A lot of people want to invest in property. You know it’s a sensible thing to do over the long term, the returns are good, it will keep you fed when you retire, and it’s relatively passive – you can do this alongside a full time job… but how do you actually go about it? Taking it from thought to action is where most people fail.
Let’s look at how to invest in property so you can be in the small percent that act instead of just talk.
Property investing is great. But it’s also a ballache. A lot of people think it’s really easy because they’ve bought a house themselves, or they’ve seen it done on TV. The reality of running a successful property business (because owning a buy to let property is a business), can be much more difficult than you might imagine.
Speak to others already doing it. Not the loudmouth down the pub who has stories to tell, but people who are genuinely investing and invested in property and can tell you the pros and cons of it. If someone is overly positive or overly negative, they probably should be ignored.
It’s not a simple – Yes everyone should do it. So research and find out if it’s for you.
The biggest hurdle to get over is where to buy. Investing close to home means you can view properties, meet agents, check out roads, etc. quite easily. But what if investing close to home isn’t a great financial decision?
Investing further afield is the reality a lot of the time. I’d say 70% of the people I’ve worked with are from somewhere south of Birmingham, and the further south you get, the more likely it is you’ll have to invest further away from home.
Again though, just do your research. I reckon it takes 14 hours to know an area well enough to invest in.
Google the shit out of the place, then get on the phone. Look at Rightmove for house prices and variations. Speak to agents about good and bad areas. Find out the demographics from the government, etc. There are lots of things you can do to research an area remotely.
It’s impossible to say how much you’ll need to get started, but as a line in the sand I think £25,000 is the minimum you’ll need. You really need to speak to a trusted Mortgage Advisor to get advice on whether a mortgage company will lend to you.
If you want, you can go here to speak to me about your mortgage requirements - Fogg Financial
But let’s assume you’ve got enough saved up for the deposit, stamp duty, legal fees, etc. What about the ongoing costs?
Sure the idea is to rent it out and get the tenant to pay your mortgage and give you a profit each month. But make sure you set aside money to pay for the mortgage when you don’t have a tenant in the place.
What if the boiler breaks after a month? Can you afford the £1,500 to repair random things when they pop up?
If you’re investing in property and using every single penny you have to get the place, you probably can’t really afford it. Property isn’t going anywhere, wait a while longer and take away the financial stress of not having a contingency fund.
Most people will buy an investment property using a mortgage. These are very different from residential mortgages. You can read a bit more about mortgages here.
The main difference is that the lenders care less about your financial situation than they do the property figures. Having said that, most will want you to earn at least £25,000 per year (if you’re self-employed they’ll want 1-3 years worth of accounts at these kind of levels).
In an ideal world you’d also own a residential property yourself, however this isn’t necessary. It just restricts the number of lenders you can go to.
Using a decent broker is essential to getting the right mortgage for your circumstances.
As a very rough calculation, multiply the rental figure by 150 and that will give you an idea of how much of a mortgage you can get. It’s up to you to fund the difference between that number and the purchase price then!
When you’re viewing the property you should know what kind of tenant you’ll be trying to attract. This can be LHA (housing benefit folks), working class (is that still PC term?), professionals, corporations, etc. A lot of people have issues with LHA tenants – personally I think they are equally as good / dodgy as professionals, so I really don’t mind.
Just make sure you are appealing to the right tenant type. The most important thing is for the tenants to pay you on time and keep the property in good order.
The best option to avoid the worst tenants is to properly vet them. I tend to use a referencing agency, but you can do it yourself. Make sure to speak to employers and previous landlords. If you’re a real keen bean, then you can visit them at their own property to see what state it’s in. Can’t say I’ve ever done that though.
You will inevitably have things go wrong from time to time. It could be something to fix or something major. That’s the reason you kept that contingency fund though isn’t it!
To keep your tenants happy, it’s best to be Johnny On The Spot when it comes to fixing issues when they arise. There’s no point delaying things, as it will only piss off your tenants and potentially damage the property more.
Inspect (or get someone else to) the property on a regular basis so you can see any issues that might need resolving in the future. Plan for it, and get decent contractors to do the work.
There are so many regulations nowadays that it’s a full-time job to keep up with them. So don’t try to. Join an organisation such as the National Landlords Association or Residential Landlords Association and let them do the leg work to keep you up to date.
Tenancy agreements, deposits, gas checks, carbon monoxide, EPC ratings, etc. There’s a ton of stuff that you need to keep on the right side of, so just outsource it to a professional.
Failing That, Cheat
When in doubt, throw money at a problem until it goes away. If you have the funds available, want to get into property but aren’t sure how to get started. Pay someone to help / mentor / shadow / show you how to do it.
This is something I used to do, but not so much anymore. What I can offer is 1-2-1 for three months where we can exclusively focus on your property investment goals.
If that’s something that tickles your pickle, then fill out the form here and let’s arrange a time to chat. 1-2-1 with Damien.
Whatever you do, be sensible and a good human about it.