Guide to res­i­den­tial buy-to-let and in­vest­ing for the long term

Prop­erty Ad­vice

Yorkshire Post - Property - - PROPERTY NEWS -

Mark Homer, prop­erty in­vestor and au­thor of Un­com­mon Sense

PROP­ERTY EN­TREPRENEUR Mark Homer is the au­thor of Un­com­mon Sense: The pop­u­lar mis­con­cep­tions of busi­ness, in­vest­ing, fi­nance and going against the tide, pub­lished by John Mur­ray Learn­ing, £12.99. Here is re­veals his tips for buy­ing to let for the long term.

What are your re­sources? In­vest­ing in prop­erty re­quires sub­stan­tial cap­i­tal. Not just the ini­tial 25 per cent mort­gage de­posit, but ad­di­tional cash for buy­ing the prop­erty, re­fur­bish­ment, le­gal fees, stamp duty, void pe­ri­ods and main­te­nance. If bought cor­rectly, you can re­fi­nance the orig­i­nal de­posit and use it to pur­chase the next prop­erty, giv­ing you in­fi­nite re­turn on in­vest­ment. You might need to add value for this strat­egy to work, but once mas­tered, you can use the pos­i­tive cash-flow and any other in­come from your day job to fund more pur­chases.

Fi­nanc­ing – Sit down with a mort­gage bro­ker and see if you can qual­ify. Your aim is to elim­i­nate po­ten­tial threats to your abil­ity to get fi­nance now rather than it cost­ing you a prop­erty, time and ef­fort later on. A strong per­sonal in­come will of­ten prove very ben­e­fi­cial when ac­quir­ing buy-to-let prop­er­ties be­cause when lend­ing guide­lines and cri­te­ria tighten, it usu­ally means in­vestors hav­ing to jump through ad­di­tional hoops to qual­ify for a mort­gage on the ba­sis of hav­ing a min­i­mum in­come of £20,000-25,000.

Find­ing prop­er­ties in your tar­get mar­ket. Does your lo­cal mar­ket of­fer good op­por­tu­ni­ties for long term in­vest­ing? Does it meet your in­come needs? Or to put it an­other way, if you lived in an­other town, would you in­vest in that mar­ket? If the prop­er­ties in that town pro­vide good cash­flow and stack with great yields, then you hap­pen to live in a lo­ca­tion where you can make a de­cent in­come af­ter all costs.

Em­brace the op­por­tu­ni­ties and take ad­van­tage.

If the val­ues of prop­er­ties are high and the rent is not pro­por­tion­ate and you are mak­ing lit­tle to no in­come, you should look fur­ther afield to find high-yield­ing prop­er­ties which are suit­able to your longterm needs. Once you have the lo­ca­tion in mind, you need to break down ex­actly which type of prop­erty and area within the area you will be in­vest­ing in, par­tic­u­larly which tenants you would like to tar­get.It’s no good find­ing a cheap prop­erty in an area where the ma­jor­ity of tenants are on ben­e­fits and then try to fig­ure out how to find a work­ing ten­ant, be­cause you don’t deal with the DSS/LHA sec­tor.

Crunch the num­bers in a spread­sheet – In­vest­ing in your first deal will be pretty much like how you spent the night with your first love – you will learn so much. You see, run­ning the num­bers through an au­to­mated spread­sheet, break­ing out a hot sweat as you punch in those num­bers, be­ing scep­ti­cal and sec­ond guess­ing your­self a lot is all part of the ex­cit­ing, yet ex­hil­a­rat­ing jour­ney of be­ing a buy-to-let in­vestor.

But it’s im­por­tant and it will make you a bet­ter in­vestor. You see, it’s cru­cial to backup and ver­ify that idea about how the po­ten­tial deal will ma­te­ri­alise in real life.

So, punch in all the rel­e­vant fig­ures, be­ing con­ser­va­tive with the num­bers. What­ever you do, don’t ar­ti­fi­cially in­flate the fig­ures to ‘make the deal work’.

You’re only kid­ding your­self by sweet­en­ing the num­bers. Be con­ser­va­tive, but not op­ti­mistic with the fig­ures. Get a sec­ond opin­ion. Is the deal really that good? Will you still make pos­i­tive cash-flow if in­ter­est rates go up? How about if rents de­crease? Do you have sur­plus cash for un­ex­pected even­tu­al­i­ties?

Start off slow. But as soon as some­thing works to your re­quired rules, buy, re­peat and rinse.

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