‘The Simple but Profitable Strategies of Experienced Buy to Let Landlords’
‘The Simple but Profitable Strategies of Experienced Buy to Let Landlords’
The Telegraph recently stated;
‘Buy to Let is set to be 2013’s favourite career change.’
‘Little wonder that Britons from all walks of life have recognised this sector as a
sound investment even in troubled times.’
Who knows what they base these statements on but for some it could be a favourite career change, for most it won’t be a career change, but a move away from other poorly performing investments. It takes a combination of terrible bad luck and complete incompetence to lose money in property if it is held long term, however many people will make far less profitable investments than others through a lack of knowledge in buy to let. We’ve written this guide to help you ensure you don’t fall into that category.
Being a landlord is not a get rich scheme; it is a business and should be treated as such. Property is a fantastic investment if you do it right, do it wrong and it can also be a source of major losses. It should be treated the same as any other investment with calculations done to work out what return your investment will bring you. This guide will help you make informed decisions and help you maximise your profits from property. This guide will also explain how and why so many people make great investments in property, it will also tell you why and how many people make poor, ill informed property investments too. If you are an experienced landlord there will be plenty for you in this guide too.
The average buy to let yield in the UK was 5.2% in 2012. That doesn’t sound bad but after all expenses it isn’t that good as far as income goes. We have a simple solution to that…don’t buy at 5.2% yield!*
Only you know why you should invest in property. In fact you might not know yourself but if you are thinking about investing in property ask yourself:
What do I want to achieve from investing in property?
Do I want to focus on capital growth for a better pension pot in my retirement?
Do I want to focus on generating an income from my savings?
Do I want a combination of both?
Do I want to build an enormous property empire?
Do I want buy to let to replace my current employment?
Also ask yourself – ‘How much would I like to put into property?’
This can be a financial question but just as important is how much time and energy you want to put into it. Property can be very hands off; it can also be very hands on. This is dictated largely by the type of property you buy and how you manage it.
Different strategies suit different people. Part 4 of this guide ‘What to buy’ will cover this in more detail.
Personally my strategy is owning 10 properties to fund my retirement through a combination of income and capital growth. I want them all managed by good agents to minimise time input from me. The income they generate will be my base level income to live on and the capital growth will be for luxuries. I could buy more but I have little interest in a large portfolio, a luxurious lifestyle but extra headaches. Think about what you want your strategy to be. If you are new to property investment and you have significant funds we don’t recommend buying 4 or 5 properties straight away. Buy one or two, once they are let and everything is running smoothly then think about whether you want to buy more.
TOP 5 REASONS WHY PROPERTY IS A GOOD INVESTMENT
Hedging – If the economy is doing well, the value of your property will probably be increasing in value, you can refinance and release equity to spend or to invest. If the economy is doing badly, people are unable to buy which increases demand for rented property so rents increase. This increases your monthly income from the property. Landlords have also benefitted greatly from the low interest rates during the recent challenging periods for the economy. So regardless of the economic climate there are benefits.
Gearing – You can borrow money to buy property. £20,000 can be a deposit on a £100,000 property with an 80% buy to let mortgage. If the property goes up in value by 10% you have made £10,000 profit. If you spent £20,000 on shares and they went up by 10% you would make £2,000 so property has returned five times more profit. (We will go into more detail on cash vs mortgages in part 5 of this guide ‘How to buy property’ In that part of the guide we will also cover the advantages of this based on your return from rental income and how to use it to maximise your profits.
Returns – Most experienced landlords buy properties for good monthly income plus long term capital growth, with most landlords intending to keep their properties for more than 10 years. The right property investment can give you a significant return on your investment every month after all costs. If it has doubled in value in 10 years its a very nice bonus. I recently read an article in the Telegraph where an ‘expert’ in their money section said that a good buy to let is where the rent covers the mortgage, that isn’t a good buy to let. You will be out of pocket after all costs are taken out and with capital growth looking bleak for the next few years why would you bother? A good buy to let investment will give you a good return on your money every month after all running costs have been deducted.
Stability – You are in control of your investment and property is a known entity with a good track record. Not many expect much from a pension, there is no longer the same confidence in investing in shares in perceived rock solid companies. You can also have a much clearer view of exactly what return you will get from your property, particularly if you ensure risk is minimised through careful selection of letting agents and therefore tenants.
England is the most densely populated major country in Europe with 395 people per square kilometre. It is estimated this will rise to 464 people per square kilometre by 2031. It is double the population density of Germany and four times that of France. The only country in the EU more densely populated is Malta. England is the third most densely populated country in the world after Bangladesh and South Korea. The population of the UK has increased by more in the last ten years than it has at any time since records began in 1801. There has also been a decrease in the average household size from 3.1 in 1961 to 2.4 in 2011, which increases demand for housing. In 2007 Gordon Brown was calling for an increase in house building. At the time 168,000 new houses were being built (the most since 1990) but it was estimated the shortfall was still 40,000. The figure fell to around 75,000 in 2009 with 2010, 2011 and 2012 figures at between 95,000 and 110,000.
Some ‘experts’ get free column inches in the papers by saying property is over priced in the UK because the ratio of average salaries to property prices is above the long term average. Yes it is above the long term average, but that is largely because of the factors above. If it was purely down to this they should be arguing that property prices in the North aren’t overpriced and prices in the South are. I don’t believe this is the case but it just illustrates how Price to Earnings can’t be the major factor. We will cover more on ‘experts’ in the press in part 6 of this guide.
Why buy property – the facts, figures and quotes
Tenant demand at an all time high
Major banks are increasing the percentage of their loan book that consists of buy to let.
According to Rightmove average rents rose 13.6% from 2009 to the end of 2012 and they predict they will increase further with first time buyers struggling to raise deposits.
Buy to let lending in August 2013 at its highest level for 5 years
“Pension funds have performed terribly in recent years; they are complex and not easily understood. Property on the other hand is a straight-forward investment; it goes up and it goes down in price and is a much more tangible asset.”
“Increasing numbers of retirees are becoming landlords and relying on income from letting out property to boost their retirement finances.”
According to BM Solutions, a specialist buy to let mortgage provider, 80% of landlords view letting out property as a supplementary source of income to their pension and around 60% are actively planning to live off their rental income.” – Which.co.uk
“For example the average annual annuity income has dropped from around £5,900 a year in August 2011 to just over £4,900 a year in October 2012. And you can expect to earn just 0.9% interest on an average easy access savings account. This pales in comparison to the buy to let sector.” – Which.co.uk
What do Broadgate Residential Investments do?
We sell investment property, we are one of the UK’s leading experts in the sale of student accommodation, with properties available throughout the UK from student rooms with guaranteed income to complete blocks of apartments.
We also sell properties for developers who would like to sell large numbers of properties discreetly at significant discounts from their open market prices. We pass the discounts onto our clients in return for quick bulk sales.
Why do developers want to do this?
Revenue figures for the city
Selling cheaply in bulk can be more profitable than waiting longer to sell at a higher price
To free up funds for more profitable sites
To sell the last few properties on a site to save money on sales and security staff
To sell the first few on a site to help their bank funding
* Gross yield is calculated as annual rental income divided by the purchase price. Note that it is only illustrative of your return if you buy a property with cash, manage it yourself, it is always let and you have no maintenance issues! In part 5 ‘how to invest’ we will illustrate how to maximise your return on investment and how you can achieve a higher return than the gross rental figure.