A second wave of demand for more space will keep driving house prices across Great Britain higher, according to a forecast by estate agent Hamptons, with values set to rise by up to 3.5 per cent a year between 2022 and 2024.

In this If You Ask Me buy to let special, a number of industry experts from the region’s property sector share their advice to clients considering a rental investment, identify the biggest risks, and the changes they foresee over the long-term.

 

Karen Awdhali, head of services, Four Trees Lettings

How do you/your business help a client when they consider a rental investment?

We can advise buy to let investors on the areas in demand from tenants, allowing them an insight into the lettings market before they buy. We are open about what we want from a property and will often carry out property searches on behalf of investors and share properties that we think will see a good yield in the long term.

What would be your biggest piece of advice to someone considering purchasing a buy to let property?

Don’t be led by the price. ‘You get what you pay for’ is very true when it comes to property. This is especially true for investors who are not from Sheffield. They won’t know the city and so should draw on the experience of our team who have in-depth knowledge about the pros and cons of different areas.

What are the biggest risks and how could a first-time investor avoid them?

One of the biggest risks involved in buy to let is being unable to secure tenants, turning an investment property into a financial drain. Four Trees Lettings have an occupancy rate of more than 98 per cent and offer landlords guaranteed rent. This means even if a room is vacant, landlords know they will be getting an income.

Another risk is buying a property only to find out you can’t get a Houses in Multiple Occupation (HMO) licence. This needs to be looked at before you take your enquiry further. This is something Four Tree Lettings can help with, or you could contact Private Rented Standards for more information.

What changes do you foresee for buy to let investors over the long term and what should investors consider as they grow a portfolio?

A decrease in traditional student lets means investors need to look at new tenant groups for their properties. Don’t be afraid to look at investment properties which can be let out for Local Housing Allowance (LHA) rates. These can offer an excellent yield, with a lower initial investment and guaranteed rental income.

 

Rochelle Gilburn, property investment strategist at Gilburn Investment Group

How do you/your business help a client when they consider a rental investment?

A lot of people love the idea of building a rental portfolio but lack the time. Scrolling through Rightmove, phoning estate agents, viewing properties, and finding the best solicitors and letting agents, are all very time-consuming jobs. More so than ever with the current lack of properties on the market.

I take all the stress away by looking after all the above for clients, as well as finding properties that aren’t available on the market. I make sure the figures stack up and the client is going to get the return they’re looking for.

What would be your biggest piece of advice to someone considering purchasing a buy to let property?

‘There is no time like the present’. Many people were waiting for the drop after Brexit, now it’s the drop after COVID-19 and then there’ll be another excuse. Money is better invested and making you a return than sat in the bank doing nothing.

The important thing is to buy right. Prices are being pushed higher and it’s easy to let your emotions take over. Work out the return you need and stick to it – otherwise £500 more can often become £5000 more and end up killing the deal. Ensure you are comparing the price of the house to what other similar houses in that area are selling for. Just because something is on the market for under £100,000 doesn’t mean it’s a good purchase.

What are the biggest risks and how could a first-time investor avoid them?

I have had quite a few conversations with people who have bought a property with good intentions of renovating it themselves at weekends which can work. But many soon get fed up and the project drags on. A few of the properties we’ve viewed and purchased lately have been half finished – one was empty for more than five years with no work carried out.

Work out what your time is worth. If you can get someone else to do a better job in less time than you, it is money well spent.

Time is money. And the longer you sit with an empty property, the more money you spend on mortgage, council tax, utility bills etc.

What changes do you foresee for buy to let investors over the long term and what should investors consider as they grow a portfolio?

The rental market is extremely strong now and, just like house prices, rental prices are also going through the roof. A lot of properties are being sold by investors which have been left to deteriorate and the rent hasn’t increased because the same tenant has lived there for years – often because they’d rather have a tenant paying less but on time every month than increase the rent and they move out.

But laws are getting stricter and people deserve better. I’ve seen some tenants living in unacceptable conditions, with mouldy walls, kitchens falling to pieces, and in desperate need of a rewire. This will no longer be tolerated so landlords are going to have to sell or invest and get the houses to a reasonable standard.

To grow a portfolio, make sure you save to maintain the property. It’s easier to fix small problems individually rather than wait until they pile up and become unaffordable.

 

James Holding Regional auction manager, Auction House South Yorkshire, Nottingham & Derby

How do you/your business help a client when they consider a rental investment?

I believe the key here is to fully understand a client’s requirements in what they want to prioritise in relation to their investment – some people are less bothered about capital growth if they will benefit from a healthy short to medium term rental yield. Furthermore, we would always ensure that if they are buying a tenanted property that they have had the option to view the property (a video viewing as a minimum) as well as having time to review the relevant legal information, such as a valid AST and EPC. Auction can be of great help with this, as these legal documents are available to view before a buyer bids on a property, with the option to have these reviewed by a solicitor.

What would be your biggest piece of advice to someone considering purchasing a buy to let property?

Research! This is an important financial decision so take advice from all the relevant specialists such as estate agents, financial advisors and – auctioneers! I would also strongly recommend having a look at the local area in which the property is located – my advice is simply to ask yourself, would I be prepared to live here? If the answer is no, then it is probably not a wise investment for you! Also, make sure to factor in ALL additional costs such as SDLT and ongoing costs such as tenancy set ups, EICRs and budget for annual maintenance – all these things can eat away at what looks on paper to be a worthwhile investment.

What are the biggest risks and how could a first time investor avoid them?

I would suggest the biggest risks are to ensure you are fully informed about the tenants living in any investment property – are there any rent arrears, continual maintenance requests or issues with the property? Speak to the tenants if you can – you may not always get an impartial view but you may well get some more information from them which could be useful.

What changes do you forsee for buy to let investors over the long term and what should investors consider as they grow a portfolio?

Unfortunately, due to changes in taxation and ever more stringent changes to landlord requirements, it is becoming increasingly hard to make money for accidental or first time landlords. I would strongly suggest having a sit down with a trusted financial advisor.

Professional landlords often set-up their own company due to certain tax advantages, so this may be something to consider if you plan to grow a property portfolio.

 

Ian Osborn, partner at Wosskow Brown Solicitors, and head of the commercial property department.

How do you/your business help a client when they consider a rental investment? 

Buying a rental property is just as important as buying your first home.  All of the usual enquiries are equally essential, such as property searches, title investigations and questions raised of the seller’s solicitor.

If you are funding the transaction with a buy-to-let mortgage or bridging finance, the lender will often appoint their own solicitor, who will have bespoke questions that need answering.  Wosskow Brown can help you with all facets of the process, from file inception to legal completion and registration.

What would be your biggest piece of advice to someone considering purchasing a buy to let property? 

Second only to ensuring that the legal conveyance is conducted in the correct manner, we would stress the importance of making sure that all the legislative requirements are met when it comes to renting the property.

Tenants are entitled to – and landlords must ensure they are given – certain information, such as Energy Performance Certificates, Gas Safety certificates, the Government’s “How to Rent” handbook and information on where any deposit is held.

Failure to comply can result in significant financial penalties and possibly an inability to remove problem tenants at a later stage, who either breach their tenancy or simply refuse to leave at its expiry.

What are the biggest risks and how could a first-time investor avoid them? 

One of the largest risk-factors for an investment buyer is thoroughly understanding the terms and conditions of any finance used to purchase the property.  Many lenders have specific rules as to what can and cannot be done as well as strict requirements relating to those activities which are permitted.

Depending on the terms of the facility agreement, repayments are often required over a short period of time – particularly in respect of bridging finance products.  It is essential that the prudent buyer understands exactly what is required of them with regards to investment finance, which differs significantly from high street loans for the purchase of property for personal use.

In addition, we have talked above about the importance of “getting it right” when it comes to providing tenants with the correct (and legally required) information.

What changes do you foresee for buy to let investors over the long term and what should investors consider as they grow a portfolio?

One possibility is the introduction of tighter regulation around the private rental sector.  As housing demand increases, the Government may well look to alter the way investment properties are purchased, owned and taxed.

In addition to the actual ownership of these properties, the requirements placed upon landlords in respect of their tenants may well become more onerous or restrictive.

Budding investment landlords must be ready to adapt at short notice to changing market conditions and legislative obligations to ensure that they can meet both the cost and personal consequences of each.

 

Joshua Weston, lead director, Fourth Wall

How does your business help a client when they consider a rental investment?

Be it residential or commercial, we deal with clients across the country keen to know their purchase is a sound investment. We work with them from the beginning and all through the lifecycle of their project, from bespoke building surveys identifying issues, remedial works and the costs to expect, through to architectural services, dilapidations advice, project management and contract administration.

With our commercial clients we represent them for a host of other services, including dilapidations, planned maintenance and development monitoring. There’s a lot to consider with a property investment, but our team offers the full service, working with clients who trust us to help them understand their property and manage their investments for years to come.

What is your biggest piece of advice to someone considering purchasing a buy to let property?

Investing in the right team is essential. Purchasing a property is a big investment, but you don’t have to handle it alone. Gain the best advice from a team you trust, get a full understanding of the property, and ensure you have the right people around you to avoid any costly surprises and to ensure your investments continue to be worthwhile.

We’d also say do your due diligence. Property is a great industry to be in, providing interesting challenges and fantastic rewards, but it isn’t always the golden goose many people think it is. The “homes under the hammer” investor who buys a house at auction without viewing, slaps a few tins of paint on the wall and watches the cash roll in isn’t exactly representative. There are many things that can go wrong with a property and there is an ever-increasing amount of legislation. Landlords need to comply with to ensure their buildings are safe and habitable.

What are the biggest risks and how could a first-time investor avoid them?

From fire safety checks to electrical testing, investors need to know the due diligence needed to operate a buy-to-let property, and there are knock-on effects for both themselves and their tenants if they’re not. The impact was witnessed with Grenfell, where many tragically lost their lives.

Getting caught out could mean prison sentences and hefty fines, but I’ve also seen people lose income and spend significant money on avoidable issues as minor defects. HMO Landlords need to be astute as they’re governed under separate legislation that can be complex, difficult to follow, and expensive to remedy if the property is found to be non-compliant.

What changes do you foresee for buy to let investors over the long term and what should investors consider as they grow a portfolio?

Investors should be willing to be flexible with their portfolio. The market is constantly evolving, and they shouldn’t be afraid to evolve with it. We’ve already seen several clients looking to invest in commercial to residential conversions, turning unused space into apartments and HMOs. With online retail stronger than ever, and remote working here to stay, cities are changing and with that comes a repurposing of our existing spaces.

It’s estimated that thousands of smaller landlords are leaving the sector each month, but we’re seeing more institutional investors joining the market. Several factors have had an impact on the buy to let business model, such as the additional three per cent stamp duty on investment purchases on second homes, and the need for niche operators to be savvier when choosing their investments. As the model becomes leaner, the margin for error reduces, which means missing those non-compliant fire doors or smoke detection systems can throw your profit out the window.

Whilst rental demand is expected to increase, stricter legislation is due to come into force and institutional investors will likely be better equipped to manage their portfolio compliance, unless smaller investors have the right team in place to support them.