Sophisticated investor, risk professional and numbers geek Stephen Wallis, founded the successful website Guerrilla Investors. He has kindly taken some time out to guest write on the Brickowner Blog about the changing world of property investment within the UK.
UK Property Investment
My wife and I came into a substantial inheritance a couple of years ago. I had always wanted to ‘get into property’ and saw this is a great opportunity to do so.
A friend of a friend went to a property networking group in a nearby town, so I went down and watched a fantastic presenter telling me how I could build a profitable HMO (houses of multiple occupation) portfolio through a strategy called ‘Buy Low Rent High’.
It sounded great, so I pestered him for his number at the end of the event and we were off – or so I thought.
He found us a few properties to view in the West Midlands, and we had an offer accepted on a four-bedroom HMO in Wolverhampton.
The numbers stacked up, and as I was in a well-paid full-time job at the time, we could easily get a mortgage. Unfortunately, something came up in the survey which my wife and I weren’t happy to have to rectify in the near future, and we backed out.
In hindsight, this would probably have still worked out quite well for us. There was a nice monthly profit in the deal, and property prices in the West Midlands have enjoyed some of the biggest gains in the country since then.
Next step on this adventure, we found another property we liked the look of and would have been joint venturing with a company. In this scenario we would have needed to put up all of the money (without a mortgage, as by this time I had left the corporate world), and my wife just couldn’t get her head around the idea of investing 100% of our inheritance and relying on a future valuation in order to pull the majority back out, and re-invest in our next HMO.
On reflection I think she was right, although I was keen to proceed at the time. She wasn’t sleeping much because she thought all our money would be out of the bank, I wasn’t sleeping much because I hated the fact that our money was earning 0.5% per annum interest when it could have been working so much harder for us (and we needed to find new streams of income).
Our next thought was to buy cheap single lets.
Nice and simple, no multiple tenants and bills to worry about. Just find something in West Yorkshire for £60,000, and rent it out for £550 a month. For anyone reading this who doesn’t live in the north you may have thought that purchase price was a typo. Maybe I missed at least a one off the front. In fact, that is still pretty accurate, and if you’re looking further north then you can buy a terraced house for £30,000.
Speaking of which we have also considered this, but in order to build up a nice income per month you will need to buy lots of them, maybe eight or ten. At about £3,000 in sourcing fees per property that soon starts eating into your returns, plus it’s more boilers that might break and I had very little confidence in avoiding voids (where you can’t find someone to rent the house because there are too many similar properties in the area).
One area which does seem to make sense however is serviced accommodation or holiday lets. A number of existing landlords have cottoned onto this and are earning a lot more from their single let than they were before. We even looked into this, specifically the sleeps 12 market (of which we have been a frequent customer).
People who provide this type of accommodation are, for now at least, by-passing a lot of the punitive rules which the government has brought in during it’s “attack on landlords.” As serviced accommodation is treated as a business you can still benefit from the mortgage relief, as well as put a lot of things through your costs line in the profit and loss, as you would with any other type of business.
However, as this strategy becomes more attractive, more and more people start to do it, which means supply on Airbnb and Booking.com increases. If you can’t nail down a good contract with a local company which needs to house its contractors each week, or you’re not smack bang in the middle of a location which gets a tonne of tourists, then you may struggle to get your occupancy level to a point where it earns you enough money.
Also (and this was what put us off in the end), you need to deal with a frequent turnover of customers. Sounds a bit too much like a job.
Once I came to the realisation that actually all I wanted from a property investment is:
- Hands off / armchair investment
- Doesn’t require daily management
- Little to no fees to pay
- Tax efficient
- A great interest rate (15% per annum was my target)
- Low to medium risk
I landed at the door of the crowdfunding and peer-to-peer websites.
We’ve invested across three different platforms so far and ruled some out going forward while deciding we will definitely continue to invest through others (including Brickowner).
Disclaimer: This blog post sets out personal opinions which are not capable of being applied universally; following them will not guarantee success. The content is not intended to be a substitute for professional investment advice. Always seek the advice of a qualified independent investment advisor with any questions you may have regarding any of the above. Not all the above will apply to your investment circumstances.