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“I have identified an area that I would like to invest in. However, I can’t decide out of the hundreds or thousands of properties available which is best for me. I have undertaken countless viewings that have gone nowhere. How do I work out which properties to view and then make offers on?”
This is an approach that many new property investors tend to adopt. They have their strategy and goals in place and so the next thing is to go out and find a property investment to buy. The reality is that it can get overwhelming and demoralising quite quickly after say 20-40 fruitless viewings. Perhaps even an air of desperation can creep in, resulting in a ‘just get something, anything, now!’ type of approach. I have a method of dealing with this, which is a little like peeling an onion, one layer at a time.
My 'peel the onion' type of screening approach makes shortlisting property viewings and offers simpler...although in fairness this could also filter out the odd gem on the added value front at times too - but the time investment payoff is well worth it I find.
Here is what I might do when not adopting a value-adding approach...
Have set criteria to begin with - net monthly cashflow and ROI are very good first screens for BTL. Step 1: Does any particular property get over your minimum 'hurdle rates'?
For me, £200 per month would be my minimum net monthly cashflow requirement for a single let, for others maybe less or more. The main issue to consider is providing for all costs (including providing for voids, repairs, maintenance, indirect costs and a sinking fund for longer term upgrades if possible...although this latter item could be funded in a different way), provide for potential interest rate rises over the next 2-5 years (or go for a long-term fixed rate mortgage instead) and then consider what you will do with the cashflow surplus (save it, live on in, reinvest it, etc. note: if you need to live on it, then be ultra conservative).
Based on my experience for a vanilla BTL property costing around the £100k mark £200 per month net of all the above costs would be my personal minimum, flex this according to the value range your are looking at. However, be very careful with low priced property as £100 per month in cashflow can get eaten very quickly by any number of unexpected events. As for ROI c8% is a reasonable (modest even) target to aim at. I would run my numbers based on 95%, 90% and 85% of the property asking price perhaps...more if you see a reason to negotiate the price down (long time on the market, poor condition, short lease, etc.). If it passes the hurdle tests here then move on to the next stage, which may be to view but do factor in any estimated costs of works and fees into your analysis too beforehand to get a rough idea.
If I was adopting a value-adding strategy, I would vary the above by looking closely at images and floorplans etc to find my adding value opportunity. Add in a rough assessment of the approximate cost of undertaking the works and adopt a similar approach to the above analysis to begin with.
This response is based on a fairly standard long-term buy and hold type of single BTL model...it would vary if a different strategy was favoured (e.g. flips, HMOs, etc.).
However, doing the viewings will also help make you battle hardened as well, so do a few and then you will start to get a hunch as to what will work and what will not.
I would say this - aiming at decent cashflow and / or ROI returns usually means buying property at a discount and / or in a premium rental return / low capital value location when not adding much in the way of value to a property...so I would start looking for properties where this is more probable...motivated sellers, problem properties and high demand rental areas outside of the 'des res' postcodes are some such triggers to look for I would say. Value-adding strategies can work anywhere, although keep in mind that more competition exists in premium locations, especially for DIY homeowner types.
Keep at it though, nobody said it would be easy...but it is still worth it 🙂
Richard W J Brown
The Property Voice