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Hi - I posted this in another topic but not sure if the right place so have reposted it here.

 

If I can get the same yield, regardless of size, I'm really interested to hear people's opinions on whether larger investments are better or worse than smaller. 

 
I'm attracted to smaller purchases as it's easier to find cash for the next deposit. I can grow my portfolio more steadily and making more purchases means I can learn more and make better decisions over time. I also hope that the investments will be in under-valued areas and get more capital growth. I know this is only a hope though!
 
A larger investment means I have fewer potential problems in my portfolio in the long term because there will be fewer tenants, fewer boilers etc. 
 
What do people think?
 
Thanks
 
Daryl
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Daryl

I guess that there is always the rider - it depends... 

 

I think that there is a lot to be said for not putting too many eggs into one basket as you are less likely to get a void at the same time with several properties but a void of any length on one large property could have far more dramatic an impact on your business model.  however, it is not just voids that you need to think about as the more properties you have will increase the maintenance costs and budgeting for these is always a dark art.  To a degree it depends on the age of the property and how well it has been maintained prior to purchase.  Unless you buy wrecks, so them up so that you know the standard of work throughout you will always encounter the bodged fix-up and replacing boilers, bathrooms, roofs etc eats into ROI.

 

You also need to look at the target market you are aiming to reach in your area.  What is desirable in Boston may not be in Brighton. Where I work 2 - 3 bed houses are the best buy as purchase prices are reasonable and there are always families looking to rent good quality properties that are damp free and reasonably energy efficient.  In university towns/cities HMO student accommodation will be a popular let but while rents can be exorbitant (I've 3 students at uni) the wear and tear is dramatically higher and the forthcoming dramatic limitations/ cancellation of tenant fees could have a significant impact on this market-so again it is researching your market that is crucial. 

 

I have commented in previous posts that when looking at bargains offered by eager agents, be careful as you will most likely not be the first to have been offered the property as they will have touted it to all their regular investors first as trusted sources of sales.  The negotiator wants a sale as quickly as possible so if you are looking for purchases develop relationships (if you can) with good agents to gain their trust and it will serve you well.  If a property has been on the market a while there will nearly always be a reason and this should flag up "more research required".  One giveaway is the date of an EPC - a doer upper with an EPC of more than a month or two will nearly always mean it has been on for a while and may have been unsuccessful through more than one agency so when you agent says it has only just come onto the market this may only mean with their agency.  Get them to clarify their statement.I think that most seasoned investors will always say research is king although once established I'm sure you also develop a nose for a good deal but Homes under the Hammer or similar is not good research material!

Goodluck

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Hi Daryl

 

I think Tim has covered a number of key points in his response. I immediately thought of transaction costs (eg stamp duty, legal fees, broker & finance fees etc.) and holding costs (eg maintenance, voids, mortgage renewal fees, etc.) when I read your post. These would all mean a drag on a gross yield figure...which is why Tim mentions ROI in his response too I suspect...i.e. look at the net return on your cash invested taking account of all hidden or less predictable costs. More properties at the same gross yield will almost inevitably mean higher transaction costs, although the stamp duty thresholds could skew that these days. Equally, you should be able to dilute the maintenance and voids risk by having more properties...subject to condition again as Tim noted.

 

To add to the mix a little, I wanted to also look at the rate of saving and hence addition to the portfolio. You say you are saving for deposits and will add once you have enough money. So, if you can  save enough for a single property say every 12-18 months, then buy as big as you can afford within that general time frame I would suggest. If I had the choice of 2 small properties or one larger one at that rate of saving, I would probably wait and buy the larger property. However, if it took me twice as long or more to save, then I would probably split my fund up and buy smaller properties initially. I call this 'deal velocity' or how quickly you can do your deals. This also depends on how many properties / net income you are actually aiming at though. If you only 'need' say 2-4 properties, then better to make them slightly bigger probably if you really can achieve the same ROI. But if you 'need' a larger portfolio, you can be more flexible.

 

I think it is a good idea to start small and then increase your scale over time as you learn. I also think there are smarter ways to make your money go further for you. For example, when I started my investing, I had limited funds and so I needed to 'force the appreciation' on every project I undertook. This meant adding value to the property, such as through a refurb or similar and then refinancing to release some of my funds to go again towards the next project. This meant I could own more properties from the same equivalent starting fund when compared to a straightforward BTL where I just leave my deposit in. It also meant that I knew my properties were in good shape and so less likely to require lots of maintenance for a few years.

 

At the end of the day, it is horses for courses though. No point taking on another job if you have an extremely busy life for example. On the other hand, if you have a more burning need to get to your goals more quickly, then something has to give to make it happen.

 

Hope that helps,

 

Best

Richard

Richard W J Brown a.k.a. The Property Voice

Property Investment Strategist

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Richard and Tim - sincere thanks for your responses. There are plenty of tips in there and plenty to think about. I said 'with the same yield' but the smaller ones I've been looking at tend to have a slightly better one actually. I'm aiming to buy one every 6 months, mainly from current savings. I could go faster but don't want to rush too much at this stage. 

Thanks again - really helpful. :)

Daryl

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