While everything around us seems to be falling apart, some investor landlords have devised their own ‘survival package’ and are actually doing rather nicely, thank you very much.
UK buy to let landlords surviving the credit crunchAccording to the best sources, the crisis causing havoc in the housing market and financial institutions probably won’t hit the bottom until sometime (and possibly late) next year.
That implies things are set to get a whole lot worse, before they have much chance of getting even slightly better. Doom and gloom weighs heavy in the air like a dose of old-fashioned London smog, choking the last gasps of hope from even the most optimistic of investor.
But amidst the turmoil and cries of desperation, there is a group of property stalwarts that seem to have found their own personal way of winning against the odds. These plucky few have found a way of making handsome profits by bending the standard rules of buy-to-let engagement.
Their answer to a more difficult investment arena was to devise a more imaginative approach … and, it has to be said, they have also had to work that little bit harder to achieve the same profit levels.
Bar talk
And where do you think I heard of this inspired approach – not at an expensive ticket-only investor seminar nor through the columns of a subscribed specialist magazine – no, it was actually in a back street Blackpool pub, where a group of local buy-to-letters, builders and landlords were having an informal meeting.
Thankfully my hearing is still good, despite my age, and before very long I had inched my way into the group and had become engaged in a full and informative conversation.
It struck me that these individuals had managed to turn a potential disaster into something of a success, almost exclusively by employing a resolute and gritty determination not to be beaten. In fact, they had (by accident rather than intention) formed a rather loose and informal collective … employing each other’s strengths, skills and knowledge, while maintaining individual autonomy in their various business projects and profit routes.
Interestingly, one of the most important elements that had brought this group together was the fact that only one of them was actually based in the Blackpool area originally, while the rest had ‘relocated’ their investment base when the credit crunch began biting into their own locations. Each had effectively moved into a better and more profitable geographic location, rather than try sweating it out or face the prospect of ‘going under’ at home.
Number one survival tactic
That element in their imaginative approach, even if partly by accident, is number one on my list of ‘investment survival tactics’ – always make sure you are investing in what is or potentially is likely to be the best and most lucrative market, geographically.
While many PS members follow this first element as a general rule of thumb in any event, bear in mind that most of this particular group had only moved their investment base a few miles – but the point is, they did it, and they were now reaping the benefits.
They informed me that they knew other investors that had stayed to fight the good fight in places such as Manchester and Leeds, and who were suffering mounting mortgage repayment problems, a shortage of tenants and reducing rents to boot. For this group, at least, the brave decision to upsticks and move to greener pastures was paying dividends.
But why on earth Blackpool? You might ask.
Well, the town has certainly seen better days and the unfortunate demise of the Super-casino bid has left a gaping development hole in its long-term strategy, but despite that, the rental demand is huge and, more importantly, it is consistent.
Migrating workers from the EU, struggling young couples and those seeking alternative means of employment all throng to the slightly dowdy seaside resort hoping for a brighter future … and they all need to rent, because home ownership is beyond their means.
The demand for small but adequate and affordable properties close to the sea front is enormous. Most terraced streets within a couple of miles of The Golden Mile are either owned already by buy-to-letters or have been bought by builders intending to supply the investor market. And what’s more, investors are still buying, even if owner-occupiers aren’t
Just like the big brash cities of Manchester, Liverpool and Leeds, there is an abundance of rented properties in Blackpool – but unlike those cities, Blackpool is not saturated or over-supplied. Tenant-demand remains high, even as we approach the out-of-season end of the year. I have long known about the peculiar and potentially profitable market in Blackpool, which is why I began investing there in 2007.
Many Blackpools
But there are many ‘Blackpool’s’ up and down the UK, many with very similar low-cost, high-demand elements.
All an investor needs to do is identify the most lucrative and then be fearless enough to relocate to it at his or her own speed, depending on the availability of financial resources.
Before this article descends into becoming my seventh property investment book (too many words and too little space), I will just add two more comments about how the Blackpool group have been inventive – and how they are now managing, quite comfortably, to survive the traumatised housing market.
Without cutting corners, they have managed to trim their expenses by using each other’s trade and professional contacts.
One of the investors, for example, is a solicitor by day and he agreed to offer his firm’s conveyancing services at cost, providing others in the group kept him informed of lucrative properties entering the market.
Another in the group is a builder and the others employ him and his contacts for all their refurbishments; in turn, the builder undertakes work to a pre-defined schedule, usually completing a full refurb at lightning speed and at advantageous rates.
The group also collaborated to keep each other informed of the best and most cost-effective letting agents in the area and, interestingly, they even managed to maintain a kind of off-the-record blacklist of bad tenants.
Anarchy rules
Although the group was completely disjointed and anarchic, it seemed to be operating with remarkable success. It also impressed me that even in these darkest of days in the investment arena, people were more than prepared to help each other out (and, more so, if they were also going to reap some benefits).
There are certainly lots of advantages to forming a group like this, though I suspect an informal troupe such as the one in Blackpool is hard to come by.
There are however landlords’ associations in almost every major location in the UK, all who operate in a very similar ‘self-help’ kind of way. If you haven’t already joined one, perhaps now is a good time to consider it.
The group had also devised a way of capitalising on property prices, which has gone some way to combat the rather less dramatic house price fall along the Fylde coast.
Whereas, once upon a time, they said they would buy a terraced house, ‘do it up’ and sell it on or rent it out, now they were mostly buying the same kind of property, but only if they were at rock-bottom prices and suitably laid out inside to make conversion into two self-contained flats easy and inexpensive.
What this means is they are buying at between £90,000 and £120,000, spending £15,000 to £30,000 on the conversion, then selling both units on at around £80,000 or more each. It’s capital appreciation – but not necessarily as we once knew it.
And several in the group have said they actually don’t sell the units on, but keep them and rent them out instead, because they can get much the same rent for one flat as they could for a complete terraced house. In short, this means they can double their rental return from the same unit.
It’s no wonder this group of investors are laughing all the way to the bank, while others elsewhere are holding their heads in their hands. The Golden Mile in Blackpool is expanding, it seems, and I for one applaud the plucky group I met who are helping it (and each other) to grow.
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Daniel Peacock