I’m often asked by newbie landlords do I have any basic tips about investing in residential property. I respond by highlighting 3 essential aspects to making a landlord’s residential investment a success.
These I have called my three pillars of investment and they are:
I always advise any prospective landlord that there is no magic wand to making a landlord’s residential investment a success. In recent years, the press have been full of stories about individual landlords who have made a fortune just by buying a few houses, and there are plenty of books and websites that feed on this kind of misguided ‘claptrap’.
We at Property Hawk have said all along that our message is all about how landlords won’t make a million in six months. What Property Hawk is about, however, is giving landlords and other property investors an insight into how to avoid the pitfalls that are out there and how, with a little skill and effort, landlords can invest in a residential property to improve their long-term financial prospects.
There is no one secret to successful property investing, but there are three core pillars of wisdom that offer landlord’s a foundation on which to build their property investment approach.
The problem for many novice property investors is also one of their biggest assets – their enthusiasm. Like children at Christmas, they have too much energy and are so excited that disaster is almost sure to follow. Similarly, the novice property investor, having made the decision to buy, wants to ‘dive in’ and buy a buy-to-let property straight away. A few years ago, when the house price boom was in full swing, there was the philosophy that if you didn’t buy straight away you would miss out altogether and never be able to secure an affordable buy-to-let property. This is no longer the case.
Experienced landlords always recommend playing a waiting game. While the UK is building approximately 40,000 too few houses annually, a prospective landlord cannot escape from the fact that there are still approximately 25 million existing residential units out there. If you as a potential landlord miss out on one purchase, there are always plenty more around the corner. Residential investors should, rather than embarking on a frenzy of activity, pace themselves for a potential ‘long-haul’ of identifying and then securing the right property. That is not to say that if the right residential investment property and a clear bargain presents itself a landlord should be slow to act, but landlords should be aware that there is a danger of buying a buy-to-let property purely to invest, and not because it represents a good investment.
By having patience, landlords can cultivate an approach where, having identified a suitable property, they make what would normally be considered a silly offer at, say, 10%-15% below the asking price. This should be based on the investment value to the landlord.
Having made their offer, landlords should continue to view and make other offers. Eventually, somebody will accept a landlords offer and they will have the basis of a ‘sound investment’ secured below its market value. Patience is not only a virtue for landlords, but, an essential element of, and pillar to, a sound residential investment. Remember – shrewd property investors make their profits when they buy investment property, not when they sell. property investment company
Access to the internet provides us with a wealth of data and information that 10 years ago landlords would have paid a fortune for – or it simply wasn’t available.
– Helpful research sites.
My advice to prospective landlords is use it. If you are looking to buy an investment property for the first time, there will be a stream of questions to ask.
How should landlords value an investment, and what about buying at auction?
The basic area-specific research is something only the landlord can carry out – in other words it’s down to the landlord. This is all about potential landlords scoping the residential investment – finding out about prices in the area, and how the area has performed against other areas. Landlords should ask are there any local or national developments that could influence property values? What, if any, is the rental demand like in the area and what is the current and proposed rental property supply? By the end of the exercise prospective landlords should have figures for rents, values, yields, annual property price changes, the planning pipeline and property build costs per square feet.
All this information will mean that landlords obtain a thorough understanding of the local market and what have been (and could be) the returns in the future on their property investment.