Last updated: 11th June 2019
In conjunction with members of our community, we released a best-selling book called 100 Property Investment Tips.
We’ve pulled out some of our favourites, to help you at every stage of the investment process.
When choosing which area to invest in, you need to make sure it has a strong tenant demand – not just now but in the future. How can you do that? By looking at the “fundamentals” of each area.
When assessing an area, look for the following:
Don’t rely on just one or two of the fundamentals – make sure you look for them all. You might be able to find a good deal in Nowhereville, but who will rent it from you?
One of the golden rules of investing in property is to monitor your costs – and to make sure that financially speaking, you get more out of your investment than you put in.
Property costs are calculated in more ways than one, though. Each property you own will take some of your time – to source, purchase, rent out, etc. – and some of your energy. Some will have higher “costs” than others.
Is the financial return worth the time and energy cost? You can get money back, but never your time or energy.
Related course: How to invest in property when you have no time
As an introvert, the idea of “networking” brings me out in a cold sweat: I associate it with name badges, fear, and being backed slowly into a corner while someone aggressively pitches me on whatever it is that they do.
In reality, networking doesn’t have to be like that: it’s a great way to increase your success in property, and (I can’t believe I’m saying this) it can even be fun.
Having a network means having people who can put deals your way, who can recommend the best professionals to work with, and to whom you can turn when you’ve got any kind of problem. My own network has created tens of thousands of pounds for me in opportunities created and costs saved – and building that network hasn’t even felt like work.
We hold multiple monthly events around the country, which are guaranteed to be friendly, informal, and with no sales pitches whatsoever.
Still, you don’t have to go to any kind of event: just find an investor you admire and offer to buy them lunch in exchange for a chat. Most investors are happy to talk about what they do and share advice.
When the property market is booming, you’ll find plenty of courses promising to educate you about property investment. Often the initial event will be cheap or free, with an “upsell” to an expensive course where you’ll learn the “real” secrets.
In truth, there are no real secrets – you can learn almost everything you need to know cheaply (like from one of our books or from experience.
This isn’t to say that all courses are useless: there’s a motivational benefit, and there are excellent courses on specific aspects of property investment taught by experts in their field.
But don’t feel like you’ll miss out on any secrets if you choose the cheap or free route – there’s still an endless amount you can learn, and you’ll have more in the bank for your next deposit.
Property investment requires so many different skills – financing, sourcing, strategy, conveyancing and DIY to name a few – and chances are you’re not an expert at every discipline!
That’s why it’s important to build a team: you can focus on doing what you’re good at, and you can leave other people to do the rest. Your team should be able to save you time and money, and help you to accelerate your success.
Depending on your strategy, you should look to have most of the following people in your team:
See also: Property investment companies: Read this before you work with one
Consider asking for referrals to give you peace of mind that you’re picking the right people.
If I could go back in time and give myself some advice, it would be: “Keep looking.” Even after getting an offer accepted, keep looking and looking because anything can happen.
It’s no fun to be in a situation where a property falls through and you’ve wasted two months waiting for it to happen. My first investment experience was like that, and I wasted so much time just waiting! The second time I decided to invest, I was more prepared – so when the property fell through, I already had another one lined up!
When you’re considering a potential buy-to-let purchase, find out from a local letting agent what rent it will achieve and how quickly it’s likely to be snapped up by a tenant. Here’s how:
In Rightmove, check properties for rent near your target property and see which agent seems to have the biggest local presence. Call up, tell them you’re considering buying something in the area and want a rough guide as to what it could achieve, and tell them key details like the street it’s on and how many bedrooms it has.
The agent will then be able to go through similar properties on their books and tell you what they’re rented out for. Ask the agent how quickly they tend to get rented, and what the factors are that separate the ones that rent quickly from the ones that stick; often it’s just quality and price, but there might be other things that you can watch out for.
If you’re honest with the agent about it only being a potential purchase at this stage, they have no motivation to give you anything but honest advice.
It’s natural to want to invest in your local area, because it’s where you feel like you have the most control over your investment: if anything goes wrong, you can be there in minutes.
But if something goes wrong, do you want to be there in minutes? If you want to be a hands-on “landlord” and you enjoy fixing things, that’s fine; but if you want to be an “investor”, you can just employ an excellent letting agent and leave it to them. I have properties I haven’t visited in years – and some investors have properties they’ve never visited.
Your local area is also where you feel that you know the market best, and it’s true that every area has good streets and bad streets – and often good and bad sections of the same street. But in reality, that local knowledge can easily be replicated by a few weekend scouting trips plus taking advice from local experts.
My point is that there’s nothing wrong with staying local (many investors build up big local portfolios and do very nicely), but there’s no reason why you have to stay local if the area doesn’t match your strategy. If you’re living in London and investing primarily for income, for example, you could probably double your yield if you looked elsewhere.
There’s a whole separate issue that comes from being willing to invest anywhere (namely: where do you invest?), but make sure you’re not restricting yourself and missing out on the best investments for you just because you want the comfort of being able to pop round to pat the brickwork reassuringly whenever you want to.
Whether you’re doing a back-to-brick development or simply budgeting for maintenance throughout a tenancy, keep this mantra in mind to ensure you don’t eat into your projected cash flow and profit: “Double the cost and triple the time.”
If you estimate that a refurbishment will cost £10,000, double it. It only takes an easily missed problem such as woodworm to result in a completely new kitchen.
If you reckon it’ll take eight weeks – triple it. Forgot to check if it has a gas supply? Now wait up to six weeks for a new gas supply!
The end result is that you always end up under budget and on time.
If the deal stacks up even after taking the above into account, you’ve got a stress-free deal that won’t keep you up at night.
Property investors are often chasing the highest yield: they want to buy a property that generates the highest amount of rent for the lowest purchase price.
But this is only part of the picture. Unlike getting 3% in one savings account rather than 2% in another (with any risks guaranteed by the government), high yield can mean high risk – or might not be so impressive once costs have been taken into account.
For example, there are many places in the country where you can buy a terraced house for less than you paid for your car – and on paper, it would achieve a yield of 12-15%. But the reason these properties are so cheap is that demand is low – meaning you could struggle to find tenants, and the tenants you do find might not take the best care of the place. By the time you’ve accounted for voids and high maintenance costs, that impressive gross yield could be cut down to a disappointing net return.
What’s more, you’re unlikely to see much capital growth on these cheap, high-yielding properties – again, because demand is low so there are no owner-occupiers driving up the prices. You’ll feel smug while you’re pocketing a 12% return rather than the 7% you could have got a mile down the road, but you’ll feel pretty daft in ten years when the other property has gone up in value by £50,000 while yours has remained static.
The magic combination is yield + fundamentals. It’s strong fundamentals – like jobs, shops and transport links – that keep tenant demand high. And it’s strong fundamentals that will give you long-term growth driven by the demand that comes from being in an area that’s a good place to live.
So by all means maximise the yield you can achieve – but unless it’s part of a specific strategy that you’ve worked out, don’t compromise on the fundamentals to get it.
For many, the dream is to pay down the mortgages on their investment properties so that they can retire with a nice stream of rental income and no worries about interest rates or the whims of lenders. And for that reason, lots of amateur investors opt for capital repayment mortgages: they know that if they make the payment every month, in 20 or 25 years they’ll own the property outright.
However, interest-only mortgages give you a lot more control over your investment, and certainly don’t mean that you can’t pay off your mortgage in 20 years if that’s your plan. The lower monthly mortgage payment means you make more profit, and you have full control over what that profit is used for: it could be to pay off a chunk of your mortgage when your fixed term ends, or to invest in another property if the opportunity arises.
If you have multiple properties, interest-only also means that you can take the money you’re saving and target it at paying down just one of your mortgages. For future lending purposes, it’s more beneficial to have one property owned “free and clear” and another with 80% borrowing than it is to have two properties with 40% borrowing.
When you complete a tax return at the end of the year, you’ll need to report your property income and expenses separately from your other sources of income.
Whether you do this yourself or use a bookkeeper or accountant, it will make things much easier if you keep a separate current account for all your property transactions. Just make sure that rents come into this account, and use its debit card for any expenses you incur.
Keeping things separate will also make it easier for you to track the performance of your portfolio – both in terms of checking that rents have come in when they’re due, and in monitoring whether it’s making money overall.
If the balance of the account is always dwindling, you’ll know that something is wrong – but if it’s steadily creeping up, you’ll be adding to your cash buffer and will eventually be able to use it to buy another property!
At least once a year, check the financing on all your properties to understand exactly where you stand.
Things change. For example, increases in property prices may mean that you could release some equity to invest elsewhere. And changes in interest rates may change the level of risk you’re willing to take in your investments.
So set a date in your diary every year where you book out a couple of hours to re-evaluate your financial position on your investment properties.
Many newbie property investors use the same mortgage broker they used for buying their own home, but that could be a big and costly mistake.
Most brokers are great at handling your residential mortgage application, but dealing with buy-to-let mortgages is a completely different ball game. There are so many hoops to jump through and obstacles to avoid – and using a broker who lacks experience could cause your deal to fall over.
If you’re buying below market value (which you should be), deals need to happen quickly: if your mortgage doesn’t move fast enough then you might lose the deal.
Make sure your broker has lots of experience working with investors (and ideally they’ll do their own property investing too). A good question to ask is what percentage of their work is residential and what percentage is investment. You want the majority of their work to be on the investment side.
You’re not a true property obsessive unless you spend more time on Rightmove than most people do on Facebook, but you still might not be using it as efficiently as you could.
Rightmove allows you to set up sophisticated filters, and you can then choose to get new properties matching those filters sent to you on a daily or weekly basis.
Not only can you specify things like the price range and number of bedrooms, but you can even draw out a specific search area on the map rather than rely on a postcode – which is perfect, because so many cities have very specific “good areas” and “bad areas” that are more granular than the first part of a postcode.
When trying to rent or sell a property, try to arrange group viewings to generate a sense of urgency. Alternatively, you could schedule private viewings one after the other as a less obvious way of showing there is competition for the property.
As friendly as it may seem, it’s unwise to communicate directly with a tenant if you’re using an agent.
There have been many cases of landlords handing over their phone numbers to tenants “just in case”, but when those landlords get woken at 3am about an alarm that won’t switch off – or they get called up about a request for a rent review – everything gets a bit more difficult and muddy.
Clear and defined lines of communication are easier to manage for everyone concerned!
A good agent should review the rent annually, but some get lazy so it’s wise to set a reminder and do it yourself – just in case!
Some rental price fluctuations throughout the year are unrelated to overarching rental prices – e.g. the summer season typically sees increased demand from people looking to relocate, so rental prices increase accordingly. As a result, you’re more likely to get an accurate account of actual rental increases by reviewing the market at exactly the same time of year, every year.
“Voids” (a property sitting empty) is a word that sends shivers down any investor’s spine: just one month of vacancy each year could wipe out a profit or put a severe dent in your net yield. The secret to a profitable property, then, is to keep voids as low as humanly possible.
The first opportunity to do this is when you’re acquiring a property in the first place: see if you can get access after exchange and before completion to do any works that are needed, to reduce the amount of time that you’re making mortgage payments without rent coming in.
Even if you don’t get permission and have to wait to do the works, you can still market the property while a refurb is happening: not all
tenants will be able to see past the chaos of a building site, but many will be delighted to see that they can move into a property that is being made as good as new.
While your property is on the rental market, be sure to keep on top of your letting agent and ask for frequent updates. You don’t want to cross the line into being a pest, but it’s certainly true that the squeaky wheel gets the grease.
And finally, once you’ve got good tenants in place, make sure you hang on to them. Fix any problems quickly, and be reasonable about rent increases: if a tenant leaves when you raise the rent from £500 to £550 and it takes you a month to find someone else who’ll pay that amount, it will take you nearly 11 months to get back to where you were in the first place.
Property is a business and should be treated as such, but it’s well worth remembering that if you demand the highest rent, you’ll be reducing your potential tenant pool to a minimum.
If the rent is slightly off the market rate, it could be a blessing: your tenants will be aware of this, and they’ll appreciate living in your property. Rent is more likely to get paid on time, and your tenancy turnover should be lower.
While it’s possible that you’ll make slightly less profit this way, you’ll be maximising your chances of a stress-free and easy property to rent – thereby allowing you to focus your time and energy on other pursuits!
You might never want to sell your properties – and there’s nothing to stop you from keeping them forever and then passing them on to your children. But you never know what the future holds: there might be a time when you need to sell, when you want to free up capital for another investment, or when a property just doesn’t fit in with your strategy anymore.
For that reason, even if selling isn’t part of your plans, it’s a good idea to think about your exit strategy before buying any particular property. In other words: if you decided you didn’t want to own the property anymore, how easy would it be to sell it to someone else for a good price?
Properties that can be tricky to exit from are:
All of these types of property might fit your strategy and generate a good yield, but before you buy consider if you’re comfortable with the possible implication if the time comes to sell.
Newbies to property investment typically make the mistake of trying to become wealthy through rental profits. However, this is inefficient and hard to achieve.
Let’s say you want to earn £100k each year from your property portfolio – which breaks down to £8,333 per month. How many properties would you need to invest in to realise that profit?
Using a realistic example, let’s say you buy properties at £150k each, and they give you a positive cash flow of £200 per month (per property) after costs. You’d need 41 properties to hit your target – that’s a lot of properties to fund (£6.1m worth) and then manage!
The people I know who’ve become wealthy through property have achieved it through growth rather than rental profits.
Related course: How property will make you rich in the long term
You don’t need to own an investment property before you can start accumulating expenses to offset against tax: when you first start receiving rental income, you can claim any relevant expenses you incurred up to seven years before making your first investment.
These expenses could include travel and subsistence costs in the course of searching for your investment, as well as any professional memberships, tools and research materials.
A good accountant will save you far more money than they cost you. Their knowledge of the allowances you can claim should see you paying less tax every year than you otherwise would – and in a more strategic capacity, they can make you aware of the tax implications of any major decisions you’re considering.
Try to work with an accountant who’s a property specialist, and ideally an investor too. This will allow them to better understand what you’re trying to accomplish, and ensure that they have experience of what tax strategies have been effective for their other clients.
Related service: Property Hub Tax