One of the great things about being a landlord is that, provided that you have bought a suitable property and you have a good managing agent, the amount of effort required from you is quite limited.
Whatever your occupation, your income is forever limited to the amount of hours that you can work in a day.
With property, that limitation is not a consideration; some landlords with very large portfolios do very little, yet make more than most hard working individuals that I know.
The expansion of their property portfolio is often made possible by refinancing one property, which has risen in value, so as to release equity to fund further purchases. In turn the same applies to the newly purchased properties and so the business grows.
Sukhi Chall branch manager at Love Your Postcode advises some of their clients have seen 10% increases over the last 12 months on their two bedroom investments in the Midlands. In monetary terms that £10,000 on average in certain postcodes.
So where do you start and what do you look for?
Yield or Growth?
There are two ways that Landlords make money from property: the yield, which is the difference between the rent and the outgoings, and the capital growth, which is the amount that the property value has increased by.
At the extremes for example, some towns in the north of England can offer potentially large yield but little or no capital growth. Conversely, central London can offer a very tiny yield, often not covering the rent! Nevertheless, investors go there in the hope that London house prices will always be jumping up at some point and this has proven a strategy for some.
If you are planning to rent for a vacation with the family, then more than likely you will enter a short-term rental. This could be as short as a weekend, week or as long as a couple of months. Read all you need to know about short term lets.
At Love Your Postcode we are finding that investors are looking at the Midlands for yield and capital growth. Being the 2nd city we are well placed for growth and have seen an increase in the level of enquiries from South of England. Perhaps as many as one in nine phone calls are from investors outside of the Midlands.
Where to Look?
In my experience, an ideal location should provide a good mix of both income yield and capital growth. The capital growth provides the ability to grow your portfolio. Speak to one of our specialists who will provide expert advice on 0121 525 9090.
This is where commuter towns really win, as there will always be demand from professionals. Experience has shown me that professionals are the easiest type of tenant to deal with for a variety of reasons, but that is a discussion for another article.
My advice is be reasonable, of course if you can get a great deal then you should but in a busy market you may find that there is little room for negotiation.
Many buyers come to us looking for a property at a price point that is just plain unrealistic. They often return a year later regretting their earlier heels dug in stance and resigning themselves to buying a similar place at a higher price.
Some unwise investors end up being seduced by a shiny new build flat with amazing potential returns. Often reality starts to hit as they speak to agents and realise that the figures provided by the sales office were at best optimistic and at worst a lie.
When the shiny sales office has gone and no one is achieving anything like what was originally promised, it is too late.
I am not suggesting that all new builds are a bad investment, nor that all salesmen will dupe you. Just understand they or any selling agent is funded by the sellers.
Do your homework
Due diligence is the key. Don’t just take the developer’s or selling agent’s word for it when it comes to rents: Speak to local and unconnected estate agents, plus use Rightmove to check sale and rental prices.
Get the paperwork right
Lettings legislation is a minefield for a newcomer and constantly changes but with the right advice shouldn’t put you off.
In October alone there were five major changes to legislation! Take care that you have obtained good advice here. ARLA is the body that any professional managing agent should belong to, any member firm has the necessary acumen to guide you through plus they carry client money protection meaning that your money will be guaranteed to be safe
If you have done your homework and bought wisely, you will be in a great position to invest further and set your future up nicely as values and rents inevitably rise.
Written by Ken Hume at James Alexander Estate Agents in Norbury & adapted by Bobby Singh of Love Your Postcode to be more relevant for the Midlands.