Should You Buy Cheap Rental Properties?

A question I’m often asked is ‘Do you recommend buying cheap houses as rental properties, in the 30,000.00 – 70,000.00 price range?’. And my answer is, ‘Yes!

I’ll give you several reasons why buying cheap houses, where there’s demand, can be a great investment especially when your first starting out as a property investor and landlord.

There’s a common misconception that the more expensive and the more attractive a property, the more that can be charged for rent and the bigger return you will receive, and that’s simply not true. Cheap rental properties can make VERY good investments.

Now, I’ve not bought a house in the 30,000.00 – 70,000.00 price range, yet, but I plan to, and in fact, the cheapest property I have bought has been my best performing property. It’s been a good solid investment. It’s never been vacant for more than 3 weeks in a year, and that has only happened once in the 14 years that I’ve owned it, and I have also seen some nice capital growth in that time too. I remember, when I first viewed it, I wasn’t that keen. But after listening to the letting agent about the demand in the area, I decided to go for it and I’m so glad I did.

By owning a cheap single unit property you will gain experience as a property investor and landlord. Also, depending on your approach, you may also decide to look for one that requires some cosmetic work to bring it up to scratch so you add value before your first tenant moves in, and you gain some experience with renovations too.

Some people say that they are not going to make a significant income with a cheap rental property, and although that may be true when you compare a single unit family home to a large House of Multiple Occupation, you have to consider that smaller single family properties will require less capital to get started, less time to get up and running, and less time to be managed once a tenant is in situ. They’re typically less of a headache.

I would also add that your rental yield is likely to be better, compared to buying properties in city centres or in more expensive regions. I have a video on working out the rental yield and ROI here which you should watch if you are not familiar with these terms. Property investing is a long term business and business’ are all about cashflow.

If your goal is to replace your salary from your current job in the future, then buying several cheap properties will help you reach that goal providing you stay focused on the rental yield and cashflow, and not the potential capital growth. Each property you buy will be a stepping stone to the next one and your experiences of being both a landlord and investor will sky rocket. It makes sense right, the more you purchase and hold, the more experiences you will gain.

Recent research conducted by UPad has shown that 2 bedroom properties for both houses and apartments, bring in the best rental yield, and I know from experience that these types of properties are rented by key workers such as, teachers, nurses, taxi drivers; both white and blue collar workers, who don’t necessarily want to buy their own property, but want a nice place that they can call their home.

6 Reason’s Why Cheap Rental Properties Are Great For First Time Property Investors And Landlords

Ok, so if you’re a first time investor, cheap properties can really work for you for a number of reasons:

1. Firstly, lending will be easier. If your looking to borrow 40,000.00 as opposed to 200,000.00 because when you start out there will be fewer lenders available to you. Once you have some experience with owning a rental property and operating as a landlord, you will find that there will be more lenders that will be willing to do business with you.

2. There’s a better chance that you will be able to reduce your loan to value to increase your cash flow. If you have 30,000.00 to invest for example and you use that as a deposit on a 120,000.00 property you will need a mortgage with a 75% LTV, and you will find that the interest you pay on your mortgage will be higher than if you used your 30,000.00 to purchase a 60,000.00 property and took out a mortgage with a 50% LTV.

3. Less capital will be required, but yet you will still gain the experience of purchasing an investment, working with a mortgage broker and a solicitor, and operating as landlord as if you had bought a more expensive property in a city centre or a different region. If you have a sizeable amount of money to invest, but you’re not 100% sure if property is the right asset class for you, then a cheap rental property will allow you to dip your toe in the water, before you decide to go all in!

4. Running costs will be cheaper. I’m talking about buildings insurance as well as mortgage repayments AND utility bills if you find yourself letting the property with bills included.

5. Cheaper properties won’t cost as much to fix compared to more expensive ones. You will gain experience of solving and fixing problems and any mistakes you make wont be as costly compared to the bigger more expensive properties.

6. There’s also a good chance that a cheaper rental will not be near where you live, which will force you to look for a good managing agent and then allow you to put it at the back of your mind once it’s up and running, so you can focus on your normal routine and enjoy the passive income that it brings. Experience of working with letting agents is good to have in my opinion.

I think that cheap rental properties are a great way to start as a landlord and shouldn’t be overlooked. Start as soon as possible, buy cheap, gain experience and start to build your empire and your legacy whilst providing a good service to your customers.

Over to you – Have you bought cheap properties, or are you thinking of buying a cheap property as your first investment? Let me know in the comment section below and I would also be happy to answer any questions you may have.

All the best!
 
Andy

Facebooktwittergoogle_plusredditpinterestmail

Real Estate Investing With No Money | Interview with Tom from FlipAnythingUSA

Is it really possible to invest in real estate with no money? In this video I interview Tom from FlipAnythingUSA and he has over 30 years experience with investing in both residential and commercial property.

And yes, he has experience with buying houses and commercial buildings with no money.

Subscribe to my YouTube Channel
 
Questions I ask Tom:

Why have you decide to share your knowledge of real estate investing with no money now, after all these years?

How does someone start out in property investing if they don’t have any funding or money?

What direction do you see your YouTube Channel going in, in the future?

Tom’s recommended video:
How to invest in real estate: No Money, No Problem! Don’t listen to nay sayers. It’s the Deal!

Subscribe to Tom’s channel FlipAnythingUSA

If you have any questions for Tom, please leave them in the comments section below and he will be sure to reply.

Cheers
 
Andy

Facebooktwittergoogle_plusredditpinterestmail

Best Place To Invest In Property Or Real Estate For YOU

It’s a question that often gets asked, so lets discuss the best place to invest in property or real estate, for YOU!

Now people typically ask this question because they want to know which areas are producing the best yields and capital growth. That’s fine, BUT the answers or locations they receive may not suit them for a number of reasons. The world is a big place and there isn’t any one particular place that is good for everyone.

There are two factors that you should consider, which I discuss in this short video:

What areas are you looking to invest in? Let me know in the comment section below and I will join in the discussion.

Thank you for watching and please let me know if you have any questions about your best place to invest in property or real estate, and I will do my best to help.

Andy

Facebooktwittergoogle_plusredditpinterestmail

Rental Property Management | Letting Agent Or Self Manage Your Investment Property | Buy To Let

Should you use a letting agent or do it yourself? Managing your own rental property can sound appealing to some people when they first start out as they know they will save money on letting agent fees. But you need to be honest with yourself and consider whats involved and whether managing a property would be right for you.

I have 3 questions that you can ask yourself to see if you have what it takes to be an effective rental property manager:

Subscribe To My YouTube Channel

My questions are:
 
1. Do You Have The Knowledge?
 
2. Do You Have The Resources?
 
3. Do You Have The Time?
 
If you have any questions about rental property management please leave a comment below. Thanks for visiting.
 
Cheers
 
Andy

Facebooktwittergoogle_plusredditpinterestmail

Scared Of Property Investing For Retirement? Let Me Help You

This video is based on Lana Hall’s guest post. It will provide you with 3 questions that you can ask yourself to help you overcome any fears you may have around property investing for the first time, and give you more confidence so you can make a start on property investing for retirement:

Subscribe To My YouTube Channel
 
Click here to see Lana’s original guest post.

Visit Lana’s website www.lanahallpsychology.com
 
What fears do you have about starting out in property investing? Or, if you have already started, how do you cope with your fears? Your comment may help someone else take their first big step into investing.
 
Cheers
 
Andy

Facebooktwittergoogle_plusredditpinterestmail

5 Common Mistakes Newbie Property Investors Make

If you are aware of them, you can avoid them! In this video I talk about the common mistakes people make when they are considering, or starting out in property investing. Watch to see how many of these mistakes I have made.

Subscribe To My YouTube Channel
 
They are:
 
1. Thinking you’ll get rich quick.
 
2. Not doing your homework.
 
3. Not doing your due diligence.
 
4. Paying too much.
 
5. Not starting!
 
Are there any other mistakes you are afraid of making, or have made, when you first started? If so, please share in the comments below.

Cheers

Facebooktwittergoogle_plusredditpinterestmail

5 Reasons To Consider Investing In Property

I’ve done it! I’ve faced my fears and uploaded my first YouTube video. There is so much to learn about YouTube.

Anyhoo …..

In the video, I talk about the 5 main reasons why people get actively involved with property investing, and why you should consider it too, if your not already doing it.

Subscribe To My YouTube Channel
 
The 5 reasons are:
 
1. Secure Your Financial Future or Even Your Financial Freedom
 
2. Providing Homes For People
 
3. Make Your Money Work
 
4. Education and Personal Development
 
5. Leaving A Legacy
 
Please let me know which reason is most likely to get you actively involved with property investing, or which reason will inspire you to improve your current portfolio.

Or, do you have another reason?

Facebooktwittergoogle_plusredditpinterestmail

Things To Consider When Searching For A Letting Agent

Some people choose to let and manage their properties by themselves, but I feel that I do not have enough knowledge and experience to succeed in this area at the moment.  I also value my time, and property management can be very time consuming, so I am happy to pay for this service.

Businesses are always evolving with the times, and letting agents are no different. There are now a number of online letting agents offering some attractive fees as they don’t have the typical overheads of a traditional high street letting agent.  However, I have not taken the giant step to try these yet, so my experience and advice is based on the traditional method.

REPUTATION

The best way to find a reputable letting agent is by word of mouth, but if you are not fortunate enough to be given any recommendations, it is important to spend some time visiting and questioning local agents.

Letting AgentI approach at least 3 letting agents when I have a property to fill.  I also visit their shop to get a feel as to how they look and operate. Image can be important for a potential tenant, so I am always keen to checkout the shop front for myself.  The location of their office is also important to me as I like to see them located on a busy high street with a large footfall.  That said, most people probably search online when looking for somewhere to rent and then telephone and meet the agent without stepping foot in their shop, so maybe it doesn’t matter so much these days, but as a landlord and an investor, I struggle to ignore this factor.

2 WORTHY NOTES

1.  Since October 2014, all letting agents, by law, must belong to a redress scheme which provides a free, independent service, for resolving disputes between the letting agent and their customers.  Here are the 3 government approved letting agent redress schemes:

Ask the letting agent which scheme they belong to.

2.  For transparency, from 27 May 2015, letting agents must publish full details of their fees and charges for both landlords and tenants, on their websites and in a prominent position in all their offices.  I will always check the associated fees before I enter into negotiations with any agent.

LEVEL OF SERVICE & FEES?

There are 3 levels of service which most letting agents provide:
 
Tenant Find

    • Advertising your property on popular portals like RightMove and Zoopla.
    • Conducting viewings with prospective tenants
    • Tenant referencing and credit check

I was recently quoted £195 + VAT for this service.
 
Let Only
 
Includes all the above plus:

      • Issuing a tenancy agreement (contract)
      • Registration with a Deposit Protection Scheme
      • Taking the tenants deposit
      • Taking the first rental payment
      • Setting up any direct debits
      • Submitting meter readings to the utility company(s)

They may also offer additional services with an extra charge for:

      • Providing an Energy Performance Certificate
      • Providing a Gas Safe Certificate
      • Creating an inventory

You can expect to pay anywhere between the equivalent of 2 to 4 weeks rent for this service.
 
Full Management
 
Fees are typically broken down into 2 categories:
 
Setup fees:

      • Advertising your property
      • Vetting suitable tenants and obtaining references
      • Issuing a tenancy agreement (contract)
      • Creating an inventory
      • Registration with a Deposit Protection Scheme
      • Taking the tenants deposit
      • Taking the first rental payment
      • Setting up any direct debits
      • Submitting meter readings to the utility company(s)
      • Providing an Energy Performance
      • Providing a Gas Safe Certificate

(Note: Some letting agents charge separately for some items e.g. certificates, to give landlords the choice of purchasing them for themselves.  This can be cheaper for the landlord as agents typically add a percentage to cover their time for arranging these).

The agent will normally deduct all setup fees from the first months rent.
 
Management fees:
 
This covers regular inspections and the ongoing day to day management of the property.  The tenants will contact your agent, instead of you, if they have any questions, queries or problems.  This is a great option for landlords who are in full time employment.

Management fees will be a percentage of the rental income over their letting term and are deducted from the monthly rent you receive.  These fees typically range from 6 – 15% + VAT, although I negotiated with one of my agents and reached 5.5% + VAT (WAHOO!)

You can take a look at my Income Report for September 2015 to find out how much I paid for a recent setup fee with a full management service.

NEGOTIATE

Remember what I wrote on my previous post about Making An Offer? – everything is negotiable!

Now that you have an understanding of the different types of services letting agents provide, you can start your search by visiting The Association of Residential Letting Agents website.

AND FINALLY

This is my last post in the Start Here section!  If you have read through all of them, congratulations!  This is the first sign that proves you have enough interest and determination to make a success from property investing.  Your next move is to TAKE ACTION and make things happen, one step at a time.

Property investing is a people business, but it can also be a lonely business at times. Please subscribe to my newsletter to receive further content in the future, that will be geared towards education and keeping you motivated to succeed.

Was this post helpful, or do you feel you still have some unanswered questions? Please leave a comment in the box below.  Thanks!

Facebooktwittergoogle_plusredditpinterestmail

What To Consider Before Making An Offer

Property is only worth what someone is willing to pay for it.  There isn’t an entity that decides how much a property is worth, it is completely driven by the general population. It’s important that you buy at a good price!

The idea is that you start negotiations and let the vendor join in.  Effectively, you are showing an interest.  Don’t feel bad if you make a low offer, you need to keep your feelings aside.  You are not forcing the vendor to sell, you are simply given them an option to accept, decline or engage; you are making an offer.

Making an offer is the start of entering into negotiations.  This is something I have not mastered yet; negotiation is a skill, but I would like to share with you what I have learned so far.

Ways to be a better negotiator

You have already done your research and due diligence, so make sure you convey your knowledge.  View several properties before making any offers and let them know you understand the local market.  Asking well-informed questions is one way of displaying your knowledge.

Keep calm and don’t look too keen when viewing.  Take time to think about your options after all your viewings, and don’t rush into making any offers.

It is important to remember that the estate agent works for the vendor and not you.  They are professional negotiators and the higher the offer the vendor receives, the higher commission they receive.  Be prepared for bargaining tactics and take what they say with a pinch of salt.  You must remain calm and confident.

Buying as an investor means that you do not have anything to sell, and this can be very appealing to vendors if they have to move quickly due to work or a whole raft of other reasons.  Speed in the sale can be more appealing than the highest price to some vendors.  Make this clear to the agent or vendor when viewing.  If you have your deposit funds and AIP, you are good to go!  You can only be beaten buy a cash buyer in terms of speed.

If you want to develop your negotiation skills further, I can recommend Everything is Negotiable by Gavin Kennedy.  It’s a book packed with advice on how to handle negotiations in the world of business.

Making an offer

Remember this important statement – you make your money when you buy a property, not when you sell!

Here are some reasons why you would typically make an offer of 15-20% lower than the asking price:

  • A similar property recently sold at a lower price and the market hasn’t changed.
  • There are some repairs and/or improvements that would need to be carried out.
  • The property has been on the market for a while and hasn’t sold.

I prefer to make my offer in person so that I can read their reaction.  I then back up my offer in writing which also confirms my terms and conditions.

Here is a copy of my offer letter which you can use or alter to fit your circumstances.

You will see that it also emphasises that I am in a good strong position to buy with a predetermined timeline for completion of the sale.  Making your offer over the phone, backed up with an email with the offer letter, is fine.

Tip: If the vendor comes back to you with a counter offer, and you are happy to accept, it is worth requesting a condition before agreeing to that offer.

This happened to me when I was looking to purchase my first renovation project, and I agreed on the condition that I would be allowed access to the property between exchange of contracts and completion.  This gave me 2 weeks to remove the old carpets, kitchen, bathroom suite etc, before I had to make any mortgage payments. Time is money!

Once your offer has been accepted, you need to understand that it’s not legally binding (in England and Wales; there are different rules in Scotland) until the exchange of contracts.  Both you and the vendor can pull out.  It is important that your solicitor moves quickly once you have paid for any survey and valuation fees, as these cost hundreds of pounds and are non refundable if the vendor pulls out.  It is not too common, but it has been known to happen.

The main reason a vendor would pull out, would be because they have received a higher offer.  This is called “gazumping”.  If you are “gazumped”, you can either drop out or counter-gazump.  This is why it’s important to insist the vendor agrees to take the property off the market once your offer has been accepted.

Some estate agents will let you put down a non-refundable deposit to “lock-in” the sale for a certain period of time. This protects you against gazumpers, but not all agents will agree to this.  This is something I have recently learnt but have not yet tried.  If you do this, make sure the terms state that you will receive your deposit back if the vendor pulls out.

I hope this post has helped.  If you have any questions or any tips, please leave a comment in the box below.  Thanks!

Facebooktwittergoogle_plusredditpinterestmail

Calculations for Property Investment Purchases

It’s important that you have a positive net cashflow at the end of each month, if you don’t, you will end up with a property that will cost you money (a liability) instead of a property that provides cash in the bank (an asset).

There are 4 sets of figures you need to know to assess any rental property:

1.  Purchase costs – The price of the property and legal fees.

2.  Monthly rental income – Can be researched online and via letting agents.

3.  Monthly finance payments – Will be provided by the mortgage lender.

4.  Operating expenses – Based on the condition of the property and letting agent fees.

You may already have an AIP at this stage which will give you detailed information about your monthly finance (mortgage) payments.  If not, here is an online calculator that you can use to find out what your payments will be.

Here is an example:

The price of the property is £85,000.00 and is purchased with a typical 75% loan to value (LTV):
 
£85,000.00 x 75% = £63,750.00 (loan)
 
£85,000.00 x 25% = £21,250.00 (deposit)
 
Legal and mortgage fees are just under £2,000.00 which gives a total cash payment of £23,250.00.

The property can achieve an annual rental income of £9,360.00.  All figures listed below are monthly which includes a full management service with a letting agent and a mortgage interest rate of 3.89%, which is a comparable at the time of writing this post:

Rent £780.00  
Mortgage   £206.66
Insurance   £17.00
Agent (10%+VAT)   £93.60
Repairs (5%)   £39.00
Void (8%)   £62.40
Total £780.00 (A) £418.66 (B)
Net Income (A-B)  £361.34

Notes:

1.  The percentage for repairs will depend on the overall condition of the property.

2.  I save 8% for voids as this roughly equates to 1 months rental income over a 12 month period, meaning that I have enough to cover my operating costs if the property stands empty for 1 month of the following year.

Your Net Yield is calculated as follows:

The annual net income, divided by the purchase price, multiplied by 100.

(£361.00 x 12) £4,332.00 divided by £87,000.00 = 0.049 x 100 = 4.9%

Your Return On Investment (ROI) is calculated as follows:

The annual net income, divided by cash paid, multiplied by 100.

(£361.00 x 12) £4,332.00 divided by £23,250.00 = 0.186 x 100 = 18.6%

The Net Yield and ROI are the figures you want to focus on.  They tell you the return you are receiving on the property and the money you have invested. With this example you can see that within a little over 5 years, you will have received enough rental income to have replaced your initial deposit for the investment.

Does the example make sense to you?  Is there anything I can add to help? Please let me know in the comment section below.

Facebooktwittergoogle_plusredditpinterestmail