Buy to Let starting out – Families DSS Student HMO?

by Readers Question

10:11 AM, 28th March 2016
About 3 years ago

Buy to Let starting out – Families DSS Student HMO?

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Buy to Let starting out – Families DSS Student HMO?

Firstly hello everyone. I am a 55 year old single man. I lost my job a year ago, and it was recently suggested to me I look at BTL as a business idea.start

I have my own home with clear equity of £200k, and liquid savings of approx. £60k. I am expecting an inheritance to come through in the next four to six months that will be around £400k.

I would be looking at buying properties for cash, no leverage to start with until I have a little experience. I am looking into properties in the North of England, and I intend to move up there as soon as possible. I have a friend who lives in the area with experience as a letting agent, her husband is a retired builder, and both are willing to help me where necessary, so there is good local knowledge.

I will only buy for cash to start with, probably with a start budget of around £300k but I would appreciate a little advice if possible. I am carrying out a lot of due diligence on the area, the types of property, local services, schools etc where relevant to the type of tenant I am hoping to attract. The area I am looking at is between Sheffield and Leeds.

Where I am in need of helpful advice is the best type of properties to go for at the start.

Do I look at buying five or so for £60k each and letting to DSS or similar low income?
Do I consider HMOs, for students or also DSS?
Do I consider fewer higher priced properties for small families and nicer parts (3 bed semis for example?
What about small but attractive flats for young individuals looking for small cheap rental accommodation?
Another possibility is two or three far cheaper properties that need renovation and then let or even flip?
A combination of the above?

Any advice is very gratefully received, thank you.

Stephen



Comments

Neil Patterson

10:14 AM, 28th March 2016
About 3 years ago

Hi Stephen, to help get you started I have the link for our Property research tool under the tools tab 🙂 >> http://www.property118.com/property-reseach-tool/

Chris Byways

10:58 AM, 28th March 2016
About 3 years ago

I am no expert, so would also be interested in the views of the very experienced folk here.

I would suggest not put all your eggs in one basket, prices could well fall - it has certainly spooked Osborne, and too some extent BoE. This is more likely in London /SE where prices have increased excessively, if there is any substantial drop outside the major cities then the whole economy will be screwed, so bricks and mortar is as good as it always has been, at least for diversity.

With an expected inheritance you won't stay single for long.......

Avoid HMOs, only for those with experience and wanting hassle/ challenge.

Avoid DSS, unless the impending returns increase to make it VERY worthwhile, (I am thinking of osbo's crass attack on PRS forcing DSS to be unviable)

There will be far higher churn and far greater unpaid rent ( and possible damage) with a number of HB tenants.

Flipping is far less viable with punitive anti property renovation measures - enhanced SDLT and CGT. CT on voids, or whilst work underway.

So I think that leaves my choice in your position, with time and assistance available, wide choice of area, buy cheap, within easy travelling of where you move to, at or after auctions, poor but sound properties, one at a time, in good areas, turned quickly to a high standard, and let out to professionals, or decent students that get a guarantor and can get RGI.

Gary Dully

11:32 AM, 28th March 2016
About 3 years ago

Hmm, so you think BTL is the place to be, do you?

Well you are in the fortunate position of having funds, so if I was starting in that position, I would want to know what path I wanted to go down.

Would I want my investor returns in lump one-off sums, such as flipping or office to residential conversions etc.?
Or would I want to build up residual income, with regular profitable rents coming in, that would be secure or a mixture of the two?

I would no longer offer to LHA claimants that's for sure, thanks to their associated problems and of being viewed as a leech on the poor.

I have always viewed capital appreciation as a bonus, so always make sure you have a built in rental return, if you become a landlord.

But the easiest way to,check what your market is to go to 4 local letting agents and ask them what they can't get hold of at the moment.

Ask them what properties would make their drawers of enquires disappear, what they can achieve in rents and then chew over the figures.

Then come back to us and ask again.

james pearce

11:46 AM, 28th March 2016
About 3 years ago

Hi Stephen,
Personally I've never done the whole DSS and HMO things as I perceive it as too much hassle and a big drain on time but I'm sure it works for many people.
I tend to buy properties that need renovation, tidy them up and look for good stable tenants. Not the greatest yield in the world but if you buy well you have already built a bit of profit in to the property whilst doing it up. A couple of years down the line it can always be sold on when you find another good renovation. In the South they seem to be very hard to find.
I have one flat which seems to be quite a lot of hassle, tenants always moving etc but it was a bargain 🙂
Horses for courses I guess but mine has been slowly built up over quite a few years.
G.O with his 3% surcharge isn't going to be very helpful.
Good luck!
Jim.

Mandy Thomson

12:04 PM, 28th March 2016
About 3 years ago

Hi Stephen

I would say that whichever type of tenant, property or location you decide on, please go and do a landlord foundation course first, and preferably get accreditation.

Even if you use an agent, there is only so much you can delegate to them; you still have to manage the manager as even with a very good agent, at the end of the day, it's not their property. Also, in most cases, you are still legally liable, not the agent.

As well as that, ensure that your tenants are thoroughly referenced with at least one of the very best tenant referencing services (such as landlordreferincing.com or homelet) and take out rent guarantee insurance (RGI).

I also second Chris Bytheway's suggested tenant choice, particularly for a new landlord.

Good luck.

michael fickling

12:30 PM, 28th March 2016
About 3 years ago

Stephen, Hi...1.... why get involved with the lower end of the market if you dont need to ? Aggro my friend...also often have to deal with third parties!!..Try and keep as many thirdies out of your enterprises as possible.
2. dont make the mistake the majority of us all have made ..that is buying near to where you live. Understand..truly understand!! that most of the gain in the property game ...over time.. is in capital growth.Therefore buy where you know capital growth will be best. Costs of management by an agency are all allowable ref tax anyway... 3,,, Avoid apartments generally they will not have the same capital growth generally and you are tied into a third party..the company that manage the block and many are damned hopeless. Also cant be developed Also they can get oversupplied in just a year or three!! Also when you come to sell you have more and simply comparable competition... these are just some of the negs .on apartments.....there are more!....4....Finally dont fall into the trap of having too many. properties..Go for quality mid market stuff in very high capital gain areas. Avoid very old and very new...go for stuff thats just a few years old. Cheaper to keep easier to rent and sell etc.
Every landlord will have a slightly different take on this ..but id take some shifting on point two and would say its THE most common mistake.....would you buy shares in a company just because it was handy to where you live . Note also the increasing Gov. led push to have properties "professionally " managed..is it likely to continue..yep..probably..??? ..so the "if theyre near i can do more myself" argument is getting weaker anyway.. Good luck.

Mike W

12:44 PM, 28th March 2016
About 3 years ago

Ok so you have £460k to invest. Why BTL? Why not the stock market? What do you think the net after tax return will be? Will you use a company? Do you know the area? Will you self manage? How much do you know about the regulations? Do you want an easy life?
Frankly with all the anti landlord rhetoric and regulation and taxation I don't think I would choose BTL today. .

Chris Byways

13:00 PM, 28th March 2016
About 3 years ago

Why the stock market? 3 months ago it seemed a fairly safe bet, now it's 15% down, and with the Clown we have trying to juggle the economy, it's at least 50/50 it will drop substantially further, or, 50/50 it's a buying opportunity. Brexit is a known unknown. So is the eventual disintegration of the Euro. So a bit of diversification seems best policy for a windfall.

Commercial property looks a far better option to me. No c24, I don't think the vindictive extra CGT applies, nor the higher vindictive SDLT, nor the insane vilification of LLs who help those that want to rent / need to rent.

I only have a couple of commercial properties, but if I were to buy more property, it would not be residential with this deceitful goon in office.

james pearce

13:06 PM, 28th March 2016
About 3 years ago

Some interesting stuff from the guys above.
The day BTL appeared in the daily mail I knew we were in trouble!!
BTL will be a rocky road over the next few years I think.
As I understand it holiday lets are not currently covered by c.24. so one to look at??
I have been keeping my eye out for commercial stuff recently.
Its only worth buying residential now if it represents exceptional value but thats tricky to find.
Time to start consolidating a little debt over next year or two is my view..

Robert Mellors

13:50 PM, 28th March 2016
About 3 years ago

Hi Stephen

I have properties in the Sheffield area so I know this type of location. Personally, I mainly let to DSS/LHA tenants, as this is my specialist area of expertise, but as has been indicated by others, this is not a popular tenant group for most landlords for a wide variety of very valid reasons, so unless you really know how to navigate your way around the peculiarities of the Housing Benefit system then I would suggest that you stay away from this market as it is very risky.

I would also advise people to stay well clear of buying flats, because there are often problems with the freeholders or management companies etc, including lots of "hidden" costs.

In relation to HMOs, these bring with them lots more hassle, costs, and risks, and they will seriously drain your time and resources. If you want to be very hands on and really get involved with managing properties and tenants (including tenant disputes), and have the time and stomach for this, then by all means go for HMOs, but if you want a more peaceful existence then stay away from HMOs.

As to location, I would suggest that you buy properties within a 30 mile radius of where you will be living, as this is then easily accessible as and when required.

As to what properties to buy, 3 bed semi's or 3 bed terraced properties (ideally with two reception rooms) tend to offer the most flexibility and they hold their price quite well, and are likely to always be in demand.

As to which tenant market to aim for, this all depends on what return on investment you are seeking?, and how much of your own time and effort you want to put in to it?
- If you want a potentially high rental return then you have to put in more effort and time and take higher risks, e.g. find your own tenants, manage the property yourself, accept the risks and pay for these if things go wrong.
- If you want an easier form of property ownership and it being a hands off investment, and are satisfied with a small profit while waiting for the capital appreciation, then you could lease to a rent to rent organisation, e.g. a council or housing association (such as mine) which leases your property for 5 years (renewable), gives you a reasonable guaranteed gross yield (around 5 - 7%), but then takes on the responsibility and risks of finding and managing tenants and the property.

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