investments typically appeal to those seeking mid to long-term opportunities with the potential for high yield returns and a significant gross development value. This allows investors to recoup their initial investment or capitalize on a sale for a financial gain.
(Image: Citihaus)
3. House of Multiple Occupation (HMO)
The House of Multiple Occupation (HMO) investment strategy has become increasingly popular in recent years. According to data from the Ministry of Housing, Communities, and Local Government, there has been a steady increase in the number of HMOs developed across the UK. In 2018, there were approximately 497,000 HMOs, a figure that has since risen to an estimated 517,000 in 2020, indicating a surge in demand for such properties. This growth trend underscores the potential profitability of investing in HMOs. Based on the latest housing reports and market forecasts, the demand for shared accommodation is anticipated to increase significantly by 2023. Industry experts predict that the number of tenants seeking shared accommodation, such as Houses of Multiple Occupation (HMOs), could see a rise of up to 15-20% within the next two years. This surge is expected to be driven by several factors, including increased housing costs, changing lifestyle preferences, and the rising number of students and young professionals seeking affordable living options in urban areas. This projected upsurge underscores the continued appeal and potential profitability of HMO investments.
Renting out individual rooms within a property to multiple tenants, known as a HMO, is a lucrative strategy often Preferred by professionals or students. Compared to traditional buy-to-let properties, this approach yields significantly higher rental income as you receive payments from multiple tenants sharing the same premises. By elevating the standard of your HMO, you can transform it into a cash-flow machine. In the North West of England, for example, some 5-bedroom properties generate an impressive annual rental income of up to £38,100.
It’s crucial to bear in mind that along with the potential returns, this strategy also necessitates an understanding of specific HMO regulations and responsibilities.
Please note that HMO properties require stricter compliance compared to buy-to-let investments.
Specific regulations govern aspects such as space, amenities, and fire safety standards. In certain areas of the UK, there are restrictions on establishing additional HMOs due to the Article 4 direction. To navigate these requirements successfully, it is advisable to engage a specialist management agent who possesses comprehensive knowledge and a thorough understanding of HMOs and the responsibilities of HMO landlords. For more information, you can find detailed insights on this matter [here].
In conclusion, investing in HMOs presents a lucrative opportunity for investors seeking robust cash flow. This strategy is particularly appealing to those pursuing quick financial gains and the potential to replace their current income. However, it is important to acknowledge that venturing into HMO investments requires comfort with administrative responsibilities and regulatory compliance. Managing multiple tenants within a single property poses unique challenges. Moreover, investors must possess a medium-to-high risk appetite as they navigate potential regulatory changes and maintain positive tenant relationships to operate profitably. By diligently understanding and addressing the distinctive challenges of HMOs, investors can unlock substantial financial rewards.
4. Social Housing
Investing in social housing entails providing affordable accommodation for those in need, often in collaboration with local housing authorities or supportive living organizations. This strategy presents opportunities for secure, long-term commercial contracts and contributes positively to the community, while also providing a sustainable source of income.
The demand for social housing is projected to continue growing in 2024. According to data from Shelter, a UK-based charity, approximately 1.6 million households were on the waitlist for social housing in 2023. This statistic highlights the urgent need for affordable accommodation in the country. With increasing rental and property prices, coupled with the difficulties faced by low-income families in accessing suitable housing, the demand for social housing is expected to persist in the foreseeable future. Investing in this sector not only presents a potentially profitable opportunity in 2024 but also significantly contributes to addressing societal needs.
In 2024, the government is set to bolster its efforts in supporting social housing with a substantial investment program. This initiative aims to address the growing demand for affordable accommodation by allocating funds to various projects. These include the construction of new social housing units, refurbishment of existing properties, and programs that offer support to vulnerable tenants. This commitment not only provides a much-needed boost to the social housing sector, but also presents a promising opportunity for investors seeking stable, long-term returns.
The social housing strategy holds great appeal and profitability due to the favourable lease terms typically agreed upon, in contrast to Assured Shorthold Tenancy (AST) agreements. The latter may pose challenges and financial burdens for landlords if a mismatched tenant is placed. For example, operating privately with professional tenants in a House in Multiple Occupation (HMO) can result in running costs alone exceeding 40% of gross income. In contrast, employing a social housing strategy could potentially eliminate running costs entirely.
Nevertheless, it is imperative to acknowledge that leases and social housing contracts vary in terms of their terms and conditions. Before committing to a long-term agreement with any party, it is of utmost importance to diligently conduct comprehensive research and seek legal counsel from a qualified professional.
Social housing Investments are particularly appealing to investors seeking a hands-off investment approach with stable returns. This kind of investor, often referred to as a passive investor, typically prioritizes investments that require minimal active management and offer a fixed, predictable return on investment. Social housing, with its potential to eliminate running costs completely and provide a steady stream of income through long-term lease contracts, aligns well with the investment objectives of such individuals.
5. Short term lets
The final investment strategy we’re recommending for 2024 is short term let accommodations, such as Airbnb rentals and staycations. This strategy is becoming increasingly popular, especially in the context of the shift towards remote work and the growing trend of “Staycations”.
According to data from Statista, the number of people who booked short-term lets in the UK saw a significant increase in 2023. Specifically, the number of users who booked Airbnb accommodations in the UK rose from 8.4 million in 2022 to an estimated 9.6 million in 2023, marking a growth of approximately 14.3%. Similarly, other short-term accommodation platforms also reported increased usage.
One of the advantage is the flexibility it offers. Investors can adjust rental rates based on demand, season, or special events, enabling maximization of revenue during peak periods. Similarly, diversification is achievable as investors can switch their investment strategy at any time reducing the risk associated with reliance on a single tenant source.
Short term let investments are not without their complexities and risks. It requires active management, including regular maintenance, managing bookings, handling customer queries, and ensuring high standards of cleanliness and comfort to secure positive reviews. It is crucial to have a reputable and experienced management agent specializing in short-term lets. Their expertise plays a vital role in ensuring a smooth and successful experience for both landlord and customer. There can also be legal and regulatory challenges to navigate, with some cities imposing strict rules on short term rentals.
Moreover, the income can be unpredictable due to seasonal fluctuations in demand and potential impacts of unforeseen events, such as travel restrictions during the COVID-19 pandemic.
Despite these complexities, the potential rewards of short term accommodation investments can be substantial, particularly for those willing to actively manage their properties and adapt to market trends. With the right approach and careful management, this strategy could yield significant returns in 2024 and beyond.
Making the right Investment decision
Choosing the right property investment strategy is essential for maximizing returns and achieving your financial goals. Each strategy comes with its own benefits, considerations, and potential risks. It’s crucial to conduct thorough market research, seek professional advice, and consider your personal objectives before making any investment decisions. Whether you opt for a buy-to-let, commercial conversion, HMO, social housing, or Short term lets, strategic property investment can provide a solid foundation for long-term financial success. Explore further, stay informed, and embark on your property investment journey with confidence.
*Please note this article does not constitute investment advice. Conducting your own due diligence and being aware of risks before making any investment is key.*