• A GOOD MANAGEMENT COMPANY
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• RUN ON EMPTY
With online managing agents, you need to ask if there is any level of tenant care. If your tenant leaves and there is a void, you will face a double whammy of having to pay the agent to find you a new tenant and also suffer lost income.
• CLOSE CALL
Losing tenants because you did not look after them can turn a good yearly return to nothing. Tenants like to feel they can pick up the phone and talk to someone who has direct contact with the landlord.
• VOW FACTOR
You need to be confident that an online letting or managing agent is adding value. They will certainly be cheaper – but will they deliver what they promise, given they are dealing with properties and maintenance nationally?
• STREET CREDIT
I’ve come across parking space issues while helping clients buy property in London, particularly when there’s the sudden realisation that owner-occupiers in certain blocks of new-build flats don’t qualify for parking. Developers see space as money, so would rather convert potential parking spaces into flats. Otherwise, they’ll charge a fortune for them. In one new Battersea development, parking spaces cost up to £60,000 each.
• VEHICLE POUNDS
If you analysed the extra rent you could charge for the privilege of somewhere to park, I’m not sure the price for a space works out favourably. But a flat will be more marketable with a parking space when you sell, if not necessarily for a let.
• GOING UP
Parking spaces, like a lift, concierge or gym, are a nice bonus but may not command a relative rise in rent. However, in London especially, their value may grow rapidly.
• DOUBLE CHARGING
It’s a scam where agents charge both the landlord and tenant for a certain service – and that’s been a big part of the problem with lettings agents’ fees. Hopefully the new regulation will make it clear who pays for what. Equally important is knowing who holds the deposit. That needs to be kept in a separate account and not with the agent.
• ROOM FOR NEGOTIATION
The type of property you buy may also determine your ability to haggle down the price a lettings agent charges. An older property will require maintenance and management. A new-build will need less attention.
• SOAK UP THE LOCAL KNOWLEDGE
I’ve always chosen a specialist lettings agency who is local to the area to manage my properties and I feel that has given the best result. So if you say you’re looking for that service, even if it turns out you don’t then go for it, it may give you scope for negotiating their management fees. These can be high.
• GOOD IDEA, I SAY
I think let to let is an excellent plan. I’ve come across a lot of people doing this, particularly those in first jobs in London who can’t buy where they would like to live but feel they should be in the housing market.
• DON’T GET MUDDLED
It’s a good hedge, rather than waiting until you can afford your ideal property — and your tenant pays your mortgage. The other upside is you can go about it without getting muddled about if it’s an investment or a home for you. It’s purely the former.
• UNIVERSITY OF LIFE
It is difficult buying in an area you don’t know well or is a distance from where you live. University towns are good for investment. If you work in Manchester but can’t afford to buy there, and you went to uni in Newcastle, then you could buy a student property there in a market you understand. Life changes between your twenties and mid-thirties and you don’t know where you’re going to end up.
• A HOME OR A LET?
I’ve worked with a lot of people who want a coastal investment property that’s also a holiday home. Combining the two is unlikely to get the best of either. You need to be clear which it is.
• LESSONS FROM NATURE
A lot of flats on the south coast incur paintwork damage and need regular window-cleaning. Keep the property in good nick – otherwise the maintenance jobs become far bigger. If you are buying a leasehold, ensure the building has a property management company with a sinking fund and planned works.
• INVEST IN THE FAMILY
If you are targeting the families-moving-out-of-the- city market, you may pay a premium for a home in a good school catchment area, but rent will be at a premium and there’s more chance of capital growth. Relocating families, perhaps renting with a view to buying, make good tenants. They have money in the bank and look after a place.
• HAPPY FAMILIES
Flats at the lower end of the ladder also take longer to rent. However, the opposite is also true. Decent-quality family homes within walking distance of highly rated schools should be quick to let and also mean families are more likely to settle for longer. Once children are happy in school and local friends are made, the decision to uproot and move again becomes far harder.
• OUTPERFORM THE MARKET
A really successful property investor outperforms the market. That may be through adding value, or it may be because they have invested in something that will benefit from the infrastructure that is predicted to lift an area. In other words, rather than go for a new-build development — where you are likely to be paying a premium — they will go for an older property in the next street.
• DO YOUR RESEARCH
If an area dramatically changes, people think they have been clever because their property goes up by 20 per cent. But when the market rises, it covers up any mistakes you make. When searching for the right buy-to-let property to buy, yes, read the press and websites, but get out on the streets, too, and talk to people.
• KEEP DEPOSITS SMALL
If you’re starting out in buy-to-let, it’s better to put down a smaller deposit. That said, with a cheap investment, it takes a long time to find, buy and rent out, and the area has probably up and come by the time you realise you’ve done a decent job. You’re better of making a 10 per cent return on something worth more.
• LEAVE THE HERD
Certain areas may be hyped because they are predicted to see huge price growth due to big new infrastructure projects. But that hype is usually created by the PRs of large developers, so take it at face value. It doesn’t mean it’s not going to happen, but the timing or extent of growth may be unclear.
• DISTRICT DISCIPLINE
It is difficult to identify what tenants want if you aren’t that person, don’t do that job or live that lifestyle. So sound out rental agents locally. Ask what kind of property they wish they had more of, and then find out what the type of tenant who wants that property looks for when renting.
• SMALL PRICE
Are long-term tenants more demanding than short-term tenants? Not really. Tenants, on the whole, are pretty demanding — and why not? For the landlord, a long-term commitment to rent is good news and it does not mean your tenant pays less rent. If it does mean spending a bit on improving the property, it’s a small price to pay.
• FAIR DEAL
You may also get an arrangement, such as a landlord I know with tenants on a 10-year lease. The house needs work he is reluctant to do, so they are paying to put on the extension and change the windows in return for a lower rent.
• IN THE FAMILIAR WAY
Once you know a market and have a model that works, it makes sense to carry on with the same formula and build up a portfolio of similar properties. Why try to fix something that’s not broken?
• BALANCING ACT
A balance of risk across a portfolio is the way I’d go. A balanced property portfolio combines properties with more chance of capital appreciation and others that offer greater yield.
• MIXING IT UP
Add commercial properties to the mix and you have assets requiring less landlord involvement than residential — until the lease is running out and you need a new tenant. The landlord must be far more strategic then: if you get things right, you are set for the next 10 to 15 years. With residential, if you pick the wrong tenant, you only have to wait a year to sort it out.
• PLAY THE LONG GAME
Buy for the long term and finance carefully. Use the smallest deposit possible. The ability to “gear up” is one of the things that makes property investment so attractive — but bear in mind you will suffer any market falls in the same way you will benefit from rises. And remember, too, that interest rates go up as well as down.
• IDENTIFY YOUR TENANT
Have a clear strategy about why you want to invest and what you are going to be investing in. Research the characteristics of the tenant market you target. What do they want? Where do they want it? How much will they pay to live in it?
• CALCULATE THE HASSLE
When investing at an older age, income is more likely to be the main driver than capital appreciation. Where this is the case, something like a student let or an HMO tends to provide higher yields, but bear in mind the hassle factor. Also weigh up the relative costs of using a property management agent versus the potential hassle of doing it yourself, which you may have time to do in retirement.
• HALF-WAY HOUSE
Ex-local authority properties don’t tend to rise in capital value at quite the same rate as other stock when prices in the general market are rising. They will also fall faster when/if the market turns negative. But they do rent well and offer good annual yields, so could offer retirees a half-way option.
• GOING STEADY
I understand the need for income in retirement, but remember you are tying up cash in an asset that is fairly illiquid. It is a good, steady income, though, and it’s an investment you feel you can control – particularly if you have lost confidence in the stock market, as many have in recent years.
• IT’S NOT CHARITY
The thing to remember with offers of free this and that is that you are paying for them somewhere. Developers are not charities and are not offering you a gift. The chances are they are adding a few thousand pounds on the price of the property to offer you the “free” stamp duty or furniture pack.
• PAY LATER
If that hidden amount they are charging simply goes on your mortgage and it means you don’t have to pay stamp duty – and hence find an extra few thousand pounds up front – then maybe that’s a good thing.
• MARKET LEADERS
By bumping up the price of new-build properties, developers are trying to establish a new market rate for that kind of property in the area. Say they are selling a flat for £300,000 and they are paying your stamp duty, then really it’s only worth £295,000. If they sell enough at £300,000 to convince the market the flats are worth that much, it will set a new level. Again, as an investor, that is not necessarily a bad thing as it is increasing the value of your investment.
• FREE OF FEES
When this situation arises depends on how much you earn and then on management fees. As these are a percentage of the rent collected, it is not about the number of properties you own, but their value and income. It takes pretty much the same time and effort to manage a property worth £150,000 as £1.5m.
• LOW-STRESS LETTINGS
A lot of developers target expats – and they make life very easy for you. But in property, if something is easy, you are not going to get the best value. As long as you realise that, however, buying new-build may still be the best way for you and may be worth it, given the hassle it will save you.
• SAFE AS HOUSES
If you are an expat landlord and concerned about whether you can leave your property to tick over in your absence or should be returning frequently to check all is OK, I would say you are safe to leave it. That’s one of the attractions of this type of investment; you shouldn’t have to worry about it if you put it in the hands of a reputable lettings agent.
• LOOK AT DRAINPIPES
Another hazard is leaking drainpipes. You need to be at the property when it’s raining to spot the problem. If you’re a distant landlord, you need a diligent lettings agent to look out for you.
• AIR THE BATHROOM
Bathroom ventilation is important. It’s easy to get wrong and everyone advises you differently. Also beware of houses let out to young lads (even if they are graduates, which is my target market) who have a tendency to keep all windows shut and dry washing indoors. One of my houses is let entirely to girls and they keep it beautifully.
• LOTS OF SPARE INCOME
Pensions haven’t been performing and people see property as a long-term, reliable, tangible investment. You can even live in it if you want to. But these days it’s a lot harder to become a landlord as the banks are now interested in who you are in a way they didn’t used to be and you need a lot of spare income to save up a 25 per cent deposit.
• PAYING THE PRICE
Many people got involved in buy-to-let in the days of 100 per cent or even 120 per cent loans, simply because they could. Luckily, it’s not like that any more. If you got into the market late, just before it crashed in 2008, and took out a big mortgage, you could be paying for that property for the rest of your life.
• COVER STORY
My dad always said there’s an awful lot that can go wrong in the world, but if you own the roof over your head, you can cope with almost anything. When my sons were born nine and seven years ago, I bought them each a house so they will have a roof over their head.
• GET OUT
If you rent in London but can’t afford to buy there, it’s an excellent idea to look elsewhere to get on the property ladder.
• GET REAL
A combination of factors – longer lifespans, high divorce rates, housing shortages – means there’s only one way the London property market can go. So if the best way is to look elsewhere because you are priced out, I’d be tempted to look where you come from.
• GET A PLAN
Steer away from modern flats in city centres, particularly in northern cities. And don’t follow what all investors are doing, as you’re likely to see an oversupply of similar properties. Target your tenant type – young graduates are consistent, reliable and will always exist – and make sure it fits in with what you can afford in your chosen location.
• GOLD STANDARD
Corporate tenants are talked about in hushed terms as the holy grail of property investment – they’re more reliable and longer term. They are also likely to take properties other tenants might not take, such as family houses owned by so-called “accidental landlords”.
• FIND THE BIG SPENDERS
While the bulk of corporate tenants will be in London, there are other areas that will see high numbers of them. It’s not all about bankers: look for areas that have multi-national companies such as telecoms, manufacturing or pharmaceuticals. They’re likely to be near regional airports – you’ll find a lot of them in the M4 corridor.
• NORTHERN EXPOSURE
Aberdeen is also stuffed full of corporate tenants. You can buy a very nice house for £300,000, yet people drive £100,000 cars. People don’t spend a lot on their properties there, so it’s a good place to be a landlord.
• CUTTING RISK
By having a portfolio of properties, you can balance out your risk. If one property out of 10 has a problematic tenant, such as a shop that goes bust, the other nine can cover it.
• LONG VIEW
The economy and wider markets will influence the commercial (and residential) property market. But unlike stocks and shares, the relative illiquidity of property investment means peaks and troughs can last for years.
• CLASS ACT
Commercial property is a more complicated proposition than residential property. If you get it right, you’ll get an attractive yield. But you need to know what and where to buy and the usage class – if it has a licence to sell food, for example. That can make a big difference to your rent.
• HUMAN TOUCH
As a small-scale investor facing commercial property agents for the first time, develop a good personal relationship and leave them a set of criteria showing what type of property you want and how you’re financing it.
• BE READY
Auctions are transparent but you must be organised on the day. You and your solicitor should have looked at the lease and got your finance ready. Basically you need to get all your ducks in a nice, neat row.
• FREE SPIRITED
Landlords with an empty shop need to consider offering rentfree periods to tenants. If your property is a rundown newsagent and a smart stationery shop approaches you for a 15-year lease, they will need to spend thousands fitting out the property. Agreeing to a couple of months rent-free will ultimately benefit you as the owner.
• FILL WITH CONFIDENCE
You need to have confidence in your tenant’s business and their ability to pay the rent. The better their track record, the more comfortable you will be. One in three UK start-up businesses — and about two thirds of restaurants — fail within the first three years.
• BROADLY COVERED
Make sure you take a big enough deposit to cover the possibility of the tenant being unable to pay the rent. It’s useful to get a clause written into the lease whereby, if one tenant passes on the lease to another, the former is responsible for the rent.
• LOCATION, LOCATION…
Location is key — you need to have a good understanding of the market in a specific area. You’ll often see empty shops a few streets away from a major high-street brand whose neighbouring shops are benefiting (though they’ll be paying more rent).
• HIGHER REWARDS
A successful commercial property investment is, to a large extent, about the quality of tenant. A property may well have one already, which can make the numbers far easier to crunch because you know what rent is being collected – and that will be pretty high, compared with residential rent.
• RISK MANAGEMENT
The quality of a commercial tenure has a big impact on the price you’ll pay. If it’s a major high-street brand name, your risk is reduced. If it’s a betting shop or a takeaway and this is their only business, it’s a risky proposition.
Commercial property is a very different area to residential property. You’ll be looking at different high streets with different footfalls and target markets and you are competing with big, corporate investors.
• DRESS TO THRILL
If you have a buy-to-let property that won’t let out, try dressing it. If it looks tired, paint it. If there’s condensation on the windows or a mouldy shower, get rid of it. The property must be clean and it must feel like a home rather than an investment property that you don’t care about.
• TRACK RECORD
A property’s purchase price may be affected because it’s on a busy road, overlooking a railway or lacks pleasant views. It will be harder to sell, so it will be cheaper to buy — but it will rent out, making it a good buy-to-let investment property.
• COUNCIL OF WISDOM
Former local authority properties make good rentals as they usually have generous floor space, are well laid out and lack the kind of period detail for which you pay a premium.
Whether they are renting with a view to buy or because they can’t move on to ownership in the current climate, generally families are the least transient of tenants as it’s unsettling for a family to move around, so your void periods will be less.
• AGE IS AN ASSET
Elderly couples/retirees are also desirable tenants — though not common — and corporate tenants who are relocated to the UK for a couple of years are good news as the rent is often paid long in advance.
• AN EASIER OPTION
Buying new-build is the easiest option for expats as it comes with a new lease, a management company who will take care of everything, less hassle and probably more attractive finance.
• LUXURIES COST
It’s easier to buy a new-build for a reason — the developers and/or agents are making some money out of you, too. You may also be paying high service charges for lifestyle luxuries. Will prospective tenants pay more rent as a result?
In a new-build block, many other owners will probably be landlords, too. Leases will be allocated at the same time, with everyone moving at the same time for a while, so there will be a lot of competition for tenants.
• LIGHT TOUCH
If it is practical to add fresh flowers and light a few candles, it will help make it look homely. But unless you live next door to the property, that’s probably unrealistic. I’d advise cleaning carpets and painting walls between each tenancy.
• LOOKING GOOD
A clean property will appear in a better state of repair, making it far more appealing than rival properties to tenants.
• SHINING STAR
When preparing your property for viewings, the most important thing is cleanliness. Your property doesn’t need to be in immaculate condition but it does need to be spotlessly clean, and kitchens and bathrooms must gleam and shine.
• RIGHT AT THE START
The costs of decorating and furnishing a BTL hit you at once so they need to be budgeted for carefully. If you don’t do it properly, you won’t get the right tenants.
• BE PREPARED
Set aside three months’ rent in case things go wrong or tenants leave. There will always be maintenance costs too, particularly in older buildings, so there needs to be an allowance for that.
• SAFETY FIRST
Don’t assume you can furnish with items you’ve kept stored for years. If they don’t meet fire and safety regulations, they’re no good.
• FEE FI FO FUM
Don’t get caught out by giant mortgage admin fees. £1,000 can easily go without feeling you’re getting anything for it.
• VALUE FOR MONEY
You should furnish and decorate an investment property to a level that matches the property’s value. But there are certain features that most tenants will want these days such as a dishwasher and a washing machine.
• CLEAN SWEEP
Some landlords with larger and more expensive properties charge a higher rent but also provide a cleaner and a gardener. The cleaner is useful in that they are in a position to let you know if problems such as bathroom leaks occur.
• RATE THE MARKET
When deciding how much you should be charging for your rental property, you have to go with market rates. If you can demonstrate to your tenants that they are not currently paying market price — and that they will pay it elsewhere locally for a comparable property — then you have a case for putting up the rent.
• MAKE A SURE BET
You have to be confident to let your tenants go and risk a void period. You need to work out whether getting a high rent from new tenants would cover the money lost during the void period in between tenants. Or you need to be confident that when your tenants start looking elsewhere for comparable properties, they won’t find anything offering better value.
• EMPLOY EXPERTS
If your investment property is a long way from your home, you need an agent who will manage your property. I use a specialist lettings agent — someone who purely focuses on letting properties, not selling them, too.
• STRIKE A DEAL
For a standard management and tenant-finding service, expect to pay around 15 per cent of your monthly rent. If you have more than one property, consider a deal, such as you find the tenants and they manage the properties.
• PEACE OF MIND
Lettings agents’ fees can seem chunky. But if you can’t get to the property easily, and you don’t have a contact for a good plumber who can get there quickly, then maybe it’s a price worth paying.
• KEEP TENANTS SWEET
If you have good tenants, then look after them. Then if they have a grumble about something going wrong, it’s probably warranted. Fix the problem as soon as you can and if you have to interrupt them to send someone to do repairs, then maybe a free week’s rent is worth offering as a goodwill gesture. You need to look after tenants these days as void periods are the killer.
• WATER CARRY ON
Flooded bathrooms are a common problem. Bad ventilation, sealing or grouting are small problems that, in your own home, you would fix rapidly and for next to nothing. In a rented house, tenants will see a leak and think, so what? It leaks month after month, they forget to mention it to the agent, and it stains the ceiling of the flat below. That means taking the ceiling down, two damaged properties and expensive repairs. And blocked gutters should be cleared quickly before water begins to drip down the wall and damage the plasterwork.
• LOOK FOR THE SIGNS
Hotspots pop up if there are changes to the transport infrastructure or employment, or if a university is expanding by building a big new campus. This has happened a lot in recent years.
• NEIGHBOURHOOD WATCH
Also look for anomalies in value. If you find two or three expensive areas with a slightly down-at-heel neighbour, that’s an anomaly that won’t last for ever.
• THE DOMINO EFFECT
Examples in London are Earl’s Court, which was always seen as the poor man’s Chelsea, and Paddington, with Notting Hill and Holland Park nearby. The councils closed down the cheap hostels and imposed strict fire regulations they knew the landlords couldn’t comply with. What was seen as shabby but as architecturally beautiful as its neighbours — the attractive architecture is a crucial component — had virtually caught up pricewise within five years.
• YIELD v CAPITAL GAIN
When deciding whether you are going for yield, capital appreciation or a bit of both, I go for a bit of both. Bear in mind, though, that with this option, you won’t maximise either. And look at net yields – not gross. Net yields needs to be ahead of all your expenses and some amateur landlords underestimate the costs involved in owning an investment property.
• EMPTY PROPERTIES EQUALS LOSS
Void periods are the killer. If the tenants haven’t looked after your property and you need to repaint and recarpet when they leave, suddenly you’re left with a month’s void. That can ruin your year’s figures.
• LOOK AFTER YOUR TENANTS
Fix things as quickly as you can and respond pleasantly if they tell you there’s a problem – otherwise, next time, they may not bother, and the problem will escalate from being a tiny one into a big, costly one.