Property Development vs Buy to Let Investments

25 May 2021

Property Development vs Buy to Let Investments

Here at Revolution Brokers, we work with thousands of property investors every year. That might be to:

  • Remortgage a portfolio of rental properties.
  • Secure development finance for a new project.
  • Finance a standalone property purchase or multiple acquisitions.
  • Streamline portfolio mortgages for multiple investments.

We often deal with queries about the viability of property investment.

With so much in the media of late, it's essential to stay in tune with the latest market developments!

In this guide, we'll run through your options for securing capital growth and sustainable rental income.

What are the Current UK Property Investment Opportunities?

There is little doubt that the government has realised how crucial private landlords and investors are to the property market!

Part of the challenge is that housing demand is, as ever, high.

Local authorities cannot keep up with the requirements for affordable housing and so rely on private buy to let landlords to supplement local housing stock.

That also impacts new property builds, often financed through a development mortgage or bridging loan, and crucial to help meet the target of building 300,000 new homes every year.

How has the government made the system easier for property investors?

They have relaxed permitted development rights, for example allowing a landlord to purchase a non-residential property and convert that into a rental investment without needing to go through a formal planning permission process.

So far, so good.

Why is Property Development a Smart Investment In 2021?

To expand on that a little, it's essential to contextualise. There is high demand for housing and not enough properties - and so development is necessary.

Added to that, there are masses of prime location commercial buildings now standing vacant.

If you think about recent news, you'll remember that some huge chain stories have collapsed - including Debenhams and Arcadia.

As furlough schemes come to an end, it's easy to imagine that many more commercial buildings will become vacant, providing a volume of opportunities to take advantage of the relaxed development rules.

Properties housing retail stores could be developed relatively quickly into residential housing, providing multiple income streams and town-centre locations.

The government isn't supporting these initiatives for no reason:

  • Town centres and high streets are failing as more people shop online.
  • Developing town centre buildings into housing will drive footfall.
  • Empty commercial buildings are bad for business and bad for the local economy.
  • Vacant properties could fill a significant gap in housing demand.
  • If more people live in central areas, demand increases for ancillary services such as dining, shopping, and entertainment, supporting the local economy after a tough year.

Therefore, a property investor with a bit of imagination can see how exciting opportunities are opening up.

Securing one such property and converting it into, say, 20 private homes has great potential to turn a decent profit, and with governmental support, a lot of the red tape is lifting.

Are New-Build Residential Developments Still a Good Option?

The next government objective is to redirect new property builds to brownfield sites, utilising dead space, increasing housing availability, and avoiding any attempts to develop waning green belts.

One of the reasons this presents an opportunity for smaller property investors is that many brownfield sites aren't large enough to attract more prominent home builders.

Thus, smaller developers and first-time developers are being targeted by government incentives to turn those vacant parcels of land into viable rental homes.

The great news is that financing these sorts of projects is far easier than many landlords imagine.

With low-interest rates and a strong lending appetite, it's a unique period where buy to let landlords can transform their portfolios with minimal borrowing costs!

Options include:

  • Bridging loans to purchase commercial properties through auction, the most common selling method following liquidation.
  • Taking out development finance to convert a business premise into residential homes.
  • Refinancing existing rental properties to raise capital as a deposit.

While renovating a small-scale rental development is something most landlords would consider, it's not too big a step to expand on that.

Small-scale property developers benefit from the experience of project managers, and using Revolution as your independent broker is the best way to secure competitive lending, fully backed by a development finance lender.

Is Property Development the New Buy to Let Investment?

We're not expecting buy to let property demand to go anywhere, any time soon.

So the quick answer is that conventional investment property, let out at a small profit per month, remains a stable investment option.

However, there are some significant advantages to development, in preference to a buy to let investment.

  • Capital creation is hugely accelerated through a development project.
  • Most developments take between one and two years to complete.
  • There are multiple options to refinance development or bridging finance, depending on the speed with which you'd like to sell the development - or keep it as a rental asset.

To illustrate, let's take a couple of examples.

  • Investor A opts to purchase a buy-to-let property worth £200,000. They have a £50,000 deposit and take out a £150,000 buy to let mortgage.

Each month, Investor A earns around £300 in profit from their rental income, less the mortgage repayment.

In a few years, our investor will see equity growth in the property, remortgage it, and raise a deposit to buy another portfolio home.

  • Investor B has the same £50,000 deposit but invests it in a small development, purchasing a shop to convert into flats under permitted development. The balance of the cost is financed through Revolution Brokers.

The development is completed in 18 months, and Investor B makes a £150,000 profit.

That means that, in 18 months, Investor B now has the funds to invest in four more similar-sized modest developments - and could scale that business exponentially to earn significant profits every year.

While a lot depends on risk exposure, market trends and lending availability, we can see how small-scale property development has the potential to be a lucrative property investment opportunity - and we imagine that interest in this type of financing will skyrocket as more commercial properties come up for sale.

Contact us now to discuss your personal options, Revolution Finance Brokers specialise in commercial and residential finance in Essex, Kent, London and Hertfordshire.



Almas Uddin

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The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature. We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.