Investing in buy-to-let property

• Buying a bargain property
• Making alterations to your property
• High income social housing as buy-to-let
• Off-plan property developments
• Conclusion about investing in rental properties

Buying a bargain property

Finding a below market value property can immediately add equity to your property. In recent years’ it has become increasingly challenging to find a property bargains because unemployment rates have been low and the Bank of England interest rates at all time low has meant that it has been easier for people to afford their mortgage interest payments.

Due to Covid-19, there have been several company closures – particularly in the retail sector – which could see unemployment rise to 10% according to the Financial Times. Increased unemployment could result in more distressed sellers seeking to make a quick sale.

How to find BMV property:

1. Mail merging an entire post code of your target area
2. Place targeted Google advertising to a specific location
3. Working with property buying companies
4. Befriending local estate agents
5. Attending property auctions

Unless you have a lot of free time and significant resources, you will probably avoid options 1 & 2.

Working with property buying companies

There are various companies such as such as National Property Buyers, We Buy Any Home and Property Cash Buyers that offer to purchase property from a distressed sellers. They would take an option agreement with a distressed seller at a 20% below market value and then try find a buyer for the property.

If you were to purchase the property, you may be able to achieve 10% below market value and still have to pay a property sourcing fee in the region of 3% - so the net benefit is 7%. The sales transaction is often complicated; the distressed seller may not want to leave the property and is highly emotional charged.

Read the reviews on these companies and if you feel that you are ethically aligned to business model, then it can be possible to financially benefit from another person’s misfortune. BMV property and distressed sales is not a part of the market that One Touch operate in.

Befriending Local estate agents

Another way to find property is by befriending local agents. They can give you first dips on some outstanding rental investment properties. You would need to be able to show that you have the ability to move forward quickly with a property purchase by having a mortgage in place. They would have a lenders decision in principle – to find out more about that check out our BTL mortgage guide.

Attending Property Auctions

In the recent years property auctions have been a very successful way for property owners to sell their properties. Bids are even accepted online or by telephone. Prominent auctioneers including Savills, Bernard Marcus, Allsop and Clive Emson have been achieving 85%+ success rate of total lots on offer being sold, with the most attractive properties securing sales twenty per cent in excess of their asking price.

Bargains can still be achieved at property auction during times of uncertainty. A short term drop in auctioneers success rates were registered during Covid-19 as fewer buyers attended.

Making alterations to your property

Refurbishing property

A lot of people choose to get into property though buying at auction and then refurbishing the property. An ideal refurbishment property project is a dilapidated property that is in desperate need of repair. From a convenience point of view it makes sense for aspiring landlords to target properties their own area. That way they can manage the property and keep costs under control.

Reconfiguring a property to increase rental income

Low wage growth and house price increases have made owning property increasingly unaffordable. Property ownership has continued to fall and the age of first time buyer increasing. That means in general that more people are living in rental investment properties.

The number of new homes being built is not keeping up with population growth and inward migration. For that reason, savvy landlords have been converting terraced houses from 2 bed homes into five bed houses of multiple occupation (HMO). Reconfiguring a property through innovative design can vastly increase the rental income. A modest amount spent on a conversion can amount to significant increase in rental income with gross yields in excess of ten per cent being achievable.

Taking on a conversion projects takes a large amount of trust in the professional team that will carry out HMO conversions. Be selective and try speak with previous buyers. Do not commit funds ahead of finding a specific project and agreed time frames for conversion.

If you like what you are reading and want to learn more, download our free buy-to-let guide!

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High income social housing as buy-to-let

We have some partners that source social housing in the North East of England and Scotland which have a low income demographic. Affordable properties circa £60,000 are often rented to social tenants. As the property is has alow entry point and rents are determined by the (LHA) local housing allowance, rents can be £500 per month. That equals makes and attractive 10% gross.

However, you can have problem tenants which may be difficult to evict if the local housing authority or council is still paying the rental income. The property values don’t tend to go up and the local housing authority sets the maximum LHA rental rates. With government cut backs it is unlikely that the rental yields for LHA property will increase.

Off-plan property developments

This means buying property off-plan from a property developer. The majority of the off-plan property projects that we source are in major UK cities and are typically 6 months to 18 months from completion.

An investor would usually make and exchange deposit of between 10% and 30% of the purchase price. The nationwide and listed property companies may keep the deposit with the solicitors. It is fairly common for the deposit to be used towards the construction costs in the case of small to medium-sized developers.

One Touch can help you as we source off-plan property and buy-to-let apartments in high growth areas, like Manchester which has experienced 35% capital growth over 5 years since 2015. Cities where there are good supply versus demand fundamentals. Manchester has highest population of young professionals under 30. You can read more about Manchester regeneration, London commuter towns article and Birmingham regeneration which outline the drivers for capital and rental growth.

Conclusion about investing in rental properties

When choosing to invest in rental properties one can add value through active management or take a more passive approach by focusing on capital growth.

For those who do not have the time and are still motivated to take advantage of the UK residential property market excellent fundamentals while benefitting from the stamp duty holiday -until March 2021- a vanilla investment approach may be more suitable.

Targeting off-plan buy to let developments could be the ideal solution.

With only 30% deposit with balance on completion, buy to let properties rented to tenants on an AST agreement. New build properties have build warrantees and property management in place. Typical net yields are 5.5% and the bank finance with low rates means that expenses will be covered. This buy to let strategy is best for those with the aim of growing their UK property portfolio by focusing on good capital growth. If this sounds like a suitable way forward, please do get in touch. We would be delighted to assist you!