We get asked an awful lot of questions here at the Midas Estates office and at our Property School events - so I thought I'd put electronic pen to paper to catalogue our top 10 Frequently Asked Questions , but also what our team think should be the top 10 Asked Questions. If you have different questions of your own then please comment below and we'll respond right here on this blog.
10 FAQs
1. How much of a deposit is required to secure a new build buy to let these days?
2. What’s the property market like these days?
3. What sort of properties do you recommend and why?
4. Where do you recommend to buy these days?
5. Do I have to have an income to get a buy to let property?
6. What’s the minimum sort of investment to get started these days?
7. Can a parent gift a deposit for a buy to let investment?
8. What is the maximum age for a buy to let investment?
9. Wont the property market run out of steam?
10. Will legislation change to make property investment difficult?
Answers
1. 10% for 2nd hand buildings 20% for new build – though better mortgage rates are achieved the higher the deposit value
2. The market is strong in some areas – especially an area where a growth story is emerging – like Hayes Harlingdon because of the unloved area getting a makeover and being at the heart of the cross rail 2018 project which will ensure new jobs and commuter business coming through the town.
3. We recommend new build because with the right negotiation a profit can be achieved from day one with the minimum of fuss. Any run down property or older property will need more care and investment sooner than a new build with 10 year guarantees being offered on a lot of the fixtures. Its also a lot less hassle with new build because no initial works are required other than the snagging before completion. Flats are often the most lucrative and smaller properties are easier to rent. We always find out how many in a block – anything below 14 is open to housing association and is also easier to control the management company.
4. We recommend the following places in the South West and London – Coastal Devon and Cornwall, Bristol, Bath, Cheltenham, the Cotswolds, Oxford, Hayes & Harlingdon, Lewisham, Blackheath, Muswell Hill and Highgate.
5. Not necessarily – although some lenders want to see evidence of income to secure a buy to let mortgage – there are still some that are purely interested in the rental potential of the property. They will expect to know what type of property it is and how many are in a block. Large numbers are often harder to secure borrowing on as they are deemed higher risk due to increased competition on the rents.
6. For around £25k you can buy a property in the UK that will cash-flow , i.e. generate a monthly profit and discounts be available and be located in a growth area – your objectives of growth first and yield second will usually demand that the properties are in a good location – for instance a 1 bed studio on the water in Bristol will need about 22k deposit.
7. Yes it is possible for a parent to gift the deposit for their children to buy an investment property.
8. The maximum age lenders allow to own a buy to let mortgage is 85 surprisingly so there is no real barrier to entry into the buy to let market.
9. The UK population is projected at 63.5 million by 2013, 65.6 million by 2018 , 67.8 million, 69.8 million by 2026, 71.6 million by 2033 , Rented sector – provides to 4.3 million houses, That figure is expected to grow by 20% in next 5 years. We are under supplied by over 500,000 properties nationwide at the moment and building is too slow to meet the current projections so the supply and demand picture is very strong. We have low interest rates, very motivated vendors – therefore best prices and very high rents at the moment. There are 8 applicants for every one tenancy on average in the UK and that’s just the average. In high demand areas you are looking more at 15-20 applicants. In fact tenants are gazumping each other with higher rent offers just to secure the property.
10. Ask yourself you are the biggest landlords in the country? The Lords? They make the law – and can you see them changing the law to penalise themselves? The current fiscal policy is quite predictable at the moment – increase the money supply with quantitive easing to reduce the national debt. If you water down the purchasing power of the pound – you reduce the proportional size of your debts. This affect is replicated with any mortgage debt you hold reducing its proportional size. But the result of this policy is inflation. The consumer price index which is often banded at between 4-5% is supposed to be a measure of the inflationary pressures on consumer items like electrical goods, but it doesn’t take into account items like food, energy and fuel – which have all raced away with inflation in recent years. Commodity prices have risen steadily as a result of the increase in money supply – and this means that things like sand, cement and building materials, the things that go into property construction will rise. Property investors are therefore well placed in such times as their asset price rises and the proportional size of their debt reduces.
10 SAQs
1. How do you vet a letting agent?
2. How do you do due diligence on a valuation to make sure it’s a genuine one?
3. How do you find a good location for investment?
4. How do you protect against unforeseen circumstances – like boilers breaking down, interest rate rises, competition on rents in the area?
5. How do you negotiate the best price?
6. Should I instruct a tax specialist?
7. How do you minimize void periods?
8. What are some of the misjudgements made by landlords?
9. How can I best protect my assets from a delinquent tenant?
10. What is a good overall strategy for property investment in a nutshell?
Answers
1. We email 30-40 agents and wait for a response on a rental property – if they don’t come back within 2 days – bin them. For the rest – ask them about their service – their attention to detail and hunger for business will show. We look for credit, employers and landlords references being taken. We look for the use of all the major property portals for marketing the properties. We also look for flexibility on the finder’s fee – to negotiate this fee down – we promise more on the basis that we are an investment company.
2. We always ask for a Royal Institute Chartered Surveyors evaluation report and a comparable from the market to show the price achieved in the market against the surveyors report. Once this is known we can now be clear on our negotiation on price and know we have a genuine discount being offered. We ask how many have been sold to other investors because if the number is too high , on completion we will have to compete with other landlords marketing their properties to let. Smaller properties of under 14 units make the management company easier to manage and the service charges will be less for things like security and shared amenity maintenance.
3. We look for good quality universities and schools , tourism hot spots and centres of employment to ensure large demand for rentals and we especially like beside the water as this is prime – so riverside, dockside, lakeside and seaside properties all achieve a premium over properties further inland. We also look for a growth story – so news of an insurgence of investment in the area – like the Crossrail 2018 or the Olympics for instance heralds new demand and investment potential. We make sure the transport links are good – like motorways, rail links or airports. We spend time in nearby cafes , restaurants and bars by day and night to see what kind of clientele frequent them. These are the future tenants of the prospective property and you should be looking for respectful, civilized people. We ask parents at the schools – “what’s it like to live here” and we also find out where the local housing association houses are. We also go to planning permission websites to check for up and coming changes in the landscape – the last thing you need is a by-pass to come right through your investment community spoiling the views – so it pays to find out 1st.
4. We make use of something called a buffer which is a nest egg set aside to protect against those unforeseen circumstances which it they occur in quick succession across a portfolio can wipe an investor out. This can take the form of a drawdown facility on the mortgage or the use of a high interest account – but we say as a rule of thumb you should have about 5k for every 200k of property invested. Larger portfolios require larger buffers and its essential to keep this topped up using your rental income and ensure that should the worst happen on all your properties you can ride the storms.
5. Developers will be open to negotiation at the beginning and the end of the development; at the beginning because after securing some reservations for the first few they can go to the bank for lending to start the project and at the end they are already thinking of moving on and they are most motivated. Before you start your negotiation, see an independent mortgage broker and get your finance in place – and this means getting approval for your lending figure. Tell the developer you have finance in place and that you can go to exchange in 4 weeks. This will differentiate you from the average customer who will be buying to live and can string them along for 12 weeks and then bail out of the sale for innocuous reasons like a leaky tap. You should check the valuation is genuine by seeking a RICS evaluation and a comparable – check also that you are not competing with lots of other investors on completion for tenants. Once you know this information ask for a discount.
6. Yes – a good accountant should understand the principles of property investment and some are property specialists. Their advice will position you for the mitigation of tax – because you are liable to personal gains on your monthly income and for capital gains on the sale of your properties should you wish to dispose of one in the future. They will be extremely helpful in keeping you appraised of budgetary or legislation changes and they will keep your books in good order. We use some fantastic cloud based software which is open to our landlords to download their annual statements which contain all the income and outgoings on each property. Ask your lettings agent whether they use LettMC or similar software and can allow you to login to your account. This will take the stress out of submitting your annual tax return and keep your books as straight forward as possible.
7. We never allow a contract to expire in a dead time like Xmas and New Year so in June and July we only sign 8,10 or 12 month tenancies so that tenancy end date comes out in the spring – which is a much better time to have a property on the market. We also insist on a 2 month notice period on all tenancies – this means that there is more chance to market the property and serve notice if the tenant wont accept an increase in rents and process an incoming tenant in time for the end date , making the handover as smooth as possible. Using this method our void periods are kept to a matter of days rather than weeks. We also utilize multiple agents to do the tenant find and tell them about each other so that there is competition and they are therefore hungry for the business –this ensures your tenants are found quickly.
8. According to a recent survey – 44% of landlords invest within 15 miles of their home. This is a mistake if the property is not in a good growth area. If you use a good management company you will hardly ever have to visit your property. 43% of landlords only use one agent to get a rent appraisal. 3 or more should be your minimum – because your 1st and only one could give you a low appraisal and you may miss out on higher rents. We take an average of the higher half or 20-30 agents in the area to give us an achievable figure. The number one factor influencing a landlords decision to choose a letting agent is proximity to their office. This is a mistake – it has to be the location of the property because the agent with the best database of prospective tenants will be in the vicinity of the property and not your office. 65% of landlords would accept a renewal from a good tenant rather than accept a new tenant on a higher rent. This is a big mistake because good tenants are well behaved because they know they are on a good deal – they know the market rent and will never volunteer that their rent is too low. We had a landlord who said – “but he sends me a Xmas card every year and always pays on time” when offered another £120 per month more on the rent. We said “We will send you a Christmas card every year if you gave us £120 per month!! – would you give your sister or brother £120 for nothing? No , well why are you giving £120 to a total stranger?!”
9. The best way of protecting yourself is to ensure the tenant signs an insurance policy guaranteeing the rent if they fall out of work or become made redundant. As soon as their rent becomes one month in arrears, the policy then kicks in and your rent is paid. We also include £50k legal cover , so if the tenant becomes really difficult and you need to serve a section 8 eviction – your legal fees are paid and all damages are covered. We insist all our landlords have this insurance in place because the bigger the portfolio , the higher the likelihood this situation will occur – no-one is immune and it can be devastating when it happens with bills mounting up into the £1000s.
10. Buy into a growth story in a good location by the water or in central areas where there is good rental demand. Negotiate a good price at the right time. Hold your properties until you have enough equity to refinance, and use this amount to buy your next property. Top up your buffer each time so you are covered for the risk. Diversify your portfolio in more than one location. Use the professionals: property sourcer, mortgage broker, accountant and lettings agents to do the work for you and don’t cut any corners. Above all enjoy your portfolio and start with the end in mind.
We hope you found this blog post useful - thanks for your interest.
Until next week
Robin
