In London we’ve seen house prices dip over the last year or so and in other places in the UK they’ve actually gone up. In my area – Hampshire they seem to have levelled and there is certainly a shortage of properties on the market for sale.
However with the recent tax changes, there are landlords who have been investing for many years, who are finding that their properties are no longer profitable. They also have a potential issue with capital gains if they sell because of the huge price rises over 10-20years.
Then there’s Brexit – putting even more uncertainty into the marketplace, more motivated sellers which can be positive for investors looking to negotiate.
Why do I say this?
Well only last week I was contacted by a landlord who I met a few years ago. He has many properties in his portfolio but there are a few empty and he’s restructuring. He asked if I might be interested in leasing one or more of his larger properties. What do you think I said?
Now I’m not advocating its easy, as to lease a property to then rent out (sometimes called Rent to Rent) you need to have a great education and good knowledge of the potential risks. It is something we’ve done a few times already, so that gave the landlord the confidence that we knew what we were doing.
No matter what the opportunity you must always make sure that the basic rules are checked. Don’t be motivated by what you read, or by what sales courses tell you – always do your own due diligence!
My mentor Simon Zutshi taught me his 5 golden rules – which is a theme in my teaching on my course too. You need enough of an education to minimise the risks of investing and maximise your profit. Here’s a brief summary of these rules:-
- Always buy from motivated sellers – there’s more likelihood in the current marketplace
Instead of looking for a property you like and then negotiating with the seller, you need to find motivated sellers who will sell you their property well below the market. The amount of discount will vary depending on the motivation of the seller and the general market conditions. In a rising market you may be happy with a 15% to 20% discount. In a falling market you would want a bigger discount of 25% to 40% to give you more of a safety buffer in case prices come down further.
- Buy in an area with strong rental demand – we’re still not building enough new houses in the UK so demand still is strong
You must make sure there is good rental demand in the area so that if your tenants ever leave, you can quickly find replacement tenants at the full market rent. You don’t want to have to pay the mortgage if there is no rental coming in! You can easily check the demand in the area by using the internet and speaking to local letting agents and other investors.
- Buy for cash flow – don’t be a motivated buyer – always do your sums first and try to view a property before others
Your property should create a monthly positive cash flow for you so that it is an ‘asset’ rather than a liability. Although we expect property prices to rise in the long term, if you buy your properties “as if prices will never go up again” you will be forced to only buy properties which give you great cash flow now. Extra cash flow will help you to build up a cash buffer and will help you cover potential rises in mortgage interest rates in the future.
- Invest for the long term buy and hold
Some investors buy and sell property to make a profit. The real profit however is in buying and holding for the long term to benefit from significant capital growth and to avoid the market crashes too. If you plan to hold for the long term and your property is rented out creating a positive cash flow you do not mind short term fluctuations in price. In the current market I’d say 5years minimum.
- Have a cash buffer – or find someone else to work with who has
The investors who get into difficulty are often the ones who do not have any spare cash to access in case of an emergency. As an investor you will incur unexpected costs (e.g. boiler breakdowns, roof leaks) and so you must have some spare cash to cover these instances. The size of this buffer depends on your personal level of risk.
So if you want to reduce your risks, get the best education you can and from someone who has experience and is an investor themselves.
Brexit is a fantastic opportunity in my book – so get going, get learning, get practising.
Contact me here for a chat about how I can help https://calendly.com/bronwen-pif/1-1-consultation-with-bronwen