Silly question from a novice property investor…Really?

http://www.ispeech.org

Today's feature is inspired by a reader's question on the Property Hub Forum, which goes as follows [edited]:

."..Although I haven't fully formed goal strategy yet, however, I do know I want to be a hands off landlord. I’d also prefer to buy new(ish) properties and am looking to rent unfurnished to young professionals and or young married couples.

...If I am to get maximum rent and to avoid voids as much as possible, then what should I include in the property as I haven’t a clue? As I’m looking to rent unfurnished, should I include white goods? What about the basics like curtains, lights and light fittings, carpets…etc? What about the décor, I know everyone says natural colours but does that just mean slapping magnolia paint all over the house?

I want to make sure my tenants have a great experience whilst they are staying in one of my properties, obviously this has to be within a set budget, therefore are there tips to ensure their first impression of the house and their subsequent stay is an enjoyable one?"

And here is essentially my response to that post:

"The only stupid question is the one not asked 

OK, some elements in your question sparked something in me...

First the reference to goals etc. I would advise you to set some goals before you dive into what colour paint to choose to be perfectly honest with you. If nothing else, having a return on investment (ROI) goal on your cash invested will actually help you to decide on some of the points that you raise. I have literally just drafted a section in my Investor Toolkit addressing property metrics and here is what I wrote to define ROI:

Return on Investment = net annual cashflow / total cash invested into the property

Note: the net annual cashflow is the total annual rent less all of the operating costs of running the property (mortgage interest, letting fees, insurance, maintenance, voids, etc.). Total cash invested into the deal calculated by adding up ALL cash costs (not added to a mortgage) associated with purchasing the property. These could include cash deposit (or full purchase price if not using a mortgage), refurbishment and conversion works, broker, lender and solicitor fees, sourcing fees (if applicable), etc. The idea is to capture all £s invested in pure cash terms.

The result will be a percentage and you can then set yourself a target to aim at with your investments, property or otherwise.

This is relevant as there are two sides to the equation - money in and money out. You correctly identify that there can be a dependency, so granite worktops, oak floors and expensive fittings can indeed cost a lot of money but could also command a higher rent. Equally, minimum spend and poor quality finishings could lead to a longer time to rent and / or voids between tenancies and lower rental returns. It is a trade-off.

I would suggest a happy medium therefore, 'OK' is good enough most likely as long as it is clean and fresh. As for appliances, young professionals [or young couples] may not have them and so this may be something to consider providing them and the total spend on 'white goods' (cooker, fridge, washer) should not exceed around £750 if you don't want it to. Equally, providing them opens up access to a wider market but what you could consider on your first time let is 'white goods optional' in the advertising...you never know, you may even be able to negotiate a slight rent increase if they are provided as the tenant will know what they are worth 

Paint and carpets / flooring should be neutral yes, so magnolia (or similar) & latte-colour carpets will be fine. Curtains or blinds are also preferable but I have let without myself. Having then again maximises the number of potential tenants that would consider taking on the property, so helps with demand and pricing.

I always look at the ROI with these things - how much will I get back in net rent by spending the money, some things are more or less essential [e.g. light fittings], or at least a minimum standard to achieve a reasonable rent and letting within a reasonable time - [the property] should not be on the market for more than two weeks, if so then something else is wrong.

This brings me to my final point - rent return and voids are not only a factor of the standard of the finish...they are a factor of the local rental market and target tenant group. This means selecting the best area for your property in the first place. Check the average time to let in several areas, do a comparison between lets available and lets agreed to see the supply side, look at comparable listings and see what the standard of finish is, how long on the market and the advertised rent. Most of all, select an area using what I call my 'STAR Criteria' - this means:

• Schools - here could mean post-grads or newly graduated young professionals but may not apply also
• Transport - good public and other transport links within 10-15 mins of the property ideally
• Amenities - shops, bars, coffee shops, restaurants, public services, etc.
• Revenue - jobs, inward investment, etc.

These STAR Criteria will have a high bearing on the long-term success of your rental, including rent achieved and time to let [and some will have a bigger bearing than others based on the target tenant]. " Post exchange ends.

This is actually a great series of questions and not stupid at all. It reveals so many things on so many levels.

• What standard is good enough for a rental property?
• What is necessary vs. desirable?
• How do I figure out whether it is worth the extra spend or not?
• What am I looking to achieve through property?
• What do different tenants, in different properties (or even locations) actually expect?

These are all questions essentially raised by the original poster and are questions we should always ask ourselves when looking at property investing and individual investments.

I could have elaborated further in my response and spoken more about having a real purpose to investing, setting goals aligned to the purpose but also our personal skills, preferences, lifestyle and of course available funding. I could have gone into the merits of different sectors of the market, an array of different investment strategies and of course the responsibilities that come with being a landlord...again all relevant and worth keeping in mind.

If I were to summarise the whole idea of this exchange, it might be to say this:

That we need to adopt a professional and businesslike approach to our property investing decisions. It is a business, we are offering a service and it usually involves a long-term time and capital commitment before we truly see our investment 'payback'. It is not as simple as: see a property - buy a property - rent a property...that's going in blind.

Therefore, I give lots of credit to the reader for posting this question and attempting to learn from others that have been there before them...this is an essential part of our property investing development...it's called RESEARCH and sometimes is easily overlooked when we get the excitement and buzz of a new adventure like investing in property.

Research will cost us some time and perhaps also a little money but equally it could save us a whole bunch of pain if we take our time and 'sharpen our saw' as Covey would say. So, for me - no, this is a not a stupid question...in fact it is a very wise one indeed!

Does anyone have anything they would like to add?