Today, making money out of property is quite a bit harder than it was just a few years ago.
This is because of a few reasons, including changes to stamp duty, tax relief and new rules from the PRA and FCA that limit lending.
Still, property owners entering into the private rental sector via buy-to-let means that, very positively, they can bring older properties back into use. In addition to this, investment from landlords can also improve the overall quality of properties that might fall outside typical owner/occupier areas, or are slightly more unusual property types.
But, in order to make a profit when you purchase, finding the right investment property at the right price is crucial.
I’ve recently been outspoken against claims that you can buy and flip property in a matter of months, walking away with your original investment intact, and ready to carry forwards.
To realise the true market value of a refurbished property, the reality is that, typically, you would need to see out a 6-month period before making a return.
However, there are some exceptions to this rule to explore,and a few handy tools that can assist you in finding those rare gems to invest in without resorting to property sourcers.
So, how do you find the right opportunities?
Researching suitable properties can take a considerable amount of time, all the while weighing the likely market value with the rental yields, and the refurbishment and finance costs.
A very useful tool to consider to help streamline the process, and one that I’ve recently been highlighting to all of my investment clients, is PropertyData.
PropertyData is an analytics tool offering comprehensive market data on residential properties, and provides a number of incredibly useful resources. In combination with the couple of strategies that I’ve listed below, it might soon become your new go-to.
Short Lease Properties
An investment opportunity with a very short lease can be problematic. Most lenders are not really comfortable with anything under about 60 or 70 years. This is because the closer to the end of the lease you are, the more expensive an extension usually becomes, rendering the property incredibly difficult to sell on in the event of repossession.
However, short-lease properties can offer great development opportunities once you understand the cost of extending the lease and its value once extended.
Using the PropertyData reports on short leases is one way to do this. Once you sign up (there’s a useful free trial feature if you want to road-test it), you can navigate to Sourcing > Short Lease in the top menu. Here, you will be able to review potential investment properties in either a table or in a handy map view, limit your search locally, or check out the national results from around the UK.
In each case, you can click through to the property, see comparables, average rents and other trend data. You will also find links to the property on Rightmove or Zoopla.
What are you looking for when considering potential opportunities with a short lease, and what are your options?
In this above example, the property is available at £200,000 with 47 years on the lease. The estimated cost to extend this comes in at around £45,000. Additionally, it’s important to note that you cannot purchase this with a mortgage, but you could with a bridging loan.
The crux is, whilst all of this might cost upwards of 0.5% per month, extending the lease could see the property ending up worth around £300,000.
Bringing damaged, uninhabitable or unlettable properties back into service we think is one of the most undervalued aspects of the private rental sector.
When considering a property refurbishment, the extent of damage might be overwhelming. But, if the budget is available the costs are relatively easy to estimate and judge, they can be fantastic opportunities (although be sure to always have a financial contingency in place.)
Using PropertyData, it’s easy to highlight properties that have had prices significantly reduced or need modernisation, and provides comparables and rent figures to demonstrate the scale of the opportunity.
You can also check out this blog post we wrote to understand how you can take on a property like this, reduce the risk and realise the value added (meaning you can pull out the money) within the typical 6-month period.
In this example above, you can see that similar properties to the one listed sell for around £250,000-£300,000 and will rent for a combined amount of £1,800 a month. If this is the route for you, we can lay out the numbers, define a strategy and help find the property that works for you, so give us a call.
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Where To Start
PropertyData has a number of other tools and features that are advantageous including excellent valuation tools, calculators and heatmaps, and are well worth checking out.
Making money from buy-to-let is still viable, it just takes a much more structured approach.With margins now pushed, investors need to leverage all the tools available to them – their accountants, solicitors and of course their mortgage broker – including those mentioned above, to ensure that the numbers work.
Call us any time for a completely no-obligation chat and let us show you how our decade of knowledge and experience can help you with your buy-to-let business.