Buy to let vs Buy to sell

This week we’re comparing the two broadest styles of property investment: Buy To Let (BTL) and Buy To Sell (BTS). We bang on about the joys of BTL so much you’d be forgiven for thinking it’s illegal to sell a house once you’ve bought it. So can we conceal our biases for an entire episode?

So, here are the well-worn advantages of buying to let:

Cash flow: If you get your sums right, you end up with extra money in your bank account every month.

You hold an asset: If something’s making you money, why would you sell it? As well as the rent, you can watch the value go up over the years.

It’s (relatively) low risk: We talked about property disasters last week. But if you take appropriate steps to mitigate your risk there’s not that much that can go horribly, expensively wrong.

You can set and forget: You can be more hands-on if you want, but it’s also possible to employ a managing agent. Which means you can forget all about it until the money turns up in your account.

But there are drawbacks too, of course:

It’s very much Get Rich Slow: You will in the long run make steady money. However if you want to replace your employment income overnight, it’s not going to happen.

There are possible tenant issues: If you get a bad tenant, it can be a huge headache. You can do your best to prevent it, but it’s always a possibility.

There will be long-term maintenance issues: If you hold a property for long enough, something will go wrong. Whether it’s with the roof, the boiler, or something less dramatic.

You’re tying up your cash: Unless you deliberately set out with a strategy to pull your deposit back out (which is never guaranteed), you’ll end up having to put a lot of money into each deal. When house prices are relatively flat, it’s a cash-intensive strategy.

So, what are the advantages of buying to sell?

You can make a lot of money very quickly: You can make the equivalent of several years’ worth of net rental income instantly if you do everything right and manage to find a buyer willing to pay the price you want.

Sell and forget: No maintenance issues, no pesky tenants…just cash in the bank and no more worries!

But there are drawbacks to buying to sell too:

You don’t hold an asset: Which means no ongoing cashflow, and no capital gains – you get a quick injection of cash, then that’s it.

The risk is higher: If you’re refurbing, you might discover complications that dramatically increase your budget. Then when you come to sell, you might not be able to find a buyer – which leaves you absorbing all the finance and ownership costs while your property sits empty.

Our conclusion? As always, it depends on your goals. We personally love BTL, but buying to sell might be the most effective way of getting you to where you need to be.

The important thing is not to jump in wanting to make a quick buck. Those who lose money quickest are usually those who’re trying to make it quickest.

Resource of the week

Rob D got iPhone jealousy when Rob B recommended the 30/30 App – a tool that allows you to stack your tasks, then gives you a countdown timer that helps you to focus while you allocate time to each one.

It’s a variation of the Pomodoro Technique, which Rob D wrote about here. If you’re an Android user we don’t know of an alternative as beautiful as 30/30, but Rob D uses this free Android pomodoro timer.

This week’s news

The Daily Telegraph published research into the cheapest, family-friendly areas in the UK – looking at crime, schools, and the availability of family homes.

Rob B noted that “good areas” and “bad areas” can be very close together – South Northamptonshire and Northampton, for example. It all comes down to the fundamentals we discussed in Episode 6 – transport links, schools, and so on.

Mentions and shout-outs

Rob B mentioned that he’d been interviewed about student pods as an investment. There have been bad news stories recently about this whole investment class, as this Property Tribes thread reveals. Rob saw it coming, writing in October 2012 about why his company refused to sell them, despite the big commissions they could make.

And as we were talking about buying to sell this week, we couldn’t restrain ourselves from mentioning Sarah Beeny, of course. We’ll have to limit ourselves to name checking her every fourth episode, or it’s going to start getting a bit creepy.

Tell us what you thought of the show!

Which investment approach to you lean towards, and why? Have you ever had any particularly good or bad experiences by dabbling outside your comfort zone?

Did we miss anything out, or was there a part of the show you particularly enjoyed?

Just let us know by getting in touch.