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

Property Advice

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.