As an investment class, buy-to-let has huge appeal in the UK. In the low interest environment of the past seven to eight years, it’s no surprise that its appeal has grown all the more.
But, building your own buy-to-let portfolio can be tricky, time-consuming and highly stressful. On that note, meet the man responsible for buying five buy-to-lets each and every week. Rob Weaver is one of the property world’s foremost stock pickers, responsible for choosing investments for property investment marketplace, Property Partner. Below, he shares his secrets:
1. Find out which way everyone is looking, and look the other way
Want to buy in an up-and-coming area for young professionals? Walk down the street and look at how many doors have shiny new doorbells. It sounds silly but that’s the one addition you see to the outside of a property when a landlord has either just split or spruced up a new let. It’s only worth it if the type of tenants in the area are reliable and worth the investment.
Want to find out if a depressed area is becoming popular with families being pushed out of another area in search of more affordable, larger properties? Go on Google Street View and compare the makes of car with those parked there before. Are you seeing people carriers and SUVs where that battered old Volvo was gathering dust? That could be a good sign.
Want to know if there could be a commuter boom? Take the train to the next stop and see for yourself what’s coming down the road. This is the last mile other investors are not willing to walk. It costs you nothing, can take just minutes and could make or save you significant sums.
2. Look deeper
Reputable firms provide all sorts of market measures to try to help you peer into the future. Use the House Price Indices (HPIs) available online to see how prices have performed in the past. Firms like Savills, Knight Frank and JLL publish value growth forecasts.
Use the House Price Indices available online to see how prices have performed in the past
Dig up the numbers on the local economy, including wages and make sure local jobs are not dependent on one single, large employer. Investing alongside major regeneration or infrastructure projects such as Crossrail and HS2 is a popular strategy and transport is generally the single most important consideration when it comes to choosing each buy-to-let location.
3. Be picky
Visit each property even if you are buying 100 all over the country. We visit and perform due diligence on every property that makes it onto our platform, identifying potential pitfalls, with hundreds each month not making the grade.
We are all susceptible to seeing property through rose-tinted glasses – particularly online – but taking the time to find opportunities with a slight edge could increase your returns over the long term. This may be a rental yield that tops the table locally or even the demographic occupying other properties in the same street.
If you’re not investing with a site like Property Partner which offers an easy way to exit your investment then you’re in this for the long haul. Attention to detail is what separates the property magnates from the rest of the field. An investor may have 200 properties in their portfolio but if their borrowing ratio is slightly too high, it only takes a mild downturn with yields under pressure to expose any frailties.
4. Don't believe the hype
Everyone talks about prime property but those same properties, once let, can often disappoint on rental income compared with everyday locations in the commuter belt. For us, it’s about the next five years and property hotspots such as Kensington and Knightsbridge are firmly off the menu. The figures being paid for homes in these areas are so high you cannot charge enough rent to justify the hefty price tag.
Everyone talks about prime property - but those same properties, once let, can often disappoint on rental income
Prime property is bought by prime buyers. They have time, money and opportunity and many will often pay in cash. That means demand is higher, which pushes prices up further. But if you peer under the bonnet of the housing market, there are good investment properties that don’t have people queuing out of the door because buyers struggle to get mortgages for them. These might be properties with short leases or those that have life tenancies.
These situations change the life cycle of the opportunity from an investment perspective but many savvier investors still take advantage. Lower demand for these properties can have a positive effect on the yield and that is what most buy-to-let income seeking investors look for, with capital appreciation simply an added bonus.
5. When diversification doesn't offer protection
If you’re not buying shares in property then it’s important to diversify – but don’t assume you’re better off if you do. It’s not a golden bullet and one rushed decision to jump into a property could undo all your good work up to that point.
I always recommend spreading your risk over at least ten properties. Diversifying into more properties is a good thing because it spreads your risk. Unfortunately, too many investors think that is the magic formula and then spend less time choosing their investment. However, just because you have 100 investments doesn’t mean they’ll all good. Be wary of buying more properties and spending less time researching each one as a result.
6. Use the right gear
Give yourself room to breathe. Investors like to take advantage of ‘gearing’, which is the use of a mortgage to purchase property. It means your gains are potentially higher but so are your potential losses. It’s a double-edged sword.
It means your gains are potentially higher but so are your potential losses. It’s a double-edged sword
Mortgage yourself up to the hilt and you increase your chances of needing to take more drastic action if market conditions change. Buying fewer properties with a Loan-to-Value (LTV) of between 50% and 60% may be better in the long run than stretching to buy a couple more with LTVs that leave you little wriggle room in a cyclical downturn.
I recommend the former, which if you’re a long term buy-to-let investor could mean you are able to ride out these cycles without having to lift a finger, let alone sell an entire property to meet interest payments on the rest. If you are gearing, consider a property with a higher rental yield that will shield you if the economic climate hits a bump.
Rob Weaver is Director of Property at Property Partner and is a member of the British Property Federation’s Residential Committee. He was formerly Global Director of Residential Property at the Royal Bank of Scotland (RBS).