Most landlords who look to expand their property portfolio will be confronted at some stage with the question. Do they stay local and buy investment property in the area where they live or do they spread their wings and look to buy in other areas of the country. I’ve had several landlords and Property Hawk users come to me recently both with this specific question. Interesting both were fairly novice landlords and both were based in London. Both landlords were attracted by the relative cheapness of investment property in the North and the cash generative nature of these investments.
Power of the yield
Many landlords particularly those in the South-East and London are attracted by the relative low values of properties in cheaper areas, often in the North. Yes, it is true you can buy a house for less than 50 grand. London landlords can use the value in their property portfolio to gear up their portfolio and obtain additional mortgage finance for then to fund their purchases.
This is particularly effective for landlords looking at the income play. They can borrow money at a relatively low level of interest at around 5% APR according to the latest rates supplied by Property Hawk Mortgages.
Then, by buying property in areas of high rental demand in the north they can easily achieve a rental yield of over 8%. These property investments would clearly be cash generative from day one even accounting for ongoing costs such as: insurance, maintenance and potential rental voids.
For and against
Following on from the advice given to the London landlords on investing outside the capital and spreading their investment there were a number of key considerations to take account of. Here is my list of the For and Against spreading your investments across the UK.
1. Increase the income generating ability of your property portfolio by seeking out areas of higher rental yield.
2. Spreading your risk by investing in different areas of the country. The result is that you are less exposed to under performing the general market.
3. You open up far more investment opportunities by being prepared to invest nationally than only seeking property in your locality or on your own doorstep
4. Certain lenders such as the smaller and regional building societies will only lend on property within certain areas. By buying in their region you can potentially access these favourable rates.
5. Many buy-to-let landlords in the ‘noughties’ spotted the wave of increasing values that spread out from London. Those lucky enough to catch that wave made vast property fortunes. However, this wave of wealth only happens perhaps once every 20 years. It may not happen again for a “very very long time” so don’t bank on it.
1. Have you ever heard of the expression of “spreading yourself too thinly”? If you have your properties spread in different parts of the country you will inevitably spend more management time looking after them particularly if you are not employing a letting agent to manage your properties on a full management service.
2. Selecting property outside your home area means buying in a market you don’t know. You always risk buying in the ‘wrong’ area and over paying. You must realise that you are loosing your home advantage.
3. You may increase your net yield but if you like many who have tried building up a national buy-to-let portfolio that you will increase the amount of management time and have less control over the day to day running.
4. You will have to trust others more over managing your portfolio. Are you happy to do that or are you a control freak manager which makes this impossible.
5. There are more properties than you think in your local area so why do you need to go outside and such for better prospects unless you were really convinced of the business case.
I have looked frequently at buying in other parts of the country and abroad. I looked at one stage of buying into the Northern Irish market, London and even in China. All of these markets have subsequently out performed my local market in Nottingham. Each time when it came to the crunch I was concerned that having the geographic separation and having to entrust the daily management of these properties to a letting agent would present.
Am I being overly cautious? I worry about not being able to meet tenants, plumber ‘face to face.’ I put a lot of store in ‘face to face ‘meetings and be able to size people up. This become virtually impossible when you are at the other end of the country let alone the world.
However, an up coming change in my domestic circumstances will make managing my properties from a distance unavoidable. I will be moving to Sheffield shortly and leaving my property portfolio behind in Nottingham. Luckily it’s not a million miles away and I have a stable tenant base but managing property from a distance will very shortly become a reality for me. Who knows I may get used to it and end up expanding my property portfolio into Derbyshire and South Yorkshire. There certainly are attractive investment yields in Sheffield City Centre. All I can say is watch this space for future updates.
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