If you are starting to invest in property, or planning to diversify your portfolio, it’s important to realise the pros and cons of each development type. In this short piece we will give you a basic overview of what you might expect from each asset class.
Typically, commercial property is listed as high street shops, industrial units, factories, pubs, hotels, gyms and alike. They are known for a consistent annual return with typically low yields when compared to other types of property. (5% on average).
· Investors have the opportunity to hire a management company for a more hands-off investment.
· Capital growth can be high
· Stamp duty tends to be higher than that of residential units.
· Exiting a commercial property can become a costly and prolonged process.
Off-Plan refers to the opportunity to purchase before construction has completed and residential refers to property suitable to live in. Purchasing off-plan means the entry is a lower cost, whilst property in these areas produce yields of around 7%.
· High annualised capital returns offset the initial high cost.
· Risks and damages that may impact the investors can be mitigated by insurances.
· Exiting follows the process of open market properties, so it is relatively simple depending on the climate.
· The initial cost may be high to investors.
Purpose Built Accommodation (PBSA)
PBSAs are large properties which include multiple residential flats for student use. They are typically hands-off, low cost with high yields at 7%.
· Stamp duty can be quite low if property is purchased below a certain amount.
· Investments in PBSA can be hands-off if management is hired to oversee the property.
· The initial entry cost may be high.
· Exiting can be difficult as it requires another investor interested in the market.
Holiday homes are properties that are an extension of an investors main home. You cannot live in the property permanently, however, you can rent it out during the months it won’t be in use. They typically generate high yields at 8%.
· Rental income can be high during specific periods such as Christmas.
· Investors can hire a management agency to createa hands-off investment.
· Holiday homes may sell quickly depending on themarket.
· Rental income may drop off depending on the climate and country you purchase.
· Holiday homes may have strict rules if investors purchase a property within the boundary of a privately owned holiday park.