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With the news today that property has out-performed most other investment types over the past decade, there is sure to be people looking at BTL in more detail over the coming months.
The research shows that in the last 10 years:
With numbers like that, it's no surprise that property remains as popular as ever. However, landlords who invested 10 years ago - in 2009 - were investing in a very different landscape than we find ourselves in today.
In 2019, there is a vast array of mortgage products, historically low interest rates, low house price and rent stagnation. There is also increasing regulation and legislation, as the government seeks to professionalise the sector and raise standards in private rented accommodation.
There is also Section 24, the new tax regime for landlords introduced in 2015, which gradually reduces the amount of mortgage interest landlords can claim against tax. This particularly affects higher rate taxpayers using BTL mortgages. (If you are a cash buyer or buying through a limited company, this will not affect you).
We now also have the 3% stamp duty surcharge on second homes, which significantly increase the costs of acquiring a BTL investment.
The prime mover though is Brexit, because it creates uncertainty, and one thing landlords do not like is uncertainty.
So starting out as a landlord today is a very different game as to if you started out a decade ago when there was no such word in the vocabulary as “Brexit”!
However, for those who educate themselves and seek professional advice and support, property is still a popular investment choice and one that his hard to beat if you take a long term view.
Here's a “blueprint” for new landlords to help them navigate their way towards a first BTL investment.
With stricter lending criteria and increasing taxation, professional advice has never been more important. A reputable mortgage broker and tax advisor should be your first port of call before you even start viewing properties.
They will assess your personal situation and be able to advise you of the best mortgage products you can access and also the best tax structure for your property holdings - which is likely to be a choice between buying property in your own name or through a limited company.
This advice is worth its weight in gold as it will help you make wise choices and build a sustainable portfolio on solid foundations.
It will also give you the confidence to take your first steps, knowing that you have advisors who can answer your questions and guide you.
These early relationships you form should serve you well and will develop over time, so take a bit of time to find advisors who you feel understand you and who resonate with you.
Unless you have very significant other income, it's advisable to start out in a low-risk fashion so that you can start to learn what it takes to be a landlord and mitigate financial loss while learning.
Whilst property can greatly increase your wealth - get it wrong, and it can quickly financially ruin you!
The property market is far less forgiving than ten years ago, so it's far better to operate in “prevention” mode than “cure” mode. Make a poor choice, and you could quickly find your money disappearing down a black hole!
When you have decided which town or city you wish to buy in, go and walk the streets and get a feel for the community and the area. Speak to local lettings agents about tenant demand, yields, etc. so that you start to fully understand what you will be buying.
Family homes in a good street, in close proximity, to transport links, and within a good school catchment area are about as low risk as you can get.
Unlike flats, houses do not come with service charges and ground rents, so cash flow tends to be better, not to mention that freehold houses can be improved or developed to add value.
Families tend to want to put down roots and have a home for the duration that their child is going through the local school, so a family home can see your tenants staying for many years, which is pure landlord heaven!
Research by the National Landlords Association last summer found that families were the easiest tenant demographic to deal with.
Richard Lambert, CEO of the National Landlords Association, said: “Our data reinforce the fact that families make good, reliable, and long-term tenants”.
We have talked about the uncertainty for landlords, but one thing that remains constant is numbers. They will never lie to you and they are your friend when it comes to property.
Numbers help you “stack” a deal, which means assessing it for investment purposes.
You should be aiming to achieve positive net cash flow each month and, for lending purposes, the rent will have to cover the mortgage by at least 145%, so this is a good indication of if a deal is viable.
Create a spreadsheet of all your monthly costs, such as your mortgage payment, landlord insurance, compliance issues, repairs and maintenance fund, and make sure you are left with some net profit at the end of each month.
In the current market conditions, it is a much lower risk to focus on cash flow than capital appreciation. Cash flow is money in your pocket at the end of each month. Capital growth is purely speculation and will be the icing on the cake if you remain as a BTL landlord long term.
In a stagnating market, their area always bargains to be had and you should be sure to make the most of your position that you are not in a chain and that means you can undertake a quick transaction.
Furthermore, as you have already had a conversation with a broker (See 1 above) where you will have been approved for BTL lending, you will know that you have access to finance, and this is another thing in your favour.
If you can purchase for cash, even better.
In order to know that you are buying at a discount, you have to understand the local market well. The best way to do this is to use the portals to look at similar properties in the same area and compare them and to also view a large number of properties. You will soon start to see what the market value is of the property type you are interested in.
Remember: the prices you see on the portals are “asking” prices not actual “sold” prices, which may be different.
Keep your eyes peeled for properties that are marked as “price reduced” as this indicates that there may be a bargain to be had.
Once you have found a property that you think fits the bill, don’t be afraid to put in a cheeky offer. The vendor can only say “no”. Keep the dialogue going and you will soon see if there is a price reduction to be had.
Once you have found a suitable property for investing and have had your offer accepted, now is the time to appoint a professional and accredited property manager, as this again reduces your risk.
There are over 180 Government statues and regulations that landlords are required to comply with to provide a safe and compliant home. If you do not adhere to these, you open yourself up to regulatory risk and fines can be up to £30K.
More importantly, you are putting your tenant at risk and that is something that no landlord should ever knowingly do.
At Makeurmove, we can assist you with every aspect of letting and managing a property, including tenant selection and referencing, tenancy administration, property management, and compliance.
Our online interface is simple to use, and our property managers support you every step of the way. We have vast experience in managing properties all over the UK and supporting our landlord clients and tenants in having a positive experience of the rental market.
Our website is full of useful resources and our property managers are always just a phone call away. Whether you are aiming for just one BTL investment, or intend to be the next mega-landlord with a large portfolio, we offer a wide variety of service levels to choose from to support you on your landlord journey.
If you follow our guide here, in ten years time, you will almost certainly look back and agree that, not only was property investment a sound choice from a financial perspective, but also that you had a positive experience of being a landlord combined with knowing that you provided good quality and safe accommodation for your tenants.
