The average rental yield was 6% in the third quarter of 2013, down from 6.7% this time last year according to date from the BDRC Continental Landlords Panel survey and yields are down partly due the a drop in the average cost of renting a home in the UK, which fell by 4.6% in October 2013, but tenants were still paying 2.7% more than a year ago.
Peter Armistead, director of Armistead Property, points out that the recent property price rises are generally a good thing for home owners but they can be a double edged sword for investors.
He believes that with yields falling, monthly profit margins will be squeezed and investors now more than ever need to make sure they have a solid business plan which is risk management focused.
‘Investors need to carefully assess any purchases and make sure the properties they already own are operating very efficiently. If a property is underperforming then there are a few things to consider such as managing the property yourself, rather than using an agent; ensuring all the maintenance is up to date; and carrying out renovations to improve the yield,’ he explained.
‘If investors are acquiring buy to let properties, it is vital that they purchase below market value in the right area. This may mean taking on properties that require refurbishment. As long as all the refurbishment costs have been accurately factored into cash flow with a contingency budget, then investors have the potential of higher yields on nearly new properties,’ he added.
He revealed that as a property investor he has built a successful, mid sized portfolio of buy to let properties in South Manchester. ‘The most important lesson I have learned is that landlords need to treat their property as a business. Treat it seriously and get yourself surrounded by a great team of professionals who are better than you,’ he said.
Armistead Property has put together some advice to help people build a profitable property portfolio. It says that the most important lesson is that the real profit is made when property is bought, not when it is sold. ‘If you can buy a pound’s worth of property for 80 pence, then you can super charge your returns. Do not, however, think that this will be easy and do not think that someone else, for example an investment club, will hand you these deals. They won’t. You have got to spend the time and do the hard research, until you find the real bargains out there,’ the guide says.
Secondly, it advised buying for cash flow as property should be an asset rather than a liability. ‘An asset puts money in your pocket every month. When investors ignore cash flow and invest primarily for appreciation, they’re no longer investing. Instead, they are speculating on higher prices, which is akin to using tarot cards to plan your finances,’ it points out.
Thirdly is says investing for the long term is vital. ‘Once you have found a property that can be purchased below market value and that cash flows nicely, then you can invest for the long term. Buy and hold is the corner stone of many rich investors’ strategies. Despite the occasional short term fluctuations in the UK property market, the long term trend is up, due to the fundamental reason that demand is greater than supply. Don’t wait to buy property. Buy property and wait. Think long term, but act on short term opportunities,’ it adds.
Other advice includes having a cash buffer, be disciplined, avoid big risks, research the local economy, particularly rental prices, and buy in an up and coming area.
