On the face of it, it isn’t the most obvious time to invest in property. Tough new regulations and tax changes have led to a huge sell-off, with landlords offloading almost 4000 properties a month.
But well-positioned landlords willing to stick it out may yet snap up some bargains. And with the Bank of England base rate at a historic low, now could be a prudent time to remortgage. So you’re determined to fatten your nest egg and willing to take the plunge, what next?
Here is my advice for the BTL landlord keen to expand.
1: Get the right support
Once you’ve sat down and crunched the numbers, the best possible thing you can do for yourself is to taking great care to choose the right professional support.
No business owner would invest without external advice and the property industry is no different. This is especially true if you plan on re-mortgaging your properties to fund the expansion. You should take time to find the right mortgage broker and the right accountant, each of whom must understand your individual circumstances and expansion plans in the short, medium and long terms.
The financial markets, the property markets and UK legislation are forever changing and ever-increasingly more complex so having on-going support from the right team of professionals is absolutely key. They will need to have sufficient knowledge of the markets and the foresight to predict trends and react to changes as well as experience helping other clients grow their property empires.
Even if you are well versed in the UK property market, you could have a lot to gain from professional support. Lenders will want reassurance that you are well supported and know your stuff, and accountants can help ensure that your business is structured to be as agile and as tax efficient as possible.
2: Choose the right investments
Clients should also be extremely careful in choosing the right new investments.
The first rule of BTL always holds: you must keep emotional ties to properties and sentimentality firmly at bay. If you are running a BTL business, then the property is a business decision. Ultimately, you need to be cool-headed enough to acquire the properties which generate the best return on investment and sell anything in your portfolio which is, or are even just likely to become a poor performer.
However, some professional landlords can go too far the other way in thinking it’s a simple numbers game. Everyone knows to look at growth areas. But it’s important not to simply get caught up in impressive yields without considering an area more closely. It’s crucial that you keep an eye on any works planned for the area, and any new infrastructure that could be coming in as well as consider the renter’s profile in that area. Of course, much of whether a property is a good idea for you, depends on your specific growth plan. If you’re at all unsure, then a property consultant could prove invaluable.
3: Do your homework
The most important part of overseeing your business is keeping an eye on the money. You need to be aware of the changing values of your investments; both capital value and income values.
Perhaps it goes without saying, but any expansion should be preceded by a very thorough review of your current investments.
Loan-to-value ratios are crucially important; over-leveraging brings higher risk and so higher arrangement fees and interest rates, thus reducing returns on investments. The income will be assessed with regard to debt serviceability.
Expanding your portfolio isn’t easy and there are only signs that it’s going to get harder. Right now we are seeing many Landlords (particularly in London) reacting to the buy-to-let tax and legislative changes introduced last year by evicting their tenants and selling up. The Government’s announcement last month that they will be abolishing section 21 notices only adds to the pressure. In this environment it’s only the most well-positioned landlords that want to stay in the game. If you’re confident that you’re in a position to expand, then making the right long-term choice of property investment is paramount and more than ever is pays to take the time to do it well.