So keen was I to get into the investment property market that when my first suitable opportunity became available there was no time to arrange a mortgage, so I took the plunge and bought it using a combination of cash savings and a credit card. That was in 1986.
Fortunately, I had recently returned from four years working in the Middle East where I had managed to build my savings, but explaining to the bank that I needed a mortgage on a property I’d already bought using one of their credit cards was an interesting conversation. Nowadays, I cringe at the number of mistakes I made back in the day, mostly as a result of being in too much of a hurry. Modern-day landlords take note.
The property was a three-storey Victorian house rented to six university students who usually paid their rent on time and looked after it as well as could be expected. However, I had not taken account of the frequency with which they would call requesting items such as a replacement lightbulb (seriously) or help turning on a radiator. Thankfully, I was introduced to a reliable handyman who would tackle maintenance jobs.
A pattern of random property acquisition became the norm for several years. Whenever a suitable opportunity arose, I would advise people likely to be involved pre- or post-acquisition (mortgage broker, lawyers, builders, decorators, etc.) while undertaking some often complicated financial juggling to ensure the project ‘stacked up’.
Eventually, however, I began shifting away from high-yield student rentals to focus instead on the young professional market – university graduates who didn’t want to live like students any longer. Young professionals wanted better accommodation. Mindful of this, I started buying newly-constructed properties that were likely to appreciate in value at a faster rate than the Victorian houses in which I’d been investing.
The penny started to drop. I realised that if portfolio expansion was my ultimate objective, it made good sense to have a business plan in place, as well as a group of professional people upon whom I could rely. Estate agents who could give you a few days’ heads-up when they knew about a property that was due to come to market; a mortgage broker (mine calls himself a ‘financial engineer’) who knew his way around what was still a rudimentary buy-to-let mortgage market; a lawyer you could trust and who would occasionally advise against buying. It was also enormously helpful to speak with other residential property landlords.
Meanwhile, the business plan was created with the aim of expanding the property portfolio, though it became apparent that this couldn’t be done in isolation. Account had also to be taken of prevailing and anticipated market conditions. It was impossible, for example, to make an investment ‘stack up’ as base interest rates careered into double figures and lenders were charging between 1pc and 3pc above base on their loans. Between the summer of 1988 and early autumn 1991, base rates never fell below 10.38pc, a three-year period which called for constant financial juggling and efficient rent collection. Not surprisingly, as base interest rates remained above 5pc for the next nine years, ambitions and goals changed.
For instance, it became apparent that if a property is mortgaged and the interest being charged on the loan is more than 7pc, the chances of making a handsome monthly income from it are limited. Better, therefore, to focus on longer-term capital appreciation. This resulted in me selling older, higher-yielding property and buying newly-constructed homes likely to benefit most from capital appreciation. Gradually, I began aligning longer-term property goals with a broader financial plan and began thinking of property as an adjunct to my pension.
Nowadays, I try not to make as many mistakes as yesteryear, which is easier said than done, but I continue to believe that maintaining strong links with lawyers, mortgage brokers and estate agents are essential precursors to successful property deals.
Many buy-to-let investors are experiencing choppy conditions for the first time and as I mentioned above, things could get worse. Anyone who doesn’t like it or worries about it should probably get out. For those who remain, I would suggest that buying new, low-maintenance property saves considerable amounts of time and money, although there’s one thing I wouldn’t recommend: using a credit card with which to buy.
For more financial advice, check out Peter Sharkey’s regular blog, The Week In Numbers.
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