Published: October 3, 2024

The best property investment and rental strategies

Written by Amber Furr
Affinity Living riverside kitchen

Property investment in the UK has long been regarded as one of the most reliable paths to building wealth. Buyers from all walks of life are attracted by the tangible nature of real estate assets, and the potential to see substantial financial returns on their purchase – especially with mid-to-long-term property investment strategies. 

With housing and rental markets in many UK cities expected to continue growing at pace, there is no doubt that property investments offer great potential. However, as with any financial venture, success hinges on more than capital and good intentions. It requires a thorough understanding of market dynamics and a well thought out plan tailored to your personal financial goals.

The question is: what are the best property investment and rental strategies to consider in 2024 and beyond? Read on as we compare some of the most common property investment strategies for securing a substantial return on your investment.

Flipping residential property vs. mid-to-long-term property investments

In the past, flipping properties – buying older homes, renovating them, and selling them at an increased price – was regarded as a viable short-term investment strategy. However, this method is rapidly falling out of favour. According to recent data, only 1.7% of homes sold in England and Wales in the first three quarters of 2023 had been purchased within the previous 12 months, marking the lowest figures since records began. 

This decline can largely be attributed to the increased costs of renovation work: the prices of building materials have increased dramatically since 2022, and labourers’ rates continue to rise. Coupled with a rapid upsurge in mortgage rates, this has made the ‘buy and flip’ route both more difficult and less profitable. 

Many property investors are therefore reconsidering their strategies and instead treating property purchases as mid-to-long-term investments. Retaining real estate assets for a minimum of 2-5 years typically offers a more reliable return on investment, as prices throughout the UK property market tend to increase over time. And in addition to the potential capital growth, long-term investors can let out the property in the meantime to benefit from rental yields – also at an all-time high in key city centres such as Birmingham and Manchester.

Refurbishment vs. buy-to-let mortgages

For those intending to secure a mortgage to finance their UK property investment, the two principal options are refurbishment mortgages and buy-to-let mortgages. These products cater to various property investment strategies and risk appetites, so it’s important to consider the pros and cons of each. 

While both have their merits, the current economic climate is tipping the scales in favour of buy-to-let mortgages for many investors.

Refurbishment mortgages

Refurbishment mortgages, or renovation mortgages, are designed for investors looking to purchase a house or flat in need of repairs or modernisation. The size of the loan is typically based upon the property’s estimated post-renovation value.

This approach can be attractive for those looking to add value quickly, with the aim of selling the property as soon as refurbishment is complete. However, as previously discussed, the ‘buy and flip’ model may no longer be the best property investment strategy in terms of profit margins. 

In addition, there is a risk that the expected value increase may not materialise immediately due to factors outside of the investor’s control (e.g. property market fluctuations). Lenders often consider these mortgages to be higher risk, which means they often come with stricter lending criteria and potentially higher interest rates.

A more attractive option to the modern investor is to purchase off-plan buy-to-let property, allowing them to benefit from capital growth over the build period without having to renovate. 

Buy-to-let mortgages

Buy-to-let (BTL) mortgages offer a more stable, long-term investment path for those seeking to acquire properties specifically to let out. Rather than dealing with the costs (and risks) associated with renovating and flipping, this option offers the opportunity to generate a steady rental income – which usually fully covers, and exceeds, monthly mortgage repayments. 

Buy-to-let yields have increased in the past two years, with rental prices now rising at a faster rate than house prices: according to JLL, the average rental growth in the UK reached 6% in 2023. Furthermore, as property prices are set to rise by 14% in the next five years, buy-to-let investors may enjoy significant capital growth over time.

There are some drawbacks to this approach – for example, you may encounter rental voids (periods of time where the property is empty, therefore not generating income). Fortunately, buying property in high demand cities like Birmingham and Manchester and working with a good property management company can help to minimise this risk. Even taking voids into account, the buy-to-let route is still generally considered the most reliable way to profit from property investment in the UK.

Complete vs. off-plan property

Another factor to consider is whether to invest in existing properties or off-plan developments (i.e. real estate that is still in the planning or construction phase). Each option has its own benefits and drawbacks; however, for those looking to maximise rental returns and secure long-term growth, off-plan properties often emerge as the superior choice. 

This method allows investors to buy at the lowest possible price 2-3 years ahead of completion with an attractive payment plan, then benefit from capital growth over the build period. Investors then acquire instant equity in a brand new property in high demand among renters. 

Buy existing property

Investing in existing properties – especially those that have been recently refurbished and purchased in ‘move-in-ready’ condition, or with tenants in situ – can mean benefiting from immediate rental income. However, this approach often comes with hidden costs and potential market risks if not bought through a reliable developer with a long-term interest in the performance of the building. 

Buying an older property like a House of Multiple Occupancy (HMO) may mean more regular or substantial maintenance is needed to keep it in rentable condition, which may eat into your monthly profits. Additionally, while established neighbourhoods offer historical pricing data, they can also face stagnation or decline in property values. The immediate cash flow from these properties can be enticing, but it may not outweigh the long-term growth potential available with off-plan investments.

Buy off-plan property

Off-plan developments have proven to be the most advantageous strategy for many property investors. These properties are typically situated in up-and-coming neighbourhoods that show significant potential for capital growth due to rising demand and improving infrastructure. Other advantages of buying off-plan property include:

  • Off-plan properties can often be purchased at a lower price pre-construction, leading to significant value increases by completion.
  • Most new developments feature contemporary designs and modern urban living amenities that allow for premium rental rates. On average, the rental value of new builds is 23% higher than existing homes (up to 41% higher in some areas).
  • Renters tend to prefer newer properties due to their superior energy efficiency (and resulting lower utility bills). This ensures consistent occupancy and more reliable rental income, with less risk of void periods.
  • Many developers offer staggered payment options that can help to ease immediate financial pressure for buyers.
  • New builds typically require less immediate upkeep, lowering overall maintenance expenses.

While there are some risks associated with purchasing off-plan, such as construction delays, thorough research into the developer’s track record and the area’s projected growth can help mitigate these concerns. 

Houses vs. flats

Choosing between investing in houses and flats is another key consideration. Houses typically provide more space than flats, and can offer flexibility for investors looking for more control over their properties in terms of renovations and expansions.

On the other hand, flats tend to be located in urban areas with high rental demand, particularly among young professionals. Flats (especially modern buy-to-let properties) can also offer attractive amenities, such as shared gyms and working spaces, which can further enhance their appeal and value.

While flat ownership does come with service charges and management fees, the benefits outweigh the drawbacks for many investors. Maintenance costs tend to be lower compared to houses; plus, because flats appeal to a wider range of tenants, void periods are less likely. 

Finally, when it comes time to sell, you may be able to cash in on your investment quicker – especially with a flat in a sought-after city location. According to Zoopla, flats are selling better than houses across much of the UK, and are now seen as better value for money.

For more about how to achieve the best capital growth, see our analysis on how many bedrooms maximise buy to let yields.

Invest in London vs. Manchester or Birmingham

Making the best property investment decisions means not only choosing the right type of property and approach, but also selecting the most profitable location. The city you choose to invest in can significantly influence potential returns.

As the country’s capital and a global financial hub, London boasts a robust rental market with high demand, making it a historically popular choice for property investment in the UK. However, the high property prices can pose a barrier to entry, and can also translate to lower buy-to-let yields. As of 2024, London is now the third worst UK city for rental income, with an average gross rental yield of just 4.95% (outperforming only Oxford and Cambridge).

For property investors seeking better value and growth potential, growing cities such as Manchester and Birmingham present stronger appeal. Property prices in these cities are generally lower than in London, offering a more affordable entry point and the potential for higher rental yields. Furthermore, both cities benefit from ongoing regeneration projects, rising global investment and rapidly growing economies – all of which is driving demand for rental properties. 

Manchester boasts the UK’s highest forecasted property price growth over the next five years at 19.3%, with Birmingham following close behind at 19.2%. Both locations present valuable opportunities for investors to see long-term capital growth when expanding their investment portfolio.

Find the best property investment opportunities for you

If you’re looking for lucrative opportunities for property investment (UK), Select Property can help. We specialise in matching buyers with the most exciting property developments in the UK’s fastest-growing cities, and have been delivering market-leading results since 2004. Contact us today to arrange a chat with one of our property consultants and discover how we can help you secure huge returns on your investment.

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