Property Investment can be a very financially rewarding experience… or it can easily turn into a financial nightmare!
We’ve found that the most successful landlords are the ones who squeeze the most out of their potential investment and have a predetermined goal or endgame. With this in mind, we have developed our ‘Buy-to-Let Road Trip’ which is a 6 stage method of planning your property investment journey.
Now, every journey has to end with a destination, and that is the most important part of this whole thing.
What is the individual’s goal? What does he/she want to get out of the buy-to-let investment journey? Is it an additional income stream? Do they want unencumbered properties that they can sell, or do they want properties that they can hand down to their children? It’s really important to set that goal.
So effectively, you start at the end and work backwards, because the buy-to-let road trip, if you like, is you know where you’re going and then you’ve got to decide how to get there.
So, the plan needs to take into account the amount of cash you’ve got, up front, to put down. It needs to take into account your attitude towards risk. Do you want HMO properties, and open it up to the student market, or do you just want to go down the traditional way of letting? It depends on the type of properties you want. Do you want 2 bedroom terraced, 3 bedroom semis? That all depends on what’s selling in the local area, so when you come to sell, you haven’t got a problem. It also depends on what type of properties offer the best potential growth, and also the best rental returns. So again, it depends on the area that you’re in, it depends on what you actually want. So the research side of it is really, really important.
Next, you have to source the properties. You can’t go and buy just any old property. Again, as I’ve said, the research is really important. A 2 bed terrace might be cheaper than a 3 bed semi, but the 3 bed semi might give a better rental return. It might give a better potential capital growth. What’s your avatar? What type of tenants are you trying to get in there? Long-term? Short-term? Again, it’s individual. Sourcing the property… we have a number of investment properties that we have already tenanted which existing landlords are always looking to move on and update their portfolio. Or, you can obviously go into the open market, look what type of property you’re after, register with the local estate agents, or that’s something that we do as well on your behalf.
So, when you’ve sourced your properties, obviously you need to buy the properties. Now, this is where a mortgage arranger or a financial adviser can come in really, really useful. Down to the individual requirements again so, it’s a fixed term better? Is a tracker mortgage better? The buy-to-let market is bigger now than it ever has been. Have you got enough cash to buy two properties with a deposit? If you go three or four properties you’re potentially going into a different kind of borrowing which is portfolio lending which is something that you need to look into as well. If potentially you want to buy auction which is another way of getting property of course, then bridging finance is also an option. Bridging finance is a short-term solution. Perhaps it needs refurbishing? Once refurbished the bridging loan is then paid off and a normal standard buy-to-let mortgage is then obtained on the property.
So, talking of refurbishing that’s the next step. You may buy a property that doesn’t need to be refurbished at all, maybe a quick lick of paint to try and maximize the rent. But there’s also the option of potentially buying a run down property that may be worth £100,000 or £120,000 when it’s completely done up that you may actually pay less for say £80,000 – £90,000 and then you spend money on. Again, refurbishment is all part of your plan. It’s an individual requirement that some people want to do, some people don’t.
Let & Manage
So, once you’ve got your property, it’s refurbished, it’s ready to go, you obviously need to let it. And you need to let and manage it. Now, the market’s changed so much, an agent is really useful here, I would say that, but it is really, really important. There are now over 150 pieces of legislation that you need to abide by as a landlord. Failure to do so can bring all sorts of penalties, fines, banning orders and in some cases, jail! So, pass that liability off to a letting agent and let them deal with it on your behalf. So, we do put out a lot of legislation videos which gives you more of an insight into the problems and issues that you have to contend with going forward. Once that first tenant gives notice you basically repeat the process. You let the property again, you manage it again, right up in to the point where you actually get to your destination, get to your goal. And then you can sell or you can carry on renting it out.
So a 6 stage process, starting with trying to establish your goal, you then need to plan, you need to source, buy, refurbish and let. And that’s basically the journey that we take each of our landlords on that come to our one to one meetings and look at all their requirements. It is very, very advisable to get a mortgage arranger and a tax adviser. A lot of these plans need to be put into place very, very early to mitigate tax. You’re talking capital gains tax, possibly inheritance tax, income tax, there are ways to mitigating that and a lot of them require an awful lot of planning. So, if you’re treating it as a journey, then think of your letting agent, your mortgage adviser and your tax specialist, as a bit like the AA. If you do break down or have a problem they’re always there to help you sort it out!
Here we have 3 actual case studies – the names have been changed but the goals haven’t.
Each one has the same parameters… £100,000 cash to invest and each wanted the properties to be self funding (as much as possible!) to reach their goal.
Lets meet them:
As you can see, each investor had a different goal, a different timescale and a different attitude to risk and each one has now started their own ‘Buy-to-Let Road Trip’!
Martin’s plan is very much HMO and student accommodation based. His intention is to maximise his rental income, sell on the properties as and when required and then purchase three properties for his children giving them the option, within reason, of type of property they want and where they want to live.
Hannah is very safe on the risk front so is definitely leaning towards very lettable properties; terraced or semi detached offering minimal void periods in saleable areas.
Georgina is also well on the way too. With a bit of a risky attitude attitude, her approach is based upon mixing more traditional letting properties in good rental areas offering minimal void periods and attracting professional tenants together with a student HMO or two into the mix to get that higher rental return. Her average rental income target means she needs to attain around 5 properties to achieve her goal.
If you want to discuss your own personal Buy-to-Let Road Trip, then please contact Susan Cope on 01332 300105.