Newbie property investor seeks advice

by Readers Question

10:00 AM, 19th April 2013
About 6 years ago

Newbie property investor seeks advice

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Newbie property investor seeks advice

Newbie property investor seeks adviceI am just getting started off in the property game and my ambition it to set up a small portfolio of properties for a steady rental income. I aim to keep this portfolio long term as a pension for my wife and I and something to leave for my children.

I am looking at the low end of the property scale in Liverpool and have been to one auction so far without buying basically just to familiarise myself with this new world to me. I have also visited several potential rental areas around Liverpool and spoke with a few contractors. I’m looking at properties that either have tenants in all ready or that are ready for immediate occupancy.

I have spoken with a property management company in Liverpool and they seem to make the right noises I assume they all do. I am asking them about the in demand rental areas, whether to aim for DSS or private or students, unfurnished or furnished, guaranteed rental income from companies like Ensleigh Insurance (was told the clients I would be attracting wouldn’t meet their minimum requirements for insurance purposes by let agent).

I don’t have any experience in property and Im trying to read up as much of your blog as possible. I now have many more questions than answers, lol.

I want to start this prop business off on a good footing. I’m wondering about setting a new uk company up to minimise tax can you point me to a recommended article to guide me through this minefield? I have also been advised by developer friends to look at buy to let mortgages as I was originally looking at cash purchases for approx 3 props. They suggested borrowing 60% and using my cash as a 40% deposit to buy more properties for my portfolio.

Due to my inexperience I intended to buy 1 property initially (after my due diligence) then once rented out move on to my next property. I am reaching out to you as your blog is inspirational and you have 24 years experience in this field. Any advice you can spare I would consider priceless.

Sorry for the long message but its a bit daunting for a newby!

Cheers – Stuart

PS – My background is SEO so its always nice to come across a well structured and well designed site.



Comments

Mark Alexander

10:31 AM, 19th April 2013
About 6 years ago

Hi Stuart

Presumably you are looking at Liverpool as you live there? If so that makes a lot of sense. It's a very cosmopolitan city and has opportunities at every end of the spectrum.

I would begin by saying that auctions are not a good starting place for a newbie. Yes there are bargains in them but you really need to do a lot of due diligence before you buy as there are a lot of properties in auctions because they have problems associated with them. As a newbie you might get lucky or you might get caught out. Be prepared to do due diligence on upwards of 50 properties before you bag yourself an auction bargain!

You say that you have been advised that you will not get RGI on the type of tenants you will attract from the properties you are looking at. Again, that's no starting point for a newbie. If you aim at the bottom end of the market you will get tenants at the bottom end of the market and that can be fraught with problems too. There are so many changes in legislation and problems associated with benefits I can't begin to tell you all the issues you could encounter in this market.

I suggest your starting point should be to look for deals which are likely to give you the least hassle. Modern two and three bed houses are a good starting point, the types of places which working newly weds would like to rent from you. The gross yields will not look so attractive but you will be able to do your sums and know that they are realistic, i.e. rent minus mortgage interest, management costs, RGI policy, insurance and a budget for maintenance and void periods of say 18 days every two years.

I agree with the people who have advised you to consider financing. If you can get the figures to stack up such that your gross rental yield is greater than the mortgage interest then a sensible level of financing will increase your returns on capital invested. A sensible level of financing will, of course, leave you a margin of profit after taking into account ALL costs. You should also keep some money in the bank for contingencies. A common mistake is throwing everything you have into buying and then having no reserves when things go wrong and believe me, they will at some point and it's never a convenient one.

Please take a look at my Top 20 tips for Landlords as several of my contacts may prove useful to you to drive your costs right down. See >>> http://www.property118.com/?p=35936 There's a lot of reading for you to do here!

Feel free to keep asking questions on this thread and it will be interesting to see what advice other experienced landlords chip in.

PS - thanks for the compliments, much appreciated 🙂

Mary Latham

11:46 AM, 19th April 2013
About 6 years ago

Welcome to the world of landlords. You cannot imagine how nice it is to read a post from a person who is starting out in the right way. Doing the homework BEFORE buying propery is very rare and many people think that it is all so easy.

I do not give advice but I will give you my opinion based on your criteria ie long term investment, pension income & the next generation and also the area in which you are buying. Another good decision by the way long distance letting is more complicated than it looks and buying in a area that you know and where you can get to the property quickly is a very good plan.

I hold many of my properties in a limited company because we can give shares to our children without tax but we cannot give them properties. You can also control the way in which you withdraw the income - get some good tax advice but don't use a creative accountant - the taxman knows who they are and they may attract too much attention. Keep it simple and pay your dues but make sure that you are set up in the most tax efficient way for you.

I agree with Mark avoid the bottom end of the market, particularly in Liverpool where they are using many regulations to control landlords. Buying properties where working people want to live is a good investment. Buying houses rather than flats will give you more control over the property and reduce your overheads. Letting to a family or couple will give you lower gross yields but long term will cost you less, give you longer tenancies, less day to day work and will avoid a lot of regulation that applies to HMOs. I was told when I started out to buy the worse house in the best area because you can always improve the property but you cannot improve the area - this was the best advice I ever had and I have stuck to it for 41 years.this has meant that my properties have increased in value and I have very few voids. I can see why it is tempting to buy a property that is either let or ready to let but you will pay a premium for those properties and its just not worth it. Taking on exsiting tenants can bring its own problems and I have always preferred to choose my tenants. I use an on-line letting agents to find my tenants and this works really well and costs very little.
I also agree with Mark about auctions this is not a safe place for a new investor.
You can find many bargains by choosing the area first and trawling around to find all the properties on the market in that area. You can do this online but I like to look at the outside myself. View them all, don't be attracted to new kitchens and bathrooms - they are fairly cheap - look at the structure, the EPC rating, the room sizes, all the things that cannot be changed or are expensive to improve. Look for potential to extend or improve the property to add value in future. My favourites are Victorian terraces - you can do anything with these because they are so well built. Put in silly offers on every property that you like and just keep doing it until someone bites - there is always someone who needs a quick sale, take your time don't listen to the media reports of property prices increasing.

I know that the student market is very tempting but your local authority are all over those properties and there is more to come. The student maket is a falling star in my opinion and the cost of buying a student property only works if you get student tenants paying high rents - numbers are dropping and in my opinion will continue to drop and many landlords will be left with empty properties that do not stack up at lower rents.

Finance is not my bag but the only way interest rates are going is up - do your sums based on a 1% increase in interest rates and as Mark said leave yourself some money in the pot - there is always something that needs to be repaired, replaced or improved and even good tenants do not always take good care of our properties.

MOST important. Find out all the regulation and legislation around being a landlord and if you choose to use an Agent to manage your properies make certain that they know the job. Go to landlords meetings, National Landlords Association run regular meetings in your area, you will find details on the web site, and you don't need to be a member to attend - although being a member gives you access to on-going support, advice, forms etc and is a good investment at less than £100 a year.

Finally always remember that you tenants are your customers and treating them with respect is key to being a good landlord - you are providing their home and there is nothing more important than having a nice, safe secure home. They are paying for your financial freedom and they will have control of your expensive asset nurture good relations with them even if you do use an agent - you cannot devolve your legal responsiblities to an agent the buck stops with you.

I wish you success and if you need to know anything you have come to the right place because so many experienced landlords are happy to share our experience and tips here and this really can make a difference.

Follow me on Twitter@landlordtweets

12:16 PM, 19th April 2013
About 6 years ago

Hi Stuart,

I echo Mary's comments. It is great to see you starting out from a position of wishing to educate yourself. This will minimise your risks and also maximise your returns. 🙂

Funnily enough, we have a current and very valuable discussion on Property Tribes that is from another newbie trying to achieve what you are setting out to do.

http://www.propertytribes.com/buy-let-strategy-for-building-portfolio-on-side-t-7845.html

Have a read through it as I am sure you will find it helpful.

There is no "one size fits all" in property, so always think of your own personal circumstances and the end goal, as that will dictate how you move forwards.

There are many sharks in the property arena as well, who will promise you instant riches and that you can be a millionaire in one year. Please steer very well clear of such "advice" and "strategies" as they often amount to fraudulent or unsustainable practices.

Never take anyone's word for anything in property. Do your own intense research and due diligence and you won't go far wrong.

You may also enjoy my "Top 10 must read discussions for novice investors" ....

http://www.propertytribes.com/top-10-must-read-discussions-for-new-investors-t-7030.html

Good luck and read up as much as you can as well as networking, both on and offline with other landlords.

Mark Alexander

13:08 PM, 19th April 2013
About 6 years ago

I completely agree with Mary on the point of taking solid professional advice from a good accountant. I would add, make sure they are landlords and that they work with a lot of other landlords too. Our tax strategies are obviously different as my accountant has advised me not to consider Ltd. companies unless I am buying to refurb and sell on. The other point I didn't mention about Ltd. companies is that there are very few lenders in that market, hence the ones that are don't need to be as competitive.

Jason Holden

15:28 PM, 22nd April 2013
About 6 years ago

WOW, a lot of questions, firstly, some of the properties in Liverpool that are cheap will never see capital appreciation and are therefore great for rental returns only, so this is something you will have to bear in mind, these type of property usually rent to DSS also.

As for how you buy them, this is not a one size fits all Q&A and as such you really need to take the appropriate advice, this is an area we deal with as we act for landlords of various sizes in the north west, as such this advice is given by our Chartered Tax Adviser to ensure best advice.

Regarding using your own money, the more you put down the less you have left over for anything else, that is something only you can assess.

Sorry if I have not been of more help but there is a limit to what advice should be given without knowing more about someone.

You can always contact me at my office for a quick phone chat if you like, there is no charge for such a chat.

Jason

Gillian Schifreen

17:29 PM, 22nd April 2013
About 6 years ago

I agree that you shouldn't aim at the bottom end of the market. Low mid way is a good place to find good tenants. I have taken DSS tenants, currently one of mine is, but I know her and her family. Get a good reputation, don't mess tenants about, get repairs done quickly and always be fair and you'll find fairly quickly you'll be able to pick and choose. Now I never have to advertise my properties, word goes out one may be coming available and the phone never stops.

Also consider letting to dog owners. They stay longer and are prepared to pay for professional cleaning when they leave which will save you money.

19:25 PM, 22nd April 2013
About 6 years ago

SirI am a disabled man, and having bought a house to live in, I found that I needed more help than I wanted to admit, so I have returned to sheltered accomodation. I was told by my accountant that letting the house would be a good idea, which I did unfortunately flitting from one agent to another, seeking the lowest letting fees! This was a mistake, as the cheapewr agents made up their money in underhand ways, nearly making me give up altogether and selling the house. Fortunately my original sagents took me back so my troubles are over, but don't be conned by cheap letting fees, they will find their money from somewhere!

19:49 PM, 22nd April 2013
About 6 years ago

Hi Stewart,

Sounds like you have £180k to invest, and now is a great time to jump in, however I might caution against buying all 3 this year , in cash with no experience.

In My experience (est 1992) spread your risk and take advise wherever you can.
I would buy 1 or 2 on a btl mortgage see if you like the game before piling cash into it. you will still reap the benefit of any capital apprieciation in this improving market and not have dived in to find dss tenants are not your prefered workmates.
You will also have a ready cash pile to jump in for bargains if you feel comfortable with the risk.

Agents are like stockbrokers they will tell you its a great time to buy or a great time to sell so long as its through them, they all look after thier biggest portfolios first, so you will never see the spotless tenants. They are great if you just want a buffer between you and the tenant, and for the 8% some charge its deductable from tax and really you should'nt be too worried about tax implications with 3 low end rentals in liverpool,
I personally prefer the single mother dss tenant (over 25) this is not a lonely hearts ad just they will always have thier benefits safeguarded by the government and if you intend to be a good landlord , they will ordinarily be long term once the kids are settled in schools.

As a newby i would steer clear of furnished if your in the low end market as crappy areas attract crappy tenants and they wont look after your inventory as well as you hope. Also at the low end of the market the working tenants tend to be more migratory, so for long term go for DSS.

good luck
J

Don Holmes

22:06 PM, 22nd April 2013
About 6 years ago

Hi Stuart
as an expert in the Liverpool property market, investing, managing, renting, buying, selling and maintaining since the mid 80's I thought my input might assist you.

In the first Place Merseyside is a fantastic location to invest proven by the hordes of Southern investors who invaded the area during the early 2000's and who are doing so again, they can't all be wrong,

It is quite right to say if you buy low you will only attract bottom end applications, but it is quite wrong to say they will not improve in value, because believe me they have and they will, I have bought properties at 9k 10k 30k 50k and all have improved in value over the years, the drop in values over the last ¾ years has brought us some 40 and 50k opportunities again,

I believe it is also quite wrong to say that "don’t believe the hipe about increasing values”, every property in a recent auction made almost a third more than guide price recommendations, I am seeing it on a daily basis prices are increasing in this area as they are in many other areas, I have already predicted the end of the BMV deals in the very near future I know this fledgling industry don’t like to think so but watch this space.
I am still active as a DAY JOB not part time investing and managing properties across this region and would be happy to meet you and offer you any advice I can on location, type, condition and costs we are located in central Birkenhead 1.3 mile from L/Pool city centre and have 5 branches across the region visit us at http://www.godirectlettings.com or call me any-time on 0151 652 5142. Regards Don Holmes.

23:51 PM, 22nd April 2013
About 6 years ago

Hello, I started our business with £50K and set up a limited company. That way you buy properties in the company name and all your tax, inheritance tax and every other personal tax is bypassed. The company pays the tax. You appoint the children as directors along with you. You can take dividends instead of a salary and so can your children....for ever. It saves an awful lot of hassle.
Buying a house and renting it out isnt very profitable.
You need a house in multiple occupation to make money (HMO) and a good agent (hopefully). Close your eyes and let the agent get on with it.
This is an investment and not somewhere you will ever live.
You also need to spread the risk...different areas, different types of tenant and different agents.
Good luck!!! it certainly works for us!!! email me if you need to pass anything by me. You'll need an accountant. I pay £91/month and they do everything.

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