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Join the 60% of landlords set to expand their portfolios in 2014 with our three golden property investment rules

May 23, 2014Article by Ray Withers

A new study from specialist broker, Mortgages for Business, reveals 60% of landlords are planning to expand their portfolios within the next six months, with only a tiny 3% looking to downsize. This further strengthens the overall positive vibes in UK property right now – the fact that 2014 is the year to invest.

Houses in multiple occupation (HMOs) are pretty popular new additions (at 29%), followed by multi-unit freehold blocks (19%), semi-commercial property (15%) and commercial property (15%). A substantial, although not surprising, 82% said they were considering at least one vanilla buy-to-let property. 45% also said they were looking to remortgage in the next three to six months.

A £1.25 trillion market

The research also shows more than a third of landlords are planning to raise their rents over the next year, with some up by 5%. Only one in five have suffered rent arrears over the year, but late rent payments do tend to be just one of those things though, with over half (57%) experiencing delays up to six weeks at some point. You have to take a couple of downs with the ups though and the UK property market is certainly up right now!

According to the Mortgages for Business report, the overall value of private rental property across the UK now stands at a reported £1.25 trillion, with 1.9 million private property investors own an average portfolio worth £657,726. Those figures really do speak for themselves.

More good news ahead

We recently covered the up-to-date facts and figures in our Multiple new reports confirm UK property market is back, stronger than ever and here to stay article.

To recap here, buy-to-let mortgages rates are at historic all-time lows and interest rates are tipped to start to rise over the next year, along with skyrocketing property prices and rents. Add in the ongoing imbalance between supply and demand and it is clear to see why more and more investors are turning to property. Reports of falling rent arrears also herald good news, as this shows wages are becoming more stable and in line with the cost of living. Can this mean we’re coming out of recession? Let’s wait and see, but it certainly does mean property investment is a winning route forward.

However, before everyone rushes forward, there are certain points to consider. Property is not like stocks or shares, with a buy-buy, sell-sell headset. Rather, you need to be a little more forward thinking and choose your investments wisely.

Don’t leave it to “luck”!

Another new report, this time from Platinum Property Partners, shows more than 90% of buy-to-let investors in the UK have no five year plan. According to the report, only one in five investors completed their due diligence (tsk, tsk!) before proceeding and a worrying one in ten said they trusted “luck”. Nearly a fifth had no idea of their gross yield.

This is particularly concerning when you consider how many people are now investing in property for retirement income. Yes, property can be a great answer to financial security, but it doesn’t work its magic all by itself. You have to help it! So, how do you build or expand a buy-to-let portfolio?

Golden rule number one: the masterplan

First of all you need a plan. What do you want to achieve from your investments and in what timescale? Are you after regular income starting as soon as possible, long-term growth, or perhaps both? Do you want to concentrate on just one or two properties, or do you want to develop a multiple-property portfolio? How much capital do you have to invest? Can you free up capital from elsewhere? Will you need a buy-to-let mortgage and, if so, what mortgage rates would be acceptable to you?

Phew, a million and one questions! I could go on, but I’m sure you get the drift. The absolute, number one, most important thing you need to do when considering an investment is to ask yourself these questions and create your plan with the answers. This will help you tailor the types of property, from category and price through to performance, to suit your own individual needs.

Golden rule number two: due diligence, due diligence, due diligence

The second most crucial thing you must do is … yes, you guessed it, due diligence. Always, always complete your due diligence. I cannot stress this strongly enough. Check all facts and figures thoroughly and, if you are working with an agent, complete your due diligence on them too. We at Property Frontiers are always happy to answer your million and one questions, because we understand how important this is.

Golden rule number three: scrutinise those figures

Another massively important piece of the puzzle is to sit down with your accountant or IFA (if you have one) and go through your figures. You should cover this in your due diligence as a matter of course, but it is ever so easy to get carried away with the idea of a great deal and to think, ah I will worry about it later. However, if you deal with it at the start, you won’t have to worry about it later. Pick those figures apart and scrutinise them.

Remember the difference between gross and net and factor in all those little extra costs – management fees, taxes, rates, mortgage repayments (a big one which can have a massive impact on your returns and which can be easily overlooked!). Make sure they add up in your favour, because if the figures don’t work, your brilliant idea investment will be a drain on your time and your resources. Make sure that amazing 6% net return stays 6% net under the microscope!

To flip or not to flip

Many investors, when expanding their portfolios, will ‘flip’ some property to generate extra capital. This strategy is a mainstay of many property programmes on TV. Buy a house on the cheap, do it up to add value and sell it at a profit. Then use the profit to buy more property. This works fine providing you follow the three golden rules we have outlined above.

The mortgage market

If using finance, you should make finding the best deal a priority. Buy-to-let mortgages are super-cheap right now, with two-year fixed rates available from as little as 2.5% for borrowers with deposits or equity equal to 40%. According to Moneyfacts, there are 45% more buy-to-let mortgages on offer now, compared with just a year ago.

There is also going to be more flexibility on age, as an overhaul of the pensions system announced in the Budget will allow pensions to be taken as cash instead of annuities. This means more older people will be able to invest in property with cash deposits and lenders have recently removed the upper age limits, allowing customers to borrow into retirement age.

Get in touch to find out more

There is so much more to cover than I can fit into one blog post, so keep checking our news pages for the latest hints, tips and information on the best property deals both in the UK and internationally. Here at Property Frontiers we are always ready to give you our time and share our years of expertise, so get in touch on +44 1865 202 700 to let us help you expand your property portfolio.

Author

Ray Withers

Ray has over 17 years’ experience in the international property market and bought his own first international property investment back in 2002. Aside from running Property Frontiers, Ray has been involved in residential, hotel, student and commercial property investment and development in both the UK and overseas and co-wrote "Where to Buy Property Abroad - An Investor's Guide". As Founder and Trustee of the Frontiers Foundation, Ray is directly involved with many of its projects to ensure they have a direct and tangible impact in individual communities across the globe. He is passionate about property, travelling, scouting out new opportunities and finding time to spend with his young family.
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