We all know that over time, things change. The market changes, laws change and even the way in which we do things can change. What worked last year might not work this year, and so it’s important to keep an eye on the different types of strategies that are out there.

As such, over the next few weeks I’m going to look at the different ways of doing property and the pros and cons of each. If you are a seasoned investor rather than a novice, please don’t look away – a refresher course is always good to progress your education so please keep reading.

This week, we are going to start right at the bottom of the pile with Buy to Lets. Now, when I say “bottom of the pile” I don’t want you to think I’m referring to buy to let as an ineffective strategy. This is certainly not the case, but it is probably the most “simple” strategy.

Nevertheless, there are nuances to it (and there are more sophisticated ways of doing it) but for today, I’m just going to consider basic buy to lets and the variations on this theme.

In very simple terms, buy to let is about buying a property, letting it out to a tenant and collecting the rent. However, there are many different ways in which this can work and many different choices which we need to consider when pursuing this strategy. For example, do we buy the property using a mortgage or do we buy using 100% cash?

I would probably never suggest buying with cash – I’ll go into this in detail another time – but aside from the reasons ‘why’ this would not make good ‘investment sense’, for most people, it would take a very long time and probably be nearly impossible to get the funds together.

Although you can find properties for maybe £50-70K up in the North of England – which in comparison to say, London, is very cheap – this is still a lot of money. Even a relatively cheap property such as this is a relatively large amount to come by, so it’s likely that most of us would use a mortgage instead.

As such, a nuance could be whether we use an interest only mortgage or a capital repayment mortgage. If you’ve been reading my posts for some time now, you’ll know that received wisdom tells us that if you’re a serious investor, you should use interest only. However, for others, buying with a capital repayment mortgage would work to meet their strategy.

Some individuals choose to opt for a capital repayment mortgage so that they can buy a property, find a tenant and essentially have the tenant pay their mortgage for them. Assuming that the rent is greater than the mortgage (which is how it should be otherwise they probably shouldn’t be buying the property in the first place), then the tenant would effectively be buying the property for them. So, in this sense a capital repayment mortgage can be a great way of using property almost as a savings plan. (I personally wouldn’t go down this route, but that’s a topic for another discussion).

Then, another variant could be buying at below market value. Many investors make buying BMV part of their strategy so as to maximise the return on their money invested. However, other investors choose to pay nearer to the full asking price.

Not everyone who goes into property is concerned with getting every last point of a percent of return from their money – some are just content to buy property as a place to store their wealth. (Just take a look at the Sunday Times Rich List, for example. There are many successful individuals who have made their money in other industries but who use property as a vehicle to store their wealth).

This is actually more common than you may think. A few weeks back, I was chatting with an estate agent in Nottingham who revealed to me that many of his investors do just this. Many are London-based and are not worried about negotiating the best deal possible. Instead, they pay full asking price on properties they have been assured are in a good location and have stable, modest yields. In essence, these investors just look to park their money somewhere safe in properties with returns that are pretty much ‘good enough’.

Now, this may be something that you choose to do. You may be happy to buy just one or two properties or a property in an adjoining street so that you can manage it yourself – and so yes, you may choose to pay full asking price. Equally, you may be content with just storing your wealth in property or you may choose to take out a capital repayment mortgage and have a tenant pay down the mortgage for you.

All of these are good things to consider, and what you decide to do will ultimately depend on your investment goals. However, there are OTHER things you can do which can make buy to let investing far more nuanced and far more exciting – and this is what we’ll be discussing next time.

Here’s to successful property investing

Peter Jones B.Sc FRICS

By the way, I’ve rewritten and updated my best selling eBook, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same. For more details please go to ThePropertyTeacher.co.uk

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