“Hands on” verses “hands off” investment
Do you have funds to invest in property but perhaps not the time to manage them on a “hands-on” basis? Are you looking at actively investing across the property market but are not quite sure where to start? The terms “hands off” and “hands on” investment are at the opposite ends of the spectrum although there are benefits and disadvantages with each of them.
While ultimately it will come down to your experience of the investment markets there are many people who prefer the hands-on investment strategy in order to maintain a higher degree of control. Some of the obvious and not so obvious benefits to take into account include:-
• Potential higher rate of capital gain due to reduced management charges
• Enhanced rental income (e.g. saving on letting agent’s fees by self managing)
• The hands-on approach often avoids any confusion or 3rd parties
• Reduced administration charges by managing the property investment yourself
• Financial leverage – the ability to mortgage your property requiring less of your own money to purchase (many hands off investments are cash only investments).
• Control – you have full control of the asset allowing you to react faster to market changes.
This is just a selection of the benefits associated with hands-on investment although there may potentially be many more depending upon the specific assets involved.
There are also potential disadvantages to being a more hands-on investor such as:-
• Time taken up by tenant, maintenance and general asset management issues
• Stress can be an issue when you have a number of properties
• The need to be on hand 24/7
• Potential legal issues to address
• Unforeseen costs
• Staying on top of current regulations and market conditions
In simple terms you need to weigh up whether your hands-on involvement in a property/development is creating an acceptable uplift in income and potential long-term capital growth prospects. If you are unable to add much in the way of additional value then you may well need to consider a hands off approach.
Hands off investment
There are many people who have funds available for investment but unfortunately they are not able to find the time to take an active role in managing their investments. This is where hands off investment opportunities come to the fore and, as with a hands on approach, there are upsides and downsides. The benefits of this investment strategy include:-
• There are often low entry level products available (i.e. less cash needed to start investing) so good for first time investors to get a foot into property investing.
• Also great for people wanting to retire and let their money work for them by taking a more hands off approach.
• No need for a mortgage (no credit checks e.t.c.)
• Reduced stress as no involvement in day-to-day management and administration
• Fixed returns available enabling investors to plan ahead
• Often an assured resale which gives a known positive capital gain
• Potential use of assets such as hotel rooms to enjoy your lifestyle whilst getting a great return
• Ability to spread investment risk across different products using relatively modest funds
As we touched on above, it does basically come down to the individual’s ability and choice as to whether than want to be a hands off or hands on investor. The property investment sector has grown significantly in recent years offering more people the opportunity to switch some of their savings into long-term property investments, on a hands off basis.
Where there are benefits there are also potential disadvantages such as:-
• Reduced potential capitals gain as these are often fixed and sometimes the market out performs them. These investments are more suited to those wanting immediate assured cash flow income rather than long term capital gains.
• The need for in-depth due diligence about the developer/management company
• Placing your trust and assets in the hands of a third party
• Limited input regarding property development & management
The simple fact is that when considering a hands on or a hands off approach to property investment you need to consider your experience, your expertise and whether indeed you are able to add value yourself. This should be balanced against the benefits that an experienced third-party can bring to the table especially if you are after a “hassle free” life.