Property Letting

Congratulations if you have now bought your first investment property. Now you have to consider the next phase, property letting.

Renovating

If you do buy a distressed property, that needs renovation remember you are doing it up to either let out or sell – not to live in. You don’t need to buy the top of the range of everything – try to keep your costs down as they can spiral. Even though the property belongs to you it will be someone else’s Home. The decor should therefore be neutral and minimal . Let your tenants put their stamp on it.

Letting Out

Letting agents can take the hassle out of letting out and can be a source of help and information. You can also get them to manage the property so you never have to worry about calling a plumber out. They will charge you, normally about 10% of the rent, plus any costs.
DIY – if you are going to do it yourself. Do seek advice first – the government has produced guides for landlords. Check out the Government website.
Legal requirements – your Solicitor should highlight the legal requirements to you, such as Gas Appliance Test certificates, fire smoke detectors. Your local Council should also help here too.

Furnished or unfurnished?

This depends on your target market. Seek advice from the Letting agent if you are going to use one.

Real Life examples of property investing

Let’s take an example of an ordinary two bedroom semi-detached property. You buy it for £90,000. You then will spend a further £20,000 on fees and refurbishment. Your total spend is £110,000. Then you get the house re-valued by a mortgage lender at £135,000. You then sell it for £132,000 in six months, netting you £22,000 for six months work. (£132,000-£110,000 = £22,000). Not too shabby.
Summary #1
2 Bed Semi £90,000
Refurb & fees £20,000
Total spend £110,000
Revalue £135,000
Sold £132,000
Total Profit £22,000

Getting paid to Buy

Here’s another way to invest, without any money. Lets keep the figures modest.
You find a property which fits the bill and purchase for £36k, using the bank of Mum and Dad, friends etc and 0% credit card(s). (Yes as I write this in 2018, banks are offering 0% credit cards for up to seventeen months before you pay them off). There are £6k costs including the refurb. The total cost is £42K.
You get the house valued at £60k. Remember Rightmove.co.uk – you already knew this was the true value. You then secure a buy to let mortgage at 75% loan to value. Your mortgage is therefore £45K. You collect this money and pay off your credit card and your other creditors, leaving you with £3,000 cash out. Perhaps split this with Mum and Dad or whoever.
You then rent this property out for £450 per month. The mortgage is say 4.8% which is £180 per month. And then there are other costs of £45. This leaves you with a cash-flow of £225 per month, passive income.

Summary #2
Purchase price £36,000
Refurb & fees £6,000
Total spend £42,000
Revalue £45,000
Cash Out £3,000
Rent £450/m
Mortgage £180/m
Other costs £45/m
Total Cash flow £225/m

Houses of Multiple Occupancy (HMO)

In the UK, if you have a HMO with less than 7 people, you don’t need to declare this to the Local Authorities. For example, you could find four people, each who pay £250 per month, which will generate revenue of £1,083 per month.
Who would be interested in living in a HMO? Well if you property is in a large City, near to train stations, Universities or a Hospital, you could have Professionals or Students.
In our example number 2 above you would net £500 per month in cash-flow.

Do Not Touch these deals

Off plans – Too many unknowns and uncertainties. Its better sticking to something simple.
New Builds – almost always these properties will be priced above their actual value.
Overseas – there are so many pitfalls to this, in terms of the legals. And you are not present.

Re-Mortgaging

Once you have let the property out you should be getting nice monthly profits. If you’ve done everything properly, the equity in the property will also increase. Why not release this equity and use the capital to fund the next investment? Check with your mortgage provider when you can re-mortgage.

Summary

1. Find the area first.
2. Find motivated sellers – put out adverts, leaflet.
3. Find average houses in average areas.
4. Check the finances – does the deal stack up (mortgage, rent, fees, unoccupied, returns)
5. Put an offer in for 25% below market value.
6. If no – move on.
7. If yes – then get financing.
8. Do the deal.
9. Get an agent to manage it.
10. Repeat.

So now we are coming to the end of this book on becoming financially independent and retiring early from the Rat Race. In the final chapter we will discuss what to do with the profits from your property investment.