My top 10 tips for buy-to-let success
03-15-2014
This property investor has built up a buy-to-let portfolio worth more than £1m. He shares the secrets of his success with Richard Evans.
Graham White outside one of his properties. 'Don’t restrict yourself to your own immediate area but research others nearby, where the rental yields may be markedly better,’ he said
Graham White outside one of his properties. Photo: Jeff Gilbert
By Richard Evans
Many people don’t like the stock market. They see it as an unfathomable place where fortunes can be lost without warning.
The asset they do understand is property – something that they have bought and sold many times themselves. For them, the obvious way to invest for the future is to buy more property and let it out.
Buy-to-let is booming again. The amount of money lent to landlords in the three months to the end of June was 29pc higher than in the same period last year.
But if you want to join the band of buy-to-let landlords, it’s vital to buy the right properties and manage them properly. We asked experienced property investor Graham White, who has about 10 properties worth more than £1m collectively, how to do this – and how to avoid the mistakes that many first-timers make.
Graham’s top 10 tips
1 Try to buy something that is not very old
Try to buy something that is not very old – this will mean less maintenance down the line. As lovely as a period two-bedroom house sounds, you’re not going to be living in it. Do not get carried away about any purchase as a home. It is a business deal.
2 Buy the type of property that is most “lettable”.
Two-bedroom houses and flats are ever popular and appeal to the widest range of potential tenants, especially those who are finding it tough to get on to the property ladder. Avoid large family homes, which appeal to fewer potential tenants.
3 Don’t restrict yourself to your own immediate area
Don’t restrict yourself to your own immediate area but research others nearby, where the rental yields may be markedly better.
I live in a city close to the south coast. Property here is expensive compared with surrounding towns and cities. A typical two-bedroom leasehold flat in my city will cost around £250,000 and fetch about £875 a month in rent. There is a smaller town 20 minutes away where property is far less expensive – you can buy a two-bedroom freehold house for around £125,000, which fetches a monthly rental of about £680.
In other words, you halve the purchase price but your rental income falls by only 22pc. You could buy two of these properties for the cost of one in your own backyard and receive £1,360 a month, not £875. Remember, you are not purchasing to sell again in a year. You will probably own the property for the rest of your life and then bequeath it, so concentrate on getting the best rate of return on your money.
4 Make sure the area has a healthy market for tenants.
In the example above, there are plenty of tenants to go around in both areas. But be shrewd about the exact location of the property within your chosen town or city. Convenience is a useful factor. Being within walking distance of shops, railway stations, the town centre and so on will ensure that your property is high on the list of desirable places to live for tenants.
5 Try to avoid run-down areas.
Quite simply, this will have a direct relationship with the type of tenant you will attract – and poor-quality tenants will cost you money.
6 Do not give the game away
When you are viewing a property as a possible purchase, do not give the game away to the sales agent or vendor about how much you like the place. It will work against you at the offer stage.
Instead, remain polite at all times but do not be afraid to ask questions if you spot any snags. A bit of damp or condensation? Ask if there has been a previous problem. The same with wiring, wall cracks or anything that doesn’t appear quite right. Present the question nicely and without looking as if you are picking holes. Even though you may be perfectly aware there is no major damage or problem, you will have the vendor thinking about these points when it comes to your offer.
Remember, they need to sell and they want your money. A lower offer may get accepted if you have given no indication of how much you want the property.
Many years ago, I viewed a house with my then partner. We loved it from the moment we stepped inside. The vendor showed us around and, as we looked in each room, my ex said, “Ooh, this is nice.” She had a cup of tea and a chat with the vendor and they discussed the benefits of living in the area.
We all got along very well and left with smiles on our faces. But our first three offers were turned down and we paid the full asking price.
7 When making an offer on a property, be patient – but ruthless.
As an investment buyer, you are not in a chain and can move at speed. This has value to the seller, so be prepared to walk away if you are not getting the deal you are after. A similar opportunity and more willing vendor will never be far away.
8 Using a mortgage makes your money work harder.
Whether to go interest-only or repayment is a personal decision, but a rental income high enough to cover a repayment mortgage is a good indicator that you are getting things right. Take out a fixed rate if you are uncomfortable about the chance of interest rates rising, although you will pay a premium. Use more than one mortgage broker and don’t let them charge for research.
9 Most investors use a letting agency to manage their property.
If you do the same, you need to do your homework. Letting agencies are two a penny these days. Twenty years ago you would have paid more than 10pc of your rental income to have them manage your property for you. There is no need to do this today.
Now, just about every high street estate agent operates a letting service, and there are also many independents competing for landlords’ business. Shop around and drive your costs down by negotiating. Play them off against each other, the way you would when you buy a new car from a dealer.
You should be able to get the fee down to around 7pc – or even lower if you have several properties to offer.
I’ve assumed that you won’t want the bother of letting and managing the property yourself. Personally, I don’t have the time, but if you do then go for it – but do it right.
10 Watch out for add-ons that some letting agencies try to get away with.
For example, let’s say one of your properties needs maintenance. Some agencies will try to charge an “admin fee” to organise it for you. Do not accept this. You are already paying a monthly fee and this should cover the organisation of maintenance and repairs.
Also check the price of services such as carrying out an inventory and handling a change of tenant. Again, some agencies are a little too creative when it comes to invoicing. Agree on a rate at the start for all administration costs and make sure the agency sticks to it.
When you get your monthly statement from the letting agent, any maintenance work that has been carried out should be listed. Ensure that you receive a copy of the invoice from the trader or company that carried out the work so you can check that the charges were fair. If you know a cheaper plumber or electrician, for example, ask your agent to use them for future work. They can and should do so.
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