I am seeing a couple of trends amongst our Edinburgh landlords – both understandable and, I suspect, likely to continue.
On the one hand, the more serious landlords are investing and buying more properties on the basis that, despite the recent changes and hassles in the Private Rented Sector, buy to let property investing is an attractive proposition.
However, on the other hand, the ‘hobby’ or ‘accidential’ landlords are throwing up their hands in horror at these changes and are selling their properties.
It was interesting for me to have this anecdotal trend borne out by evidence.
Whilst the number of rented properties across the Country is increasing from 4.9 million in 2015 to 5.3 million in 2019, the number of landlords across the Country is falling from 3.72 in 2015 to 3.68 in 2019. This means that the size of the average landlord’s portfolio is 1.44 which is the highest level it has been since records began in 2005 up from 1.32 in 2015 and a low of 1.24 in 2010 (presumably due to the affects of the financial crash). Another interesting stat is that in 2019, 73% of landlords owned one buy to let property which is a far less that the 86% it was in 2010.
So, what do you need to think about when you get into owning multiple buy to let properties.
Firstly, it is often more profitable and less risky to buy a number of properties than just one for the same outlay. Not only that it gives you more flexibility and reduces the effects from voids; your risks are therefore reduced too.
If only one property is purchased a void period will result in no income for the investor. However, if multiple smaller units were acquired the effect of one property being unoccupied is proportional to the number of properties held and a return on your investment will still be maintained.
Additionally, the overall achievable rental return is likely to be significantly higher across a portfolio of several smaller properties rather than a single investment in a larger one. In Edinburgh, for example, rent from one £300,000 property would be £1,300 pcm but from 2 x £150,000 properties it could be over £1,600 pcm.
Time it right
In general there is still an upward movement in the part of the housing market in Edinburgh that is attractive to buy to let investors and this makes property an excellent choice to consider for investment. Your return on your investment is a mixture of yield from rent and capital growth, perhaps 6% and 3% respectively, so a potential annual ROI of 9% gross.
Maximise your profit potential by adding to your portfolio when property prices are rising, but aren't running away. In Edinburgh we're currently experiencing a fairly 'flatish' sales market with prices increasing but not at an overly accelerated rate. Perhaps this is the future, but a steady 2-4% growth is healthier than boom and bust.
In addition, it's important to review the rental market as well. Indicators of good timing for growing your portfolio would be when there's competitive tenant demand and rents are on the up (as this will automatically increase your yield).
Plan and prepare
The solid foundations of property portfolio success are often down to advanced planning and precise preparation…
Before investing you need to have your finances in place, plus you will need to have an overall long-term plan. Taking advice from a qualified financial advisor as how best to fund purchases is essential.
It's important to identify why you're investing in an additional property and what you want that property to achieve. For example, is it for a pension? Are you hoping to increase your monthly income? Is it for a long-term capital growth to use in the future? Are you planning to live at the property in the future?
It's also essential to know when (and how) you're intending to exit the investment so that a clear and concise exit strategy can be prepared. Again talk to a financial advisor and tax expert before committing to portfolio growth so you can plan how to exit in the most cost-effective way.
Starting the search…
Although there is likely to be a multitude of properties available for purchase in your area not all of them will make the best rental investments so it's important to choose carefully.
When searching for your next investment, short-list several properties taking into consideration the following for each: location, price, potential renovation costs, suitability for the rental market, timescales before being rental ready, tenant demand, achievable rental return, potential for capital growth, plus where it will fit in with the rest of your portfolio.
I am happy to have a chat with you before you start your search and/or once you have got your short-list. Not only do I know the local property market but I also know what tenants want and need from a property, what's in demand and which type of properties are likely to be successful for investment purposes. In fact, as risk indicators are sometimes overlooked by those searching for a purchase, I can tell you what's wrong with a property as well as what's right.
Of course having multiple properties isn't without its challenges. Each element of the rental process will be multiplied… doubled, tripled, quadrupled etc.
Not only will you be dealing with the paperwork and maintenance of a number of properties, you will also be juggling the management of the people who live there, all of whom will have their own demands and needs.
Bear in mind too that there are new financial challenges. We're in year one of a four-year process to drop tax relief for landlords, plus an extra 3% Stamp Duty now has to be paid for each property bought for rental purposes.
So, how can a landlord make juggling multiple properties simpler?
By far the easiest way to manage an expanding portfolio with ease is to engage the help of a property management agent. As industry experts they will thoroughly vet potential tenants, troubleshoot emergencies and issues and arrange necessary maintenance utilising our bulk buying power with our regular contractors. They also understand and meet the current legislation, plus will keep on top of essential anniversaries, such as gas safety certificates.
All of the above becomes increasingly harder for a self-managing landlord as their portfolio multiplies but, if you engage the services of a property management agent, your involvement will be minimal.
Watch out for further information on this in future posts on The Edinburgh Property Blog (www.theedinburghpropertyblog.co.uk).