HMOs: What Does the Future Hold?

HMOs: What Does the Future Hold?

 

Many of you will be thinking HMOs, what’s interesting about student accommodation? Today’s blog will take a look at why HMOs are becoming more popular in the market place, and why property investors maybe adding them to their portfolios.

 

For those of you who may not know, HMO stands for House of Multiple Occupancy (or Occupation) and is a term used to describe when three or more unrelated individuals live together in a home with shared facilities such as kitchen, living space and sometimes bathrooms. They’re most commonly used for students, and often get bad reputations for being lower quality accommodation and troublesome for neighbours due to student antics. Each local Council will have policies relating to the regulation of HMOs within neighbourhoods, and for your property to be used as an HMO, you will need to apply for a license from your local Council and ensure particular safety standards are met. Because of the specific requirements needed to set up an HMO, the setup cost can be far higher than a traditional single let.

 

So, why would you want to set up an HMO? 

 

Typically properties that are let out to multiple occupants tend to attract a higher rent than if the property was let out to a couple or a family (a single let). Here’s an example: a property may rent out for say £800 per month as a three-bedroom family home, but you might be able to charge say £500 per room (one tenant per room) totalling £1,500 per month. As you can see, you almost double the rent you collect each month. 

 

Another advantage of using a property as an HMO over a single-let is minimising risk. The risk to your income comes from void periods. With a standard single let property when a tenant moves out, you risk of the property sitting empty and therefore not bringing in any income. On the flip side, when you own a property with multiple occupants, even if one tenant moves out and you struggle to replace them, you’ll still receive rent from the remaining tenants. Risk also comes into play with non-payment of rent. If you rent your property to one tenant (whether it’s to an individual, a family or a couple) and they stop paying rent for whatever reason, you lose the full rental amount. On the flip side, if one of your HMO tenants stops paying rent, you only lose a smaller portion of your total rent. Both reducing void periods and risk of non-payment ultimately reduce the risk to your income as a landlord.

 

HMO’s are an attractive way for landlords to make profits from their properties, but is now a good time to look at setting up new HMOs?

 

The answer to this is yes. We’ve all read about the shortage of housing in the UK, and HMOs can help relieve a small amount of this burden. HMOs effectively maximise the living space in rental properties, therefore helping with some of the need for more housing, particularly in cities. HMOs are becoming more popular with demographics other than students, such as young professionals or individuals on lower incomes. In many cities, renting an apartment alone or as a flatshare with one other person is still way beyond what the average young professional can afford. With the average age of first-time buyers creeping up in the UK, HMOs can be an affordable place for professionals to live while saving for a deposit for their first home. 

 

If you decide to consider setting up an HMO for professionals, the best place to start is looking at competition in your local area. HMOs that cater to young professionals are usually of an excellent standard, often with higher spec kitchens and luxurious bathrooms (or possibly even all en-suite rooms). There’s definitely a market for this sort of living, so it’s perhaps a great time to look into HMOs in your local area. Please ensure you check with your local Council for restrictions and regulations in your specific neighbourhood before you get going.

 

There are some negatives to owning properties as HMOs. I won’t go into the full details, but some of the issues can include: higher turnover of occupants, larger management fees if you use a letting agent to manage the property, more wear and tear on the property, bigger initial set up costs and cost to furnish (and renew/replace furniture) the property. Obtaining a license for an HMO from your local Council also comes at a price.

 

Interested in Investing in Property?

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Download our investor brochure by clicking the button below.


Maximise Profits from your Property Portfolio

Maximise Profits from your Property Portfolio

 

With many news articles like ‘the buy-to-let market is dead’ hitting the headlines over the past few years, we think it’s important to discuss ways to maximise the profitability of your property portfolio. Changes to legislation, such as Section 24, have hit landlords hard. But all is not lost. If you’re one of many landlords that have held on to your portfolio, this article is for you. 

 

Renovate

Could your properties do with an update? Most rental properties could do with a lick of paint or even updated kitchens or bathrooms. Spending a little on bringing your property up to a good standard can go along way to boosting the rental income you’ll receive every month.

Have a look at property portals like RightMove or Zoopla for other properties in the same area as your rental property to ensure your property is in similar condition (or ideally better than) the competition.  

 

Change the use

Would your property make you higher returns if it was used for an alternative purpose than buy-to-let?  For example Serviced Accommodation (also referred to as Airbnb.

Serviced Accommodation has become ever more popular with property owners due to the higher returns achieved. Something to bear in mind with this strategy is consulting your lender to ensure your mortgage product is still suitable for serviced accommodation, and finding a good Airbnb management company to manage your property is highly recommended. 

If your property has three bedrooms or more, would you consider changing the use to an 

HMO (House of Multiple Occupancy)? HMOs are popular for students and are becoming popular for young professionals. Quite often, property owners can make significantly higher returns when using their property as an HMO rather than a single-let property. Consult your local planning department for guidance on restrictions and necessary safety alterations.

 

Review your lending

It seems very obvious, but check out your mortgage product (if you have one) and ensure you’re on a low-interest rate. You’d be amazed at the number of landlords who leave their properties on the same mortgage for years on end when switching could save them hundreds of pounds every year. Interest rates are at an all-time low, and with some mortgage providers offering a ten-year fixed-rate mortgage, now could be the time to switch lenders. Give your mortgage lender a call to see what’s available, and if there are no savings to be made with them, look into switching lenders.

 

Increase your rent

When did you last increase your rent? Many landlords shy away from raising the rent on their properties, particularly if they’ve had tenants in their property for some time. I’m not recommending charging in and doubling your tenants’ rent, but it may be worth reviewing other similar properties nearby to get a feel for a fair rental price. If the rent your charging is behind other similar properties, it’s time to increase your rent. On average, the amount you charge for rent should go up by roughly 3-5% per year to account for inflation and increased costs. This will help increase the profitability of your portfolio.

 

Still not making the yields you feel you should be? If you review the above methods to maximise profitability from your portfolio and are still wondering why your portfolio yield is lower than expected, it could be time to sell. Sometimes it’s worth cutting your loss and selling any properties that are performing poorly. We like to think of it as removing the driftwood. If you sell properties that perform poorly, the cash pot you gain could be used to buy properties with higher yields. 

 

Interested in Investing in Property?

We make property investing simple for people who want to benefit from high-quality property investments without investing their own time or resources. Our investors can benefit from a passive income on a fixed term, backed by a brick and mortar asset and a team of experienced property investment professionals.

Download our investor brochure by clicking the button below.


Buy, Renovate and Refinance

Buy, Renovate and Refinance

 

Some of you may be familiar with the concept of buy, renovate and refinance. Today’s blog is going to walk you through the concept and give you some example figures.

 

The idea of buying a property and renovating it isn’t a new concept. When considering refinancing following a renovation, there can be a real light bulb moment for individuals who have not come across this before.

 

When a property is purchased that requires a lot of work; the property purchase price tends to reflect this. In comparison to other properties in the local area, you should definitely feel like you’ve picked up the property for a great price. 

 

Now, this is when your number-crunching becomes essential. You should have a good idea exactly how much your renovation work is going to cost, plus all other associated fees with buying a property such as legal fees and stamp duty. We also put around 10% of renovation costs aside for an additional safety net, as renovation costs often creep up. Many property investors will put down a small deposit and take out a mortgage to pay for the rest of the property, say a 25% deposit and 75% mortgage (75% loan to value). 

 

When you initially bought the property, you’ll have spent some time looking at other properties on the same street or same area to get an estimated end market value, i.e. what the property will be worth once renovated. From here we have an idea of:

 

  • All fees included with buying the property 
  • Renovation costs
  • End market value once renovated

  

If you’ve spent time crunching the numbers before diving in and purchasing the property, you should have a good margin between all the money spent purchasing and renovating the property, and what it will be valued at once renovated. This is your profit.

 

Where experienced investors can use their skills and make their money work harder for them, is when they buy a property, renovate it, and refinance the property at the higher value once the renovation is complete. If a property is purchased at a very low price, for example, if the property is in extremely poor condition, or where there can be a huge uplift in value by, for example converting the loft or extending sideways/into the garden, when the property is refinanced the investor can occasionally pull out all the capital that was initially invested.

 

Here’s an example:

 

A 2 bedroom bungalow purchased for £175,000.

Fees, stamp duty and renovation add up to £75,000.

Initial 25% deposit put down – £43,750 (therefore borrowing £131,250 from the lender)

Total money invested from our pocket into the deal: deposit plus fees plus renovation costs: £43,750+£75,000 = £118,750

 

Once renovated, the bungalow has three bedrooms and a large living room/kitchen extension. 

 

It is now valued at £375,000.

Property is refinanced at the higher valuation of £375,000…

So borrowing 75% of £375,000 is £281,250.

 

The mortgage provider will, therefore, increase your borrowings to £281,250 for the renovated property. 

New mortgage – old mortgage: £281,250-£131,250 = £150,000 of additional capital borrowed from the bank.

With this additional £150,000 of borrowed money from the bank, we can pay-off our initial investment costs of £118,750, and walk away with a small profit.

 

This example deal hopefully highlights the power of buying properties in need of significant renovation works or properties where ‘value’ can be added (extensions, loft conversions, etc.). If the difference between purchase price plus all costs associated, and the estimated end value are high enough, if we decide to refinance a property once the renovation work is completed, we can potentially pull all of our initial costs out of the property. Now that’s what I call making your money work hard for you.

 

We always need to bear in mind that not all lenders will allow you to refinance a property following renovations, and while it may seem financially smart to look for these sorts of projects, they come with additional risks. Before undertaking a project of this scale, we would recommend speaking to your local estate agent, local tradespeople, and your financial advisor to ensure you are knowledgeable and financially safe to complete this sort of undertaking.

 

Interested in Investing in Property?

We make property investing simple for people who want to benefit from high-quality property investments without investing their own time or resources. Our investors can benefit from a passive income on a fixed term, backed by a brick and mortar asset and a team of experienced property investment professionals.

Download our investor brochure by clicking the button below.


Our Plan for Property in 2020

Our Plan for Property in 2020

 

I often get asked by my investors and potential investors what my plans are for property. While we help our clients grow their wealth through property, we’re also active investors ourselves. This article outlines our plans for 2020.

 

When planning the year ahead, we need to consider our 18-month cash flow for the business. As I’m sure you can calculate, our plans for 2020 were formulated during the summer months of 2019. That means we’re now looking at plans for early to mid-2021 too! Outwith the services we provide to our investors, we strive to generate strong cash flow for the business both from regular monthly income from rental properties and also lump sums of cash from buy-to-sell projects.

 

This year we plan to grow our portfolio of buy-to-let properties. Ideally, this will be spread evenly across the four quarters of the year, but depending on the properties sourced off-market, there can be particularly busy spells throughout the year. We aim to buy properties at or below market value, to ensure we make money when we buy, protecting the investment should the market take a dip. If we needed to sell a property rather than to hold and rent, the equity gained on purchase is essential to allow flexibility in the sale price. We ensure our rental properties are in the top 25% of rental properties on the market in terms of standards of living, therefore every property we purchase we renovate to a high standard before moving tenants in. This ensures we have minimal gaps in tenancy and our tenants enjoy living in our properties. 

 

We have a small number of buy-to-sell projects planned for this year. The type of properties we focus on renovating are older properties with period features, and these tend to be flats or houses within Edinburgh. We find the key to a successful buy-to-sell project is targeting the customer who is going to purchase the property once renovated. For example, if we decide to purchase a two-bedroom property in a popular area for young professionals and university students, the renovation is going to be quite different to renovating a 3 or 4 bedroom terraced home or large apartment that we plan to sell to a family. Always tailor your renovation to what your potential buyer wants. If you know your local area well, start looking through homes sold recently in the area that have achieved a sale price higher than expected. If you can identify any special touches that made the property so popular with buyers, you’ll do well in a renovation project.

 

We would love to hear from you if you are interested in investing in property. We offer a fixed return on investment for investors who want strong returns from property without owning property personally. We also enjoy working with investors in joint ventures.

 

If you would like more information about investing with us, please click the button below to book a call with me.


Mortgage Changes for 2020

Mortgage Changes for 2020

 

Whether you’re a first-time buyer, a homeowner looking to remortgage or a buy-to-let landlord, 2020 is sure to be another rollercoaster ride in the world of mortgages.

 

There have been a few big changes in the mortgage world for different groups of buyers.

 

First-time buyers will definitely be happy with some of the recent changes. We have seen 95% LTV mortgages re-emerge on the market place. Barclay’s paved the way for more relaxed borrowing rules, allowing individuals to borrow five times their salary as first-time buyers (so long as their salary was above £30,000). This is very interesting for investors looking to flip properties, as first-time buyers often look to purchase properties that have recently been renovated that are ‘walk-in’ condition.

 

Rates look set to stay low for now, with many homeowners capitalising on fixing their mortgage for five years at a low rate. Two year fixed rate mortgages still have a little wiggle room to give in comparison to the five year fixed rate deals, so we will have to wait and see if the banks adjust the two year fixed rates.

 

Your age can play a part in how much you can borrow and for how long. Recent changes in the market have made borrowing easier in later years, with some lenders removing their maximum age for buy-to-let mortgages. We also saw the introduction of 40-year term mortgages, which is likely a reflection of the increase in the number of first-time buyers in the housing market.

 

For those of us who own our own homes, now could be a good time to remortgage. With rates so low and some lenders offering a very competitive ten year fixed rate mortgage, many homeowners will look to remortgage. As rates are low, and stamp duty costly on higher-end properties, it’s likely we will see an increase in borrowing for those remortgaging to renovate their homes or add extensions, as an alternative to moving home.

 

Landlords will undoubtedly need to have their wits about them in 2020. 2019 saw many lenders offering fantastic rates with cashback, but landlords have been caught out with upfront fees of up to £1,995. Two year fixed deals are becoming ever more popular with landlords who are uncertain about the long term profitability of owning properties affected by the mortgage relief tax cuts. 

 

As you can see, 2020 will be an interesting year for lending across the mortgage spectrum. It’s good news if you are due to remortgage, and also great if you are a first-time buyer. It’s potentially less exciting for landlords, however, using a mortgage broker who has access to the whole market may help with profitability from your portfolio. 

 

If you’re interested in investing in property but don’t have the time, knowledge or know-how, then click the button below to book a call with me.


Are Your Savings a Thing of the Past?

Are Your Savings a Thing of the Past?

 

From a young age, most of us are taught by our parents or teachers to save part of our earnings. Save for a rainy day, a deposit for a house, a special occasion, or an emergency. Saving our money is ingrained in us. 

 

But is saving money in the bank a smart thing to do, both now and for future generations?

 

Putting money into a savings account is a smart thing to do for a percentage of your wealth, to ensure you have money set aside in case of emergency. But for many parts of Europe, individuals are being charged to do this.

 

The European Central Bank lowered its interest rates below zero during 2019. Negative interest rates mean it costs you money to keep your savings in the bank and was introduced as a last resort to stimulate growth in the economy in Europe. The plan was to lower interest rates below zero to encourage banks with significant cash holdings to get capital out to work.

 

We’ve all heard the phrases “the rich are getting richer” and “it takes money to make money” but many of us would assume this relates to the rich earning high salaries and accumulating savings in the bank. When we think about our savings account, for example in an ISA, you’d be lucky to make 1% of interest per year on your savings. Considering it costs you money to have your savings in the bank in Europe, this begs the question; how do the rich grow their wealth if their savings are not growing in the bank.

 

Many individuals who are growing their wealth faster than the average individual are doing so by investing their capital in assets. We can accumulate wealth by the rising value of assets, such as property and shares. The wealthier have more assets and more capital gains. These are banked, not consumed, explaining why the so-called rich get richer. Property, in particular, has been very profitable for investors in the UK since the 1990s.

 

Could it be time to challenge our beliefs of putting a portion of your salary every month into savings? I’d say it’s time to reassess what part of earned income is saved, and increase the portion that’s invested in assets. The start of a new decade could be the perfect time for you to assess your current wealth and consider investing a portion of your savings in assets. 

 

If you’d like to get into property investing but don’t have the time or knowledge, book a call with me using the button below to discuss how I could help you on your journey.


2020: What’s in Store for the Housing Market?

2020: What’s in Store for the Housing Market?

 

We are now officially in the next decade, with many looking for smart ways to invest their capital. Property one of many investment vehicles for individuals looking to grow their wealth. But what’s on the cards for the housing market in 2020?

 

House prices shrugged off Brexit uncertainty to end 2019 1.4% higher than at the start of the year, according to Nationwide building society. One statistic to note is that Scotland ranked the strongest performer in property price growth 2019, up 2.8% in the fourth quarter alone. The critical question is: can we rely on this trend of slow growth continuing into 2020?

 

Many key factors are supporting the housing market growth, such as strong employment, low mortgage rates and a lack of supply.  Even in the face of considerable economic and political uncertainty, we have seen slow growth in the property market.

 

One sector of the market has seen steady growth: first-time buyers. The number of people who took their first step on the property ladder last year is estimated to have reached its highest levels since 2007. For individuals looking to invest in the property market, this could be a target market. Identifying areas local to where you live that are popular with young professionals, where you can buy properties that need a degree of renovation and style them to attract first time buyers.

 

Although the end of 2019’s property transactions helped show growth in the market, the number of transactions in 2019 was down in comparison to 2018. Brexit certainly will have put many individuals off selling their properties, so only time will tell whether this will inject some life into the market in 2020. 

 

With the next Brexit deadline looming on 31st January, some are expecting a sluggish January. It will be a case of watching and waiting for many. 

 

Despite the uncertainty and slow growth, it’s still an excellent time to get into the property market as an investor. So long as you buy right, you will be in a strong position to do well in the property market. 

 

If you’d like to get into property investing but don’t have the time or knowledge, book a call with me using the button below to discuss how I could help you on your journey.


2019 Bloopers Reel

The 2019 Bloopers Reel

A very quick message before the festive period to say a huge thank you to all our investors, both new and old. We’ve had a fantastic year working with you and look forward to meeting some new investors in 2020.

I’ll leave you with a little something to end the weekly blog for the year…

The 2019 bloopers reel.

For all of you who have reached out to me to compliment my social media…

Here’s some behind the scenes footage.

My poor media team. Lot’s of take two, take three and so on. But a huge thank you to them for making my content look presentable!

From the team at Nichol Smith Investments, have a very Merry Christmas and a Happy New Year. We’re looking forward to working with you all in 2020.

Best wishes,

Sophie & the whole team at Nichol Smith Investments


Serviced Accommodation: Should You Get Involved?

Serviced Accommodation: Should You Get Involved?

 

Many of us will have heard of serviced accommodation, but today’s blog will take a more in-depth look into it and whether it could be a strategy for you to get involved in.

 

Traditional buy-to-let properties are a familiar concept for many of us, where you rent out an apartment or house to a tenant on a long term basis. Serviced accommodation is a little different from this, as you rent your apartment or house on a short term basis. In effect, the property you rent out is effectively a small hotel as guests can stay anywhere from one to two nights to months at a time. 

 

Serviced accommodation has become a topic of debate in recent years, with lots of media attention surrounding AirBnB. AirBnB is a business that advertises serviced accommodation but has become the go-to company when looking for holiday accommodation. Other companies advertise serviced accommodation such as Booking.com, Hotels.com, Spotahome etc. but we often hear AirBnB being discussed.

 

Serviced accommodation has many benefits for individuals travelling for work or pleasure. Benefits for the end-user are:

 

  • A home from home setting
  • Hotel standard services but more homely than a hotel room 
  • Space: more space to enjoy, e.g. bedroom, living room etc
  • Convenient: guests can prepare food (properties have kitchen facilities)
  • Often apartments will have laundry facilities (washing machine and dryer)

 

Serviced accommodation is becoming ever more popular for business travellers as it gives them more for their money than staying in a hotel. Companies tend to favour serviced accommodation for their workers as it is often cheaper to stay in serviced accommodation than hotels, mainly if the length of stay is weeks to months. Business users will be more likely to do their laundry, cook their meals, and generally expense less when staying in serviced accommodation in comparison to staying in a hotel.

 

You’re probably wondering what’s in it for me?

 

Well, with serviced accommodation becoming more popular, the prices charged per night are comparable to guest houses and hotels nearby. When you compare the income generated through a typical buy-to-let where your property is rented out to one tenant long term for say £800 per month in comparison to renting your property per night for £60 a night in low season to £120 a night in high season, you can see why many investors are leaning towards serviced accommodation. It doesn’t take many nights of renting your property out per night to overtake the traditional buy-to-let rent. 

 

So why doesn’t every landlord switch to serviced accommodation?

 

There are some considerations when looking into serviced accommodation. As we mentioned earlier in the article, you are technically running your rental property as a mini-hotel. I spent some time with Clare Halliday of Refreshing Scotland, an AirBnB management company, and we discussed some of the challenges of running serviced accommodation.

 

Bookings: You will need to advertise your property on multiple different websites to ensure it can be booked by a range of guests from holiday goers to corporate business clients. You need to create a listing and upload photos and reply to any questions or enquiries you receive through the various platforms.

 

Changeovers: You are running your rental property as a hotel; therefore, you will need to get the property changed over between guests. Linen will need changing, the whole place will need to be cleaned from top to toe, and you’ll need to replace consumables (toilet rolls, toiletries etc), take bins out, and check for damage or repairs.

 

Check-ins: Guests will arrive when it’s convenient for them; therefore, you need to make arrangements to let them into the property, or use a key safe. Remember, no matter how simple you make instructions, there will be the odd guest who struggles to enter your property. Imagine a late-night call from a guest who has been for dinner and a glass or two of wine asking you to help them enter your property at midnight (or later).

 

Furnishing: While you could technically buy a rental property and put in any old furniture, the price you can charge per night for guests to stay will be higher if your property is kitted with higher quality furniture. From Clare’s years of experience in property management, she recommends picking a few statement pieces of furniture to give your property a luxurious feel and make your property stand out from other similar properties, which will attract attention to your property and likely increase your bookings. High-quality fixtures and fittings will withstand the test of time too, so spending money on quality furnishings upfront is a double win.

 

Location: Location location location. It’s something that all potential investors or current landlords must consider when researching property to buy for serviced accommodation. If a property you’re looking to purchase or currently own is located in a rural location, it can be more complicated to manage as serviced accommodation. One particular sticking point for managing properties in rural areas is the availability of laundry services for all the bed linen you’ll need if your property turns over every night. 

 

As you can see, there’s a lot to organise with serviced accommodation. For many landlords, this would be too big of a time commitment. It’s pretty much the same as running a bed and breakfast, without cooking breakfast! So you’ll now be wondering how anyone manages to have serviced accommodation without being full-time in property. This is where serviced accommodation management companies can be worth their weight in gold. 

 

Many AirBnB management companies can manage your AirBnB for you, but be warned, do your research as they’re not all as good as each other. These companies take care of all the bookings, all the cleaning and bed linen, and can be around 24 hours per day to deal with any guest issues. This service, of course, comes at a price but for many AirBnB landlords, this is an essential cost for running the property as serviced accommodation. Most AirBnB management companies will charge you a percentage of a night’s stay to run your AirBnB for you, anywhere between 12.5% and 20%. This is where number crunching comes in, as the numbers need to stack up to ensure running an AirBnB will make sense financially if you decide to take on an AirBnB management company. 

 

Clare Halliday of Refreshing Scotland runs a five-star AirBnB management company. Refreshing Scotland has everything in-house, from their management staff to their cleaning staff. They take care of everything for you and pride themselves in getting five-star reviews for every AirBnB they manage. Refreshing Scotland is in a class of its own. They provide hotel standard services for their guests and offer bespoke services tailored to each landlord’s requests; for example, premium quality skin ranges to putting specific food and drink items in the kitchen for guests arriving. A service like this is invaluable, so I’ve shared a link to Refreshing Scotland’s website at the end of this blog.

 

Serviced accommodation can be a fantastic property strategy if it’s executed correctly. If you’re considering purchasing a property or converting an existing property into serviced accommodation, ensure you have crunched the numbers and have thought about the logistics, as there are a lot of moving parts. You need to ensure that if you have a mortgage on the property, it allows for short term lets and that your insurance covers the short term letting of your property. Be mindful of local council legislation and whether you need to apply for a change of use of the property to allow short term lets. 

 

As discussed above, if you are looking for a fantastic AirBnB management in East Central Scotland then look no further than Refreshing Scotland. Clare would be delighted to hear from you and discuss your requirements.

 

https://www.refreshing-scotland.co.uk

Phone: 07908 469 505

E-mail: clare@refreshing-scotland.co.uk

 

We hope you’ve found this article helpful in sharing some of the positives and some of the challenges with serviced accommodation. If you’re interested in investing in property but don’t have the time, knowledge or know-how, then click the button below to book a call with me.


The Importance of a Property Exit Strategy

The Importance of a Property Exit Strategy

 

We’re all aware of what’s going on in the news at the moment. With a general election coming up quickly, Brexit and other financial industry uncertainties, many of us have thought about how this will impact the property market.

 

This blog discusses property exit strategies if the housing market shifts after purchasing a property. An exit strategy is about the financial plan for a property and will be specific to the property and your financial situation.

 

There are many factors in property investing that are within our control for example where to purchase, type of property, negotiating the purchase price, managing the process from conveyancing to the refurb, but not everything is within our control. If the property market changes, we need to make sure we have thought of exit strategies.

 

We need to be smart with our numbers when thinking about investing in property. All wealthy property investors will tell you that you make money when you buy. Therefore when you are looking for a property to invest in, start with the numbers, and make sure you don’t pay over the odds for a property. Cost up all renovation work, legal fees, stamp duty etc. to get a figure for total costs involved in buying a specific property. We research the current market in the area we are looking to buy in to estimate our end value. Look for properties for sale, under offer and sold within the past 12 months to get a feel for the end market value. We always err on the side of caution with our end value and keep it on the lower side of recently sold properties. With the end value in mind, we take away our profit margin and all costs associated with purchasing and renovating the property from the estimated end value, to calculate our maximum purchase price. 

 

The calculation above helps decide a fair price to offer if you’re considering flipping a property. That might be the initial plan, but we like to dive a little deeper. We always ask ourselves: if for some reason the property market dropped or the property didn’t sell, could we sacrifice some of our profits and still sell the property without making a loss, or could we hold onto the property? Spending some time researching the area you are looking to invest in will go a long way when it comes to the second strategy. If you needed to hold on to the property while the market comes back up to the level you bought at, how much could you achieve in rent and what is the rental demand in the area? We ideally like to work out the yield of the property, which is the total annual rent divided by the purchase price (or estimated end value if we’ve completed renovation works), to ensure the deal still stacks up. This will give us two more exit strategies: hold on to the property and pay down the mortgage with money from rent, or rent the property until the market picks up and sell once we know we’re profitable.

 

Deciding on an exit strategy is important when considering buying a property as an investment. We always make sure if we’re planning to flip a property, do the numbers still work if we needed to hold the property and rent it out. Other property strategies that could be considered are HMOs or serviced accommodation (AirBnB). We wouldn’t normally crunch the numbers for either of these strategies unless our first couple of options were not feasible. Normally if a property is suitable for an HMO or AirBnB it would be the main strategy and the property would’ve been bought with this in mind. Both of these strategies can be very lucrative but require experience, and a bigger time and monetary investment.

 

If you’d like to get into property investing but don’t have the time or knowledge, book a call with me using the button below to discuss how I could help you on your journey.