When it comes to property and investment, there are several avenues to explore and there’s more to consider than a typical ‘buy to let’.

The term investment can differ for each individual. Some people are looking for quicker, short-term wins, while others are happy to play the long game and wait it out for an even bigger return on investment.

But what types of property are ideal for investment? Typically, it comes down to residential properties, commercial properties and short-term rentals, such as holiday homes. What works for one person, might not work for another.

So, here’s a list of the pros and cons for each to help you decide which type of property is the best investment for you.

1. Residential properties: a sensible investment

Perhaps the most popular type of investment purchase, a residential property is also considered the safest.

People are always going to need somewhere to live and with it taking people longer to purchase their first home themselves, the need for rented residential homes remains high. 

Whilst it may sound rather limited, a residential property can be anything from a one bedroom studio apartment to much larger, family homes.

Pros:

• High demand for rental properties, ensuring a steady income 
• Easier to finance, as banks are more likely to approve loans for residential properties
• Potential for appreciation in value over time

Cons:

• Requires active management (tenant issues, maintenance, vacancies)
• Market fluctuations can affect rental income and property value

A residential rental property is the ideal investment for first time investors, and those who are looking for a longer term, steady source of income.

2. Commercial properties: long-term, high return

A commercial property could be anything from an office building to a retail or industrial space.

Commercial properties tend to be a little trickier to get into, as there are simply more elements to consider when it comes down to the initial investment.

When it comes to commercial properties, they are a sensible investment as businesses are always going to need business space. However, being a landlord to a commercial property does differ somewhat to being a landlord of a residential property.

Pros:

• Longer lease agreements, providing consistent and stable income once tenants have been chosen
• Higher return on investment compared to residential properties
• Businesses and business owners are more likely to keep the property well-maintained
• Taxable benefits such as certain expenses being deductible
• Customisation and improvements from tenants can increase property value

Cons:

• Requires more upfront costs as well as higher maintenance costs
• Complex lease agreements and management
• Longer vacancy periods whilst finding the right business / tenants
• Regulatory requirements and legislation to consider, depending on business type and needs

Renting out a commercial property is best suited to those with previous experience, seeking higher return whilst being able to pay out larger upfront costs and capital.

3. Short-term rental properties

Whether you are looking to rent out a caravan or static home, a cottage for Airbnb or a much larger holiday home or complex, then this would be considered a short-term rental.

If you live close to a popular tourist destination or holiday hot spot and are seeking an investment property, then a short-term rental property could be ideal. 

Or perhaps you’re relocating or going travelling and don’t want to lose your current property - renting this out for short periods of time is a great way to ensure that you always have a home to come back to whilst making extra income.

Pros:

• Higher income potential than long-term rentals
• Flexibility in using the property for personal vacations
• Ability to adjust pricing based on demand and seasonality 

Cons:

• High turnover and increased maintenance and management effort (regular cleaning, housekeeping and administration such as bookings and guest communications)
• Legal and regulatory risks
• Fluctuations due to seasonal demand can result in quieter periods throughout the year

A short-term rental property is a great investment for people happy to take on the responsibilities of maintenance, living in a tourist destination and are looking for high return on investment.

Things to consider

Buying any property to rent out - for whatever reason - is a huge investment and isn’t a decision that should be taken lightly.

The appropriate professionals should be contacted for advice, from mortgage advisors to expert RICS surveyors.

It’s important to ensure that the investment is right for you and your situation, and utilising a number of experts can help ensure that you are happy and content with your final decision.

A RICS surveyor will look at your purchase, providing you with a detailed inspection and report, outlining any potential causes of concern - from mould and damp to structural damage. 

A homebuyers survey will provide you with the opportunity to negotiate on sales price, or even withdraw from your offer if you aren’t entirely happy with the findings, or the cost of works is no longer worth the long-term investment.

Are you looking for an investment property? Get in touch today to discuss a RICS homebuyers survey and report to ensure you can purchase with confidence.