ONTHECOVER
5 EDITOR’S
Property is a long-term game and despite current challenges you can still make it work and we show you how
A word of calm from our editor in a challenging property investing world
6 IN
27 37
Over 50 research tips and tricks to boost your deal-finding abilities and funnel
We talk to an expert investor to digest the lessons they had to learn the hard way
A round up of the main news stories, developments in the bricks and mortar investing sector, plus the vital regulatory round up
10 GROUP GOINGS ON
A collation and collection of some of the thousands of posts on the Buy To Let Property Group over the last couple of months
12 ONE TO WATCH
16
33
40
42
46
A candid insight into the experience of an up-and-coming investor. These tales demonstrate that perseverance pays off and you are not on the journey alone.
The fabled/feared Renters (Reform) Bill was introduced to parliament but how did it go down with the industry and what issues surfaced? We look at the fall out.
In the latest of our property strategy overviews we take a timely look at the OG –the buy to let. Vanilla, simple rentals are a great way to make money long-term
We quiz a load of seasoned investors to see how much cash they are comfortable keeping on hand to cover the costs of their portfolio and prepare for a rainy day
With a social mindset this mother-daughter-duo repurposed an abandoned nursing home and turned it into a mini-community. Read the highs and the lows of this major project
With Covid delays, soaring costs and planning potholes this new build development was not without its challenges. But was it worth it in the end? Find out on p46.
50 BEGINNER’S
The latest in our series of print out and keep guides explains how to finance your first property deal and get it over the line, one way or another
54 COLUMN: INSURANCE
HMO Insurance explained – Are you sure your property is covered?
55 COLUMN: MANAGEMENT
How to craft the perfect rental listing
56 COLUMN: FINANCE
Do you know how to do due diligence on every deal?
59 COLUMN: TAX
What are ‘trivial benefits’ and are you taking advantage of them?
60 THE LIST
Our unapologetically subjective list of wonderfully useful resources
63 THE RANT
Wes takes on the negative nellies in today’s property world
JULIAN@ONTHEHOUSEMAG.CO.UK
BUY TO LET PROPERTY GROUP
On The House magazine has made with constant care to ensure that its content is accurate on the date of publication. The views expressed in the articles reflect the author(s) opinions and do not necessarily reflect the views of the publisher and editor. The published material, adverts, editorials and all other content is published in a good faith. On The House magazine cannot guarantee and accepts no liability for any loss or damage of any kind caused by this website and errors and for the accuracy of claims made by the advertisers. All rights reserved and nothing can be partially or in whole be reprinted or reproduced without a written consent. On The House magazine is produced by Fired Up Media Ltd on behalf of The Buy To Let Property Group. Fired Up Media is an ICO registered company.
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Your Host: Kevin Wright
The UK’s No.1 Property Finance Expert
Kevin Wright has been described as ‘outrageously positive’ – partly because of his positive approach to property finance, but in 2016 he applied his positive strategies and took just two months to beat cancer.
His passion for property led him to specialise in brokering finance for property investors and it is this 20 + years brokering background that makes his fully-fledged, well established training business, unique in that it is designed to educate investors to play that bigger game in property - but with their current resources.
This ignited a spark within me, akin to the transformative moment many experience when they encounter ‘Rich Dad, Poor Dad’ and decide to accumulate assets and curtail their liabilities.
Since then I have striven to view each problem encountered in my investing journey as a challenge waiting to be solved. Indeed, like most, I’ve reaped the benefits of low interest rates over the last decade, but this philosophy faced a stern test when faced with shrinking margins as rates rose and refinancing arrived.
However, I’ve found solace in the wisdom of seasoned investors, those with larger portfolios who have weathered past downturns and market crashes and even capitalised. My cautious approach in deal stacking has served me well, as gentle and well-timed rent increases leading up to financing have helped buffer some of the blows. The challenge of portfolio building moving forward, though, is a different beast altogether; it’s far from the piece of cake it once was, even though challenges are inherent to any market.
This prompts us to ask in this issue: is property investing still worthwhile, and more importantly, how can you make it work? I won’t preempt our discussions or attempt to distill the expert advice. However, I will stress this: I believe unequivocally that adept investors make it work, no matter the market conditions. You simply need to find a way.
Turn to p21 for more insights. Also, to equip yourself with a multitude of tools and tactics to find your next market-beating deal, check out p27 for over 50 pieces of research, tips, tricks, and hacks.
Furthermore, this issue is packed with actionable advice: how to keep your due diligence sharp (p56), how to finance your first deal (p50), crafting the perfect property listing (p55), and even calculating how much cash to reserve for portfolio problem-solving! (p40)
Additionally, we present two insightful case studies (p42 & p46) to learn from, the latest news to keep you informed, and a host of resources in ‘The List’ (p60) at the back.
Consider your property investing problems—solved.
Enjoy the read.
Julian PlettsEDITORSUBSCRIBE: ON THE HOUSE Weekly Newsletter for up-to-date news, suggested reading, research, advice and more
– a selective
SAY THANKS: We admin the busy BTL Group and put out stacks of useful content for free –Why not shout us a coffee to say cheers?!
A wise person once told me, ‘property investing is problem solving.’
There is so much compliance in being a landlord nowadays, so here is our regulatory round-up - the latest main developments that you need to be aware of along with the bestknown timetables of other proposed changes and regulations.
(The below is intended as a guide to help you stay on track, as always consult with experts such as accountants and financial advisors before
The Emergency legislation brought forward in Scotland under the Cost of Living (Tenant Protection) Bill 2022 to freeze rents and eviction ban was passed on October 6th last year and became an act on October 27th. The Act, which initially froze rents was initially due to expire on 31 March 2023, however it has now been extended until 30th September, 2023. Rent rises are currently capped in the PRS sector to 3%.
Previously coming into effect in April 2024 it has now been punted back down the road for landlords until 2026. Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) previously would have required landlords earning more than £10,000 to use MTD-compatible software to keep records and make four quarterly submissions and a final one to HMRC a year.
Housing minister Michael Gove introduced the Renters (Reform) Bill, which will abolish Section 21 evictions among other sweeping reforms of the PRS, to parliament in May. Since then progress has been slow and it is yet to receive its second reading in the House of Commons. The bill was conspicuously absent from the government’s planned parliamentary agenda prior to the summer recess and the NRLA has cast doubts on whether that means it will be heard again before Christmas. Read more on p16.
The Social Housing (Regulation Bill) is now in the final stages awaiting a date for consideration of amendments prior to Royal Assent. The law will require social housing managers to gain professional qualifications and allow the regulator more powers to enter properties with only 48 hours’ notice and make emergency repairs with landlords footing the bill.
The Government unveiled plans in April which could see people needing planning permission in tourist hotspots if they want to turn a home into a holiday let. The plans were published as part of a consultation from The Department of Levelling Up, Housing and Communities. The government has also committed to introduce a short term let registration scheme in England, which along with the planning changes would be part of the Levelling Up and Regeneration Bill (LURB) tabled in December 2022. The bill is awaiting the report stage in the House of Lords at the time of writing.
According to reports, landlords will now have until 2028, as opposed to 2025, to upgrade their properties to EPC for all tenancies.
Astonia Associates are one of the country’s leading Accountancy & Tax specialists and advisors in Land and Property related strategies and techniques including:
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• Build to Rent (BTR)
• Build to Sell (BTS)
• Serviced Accommodation (SA)
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• Land Acquisition and New Build (NB)
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We have created a unique team of tax specialists that provide all Property Investment and Property Development tax and accountancy services under one roof. We are now one of the most highly regarded and frequently referred professional tax specialists in many of the popular property specific social media platforms.
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Our operational experience allows us to offer our clients a more comprehensive service as we personally invest in of all the property strategies . Tax rules and tax laws are constantly changing and we ensure that our clients are structured tax efficiently for today and into the future.
NOTE: If you want to find any of these posts – Head to the group and just search the person’s name and a list should come up with their posts
More perplexing pet-based conundrums, this time of a more morbid variety? Pet cemetery anyone?
Funny and furry games are afoot in this very popular post this month. Do we think the landlord is right in feline taken advantage of? Or is the tenant right to pussyfoot around the issue? Badum tisk!
Perhaps
were
The Buy to Let Property group is one of the busiest, most vibrant and supportive places for property investors on Facebook. On any given month there are thousands of joining requests, almost a thousand posts and hundreds of thousands of post views. Here are some of the most popular ones that got you talking over the last couple of months.We hear you John! It can feel like the world is against us sometimes. All we can say is it will pay off in the long run. Welcome to the group Mike, we hope you find it a useful and supportive place to hang out. Congrats on the ultra! If you or anyone else in the group is a new joiner we love introducing posts like this so please do say hi, property networking is important afterall and it has to start somewhere.
Ever the optimist, group founder Wes wanted to see what positive steps people were currently taking in the property world – there is a lot of doom and gloom around, that’s for sure.
Water of a duck’s back for top group contributor Rob Walsh, we reckon!
As always, some inspiring renovation pictures from a class A action-taker. Read more about Carl’s property investing journey here as part of this 4 bed HMO conversion case study with OTH Magazine.
We can all certainly relate to this right about now!
Our preferred solicitor partner Tim Bishop, an active investor himself, shares the news that Labour have seen sense when it comes to the market-decimating policy of rent controls. Wonders will never cease!
OTH: Thanks for sitting down with us Liz. Let’s jump right into it, you’re about a year into your property investing journey, in a time where many landlords are saying it’s not worth it anymore, what led to you getting involved in property? What’s your ‘why’?
I’m not sure I’m worthy of an article, I did everything wrong and it’s been a tremendous learning curve!
My why? After nearly 40 years in the equestrian industry selling horses, divorce meant the sale of my farm - upon which my job was
dependent. Facing 60 and a massive life change, property was the only thing I seriously pondered over. My anchor was gone, I was drifting and needed somewhere safe to dock. Somewhere safe as houses…
In simple terms, I wanted to generate an income and some security. Having always been self-employed, I couldn’t see myself in a 9-5.
Read the refreshingly candid and real life story of Liz who is new to property but determined, very determined to make it work.
OTH: Tell us about your strategy and how you decided on going down that route. You’ve also described the journey as a ‘rocky road’, the reality is, for many it’s not sunshine and rainbows, can you tell us about that as well?
Family homes were the way forward for me and I did lots of maths on one hand and spent hours on Rightmove on the other. My broker suggested I look at Blackpool, he’d recently arranged several mortgages for investors and with low prices for great rents, it certainly looked good on paper. I hoped buying tenanted houses would work for me - rent from the get-go, established tenant, no major refurb. How wrong I was! I bought two houses fairly close together. One had (and still has) a lovely mature tenant who’d been there many years and the other I was unable to view as we were still on the edge of Covid and the tenant was ill each time I tried to view. But this house looked a real bargain, a substantial terraced with a kitchen extension, front and back garden, on a quiet street and £93,000. With a rental income of £606pcm and other houses on the street selling above £100,000, what’s not to like? The Estate Agent thought the house was a steal. So I took a chance and bought unseen! Property number three was a sensible cottage in another seaside town, Southport.
Being new to the industry, I thought my best chance of success was to find an agent to take care of the day-to-day running and unfortunately, my naivety slapped me square in the face when I found myself tied to an agent who was in the process of being expelled by the Property Ombudsman’s scheme and with no Client Money Protection. I learned too late that there was a rather long trail of landlords who were unable to recover their rents from him!
Just when you think things can’t get any worse, they did. My £93,000 bargain was housing a tenant from hell. An occasional non-paying trasher with an ASBO!
Within three months I was scratching my head, trying to get out of the contract with the agent and looking at eviction options for my terrible tenant! It was a lot to process but of course, when the going gets tough….
OTH: Oh no, so how did you turn it around? You did turn it around, right…?
I educated myself, enlisted (eviction specialist) Mark Dawson to deal with the tenant and worked on losing the agent.
A good clean-up of property number two made me realise it actually was a good choice, despite the stress of the previous months. If I’d actually viewed it beforehand, I definitely wouldn’t have bought it. My daughter helped me with the clean-up and expressed an interest. It was great working with her again, this time on a non-horsey project. Within three weeks, the house was looking smart and had a brand new couple living there with an increase to £715pcm. The refurb cost around £4,500 and the eviction just under £2,000.
OTH: What are your big learnings so far? What would you do differently if you started again?
My big takeaway from all this is that tenant choice is paramount. If you have the right person in your property, you’ll have less stress and more money. I check rental history, I want to super-duper check the tenant was in work and had never been in arrears and be a tenant who would readily communicate with me. My cash purchase had a tenant who said “I love this house. I can afford an increase and I’ve always looked after the place”. I hate to be a snob, but I’ve had a bellyful of rough people! I like committed couples and I am probably one of the few landlords who favour those with pets. An intelligent, responsible couple will be a better choice irrespective of pets and it avoids the question later on “can we get a puppy?”, you then have to choose to be a mean landlord, or risk a young and messy new household addition. At least by taking a pet owner, you’ve bypassed the messy stage! But first and foremost, I have to like the applicant. Just warm to them, if you get me.
OTH: Where do you see your portfolio going in the future? Do you plan to diversify or rinse and repeat?
I could see the market changing. I had money to invest, but with lots of unknowns popping up, I decided to chuck my remaining eggs in one basket and buy a property close to my home town in Pennington, just south of Leigh in Greater Manchester. A substantial three bedroomed house only 20 years old was bought for cash. Great tenant, professionally managed, this time I was able to check the many things I’d overlooked (discussed below) and felt confident parting with £160,000. With a grateful tenant who wanted to stay and even proposed a rental increase, I thought I’d let the markets settle and enjoy finally having my houses in order. However, I very recently found a bargain house which was ideal for my daughter (33) to get her break in property, so I’m now looking to welcome renter number five. So much for letting the markets settle! This bargain will be the foundation of a portfolio for my daughter.
It is yet to gather speed in parliament, so before it does here are some of the major industry challenges to the Renters (Reform) Bill in its current form
The Renters (Reform) Bill feels like a great big rumbling train that has been coming down the tracks for years now, threatening, if some were to be believed, to derail the landlording business altogether.
Well, when it finally rolled into the station as Housing Secretary Michael Gove introduced it to Parliament in May, OTH Magazine eagerly tuned into PMQs expecting it and the rejigging of the rental sector to be the contentious hot topic of the day. The result, almost no mention at all, a murmur at best.
An anti-climax its introduction to parliament might have been, but the bill, which was first proposed by Theresa May’s government (April 2019), still has a long way to go before it starts legally reshaping the way we do business.
As we went to press it was awaiting its second reading in the House of Commons, with three more stages in that house prior to heading off the House of Lords for a pummelling and reshaping before it finally enters its final stages and then Royal Assent.
In fact, progress on the bill since it was released has been unusually slow. According to PropertyIndustryEye; “It is considered unusual for a Bill to take this long to move from a first to second reading.” The way things are going questions about whether the government are really committed to introducing the bill, certainly before the next general election, have been raised.
Chief executive of the National Residential Landlords Association, Ben Beadle, noted that the government has now announced all business for Parliament up to the summer recess with no mention of the second reading of the Bill. He also noted that with the shorter September session, the run in to the Autumn budget and the King’s Speech, it even looks iffy for a pre-Christmas second reading.
There may have been a barely a raised eyebrow in the House as the Bill finally departed the station to make its journey through the Parliamentary process, but in the industry media it has sent shockwaves and has been debated in great depth. Here we have a look at the fall out and how industry commentators and experts have reacted and how they believe the Bill needs to evolve before it is fit for purpose whenever (or if ever) the day comes it is introduced.
Gove recently underlined a promise to landlords that even though the reform bill will abolish Section 21, so called ‘no-fault evictions’, the government will ensure an expedited process for recovering your property when there is a good reason such as late payment of rent or anti-social behaviour.
If they can’t stick to that promise, it risks massively undermining the rental sector even further.
So, believes the NRLA’s Beadle who was quoted as saying: “Responsible landlords need to be confident that when Section 21 ends, where they have a legitimate reason, they will be able to repossess their properties as quickly as possible… Without this assurance, the Bill will only exacerbate the rental housing supply crisis many tenants now face.
“Ministers must develop a plan to improve the speed and
efficiency with which the courts process possession claims. Although the Government has accepted NRLA calls to digitise cases, staff numbers need to increase in the court system as well to meet the needs of these reforms.”
Elizabeth Earle, Knowledge Lawyer at Farrer & Co questions if the need for abolishing section 21 is really there in the first place and is highly sceptical about whether courts could cope with the added workload it will require.
“While it is unjust for good tenants to be asked to leave on two months’ notice for no apparent reason, it may be worth questioning how many landlords would be so capricious: a good tenant who looks after the property is immensely valuable and empty houses cost money,” she wrote in a blog post.
“The updated grounds in Schedule 2 attempt to redress the loss of section 21, but the fact remains that many of the grounds are only discretionary (the court may, but may not, order possession). All grounds, furthermore, are tied to specific conditions which must be met in order for the landlord to rely on them. The tenant can challenge the reasons given and require the landlord to prove them in court, before a possession order is granted. Given the added cost, delay and uncertainty this entails, it is possible this will deter landlords from letting in the first place, if they are unwilling to commit to a long-term arrangement with limited opportunities for regaining possession.”
“With 11 million tenants in England, it is hard to see how the court and tribunal systems are going to cope with the volume of applications,” added Earle.
Faced with over 160 current regulations to comply with and the prospect of further uncertainty as a result of this reform, The Royal Institute of Chartered Surveyors has said if the government doesn’t get its act together and give landlords more clarity when it comes further EPC requirements it could spell disaster.
“We would like to see joined-up thinking between new EPC measures and decent homes so that landlords can plan for the introduction of both and tenants know what to expect,” the organisation said.
As part of the reforms the government has removed the sixmonth shorthold tenancy effectively in favour of a rolling tenancy from day one with a tenant being able to serve notice that they are leaving as soon as the keys are handed over to move in.
“By not prescribing a minimum tenancy length the Government further risks fuelling a booming shortlets market, where holiday lets replace much needed permanent homes, at a time when the rental market is already suffering a significant lack of supply,” warned Ian Fletcher, director of policy, British Property Federation. The proposed removal of clear end dates for a tenancy has the potential to throw student landlord’s business model out of the window.
As the NRLA pointed out, in Scotland, where this part of the bill has effectively been introduced it has prompted a “student housing crisis”.
“By giving students the right to remain indefinitely, landlords would have no guarantee that their property would be free to rent at the start of the next academic year, making it impossible for them to find new tenants – and making it increasingly harder for new students to find somewhere to live.”
“In Scotland, where similar changes have already been made, landlords have left the sector in droves with many declaring a student housing crisis,” warns the organisation. So, while most landlords are not opposed to tenants enjoying more security and most of all safe housing and much of the Bill is indeed reasonable, there is a long way to go and a lot of track to be laid before it should be considered fit for purpose.
With inflation stubbornly high, interest rates squeezing margins or even seeing some make a loss, is the end nigh for property investment? Alex Daley looks at the facts and offers some solutions for those willing to stick at it.
The year is 2023 in post-apocalyptic Britain. You wade through dozens of used COVID masks as you get through your front door. Slamming it shut to keep the warm air in, the same warm air you’re hoping to keep in until the winter months to avoid having to put on the heating. Dinner is a little less enjoyable with the 50% extra you spend on the weekly shop. But you’re safe now, inside your home with the TV on. And anyway, you have a plan, a plan to make things a little bit more comfortable, a plan to build towards your retirement, a plan to build some kind of legacy. Property.
As the TV flashes on the first thing you see is the latest interest rate hike. We’ve somehow come off the back of almost two decades of historically low interest rates and now this. Have you missed the boat? And still, property prices haven’t crashed, but some guy on the TV 12 months ago said they’d come down by 20%?!
So, we’ve got mortgage interest rates north of 5% across the board, we’ve got house prices that still haven’t come considerably down and don’t even get me started on the government changes with tax and section 21.
Property. Dream. Over.
Or perhaps not?
Look, let’s not hide away from the fact that it’s a much tougher landscape now than it was a few years ago. It is though, possible to do very well investing in property and there’s no reason why you can’t do just that. Whether you’re looking at starting your property journey or considering whether you should expand or not - we’ve got you.
First, let’s remind ourselves of the challenges, of which there are... Well. Many.
Mortgage interest rates - your cost to finance your property purchase, previously was in the 2-3%s, now its over 5%. On an interest-only mortgage, this means you could be paying double what you’d have been paying two years ago. Ouch.
Stress tests - The lender’s test to see if the property stacks, based on purchase price, interest and rental income. With interest rates so high, lots of ‘deals’ just don’t stack anymore.
Section 24 - Lack of ability to claim interest on your mortgage as a business expense if you buy under your personal name. Note, you can purchase under a company (LTD) to continue to allow you to expense interest. This is though, slightly more expensive. A solid property accountant will be able to help get you on the right foot here, we recommend Astonia Associates but won’t shoot you if you look elsewhere.
Section 21 - The planned removal of the ability to evict a tenant without fault as England follows in Scotland’s footsteps. Renters (Reform) Bill - “A Bill to make provision changing the law about rented homes, including provision abolishing fixed term assured tenancies and assured shorthold tenancies; imposing obligations on landlords and others in relation to rented homes and temporary and supported accommodation; and for connected purposes.” (UK Parliament)
The bottom line is generally, the government hasn’t seemed to be
too kind to landlords, if that’s the direction things are going in, it may continue to get worse. What that means exactly is crystal ball territory and OTH’s ball is being serviced currently so we are unable to lean on that.
Warren Buffet is often quoted as saying ‘be greedy when others are fearful’, and that bloke knows a thing or two about building long-term wealth. Is now such a time? Let’s take off the fear goggles we’ve put on by watching the news and look at this properly. Why might you start your journey now? Or even, why might you continue to grow during these unsettled times?
The last two years have seen rental prices go higher than Snoop Dogg on a Friday night. And according to the Office of National Statistics, we’re still getting higher. Recording 4.4% in the 12 months prior to January 2023, up from 4.2% the year before. What’s also interesting to think about is if this landlord exodus which we keep hearing about does actually happen, there will be even less supply on the market. You don’t need an economics degree from Oxford to guess what might happen then.
Do the increased rental figures make up for the increased interest costs? Well maybe not quite the full whack, but it will certainly help see you through these increased cost years. And that’s what this is, of course, a long-term game. With rents going up currently by 4% per year and your annoyingly high mortgage rate locked in for 2-5 years, by the time you start getting to the tail end of your fixed term, the landscape has changed. Your rent roll is in a different place. Lendlord has a really neat deal stacking calculator where you can put in an annual rent increase of X% and see how that changes your deal.
If the giants of this world are buying and building rental properties, maybe this isn’t such a bad business after all. We learned in our build to rent article that Lloyds Banking Group are building 50,000 homes over the next ten years, Legal and General has over 5,000 apartments in operation or being built and Goldman Sachs group are buying up properties like there’s no tomorrow. So if you’re buying. You’re not in bad company. Goldman. Lloyds. You?
What’s your favourite dip?
We’ve been promised a dip for a while now. All those crystal ballers saying ‘this is the month’ each time the first of the month rolls around. If and when they’re finally right, if you’re in a growth stage in your property journey, it can be to your advantage. Baron Rothschild said the best time to buy is ‘when there is blood in the streets’. Having cash ready to be put to work if and when that happens, is not a bad plan at all.
Zoopla’s property advantage report from the end of June tells us that annual ‘house price inflation slowed to +1.2% as quarterly growth rate turns positive following pick-up in sales activity over Spring’ and goes on to say ‘UK house prices still on track to fall by up to 5% over 2023’
So, we promised you that we’d help you put in place what you need to build a portfolio that works in the worst years as well as the best, and here it is. It’s not quite an exact blueprint, but rather, general principles that if you implement, you won’t go *too* far wrong.
Principle 1: Be ultra-critical about what you buy. Realistically, right now, you need to stress test deals at least 8%. If a deal stacks at an 8% interest rate, you’re likely insulated against tough times. The first thing people say is ‘I can’t find anything that works at 8%’ and that’s fine, better to wait until something that works comes across than buy a bad deal. Most properties shouldn’t work for BTLs, don’t kid yourself.
Here is our simple beginner’s guide to stacking with a free stacking spreadsheet download to get you started.
Principle 2: Buy (or build) yourself a safety buffer. I like a bit of fat on my steak, but a tonne of fat in my deals.
Most BTL mortgages these days are 25% deposit, which means you hold 25% equity at the start (duh). If you buy properties that allow you to add value through renovation, and let’s say you now have 35-40% equity, you have a huge safety buffer. You may never need it, but should values drop to the extent that those YouTube experts say they will, you’ve protected yourself. And half the battle is protecting yourself. Buffett famously said - “The first rule of an investment is don’t lose money. And the second rule of an investment is don’t forget the first rule. And that’s all the rules there are.”
Should prices not drop that far, well you then have extra equity to pull out when you remortgage (whenever that is) and then you can go again, and again and again.
Of course, the other way to buy yourself an equity buffer is to negotiate hard - lowball and see who bites. This is the ‘below market value’ you see talked about all the time. It won’t work on every seller, but if they’re motivated and there’s not enough traction from buyers, you may have some luck. This does take time and likely making 100s of offers which will get rejected until you strike gold. (Want to be a deal closing ninja? Check out this article we compiled on all the latest expert negotiation advice and techniques.)
Let’s remember Wes’ advice in the BTL strategy piece: “Now more than ever you need to make sure you are able to add value to a property before you purchase. This can be in the shape of title splits, refurbishment, development or conversion. If you can’t add value
there is absolutely no point in purchasing it, it’ll leave you very exposed in the current economic climate.”
Before you undertake your first renovation project, make sure you learn from the master Martin Rapley, with this how to guide.
Most landlords are in the simple, vanilla, BTL game. It’s simple, predictable and has served many investors well for many years. As the market tightens, it’s worth considering other strategies as well.
Rick Gannon - who lives and dies by HMOs says: “Going into BTLs right now is going to be largely fruitless, with interest rates where they are and yields where they are, it doesn’t take a rocket scientist to work out you’re only making your yield in the portion outside of your mortgage.
HMOs and SA (serviced accommodation) have strong market opportunities. I don’t think HMOs will ever go away, it’s a really good, affordable option for tenants who want a transient lifestyle, they can budget, live with other people and get that communal living. It’s such a strong strategy.”
If you’re interested in HMOs, we did a info-packed two-piece series on the strategy in previous OTH issues. Part one can be found HERE and part two found HERE. And our service accommodation piece can be found HERE
Principle 4: Leverage, leverage, leverage
With interest rates going up, you’ve only to look on the Facebook group to see just how much focus there is on paying down mortgages or buying in cash. Which can work. But if you buy the right deals with leverage, you can far outperform unencumbered properties. Property Hub recently did a podcast where they uncovered some hard truths. The main one was on average, property has not outperformed inflation over the last 20 years. This means if you have a house with 100% equity, you’ve not beaten inflation. If you have 25, 30, 40% equity, however, you start to really outperform the ‘I’ word. Leverage, when used properly, is a game-changer.
We’ve never pretended to be economists, so we’ve brought in an expert to add his commentary on the big picture when it comes to the economics of the property world. Enter, Ytzen Van Der Werf, who is programme leader for MSc Real Estate Finance & Investment and senior lecturer at the University West of England.
“When assessing the property market or more specifically residential property prices, people often think that the only way is up. There are even schools of thought that claim prices could double every 10-15 years (see above). Of course, there are periods in history where prices (nearly) doubled over a short period of time (recently 1997-2007 and 20132021), but that is clearly not a long-term sustainable trend,” explains Van Der Werf.
He points to research that shows that house prices over a long term (i.e. more than 400 years) only rise with inflation but the question is when will inflation abate?
“Most of the inflationary rise is caused by high gas, energy and commodity prices. Gas is already back at pre-war levels, commodities are not yet. As a result, inflation is only coming down slowly, although most economists expect it to be substantially lower at the end of 2023,” says Van Der Werf.
“Albeit, in the long-term, house prices seem to grow in line with inflation, short term they are not affected by inflation in the same direction. Inflation clearly has a cost implication as well, which affects the owners of residential property as well as the disposable income of their client base, the 30-40% of society that is renting. Both effects are not positive in the short run.”
If Van Der Werf’s colleagues are accurate and inflation does cool later this year and into the next the market could start to look up again.
“This suggests that a lower inflation rate in 2024 might be positive for the residential rental market.”
“However, there is an economic indicator that is even more influential on residential property: the Bank of England interest rate and its derivatives, residential mortgage rates. Interest rates have increased exponentially over the last 18 months, and one could wonder whether the peak has been reached. This has clearly increased the cost of owning property (when financed) and this generally drives sale prices down.
“Rents are not necessarily a function of sale prices and yields,” continues Van Der Werf “…but tenants that are comparing the cost of living in a rental unit with buying their own dwelling might be enticed to switch to owneroccupier when sales prices are driven down further, and this move from the rental submarket might drive the rental prices down as well.”
“All the above is likely to happen in a market that is in equilibrium, in terms of demand and supply, and this is where the residential market seems to fail. The undersupply of residential property is, and has been over the last 20 years, very prevalent and this has been a very strong driving force for a healthy residential investment market. From the landlord’s point of view that is.”
The bottom line is that even though there are major forces at work in the property market that could drive down prices and rents in the short to medium term, fundamentals of the property market such as high demand, an expected increase in highly skilled immigration and economists predicting a cooling in inflation means investors with a longer-term perspective can still make property work to their advantage. Stick to good purchasing and deal-finding principles, always be stacking and if possible build cash reserves. Then you could well be very well-placed to take advantage of the fear and what could well be a buying opportunity of the decade.
Adapt to the challenges of the current market by sharpening your property deal-finding toolkit
In the ever-evolving world of property investment, leveraging technology to enhance your research process has never been more crucial. With a myriad of digital tools at our disposal, the ability to conduct in-depth research, analyse data, and remain organised is now more accessible than ever before, ensuring you stay ahead of the curve in a highly challenging market. Whether you’re new to the world of property investment or looking to up your game, this guide is designed to empower you as we delve into a range of powerful tools, from comprehensive data platforms to smart organisational aids, plus provide handy on-theground research hacks.
This fusion of digital prowess and ‘soft’ research skills will ensure you have a well-rounded understanding of your potential investments, ultimately leading to smarter investment decisions.
Rightmove & Zoopla: This pair hardly need any intro as they are UK’s leading property portals, offering extensive property listings and valuable insights into property prices, local amenities, and demographic data.
OnTheMarket: A less cluttered but equally powerful alternative to Rightmove and Zoopla, offering a user-friendly interface and extensive search options.
PropertyData: This platform aggregates various datasets including price trends, rental yield, and area analysis. It’s an excellent tool for the analytical investor seeking data-backed decisions.
Did you know? The average house price in the UK has more than tripled in the last two decades, according to the Land Registry. This underlines the importance of thorough research and choosing the right property at the right time. With all the tools and resources at your disposal today, smart investing can help you ride this wave of growth!
Property Log: A Google Chrome extension that tracks price changes on Rightmove, giving you an edge in price negotiations.
Buy to Let Group Facebook & Local Facebook Groups: Online communities provide a wealth of practical knowledge from experienced investors. Questions are answered, strategies are discussed, and you may even find potential deals.
Realyse: A comprehensive tool offering in-depth analysis of the UK’s residential and commercial property markets. It’s ideal for investors wanting to delve deeper into market trends and predictions.
Local Council Websites: Check out planning permission applications for neighbourhood insights. You can see what type of renovations others are doing and how often they get approved.
Companies House: For commercial properties, Companies House can provide you with important information about the companies that own or lease these properties.
Investment Property Forum: This community offers expert opinions, educational resources, and networking opportunities.
UK Crime Stats: Knowledge of local crime rates can influence rental yields and property values. Use this tool to make informed decisions.
Instant Street View: Using Google’s Street View this website allows you to instantly virtually walk around the property’s neighbourhood, offering a sense of the area’s atmosphere.
Website scraper: Tools like ParseHub can help automate data extraction from property websites, ideal for heavy-duty investors with large portfolios.
Viewber: An on-demand service offering property viewings and inspections by local agents across the UK. Ideal for remote investors, Viewber provides you with concise feedback and photos from each viewing.
What3words: This app divides the world into 3m squares and gives each a unique 3-word address, making it easy to pinpoint precise locations. Helpful if you’re meeting someone at a renovation site that doesn’t have a specific address yet.
Upwork: Hire researchers, data analysts, virtual assistants and many more to offload some of your research tasks.
Fiverr: Another excellent platform for hiring freelancers for tasks like property research, data entry or market analysis.
LinkedIn Learning or Coursera: These platforms offer online courses on property investment, market analysis, and even tools like Excel that could be critical to your investment research.
Property Deals Insight: This advanced property investment software tool can help in locating potential investments and conducting thorough market analysis.
Ahrefs or SEMRush: While traditionally used for SEO, these tools can also help you identify popular property-related searches and trends in your area, giving you an edge in understanding what renters or buyers are looking for.
IFTTT (If This Then That): A powerful tool for automating a wide range of digital tasks, like getting email alerts when new properties meeting your criteria are listed on estate agent websites.
Chat GPT-4: An AI model by OpenAI, capable of conducting data analysis and generating reports, saving you considerable time and effort.
Remember, the ultimate goal of using these tools is to make datadriven decisions, which is key to successful property investment. By leveraging these resources, you can save time, reduce risks, and potentially increase your returns on investment.
American industrialist and businessman, Andrew Carnegie, once said, “Ninety percent of all millionaires become so through owning real estate.”
Keep going, it will be worth it
While digital tools provide an invaluable resource, it’s essential not to neglect the ‘soft’ side of research. This is where you can gain qualitative data that can be just as crucial when evaluating a potential investment. Let’s explore some techniques for on-theground research and personal interaction.
Chat with estate agents: Local estate agents can be a rich source of information. They can provide insight into the local property market, upcoming trends, and valuable property leads. It takes time and consistency to cultivate good relationships and prove you are serious
Talk to Locals: The postman, the local shop owner, or neighbours can provide valuable insights into the neighbourhood, potential problem areas, and changes happening in the community.
Visit at different times: Visit potential areas during the day, night, and weekends to get a holistic view of the neighbourhood.
Local newspapers & community magazines: These sources often cover local news, developments, and issues that you may not find in online data.
Network at local property groups: Attend local property meet-ups and networking events to share experiences and get insider tips.
Attend local council meetings: Regular attendance at these meetings can provide a wealth of information about upcoming developments, community concerns, and demographic shifts.
Local market research: Check out the local shops, restaurants, and businesses. Are they thriving? What types of businesses are there? This can tell you a lot about the local economy and demographic.
Leverage personal networks: Don’t underestimate the power of your personal network. Friends, family, and acquaintances may have information about available properties, potential buyers or renters, or first-hand experiences with different neighbourhoods.
Consider the physical environment: Looking around at the state of local infrastructure, public spaces, and even the condition of other houses in the area can provide insights. Are streets clean? Are buildings well-maintained?
Building relationships with contractors: Contractors can provide insight into the cost of potential repairs or renovations and may also know about properties coming up for sale or those sitting vacant. How about house clearance companies? They will see properties that are likely going to be in probate. Incentivise trades people to bring you deals.
These soft skills and local interactions can provide insights that aren’t immediately evident from property listings or data sets. Combine this with your digital research for a comprehensive overview of your potential investment.
As your property investment journey progresses, you may find yourself wanting to create a system that brings potential deals to you. By employing certain tools and techniques, you can establish a ‘deal funnel’ that will do just that.
Set up property alerts: Most property portals like Rightmove, Zoopla, and OnTheMarket allow you to set up alerts for new properties matching your criteria.
Use a property sourcing agent: A professional sourcing agent can bring you deals that fit your criteria, often before they hit the open market. Make sure they’re registered with an appropriate governing body like The Property Ombudsman. Remember, do your own stacking and due diligence. Just because they say a deal stacks doesn’t make it a good prospect.
Network extensively: Attend property investment networking events, join online forums, and engage in social media groups. The more people in the industry who know what you’re looking for, the more potential deals that will come your way.
Direct mail campaigns: Sending letters to homeowners in your desired investment area can yield off-market deals. These campaigns can be targeted towards estates in probate, absentee owners, or properties in disrepair.
Vistaprint: Vistaprint offers direct mail services that can handle everything from design to distribution. You can use their templates or upload your own design, and they will print and send the mail for you.
Postary: Postary is another good choice for direct mail automation. They offer a variety of options for sending postcards or letters, with various customisable templates.
PPC and SEO Marketing: If you have a website, use Pay-Per-Click (PPC) and Search Engine Optimisation (SEO) strategies to attract potential sellers in your area.
Establish relationships with local estate agents: Regular communication and good relationships with estate agents can lead to tips on new listings or sellers eager to make a quick sale.
Property auctions: Keep an eye on property auction catalogs. These properties often represent good value and can be less competitive than the open market.
Use social media: Platforms like LinkedIn, Twitter or Facebook can be used to broadcast what kind of properties you’re looking for and to connect with potential sellers.
NimbusMaps: While not fully automating the process, NimbusMaps is a tool used widely in the UK for sourcing property data from public records. It can give you access to a wide range of data, including ownership details and property boundaries.
Land Registry: The UK Land Registry allows you to search for property ownership information. Automation of this process might need to be facilitated by custom scripts or by hiring a data entry freelancer through platforms like Upwork.
By effectively setting up your deal funnel and leveraging these tools and techniques, you can ensure that potential property deals are brought directly to you, saving you valuable time and resources.
Lastly, but by no means least, let’s consider the importance of staying organised. The most successful property investors are those who keep their research well-organised and easily accessible. Fortunately, we have numerous digital tools available to help with this.
In a 2019 survey by the Property Investment Network, 67% of UK property investors said that comprehensive research was the most important factor contributing to their success. This just goes to show the power of information in property investing. So, whether you’re a newcomer or a seasoned investor, it’s time to level up your research game!
Evernote, Microsoft OneNote and Notes on the iPhone: Keep your research organised using these note-taking apps. They allow you to store articles, images, and notes in one place, which can be accessed on multiple devices.
Trello: This project management tool is excellent for tracking potential properties through your research, viewing, and purchasing stages.
Google Drive or Dropbox: Use these cloud storage platforms to store all your property-related documents and share them easily with your team.
Slack: For team communication, Slack can provide organised, searchable conversations around each property in your portfolio.
Pocket: If you come across useful articles or reports during your research, Pocket can help you save them for later, even offline.
Zapier: This tool automates data flow between apps, such as adding Rightmove listings to your Trello board or saving articles from Pocket to Evernote.
By effectively capturing and organising your research, you can ensure that all of your valuable data is easily accessible, helping to streamline your decision-making process and keep your property investment journey on track.
The successful property investor leverages both digital tools and ‘soft’ research skills to gain a well-rounded understanding of potential investments. By making the most of the resources outlined in this guide, you can supercharge your property research and make informed, data-driven decisions that lead to successful property investment.
Alex Daley goes back to basics with a focus on the bed-rock strategy behind simple, as passive as they come, property investment. Plus, do they still work with interest rates on the rise?
Sometimes property isn’t super cool. Sometimes the numbers don’t appear to be life-changing (at first). Sometimes it’s not about the massive refurbs, pulling 117% of your initial investment back out, going full time and all that.. Stuff. For the vast majority of readers, whether experienced, early staged or even soon-to-be investors - basic, vanilla, buy to lets (BTL) will be the chosen strategy. There’s less hassle than HMOs, certainly less stress than serviced accommodation and a lot less capital intensive compared to big commercial to residential.
The reality is, many areas around the UK will have plenty of properties on the market that will work for BTLs - whether you’re looking at doing a fair bit of work to properties to raise their value before you rent out or if it’s just a light refurb or even a ready-to-rent number.
As far as initial cash is concerned, excluding rent-to-rent and sourcing, simple BTLs are likely the least capital-intensive properties you’ll find. Especially if you start looking to the north of the UK. On-going maintenance is much lower than higher traffic strategies like HMOs and serviced accommodation
where you’re providing places fully furnished and there’s less of a ‘home’ mentality when it comes to taking care of the place (generalising of course). This means as a model, it’s arguably the best if you’re seeking predictable income. But as interest rates sit higher than we’ve been used to for a good long time, profit margins get squeezed. Are they still able to stack up as the right strategy for most investors who seek a balance between good profits and less hassle?
We think so. Although not all will work. Two years ago most properties stacked up to do quite well as BTLs. Interest rates were sitting below 3% which was a curse as well as a gift. It meant that investors were sucked into deals that wouldn’t hold up in their own right when rates rose. The art of finding good deals became, for a few years, less important. Simply because everything worked. Where this strategy article differs from our previous ones (serviced accommodation, commercial investing) is that we don’t need to spend time explaining what a BTL is. Instead, we can focus on what it takes to build a BTL portfolio that does well when times are tough as well as when things are great.
So, how do we make BTLs work in 2023? We’ve got you covered and we’ll also lean on Buy To Let Facebook group founder Wes, to weigh in on a few points. We call this, ‘Wes says’ - whether it sticks or not depends on how easily amused we all are.
Whilst it can be tempting to buy properties which are ready to rock and roll, there can be a lot of benefits (both short and mid-term) in buying properties with a bit of work needed. As long as that work is reflected in the price and you have the opportunity to raise the value. That doesn’t need to be extensive renovations, but in many properties, a new bathroom, new kitchen, carpets and a once over with a paint roller can be all you need for a good value increase. This means you’ve got a more expensive house (and all the perks that come with it) for a much lower entry point. As well as an equity buffer. And who doesn’t love an equity buffer? You *must* make sure there’s fat in the deal though, you can’t buy a property that needs work at the same price as a property that’s ready. It sounds obvious but often people just assume because a house needs work, that it’s a good deal. Wes says: “Now more than ever you need to make sure you are able to add value to a property before you purchase.
This can be in the shape of title splits, refurbishment, development or conversion. If you can’t add value there is absolutely no point in purchasing this, it’ll leave you very exposed in the current economic climate.” Be selective about what you buy, and make offers, lots of them.
This is probably the main strategy point. ‘You make your money when you buy’ is a phrase thrown around from time to time. And it’s spot on. Choose the right properties and you can make it work. We spoke about stress testing in the last beginner’s corner article, but it’s worth touching on that again here. We’d suggest stress-testing your deals with interest rates of at least 8%. If your deal cashflows (produces excess income after finance, costs and maintenance) at 8% interest rates then you’re looking at a property that can likely survive the ups and downs of the market over the years. This will likely mean most of the properties you look at won’t work, and that’s fine. Not every property should work. Properties close to working can still be looked at, you just need to get a price that the property works for you on.
This brings us to the second point within this. Offer, offer and offer more. Those properties on the fringe of working are still worth a shot, at prices that work. Some investors actually set targets for the number of rejected offers to accepted, ie 10 rejected to 1 accepted. For them, this shows their offers are low enough.
Wes weighs in: “Bog standard properties no longer stack and with stricter lending criteria, banks won’t even entertain this… A
few years ago we were told we were mad for stress testing our acquisitions at 7%. We now use a 9% metric. That way we know there is meat on the bone. Most will say that’s not viable. My answer to that will be - ‘ you need to find better deals’!”
We’ve spoken about this in the past, if you can invest locally to you, there’s very little reason not to do so - unless you don’t want to bump into your tenants in Aldi. As investing becomes harder, it may be that you need to extend your search in order to find properties that work. Instead of within 30 mins from your home, that may mean 60 mins. In the grand scheme of things, the extra travel time isn’t the end of the world, especially if the alternative is a property that actually doesn’t really stack up. Wes’ way: “Again this will certainly help cast a bigger net. Due to the market shift in lending criteria, it is more challenging to find deals that in fact will work in the current climate. By moving further afield you are certainly giving yourself a better chance however be prepared for the challenges which come with managing property remotely.”
We discussed rental increases all the way back in issue 3, rent increases (which are done by many investors annually) are a great way of improving the performance of your properties over time. With UK rental figures increasing annually by 4.4% and most mortgages fixed for two-five years, it’s not crazy to expect your first year to be your most tight when it comes to profit margins and if you opt to increase rents annually, over the years, your investment will perform better and better. Of course that means selecting the right tenants, tenants who are more comfortable with income stress tests at the start and likely won’t be as stretched when rents are increased. And so tenant selection, as always, is at the heart of building a predictable, profitable property business.
Sure, this isn’t the complete guide to making BTLs work in 2023 and beyond. It is, however, the outline of a business plan that can give you a good chance of success, something to tip the odds firmly in your favour. But make no mistake, many landlords aren’t making a lot of money right now. Many have really struggled since the interest rate hikes. It’s not a license to print money, but it can be a great way of doing so if you get the basics right and set your business up for success from the beginning.
As always, if you want any further advice, the team are always here to help.
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Your Host: Kevin Wright
The UK’s No.1 Property Finance Expert
Kevin Wright has been described as ‘outrageously positive’ – partly because of his positive approach to property finance, but in 2016 he applied his positive strategies and took just two months to beat cancer.
His passion for property led him to specialise in brokering finance for property investors and it is this 20 + years brokering background that makes his fully-fledged, well established training business, unique in that it is designed to educate investors to play that bigger game in property - but with their current resources.
In property, you learn three ways - through research, through others who have been there and by doing. We can help you with the former but the doing is down to you. Now, when it comes to learning from others that is where our new column - What I’ve learned - comes in. We sit down and mentally ring the mindsponge of a long-term investor to find out what works and what doesn’t
In the first of these OTH Magazine met up with Ryan Windsor, a Cambridge-based property business owner with an impressive portfolio and story. You may recognise Ryan as the Director of HMO Architect (www.hmo-architect.com), an architectural firm focusing on, surprise, surprise, HMOs.
OTH: Ryan, thanks for sitting down with us, let’s start right at the beginning, how did it all kick off for you?
I don’t come from an affluent family with lots of money. When I was in college I got an interest in property from watching homes under the hammer and shows like that. It got me thinking about how I could support myself and about property in general.
An opportunity appeared with my next-door neighbour who was going through a divorce, I was about 17 and I went to the owner
and asked if they’d sell their house if I could find someone to buy the property quickly. Being 17, obviously, I didn’t have too much money so I thought I’d pitch it to my sister, I convinced her to buy it but she didn’t quite have enough money. So I “angled” her the rest of the money before I knew what angel investing was, for a fixed return. It was a really good deal, a three-bed terrace in Norfolk, worth about £110,000 at the time, and the guy sold it to her for £85,000 as a quick deal. So, already she’d made a bit of money. It didn’t need much work and so she rented it out. And I thought, damn, what if I could have bought that myself?
(NB: Angel investing is when someone funds part/all of the deal. In this case, for a fixed return.)
Property is problem solving. You can’t take no for an answer, find a way to fund your next deal.
OTH: And where did you go from there?
Fast forward nine months, a house on the next street across came up for sale and we made a bid for it, being 18 I couldn’t get access to mortgage products, so I proposed a joint venture with my sister. With her being older than me I let her take the lead on things. This was probably one of my first lessons. She wanted to do a really good job with the renovation, but we probably ended up doing too good of a job. We renovated the full house from top to bottom… Instead of putting down normal tiles, we were getting people in to do custom mosaic designs and that absolutely ballooned the costs. It just didn’t match the type of tenant we were putting into the property.
I’d recommend anyone doing work, to assess their market, don’t over spec and don’t overspend. That could be online, mystery shopping, speaking with agents and other landlords - getting direction from them.
Don’t overspec your renovation. Know your market and the level it demands.
I continued to buy, my next deal was an off-market deal, this was through the start of the ‘07 recession. A lot of people were telling me I was a bit crazy to invest because prices have gone down. But it’s the contrarian investor isn’t it, you buy when prices are low and sell when prices are high. These were the days when you could
Good investors are always looking for deals in any market. Don’t wait for better conditions, find better deals.
Over a few years, I carved a niche in the town I was investing in. I was renting to a lot of migrant workers. It even got to the point where they were bringing me properties to look at to buy and asking if I’d rent to their friends. Many of the tenants are still there, my average tenancy length across my portfolio is around nine years. (For single lets).
In fact, there was a bit of a lifecycle when I moved into HMOs, my HMO tenants would meet people in the town, want to
move in with them and they’d end up in one of my single lets. I’m now toying with the idea of offloading one property a year to the tenants, making use of capital gains allowances, I carry some cash and re-adjust the portfolio.
OTH: That all sounds like very quick growth, what allowed you to grow so quickly?
It was all down to timing, I was investing outside of London at a time when prices were right down, and I was buying £110k houses for £60k, so you’re not talking about huge sums of money. I was looking to go broke every few months. Now, I’ve worked on getting a lower loan to value across my portfolio due to S24
put down a 10% deposit, so I put all of my savings and income into it.
Purchase price: £62,500
Reno roughly £15,000
Most of my renovations in the early stages were £10-20k for basic single lets.
Over the years I’d just buy when I could. Not many people were buying at the time so there were lots of opportunities. I ran the calculations and was happy with what I saw. People weren’t buying as much but rents were going up. With tighter lending and fewer people buying, people still need to live somewhere, so it fuels the demand in the rental market.
Be adaptable. Markets, regulations and demand are constantly in flux. You may find you have to adapt your strategy or approach to continue to succeed.
OTH: OK interesting, I guess that brings us nicely to what the future outlook is?
I’m currently looking at incorporating the portfolio. I’ve set up a company and am buying through it, but I still have a big chunk in my own name. I’m looking at land currently, that’s quite interesting. Especially with an architectural practice. Some flips. And HMOs, if done right, they’re still incredibly profitable. If it’s a really good single let, we can’t say no.
We’ve been exploring doing some deals, me and Giovanni (his business partner), it just makes sense, we’re together with work so much, we might as well combine our resources. I have quite an ambitious goal with our joint developments. We want my partner and I, and Giovanni and his wife, to have 31 properties each within the portfolio, so effectively we’d get paid in the longest months, every single day from the properties.
One thing every investor faces is running out of cash, so I’d rather pick up a property that we know we can convert to an HMO in the future. Secure it, run it as a single let to get some cash, pick up a few more, and as we’re doing that, start to go through the design and planning process to convert to HMOs.
OTH: You mentioned before overspending on your renovations, what other big learning have you made?
- I should have been more aggressive in buying. I realise now how lucky I was when I was buying.
Although it isn’t the same now, if you can assess the risk correctly, do your due diligence, and work with the experts to make sure it all stacks… Always do things right, get the right advice on compliance, work with the council, and build a relationship there.
Do your due diligence and get someone experienced to look over your homework.
- I would have talked to more people about it earlier, speaking with family etc to get more investment and support them.
Don’t keep it to yourself. Networking is an important part of property businesses so you can’t be shy.
Anticipate regulations changing, and overspec in those areas.
Keep on top of impending red tape to avoid being tangled up in it!
Awar chest, contingency fund, cash buffer - whatever you call it, it can serve as that protection to your business to see yourself through those sticky situations which inevitably crop up. Be it a major roof leak, burst pipe or three boilers dying in two weeks.
But how much cash buffer do you need to feel at ease? Or is holding tens of thousands for a rainy day just poor asset allocation? Let’s hear from a few investors to see what others are doing and what we might learn.
LEE SCOTTLee, who we’ll remember from the article on predicting maintenance costs says:
“In the early days, I’d always make sure I had a few month’s rent worth of cover and target around £10,000 in the cash pot. As time goes on and businesses mature (referring to his other businesses as well as the property business) that’s changed.
Now, I let the funds build up until I’ve got enough money for another deposit. That could be £35k or if the right deal comes along I’ll wipe that down. I’ve got other revenue streams which means I’m not really scared about wiping that account down. This is just how any business goes, your approach and risk change over time.
There’s also something to be said about overcoming the urge to spend for the sake of spending. I’m currently sitting on well over £100k from an accumulation of rent due to the lack of deals available. The money just sits in an easy-access account earning 3.7%. As much as that return in property seems extremely low, The last time I was in this position I picked up a great deal requiring 14-day completion. £84,000 purchase, £14,000 refurb, £4,000 fees. GDV £155,000, Pre-tax profit of £47,000 in just 8 weeks.”
“I’d love to say I have a hard and fast rule about cash buffers and that I keep a certain percentage for each property in reserve but, to be honest, I just try to maintain between £5-£10K in my account. This nice round figure helps me feel comfortable and then I know that I can cover most eventualities. Plus, Wes’ words, delivered as part of the RoundTable Mastermind Group, have stuck with me (paraphrasing, sorry Wes)money in your account does nothing for you, so you need to put those little soldiers to work. Instead, he suggested ensuring you know where you could get credit or funds in a pinch. When it comes to this, I have a stock portfolio in an ISA that I can tap into if really needed, credit cards and an on-the-ball broker who could help me release equity. That all helps me sleep at night. I do, however, factor 12% in costs per annum for maintenance when deal stacking after this eye-opening piece Alex previously wrote on the subject.”
“As a cash buffer we always put aside 10% of gross rent. This has always been enough to cover maintenance issues. We also have a very healthy credit limit should we need access to the extra resource. At the end of the year the surplus funds (if there are any) will be reinvested the following year. With the current economic climate, I would strongly recommend building additional credit lines as you never know when you will need this as an option.”
“I enjoy managing my properties even though I never contemplated doing so in the beginning. I like to have a cash buffer of £2,000 per property. Even I couldn’t be so unlucky to have all five boilers go at once…. Could I?”
“On the general maintenance side of things, I factor in a 10% contingency on the income for all of my properties, so if I have £1,200 rent coming in, I would set aside £120 to cover any repairs or maintenance that come up and that is automatically factored into my costs each month. Most months I don’t need the full amount, but for unforeseen circumstances and to be conservative with my number, it’s there.
I also think it makes sense to keep aside a rainy day fund for any major expenses like boilers, roofs, tenants leaving, etc. Of course, it’s unlikely that everything will go wrong in one week or month so based on the size of my portfolio, I keep aside enough to cover a couple of major issues if they occurred at once. I would never want to be in a position where I didn’t have enough funds to replace a couple of boilers at short notice or handle a couple of properties having a void - for the current size of my portfolio that means keeping at least £10k aside.”
And so there we have it, a few opinions from a few people. What works for you will vary, depending on your portfolio, your outside of property cash flow and just how willing you are to empty your account should the right deal come across your desk. If you’re taking on properties and renovating them fully, the chance of large maintenance bills is much lower. If you’re sitting on assets that are due a new boiler and have questionable roofs, you obviously need to take that into account. The reality is, there is no set amount you need, there’s no magic number or formula but this should give you some context as to what others are doing that are playing the same game of real life monopoly as you.
This community-minded redevelopment breathed a huge new lease of life into a former 35-bedroom care home – not bad for a mother and daughter duo with limited experience and one of whom lives on another continent.
We met Paula and Natalie in the last issue of ON THE HOUSE Magazine and you can read more about their sociallyminded property journey here. In this issue, they take us behind the scenes at Wamil Court – a major undertaking with plenty of twists and turns along the way, including ones of the Chiroptera (batty) kind!
OTH: Thank you very much for talking through this fascinating project with me. Tell me about Wamil Court and how it was sourced to start off with?
It was brought to us by an estate agent, so it was an on-market deal… We did still have to do all the negotiating and everything else, but it was brought to us.
OTH: Is that an estate agent you had a relationship with already?
Natalie: The agent was known to us, but it wasn’t one that they had at their agency. It wasn’t one they were selling. I think they might have got a bit of a fee for the intro…
Paula: [When it comes to deal finding] relationships are so important and building them all along the way is key because you never know. It doesn’t matter who you’ve been involved with throughout, if they know that that’s what you’re doing and you’re looking to do more deals then if they hear of something, they’ll let you know.
OTH: So, Wamil Court – it is former care home right?
Natalie: It was a 35-bedroom care home, decommissioned in 2015 and from there it was left empty. It was no longer fit for purpose.
All the residents from there went off to a shiny new one and this was left to become overgrown and to become not a total eyesore but obviously it’s not great and it’s not what the neighbours wanted. So, they were absolutely thrilled when they started seeing us turn up and saying what we were going to do with it.
OTH: What attracted you to the project? What did you do due diligence wise?
Paula: One of the things we really liked about this project was that it was very community-based. It’s got three courtyards and sits really nicely in the town - walking distance to the town centre. We thought that it would be a really nice project bringing back that old school feel of where people could get to know their neighbours and having that space where they can get together, as hopefully a community.
Natalie: We even put that into our offer, explained our community intent and why this particular purchase was one that we wanted. Hopefully, it swayed them a bit. We also did, a lot of research with five or six agents in the area as well to know the demand, both from a sales and rentals perspective. And then when we got going, but we also did a couple of public exhibitions as well.
OTH: Like a town hall type event?
Natalie: Yeah, basically. We used a local community hall and leafleted the area and businesses inviting them all along to show them what we were doing, our plans. I think we had computergenerated artwork by then. What we were obviously doing there was trying to overcome any objections early on.
OTH: Did it work? Were there any people who showed up and were objecting to it?
Natalie: We got lots of people turn up and we got one objection all the way throughout [the project]. I think straight away there was a couple of questions relating to demolishing it and we said, no, we’re building in the same footprint. It’s then immediately that person was like. ‘Oh, that’s all right then.’ I think he was just worried that he was suddenly going to get a high rise there or something that just wouldn’t have suited the area.
Paula: We did two of them. We also had a meeting with the town hall, as well as, The Parish Council. All of that aided the planning and with the one objection we got was actually in relation to traffic to the site. So we did an awful lot of research and surveys and part of that obviously demonstrated that there won’t be any more traffic now, to when there was a 35 bed care home.
OTH: That was working with your planning consultant?
Paula: You need an excellent planning consultant. It’s a place you shouldn’t, you absolutely shouldn’t scrimp. Definitely do not do that yourself. Get someone with a track record who knows their stuff.
OTH: Were there any sort of risks when you’re assessing this deal that you were mitigating for?
Natalie: Well, any time you put a planning application in, there’s always risk because you just don’t know for sure which way it is going to go. You have to be willing to take that risk when you come to do deals like this. There wasn’t as big a risk with this one because it had already been earmarked for residential. Now they didn’t have it earmarked for as many residential as we put on it, but they did have it earmarked for residential. So, in one sense, we went into this knowing we were very likely to get planning permission.
OTH: Was there a way that you purchased it to mitigate that risk? For example, a purchase lease option?
Paula: Well, no we didn’t, but what we did have was a delayed completion and in that timeframe we worked on getting planning permission. So, thankfully, that saved us a lot of money because the delay allowed time for permission to come through, that would’ve obviously meant we were paying out on a building that whole time otherwise. So that was a way of mitigating the risk.
Natalie: There was a hiccup though with the planning which caused a delay and that was down to a bats survey that needed verifying. Yes, so of the many, surveys that were done, one of them was an environmental and they popped up into the roof and I think they found one, potentially two droppings, in a 20,000 square foot building! And on the basis of that, planning got delayed by six months just to see if any bats showed up!
OTH: Batty! Sorry, couldn’t resist!... Ok, so how about the build process? Any hiccups along the way?
Natalie: The build, yeah, there were hiccups. It was a conversion so once you start peeling back the layers of the building, you’re not gonna really know until you do that. We had an issue with the roof which we’d discovered early on, which we knew early on we were gonna have to replace anyway. So luckily that was already built in. But once we started to do that we found it was asbestos basically within the wool within the cavity, which we wouldn’t have found if we weren’t taking out the windows and things like that. That mucked up a good three week’s worth of work because there’s a specific way of dealing with that. Then we had other hiccups to do with subcontractors really kind of mucking you around, not getting stuff on site. The main contractor was then the one that had to deal with that, but obviously you still have an obligation to be pushing them along whilst they’re pushing the subbies. And that was also linked to another issue we had which was to do with the easements for utilities on site and the legals behind that. So that wasn’t as straightforward as you might think, you know, given that utilities are necessary for homes and we thought people would just go, oh yeah, let’s just tick that off. But that again took several weeks because of how many different people it had to go through.
OTH: So, coming back to the costs… I’m curious how on such a major project like this you work out how much you’re going to offer based on how much the work’s going to be when you didn’t have the experience…?
Paula: So, we had advice from our mentors on this project, what, you know, what a typical costing would be and getting an idea from them. So that helped us before we decided to make the offer and going through different levels and lines and spreadsheets with them. Then thereafter we went through the tender process and then when we got the project manager, he’s obviously helped us with forecasting for the rest of the project.
Natalie: When the main contractor is confirmed you put together a schedule of works for him or he puts together a schedule of works from there, project manage perspective. That was the point. I knew I was out of my depth when I couldn’t do it. If you don’t know, ask!
OTH: Was the plan always to sell the houses?
Paula: Yes. Funnily enough. We had the reservation through today for the final one! So they’re all sold. (The ladies have since informed us that two sales have fallen through - See biggest lessons overleaf)
OTH: Congratulations.
Paula: Thank you.
OTH: Had you ever considered rental as an exit?
Natalie: We did. And part of the reason for that is you need multiple exits in case things go wrong, so we did factor that in. There is a strong rental market in that area and for many reasons, but ultimately we wanted to sell so we could then reinvest. Yeah. It is a strong rental market there as well. So yeah, we did do those numbers too.
OTH: What were the key learning points from the project?
Natalie: It is very important one to know who you’re working with and foster those relationships with those key people so that you can get things done. If you are getting frustrated, things are taking time and there’s this delay and that delay and you are getting angry or frustrated, that’s not gonna get you anywhere. So, knowing how to manage your emotions and you know, realise that you can’t control the outside, but you can control what you do and how you respond. So if you have a strong relationship with those people, things are gonna move along a lot smoother.
Paula: Always allow more time and more funds because everything is always delayed and everything costs more than you expect it to.
OTH: So, lots of stress but an equal amount of success in the end… Will you do it again?
Natalie: Oh definitely. A hundred percent. That’s the thing, It’s doesn’t matter how many extra grey hairs I now have, I have loved this project and very much want to do it again. Very much want to build more houses. And you know, the community intent, it’s not just a little tagline for us. It means something. It’s importantsupplying homes, good homes for people. We know not enough homes are being built and in a small way contributing to making a world a better place. I was also on site an awful lot so I saw things first-hand. I would recommend that you don’t just leave it to the[tradespeople]
OTH: Tell us a little bit more about the motives behind community element to your developments
Paula: We did some research into this and back I think in 2017 there were nine million people in the UK that had spoken out about being lonely. Now that’s at 27 million and there’s something like 60 million people in the UK so that’s an enormous figure and that’s obviously been worsened over the past three years with lockdowns and isolation and people being like forced apart. So, part of what we want to do is to combat that because it’s not a nice place to be to be lonely and we are better together. That is our message because people need people and property being a very relationship-, people-driven purpose you can combine the two. We can do that by creating nice community, places for people to live and that is very much key to the next project.
THE NUMBERS
Purchase price £900,000
Stamp duty £35,000
Section 106 Payment £220,000
Build and legal £4,000,000
Estimated GDV £5,800,000
Actual GDV £6,200,000 (with 2 sales to complete)
Australian Michael Ferraro has been involved in property all his life but found his first new-build joint venture project was a mix of highs and lows as Covid, Brexit and soaring costs added to the challenges…
OTH: Thanks very much for sitting down for five minutes with OTH Magazine. Can we start with just a little about your property journey so far?
So, I’ve always had an interest in doing property investing probably since I was a youngster and probably got talked out of it by the elders in my life. You know, parents and friends and family, whatever, being quite negative towards getting into debt and doing all those crazy things. I think most people in the older generations are quite risk adverse. But yeah, so I started in Australia, where I bought my first investment property, it was probably 20 years ago I guess. And then I decided to do something in the UK because I arrived here in 2010. That would have been about 2017 or 2018. So, I haven’t been in the game here that long, but I have been working in the space of property and construction all my life really.
OTH: So, you’re focusing on London where yields have been quite challenging? Is it normally flips that you’re looking at?
Yeah, this one probably wasn’t set up as a flip. It was probably set up to keep, but to be perfectly honest you know, let’s not deviate from facts, interest rates have gone to levels unseen for 10 or so years now. We’re now in uncharted territory. I guess the days of milk and honey are over when it comes to finance.
When it comes to keeping the property [renting it out] the numbers stack up. They’re still okay, not as good as they obviously could have been. We’ve obviously seen a large increase in costs over the past two years during the project, no builder was going still build a house when things like labour and materials go up, 30%-40% on some items. Everything’s just gone up, so we’ve just had to ride that storm.
OTH: It’s certainly been challenging and unpredictable in recent years. How did you source the land for these two new builds?
My friends at BlueCrest Land - who you’ve probably looked up, Robbie and Brent (I know Brent from the gym) - were looking to do a project and we were in a position to do something, so we decided to work together. How did we source it? Well, I live in Southwest London basically and I am local to where we were looking and we found a couple of plots. We were looking to buy a house and maybe buy one to live in and renovate or do something like that. We ended up just finding this one online. It had some planning permission in place to knock it down and do these two plots. With the planning permission already in place we paid a little bit more for the plot - £1.28 million for the house that existed on the plot. Obviously, that was then a knockdown to build two houses. You know, our costs went from a provisional cost of £1.65 million to, in the end, £2.4-£2.5 million. Okay. So yeah, as you can see, with those numbers, they are very different from where they were in the beginning.
OTH: Well, thanks for being so candid as it helps our investor readers get a real perspective of the ups and downs of the development process. What attracted you to the prospect in the first place?
It’s in a great location. You can build a beautiful house in a really crap location and you know, it’s kind of just a house, isn’t it? But if it’s in a good location, then it just attracts more attention. Then the numbers in the beginning looked like it was a really good investment to either keep and rent - we’ve seen rents go up as well. So, even the rental return on this now has changed a lot as well. We’ve now had rentals appraisal of £12-£13 K per month, whereas in the beginning we were looking at £7-£8K, so it’s gone up substantially. People do want to pay top dollar for a rental property if it’s in a great location.
OTH: Ok, talk me through the early process after completion. Did you decide to follow the planning that was already in place?
The first part of the puzzle was obviously finding a lender to actually finance the deal. We got CapitalRise on board who aren’t a mainstream lender, more of a boutique lender, who lend on highend developments. Obviously, sourcing that was priority. We had to basically redesign the entire house from an internal layout perspective and go back to planning, change the entrance on one of the plots. Planning wise, there wasn’t a lot of challenges, but there were knock backs on building the corner of the plot out because the neighbours at the time and the surrounding people thought the property would be too overbearing.
OTH: Did that scale back cost you?
When you look back at what we wanted to try and build out in the corner and things like that, getting knocked back, you’re like, well that’s what? 10 square meters of real estate? In that area, if you can build it out for £50K on paper it’s probably worth £100K+.
OTH: Fair enough, this project was also all during the pandemic, that must have presented a major challenge too? Well, we were quite lucky actually. Obviously, the construction industry wasn’t immune to, I guess works halting to a certain point - if someone got Covid then you know, the whole site had to shut down. But we were quite lucky, [the builders] followed the rules and the regulations of what the government was wanting us to do and we didn’t have too many pauses because of Covid. I think the main issues we faced with the financial impacts of materials and labour costs soaring. You know, we had obviously Brexit and that sort of thing that had come into play with a lot of the Eastern European labour force exiting the UK and then forcing labour costs to go in another direction. No builder’s going to build out a plot for the same price he quoted it [when these factors change] and he will lose money… So the main challenge was just financial, trying to basically get the remaining cash required. We did in the end by just rejigging some finance on some of our existing houses that we’ve got - we found the money, we’ve got it over the line. We’ve got to PC (practical completion), and we’ve got our shirts on, you know!
The budget to build it out was in the region of £1.7 million and then we ended up, I think the bill cost was just shy of £2.4 million in the end. There were delays because the of Covid, it obviously ran over time as well. We were supposed to be finished within 15 months and it ended up taking two years.
OTH: How does the ARV stack up to what you expected now the houses are finished?
I think the original ARV was £2 million per plot so £4 million in total. Recently, though the bank’s valuations changed substantially. We got a bank valuation during the development again to do the refinance and it got valued at £2.45 million (per plot). And then the most current valuation we had on a new refinance they were valued at £2.65 million.
OTH: So, very challenging, but well worth it in the end then!
Look, you know yeah, that’s obviously on paper and that’s a bank valuation, it hasn’t sold for £2.6 million yet. It’ only worth what someone’s willing to pay for it.
OTH: So now you are at the finish line with this project, are there any key learnings that you will take away from it for the next project?
This has just been a fantastic experience. Hands down, I’ve learned a lot because I’ve never done anything on this scale before. Like, you know, doing an extension, loft conversion or doing a refurb, you can be all over that but actually knocking down a house and building from scratch just, you learn a lot about the different phases and how it gets put together. We had to appoint a main contractor because we weren’t able to build it out ourselves and I couldn’t be the main contractor because the lenders were a bit like you don’t really have that much experience doing a big development like this, so we’re not really comfortable you doing it as a self-build. Which then means you’re then paying like probably at least 10% more on the build and lose quite a substantial amount of money on the build. So, learnings? It helped build character, just really now having it on my CV and knowing I can do it.
THE NUMBERS
Purchase price
£1,280,000
Estimated costs
£1,650,000
Actual costs
£2,500,000
Estimated rental
£13,000
Bank valuation
£2,600,000 (per plot)
Welcome to beginner’s corner - Each issue in this special section of ON THE HOUSE Magazine we will deep dive into an important step that will help newbie investors on their way to being fully-fledged property investors.
Debt is bad. To some that concept has been drummed into them from the first time they were able to open a savings account. Well, if you are going to get a foothold in the property game, you need to unlearn that fast and get comfortable with (carefully controlled) leverage. Alex Daley looks at how you can find the funds for your first foray into property investing.
So you know what strategy you’re doing, you know where you’ll be investing and you know how to see if your deal stacks - it’s time to break open that piggy bank and spend some money. Today we’re going to walk you through how to finance your deal, from getting your deposit money to what types of loans you might want to look at, it’s all here. Well, we say ‘all’, if you’re hoping for the secrets to finding dozens of angel investors wanting to throw money at you for your first projects - that won’t be here. Someone’s probably managed it, is it something we’d be experienced to talk about? Nope. Is it something that every reader of this is going to be able to replicate? Nope. So we’ll leave that for the weekend courses with paid ‘audience members’ running to the back to start the course buying frenzy on the final day. Here we stick to the basics, the stuff you can do time after time without much trouble. Obviously, we’ve asked an expert to weigh in throughout, enter, Paul Davies Partner and Senior Commercial Broker from Ramsay and White.
Before we kick off, something to keep in mind from Paul: “It’s not always about the cheapest rate. It might be about speed, property type, or company structure. A good broker will help.”
Some of you may be in a position where you have a large amount of cash at your disposal. You might look at buying in cash especially if you are focusing on run-down properties and you’re looking to follow the BRRR (Buy, refurbish, refinance, rent) strategy. If you have the cash to do this, and then remortgage to release the cash back once the property is done up, this can be a great method. (Pro tip: make sure they are mortgageable even if you are buying cash!)
Most people won’t have that kind of money at the start though, luckily, as long as you’ve got 25%, you’ll likely be just fine. What type of financing route you chose to go down is dependent on your chosen
strategy. If you’re going down the BRRR route, many recommend starting on a bridging loan and then refinancing out of that after the renovation is done and you can get a mortgage (often around six months). The property needs to be run down enough for you to raise the value to make this worthwhile as it’s certainly not the cheapest options.
You will likely have to factor in two lots of broker fees, two lots of solicitor fees, higher interest rates than a mortgage, arrangement fees, holding costs during the renovation - the list goes on. That said, raise the value enough, and you can release a good chunk of your initial invested money which sends your ROI sky-high.
Bridging can sound like a risky path to go down, Paul says.
“It can be scary if you listen to social media or John down the pub. The key is understanding all costs and associated costs to the deal not just the loan.”
He says you need to keep in mind:
1. What is the purchase price, cost of works, gross development value or GDV (what will it be worth at the end of the job?)
2. How long will the work take?
3. Two points of exit. Sale and exit, are you in a position to do both?
4. Builders - Are they ready to go? Have you seen their work?
5. Do you have time to be hands on?
For those looking at more ‘turn key’ or light renovation properties, perhaps the properties that you can buy, change the carpets and give it a once over with a paint roller, for those properties you may look to go straight onto a BTL mortgage. You have less opportunity to recycle your money quickly (having to wait two-five years for your next refinance) BUT, for those who are looking for less complex deals due to busy enough lives and being happy with still solid but slightly less amazing returns, this is a great option.
An important side note here, the product you choose may also depend on your plan with the property. Strictly speaking, you’re not supposed to do major renovation works on a standard BTL mortgage. So in theory, choosing the wrong product could land you in hot water. And on that note, you obviously can’t get a personal residential mortgage with the intention of renting it out as a BTL. You’re not the first to think of that, these billion-pound banks are smart enough to not let that happen, don’t even bother.
Paul says: “If you’re looking to buy something on a BTL and then add value and refinance then you are pretty much committing mortgage fraud and you run the risk of being blacklisted by that lender. As an investor, you’re trying to make a business out of this, why would you cut corners? Seek professional advice.”
Some people will also seek lending from family/friends instead of going down the bank route. This could look like a joint venturethem providing the money you providing the know-how. The world of joint ventures is a whole topic in itself, something to be covered in another article, but not today.
Ultimately, how you save those £s to get together a deposit is up to you. The obvious being, you save, inherit or accumulate! But one of the common ways that would be investors make their start in the buy to let world is by remortgaging their residential property (their home) and releasing money from it. Of course, to do this, you’d need to own your home and not be renting, that would be a good start. You’d need to have equity in it that could be released (ie if you have just bought it and your LTV is 90% you might struggle). And your finances would have to allow for the larger loan with the lender’s tests (ie the 4.5x income we often hear about). The best thing here, as always, is to speak to someone who does this every day - a broker.
Taking out a larger loan in order to take on another loan is something that some won’t feel comfortable with, and of course, you have to factor in when it comes to your deal stacking. If your investment property is a solid enough earner though, you could pay back your larger loan without any worry.
Remember, a prospective lender is going to look through your finances. If you have outgoings that they don’t like the look of, problems may follow. Excessive gambling and generally ‘loose’ financials are things to cut out. Paul says how far back a lender will look “depends on the debt to income ratio and what you’re looking to invest in. But typically it’s worth kicking those habits for at least three months’ worth of statements. Some lenders might go through 12 months of statements.”
Financing a deal is perhaps not the most exciting topic but one that can make a huge difference to your bottom line. Choose the wrong products or go over bridging lengths and you could cut thousands from your profit. Get it right, with the help of a good broker and we can tick the box of the fourth topic we’ve nailed, in pursuit of a predictable, successful property investment business.
Next time, we answer the question - should you self-manage or get an agent?
If you’re letting a house to multiple tenants who aren’t a family or in a relationship, aka an HMO, it can add extra complications and carry extra risk. The added complications are one of the main reasons a purchaser who wants to buy an HMO will frequently have to obtain a specialist mortgage, particularly if the property is to be let to students or people on benefits. The same applies to insurance.
If you’re looking for property insurance for your HMO premises, what are the advantages of opting for specialist HMO insurance?
HMO insurance is cover that’s tailored to the specific needs of landlords with HMO lets. It takes account of some of the particular risks that are associated with multiple occupancy lets and gives you the confidence that should the worse happen, then your insurance policy will have you covered. Bespoke protection for HMO landlords helps to protect your investment.
Specialist HMO Landlord Insurance ensures that the potential risks associated with HMO property are covered by your insurance policy. Some of the main risks associated with HMO property relate to fire, flooding, loss of rental income, and malicious tenant damage. Making sure you have the appropriate level of cover in place reduces the risk of a landlord being landed with a significant bill.
Even if your property is not a mandatory licensed HMO, you will still need specialist HMO insurance if you have multiple persons from different households living in your accommodation. There is a potentially increased risk of damage to the property and contents, whether this is caused by accident or maliciously. There is also the increased risk of someone claiming against you as the landlord for any loss, damage or injury that’s caused by living or being on your premises. Multiple occupants from different households sharing a property increases the number of variables that can lead to damage or disputes.
Falcon Insurance’s Managing Director Pinder Dhaliwal answers a few quick questions on the subject:
OTH: Is HMO insurance normally more expensive than buy to let insurance?
Yes, it can be. So there’s still a big stigma with a lot of the insurers that they won’t cover HMOs. So whilst they’ll provide a very cheap standard buy to let policy. They won’t do HMOs, it does exclude around about 30% to 40% of the market but a lot of the insurers are now quite happy covering HMOs.
OTH: Are there any common stipulations that people need to be aware of when they’re looking to get their first HMO insurance? No, I mean, the stipulations are exactly the same as a normal buy to let - having your EPC in place, gas safety certificate, your electrical safety certificate etc and you know, if it is an HMO, you need to ensure your license is in place.
OTH: Is there anything that’s typically not covered by HMO insurance?
No. You get the same sort of cover as you would do with a normal buy to let policy. For instance, you’ll get your malicious damage, et cetera, depending on the tenant type. They won’t give you malicious damage for students, like quite often they won’t give you malicious damage for DSS, asylum seekers or supported living tenant profiles.
OTH: Rent guarantee insurance for HMOs - is that a thing? Some, there are some suppliers that are doing it, but it’s per tenant, so if you’ve got a six-bedroom HMO, you’ll have to buy six lots of rent guarantee coverage. You can’t just buy it for the building itself.
OTH: Are there any typical HMO mistakes that people need to avoid when it comes to insurance?
Yes. We see a lot of these policies being taken out as a standard buy to let and then the insurer will come along and say we don’t cover HMOs. Then getting your tenancy type right is important. Often, we see like the tenant type has changed and the individual’s forgotten to tell the insurers. Also, you will need to inform the insurance of the number of bedrooms because some insurers will have a cut-off of either five, six or 10 bedrooms.
OTH: Is there anything else people need to know?
A lot of insurers hate cooking facilities in the rooms. You know, even the ones that are doing HMOs, they still hate cooking in the rooms. There is still a big stigma around grotty little bed sits. We’ve got access to plenty of insurers that will do it [for say kitchenettes in high end HMOs] as long as it was part of your planning application and it’s been signed up by a fire officer.
With the right combination of engaging description, appealing photos, and transparency about terms and conditions, you can turn inquiries into long-term mutually beneficial lease agreements. Here’s a step-by-step guide on how to craft the ideal rental property advertisement.
1. Start with a Strong Listing Headline
Your headline is the first thing potential tenants see, so make it catchy and informative. Include the main selling points of your property - location, number of bedrooms, unique features, or the rental price. For example, “Charming 2-bedroom flat in Central London with a private balcony, available for immediate occupancy.”
2. Craft an Engaging Description
The body of your advert needs to provide details about your property. Avoid using generic terms; instead, highlight the unique attributes that make your property special. Does it have an openplan kitchen? A recently renovated bathroom? Close proximity to public transportation?
Additionally, provide information about the neighbourhoodproximity to schools, parks, shops, and other local amenities. For example, “Located just five minutes’ walk from the bustling shops of High Street Kensington and a stone’s throw away from the scenic Kensington Gardens.”
Editor’s note: We have found that tenants are particularly enthusiastic about dealing with the landlords directly (many have had bad experience with lazy agents) so if you self-manage, mention it and you could even ask for a quote to include from a previous happy tenant.
3. Use High-Quality Images
A picture is worth a thousand words, especially when it comes to property advertising. Make sure your photographs are well-lit and high-resolution. Take photos of every room, as well as the building’s exterior, any outdoor space, and key amenities including in the location (restaurants, attractions and good schools). If possible, consider hiring a professional photographer to help capture your property at its best.
4.
Transparently stating your rental terms and conditions can help prevent misunderstandings later. Include information about the deposit, lease duration, and any specific requirements you might have, such as “no pets” or “non-smokers only.”
Editor’s note: The Renters (Reform) Bill has not come in yet so it is still a unique selling point if you accept pets – consider doing so and potentially charging slightly higher rent for doing so.
Before posting, proofread your advert carefully. Typographical errors or misinformation can give the impression of a careless or unprofessional landlord.
A well-crafted rental advert takes some effort, but the returns in terms of attracting reliable tenants and minimising vacancies make it well worth the investment. Remember, your rental property is not just a piece of property; it’s a home. By advertising it effectively, you can ensure that it’s seen by those who will value and respect it as much as you do.
It may not be hard to attract tenants at the moment. We, for instance, had 65 enquiries for our most recent property before it was rented. However, by crafting the perfect rental listing you may increase the caliber of tenants you attract and even be able to achieve a higher rental amount.
If you harbor aspirations to step into full scale property developments, due diligence has to be a foundational skill you cultivate. Here, Joel White of Buy To Let Group preferred finance partners Ramsay and White pours the metaphorical concrete to help you build that foundation
When taking on a new development projects, deadlines and funds can be tight. You’ll need to get your ducks in a row in order for everything to run smoothly and for the project to be profitable.
Doing your due diligence thoroughly beforehand can eliminate risks and increase your chances of a successful development. But, there’s a lot to consider.
This column will cover the main areas you need to consider when doing due diligence on a potential property development project.
Before viewing the site, it’s worth understanding the local area and how it would benefit from your development. Consider the local demand and any other developments that are taking place.
If the development is residential, you should also consider the type of people living in that area or the ideal resident for your development (professionals, families, first-time buyers etc).
What price are the properties in the area and what is the average rental yield? This will be determined fully later on in the project, but you should still have some sort of idea from the get-go.
What you don’t want to do is develop something that looks amazing, but realistically, there’s no demand or interest for it in that area.
When assessing the site, you’ll need to establish if it meets the requirements of your development.
Consider the price, size, accessibility and anything surrounding it that could affect the build or the finished result.
You will also need to assess the condition of the land. Boggy land, tipped areas or running sand can be a sign of poor ground conditions that might need additional investigation and costly foundations. Hire a building control inspector who will be able to give you a good idea of what lies underneath the topsoil.
Before exchanging contracts on the site, you should carry out a variety of additional surveys to determine the time, budget and design required for the project and most importantly, highlight any potential risks.
You will need to establish any site constraints such as overhead or buried utility services and whether the site has current or future connections to the utility mains. Understanding this early on is essential as it can affect your designs and your budget, which can cause huge implications.
This can be done by contacting the relevant utility companies in your area that have plans, maps and details about any services running across your site. If there are services currently in place, check if they are accessible without accessing someone else’s land, and do they have the capacity for your development.
This involves reviewing any legal implications or restrictions regarding the site. Some checks are minor and relatively straight forward, but some sites can be extremely complex. Your solicitor will need to carry out these checks for you by reviewing the land registry information for the site and then providing you with a report and the relevant advice.
The findings of the checks could mean you need to adapt your development or take out specific insurance policies.
Planning permission is required for any work being carried out that meets the statutory definition of ‘development’. This includes building operations such as structural alterations, construction, rebuilding, most demolition and the subdivision of a building. You should enquire about planning permission early on in order to establish if the development will be allowed and establish the costs involved. This can be done by contacting your local authority as they have professional planning officers that can offer planning advice and information regarding the law for your area. Some local planning authorities charge for pre-application advice and be aware there will be costs if further advice is needed from a professional planning consultant.
In order for the development to be a success and provide a certain level of profit, a finan cial feasibility study should be carried out during the due diligence phase. The sole purpose of this is to make sure the numbers stack up. What you need to consider:
• What is the maximum you can pay for the site? (and any other costs for acquiring the site such as stamp duty and tax).
• What fees will I have to pay? (legal, conveyancing, professional services, utilities etc.)
• What finance will I need and what costs are involved?
• What costs are involved with the construction work? (Labour and materials etc.)
• What insurance is required and at what cost?
• What marketing and costs are required with selling/holding the development?
• Should you develop and sell or develop and hold?
• What is the development income and margin?
It is extremely rare for the initial financial feasibility to accurately predict the exact final outcome as there will always be changes along the way. However, having a strong understanding of what’s involved from the get-go and preparing for any risks will improve the chance of your development being a profitable success.
If you run a property investment business it helps you know about all the tax allowances, benefits and costs you can offset against tax. In addition to the regular business costs that can be paid for through your business, there are other costs for directors and staff that shouldn’t be ignored, even though they often are. These are called ‘trivial benefits’.
(There is guidance produced by HMRC on this area so be sure to check that out: www.gov.uk)
So, what is a trivial benefit?
HMRC have very strict rules when it comes to what they define as a trivial benefit. If the requirements are met though, then there are no taxes to pay on a gift for your employees. The strict criteria are:
• It cost you £50 or less to provide
• It isn’t cash or a cash voucher
• It isn’t a reward for their work or performance
• It isn’t in the terms of their contract
When all criteria are met, the benefit is known as a Trivial Benefit. There is no requirement to inform HMRC, and the trivial benefit will not attract income tax or Class 1 National Insurance contributions.
There is also no requirement for these to be reported on your annual P11D or P11D(b) forms.
Examples of Trivial Benefits that are allowed include:
• Taking a group of employees out for a meal to celebrate a staff birthday
• Buying each employee a Christmas present
• Flowers on the birth of a new baby
• Other special occasions
But beware!
If the cost of the benefit is a penny over £50, the whole amount becomes taxable, not just the excess over £50.
To makes things simpler to calculate in the event of multiple guests, if the individual cost cannot be accurately estimated then average cost per employee is acceptable.
There are specific rules around regular events such as summer events such as company BBQ’s or Christmas parties for employees, which does include limited company directors too.
For these annual events, you can claim up to £150 per employee which can include a partner.
The £150 is an annual allowance therefore can be split between multiple events, as long as the total does not exceed £150 per person.
The type of benefits that are specifically excluded include:
• Providing a working lunch for employees (because this is related to their employment)
• Gifts, incentives or events related to performance targets or results
• Gifts, incentives or events in relation to employment services e.g. team-building events
• Taxis when employees work late Directors of close companies (5 or fewer participators) can also receive these benefits but there are annual allowances too.
The annual limit is that trivial benefits must not exceed more than £300 in total during a tax year and each individual benefit must not exceed £50.
This £300 limit is separate and is in addition to the Christmas & summer events above.
If other benefits do not meet the strict test, then there is the requirement for these to be declared to HMRC.
So, there you have it, enjoy your summer BBQ on us! Well, not quite, but you get what I mean!
You could Google it but you’re already here… This is by no means an extensive listing but it is our personally-curated list of useful contacts, services and resources for property investing and beyond.
INSURANCE SERVICES
Falcon Insurance
LIMITED COMPANY SERVICES
GetGround
TAXES AND ACCOUNTANCY SERVICES
Astonia Associates
MAINTENANCE SERVICES
Ark
MORTGAGE SERVICES
Ramsey and White
FINANCES AND PORTFOLIO TRACKING
Hammock
PROPERTY FINANCE TRAINING
Kevin Wright – Recycle your cash
DEPOSIT PROTECTION SCHEMES
Tenancy Deposit Scheme
My Deposits
DPS
ZeroDeposit
UTILITIES
Gas Safe National Grid Energy Ombudsman
EPC SERVICES
tenancydepositscheme.com mydeposits.co.uk depositprotection.com zerodeposit.com
Rich Dad, Poor Dad – Robert Kiyosaki. The book that so many people chart as their epiphany moment and that started them down the path to property investing.
What financial advice could you possibly glean from a civilisation 4,000 years ago? Turns out a heck of a lot as the parables of Arkad reveal universal wealthbuilding truths along the way.
Think and Grow Rich – Napoleon Hill. The all-time best seller that through extensive research on wealthy folk aims to coach you to
The Complete Guide to Property Investing A solid overview of the property investment game although readers should look to supplement with current information.
Property Magic – Simon Zutshi. Now in its 6th edition Zutchi’s book takes readers through many different strategies that if applied correctly will help accelerate your investing
House Arrest – Rick Gannon. The subhead ‘A Practical Guide on How to Replace Your Income Through Property Investing’ say it all, with the addition of noting a focus on HMOs. So, if you are considering entering the competitive world of HMOs give this a read. Never Split the Difference – Chris Voss. Sharpen up your negotiation skills with an exFBI hostage negotiator in your corner.
How to Win Friends and Influence People – Dale Carnegie. A time-honoured tome that will boost everything from you vendor interactions to your offer writing skills.
MrMoneyMustache – Pete Adney writing in his alter-ego as Mr Money Mustache. The FIRE movement and extreme frugality might not be for everyone but Pete’s logic, contrarian perspective and entertaining style of writing are a boon for anyone interested in personal finance. Pinch of salt required for US-centric advice.
National Network of Accredited Assessors
Swindon Energy – Paul Crovella
Eco4 grant applications
EPC Experts
NETWORKING
gassaferegister.co.uk nationalgrid.com ombudsman-services.org theepcman.co.uk heatinggrants.io epcexperts.org
Partners in Property (PIP) – Comprehensive paid for networking and education full day sessions with a promise of zero hard sell.
The Motley Fool – Long-running investment and market commentator website that focuses on stocks and shares investing and believes ‘individuals can beat the market’ with a long-term overview and a hands-on financial management approach.
Inside Property Investing – HMO Focused investing experience advice from Mike and Victoria Stenhouse, somehow unpretentiously dispensed from their yacht in sunnier shores.
The Property Podcast – The Robs have been dispensing free property wisdom for almost a decade. Impartial and in-depth advice garnered through years of experience and research.
Wealth Builders – A rounded approach to all things money making, keeping and financial fortress building from Kevin Wheelan and Christian Wheelan.
The Side Hustle Show – Inspiration for all those who are looking to make a little extra deposit dough on the side. American but features plenty of universal tips, ideas and concepts that can be within and without a property business.
The Property Jam – A light-hearted and quirky panel show around all things landlording that also reveals plenty of useful and actionable info along the way.
Naked Money – The Naked Trader takes us through stock market fundamentals and his own hard won rules to investing which feature in his award-winning book.
Jamie York – No nonsense, plain speaking advice from an investor who favours in his own words, plain and boring, bog standard buy to lets.
Rentals to Wealth – Infectiously positive pairing who sprung off a Bigger Pockets featurette and take you behind the scene of their house hacking and renovation efforts. US-centric but great for motivation.
New2Property – Perma-paint-splashed hands on investor Dan Coachafer gets into the sort of seriously granular detail that only that is perfect for true property fans and also for educating yourself on pitfalls a you go about portfolio building.
Ali Abdaal – Ali covers everything from selfdevelopment to business and investment in a millennial friendly-fashion. For those who adopt an always be learning check out Ali’s best hits.
Martin Baker – Founder of the EPC Man Network
Kev Dendy – Action-taking new investor and member of the RoundTable Mastermind Group
Suzi Carter – Commercial Property Investment advisor, creator of the Commercial Property Academy and chartered surveyor.
Sue Simms – Social Housing investment expert, long-term investor, agency owner and partner in Partners in Property
Kevin Wright – Property Finance Expert who has been investing in property for four decades
Danny Inman – Experienced developer, investor, business person and co-founder of Prosperity Network.
Sean Thomson – South African investor who founded WealthTrek to help fellow countrypersons invest in the UK property market.
Stephen Kempt – North West ambitious investor with plans for property-funded animal rescue sanctuary
Ross Harper – Glasgow investor and businessman founder of Auction House Scotland
Debbie Dorans – North East Property investment expert, strategist and mentor. Founder of Vigeo Property Hub.
Adam Lawrence – Investor with over 500 deals under his belt, co-founder or Partners in Property Network and Co-Founder at Boardroom Club Consulting
David Williams – HMO Investor and founder of Beelief Property
Lee Scott – Long-term single let property investor
Jackie Gammage – Rent to rent investor
Nick Gordon – Eviction specialist, investor and founder of Evict My Tenant
Dave Cordner – Author - ‘Serviced Accommodation 5 Star Fundamentals’, serviced accommodation coach and Founder of Central Belfast Apartments
Alfie Best – Sunday Times Rich lister, gypsy businessman and property investor.
Jamie Greaves – Serviced accommodation investor
It amazes me how many people switch from relatively positive to absolutely negative when the going gets tough.
When things change and times/investing becomes more challenging, it is important to be able to keep a level head and keep your s**t together.
We are currently going through challenging times. However, we have been through tough spells since records began.
Just because the goings are hard, it does not mean that opportunities cease to exist. It is actually the contrary. In challenging times, there are always more opportunities. What makes it challenging is knowing how to proceed and close on these deals.
I personally have been through three recessions/dips/economic regressions and have come out the other side better for it on every occasion.
Here are some things to consider to ensure you do too and hopefully find your next deal:
1. Don’t over leverage
2. Make sure you keep voids to a minimum as cash flow will help you through this
3. Work closely with tenants (especially those at higher risk of default)
4. Keep on top of your mortgages and monitor the markets closely if you have products coming to an end (new products with no ERC might be a shortterm fix)
5. Don’t over inflate your rents as this will leave you with no wiggle room to compete should the market change
6. Look to take on management of your properties to reduce outgoings (if you are comfortable doing so)
7. Ensure you are triple checking numbers and viability of new acquisitions. The last thing you need is to proceed, outlay cash only to find the deal is not proceedable.
8. Look for deals that have been sitting/ advertised for long periods (opportunities for reducing the asking price)
9. Look for properties that are advertised for sale and to let (motivated vendor)
10. Look for quirky style/type properties as this will cut out half the competition
11. Look at underwhelming properties to which you can add lots of value (title splits, commercial to resi conversions, blocks of freehold flats)
12. Speak to people in your areas, let them know what you do. They will start bringing deals to you.
13. Boarded up properties are also a great starting point although sometimes it can be challenging to find the owners
14. Empty homes officers at your local council can help guide you to potential deals. Good luck, stay positive and happy investing all!
