Hands-Off Property Investing
When you reach a certain stage of investing, you will want to start diversifying your investment portfolio. One option is to invest in Real Estate Investment Trusts (REITs) from £25 per month. But buying your own investment property is a much more expensive purchase. Still, passive, hands-off property investing is the goal for a lot of people.
Let’s walk through the pros and cons of hands-off property investing and show how it’s possible to follow this strategy. There are lots of elements that make up real estate investing, but today we’ll concentrate on minimising your time requirement.
If you’re just starting out, this is going to show how to invest without spending every waking minute learning to be a property investor, or dealing with property people. If you’ve already got a portfolio, this may save you hours or even days each month.
I’ve been extremely hands-on over the years, but as a letting agent I’ve enabled others to be completely hands-off. Increasingly I’m becoming more hands-off with my own investments as I want to have more time to do other things.
So let’s think about property investing in its broadest sense. You’ve generally got to do these things;
This relates mostly to a buy-and-hold strategy, but if your strategy is based more around flipping, then you can just remove the “let it / manage it” section and replace it with “sell it”.
I’m going to run through each heading and show how you can be hands-off in your investing, and give you an idea of the cost implications.
If this has already put you off, then maybe property isn’t for you. To get an overview of all the asset classes that might be better for you, and a complete walkthrough of how to invest in them, check out the Masterclass modules.
Find the property
There are people out there, a load of them actually, who advertise themselves as property sourcers. They range from some idiot who has done a weekend course. They generally just go through Rightmove looking for deals, then try to convince you to buy it off them. All the way through to larger companies who source multiple new build properties off plan and sell them on… “below market value”.
“Below Market Value” is probably the most vexing word in property. Sourcers want you to think a property is being sold for less than it’s worth. Who would do that? A handful of times it might be true. But with such a well developed property market in the UK, it’s very rare.
Sourcers can come up with good deals though. They generally charge in the region of 1-3% depending on how much work they do. But there may be a minimum charge of say £5,000.
So a £100k property might end up cost £3-£5k for someone to arrange the deal on your behalf.
View the property
If you go for a sourced deal, the sourcer will sometimes have viewed the property and taken pictures. That’s great, but they can be sneaky little mofos, so don’t trust them!
If you’re getting a mortgage, then you’ll almost certainly have to get a valuation survey done. But even so, you should seriously consider a building survey.
The cost is in the region of £500, but will be more thorough and tell you a lot about the property. Now don’t get too freaked out – surveyors will always find something wrong. You’ve got to interpret what they say and how big of a deal it is.
You can go to the RICS website and search on their ‘Find a Surveyor’ function to find someone.
Although it’d be ideal if you viewed the property yourself, the goal here is hands off property investing. Especially if you’re getting started with property investing, what expertise do you have at this stage? Viewing will probably make you feel better, but really you want a professionals opinion on the place.
Buy it
The buying process is straightforward. Find a decent solicitor and get them to do their job. That’s the easiest way to do hands-off property investing right there!
Budget around £800 – £1,500 for legals. You will not only be paying the conveyancing solicitor, but also searches, transfers, land registration documents. It’s a pretty robust system so there isn’t much to worry about.
There can of course be hitches along the way. Depending on what is thrown up during the survey or the valuation you can come up against title issues, etc. This sounds scary, but it’s a case of handing it back to the professionals and asking them the question;
“What does this mean, and what do we have to do to resolve it?”
Finance it
Mortgage brokers have been around for ages. It’s their job to figure out your situation, what you want, and who will lend you money. They often have access to deals that the public doesn’t, so can get a better deal than going to your bank. Also there are companies out there that you’ve never heard of who specialise in buy to let investment mortgages.
They should do most of the running around and paperwork for you, and make sure the lender is on track. Once you’ve sat down with the broker and completed the paperwork, it should be straightforward after that.
A broker will be paid by you, the investor, and/or receive a commission from the lender. There are companies out there that just charge you a fee, and others that just receive a commission. If you’re paying, then expect to pay between £300 and £1,000 for a broker to arrange the finance.
Let it / Sell it
You now own the place, so you need someone to find you either a tenant or a buyer. If you’re renting it out, then a letting agent is required. For just a ‘Tenant Find Only’ service, most agents will charge around 50% of one month’s rent, as a ballpark figure. If you go fully managed, then it will usually be covered under one price (we’ll look at that next).
For a selling agent, expect to pay around 1-2% +VAT of the sale price.
In both cases, the agents will carry out the viewings, carry out checks on the tenants, and be the point of contact during negotiation. They should in theory be giving you advice on what to ask for, what to agree with, etc. but honestly, if you’re relying on a letting or estate agent to tell you things – you need to learn more!
Manage it
As we just touched on, letting agents can also fully manage the tenants during their stay at your property. That means they are the first point of contact for the tenants and will field all queries etc. through a filtering process before it comes to you.
Now quite a lot of agents are absolutely awful, and will just ask you what to do in every instance. But the good ones will at least come to you with recommendations and a solution already worked out.
For example, if the tenant rings up and moans about a leaking tap, a decent agent will get a quote lined up before even speaking to you. Some agents, if the works are low priced (and you’ve already agreed to it) will just get the work fixed without bothering you.
Just be sure to keep an eye out for lots of little jobs that come up. It’s how the dodgy agents make more profit! You’re a hands off property investor, so you want to minimise how much time you spend on this. But if you wanted to spend SOME time, a tenant satisfaction survey isn’t the worst idea in the world. You’ll often hear the other side of the story about some issues, and it might result in you ditching your agents for someone else. I wouldn’t do this more than once a year, or even just once per tenancy.
Agents will charge between 8-15% of the monthly rent for managing the tenancy.
Maintain it
If your property is fully managed then your agent should have building contacts who can carry out any maintenance work. So again, you’re ticking that box of passive property investment. If it’s an expensive job, i.e. over say £300 then ask for at least two quotes for the work.
If you’re doing more extensive work, or your strategy is to flip property, then you’ll be looking for a turnkey solution builder. Someone who has experience with the type of development work you want to do, but who is also capable of project managing the works and the other subcontractors.
Because managing subcontractors is like herding sheep, there is always a cost for project management. As a rough guide, plan for about 10-15% of the works budget for a project manager.
Also expect a company that can handle every aspect of the job to be more expensive than individual tradesmen. Bigger companies have more overheads and therefore are a bit more expensive, but usually a easier to work with.
WARNING: Working with a turn-key contractor has many pros. The biggest con is if you’re nowhere to be seen, you run the risk of being ripped off. Most people are decent, and mistakes do happen. But some are criminal and will ask for money before it’s due, say works are done and they aren’t, and cut corners. Even as a hands off investor, I’d suggest employing someone independent to check on full refurbishment work at some stage.
Conclusion
That sums up how to start hands off property investing.
- Pay a sourcer to find you a good deal
- Hire a surveyor to inspect it for you
- Instruct a solicitor to do all the legal aspects and manage the purchase
- Pay a broker to get you a mortgage
- Instruct an agent to find you a tenant
- Find an agent to manage the property on your behalf
- Instruct an agent to find contractors to keep the property in good nick
From a purely financial perspective, it’s not the best plan. Each element will cost you money, but equally should save you time and/or reduce your risk.
Even though you’re outsourcing the jobs, you still have to spend time and effort finding the right people in the first place. Then there’s the issue of how do you know if you’ve got good people?!
But you have to decide what is more important, and what your hourly rate is.
If you’re unemployed, sitting on the couch watching Homes Under the Hammer (keep your eye out for me), then you should probably do some of this yourself.
But if you’ve got an average-paying job or better, then chances are it makes more sense to outsource some of these processes.
Is there an alternative?
Well as luck would have it…
If you want to be completely hands-off, you can invest in property funds that are listed on stock markets around the world. These are the REITs we discussed at the very beginning. This is the ultimate hands-off property investing. These will generally return around 3-5% in dividends, as well as capital appreciation over the long-run. They tend to focus on a specific sub-sector of the property market, e.g. commercial storage, student lets, hotels, etc.
If you want to find out more about buying your own properties, or getting more hands-off property investments under your belt, you could check out my complete walkthrough in the Property Module of the Money Masters series.
If you want much more specific help, then you can find out more about my 1-2-1 program here.
