APW PROPERTY ESSENTIALS - HOW TO GET STARTED WITH UK BUY TO LET

HOW TO GET STARTED WITH UK BUY TO LET.

That time of the week again! Looking at starting and continuing this as a 'essentials' series of articles. Simple steps for those looking to get started, expand, or progress their knowledge.

Starter for 10.... how to 'do' buy to let!

APW’s simple 7 step process.

Are you thinking of getting involved in UK property with Buy-to-Let but don’t know where to begin?

Here is a simple 7 step process with some handy do’s and don’ts along the way.

1.??Define your goals.

2.??Choose a location

3.??Get a mortgage sorted

4.??Conveyancing - Get your legals sorted.

5.??Making an offer

6.??Managing a property

7.??Finding Tenants

We have set out the process in a handy 32-page ebook: How to purchase UK property while living overseas. And if you are impatient to get everything at once, then pop me a message and I will send it to you. But, if you like your information in smaller, bite-size, chunks then you have come to the right place.?

Over the next seven weeks, I will take you through our 7 step process one step at a time. But first, here is a bit of scene setting.?

WHY UK PROPERTY?

Is the UK a good place to buy? …

?UK property has often been considered as a safe haven by international investors. And it is a mature market?

There are an estimated 4.4 million households in the English Private Rented Sector, housing over 11 million people in 333 local councils. There are 2.3 million landlords and around 19,000 lettings agents according to figures published in the Government White Paper: A fairer Private Rented Sector. With the UK’s stable government in place (relatively) and with a suite of robust and tried and tested property laws, buying UK real estate has been seen as a safe investment.

As with all investments, there is a risk involved. Property prices might fall, the property might need unexpected repairs and maintenance, tenants might be hard to come by leaving void periods in the rental, and changes in the law can affect profits. ?

Also, owning a property brings responsibilities. The property rented must be safe, which means regular checks on gas and electrical installations as well as fire safety checks. There are contracts to sign and tax returns to fill in and most likely taxes to pay.

But, in recent times, UK property has been a popular investment so if you do decide to buy you are not alone. In 2021 the number of buy to let companies rose to 269,300. These companies hold 583,000 mortgaged properties which is almost a third (29%) of the outstanding buy-to-let mortgage total, according to figures published by SimplyBusiness.

7 STEPS TO BUY TO LET.

One step at a time …

?STEP 1. Define your goals.

There are many reasons for buying property and here are some of the typical examples which we come across at APW with our clients as we advise them on the process of purchase.?

“I want a property to provide me with extra income immediately.”

“I want to hold the property as a long term investment and for it to be mortgage free to provide income for my retirement”

“I want to buy a property to move into when I return to the UK”

“I want to build up a stake in UK property so that I can sell and buy a place for myself in a few year’s time”

“I want a renovation project for capital growth”

Although buying a property is the same goal for all the examples above, they require different strategies. At APW we think the strategies fall into two broad categories and we call it the Head versus Heart conundrum.

INCOME BASED/ HEAD strategy. Show me the money …

If your goal is to secure immediate income, then yield is your guiding star. Simply put, yield is the annual income of a property expressed as a percentage of the total property value. ￡10,000 a year rental on a ￡100,000 property would mean a 10% yield.?

Our rule of thumb here at APW is that a yield of 6% covers costs. To minimise outgoings from the outset, you will probably opt for an interest only mortgage. But be aware that without a repayment element in your mortgage you will need to have an ‘exit strategy’ at the end of the mortgage term. It could be that you intend to reborrow, or you might decide that you will sell the property. Whichever path you intend to take you should know what it is at the outset.

Once you decide to go down the high yield route, the location of your property becomes more limited. London and the South East where property values are high have lower yields than other parts of the UK. Currently, to get more than 6% you are probably looking at the North of England or parts of Scotland and Wales. The Daily Telegraph has a handy a buy-to-let yield tracker which lets you explore according to your budget and choice of region.

HOME BASED/HEART Strategy.

Your home is where your heart is …

If you are buying with a view to using the property yourself at some stage, then the choice of location becomes very different.

Do you want to be near relatives? How close to your brothers, sisters, Mum and Dad or your children do you need to be? Or how far away from them depending on your family circumstance! Where is your ideal property? Are you someone who needs the bright lights of a big city? Or would you rather have the quiet peace of the cottage at the end of the lane in some remote wooded hills in the countryside? Is the number of Michelin starred restaurants round the corner important for you, or do you prefer a sandwich and a nice cup of tea in that café by the beach? If the home is ultimately for you and your family to use, you will have your own personal lifestyle choices to consider.

These two examples show the differences between Head or Heart purchases. But there are many other things to consider as well, such as transport connections, local employment prospects, the demographics of an area.?All of these factors have an impact on the rentability of a property and for its prospects of going up in value during your ownership. The nature of the primary employment sectors in the area may be a consideration for you if you plan to move into a property yourself in the future and know you will need to work.

?A RISKY BUSINESS

?Your appetite for risk is also a crucial consideration in any investment. One should always ask the question “What are the downsides, and can you handle them?”

What if a freak flood meant no tenants for a year? ?Does your insurance cover the costs? What if there is a drop in property prices? What if the interest rates go up? Can you afford the increased payments? Should you opt for a fixed rate mortgage? These are all things you should think about at the beginning of the journey, and we will go into more detail in future articles on the 7 Step process.

TYPES OF PROPERTY

?There are several different types of property. Are you interested in a new build with guarantees or old housing stock with quirks and charm. Do you want a freehold property or a leasehold apartment? If a leasehold what are the service charges? If a freehold, does it qualify as an HMO (or House in Multiple Occupation) with brings with it extra responsibilities as a landlord. Or could you turn it into an HMO and get more rent from the property? Is there a commercial element in the property, such as a shop on the ground floor, or an office in the basement? Does the property have development potential?

There are many routes to take, but only you can decide which one is right for you.

AFFORDABILITY

Of course the most important consideration when you are setting your goals, is your own personal financial situation. How much money you have to invest will set a price cap on the property you can afford.

If you assume a 25% deposit on the property, then you can work out what your maximum price is. For example a ￡50k deposit would lead you to a property of ￡200k with a mortgage of ￡150k. And you need to think about the further costs associated with a purchase such as stamp duty and legal fees which will we look at in another article in this series.

THE PASSAGE OF TIME

One final thing to ponder is the benefit of time.

If house prices continue to rise (and Savills were predicting 15% growth over the next 5 years) then sums like these might be possible.

Buy a ￡200k property with a ￡50k deposit and wait 5 years. The property is now worth ￡230k. Remortgage and withdraw ￡50k for a deposit on a second ￡200k property. Made possible because of the increased rental value (back of napkin calculation, kept simple to give you an idea).

Or, sell the property and use the ￡80k or so of equity as a deposit on a ￡320k property.

These are some of the ways that our clients have built up substantial portfolios over time.

Next week, Step 2: Choosing a location.??

Full the full ebook, here’s a link …

Until Next Time,

Callum.