What are you considering when buying a property? Dealing with type of property to invest in. There are five possible types of residential property to invest in.
1. Residential houses/flats
2. Student accommodation
3. Holiday lets
4. Care homes
These are the typical traditional property, which may be detached, semi-detached, terraced or flats. Most residential investors mean invest in these types of properties. In residential property can be freehold or leasehold.
If freehold residential property, according to property law, is where the property is owned in free simply absolute in possession. This means that the property does not have time limit on its ownership. Unlike leasehold, you are solely responsible for any decision and maintainers of your property. You have total ownership indefinitely. Also, unlike leasehold properties, you do not pay ground rent
Another form of land ownership his leasehold. Almost all flats are leasehold. About 21% of UK population live in flats compared to 46 in Sweden.
In a leasehold property, your ownership of the property exist for a specific period of time. The lease may be as short as 21 years or as long as 999 years. The there are two parties: the landlord and the tenant. The landlord, who is the freeholder, grants are leasehold to the tenant to owned the property for certain time. For it to be an estate in land, the grant must be more than 24 years but can be as long as 999 years. In return for being granted leasehold title, the tenant must pay rent to the landlord.
Both the landlord and the tenants of the building are bound by the covenant to release. The respective obligations and duties of the landlord and tenants of the building are set out in the lease, which is the legal document enforceable in the courts.
The area of leasehold its operations is a legal minefield. Must seek legal advice when buying a leasehold property.
Another class of assets to invest in his student property. Student property has healed as a strong passage to invest in. This income generating asset ordinarily offers investors a lower entry level and strong rental returns. Student property is usually popular and offers regular passive income.
Some towns and cities in the UK are more popular with student led than others. There are areas that are well known university towns and cities such as Nottingham, London, Manchester, Bristol, Sheffield and Leeds.
If you decide to invest in student property, it is important you consider the following:
- Choose areas that are safe and secure. The property must be reasonably close to the University.
- Choose areas that are accessible by rail and road. Parents want their children to be in areas that they can visit with speed and ease.
- Choose a property with sizeable rooms so that you can contain a desk, bed and wardrobe.
- Choose properties with reasonable rent so that students with limited budgets could also rent. This will ensure your property is not vacant because of the rent required.
Most local authorities work closely with universities when it comes to student accommodation. There are some requirements that the investor must adhere to when renting out student properties:
- The investor must ensure that the property is in a good habitable state.
- The investor must carry out required repairs when necessary.
- The investor must ensure that all electrical appliances are safe and the wiring complies with regulation. Point for the rest of must ensure that the gas and all gas appliances are checked every 12 months by suitably, qualified gas engineer.
- If the student properties furnish the investor must ensure the furniture is fire resistant and save.
- If the property is occupied by five or more students, the investor must obtain a licence to let it from the local authority. This is because it is a house in multiple occupation (HMO). Information about licence procedure can be obtained from the local authority concerned.
When preparing the tenancy agreement with the student tenant, you may consider the following:
- make sure the tenancy agreement is an assured short hold tenancy. The advantage with this form of tenancy is that: a) you can get your property back from the student tenant after six months if you want so my: be you can ask the court to evict if you always more than two month’s rent so my: see) you can charge the going market rate, ETEC
- include a clause about new service in the agreement.
- ensure that the student tenant is aware of the Deposit Scheme, which is responsible for holding deposit paid by the student.
Another class of asset to invest is in holiday lets. The holiday property market has increased rapidly and can provide good investment property.
In fact, it was established by direct line UK second property index that in 2006 there are 2.6 million second homes in the UK. The growth of second homes is predicted to increase. Some investors use their second home as holiday lets. As at April 2015, data showed that 6.2% of properties in Paul Wall are where holiday homes
- If you are considering buying a second home as a holiday let, you should consider the following: .1 ensure you buy in an area considered as popular holiday hotspot. The area does not have to be near the beach. For instance, London is a good holiday spot, but it is not near the beach.
- Point to them must be a high demand for property in the area. Places like Blackpool appear to have a glut of properties, which is why there are vacant properties.
- Ensure that they are no environmental issues that could affect your property, such as flooding. You can refer to environmentalagency.gov.uk for more information.
- Ensure you have a specialist managing agent to manage the property for you. Endeavour to use an organisation that is part of the National Association of estate agents (NAEP), because such organisation is likely to have a code of conduct that the adhere to. This organisation will assist you with lettings requirements, securing tenants, marketing your property, etc.
Homes are another class of assets to invest in. Investment in this area is becoming popular because of the number of older people in the UK is increasing. As at June 2014, there are 17.7% of the UK population aged 65 and over. It is estimated that the one-quarter of people in the UK will be aged 65 and over by 2050. Also, the local authority pays the cost of care for the elderly in care homes. Thus care homes are increasingly seen as higher yielding assets with long-term fixed income.
There is a surge of companies investing in the UK care home market. In early 2014, US hedge fund bought 27 care homes in the UK. Pension funds and insurance companies (such as Aviva and legal and general closed parenthesis are also investing in this area. Companies also find new care home developments.
The way investors operate here is that the investor buys a room or unit are fried in the development and its promised an annual return of, mostly, 10%. Some developer even promised to buy back the rooms from the investor after 10 years at an agreed price.
This investment can however, be a risky investment. This is because some areas in the UK are saturated with care homes. As such, some rooms have a low bounce rate. In the north-east, for example, there is an oversupply of care homes
secondly, some investors have found that they find it difficult to sell as there is a limited secondary market for peace meal rooms in a block or build. Others have complained that they are left with owner Russ management contracts with fees effectively wiping out some of all of their returns on investment.
Lastly, around 430,000 elderly and disabled people live in the long-term residential care in the UK. However, one in 10 care homes and now in local authority or NHS run institutions. Our lot of private companies are entering into this market, but some of them have gone bust. Southern Cross, one of the big players, is an example of a company that failed in this market. Complex and risky financial arrangements are some of the reasons companies have failed here. It can be risky putting your money into this venture without proper due diligence and advise. Seek proper advice before entering this specialist market.
Lastly, HMOs are another class of asset to invest in. HMO stands for house in multiple occupation. A property will be classified as an HMO if it is rented out to East three or more people (who are not from the same family closed parenthesis, but share facilities such as kitchen and bath.
Investors looking to invest in HMOs must obtain a licence from the local authority where the property is located. And HMO cannot be rented out without a licence. The process of obtaining a license is available as a local authority when your property is. You can be fined up to £20,000 for renting out an unlicensed HMO. A licence is valid for five years
The main reason people invest in HMOs is because of the rental returns this investment generates. HMO create a multiple stream of passive income. If you invest in HMO with, say, three bedsits, this will generate three sources of rates. The arithmetic to measure whether an HMO is profitable is covered in future narratives.
There are plenty of help available online HMOs. Some of the helpful website are:
You can also find bargain HMOs for sale online.