My property investment career – please help me to make some choices

by Readers Question

8:31 AM, 3rd October 2013
About 7 years ago

My property investment career – please help me to make some choices

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My property investment career – please help me to make some choices

I have questions which I’m sure many people outside of property investment ask themselves before drawing a blank or getting confused or deciding they don’t have enough information to make a decision.

“How much money do I need to begin a viable property development business?”

And

“What’s the most sensible route as an entry point?”

I’m in a position right now to seriously consider this, having just been given notice of redundancy. I have savings, shares, redundancy money and the option to release equity in a flat I have which I currently let out. Altogether this would amount to around £250k. Below are the scenarios I’m considering as viable options. It may help to know I’m 45 and have a family of dependants:

1) All in – Devote all my energy into buying high yield properties in the north of England, circa £50-60k @ £400 to £450 per month rent. My property investment career - please help me to make some choices

Pro’s

• Lot’s of fun and what I would prefer – an adventure!
• Steep learning curve
• Large portfolio to spread risk

Cons

• I’ve no experience in managing a large portfolio
• Lower equity yield than most property
• I live near Watford
• Can I deal with the admin?

2) Eggs in one basket – Buy 1 or 2 flats in west London (where my current flat is), @ between £1,2oo to £1,700 permonth rent

Pro’s

• High equity yield from London Cross Rail benefits
• More local to maintain
• Easy to rent to professionals

Cons

• Low rental income means it could not be my “new profession”
• Lower relative rental yield than north England option
• Slow way to build portfolio

There’s a third option which would be to buy up to 8 houses in South Wales, where I originally hail from, which would give me a geographic advantage and I also have family and friends who are tradesmen and could possibly manage the properties, which falls in between the first two options.

As you can see from my options, I’m stuck between the pragmatic and the adventurous options and I may not get another opportunity to chase my dream again, but I’ve got a lot at stake if I fail.

One of the things I’ve been interested in pursuing is a mentor system where an old hand in the housing game could act as mentor, for free, or a small stake in the business. Maybe someone who works in a different location, is semi retired, or deals with much bigger fish, so as not to have any conflict of interest. Does such a thing exist? If not, is that something we can kick off in this forum?

What I’m seeking from you all is your opinion or advice, all of which will be gratefully received!

Regards

Matt



Comments

Mark Alexander

9:12 AM, 3rd October 2013
About 7 years ago

Hi Matt

First base is to ensure that you will be able to get mortgages. The fact that you are under notice of redundancy may well make this difficult. A good starting place would be to have a chat with Howard Reuben, the following is a link to his member profile >>> http://www.property118.com/member/?id=314

With regards to properties, and subject to availability of finance, I would suggest 2 bed houses or bungalows in one of the provinces with strong employment. This should give you a decent balance between rental yield, capital growth, minimal management and a supply of decent tenants.

Try to buy properties where you can add value, tired suburban bungalows are best for that in my opinion. You may be able to make a decent living by purchasing a couple of these every year, refurbishing and then selling them on after an initial six month letting period so that you are only tax on profits as capital gains as opposed to as a trade. In this regard I suggest you also engage with an accountant who understands the property business, the following is a link to the member profile of my accountant, he works with property people from all over the UK >>> http://www.property118.com/member/?id=452

If you are buying out of area you are going to need a good managing agent, check out Letting Supermarket.
.

David Carlisle

9:15 AM, 3rd October 2013
About 7 years ago

In Hull where I'm from you could buy 4 properties and still have some change for some renovations.

In Stoke Newington (North London) where I have just bought a flat you could probably only afford one property, namely a one-bed.

Now, the income for both situations would be fairly equal (£1500-£2000), but by buying in the North you need to take into account house value fluctuations. Since I bought my flat for £250,000 6 months ago it has increased £50,000 in value. In the mean time house prices in Hull have increased by 3% (if that).

When you also factor in that rental prices in London are only ever going to increase (bar any ridiculous capping system), and way ahead of inflation.

London - Less risk, less effort, more money.

That's where I stand anyway.

9:16 AM, 3rd October 2013
About 7 years ago

Hi Matt

My family business is based on self management, we own properties spread across the UK wherever we have family members, most of which work in the construction industry.

It only costs us £5 to find a tenant and 5% of rent to get the rent paid to us on the due date GUARANTEED whether our tenants pay or not. We do everything else ourselves.

You can read more about our strategy via the link below.
.

Tony Atkins

9:43 AM, 3rd October 2013
About 7 years ago

Apologies if what I say is a downer, but you've asked for honest opinions. What you are proposing is not property development but property investment, which is a low-yielding long-term game. In my opinion whichever route you take is going to take at least a decade to show any worthwhile gains, and will not give you enough income to make it your full-time occupation. If you try to live off the income you will reduce your gains and your ability to manage the situation financially if something goes wrong.

I would never, ever consider investing in the north if I lived in Watford. If something goes wrong, you will be on your own, shuttling up and down the M1 or M6 trying to sort things out. You need to live within at most an hour's drive of your properties so you can manage them properly. If you outsource the management to a letting agent, you may get lucky with a good agent, but it will reduce your income yields by 20%. You may also choose an average or bad agent who simply washes their hands of the situation if one of your tenants proves to be a non-payer or trashes the property. This is not a minor risk: the BTL market is littered with landlords who have been burnt or even financially wrecked by a rogue tenant. The Wales option is better, because it sounds like at least you have some good emergency contacts you can really, genuinely trust - or can you?

The only real way to grow a decent property investment portfolio that you can live off is to gear up, which means mortgages. Butt you won't get a mortgage if you don't have a job. If you're self-employed, no-one will lend to you for at least three years.

The other way is to do property development, perhaps gradually establishing some rental income on the side to live off and provide a top-up pension. However £250K is not much to play with for development, especially when you can't get a mortgage and especially when you have significant living costs for you and, more importantly, your dependents. What are you all going to live off while you are doing the development work? It might be possible to move to a cheaper part of the country, rent a house for your family, buy a wreck for cash, do it up and sell into a (hopefully) rising market, then move onto the next project. You will definitely be adding value then, not just living off rents, and you will get better as you become more familiar with an area and establish local contacts.

Another option is to raise further funds from family, and/or go into partnership with someone else, perhaps a good builder who needs more capital, or someone else who has a job, capital, and is interested like you in some development on the side.

However given your limited funds and the needs of your dependents, I would focus on finding a new job, perhaps also relocating to a cheaper area so you can pursue development and/or investment as a sideline and gradually build up your experience. Or find a new job in your current area and pursue the Wales option. Just don't expect to get rich quickly!

Lucy McKenna

10:12 AM, 3rd October 2013
About 7 years ago

Reply to the comment left by "David Carlisle" at "03/10/2013 - 09:15":

David, I like the one in London scenario, why have 4 tenants when you only have to deal with one. And the appreciation in London is a really good point. I would say too be very careful when taking on mortgages, remember sometime they will surely go up again and with even only a fairly small mortgage on a property it can become difficult to make a profit and you rely on appreciation. I realise one property will not make a business but be very careful when taking on mortgages at todays interest rates.

Mark Alexander

10:17 AM, 3rd October 2013
About 7 years ago

Reply to the comment left by "LucyM " at "03/10/2013 - 10:12":

Very good point Lucy, I forgot to mention our analysis tool which calculates return on investment and break even interest rate.

See >>> http://www.property118.com/landlords-buy-to-let-property-investment-strategy/calculating-rental-yields-and-returns/
.

Scott Scott

10:21 AM, 3rd October 2013
About 7 years ago

Have you considered Stoke on Trent? It has a massive rental market, 3 universities and has 2 army units moving to the Stafford area from Germany in the next couple of years. This will increase demand for housing as most soldiers will look to get on the property market pushing up prices and reducing the supply of private rented properties this pushing up rent prices.

Lucy McKenna

10:37 AM, 3rd October 2013
About 7 years ago

Why not one studio in central London, if you are quick they are still there, going up daily. Just three rooms to decorate maintain etc. (with 2 bed properties you are looking at 24 rooms) admittedly you have service charges but you do not have roofs to deal with and exterior painting etc of 4 properties. You will have no voids not even a few days, and you are on hand, easy. Oh forgot you will get much nearer to £1700 for a studio in central London.

Scott Scott

10:56 AM, 3rd October 2013
About 7 years ago

Providing you get a new job you can buy 13 BTLs at £60,000 each paying a 25% deposit and leaving you £55,000 for referbishments and as a buffer.

There are many places to buy this cheap and it doesn't need to be up north. Tipton and surrounding towns, Stafford and Stoke are ideal for the kind of venture.

Check rightmove for each of these areas. 2 beds or more, non shared, under £70,000. Although a property is listed at a certain price doesn't mean the vendor wouldn't accept less 🙂

Good luck

Lucy McKenna

11:05 AM, 3rd October 2013
About 7 years ago

Reply to the comment left by "Scott Hymas" at "03/10/2013 - 10:56":

A new job, 13 BTL and a family!! An awful lot to manage. Use the mortgage calculator that Mark recommends, it looks really good. Please remember to factor in interest rate rises, this is all important, (and the 13 kitchens, bathrooms etc etc etc)

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