In Part one I spoke about how I first started buying property to let and detailed some of the many mistakes that I made. It’s important to note that even though I had no real idea what I was doing and even though I made a number of mistakes, the overall outcome is pretty positive with a reasonable portfolio of decent property. I’ve not bought any property for a little while and recently started again.
And this time I started with the knowledge of all the mistakes that I made. If you’ve not read Part one and you’re thinking of buying some property yourself, I would strongly advise you read that part first. I also have to say just in terms of disclaimers that the suggestions I’m putting forward are descriptive of what I’ve done and I’ve found to work or not work. You would of course be well advised to check your own tax situation or personal situation with your accountant which was one of the first things I did on this occasion.
In this blog I will set down some of the key steps I now take when sourcing and buying and renting property. I turned it far more into a machine and it’s considerably more effective than it used to be when I randomly bought properties all over the country. So the first thing to set out is why you actually want to buy property.
What are your reasons for wanting to buy property? Now when I first did this some years ago, I had a vague idea about buying property holding it for 20 or 30 years. It then being worth a lot more than I paid for it and being able to cash out a lot of money.
My aim at the moment is to do that but also make some income along the way. And that means I need to be able to buy and hold and earn money from the properties in a tax efficient way. So the first stage for me was to sit down with my accountant and explain what I wanted to do. Now I don’t know about the tax jurisdiction that you’re in but in the UK recently (2016) the rules changed and for many people it may be better to buy your property through a business limited company. That’s a really simple thing to do but you need to understand there are benefits and there are downsides to buying this way. You would need to do your own research on which is the best for you.
And what I’ve now got is a system that the HMRC (UK tax authority like the IRS in America) is absolutely happy with. You don’t want to start and then realize you are building up a liability further down the line. Do your research, work out why you want to do this, then put your plan together.
Identify the area where you want to buy property. Now I now have a very different process from what I used to do. What I used to do was to find the cheapest property wherever it was in the country. That would seem sensible because if you buy cheap property then you can buy more of it because you can make the money go further. But the difficulty is I’ve got property now which is all over the place.
Instead, identify your key area. Depending on who you believe and what you read, you might say that’s within 3 miles of where you live or 5 miles of where you live or 8 miles of where you live. It doesn’t really matter but it’s somewhere that you can get to in a reasonable easy time frame and have a look at your investments. So for me all of my property is now sourced within a town 8 miles away.
In that town, I have just two areas where I consider property. Now, if you think about that it makes a lot of sense. You’ll really get to know the area; you get to understand the prices; you get to understand where the property comes up at a good price, a terrible price, you’ll also learn the areas that you want to avoid.
I also only look at 2 or 3 bedroom houses and for tenants I want normal people, blue collared workers, people that probably have jobs, are respectful of their home and take a pride. They often have family in the area and will want to stay, so long as I look after them
You need to find some agents where you want to buy your property. And you’re going to do all this even before you look at houses. So having established the areas that I thought looked good, my next stage was to email the first four agents that I found on page one of Google in that particular area.
I learned a really useful technique doing this. What I used to do was do the Google searches; the comparison shopping; find what I think was the best one and then email asking to speak with them. The problem with that is that all the pressure and all the effort then is that one agent to be really good. So I now have a slightly different process which I found incredibly effective. I give my virtual assistant (VA) the post code that I want to check and I say go and find 4 agents and email all a simple request that you want to find some rental property. I ask them to answer a few simple questions like “What are the best areas?”; “what are the sorts of places that are good?”; “what are the council doing to support landlords in this area?” and so on…
Now the last time I did this, off the four that went out,
- Did not reply
- Replied, details below.
- Replied – asking for more details, which we sent, then did not reply.
- Email returned as “On holiday” to a date that had already passed!
Number 2 then the clear winner in this process, and not only did they reply quickly, they answered our questions, and asked what else they could do to help.
See, what I love about this process is that you get to see REALLY how the agent responds and how seriously they take business. This process de-selects some providers, without them even realizing! If they don’t even bother to respond to your first email, that’s fine. Offer it to someone else. If they reply and it’s poor quality reply, eliminate them. If they reply and you’re happy, great you take a stage further.
I went to see this agent and they absolutely fulfilled all the criteria that I wanted. Bear in mind all the mistakes that I’ve made that I wrote about in the first part of this post here. I was able to show the agent all the properties I was considering and get a professional view on pricing, desirability of the area, rental rates and a lot more.
That was absolutely brilliant and what’s more within 3 days, she had sent me reports on the properties I’ve been looking at and had a comparison prices for what I could expect to pay elsewhere which would come very useful later on. Finding a good agent is key to your success and this is a stage you put in place NOW.
Very similar in terms of the agent process above, you’re going to need a conveyancer. This is a solicitor who specializes in buying and selling houses. I did exactly the same thing for conveyancers and strangely the numbers were identical. Two didn’t even bother to respond. One came back and asked for more details which we did and they didn’t respond …!
And just one came back very, very quickly. One thing I’ve learned buying property is that solicitors in this particular part of the law are really poor. They don’t get back when they say they will. They don’t meet deadlines; they make mistakes. So what’s useful is to be able to set up right from the beginning the way YOU want things to run, not THEM.
“I’m going to be doing this regularly. If at any stage you let me down or make a stupid mistake, I’m going to drop you and move on to another one.”
Solicitors aren’t used to being treated like this. Usually houses are a big one time deal. Every 4 or 5 years at most. So they hold all the power. This is not the situation that we want to be if we’re going to be landlords and buying property regularly. We want the solicitor to understand that they are supplying us with a service and if they fall short we will swap them for another provider.
I’ve already spoken about going for a number of agents and a number of conveyancers. We’re now going through the same thing with the properties. So assuming you’re using something like Right Move you’ve identified a number of target properties, you’ve run through them with the agent. You know how much they should sell for now. How much they will sell for a after a refurbishment.
So our target is to get a property at 75% of its full price.
Let me explain and I’ll use round numbers to make it really simple. Let’s assume that you found a road that’s absolutely in the center of your target area. Your agent has confirmed properties there will rent and they will rent quickly which is what you need.
You might find a property that is priced at around 80,000 pounds in that road because it needs a bit of tidying up. But because you’ve done the work with the agent you know that properties in that road sell for about 100, 000 pounds when they’re all tidy and refurbished. Your aim then is to be able to buy the property for about 75,000 pounds. – 75% of the finished price. But one of the key things to remember, you don’t need to get that gap by just lowering the price.
The other way you can get that gap is by increasing the value of the property. So it could be that if you were to do some basic refurbishments inside but create an extra room that would increase the value of your house from 95,000 pounds to 100,000 pounds. So even though you might need to drop the price when you’re buying it. You might also be able to increase the resale value of the property. This is going to be important for this reason. Your aim is to always get that gap. You really want if you can 75%. Why is that? Well, because the process that I’m using is this. I’m using one fund of money to buy a property. Having bought it, I then get it refurbished. Once it’s refurbished and it’s now worth more than I paid for it, I then want to mortgage that house.
Mortgages in the way that I’m getting them through a company will be up to 75% of the new value of the house. So you can say, if I can buy a house and have it refurbished with my own money for 75,000 and it’s now worth 100,000 I can mortgage it. And once it’s mortgaged at 100,000 pounds, the mortgage company will loan me 75,000 pounds. What I’m then able to do is to get my original 75,000 pounds back so I can use it on my second property and my third property. .. And so on
It’s very simple but might take a couple of re-reads to see exactly what I mean.
In the same way as starting contract with multiple agents and conveyancers you are aiming to be looking at perhaps 3 – 6 houses, so you can make an offer on all of them if you wish. I’m not suggesting you’re insulting or you’re rude or you play hardball. Just that you are a professional. This means that rather than finding the ONE property you think is perfect, then hoping it comes through, you can keep several options live.
And it’s entirely fine to be able to say;
“Okay I know you’re asking 85K for it. It’s been out for 6 months I can’t give you 85K for it. How serious are you about selling this?”
Some sellers won’t need to lower their prices, some will be upset, some will be interested in a small drop, but because you are looking at several deals at once, at least one will be sensible, and when they realize they have not had enough interest in the listed price and will want to talk properly about the price.
So all of a sudden you ask 4, 5, 6 deals, one of them might come through the level that I want and the price that I want. Now I’ve bought somewhere, I’m at …
I’m going to get the builders in as quickly as possible. I know that I can trust these builders because I found them through my agent. And you remember I spent quite some time to find my agent. These builders are going to be tasked to go in and do a job that is “good enough”. They’re not doing the finest house work known to man. They’re doing enough to make it decent, clean and ready to rent that’s it. They’re also going to do it on an incredibly tight timescale to a good standard to an agreed budget.
As before I’m going to have 2 or 3 building companies ready and any time that any of them let me down they will, they will be dropped in favor of another company – so I will move to another one. It’s really important again, we’re not being cruel about this. We’re just being professional and efficient and this is how it’s going to be if you want my business.
But that runs two ways, so one of the things that I do when I find a builder I tell them something that they never ever hear, from anyone else.
“On the day that you finish, assuming you finish within the time that we have agreed, and once we have gone around those little jobs that need doing I will pay you in full on that same day.”
Builders never hear this. And what’s more, they never get paid on time. Imagine how powerful that is with one of your suppliers. You are setting up a contract which will run in the background of their minds when they are working for you.
You do a good job for me; you do what you say you can do and you work to the level that you say you can. You’re efficient and you’re fast. And in return, you get paid the very day you finished the work.
No one offers that. So I do and you know what? It really builds a massive amount of trust and support from the builder. Use this yourself- but MAKE SURE YOU PAY WHEN YOU SAY YOU WILL – you get NO SECOND CHANCES if you mess this up.
Finally stage 7. I’m going to remortgage the house. Because it now looks clean, decorated, ready to live in, and because I did the work with the agent initially, I now know, taking our earlier example, that 3 of the houses in the very same road sold for around about 100,000 pounds in the last 3 months, and mine has so far cost 75 000.
I also know that property in the area rent out at 550 pounds per months. So when I go to the mortgage company, I’m able to say look at these comparable. And it’s not me telling them what I think the property will go for. It’s professionally presented documents created by the agent with their logo on, their details, and their full statement.
The property gets mortgaged, the money comes out and I’m free then to go back to perhaps one of those 5 or 6 that haven’t yet replied and said yes or any new offers that have come up.
Those are my 7 stages I use to buy a property and it’s a really simple, strong, powerful, system that you can just work day in, day out. Love to hear your comments.