As you will know I've been investing in residential property for some time now. I thought I'd share a few useful tips; things that I do on a viewing to ensure what I'm seeing is what I'm getting and to make sure I have a solid investment!
1. Is the floor plan correct? Often times the properties I'm attracted to are advertised with little more than an exterior photo and a sketch floor plan. Obviously an internal inspection is required, but is what you're seeing adding up to what you think you're getting? I, more often than not, measure up myself to eliminate the risk of an "optimistic" measurement from the agent. Here is the link to the laser measuring device I use, only £20 from our friends at Amazon. With the proper measurements I can be sure the surface area is on par with what I believe it to be. Believe me, it can swing either way. The last one I measured was 75sqm and the agent had it listed as 46sqm. It doesn't take a genius to work out that 46 m2 is impossible for a split-level 3bedroom flat, but needless to say it put a lot of people off viewing, so bagged another bargain!
2. Checking your numbers. There's no harm in calling local agents to see what they think you'll fetch. Whether you are looking to resell the property straight away or let it, it's wise to call a few agents to gauge confidence and price levels. Time of year will make a difference, so do ask them. And no harm in calling on different days pretending to be either a buyer or a seller. You'd be amazed at the difference in what you're quoted; not sure if there's a hard and fast rule, but I always feel that they tell buyers/tenants a higher price and a seller/landlord a lower price to manage expectations, but you do get the odd agent overquoting the seller/landlord to "win business." Be wary of this and take averages. Mix a few local independents and big corporates too, and don't bother calling the agent that you're looking to purchase the property from, it will be unreliably skewed to make the property look a better investment than it is!
2a. Further on numbers - what does it cost in fixed costs such as ground rent, service charges. Any Section 20 notices served by the landlord? These are repairs of over £250, so don't necessarily have to be life changing but you will want to know before committing, that's for sure. Add this in to your spreadsheet to make sure your overall return is still acceptable. Also, does the freeholder require an admin fee for consent to let? Is it a per tenancy, per annum fee or one-off?
3. Exit strategy. I'm very much a believer in keeping a property in a "family style" condition so that it can be resold. This is my qualm with the full-blown HMO strategy. It works, gives good cash flow but it hurts you on the resale because you can end up with a glorified youth hostel! If you chop it up into bedsit rooms etc will you be able to sell it as a family home? Probably not, families don't appreciate an en-suite shower room in the living room! If it is easily turned back into a family dwelling then fair enough, but if you will have to spend 5 figure sums then you need to reconsider. Here's two flats in the same block where someone has chopped the living room in order to get another bedroom. Sensible. I pasted an original floor plan of another one in the block on the right (it was mirror image so I flipped it around for easy comparison). You can see that it's just a partition wall in the living room, so easily undone if required.
4. Further on this topic, (re)financing. If you put en-suite bathrooms everywhere and let the property on multiple tenancies (by the room for instance) then you will not be able to get a mortgage through a mainstream lender, you will be limited to commercial finance through HMO lenders. Much higher rates and lower Loan to Value, limiting how much you can gear up, so beware of these pitfalls. The other factor to consider is, if you are buying ex local authority properties is that often times lenders have restrictions, so they won't like lending on properties with shared decking access, a less than 50% private ownership in the block or blocks of more than 5 storeys. Most lenders have 8 as a max, so anything above that is a cash buy only. And beware, being on the ground floor doesn't help either, they look at the whole picture!
I hope that helps you in looking for a great yielding property, for hints, tips, news and more do sign up to the blog via email here. I have been investing in South London for nearly 15 years. Would you like to get better returns from your investments? Why not start the conversation by sending me an email, or join me at the Clapham Property Meet, the monthly networking meeting where we talk about all things property. Join us this month for Jonathan McDermott's talk on Planning Gain.
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