Essential guide to ‘hands off’ property investment
There are many different property investment strategies for investors to choose from, although the ‘hands off’ style is certainly experiencing a boost in popularity. Is this type of property investment right for you? What exactly does it entail? And crucially, what key benefits does it offer investors?
What is it?
There are various descriptions for the ‘hands off’ property strategy which include the likes of armchair investor, passive investor and pooled vehicle investor to name but a few. In simple terms you acquire part of a development (which is already built or in the process of being built) where the renovations and day-to-day management of the finished project is completely handled by the property developer or management company.
This ensures you have no responsibilities with regard to: –
- Finding tenants and dealing with tenancy issues
- Maintaining properties
- Legal issues that a traditional landlord may face
- Day-to-day management and stresses
A ‘hands off’ approach will suit those who want total control over the choice of property asset they purchase, but do not have the time or inclination to manage day-to-day tasks such as tenants and maintenance issues. Allowing a third party to manage an investment gives investors more time to research future investment opportunities, strategise on how to grow their portfolio further, and of course to take advantage of some of the benefits hands off investments offer (such as holiday usage with hotel rooms). Building a relationship with a property developer or management company will put you in an attractive position to invest at an early stage in their future investment opportunities (which is usually when the best returns are on offer).
Types of investment
A “hands off” property investment strategy can take in a variety of different assets including: –
- Student Accommodation
- Care Homes
- Luxury Hotel developments
- Apart Hotels
- Professional Apartments
In simple terms, where there is a long-term income stream there will be opportunities to invest while making full use of a property developer or management team to look after the finer detail. The key to this type of investment is identifying a market sector with a sustainable and robust level of demand (hence why student accommodation, care homes and hotels provide ideal market sectors).
As with any investment there are risks that need to be considered and balanced against the potential returns and benefits on offer. Some issues to consider when looking at investments include: –
- Making thorough Due Diligence checks
- The reputation of the management company that has been chosen
- Choosing a trustworthy property developer
- Transparent reporting of asset performance
- Legally binding agreements
- Existing / previous Investor feedback
- Developer’s track record in this field
- Ensured use of escrow for stage payments
Even if you are recommended a property developer/management company by a trusted acquaintance it is essential to carry your own research to ensure everything is in order. If you are unsure where to even start looking, Property Investment Consultants tend to work with the same developers year in, year out, who they have already thoroughly researched (after all, their reputation depends on it) which can provide an excellent place to start.
The benefits of ‘hands off’ property investment are plentiful and include: –
- Lack of day-to-day involvement
- Assured rental returns so you know what yields to expect and when
- Professional management of your assets
- It is common to be offered a resale option at a predetermined price (usually 125-150% higher than the original purchase price)
- Access to future developments/investment opportunities
- Opportunity to buy part of a development where the location and target market has been carefully and thoroughly researched by professional, experienced developers (allowing you to take full advantage of others’ skills in maximising returns through property)
- Increased opportunities to spread your portfolio and reduce your risk
The ability to buy units in different developments across varied markets and locations for a relatively small initial investment is perfect for those looking to put a “toe in the water” while conscious of keeping any risk to a minimum.
The “hands off” investment approach is favoured by many investors who have limited time to research potential opportunities and even less time to get involved in day-to-day management. Handing over the day-to-day management of your property assets to an experienced company frees up more of your time to look at the wider picture and to enjoy life (no doubt one of the fundamental reasons you want to invest in property to start with). In effect you are taking a top-down approach, picking and choosing the asset you invest in while the day-to-day administration is taken out of your hands.
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