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Looking to buy first property, Any advice appreciated.


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Hello all, 

Just starting out in property investing, the goal is long term and hopefully build a substantial property portfolio over the next decade. I am currently looking at properties within the York-Hull areas (I live in between both these cities) 

I have had funds ready for a couple months now to put a deposit down on the first property, but I seem to keep delaying myself. Property prices seem to be at a high right now and with climbing interest rates, the numbers are a lot harder to make a net profit at the end of each month, than they were 6 months ago. 

May I ask questions to experienced landlords. Appreciate any feedback given. 

Is now a good time to enter the market? Seems difficult to earn a profit with a 75% LTV. To counter this would putting a bigger deposit down be a good idea? a 50% perhaps.
The rental yields I am generally finding in my areas are around 5%-5.5%, would you class that amount of yield good or bad?
What other monthly costs, should I calculate for apart from the mortgage repayments, I know insurance would be one, on average how much would that normally cost? Also are there other costs I should be aware of?
In terms of the amount of net profit each month, what would you generally aim for per property?

All feedback would be appreciated. I'm ready to pull the trigger on the right property investment, just not sure if I have found it yet! 

Thanks,
Olly.

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Hi Olly,

There's lots of questions to cover here but I'll try to help with as much as possible!

Timing: Six years ago would, of course, have been a better time to get started. But the next best time is now! Unless you are expecting an imminent crash then you should get started ASAP, as property always goes up in value over the long term. Research the 18-Year Property Cycle and listen to a few of the recent Property Podcasts for a view of what is likely to happen in the near future.

Deposits and LTV: You stated your goal was to grow a big portfolio over the next decade. The best way to do that is by using mortgages to leverage the capital growth in property values over that time, so ideally you want to be using 75% LTV mortgages if possible, as more leverage means a higher ROI on capital growth. This will mean a trade off against income as rental profits (after paying your mortgage) will be lower in the short term, but it's a better way to achieve your goal. You'll benefit from more growth which leads to a higher income long term.

Yields: What you feel is a good or bad yield really depends on context. You can easily achieve higher than this, but you might be compromising on desirability and long term growth potential. You could also achieve far lower yields than this, in places like London for example. There are also other strategies besides BTL, like commercial property or HMO's or short-term lets that can produce yields of 10%+, but the downside is generally more work and higher regulation. If you're just starting out, I would advise keeping it simple, focusing on growth initially, and as the portfolio grows the rental profit will naturally build further down the line. Based on this approach, a good yield isn't any specific number, it's whatever you need to ensure a positive cashflow and qualify for a mortgage.

Monthly Costs: Your mortgage is by far the biggest. You'll also have service charges and ground rent (if it's a leasehold property) and lettings costs (if using a letting agent). Maintenance and repairs is difficult to plan for, as are void periods, so I choose to have a contingency fund to cover these.

Net Profit: For standard BTL, as a rough guide, I usually plan on a net profit of +/-£300 per month per property (pre-tax) after deducting the above costs.

Feel free to reach out if you would like a chat to discuss in more detail and I'll be happy to help.

Chris (www.fintentional.co.uk)

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On 9/9/2022 at 1:53 PM, olly_b said:

Hello all, 

All feedback would be appreciated. I'm ready to pull the trigger on the right property investment, just not sure if I have found it yet! 

Thanks,
Olly.

Helo Olly,

To answer your questions

The best time to enter the market was always yesterday! Property is a long term investment. A 5% price difference in your property will be a blip in the long run. I don't know anyone that has regretted becoming a property investor. A bigger deposit would protect you from risks. 

I think that 5.5% yields are perfectly acceptable. The difficulty is obviously with mortgage costs, which are currently rising. 

My advice

My general advice is to get moving. Even if your 1st investment isn't a blockbuster (they never are), you will learn so much. 

Going forward, do some research on different (and more profitable) strategies. In a high rate environment, you want more than 5.5%. Will commercial, you can get yields of 10%+. There ia also something called a SSAS Pension, where you can use your pension funds to buy properties. I have (free) guides to these strategies on my website 

Also consider investing in a ltd co. Corporation tax of 19% and no Section 24 make them quite attractive

_______________________________________________________________________________________________________________________________
Vin Gupta
Property Investor and Developer
UK Property Blog: https://evolutionblogger.com/article/uk-property-articles
Travel Blog: https://soulfultravelguy.com/

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Good Morning,

thank you both for your detailed advice.

I have found another property, going to view it for the second time this afternoon, 130k, 3 bed terrace, 7.6% yield. There is definite room for growth also in the long term. Think it could be a good one.

100% agree on the 25% LTV, higher deposits may make the net profit higher, but tying all that extra cash into the property, most likely not worth it! Instead can be the deposit for property number 2! 

I am thinking of managing this first property myself, more for educational purposes and experience. I will leave the tenant finding to a letting agent, fee is around £300. Would you have much experience managing properties yourself? I hear of some horror stories, but also some tenants that are no bother at all.

Also one cost I have not been able to work out, is insurances, could you please share the insurances required or what you would recommend? Also the general cost of the insurance? 

I have set the property venture up in a new Ltd company, after some research, it was the clear winner for my own personal reasons. SSAS pension I have, I believe this is only commercial property, we are looking into buying warehouses early next year.

Looking forward to getting this journey started, after some hesitation at the start, I believe once the first property is up and running, it will be full steam ahead from there! 

Cheers,
Olly

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Top tip - Don't overthink it!

Treat your first house as taking your first steps.  Its a great learning process getting that first one and will give you so much confidence moving forward.
 

Darren

 

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Hi Olly,

I manage most of my portfolio myself, and with single BTL's it's very easy (HMO's are a different kettle of fish though)! If you plan to self manage, I would strongly recommend finding your own tenants rather than using an agent. They are more incentivised to put the best tenants into the properties that they will also be managing. It's also important to meet the tenants yourself when you're self managing. Ideally you want to do the viewings yourself and show them round personally as it's a chance to understand the type of people they are, what they are looking for, how long they plan to stay, and get a feel for whether they would be reliable and look after your property. It's no guarantee, but if you can build a relationship from the outset, you will be far less likely to have any problems. I use OpenRent to market the property, and they also offer referencing services as an add-on. Put in that little bit of effort at the start and you'll have a quieter life later on.

Insurance: you just need Landlords Insurance. I recommend this article written by Rob Dix, which provides a comprehensive guide: https://www.propertygeek.net/article/landlord-insurance/. There are plenty of online comparison sites for landlords insurance where you can get price estimates, and as the most costly component is the buildings insurance, it will depend on the property. There are other optional insurances like Rental Guarantee, but if you meet the tenant and set things up correctly from the start, you would be very unlucky to ever need this.

Chris (www.fintentional.co.uk)

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Hi Chris,

Appreciate the advice, thank you. Reassuring to know you manage your BTLs, the monthly charges from local letting agencies is between 10%-12%, bit of a wedge of the potential profit if you ask me, definitely worth trying it out myself first. 

Looking into Openrent and the guide by Rob Dix. 

Thanks again!
Olly.

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  • 1 month later...

Hi Olly,

I would like to echo Chris, post above there its absolutely spot on, i am based in Northern Ireland and between me and my wife we have 15 properties, i am offshore on an oil rig half the year and she is at home with three young kids under 6 and we manage just fine without any agent, now Chris is right the likes of HMO does take more work, we just got our third one lately and i am now going to get an agent i have built up a relationship with to take over managig these  but  I'm getting good discount to manage only these three HMO,S.

 We have two and 2 x serviced apartments i have these managed by specialist COMPANY CENTRAL BELFAST APARTMENTS, their fee is high but they get the bookings in and its hands of for us with nothing to do and i now myself to do it properly I just wouldn't be able to run it properly with being away offshore and my wife busy with kids because in that business when dealing with guests you have to be on the ball so much more as your income is reliant on good customer service and reviews.

However our 10 x regular buy to lets which are all within a 10 mile radius of where we live me and my wife can mange them fine without any agents, in fact i had bad experience with two agents i decided i could do a better job myself, i think there is a massive misconception out there that people are scared of trying to manage their own property due to a horror story they have heard down the pub or read in the paper.

Olly there is nothing you cant organize nowadays through whatts app that's the way i am set up, i built up a good relationship with various tradesmen through word of mouth or at local property networks, so if tennant tells me there is an issue with boiler or something broke i what's app  the tradesman give him the tennants number and let them liase with tennant and when he sorts the problem i pay him promptly so they know you are not going to mess them about and they will always respond to you quickly.

Believe me its not that hard for just regular buy to let and like you said yourself 10-12 % is crazy to be paying anyone, i,ll put it to you another way if someone is not going to pay you rent then an agent is not going to get it out of them any quicker than you can yourself.

As Chris said its important to build a good relationship, most of my tenants have been in my property's for years, you generally get a good vibe when showing people around if they are going to be the right fit for your property or not, just set up the tenancy agreement yourself and register their Deposit etc, honestly its not rocket science

if i can mange 10 properties from an oil rig and my wife busy with kids then anyone can do it

hope this helps, happy to answer any questions

Barry

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