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Let or Debt - Home Truths about empty property & void periods. By Lady Lea
Buy to Let is a growing fashion since UK Lenders increased the amount of flexible facilities available to Property Investors with most Lenders now offering around 85% funding. However, the lender will often safeguard their exposure by insisting that rental income is a certain percentage over and above your mortgage payment.
As well as Lenders offering increased flexibility, there are a also many companies out there offering "ready made" packages of luxury apartments that may be discounted or are touted as "no money down" deals. You can even buy instant portfolios of two bedroom terraces off the shelf these days. As a direct result of this "easy" access to property more and more Investors are finding themselves in debt, as they have no idea about the basics of property investment. This type of Investor will normally not do any of their own research into the local rental market and may well find that they cannot rent their property due to increasing competition, that they themselves become part of.
In a nutshell some areas now have an oversupply of rental property while other areas do not enough. This will often cause rents to drop in the areas of oversupply and rents to rise in the areas of low supply but high demand. This type of buying inevitability causes some Investors to lose out and others to make a fortune.
As an individual Investor you have an affect on the multiple markets out there and it is time for us to collectively take a little bit more responsibility for our actions before the term "Property Investor" becomes a joke to our so called suppliers. Property Investing is fast becoming a recognised profession, it is not a game and it should be taken very seriously. It is not for us to decide what we think people need to live in and going out to build countless two-bedroom two-bathroom luxury apartments. What we need to do, if we are to make a success in our profession, is actually look for rental demand and buy what our Tenants are asking for.
What Can We Do To Protect Our Property Investments?
Irresponsible buying can cause existing Investors to lose out and can mean that Investors make things harder for themselves in the long run with increasing void periods and dropping rents. Here are a few pointers for you to consider BEFORE becoming a Property Investor :
Property Supply
Q. What is the first thing most Investors do when looking for rental property?
A. Look for supply.
When looking for property, most of us go to Estate Agents to see what is up for sale and they in turn contact companies who "supply property" so that we can see what we can afford, or what we want to buy as an Investor. Some of us decide we are going to invest in student property, some want to get contracts with local councils and supply property for asylum seekers while others think about housing for families or executives in the city. This is quite an interesting approach to investing and, in reality, is totally back to front. Lots of people do it and some are lucky enough to do very well out of it, but in this day and age, with increasing competition in property investment, you cannot afford to continue to pick what you want without taking into consideration the current market for that particular type of property.
Lets look at some types of the supply available right now :
Portfolio Building Companies - There are an increasing number of this type of company out there, some offer a full management system, building something that they can rent on your behalf, where others parcel up a portfolio for you and let you get on with it.
There are often promises of "million pound" portfolios for little or no money down, but you need to be aware that some of these companies actually make more money out of refurbishing the properties for you, or from the commissions they get from solicitors and brokers, than they would do from the actual rental.
With most kinds of supply you need to understand that supply companies make their money out of supplying property to you. This may sound obvious and it is not necessarily a bad thing, but the reality is that once the property is sold the vendors has little or no interest in how well it will perform. So as a Property Investor you need to have your eyes open and research the areas yourself to make sure you are getting what you are paying for. Too many Investors are too "trusting" and are trying to invest by using other peoples supposed experience.
Estate Agents - These companies sell property. Essentially, they earn commission for selling something so it is in their interest to get things moving. A Sales Negotiator will often tell you what you want to hear to sell the property. Wouldn't you if your salary depended on selling? Sales Agents may tell you that the area is popular for rental, then when you do your research with an independent Letting Agents, you may find a different story. Using this form of supply, without backup research, could result in a portfolio with no Tenants or low rental income.
Property Clubs - These ever-popular clubs often make claims that they can supply property to you with little or no money down and with a good discount. This is normally due to the fact that they can negotiate good deals with Developers because they are buying in bulk. Alarm bells should ring for you at this point. If property is being bought in bulk by Investors, who is going to sell their property first? Who is going to rent their property first? How many are going to be on the market at any one time?
What seems to be happening now, due to the amount of Investors approaching Developers for a "discount" is that Developers can now go and build property, knowing that they can sell the whole lot in one go. Builders may not take into account rental demand, but they will look at Investor demand and if enough Investors want something, then they are doing us a favour aren't they? Actually no . Investors are having properties repossessed due to not being able to pay mortgages on empty properties. They had no money to start with (that's why they did a "no money down deal") so when the properties all hit the market at the same time they have either got to bail out, or lower the rent to rock bottom and end up subsidising the mortgage payments.
Now we have covered the supply, we can now look at what we need to be researching before we buy.
Rental Demand - One of the fundamental issues surrounding Letting is supplying property to meet a the demand of Tenants. If there are no Tenants, or Buyers, then there is no market and it is a waste of time and money to buy into such areas. Forget all the stories you have been told and read some cold hard facts about the type of property YOU need to buy!
Buying Local - It is all very well thinking you should buy local, as you know the area well, and don't want to travel too far to maintain your property - BUT - what if your local area already has enough supply? Buying your property and developing your portfolio is going to have an affect on the other property rentals in the area, as more become available. Tenants will be able to become choosier, and either rent will drop, or Tenants will start to demand a higher standard of property for their money. This will be YOUR problem, as your property rentals will also be affected.
Buying Near Facilities and Local Infrastructure Services - There are lots of myths about property investing, one of them is that if you buy in an area that has a hospital, a university or a Police Station then you will be sure to get Tenants. This is not necessarily the case. You need to research an area's demand properly and popping into your university or hospital housing office should set you straight. Just ask them if there is enough supply of property, or if they have a shortage. If they do have a shortage, ask them what they want! DON'T decide for them as you may still end up with empty property.
Don't just dive into an area of what you perceive to have "opportunity", do your research. There are plenty of colleges that have so many empty houses nearby, that are actually bringing down the value of property in the area, due to vandals and opportunity crimes.
Car Parking - "My plot has car parking". So what? Just because the plot you bought has car parking, and others may not, does NOT mean that you are going to be able to rent out your property. Parking will not make a difference in the bigger picture if people are able to rent a three-bed house (due to over supply) for the same price as your one bed shoebox. Extras like parking spaces will only give you an edge over a competitor with a similar property in an area that has demand, no amount of luxuries or extras will tempt Tenants into an area where no one wants to live.
Overlooking A Park - So your property overlooks a park has three car parking spaces and a Jacuzzi. Again, as with the car parking above, this will not make a difference in the bigger picture, if there are too many properties available, rents will still drop and yours may rent for the same price that the Tenant would pay to rent a place with no parking and no park.
Public Transport - Public transport is often seen as enhancing a property's likelihood to rent, this may be the case in high demand areas with little supply, but does not always apply in areas where here are plenty of properties available on the Letting Agent's books. Its not about buses, trains and airports, its about what people actually are wanting right now in the area you are looking at.
Up North - High Yields or High Debt?
With an increasing amount of interest in the North for investing and the growing amount of supply companies, we are seeing a pattern of property supply meets Investor's demand, rather than property supply meets Tenant's demand. Tenants come first in Buy to Let, if there are no Tenants, there is no rent.
Lots of Southern Investors taking the "easy route" are actually causing damage to areas that once were profitable. By failing to take an interest in what their investment actually does to the market as a whole, Investor ignorance is causing their own downfall. If you are thinking of buying property "Up North" find somewhere yourself with a high rental demand and low supply, then get friendly with the local Estate Agents, getting them to supply what you need for your Tenants.
Protecting Yourself From Investor Flooding
You can protect yourselves a little from a flood of rental properties, just by doing some simple research before you start to buy.
Hotspots - If you read anywhere about an area being a "hotspot", forget it. Can you imagine how many people may look at investing somewhere because they thought it was a genuine hotspot? Why would anyone freely tell you about areas of "high demand", wouldn't they be buying there themselves?
The affects of following "hotspots" could have an impact on the area can cause some changes to a market.
Price movement - Watching and checking rental price movement can indicate to you what type of movement in demand is going on in an area. If the rental prices are rising, it usually means there is more demand, whereas if they are dropping, then there may be an increasing supply.
Future development - You may be able to see the possibility of further development in the area you are researching. If you can see that this is happening then it may be worth looking at what type of development and if the property looks likely to be the type sought by Investors, it may be worth steering clear.
To find out more about how to find rental demand, and the questions you should be asking your letting agents, visit the discussion forum for free information, supplied by Investors, for Investors, to help protect us all from self flooding.
