How To Generate An Income by Investing in Rental Properties
Last updated 26th July 2018 • JaeVee Marketing • JaeVee
It's a common notion among investors that one of the safest ways to invest your money is to put it into ‘bricks and mortar’.
Below we will take a look at the main ways of how you generate an income through rental properties.
Buy to let
Buying a rental property is the most common and popular way generate an income, through rental yields. The rental yield is the annual rental income expressed as a percentage of the original property price you pay.
Buy to let is a long term investment although you would receive an income each month from the tenants you have occupying the property. Over time, you would pay down the mortgage or finance you have taken out for your buy-to-let project and then you can leave yourself with a regular cash flow.
You can let a property out as a single occupancy or you may be able to generate a higher income by buying rental property near a university or school where the demand for regular short term leases is high.
HMO's & commercial
Buying a large property and turning it into a HMO (House with multiple Occupancy) will maximise rental yields available from each tenant.
You can also buy and rent commercial property to businesses where the rent is higher than residential properties.
Get a good deal
Another way to generate income through property is to buy a at a good price, refurbish it and add value and then sell it on at a higher price.
You would then get a lump sum of the capital gains (profit).
This is a short term strategy and depending on the market a quick way to generate a high lump sum income to then reinvest in other properties with.
Increase your equity
If you take out a mortgage to finance your property, which many will, you will increase your equity with each mortgage repayment.
If you buy the property with the intention to rent it out, you can use the rental income to pay down the mortgage. Increasing your equity is a great way to build up a lump sum that you could later use in leveraging your property portfolio.
You are able to invest in the property market and generate an income without buying a single property.
You can invest in an fund that will invest in the property market for you. There are a number of different funds that you can invest in such as Real Estate Investment Trusts, Property Authorised Investment Funds (PAIFS).
Ensure they are regulated by the Financial Conduct Authority before you invest but this is another way you can generate an income through investing in property which tends to be a little less hands on.
Is it better to rent or sell a house?
Purely for the sake of clarity, it could be fair to say, that in the main, returns from property investment fall into two distinct categories; profit from sales and rental income.
While “selling on” has the potential to release the whole of an investor’s capital, rental income provides an on-going return and (hopefully) a growth in value.
In 2018 for example, rental returns achieved average yields against property values of between 8 and 10% with some university towns seeing some spectacular returns well above these figures.
While, on the other hand, property values have slowed down somewhat recently, those choosing to invest in new builds and major refurbishments have also been able to sell on for solid profits by investing “off plan” at the initial development phase.
The best of both worlds
Through creative and well-informed exit strategies, astute investors may choose to leverage the benefits of both sides of the property investor guide.
With many of the new wave of multi-investor schemes offering a variety of exit options, investors can choose the one that suits them best.
By agreeing to keep their capital in a project for a pre-agreed period of time, investors receive both favourable rental returns and benefit from any value increase at the time they exit the investment.
The same strategy could be applied to the more traditional property investment format too with an investor choosing to rent a property out for a predefined period before selling on to recoup (and hopefully make a profit from) their initial investment capital.
By maintaining a varied portfolio, over time, property investors are then able to release funds for continual reinvestment in the developments of their choice.
Find out more about investing in some of JaeVee's current projects.
We would advise you to seek independent financial advice before investing. Capital at risk when investing in property.