2 cheap or 1 less cheap ?

[Adam Young]

Hi all, 

I’m looking to take the plunge with my first BTL and have a dilemma so wondered what people thought.

I’ve got about £25-30k to invest and thought I’d settled on Nottingham where I’d look for a mortgage on something around £80k which rents for around £600 but then started to look further North, Hartlepool to be precise.

You can get a terrace house there for about £30-35k which rents for £350-380 so effectively you can get 2 properties for less than the price of 1 in Nottingham and the 2 of them would net more in rent than the 1 in Nottingham.

I know that capital growth would be negligible compared to Nottingham but if i’m just starting out isn’t cash-flow critical ?

Assuming houses do actually rent in Hartlepool and I’m not left with 2 empty properties my thoughts are to go with the 2 cheap ones and take advantage of higher cash flow and then let this build up for a deposit in somewhere with better growth potential next time.

I’d appreciate people’s thoughts on this approach and what pitfalls I might have overlooked.

Thanks in advance.

Adam.

[Dino V]

For the Hartlepool ones, if find a letting agent in the area who deals with that sort of property and speak to them. You may find the things they suggest to allow you to rent it out easily e.g. 2 reception rooms, puts £10k on the cost. The cheaper properties will rent, but you may be in a position where you have to take any tenant rather than picking a good one. You may also find the tenants leave more frequently from the cheaper properties and it can often be because of teh debt they've built up elsewhere. They therefore disappear with no notice, leaving you with a fairly big tidy up to do and you probably won't have been able to get a deposit in the first instance, so it's all out of your pocket. Additionally, if a carpet needs replacing or the boiler breaks, the cost will be the same for the property in Nottingham or the cheapest one in Hartlepool, but the percentage of the rent required to sort it will be much higher.

I'm not trying to put you off Hartlepool, or any other area completely, just don't get attracted to the cheapest property possible without considering the downsides and speaking to someone local. The same could be said for Nottingham - an £80k house could be the  bottom of the property ladder and you'll end up with the same tenant issues.

I'd therefore suggest avoiding the cheapest in any area. I'm not saying avoid DHS tenants,  as some will be great and will remain in a good house for many years, but you want to have the opportunity to pick the tenant, not have to take anyone 

[Katherine OneandOnlyPro]

Hi Adam,

Great to see that you’re looking to invest in property!

Are you local to Nottingham or Hartlepool?

Both seem like good viable options. It is down to what you want, do you want cash flow, or do you want a good capital growth and less cash flow? Would you want to start slow with one property or build quickly and have two?

Think about what is best for you and what you want.

I hope this helps and if you have any more questions don’t hesitate to ask.

[Darren McNeill]

Hi Adam,

I think your approach at looking for cash flow at the start is the right thing to do.  Personally I have a goal of £4k per month cash flow after costs, then I may look into capital growth, but for me securing a regular income is key.

What you do not want to do is buy houses in the worst areas.  You are only inviting trouble.  What you need to try and do is get properties in the areas that "aren't that bad."  All areas have crime etc, but what you ideally want to avoid are areas that are just DSS tenants.  Not wanting to offend DSS tenants as I know most of them are great people, but unfortunately these areas where the rentals are very low attract the poorer quality of tenant.  What we are personally finding is that if you offer a better quality product you can ask slightly more than the local average and you will attract a nicer tenant.  We only offer good quality property that we dress for the listings:

12 months ago this property was let at £450PCM, we now have £500PCM for it and it has just been revalued at £65k.  You would be able to purchase decent BTL's for a little bit less than the £80k that you mentioned, and round our way you can get a £450PCM return from a £60-65k purchase.  In Feb we sourced a 51k, 51k, 52k, 52k and a 55k purchase for our clients.  They needed around £3k on average to bring them up to a good letting standard.  They will all bring in £425-£450PCM.  You could of course buy something cheap on a BTL mortgage where you can spend £10k and then rinse out some money in 2 years time once the mortgage period ends.  We do also sell vanilla BTL properties that come with free white goods, 12 months free management and also gas safety and electrical safety certs.  We have one coming onto the market in the next few months at £65k that returns £450PCM. 

Darren