My Property Strategy – Opinions Please

by Readers Question

8:11 AM, 31st May 2013
About 8 years ago

My Property Strategy – Opinions Please

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My Property Strategy – Opinions Please

My Property Strategy - Opinions Please

My property strategy is to purchase 2 bed terraced properties around £130-150K value but try to buy from motivated sellers for £125K where possible. I have made one offer to date on a property listed at £145K owned by a developer who took it as a part ex, but they have (expectedly) declined my offer of £120K.

I currently have one property that I own outright and is my main residence. I am in the process of mortgaging this to raise £140k and also have funds of £70K half of which is in a cash ISA. In the areas I am looking rental values are £550 to £600 per month for this type of property.

I plan to buy my first investment property outright, then each subsequent property with a 25% deposit and BTL mortgage. I also intend to keep cash reserves of £30K.

My long term goal is to eventually sell the properties in 25 years.

I’d be grateful for any advice or pointing out any holes in my plan.



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7:18 AM, 2nd June 2013
About 8 years ago

You mention having buffer funds for voids and maintenance.
What is the biggest amount you might need that you have NOT mentioned and could cause the property to be repossessed!?
Guessed it!?......................................................Well it is rent non-payment!
So how would you service a mortgage if you had to evict a tenant who would be unlikely to pay rent if you are going to evict for non-rent payment!!?
Have you any idea as to how long it would take to evict a tenant.
Have you any idea as to the costs of refurbishing and for thefts caused by the tenant and the additional voids caused by such.
Have you any idea as to what may happen when UC is introduced.
Have you any idea as to how you would manage if you received direct payment of HB and then 'clawback'' occurred, possibly going back 6 years.
You haven't even begun to appreciate the costs that you need to budget for!
So the the question you need to ask yourself BEFORE you even bother about becoming a LL is this;

In the event that you have to evict a non-rent paying tenant would you be able to cover the average 9 months of mortgage payments it will take to evict during which time no rent would invariably be paid.
Would you be able to to cover the refurb and theft costs once the tenant is evicted which will add about 1 month onto a void and even then you have to source a tenant, so that will be about another month!
Don't even consider entering the LL game if you do not have the resources to cover this situation EVERY and each tenancy!
Of course you could enter and obviate such risk by only taking on tenants who you could obtain RGI on!
This means that it is very unlikely you could take on HB tenants as very few of them or their guarantors could pass a RGI check.
So forget all about these ioads of yield and the best properties to get.
Address the questions I have quoted and if you come up with a satisfactory response to those questions then by all means go ahead and enter the market.

One response that would NOT be credible; would be;

I would carry out full DD on a tenant and try and obtain a guarantor and hope that the tenant always paid rent.
Doing the job properly is NOT sufficient.
You need to have insurance or available resources to cover things when your no doubt excellent DD falls down and you end up with a wrongun non-rent paying tenant.
Apparently there are thousands of LL being repossessed because they did NOT address the issues I have mentioned.
Remember you could face this non-payment issue EVERY tenancy; unlikely I know, but you must be aware of the worse case scenario before you put your capital into property investing as a LL.
Too few LL appreciate the issues with County Courts and the lengthy eviction processes.
You must understand these BEFORE you become a LL!!

7:34 AM, 2nd June 2013
About 8 years ago

Matt; I forgot to mention that of course you can enter the market without bothering with addressing any of the issues I have mentioned.
Such a decision is based on the level of risk one is prepared to take.
You might ignore these issues and gamble on always getting good rent paying tenant........................well good luck with that strategy.
That would be your choice and yes you might get away with it; but so many LL are coming croppers as the economic climate worsens.
When the UC cap comes in this year in OCT there will be a lot of LL not being paid rent.
The choice for these UC tenants will be their food or rent!!!
Guess who won't be getting paid!!
There will be mass evictions so that these tenants can be housed more cheaply up North.
The LL will suffer enormous losses with no real expectation of any recovery from these HB tenants.
Just something to think about whilst you way up the pros and cons of becoming a LL.................good luck with your decision, whatever it is!

Mark Alexander

11:39 AM, 2nd June 2013
About 8 years ago

If I had read Paul's advice 24 years ago I may never have become a landlord. I may have saved £50,000 or more over that period of time based on the scenario's outlined in his posts. However, I could have saved most of that if I had followed the strategy I have evolved over this period and which I have shared here.

The choice is yours Matt, you could decide that Paul is absolutely right and that you should avoid becoming a landlord like the plague.

If you do that you will obviously need to find another alternative to build a business which is the only real way to create financial freedom in the long term. any business has risks but if you don't take risks you will have a J.O.B and not a business. You know that J.O.B stands for Just Over Broke don't you?

Paul will openly admit that he made a lot of mistakes early into his property investment business. It is those mistake which have influenced the posts he made above.

Many of the landlords who comment on this forum have attained financial freedom through becoming landlords. Many others aspire to do the same.

This forum exists to share best practice, NOT to put people off going into business.

Listen to everybody but be careful who you take advice from. Emulate success by putting into practice your own strategy tempered with the experience of other successful people and you will not go far wrong.

13:07 PM, 2nd June 2013
About 8 years ago

Thanks for all of the comments, this is exactly why I decided to post in the first place to gain insight and experience.

All of the above has given me food for thought and I am already amending my approach.

Paul has not put me off and I value comments from both ends of the scale. In fact I'm glad someone has given me some worse case scenario examples.

RGI is something I am interested in and will look to research further. At this stage my view is avoid HB tenants but I will continue to seek advice and ask questions of the forum as I progress.

Tony, I do like the idea of renovation. If I can find a suitable property I will certainly look at that option with a view to keeping and renting out.

James, I would be interested in speaking with you if you could provide contact details please?

Well, I have a viewing tomorrow on a 3 bed terrace reduced £17.5K to £100K, if its suitable I will be trying to buy much lower than that and if not move onto the next one :-).

Time to research negotiating!


Mark Alexander

15:49 PM, 2nd June 2013
About 8 years ago

Hi Matt

Here's a thread on negotiating >>>

Please help to support this forum by joining The GOOD Landlords Campaign

16:45 PM, 2nd June 2013
About 8 years ago

I think you are absolutely correct; most small LL get into this game without sufficient reserves and some come a cropper.
Most don't and they are fortunate as it doesn't matter how well you do the job you can always be undone by a wrongun tenant.
Well as you allude to the facts; that indeed I took the risks that I would not come a cropper; I gambled, I lost.
Had I adopted my advice I would still have entered the LL game but in a lesser fashion to leave sufficient funds aside to cover worse case scenarios.
I didn't know anything about RGI either as that would have definitely influenced my behaviour.
Clearly entering any business undercapitalised is how most small businesses start.
Essentially they wing it with fingers crossed and hope it works out; but they know the risks they are taking; invariably the family home is on the line!!
How many new LL appreciate that this is the risk they are facing when they do not adopt the strategy I mention.
Life is all about risk;but it is appropriate to understand the risks you are taking if you adopt certain strategies.
This is the issue that very few LL entering the market understand or even bother to ask.
I was the same 7 years ago!
I just wish I had asked those questions as I sure didn't know the answers then!
I would not suggest for one moment that LL are put off from entering the market.
Were I a newbie today I would have NO hesitation in becoming a LL but I would be aware of the questions I have raised.
I would hope I could satisfy the issues that I have raised; however knowing my mindset I would like you; say oh! to hell with it I am going to take the risk.
The difference being I would be doing so in the full knowledge of what could go wrong; that is the crucial difference for me between 7 years ago and now!!
I believe most small LL enter the market without the full awareness of what could happen if a tenant failed to pay rent.
So I say to all prospective LL; yes by all means get into this market as it could well achieve for you what it has for Mark and if you are reading this as a prospective LL you have really cracked it as the advice on this site especially Mark's posts explain the best way to do things.
It is just a shame property118 wasn't around 7 years ago' as I could have saved myself fortunes!

Sue P

12:30 PM, 4th June 2013
About 8 years ago

Just read where you are - there is a huge difference between the return you will get in Whalley and the returns in Blackburn. (And of course Whalley isn't Whalley Range.....)
The main reason is the price of the original property - I guess the terrace you are looking at is in Blackburn rather than Whalley.
The majority of my portfiolio is in the Ribble Valley. I get great quality tenants who often stay for years, attracted by the great location ( schools etc) and have very few issues regarding payment of rents & property condition. However the rents arent great - in face they can be the same as Blackburn where property prices are 25-50% lower.
If you go for cheaper property you may get a higher headline return, but higher voids, more damage, later rents and less capital growth.
I buy properties I would be happy to live in, present them in A1 condition and get very little hastle from my tenants. I am happy with the lower yield as the portfiolio take up very little of my time and I am happy with the capital growth.

19:26 PM, 4th June 2013
About 8 years ago

My thought process is along the same lines as yours and the reason I have been looking at the Ribble Valley namely Whalley, Sabden, Fence and my least favourite Read.

I have decided to continue looking at the Ribble Valley but supplement with other higher yield (possibly more headache) areas.

Good to hear that you are successful in that area.

Mark Alexander

19:41 PM, 4th June 2013
About 8 years ago

This and other similar discussions I've been having have inspired me to create this new calculator >>>

Arran Kerkvliet

23:40 PM, 9th June 2013
About 8 years ago

Hi Matt,

It is great to hear that you have connected with another landlord in your area who seems to be doing well.

If you are able to negotiate deal to a below market value price and add additional value or an extra room to maximise income that sounds like a recipe for success.

Having your buy-to-let portfolio in your local area gives you a greater sense of control and can often keep running costs low by self-managing the properties.

If you are open to properties outside of your area; I have a motivated seller who is prepared to sell his two bedroom apartment in Salford for £ 107,995. It was only built in 2008, so there will probably not be much you have to spend on it for a while. A Similar two bed apartment was sold in the same block in last year for £134,597.

The flat is tenanted with a rental income of £ 695 per calendar month. The Net yield after deducting letting management fees, ground rent and service charge is 6%.

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