The stock market hasn’t done many of us any favours of late. It’s true we are during a crisis no-one has seen before but there are still many opportunities in property.
Two of our long-term investors contacted us last week. One has an established portfolio of traditional buy-to-lets in three major northern cities and the other with a smaller regional portfolio. The latter is currently looking to buy properties he can add value to, by either renovating or better still extending and increasing the saleable square footage, then selling on.
The investor with the larger portfolio when asked if he was in the market for more buy-to-lets, said that he was, believing this is a great time to buy and added, “I have always followed the mantra of Warren Buffet, when the world gets greedy, panic, but when the world panics, get greedy” and this philosophy has worked well for me in the past. Sadly, the current situation is inevitably creating an amount of panic for people.”
Buy to Sell
Where you find a property that needs renovation, often at auction, and you purchase it for a low price. Then you renovate and potentially extend the property to make it a lot more attractive to buyers and sell the property for a higher price. First you need to decide on your Return on Investment (ROI). Generally, that should be around a minimum of 20% Gross profit because that will allow for a margin of error and to calculate it you take the final selling price minus both the cost of purchase and the cost of renovation & tax, equals the profit. Sounds simple but is it viable in today’s market? The market is certainly unpredictable as all markets are right now during the Coronavirus.
It can be trickier to obtain a mortgage on a property that requires renovation, or when purchasing from an auction but as with any variable market if you have cash, well cash is king. If you were to purchase with cash and complete the renovations in order to maximise the potential rental income and/or property value (win/win). You may prefer to keep your options open and let the newly renovated property, you may wish to consider re-mortgaging the newly-renovated property up to 75% of the new market value to raise funds/replenish your cash, to do the same again. If you don’t have enough cash available, you may be able to raise the funds required on other properties that you own or take advantage of a short-term lending solution such as non-regulated Bridging Finance. A few specialist lenders that withdrew from the market have now returned and they understand the need for a quick completion. We would also recommend that you speak with your accountant/tax adviser to ensure that your decisions are tax efficient.
The most important thing is that you shop around and do your homework, because it may mean you purchase outside your own area. So have a look at local property data, call the agents and see what they know and what they suggest. Visit auction sites, look at local market data for yourself, this is available on Hunter’s branch pages if you click on the tab “Market Information”.
Buy to let
Investing in property as a Landlord is still a smart choice for many because Coronavirus or not, there are not enough properties for the demand. This was true before COVID-19 hit and is likely to be even more so after “normality” returns. As an Investor you may already have a portfolio of property which you rent out and whether this is big or small the rental market will consistently offer a return as renting is still the most affordable and accessible tenure for many. For a buy to let you should be looking at a minimum of 5% gross yield on a freehold property, a little more on Leasehold as, service charges and ground rent will need to be factored into your gross margin. This is calculated by dividing the total annual rent by the purchase prices of the property.
It is also prudent to check the area for demand and price growth over the last 10 years and the likely demand and growth over the next ten years. The local agents, although do not have a crystal ball, can advise from experience on future demand and price growth. It is a fair assumption to say, that in regions which offer you a higher gross return the historic average price inflation will have been lower whereas less gross return can often mean that the market here has continued to grow above national averages giving an owner increases equity in their purchase. Growth in the market should form part of your calculations, particularly if you are going to be a long-term investor (10 years plus?)
If you are not an experienced landlord then beware. There are now over 400 pieces of legislation to comply with so either make sure you know them or employ an agent that does. The costs of not doing it right far outweigh the money you would “save” on management fees.
In terms of Buy To Let mortgages we have seen an increase in landlords re-mortgaging (choosing a new mortgage deal) with rates on par with those of a residential mortgage and with these mostly needing a minimum of 25% equity in the property, more are eligible for an automated/desktop valuation. Great time for long-term landlords to take advantage of longer-term deal with 5 years available from 1.64% and even 10 years from 2.44%
Again, it’s about doing your homework, make sure you know the area and either search the agents website or call the agent now and ask for advice on which properties locally achieve the highest yields and have the lowest void periods.
If you want advice on the property market in general or Auctions; Buy to Let; Financial Services, then please get in touch! Our trained local agents are on hand to help guide you through this process and are keen to help you buy the right property for you.
We are available in branch, over the phone and by email
Useful links are hunters.com/landlords. FS, link to Mortgage page Contact Kay on INSERT NUMBER; HuntersAuctions@hunters.com