Property investment involves high volumes of cash, knowledge and dedication. Mistakes can cost you dearly and it can be hard to exit from poor decisions that ultimately lead to large-scale losses.
To easily navigate this lucrative investment landscape, many turn to property investment companies to find and secure high yield, long term property investment opportunities on behalf of their clients.
However, property investment companies are not without their own considerable costs and with your own personal research, dedication and skill, it is certainly possible to skip the middleman to make your own property investments.
In this article, we’ll be looking at the advantages and disadvantages of hiring a property investment company. It is worth mentioning that for some property investment options, a property investment company will double up as a property management company.
The Types of Property Investment
Some types of property investment are riskier than others, making the service of a property investment company a greater asset or almost a necessity. Also, whilst a small number of small-scale investments may be easy enough to self-manage, larger portfolios are often time-consuming and require you to have specific property knowledge.
Buy-to-let is probably the most common form of property investment in the UK, it follows a straightforward concept where the investor buys a property before letting it out to rental tenants.
Short-term revenue gained from the let covers mortgage payments where applicable and maintenance charges, eventually turning to longer-term profits as the property appreciates in value.
- Whilst buy-to-let is seen as relatively low-risk compared to other investment options, the strategy lies in finding a property that will appreciate in value quickly and with a high ceiling whilst keeping ahead of upkeep and mortgage payments.
- Buy-to-let investments also need close management with regards to tenants, their contracts and maintenance.
Commercial property is riskier than residential property but can be lucrative. Due to the associated risk, locating quality funding for commercial property can be harder when compared to residential property and greater quantities of upfront capital may be needed. Also, the redevelopment of commercial property or conversion into residential may be subject to the local council’s planning criteria for how the building can be altered and to what extent.
- Whenever purchasing commercial property it is worthwhile investigating the Use Classes Order Act.
- There are multiple ways to invest in commercial property, you can either buy property directly or buy a share in it via a collective investment fund or stocks.
Repossessions or Buy to Renovate
Buying a property to renovate has become a very popular way to gain a quick-win from property investment over short periods of time, even a year or less. Typically, investors will look for properties in a state of disrepair, including auction properties. By buying at low prices and renovating the property before making a quick sale, this form of investment is agile to local demand and trends and also, if the investors do some of the renovation legwork DIY themselves, they can cut costs drastically.
Buying off-plan refers to the process of buying a property before it has even been built, or before the project has been finished. You could invest in a new-build home at the start of construction, allowing you to choose a quality plot within a housing development.
Housing developers are not always keen to do this but some will allow a small number of investors to buy their houses off-plan as it saves them value in marketing the property once it’s been built. In hot areas with large volumes of potential buyers, buying off-plan can secure a quick increase in property value once the development is finished and buyers start populating the development.
Land investment opportunities are numerous and dynamic, especially in cities where both new small and large sites are regularly made available to developers following the demolition of old disused buildings or the requisition of brownfield sites.
In rural areas, agricultural land or woodland can be purchased in areas where planning permissions may change granting access to the land for property development.
The Advantages of Hiring a Property Investment Company
Locating property is the first step towards investment and largely the most important step as well. Excellent property choice relies on adept knowledge of local geographies, the local and regional property market and the budget and scope of the investment project. Investors will not just be looking at short-term trends in the property market but also whether an area has shown steady and stable long-term growth or more volatile growth that peaks and troughs.
Either can be beneficial, and the property investor will work with you to decide whether you’re looking for long-term gains or a quicker, riskier opportunity.
- For commercial investment, it’ll be extremely difficult to walk into the commercial property market and know what you’re doing. and you’ll likely need to use special investment assistance and advice.
- Land investments are similar, and the legalities involved in such investments are dense and hard to penetrate for those without experience.
For buy-to-let and renovation projects, investment companies can help you identify buildings in emerging in-demand areas that would immediately benefit from renovation to make them marketable.
Investment management is very time consuming and in the case of multiple buildings, it can be nearly impossible to self-manage. Whilst self-management might be doable when your investments and their tenants are stable, if you encounter problems like missed rent payments, large-scale maintenance responsibilities or problematic tenants, management can become tricky and fast.
Added to this are the stacks of paperwork that you’ll be responsible for, and the legal obligations you’ll have for its upkeep.
- Property investment companies will manage your property, dealing with all of these issues and many more that you’ll inevitably encounter.
- This saves you time and as the old adage rightly suggests, time is money, a phrase that certainly applies to investment!
Investment companies are meant to be secure and transparent and thus, many offer guarantees of the minimum predicted incomes and yields of their services. These will vary greatly depending on the type of investment and the level of management required but for investors looking for a truly passive involvement, guarantees grant some peace-of-mind that their investment company is not wasting their money.
The Disadvantages of Hiring a Property Investment Company
The most obvious disadvantage is the cost of hiring a property investment company. Costs vary on the type of investment and the management required. For example, longer-term investments that employ more of a ‘wait and see’ approach, e.g. land investment, will cost smaller percentages of profits whereas hands-on investment projects that involve ongoing building management may cost as much as 15-20% of profits. Of course, there is still value in investment services despite the fees and any costs are offset against the time you’ll need to manage buildings, fill out paperwork, etc.
Once you decide on an investment company, you’re often creating a long-term relationship and it’s your responsibility to make sure that the future costs meet your expectations.
- Maintenance can be particularly problematic, managing your properties yourself enables you to shop around for the best contractors to carry out any work whereas the investment company will likely have a partner they work with who might not provide the best value for money.
- Working with an investment company with a great track record and high trust levels can mitigate some of these difficulties.
Diversity is the key to successful long term investment projects but some property investments will only specialise in one area of investment, meaning you’ll have to use multiple companies if you want to diversify your portfolio. The more you add to your portfolio with an investment company, the more the costs will rack up and compound, bleeding value from your projects compared to if you were self-managing.
Property investment companies are pretty essential for some types of investments in commercial property or land where legal complexities make self-management nigh impossible to anyone without preexisting in-depth experience. Their advice is fairly priceless in some cases and can save you huge amounts in investment mistakes or investments that do not meet your long-term expectations. This combines with guarantees to make investment companies a comprehensively safe option.
For investors who are looking to secure a number of buy-to-let properties or renovations, investment companies are adept at liaising with buyers whilst managing the building and its renovation timeline. Any investment opportunity that involves a lot of hands-on management with multiple tenants is likely worth the involvement of a property investment or management service.
On the flip side of the coin, it is certainly possible to handle investments for renovation or projects or single buy-to-let projects without much outside help, especially if you plan on making it into a career. DIY investment opportunities are popular and suit those with the time, dedication and capital required to make things work.
What should I look for in a property management company?
Property management companies are a vital service for those managing multiple rental properties or large portfolios of mixed investments. There are usually quite a few options for property management and these will operate through local lettings agents in the case of smaller localised letting portfolios. Property management companies will also usually differ based on whether they specialise in managing houses, blocks of flats or commercial property, though some may cover all of these property types.
Firstly, you’ll have to decide what level of service you’ll need. At the most basic, a lettings agent or property management service will help find tenants, draw up contracts and tenancy agreements and carry out referencing checks. This leaves you to collect rent and maintain the property. Second, you can get a property management company to collect rent and arrange deposits, this means the investor doesn’t need to worry about chasing up late payments or arrears. Finally, full management options include organising repairs and maintenance as well as dealing with disputes, collecting rent, communication, etc.
Good property management companies should have a good track record of short vacancy periods, meaning their managed properties are rarely left wanting for tenants. Screening processes should be comprehensive to avoid problems with tenants down the line. It’s best to choose a property management company that has operated in the local area for some time, or is networked to a larger regional or national company that possesses stringent policies, large customer bases and extensive experience.
What questions should I ask a property management company?
Questions to ask a property management company include their local experience with clients like yourself. Since property management is fairly localised, letting agents and management companies will likely have a portfolio to show you including average yields, vacancy records and the percentage of rent payments that were made promptly.
It is worth mentioning that property management companies may be standalone companies that you hire to assist with your investments after you’ve acquired property, or they may be part of, or partner to, property investment companies. If they are part of property investment companies then you can look at records for previous investments including how quickly their properties increased in value.
Can a property manager evict?
A property manager cannot evict tenants but they can work with you to overview the case, the statutory rights of the tenants and the legal rights you possess to evict tenants under certain circumstances. A property manager will attempt to liaise with tenants to collect late payments and will alert you to any other problems, e.g. anti-social behaviour or criminal activity. The decision to evict ultimately lies with you, though.