Choosing a flat for rental investment

Investment in Buy to Let properties has become a popular strategy in the UK for those developing a portfolio either for income or as a retirement investment.  Compared with other investments property is seen as relatively risk as property prices only go in one direction over the long term yet the return on investment is competitive and steady over time.   Those building investment portfolios often start with smaller properties such as flats, for which there is strong demand at the lower end of the housing market for singles, coupe sand sharers who have yet to buy a property of their own.  Putting aside the financial criteria for investment (balancing the expected income with budgeted costs) finding the right property can make a big impact on your investment.

If you’re going to buy a flat or house for investment then here are a few top tips for you:

1. Try to narrow your search from the start by making a list of criteria for your prospective property. Work out which are the most critical, and which are less important to you.  Does it need to be near where you live, for example, or be a certain size for the rental market you’ll be targeting?

2. Put yourself in the place of your future tenants. Make a list of things they’ll be looking for.  If it’s a student town, how close is it to the University, town centre and other facilities?

3. Price.  How much you can afford to spend will be limited by what you can borrow and what savings you have available but you might not need to spend all of it.  Doing a budget to work out what return you’ll get on your investment may be a better way to decide how much to spend than simply buying a property at the top end of your budget.

4. Sale-ability. If you don’t intend on holding on the property for the long term, how easy will it be to sell on?

5. Do your research. Try to gather as much information as possible concerning the flat or house. If you’re serious about the investment then this time will not be wasted and you can avoid nasty surprises later.  It’s worth checking any information given to you by the vendor and their estate agent unless it comes via their solicitor.  Visit the property as many times as you need to feel comfortable.

6. The area is as important as the property. Research of the local area well amnd speak to neighbours and locals to get a feel for the place if you don’t already know it well yourself.

If you have any tips of your own, let us know in the comments below.

Golden Rules of Property Investment

People have been investing in buy-to-let property for years, nothing new there.  For centuries tenants have been renting from landlords, but it’s only been recently that the average ‘man on the street’ has had unprecedented access to finance products to use for investment purposes.  Until the credit crunch bit, lenders were practically falling over themselves to provide buy-to-let finance.

However, since the economic downturn, the cost of buy-to-let finance for lenders has increased dramatically.  Lenders are now reviewing their lending criteria so that only those cream of the crop investors get the best deals.

If you are serious in investing in property and you have the finances to do so, the market is still viable, but you should review our golden rules of property investment before you start.

Research is King

You wouldn’t buy a car without knowing the make, model or mileage and the same principles apply to property.  Even more so!  Research your market thoroughly including the area you are thinking of buying in, any regeneration plans, the local transport links, and also other amenities such as schools and shops.  Any property 10 minutes away from transport and local amenities is a safe bet!

Location, Location, Location

Consider who your ideal tenants would be.  You need high quality locations to attract quality tenants.

How to Buy Well

When purchasing a property, consider content and price.  This could save you money in the long run if white goods and furnishing could be included in the price too.

Make the Numbers Work

Buy a property that supports capital appreciation.  Make sure you include all the costs involved in the property purchase including legal fees, service charges, stamp duty, contingency and ground rent so that you can afford any void periods that occur between tenancies.  Many people ignore these costs and it can be a catastrophic mistake.

Use the Right Advisors

It’s essential that you use good mortgage and letting advisors.  A regulated advisor will ensure you have access to the best deals that are free from any fees and which operate in alignment with your investment plans.  A good letting agent will work to keep void periods to a minimum.

Don’t Expect to Get Rich Quick

Property investment needs to be approached with care and patience.  This is a long-term investment opportunity.

Supply and Demand

Speak to local agents to see what is particularly needed in your chosen area.  This will help you to meet the need and to attract tenants easily.

Head Not Heart

Don’t be ruled by your heart when making decisions.  If you are not going to be living in your investment property you should only furnish and decorate it to a clean and basic standard unless you want to attract high end professionals.  Speak to local agents to understand the quality that is expected.

Avoid the Gimmicks

Be wary of any deals offering incentives, such as no money down for example.  Also, so-called get rich quick schemes should be avoided like the plague.  A few years ago these might have been worth a punt, but not right now.

Keep Pricing Real

Never pay over the odds when purchasing an investment property.  You should never pay up-front fees, finder’s fees or commissions prior to completion.

In summary, your aim should be to find a property that generates long-term wealth.  There are many solid investment opportunities out there for those with the finance available.

Spotlight on Below Market Value (BMV) Property

Put simply, Below Market Value or BMV properties as those that are available to purchase below their market value.  Normally this is because the previous owners experienced financial difficulty or needed to dispose of their property quickly without the protracted sales process.  The reason for this is usually the threat of repossession.

The official guidance from the Royal Institute for Chartered Surveyors (RICS) about how a surveyor should value residential property is contained in Appendix 5.1 of the Royal Institute for Chartered Surveyors Appraisal and Valuation Standards (Red Book).  The foundation for the valuation of a residential investment property is normally its market value.  Market value is defined in the Chartered Surveyors hand book as:

‘The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.’

If a property was marketed properly and then a sale agreed, a landlord might consider that they got a BMV bargain.  But this isn’t always the case.  For instance, let’s say an investor buys a property for £180,000 and a year previous to that a similar property sold for £200,000.  The landlord may consider that they have bought the property at 10% BMV.  If we look at the guidance set out by RICS the investor has just actually paid the market price.

So, do BMV properties really exist?  They do and it all depends on whether the property was fully marketed before sale or not.  These situations occur when buyers are given access to ‘motivated or distressed sellers’ who don’t want to go through the normal process of sales and marketing or cannot afford to.

Locating motivated sellers is usually quite simple if you are in a good position to buy.  Targeting your local area with adverts or leaflets is one way.  You could also contact your local estate agents highlighting your interest in property bargains and that you are a potential cash buyer of residential investment properties.  Even if you need to arrange a mortgage for a bargain property it’s still possible to flush out some good deals.  Persistence pays in the current market.  Make your name and number known and make it clear that you are serious about making a purchase.

As with any industry, the BMV industry is rife with rogues and dishonest middlemen.  Those posing as BMV gurus are often anything but and just after preying on those desperate to sell and in a distressful financial position.  Their main concern is with making a massive profit between desperate seller and landlord.  It is much better and easier to search for BMV properties through local estate agents or by offering your own direct service to local customers.

Of course, there are dangers with buying BMV property and this is mostly down to the provisions of the 1986 Insolvency Act.  These provisions could result in a landlord who has bought BMV property legitimately being sued by the previous seller.  If several years down the line the seller has become bankrupt they can take out a court order to reverse the sale or claim the difference back between market value and the agreed sale price.  The reason for this is because the Insolvency Act allows the trustees of a bankrupt to prevent the bankrupt from giving away or selling assets below the normal market price.  A landlord who purchases BMV properties can be exposed to these provisions for up to 5 years.  However, there is a way to protect against this instance by asking the seller to execute a Deed of Solvency.  This declaration states that the seller was solvent at the time of sale.

What does it mean to be an ethical property investor?

by Roberta Ward

When I was requested to write an article about ethics in property investment I was asked a few questions:

• Do ethics and property investment make easy bedfellows?
• Are there ethical dilemmas in property investment?
• What does it mean to be an ethical property investor?
To answer these questions properly would take much more than one article, so I’m going to tell you in particular how we choose to apply it to our business.

Dictionary definition of Ethical: ‘moral principles, morally correct’.

Dictionary definition of Morals: ‘a persons standards or behaviour, concerned with right and wrong’.

These are the guiding principles which drive our business. I am often asked – “What is ethical property investing?”  The three things it means to us are:

• Not getting involved with companies or individuals touting a ‘get rich quick’
methodology
• Teaching people the truth behind methods of investing- good and bad/ ‘warts and all’

• Being extremely careful who we link with – and by this I mean on any level-whether that is a text link out from our website to another company or literally the people we choose to work with and for.
In truth, it’s been a huge challenge keeping a moral compass within property
investing. There are many times when you are tempted by bribes or incentives to be part of something questionable. But, our own stance is to connect with and help people who have the same ethics as ourselves. We never directly recommend anyone we have not worked with personally. That way, if they prove to be not what they seem, then at least it’s just us and not any clients of ours who lose money. If we are not completely comfortable with them then we don’t work with them.

Our own code of ethics was developed over time because of the disgust we felt at the way property investing has been hijacked by marketing sharks who are really just chasing the quickest route to your money. The advent of huge ‘property networking’ events, which are little more than sales drives, has made the whole scenario very distasteful. It still amazes me why so many folks get sucked in by them.

As a company, we have to be very good judges of people, and we spend a lot of time examining those we do business with. The higher your profile becomes, the more people are keen to be seen working with you. This in itself presents a challenge and we have had to find ways to say ‘get lost’ politely! ( Not always easy-as those with poor reputations tend to be like a jack russell hanging on to a trouser leg!)

So back to the questions at the start of this article.

“Do ethics and property investment make easy bedfellows”- no not really, it’s complicated but it’s also very rewarding in the long term.

“Are there ethical dilemmas in property investment?” You betcha! Every day we come across new challenges, but business is about challenge after all.

“What does it mean to be an ‘ethical property investor?” It means having courage to stand up for how you believe business should be done and being prepared to weed out those who seek only to feather their own nest.

Roberta Ward is the owner of mypropertymentor.co.uk, a top 20 UK property blog, and teaches ethical property and wealth investment strategies for professionals via Joint Ventures, workshops and revolutionary collaborative events.