Investing in International Real Estate For Dummies Cheat Sheet
Investing in real estate can be lucrative, but it isn’t risk-free. One key to weathering the ups and downs of the real estate market is diversification. Other strategies for making the most of your real estate investment is owning a house in multiple occupation or a service accommodation. Finally, don’t close the door on rent-to-rent and lease options. This Cheat Sheet has all these bases covered.
How to Diversify Your Real Estate Portfolio
Real estate is typically seen as a steady earner, subject to fewer fluctuations and big crashes than other asset classes. However, even within real estate, you still need to protect yourself against market fluctuations, from short-term, localized blips to nationwide peaks and troughs. The best way to protect your cash is to build a diverse portfolio of real estate investments.
There are two main approaches you can use to ensure that your portfolio is diverse, robust, and able to withstand market shifts:
- Blend short-term and long-term strategies. That means investing for both short-term capital gains (like developing properties for sale) and long-term income (like residential rentals) rather than focusing on one or the other. That way, if the market changes and sales fall flat (meaning it takes longer than usual to sell a development), you still have a healthy income from your rental properties.
- Build a portfolio that’s based on a diverse range of real estate strategies. For example, you could combine standard single rentals (where an entire property is rented to one tenant or household) with multitenant rentals (like a house in multiple occupation — a house rented out on a room-by-room basis to multiple tenants). The former is a steady earner that takes little time and effort to manage, while the latter is a little more work but drastically boosts your rental yield.
That’s not to say you should go out and try your hand at lots of new strategies at once. That way lies potential disaster (or at the very least, some expensive mistakes!). Instead, take your time to become an expert in one strategy before you start to learn about and incorporate another. As your expertise and experience grows, you’ll be able to gradually build a diverse real estate portfolio that delivers robust financial returns while being rewarding and interesting to run.
10 Reasons to Get Excited about Houses in Multiple Occupation
The term houses in multiple occupation is a UK-specific term that applies to properties rented out on a room-by-room basis to multiple tenants, rather than the whole property being rented to one tenant or household (as is the case in a standard single rental). If you aren’t yet familiar with the term, here are ten reasons you may want to know more:
- Houses in multiple occupation deliver much higher rental yields than standard single rentals. In fact, depending on the location, rental yields can be as much as two or three times higher.
- Houses in multiple occupation are an exciting, wholly achievable way to quickly grow your real estate portfolio. After all, this approach uses all the skills of a regular landlord, just in a slightly more intensive way.
- It’s a totally flexible, scalable strategy that can work at any stage of your real estate career. You can run one property and be a live-in landlord sharing a house with your friends or you can run dozens of houses.
- There’s enormous demand for this type of housing, particularly in expensive city centers. With the high cost of housing, many people, even professionals earning a decent wage, have no choice but to rent a room rather than a whole property.
- You can rent to a wide variety of tenants, from young professionals to students to low-income-housing tenants.
- Houses in multiple occupation aren’t just for young tenants. With the average age of first-time house buyers on the rise (at least in the UK), you have the potential to attract mature, sensible, and quiet professionals to your rental properties.
- You have added protection against void periods and rent arrears. If a tenant falls behind on his rent or moves out unexpectedly, you still have other rent-paying tenants in the property covering your monthly mortgage and expenses. In a single rental, if the property sits empty or the tenant falls behind with payments, you have no income coming in at all.
- Because you’re renting to more people at one time, you build a much wider network of great tenants. In turn, these great tenants can connect you with lots of other potential great tenants, if someone moves out or you take on another property.
- There are certain tax and finance advantages to houses in multiple occupation. For example, you have the potential to claim capital allowances on the often larger communal areas. You can also tap into various commercial financing options. Remember: Always seek professional, local advice on tax or finance implications.
- Houses in multiple occupation can serve as a natural springboard to other real estate strategies, such as rent-to-rent or lease options, thereby helping to diversify your portfolio even further.
10 Tips for Running Serviced Accommodation Like a Pro
Whether you’re renting out an apartment on Airbnb or running a full-scale aparthotel (a dedicated, hotel-like building full of self-contained apartments), commitment to outstanding customer service is one of the main keys to success.
Here are 10 ways to differentiate yourself from your competition by offering the most hospitable, thoughtful, and professional service around:
- Draw up a profile for the “average customers” you’re likely to attract. Why have they come to your apartment? What do they need most from the accommodation? What would make their stay special? Then tailor your accommodations and services to meet those needs.
- Offer flexible rental terms and price brackets. Most guests are happy paying per night, but longer-staying guests will appreciate a special rate for a week, two weeks, or a month.
- Invest in professional-quality photos of your apartment for online listings. Make sure the accommodation is properly “dressed” for the photos (nice linens on the bed, the dining table set with plates and candles, and so on).
- Send a friendly email to guests after booking. You’ll have standard info to include, of course, like the times for check-in and check-out, but add a personal touch as well. Something like “Thank you for choosing [accommodation name]! I’m looking forward to making your birthday trip utterly memorable” works well.
- Encourage guests to email you with any questions about the apartment or the area before their stay, and respond promptly when they do. Having pre-prepared text for the most common queries will help keep your response times short.
- Create your own PDF guide to the local area that you can email to guests before they arrive. Include lots of insider tips and recommendations that’ll help them to avoid tourist traps or boring chain restaurants and hang out with in-the-know locals.
- Provide a considerate welcome gift. Sure, a bottle of free wine always goes down well with guests, but why not offer something more unique? How about a box of pastries or biscuits that the local area is famous for? Fresh, seasonal flowers in the bedroom? Or a handwritten recipe that helps them re-create the local cuisine when they get back home?
- Include fun entertainment-themed touches in your accommodation, such as board games, a deck of cards, a chalkboard wall that guests can doodle on, interesting books, and a few DVDs.
- Ask your guests to complete a brief survey before they leave. You only need three questions:
- On a scale of 1 to 10, how likely are you to recommend this apartment to friends and family?
- What did you like most about the apartment and service?
- What could we do better in future?
You can then tweak your service offering based on what you learn.
- If your guests are reviewing you via Airbnb, you’re obliged to write a review of them in return. Make sure this is a personalized review. “Great guests, would recommend to any host” just isn’t good enough! Mention your guests by name and say what you appreciated most about them, whether it was great communication, their infectious enthusiasm, or how clean and tidy they were.
Is a Lease Option Better than Rent-to-Rent?
If you’re a budding real estate investor, but you don’t have the capital to buy a property, there are two options worth considering: rent-to-rent and lease options. But which one is right for you?
Rent-to-rent is an investment term for renting a property from a landlord and then (with permission) subletting it to tenants who you find and manage. You generate profit in the middle by earning more in rental income that you pay to the landlord — meaning you can make money from real estate even when you’re not in a position to buy.
A lease option is very similar to rent-to-rent in that you rent a property and sublet it to your own tenants, but on top of negotiating with the landlord to sublet the property, you also negotiate the option to purchase the property at some point in the future, for a predetermined price. Crucially, a lease option gives you the option to buy, not an obligation to buy. So, if you ultimately choose not to purchase the property, you can simply let the option expire and walk away at the end of your tenancy.
The right path for you will depend on your current circumstances, your goals for the future, and the type of landlord you’re renting from. (Plenty of landlords have no intention of selling up.) But because a lease option doesn’t tie you in to a definite purchase, if your landlord is open to a lease option agreement, it may be worth taking that route, if you can reach an agreement that works for both of you.