Starting Off in Buy to Let

Starting Off in Buy to Let

David Lawrenson of www.LettingFocus.com ponders the issue of risk for those getting into buy to let for the first time in this piece on “Starting off in Buy to Let”.

When you invest in property for the first time, it can take you out of your comfort zone.

When I had first bought a buy to let property I recall many friends telling me things like: “I couldn’t do that, what if you have bad tenants? What about when they ring you out of hours with some problem or other?”

They continued to say things like this, even after a year or two, when I had already made quite a lot of money from buying and letting property.

Most of them are still slogging away today “working for the man”.

But today they happily, (and in a few cases, grudgingly), acknowledge my wisdom in breaking away from the world of “wage slavery”.

The fact is if all you ever do is to read my book, “Successful Property Letting” and take it all in, you’d be very unlikely to buy a property in the wrong place or buy the wrong kind of property or get the tenants from hell.

As the icing on the cake, you can set up a one to one consulting session with me too – it does not cost the earth, no one should be paying thousands for advice in our field!

The fact is that the book contains all you need to know. Sure, there are almost 400 odd pages in it – but read it a couple of times and you will be fine.

IMPORTANT note: You have to read it yourself because you cannot trust say to a letting agent to do ALL the job of finding tenants totally. or a sourcing agent to find a property. You still need some oversight, some input.

Buying Agency

The same goes for finding the right property. You could, like some people I have recently consulted with, hire someone to do the finding of a property for you – they are called buying agents – but you must be driving the process, you must have some oversight.

This buy to let business is not a completely “hands-off” business. It is not hard, not hard at all, but it’s not completely easy either.  Nothing is completely for free in life.

Compared to investing in the stock market, buying property to let should make you more money and faster, over the long term, not least because not as much of your cash is going away to pay third parties like fund managers, fund platforms and stockbroker fees. But that is not to knock investing in stock market based funds. I do that too – and I quite enjoy it and I rather like the idea of having a balanced portfolio of shares, bonds and property. Whether you do that too, is of course, up to you.

I guess some of my doubting friends back in the day were bought up by parents who told them to go to university / college, get a good degree or trade or apprenticeship and then don’t rock the boat and keep their head down in a day-job whilst trying to scale the corporate ladder, likely with the same employer for life. They were just not bought up to be entrepreneurial.

Actually, I was not either. I went to university to study business management and economics, then later did an MBA at City University (now Cass) business school. But I realised eventually, after six years of working for someone else, (mostly in financial services), that my face never really fitted in a corporate environment. I was a bit too much of a maverick who did not fit the mold and who found it hard to motivate myself to go the extra mile for the organisation.

Starting Off in Buy to Let – My Story of Gradual Build Up

So, whilst working for my employer I started building up my property investments, which I found a lot more fun than working for someone else. I liked the idea of being in control of my own destiny. And whilst I once experienced the “tenants from hell”, tenants never called me out of hours, ever! (By the way, if you read my first book, you won’t get tenants from hell – because bad tenants will be found out by your reference checks and you’ll avoid them – a key part of my book in Chapter seven).

After some more years of doing property investing on my days off, I quit the day job. I never look back on that day with any regret.

Of course, we all have a different attitude to risk. To some extent it is inherent in each of us. It is also a factor of our position in life and our jobs.

So if you have a really safe job, free from the threat of redundancy, then you ought to be able to venture out and “have a go” at a new thing. So, people who are doctors, teachers, police officers etc. ought to be in a more comfortable position. For most of them, providing they don’t do something really silly in their job, their job should be secure, as should their pension.

Starting Off in Buy to Let – How Secure is Your Day Job?

One of my new landlord clients is a couple who both have secure jobs in the public sector at a reasonably senor level. They are happy to break into the world of property investing. They have done their research well and have read my “Successful Property Letting” book. Plus their target area to buy into is an area which I also think has great potential. And they are intent on buying the right kind of property too, which I am sure will do well.

Rather outside the norm, they have hired a well-known buying agency to find properties for them. Sure, this will leach some of their profit, but in their situation it makes some sense. (They have other demands on their time – elderly parents, young children, busy day jobs).

I know from their analytical approach that they will have nailed down what the buying agency will do for them and that they will have got a good deal on the buying agency fees too.

I will be advising this couple for a year or two, but I have every confidence that they will achieve success, just like my “electrician client” will, whom I wrote about in another recent blog post. See here:  https://www.lettingfocus.com/blogs/2019/05/consulting-advice-a-case-study/

Not all people will have the security behind them that this couple have. For some folks, breaking into investing in property will seem harder and more risky. But as long as you do research and ignore the “noise” all folks can do well. (The noise is all the stuff in the press about how much harder it is to be a landlord today, given harsher taxes and a more intrusive regulatory environment).

I advise people to just let the noise roll. Let it be. If it puts off other faint-hearted landlords, then all good. It will mean less competition for those who have the stomach to make successful investors of themselves.

Starting Off in Buy to Let

Many people don’t realise that when starting off in buy to let, unlike with residential mortgages, the lender will not be looking at your own income. (A few stupid lenders may require you to have a minimum personal income, these tend to be the exception these days).

For most modern lenders, to get mortgage finance for a buy to let loan, you’ll only need to show 25% of the property price for the deposit. The rest of the loan will usually just be assessed on the rental income potential from the property.

Usually lenders will expect the rent to be 30% or 40% more than the interest payments – and the interest rate they use in doing this calculation will normally be at least the “go to” or “follow on” rate of their standard variable mortgage rate. (In some cases, this may result in you having to put in 30% or more into the property as a deposit).

See below for links to my consulting work and please do get in touch by email to [email protected]

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2 comments

  • Hi David, in the book you advised taking a reservation fee once you have a tenant we’re happy with. Do you still stand by that still now that we have new rules regarding tenant fees and caps on them.

    • The book last edition was in 2017.
      Since June 2019, you are allowed to take a reservation fee, but only equal to only one week. The new edition of “Successful Property Letting”, which comes out on 2nd Jan 2020 has been updated to reflect this change.
      We think that one week is not sufficient, but that is the new law, so we have to put up with it. A recent blog on here covers all the changes that the Tenant Fees Act bought in.

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