Karen Mills, Property Acquisitions Specialist
On a daily basis I get enquiries from landlords asking ‘what should I buy?’ and ‘where should I buy it?’ ‘What is going to give me the best return/ appreciation?’ There is no simple answer to this question.
There are many factors to be considered before advising any client, but before this can be done it is extremely important to talk to them to find out from them what their resources and experience is, and what involvement they can or want to have in this investment, most of my landlord investors are completely hands off, as they are successful in their careers, and generally are just looking to invest their hard earned cash somewhere where it will grow.
For example, I would not normally recommend a ‘HMO’ to a first time investor? HMO’s or (houses in multiple occupations) are amazingly high returns, but remember you are instantly taking on 6 tenancy’s not one and are certainly much more demanding than a single unit, not to mention the refurbishment costs, the need for stringent compliance and licensing, all of which can be very stressful during that first purchase, and can be just too much for many first time investors.
When working with a new investor the various points that we like to work through with them are things such as, how much money do they have to invest? What are their expectations and attitudes to risk? Are they suited to a refurbishment project or not even so much as a coat of paint? How much time do they want to invest in the project and on going management? How important is the income, for example would they be in trouble if the tenant fell into arrears?
All these factors need to be considered. There is no point advising a nervous young lady, who works in an office all day, who is very tight on money and no handy skills to buy a rambling old terraced house, with major refurbishment works required, to let to local housing allowance tenants, when it would quite clearly scare her to death!
Once we have established their attitude to investing in property and their skills and character type, we look at their goals…
Are they looking for cash flow or capital appreciation?
What is the long term goal?
This is an important part of the process with any new client, many have read articles making claims about what is possible in property and they are quite often confused by all the various media. Most will initially say they want cash flow and capital appreciation, which of course we all do, but when we describe the reality of that, normally most investors, will decide to edge more towards one or the other direction slightly.
Capital and Cash flow can be demonstrated on a chart, in any area, with the property types and areas, placed on the chart, which will highlight visually to any investor, whether the property types they are looking at are cash flow or capital returners in the main (of course most properties are a bit of both but in varying degrees).
An investor with a high salary, for example that does not want to give up his job, would not normally be seeking cash flow, he could more than likely achieve much higher yields, by seeking smaller cash flow and investing in higher capital appreciating areas, which will also give him less tenants for every pound invested, therefore less voids, management costs (hassle) and better quality properties in better areas, attracting higher capital appreciation.
An investor looking to attain high cash flow, will more likely be looking to invest in LHA or HMO units as these attract the highest yield, but the downsides to these need to be explained, higher management fees, time and costs, as well as the “hassle factor” that many of these types of properties bring. But for the right mindset, these can be great investments.
To find the answers to these questions and more, we work through a series of questions together which help the investor to make his decision on how what and where to purchase, which is then followed up by market re-search to ensure the demand is out there for the chosen property and type by test marketing prior to any commitment to purchase.
Doing your ‘due diligence’ is key prior to considering any purchase, look on the portals and check out sold prices such as Rightmove, net house prices and the land registry to check out sold price history to confirm a rental assessment figure and of course if possible speak to a few reputable lettings agents in the area. Any agent should be happy to give general advice as they will want your business. Also placing some dummy adverts to measure the response is useful to and if we are working for a client then we will of course be doing all of this for them.
In order to identify what sort of property you should be investing in, these are the key points you need to consider
- Do you need cash flow, or would capital appreciation be more useful to you (do you need the money now)
- What level of cash do you “really” want to invest, remember that refurbishments can sometimes get expensive and run over and older properties/multi tenants can lead to higher repair bills
- How practical are you? I know it looks easy on the telly, but refurbishments are complex and can cost thousands, mistakes will cost you dearly.
- Consider how hands on you do or do not want to be, are you going to use a letting agent or not if this is the case then are you prepared for the time it may take to handle an issues that may arise, and how up to speed are you on the legislation of the lettings industry?
- What time do you want to invest in your portfolio? If you have a good job and you enjoy it, then you will not enjoy the burden of 5 HMO properties with 35 tenants in calling you day and night. Consider your family and lifestyle, what are you REALLY trying to achieve?
Most of my investor landlords end up somewhere in the middle, looking to achieve a bit of Capital appreciation and cash flow, decide to use a letting agent as they are high earning individuals with a good salary and cherish their time and enjoy passive investment and management through a good lettings and management service.
You can contact Karen on
01902 421 405
I would like to thank you & all your team for the excellent work you did to help me acquire my last rental property. Your advice about which properties to look at was invaluable and saved me a lot of time. The solicitors and surveyors you recommended were also very quick and professional. The property you recommended that I purchase was, I feel, a very good buy & has rented easily with the help of your company. Thank you very much, I will definitely call you again when I want to buy my next property to rent.
– D Hesbrook , Worcester
As a passive investor I was looking to enter into a partnership with a reputable company, that combined a proven track record with a comprehensive range of But-To-Let services. After broken promises elsewhere, I was fortunate to meet Karen, who’s property knowledge, negotiating acumen and contacts have saved me £1000′s in acquisition cost alone & produced a portfolio of properties that had significant equity from day 1, are fully tenanted & deliver excellent returns. Anyone looking to invest in property should first talk to Karen and Concentric, especially if like me you are looking to reduce risks and have a fully managed portfolio for maximum returns, but without the hassle normally associated with BTL.