Investing may be an effective way to build your wealth for the future, so when your playing career ends, you can maintain your lifestyle and potentially fund any future ventures.
Property can be a beneficial part of this as you could receive rental income, and the value of the property may also increase over time. As a result, your investment could generate growth in value over the course of your playing career, and you could then use any rental income to fund your lifestyle when you come to retire.
There are several different types of property investments, and you may need to consider your goals to determine which option is most suitable for your financial plan.
You may also need to think about the various taxes associated with different types of property and how this could affect your returns. Some of these taxes have increased in recent years, so it may be useful to seek professional advice before investing in property to ensure you are being as tax-efficient as possible.
Read on to learn about five different types of property you can hold as part of a portfolio.
1. Residential buy-to-let property
A residential buy-to-let (BTL) property is a home that you rent out to tenants on a long-term basis.
According to the Office for National Statistics (ONS), the median monthly rent in the UK between October 2022 and September 2023 was £850. This is the highest figure ever recorded, so you could generate a substantial income from a BTL property.
However, the yield from a residential BTL property, which is the annual rental income expressed as a percentage of the purchase price of the property, varies depending on the location as house prices and average rents are different.
For example, Zoopla reports that Sunderland has the highest rental yield at 8.5%, while you could see an average return of just 4.92% in London.
It may be useful to do some research about property prices and average rents before deciding where to purchase a BTL property. You may need to consider other associated costs such as letting agency fees and repair and maintenance expenses too.
2. Property development
Property development, sometimes referred to as “flipping houses”, could allow you to generate a lump sum in a short space of time.
This investment strategy involves purchasing a property that requires significant maintenance for a reduced price, and then renovating and selling it for a profit.
In some cases, you could see a large return very quickly as house prices might rise, and renovating the property may increase its value.
However, there are some risks to consider. It is important to calculate the renovation costs accurately but even then, there is no guarantee that the property will sell for the price you predicted, especially if house prices fall while you are working on it.
You also need a large initial investment to cover the costs of purchasing and renovating the property, and eventually selling it.
Additionally, you will not earn rental income when developing a property. So, this may not be a suitable option if you want a property investment that provides a regular income to fund your lifestyle.
Renovating a property is also incredibly time-consuming, even if you hire contractors to carry out the work, as you still need to oversee the project.
3. Holiday lets
A holiday let is a property that visitors rent for short periods of time. To qualify as a holiday let, holidaymakers must exclusively use it.
The main benefit of a holiday let is that you could potentially earn more income from it. Holiday lets have flexible pricing and often attract a much higher rate than a residential property, particularly during peak seasons.
Like residential BTL properties, the average rent from a holiday let depends on the location. According to What Mortgage, the average annual revenue from a holiday let across the UK in 2022 was £24,000.
However, you could see annual revenue of £46,000 in Cheshire, or £43,789 in the Lake District.
Yet, it may be difficult to fill holiday lets all year round, so your rental income may fall at certain times of year, such as the winter.
The regular turnover of tenants also means that you may need to dedicate more time to managing the property. While you can pay a company to do this for you, this could reduce your profits.
4. Commercial property
Commercial properties are any buildings used solely for business purposes. This could include office buildings, retail units, factories and warehouses, or restaurants and pubs.
The costs associated with commercial properties can be much higher than residential properties as they are larger and may require more maintenance. That said, they typically generate more income and the lease on a commercial building is likely longer than the rental agreements on a residential property.
For example, a business could sign a lease of up to 10 or 15 years on an office building. This could offer you more long-term security from your investment as the tenant cannot break the lease without your agreement, unless there is an early break clause in the contract.
However, you also cannot break the lease without good reason, such as the tenant failing to pay their rent, for example.
Fortunately, you may be less likely to experience issues that you might face with a residential let, such as tenants damaging the property.
5. Student accommodation
Student accommodation comes in several forms. You could invest in purpose-built student accommodation (PBSA) such as halls of residence. Alternatively, you may buy a residential home that has been altered for use as student accommodation.
Often, PBSA is exempt from Stamp Duty, which could save you a significant amount on your initial investment.
Additionally, investors tend to use student accommodation more intensively. For example, you may rent each room in a house separately, and this could increase the yield when compared with a normal residential let.
You also have reliable demand each year as there will be a new cohort of students requiring accommodation. However, the property may be unoccupied outside of term time and students may pay reduced or no rent.
You can also likely expect a higher level of wear and tear compared with other types of property, and there are costs associated with this. In properties that are considered a house of multiple occupancy (HMO), there may be additional planning and licensing considerations.
Get in touch
If you would like to learn more about financial planning as a rugby player, then please do get in touch with us at DBL Asset Management.
Email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
The Financial Conduct Authority does not regulate tax planning or buy-to-let (pure) and commercial mortgages.
