Our Managing Director Ben has been featured in this week's Blue Bricks Magazine, he speaks about how he finds the best investment deals when buying a property.
A LETTING AGENT’S INSIDER ADVICE
Being a letting agent and a property investor gives me a unique perspective. It's like performing on a stage and being in the audience at the same time. You get a behind-the-curtain glance into the world of selling and managing property, while also understanding the frustrations of landlords.
In this article, I'm going to use my 20 years of experience investing in and managing properties, to give you some hidden tips on how you can find the most profitable deals in today's volatile and competitive market. This includes finding off-market opportunities and discovering hidden gems, that you might have previously written off as being poor investments.
But before we do that, let's jump into the main argument against letting agents.
Money for Old Rope
This is an argument I've heard a few times over the years, where landlords pay their management fee and then feel like the agent does nothing for them.
A recent government white paper showed that 80% of landlords self-manage. Maybe it's because of the reason above or, maybe it's to save a few quid.
A LOT OF LANDLORDS MAKE THE MISTAKE OF NOT INCREASING THEIR RENT BECAUSE "THEY HAVE A GOOD TENANT". THIS IS A HUGE MISTAKE
In my opinion, it is impossible to self-manage a property, unless you spend a significant amount of time learning the legalities.
Did you know there are 167 legislations relating to renting and managing a property...? That's a lot of reading!
One of the most successful strategies I have seen is to convert two-bedroom properties into three-bedroom homes. There are a few ways you can do this, the most common one being a loft conversion. Another approach you can take is to move the bathroom.
so that you have space to add another smaller bedroom. A good indication that you can add a third room is if the property has a large master bedroom with two separate windows. The chances are, that you can put a stud wall directly between those windows, to give yourself that extra space.
Even more frightening, if your safety certificates aren't up to date or your paperwork isn't in order, then you cannot give notice to a tenant, ie., you can't evict them. The problem is, you will never know if your paperwork is in order unless a tenant stops paying or you must make them vacate the property. You could be using inadequate paperwork for years, only to find out when it's too late.
If you have been self-managing for years and using the same contracts, then get them checked and edited. As an investor, you will have an issue with a tenant at some point. You need to know you're both legally protected when this happens.
BELOW Market Value Rent can Prevent Property Sales
A lot of landlords make the mistake of not increasing their rent because "they have a good tenant" for a few reasons. Firstly, you're running a business, not a charity. If you feel bad, then make money and donate it to charity afterwards. You're an investor, so you want to make a return on investment. You can't do that if you're not making enough prof each month.
Secondly, you cannot sell a tenant-in-situ property if your rental income is below market value. Why would another investor want to buy your property, if the rental income is £200 below local comparables? This creates a sticky situation because it's illegal to suddenly raise a tenant's rent by a certain percentage. Also, you can only increase rent every 6-12 months, so you’ll be stuck with lots of little rental increases over a few years, to get yourself back to market rate, which is sure to annoy your tenant.
Turning 'OK' Deals into Profitable Investments
One of the most successful strategies I have seen is to convert two-bedroom properties into three-bedroom homes. There are a few ways you can do this, the most common one being a loft conversion. Another approach you can take is to move the bathroom so that you have space to add another smaller bedroom. A good indication that you can add a third room is if the property has a large master bedroom with two separate windows. The chances are, that you can put a stud wall directly between those windows, to give yourself that extra space.
Once this is done, you can then refinance the property as a three-bedroom house, rather than a two-bed, so you can pull most of your money back out. You'll need to calculate the expected uplift in value and then calculate how this will affect your refinance first though.
This strategy also works well on council estates. Four-bed family homes are practically unheard of in these areas, so if you can convert a three-bed into a four. bed, you're onto a winner.
What is the Best Way to Find Deals in the Current Economy?
First of all, don't be put off by a good refurb. Know what problems are easy to solve and which ones will cost a fortune. Experience will tell you this, but if you don't have much of that, then take pictures on your viewings and show them to builders or established investors. Things like damp, black mould and some cracks, commonly put investors off, but in most cases, they're nothing to worry about.
If you're struggling for deals, then are you being too cutthroat? You’ll rarely get ALL your money back out when you refinance. sometimes, it's worth looking at smaller deals, with a six or seven percent yield, because it's still better than the interest being offered by the bank.
Off-market deals are by far the best opportunities. An easy way to pick these up is to wander around your investment area. Find old buildings that are boarded up or abandoned. Then, note the address and look them up on Land Registry. This will give you the details of the owner and you can write them a letter.
You can also find some great opportunities through agents if you don't annoy them. If you're the kind of investor who is always haggling on price, even when you've already got a good deal, then estate agents won't want to work with you. This is especially true for rent-to-rent and rent-to-serviced accommodation providers. In today’s economy, we're not struggling to let houses. We don't need to ask the landlord to knock £100 off their rent.
Agents are more prone to working with investors who want them to fully manage any new properties they buy. So, if an agent sells you a property, they get paid by the vendor and then they get paid by you in management fees, they're going to be much more inclined to pass you the next deal than 'Joe Blogs off the street' who wants something for nothing.
One Last Golden Nugget
A telling sign that an estate agent has a good deal, is if they have a listing that has no pictures, or just one picture of the exterior. This typically means that either the property is an absolute wreck, or the agent can't get in because the tenant won't grant them access. Either way, those are two things that would motivate a vendor to sell, for a discounted rate.