Services to Property Developers
With the current low return on savings, more and more people are looking at investing in property as a way of getting a better return on their investments. But is it really as easy as the TV programmes suggest? This article will help you decide if being a full or part-time property developer is for you.
Where to buy from?
The two options here are auctions and estate agents. I find the auctions in this part of the country very competitive and as such it is difficult to get a bargain. Just turn up to one of the open days and you will see how many people are vying for the same house. The last auction I attended had 41 lots and over 400 people attended; you can do the maths yourself! Also with auctions, some charge a “buyer fee” and this in some cases is £5k plus vat so add £6000 to the hammer price. Personally, I prefer to buy from estate agents. You can take your time to do your research into the property and the area and once you are happy to proceed you can open negotiations on the price. If you are paying cash for the property this gives you an advantage over those who are getting a mortgage. If your seller is looking for a quick sale then a cash sale with no survey or searches can be completed as quickly as a week if both solicitors are geared up to do so. There are three secrets here; first, let the agents know what kind of property you are looking for, what price, what area, and build a relationship with them; second, put the hours in, both on the internet and viewing the properties; third, be patient, decide what you are happy to pay and if that offer is not accepted then be prepared to walk away. You’ll be surprised how often you get a call a week or so later asking if your offer is still on the table.
What type of property should I buy?
Obviously this is dependent on your budget. Ideally I look for a property that is less than £40k as from £40k upwards you pay 3% stamp duty on a second property. As you can imagine though, these are few and far between and realistically you will find properties in Bradford between £50k and £60k are more available. Also, you want a property you can add value to, so if it’s in a poor state of repair then that is ideal as an investor as you can refurbish the property, and if you get it at the right price and manage the refurbishment costs then you can add value in a short period of time. Also, the return on investment is better at the lower end of the market. So, for example, a three bed semi fully refurbished in a decent area could cost you circa £130K. Your rent on this would be around £595pcm. If, however, you bought two properties, maybe back to backs, but again, in a decent area, then at £65k each fully refurbished your investment is the same but your rental return will be around £395pcm each. So your gross return is now £790 per month, an additional £195. Obviously there are more costs involved in having two properties rather than one (insurance, agent fees etc) but it still stacks up to have two smaller properties rather than one larger one.
How do I get the property refurbished.
You may be able to do some of the works yourself but you will need qualified people to do the electrics (NAPIT) and gas work (Gas Safe). You will need certificates from your installers when the works are complete regardless if you are going to rent of sell. Alternatively, you can instruct a refurbishment company like Carlton Property Improvements who specialise in this kind of work. They will manage the whole refurbishment for you agreeing a detailed scope of works and timescales and costs. With this approach you simply give the property in its purchased state to the company who will then hand the property back to you ready for rental. This not only takes all the hassle out of the refurbishment for you, but also makes financial sense as every week the house is undergoing works is another week you are not getting a return on your investment and whilst you own the house you will be paying council tax and utility charges until you sell it or get a tenant. Also a company like Carlton can give you invaluable advice on how best to maximise your investment and not over develop the property whilst making it as maintenance free as possible.
• If you’re looking to buy a property, add value and sell it on then the maths is simple. Cost of the property, cost of your refurbishment, agent and solicitor costs taken from the sale price gives you a gross profit before taxes etc. One thing to take into account here is that if you look to sell within 6 months of you taking ownership of the property then your buyer will be restricted on mortgage provider as the majority do not like lending on a property that has been owned for less than a 6 month period.
• If you’re looking for a longer term investment and to rent the property out then your returns can be as described above in the “what property should I buy” section. If you buy cash and don’t want your money tied up long term then look to re-mortgage and take 75% of the value back out, but you will need to wait until you have owned the house for 6 months to have access to the wider buy to let mortgage providers. Seek advice from an independent mortgage provider. Realistically, you could buy a property for say £55k. You spend £15k refurbishing it and then it is values at £80k. You can take £60k back out (75% of value) so you then only have £10k of investment tied up. You then move on to buy another property and repeat the process.
Should I manage the property myself or use an agent?
I would recommend anyone starting a portfolio to use an agent. Understanding that their fee eats into your profits, the benefits, in my view, outweigh this. They can do credit checks and get references, they will be a member of the deposit scheme, they will manage repairs etc and save you taking a call at weekends and evenings, they will also be able to deal with non-payment or damage to the property should that occur. It is worth having a conversation with the agent to see if they are willing to negotiate their fee if you agree to put all your business through them. Expect to pay initial fees for finding a tenant and then typically around 10% of the monthly rental amount for ongoing management.
For more information or just to have a chat around how property development could work for you, e mail email@example.com or call 01274 832777. The friendly team at Carlton would be delighted to help in any way they can.