King of BTL Speaks
Landlords who are looking at hitting the big time when it comes to property investment will look at one couple in the UK with mouths agog.
Fergus and Judith Wilson two former maths teachers have successfully ridden the buy-to-let wave over the last two decades to build a buy to let portfolio of 900 properties worth £250m at its peak.
Now the couple have decided to sell up and take it easy.
I have spent several mornings chatting with Fergus and gleaning some of his pearls of wisdom, gained from over two decades of investing in residential property and several more decades in business.
Firstly, he puts much of his success down to basic common sense. Fergus has been appalled at the way some investors allowed themselves to be duped into buying over priced investments in places that they often had not even been to before buying properties off plan.
His philosophy is to steer well clear of the ‘middle men’ and ‘wheeler dealers’, peddling illusory fortunes. In his words ‘don’t believe estate agents’ or their ilk. If somebody is trying to sell you a fantastic way of making money, a landlord has to ask themselves WHY!
Property Investment Strategy
Fergus’s property investment strategy is simple but well thought through.
His analysis is that 61% of the population live in houses. Two bedroom, mid terrace houses are the most popular properties in the UK. To his mind this says a lot about how people like to live.
His analysis is that people “rent what they can afford but buy what they aspire to” which is on the whole a house.
In his view landlords can be separated into two categories, property investors and professional landlords. Professional landlords are those landlords that have a substantial portfolio of properties and aim to live off the income generated by this portfolio. The other type, which comprise the majority of landlords are property investors. This class of investors have an other income source and aim to sell their property for a capital profit at some time in the future. In these cases many landlords will be prepared to accept no or little income from their property investments with rents generally covering their outgoings in the form of buy-to-let mortgage costs and other expenses.
His view is that when a landlord comes to sell a house they will on the whole be looking at selling to an owner occupier and therefore some one buying a home not an investment. A landlord selling an apartment is more than likely be looking at selling to an investor who is driven by looking for a good deal and a high yield.
His advice for the vast majority of landlords looking at building a small portfolio, the so called property investors is to “buy houses not flats”.
We would agree with Fergus’s analysis. One thing that many investors in flats have overlooked in their dash to invest, was the drag that expensive service charges can have on an investor’s net income. A management charge of say £100 a month can easily knock 1% off a landlord’s net yield. Those landlords with a freehold house will not have this expense.
Obviously, landlords in London are unlikely to always have the option to be able to invest in a house, but landlords with the option should seriously consider the merits of the humble terraced house before deciding on where to park their hard earned cash.
Getting in good tenants
Fergus is adamant about how you get in good tenants.
You need to reference tenants carefully.
If the reference then comes back and shows that the tenant has failed to pay their rent before, then his advise is regardless of any excuses, to steer clear of them. They have defaulted on their rent once, they will do it again!
Where the credit reference shows that the tenant maybe struggling to afford the rent. This may not be such a problem. What a landlord needs to do is be pragmatic. His advice is to consider taking up an amount of advanced rent.
How this works is that, say the rent on a property is £700 a month but the reference shows that the tenant can only afford to pay £650. Rather than rejecting the tenant, the landlord should be pragmatic. They can offer the tenancy on condition of an advanced rent payment. So his advice is to get the tenant to pay the difference of say £600 on a 12 month tenancy up front in the form of advanced rent. This way the monthly rent is still affordable to the tenant on an on going basis thereby minimising the likely hood of missed payments and rent arrears.
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His final tip is probably the best.
If you are going to invest in property do it because you enjoy it. Only when you enjoy doing something are you likely to be prepared to put in the necessary effort and time to make the whole thing a success.
The grandfather clock chimed as if to signal the end of my audience with the ‘King of buy-to-let’.
My first and possibly last contact with royalty; but what proved to be a highly instructive session at that.