Investing In property is not as straight forward as it used to be, the government are really making it hard for investors and it’s just a completely different game now then it was even 10 years ago.
But you have started on your investing path correctly, you reading this post tells me you are doing things right, you are starting to “educate yourself”. You will hear this term a lot in the property investing game so get used to it and get educating.
Anyone you speak to will advise you to educate yourself and by that it means reading up on the subject, attending courses and especially attend your local property networking groups which there are a lot of now, I regularly attend a Property Investors Network meeting (PIN MEETING) and this puts you in a room with people that are doing, have done and are looking at doing investing, so you will really be in the right place and environment to learn.
If you have some capital it makes it easier to start, there are some popular models around to start looking into for your property investing career these are HMO, RENT TO RENT, SERVICED ACCOMMODATION, BUY TO LET there are more but these are the most used and straightforward.
It completely depends on your end game as to which route you would like to go. For example do you want a few extra pounds a month to go towards your holiday, do you want X amount of cash to be able to spend without going into you savings. Mine is very straight forward,
“I want a passive income that will equal my outgoings”.
THE PROS AND CONS OF THE DIFFERENT MODELS.
You will find loads of information on this subject and it always depends on what you want out of it, I wanted to cut my teeth on buy to lets but after educating myself more I could see there is more to gain in an HMO whereas I’m sure in a year or two I will be looking at another system entirely, especially with the way the tax is changing on property income.
BUY TO LET
This is when you buy a property flat or house and rent it out as a whole usually to a what we call one household, such as a family or a couple. They pay you a rent and they pay there own bills and you look after the property, so if the boiler goes or the electrics its your responsibility to sort it out. This is a nice style of investment. You only have to deal with one household at a time, Minimum 6 months but if your lucky its for a lot longer and you get a set amount a month. Obviously you may get the odd call saying something has broken down so you need to arrange for it to be fixed but apart from that it’s a pretty hands off investment and if you really want to be completely hands free you can hire an agent to deal with the property.
It’s a low maintenance investment Return on investment isn’t going to be massive but its usually constant and safe. So a good long term investment.
House of Multiple Occupancy (HMO)
This is a step up from the single buy to lets. In a nutshell Its when the property is split into separate rooms and you rent each room individually and where the tenant will share the communal rooms, such as kitchen and living space with the other tenants.
There’s a lot more to learn about HMO’s with regards to getting the property up to spec which needs to be researched thoroughly but the ROI can be a lot more than the single let due to the fact you will be getting a monthly rent from each individual tenant, you usually charge an all-inclusive rent to include bills and utilities. The downside is that you are dealing with new tenants more frequently as it’s a higher turnover model and wear and tear is more. However its usually localised to individual rooms so compared to the buy to let strategies usually the whole property needs redecorating after each tenant, with the HMO its only the individual room if that, then the communal rooms upgraded at longer intervals typically every 2-3 years.
A higher return model, but more work involved.
RENT TO RENT
This is where you will rent a property off a landlord and rent the rooms out like an HMO. Pros are that you don’t need a lot of money to set this up and someone else is liable for the property and you can make some really good money, the bad points are you will have to give the property back unless you have done a deal with an option to purchase at the end of the set period.
This is a good model if you want to get out of your day job and build up some capital of your own to get set up in property. You will usually have to spend some money out getting the property up to spec and obviously this will only be a gain for the landlord when you give the property back however a great way to get started and learning how to manage properties and deal with tenants..
Serviced accommodation
This is the most talked about model in the property circles at the moment.
It’s when instead of having long term tenants in (Minimum 6months), instead you rent the property out on a nightly basis. There can be a lot more profit from this type of investment as you can charge from £50 to £150 a night in the right area.
But there is a lot more to do and arrange with this model and you would have to weigh up the extra wear and tear, the changeovers new laundry/cleaning after each person vacates, but if you’re in the right location and you’re looking for a very hands on investment this good be the way to go.
A lot of experienced investors are dipping their toes into this as is taxed differently for one thing and not subjected to the new article 24 tax on buy to lets and because of the great returns.
So a good high cash flow model, but with a lot of extra work and a lot of educating required.
Working out the figures
Once you have decided on the model you prefer it’s time to get started, obviously if you have the funds usually 25% of total purchase price for the mortgage then you have to allow for the additional stamp duty, conveyancing fees, also a survey of the property. So as mentioned in my (buying a property for the first time post-https://allthings-property.com/buying-a-house-first-time/.
Speak to all the relevant professions before to get an idea of the costings, a mortgage broker if your using one, solicitors fees and get savvy with the additional cost for stamp duty, there loads of stamp duty calculators on the internet but make sure its working out stamp duty on 2nd homes not just on the first as the 2 are very different now. For example if you’re buying a second property for £300,000 you now have to pay an additional £14,000 in stamp duty fees.
You will obviously need to take all this into account to work out initial outgoings but also to work out if the property is worth buying as a potential investment.
A typical property is working out at a yield of 5-6% so that’s worked out by dividing the annual rent divided by the property value. So it’s a nice quick way of looking at a property to see what the potential returns are. But obviously this is only part the picture as this is based on you buying the property outright which is fine if you’re a cash buyer, but if you are using additional borrowing such as a mortgage then what you really want to know is your return on investment (ROI).
You will want to know how much you’re going to make on my money invested. So you will need a few more figures for this but in a nutshell, if you work out the rent you receive annually on the property, minus the mortgage amount & maintenance etc, and take the figure for the total money you have invested, including solicitor fees, stamp duty and so on then divide your annual figure of rent received minus the mortgage cost by the total money invested that will give you your true ROI.
This will be something you definitely need to look into if your serious about a property. If all the figures stack up then it could be the one for you..
So to summarise:
- -educate yourself
- -Start with the end in mind
- -choose which model to follow and adapt if necessary
- -check the figures work, then check again
“This is great” you say “If you have the money to put down but what if I don’t?”.
Then start with the rent to rent model, you will need a bit of money but not as much as the others models you can then build your money up and get started on your own. Also the other option is to look for someone to invest with (A Joint venture partner) they can bring the money if you can source the deal.
It’s important not to limit yourself and look outside the box.
I hope this helps you on your property investing path and if you have any questions don’t hesitate to comment on the post.
Good luck!