Hands Off Property Investing
I wanted to walk you through how it’s possible to follow a strategy of hands off property investing. There are lots of elements that make up investing, so we’ll see how it’s possible to minimise how much of your own time it takes to become a successful property investor.
If you’re just starting out, this is going to give you an idea of how you can invest without having to spend every waking minute trying to learn how to be a property investor, or dealing with property people.
I’ve been extremely hands-on over the years, and as a letting agent and asset manager I’ve allowed other people to be hands off in their own investing. Increasingly though 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 the 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 of doing it that way.
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 who is going through Rightmove looking for deals, then trying to convince you to buy it off him – all the way through to larger companies who source multiple new build properties off plan and sell them on.
A lot of them talk about “Below Market Value” – which they want you to think means it is cheaper than it would be if you didn’t go through them.
That’s rubbish a lot of the time.
But sometimes these guys do come up with half decent deals, and they will generally charge you in the region of 1-3% depending on how much work they do.
So on a typical £100k property you might end up paying £3k for someone else to find the property and pull the deal together on your behalf.
If you go for a sourced deal, the sourcer will often have viewed the property and taken pictures. That’s great and all, but they are 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.
It’ll cost in the region of £500, but it will be much 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.
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!
You’ll be looking at around £500 - £750 for legals, but it’s a pretty robust system nowadays so not much to worry about there.
There can be hitches along the way caused by what is thrown up during the survey or the valuation, or you can come up against title issues, etc. This tends to be scary, but it’s a case of handing it back to the solicitor or mortgage company and just asking them the question of;
What’s this mean, and what do we have to do to get round it?
Mortgage brokers have been round for ages. It’s their job to figure out what your situation is, what you want to do, and who is the best person to lend you money. We (cos I’m a mortgage broker by the way), usually have access to deals that the general public don’t, so can often get a better rate than just going direct to your bank.
There are also a bunch of companies out there who the general public has never even heard of, nor probably ever will, who specialise in investment finance.
We will do most of the running round and paperwork, and making sure the lender is keeping on track with the mortgage. So once you’ve sat down with the broker and handed over all the evidence that’s required, it should be quite plain sailing after that.
A broker usually gets paid by the investor (i.e. you) and receives commission from the lender. There are companies out there that just charge a fee to you, and others that just receive commission. But if you’re paying, then expect to pay between £300 and £1000 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 months 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% of the sale price.
In both cases the agents will carry out the viewings, and do the checks on the people, and be the point of contact during the 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!
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 on it if there is lots of little jobs that come up. It’s how the dodgy agents make more profit!
Agents will charge between 8-15% of the monthly rent for doing all this.
If your property is fully managed then hopefully your agent has some building contacts who can carry out any maintenance work for you. So it should be pretty straightforward. If it’s an expensive job, i.e. over say £300 then I’d expect at least two quotes for the work.
If you’re doing more extensive work, or your strategy is to flip the property on, then you’ll be looking for a turnkey solution builder. Someone who has experience with the type of development work you want done, 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% of the works budget for a project manager.
But also expect a company who can handle every aspect of the job to be more expensive than individual tradesmen. The bigger companies have more overheads and therefore are a bit more expensive, but usually a bit easier to work with.
So that about sums up how you can get started with 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 should save you time or reduce your risk.
You can see that 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 stuff, ya lazy bastard.
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…
You can invest in property funds that are listed on the London Stock Exchange. This is the ultimate hands off property investing. These will generally give you 3-5% annual return and will track a specific sub-sector of the property market, e.g. commercial storage, student lets, hotels, etc.
But if you want to build up your own portfolio of good solid properties that give a decent yield, and most importantly have the process managed from end to end – with a single point of contact for you as the investor – then I might have something for you.