Property investment, especially offshore, is not a one size fits all approach. A wise investor would work out their personal strategy that considers the investor’s personal situation, their goals, risk tolerance and future income requirements.
The most common strategies are
- BTL (Buy To Let) – Full ownership options, where the chosen property is then rented out to tenants. Within this strategy, there are residential BTL, Student BTL, Short term Let BTL and Frail care BTL.
- Flipping – Purchasing a title deed property to renovate and sell on.
- Hotel & tourism investments – whereby you own a share of a property
- REIT (Real estate Investment Trust) where by you essentially purchase shares on a property stock market
- PEF (Private Equity Fund) – you go into business with
Like any investment investing in property comes with no guarantees but if you apply the fundamental principles of investing, property is likely to outperform other investments based on history.
Your checklist to get started.
- Define your objectives, by writing down personal requirements, resources, risk appetite and wider wealth strategy
- Know the market
- Get knowledge on the gearing of properties, and tax implications
- Strategise your income streams based on market dynamic
- Confirm your strategy! We’ve listed the main strategies below:
Buy to Let
Buy to let is perhaps the most popular of all the investment strategies. The key trick here is to select a suburb primed for capital growth. You need to thoroughly research the property market to identify the key drivers of growth in a local market
BTL is considered fairly low risk, it minimises tax liabilities. For most BTL, aside from Student accommodation, you can also leverage offering the investor the opportunity to use less of their own money and allowing for equity release every few years.
If you find a good investment, the total rental return not only covers all your interest, fees and other expenses but returns a surplus cash flow each month.
There are several property types within the BTL strategy, and deciding which to invest in will depend on your strategy around cash flow and leverage, as well as your budget.
1. Student BTL
Student accommodation, especially PBSA (Purpose Built Student Accommodation) is a good option for first-time investors due to low property prices and high yields.
High and consistent rental demand is likely as student intake increases year on year and offers reliable year round tenants.
The much desired hands-off nature of this type of investment makes student buy-to-let easy and hassle-free, though the drawback is that t is usually not mortgageable and has a ceiling on capital growth.
2. Holiday BTLs
These type of lets are let out on a short-term basis as they’re rented by those seeking somewhere to stay while on holiday. These properties will normally be listed on websites such as Airbnb and other platforms used to showcase holiday rentals.
Holiday lets attract premium rental income depending on the quality and popularity of the property as well as tax benefits compared to traditional buy to let. However, a lot of work is involved to maintain and market the property and investors can be hit if the area goes into saturation and they’re forced to put rental prices down.
Buy and ‘flip’
The flipping strategy involves renovating a property with a view to re-selling it for a profit. It is best suited to people with significant experience in real estate valuation, marketing, and renovation. The challenge with this strategy is to find a suitable property that has the right bones for renovating, buying it at a competitive price, then being able to re-sell it for a price that gives a surplus over and above all costs, usually within a certain timeframe to avoid paying interest on your repayments over a longer period.
Often renovations have unknowns and come in over budget or take more time than expected. Unless this is your full time gig in an area you know well, you will be open to many uncertainties increasing your costs and holding period. Selling costs, capital gains tax eat into profits, as does every extra month of renovation. The good news is that you don’t need to deal with tenants and rental property management duties, but you will need to deal with builders so its still a very hands-on strategy.
Hands-free hospitality Investing
This is less of a property and more of a numbers strategy for investors who do not actually want to own property, but looking for high yields underpinned by bricks and mortar. Investors tend to make their decisions based purely on cash-flow rather than the location or aesthetic of the actual property, and often purchase several.
There are opportunities to purchase shares and rooms in hotels worldwide, made attractive by the yields and the lure of having offshore assets you can benefit from staying in. The investments are generally hands-off, however, confidence in the management team and trust in the brand is as important as the hotel’s location. Essentially, you have zero control over the hotel’s operation and therefore the success of the investment, which creates too much uncertainty for some investors. The upside is that these investments attract tax benefits in some countries, and it gives you a place to stay when you travel.
2. Retirement investments
Investing in retirement facilities is basically purchasing a room in a larger property. This means the unit that you buy in the care home will be fully-managed by the care home operator. They will be in charge of the care of the patient living there, as well as the maintenance of the unit itself. Care home investments are high yielding and can generate returns of up to 10% for guaranteed periods. The threshold for entry is also relatively low compared to other property investments, although unmortgageable. The other downside is that the market is often unregulated and so requires additional due diligence and expert advice.
REITS (Real estate Investment Trusts)
A real estate investment trust (REIT) is a type of company that owns, operates or finances income-producing commercial real estate properties. REITs are asset vehicles in which investors can purchase shares that are traded like stocks, offering transparent tracking and low minimum capital. Whilst these funds suit armchair investors, and those comfortable with the stock market, you do need to trust the management of the vehicle and be ok with the fees they charge. The REITs offer liquidity so suit investors who prefer to remain fluid should they wish to utilise the capital elsewhere.
PEF (Private Equity Funds)
Becoming increasingly popular private equity firms are also invested in the deals, their incentives align with those of the investor, they both want a profitable outcome.
Right now, there are several options that also come with Citizenship in Europe, specifically Portugal, though the window of opportunity is closing on this one, as there will be a significant increase in cost of acquiring Golden visa, as minimum investment requirements are to go up to €500,000 from the current €350,000 by 2022.