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Broaden investment horizons for best returns

Wednesday 05 April 2017

Landlords who want to build their portfolio should broaden their horizon beyond the five miles around their own home and explore different types of property, experts have advised.

Speaking at Property Wire’s Future of Buy-to-Let panel discussion Paul Mahoney, founder and managing director of Nova Financial, said London – previously a safe haven for investors - was becoming a less viable option for those looking to build a portfolio as yields have not risen in line with prices. The exception to this was renovating a property to add value, he added. 

Most of his clients have recently looked to invest in the North West of England. “You can borrow at 2 or 3% and make yields of 7 or 8% - it’s a no brainer to be looking at those types of options,” he said.

His advice to “broaden your horizons beyond a five-mile radius of your own property” concurs with analysis of by Simple Landlord Insurance which showed a fifth of landlords live within a mile of the property they rent out and a further 46% live between one and 10 miles away.

Senior underwriting manager Andy Wynne-Jones added than 87% of Simple’s customer base rent out detached houses or bungalows. “We expect more diversification with a rise in HMOs and mixed use properties,” he said. 

Wynne-Jones advised investors looking to invest further from home to conduct extensive research about the area, including checking whether the property could be affected by flooding and subsidence.

But some experts preferred to keep their investments close to home. Richard Blanco, a London-based investor and National Landlords Association representative, said he would never buy outside of the capital. “I’m traditional in that I buy close to home, want to be within half an hour of the property and value the relationship I have with my tenants,” he said. “It means they’re more likely to look after the property and less likely to fall into arrears because they know me.”

Blanco said some areas in London were still worth looking at, such as Brent Cross, Lewisham, Old Oak Common, Croydon, and areas on the new Crossrail 2 development.

Tony Gimple from specialist tax advisers Less Tax for Landlords, said his investment strategy was to buy in low capital areas with high yields and make money from the property as it rents out, rather than to invest for capital appreciation. “My strategy is always to buy the cheapest house on the dearest road, do it up and rent it to the richest tenants I can find,” he said.

Focus on yields

The panel agreed that assessing the yield of a property is more important than before. 

“Growth in value is based on sentiments that you can’t control,” Gimple said. “Rents and yield are something you can control. Once you have the income from your rent you can turn it into capital 40 ways from Sunday.”

“Our advice is to borrow as little as you can, maximise your rents as much as you can. If you get anything when you sell it that’s a bonus.”

Blanco agreed that yields would come much more into focus this year because of changes to buy-to-let lending rules. NLA figures show that the average rental yield is currently 5.8% and that 84% of landlords make a profit, he added. 

Confidence

Ultimately there is a lot of confidence in the future amongst buy-to-let investors. As Simple Landlords Insurance’s Landlord Voice survey showed in August, some 32% want to increase the number of properties they let out in the next 12 months, and 88% still plan to be a landlord in two years’ time. 

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