Why do so many investors start with buy to let?
I suppose buy to let is the foundational entry point for property investing. Most people understand the concept behind buying a flat or a house and then renting it out to a tenant.
One of the great things about buy to let is that there are different ways of doing it (and I have covered this in other posts, so I’ll only do a quick summary here).
You can keep it simple. You can buy a house or a flat which needs very little doing to it, and you can put a tenant in and then that can be it.
Or, if you want to do it the way I do it, you can find a house or a flat which needs some work doing to it so you can add some value. Then, after you’ve finished the work and added the value (usually by way of a simple refurb) you can let the property, and then refinance it and you can get a whole chunk of money back out on the refinancing.
That is a concept (often referred to as BRR or even BRRR) that works really well with several property strategies, and not just buy to let. So one of the benefits of starting with buy to let is being able to cut your teeth and try the BRR concept and work out how you can do it for yourself, and get the proof that you may need for your mindset that it actually does work before you scale it up onto more expensive strategies.
But there are other practical reasons why many investors start with buy to let.
First and foremost, many of the other property strategies require more cash. As an entry point into property investing, buy to let requires a more manageable amount of money to get you started, before you move on to the strategies like HMOs and commercial conversions.
For example, if you are going to develop an HMO, it can cost £40,000-£60,000 to convert a cheap, 3 bedroom terrace house in a northern town into a 5 bedroomed HMO with on-suite bathrooms. I know that because I’ve done it. And, of course, that figure doesn’t include the cost of buying the property.
But even in this day and age, if you know where to buy, you can still buy a buy to let and refurb it, and all for less than £100,000 all in.
So, by comparison, buy to let is a relatively cheap way to get started in property.
Please don’t misunderstand me. I use the word relatively deliberately, and I am not saying buy to let is cheap in an absolute sense, because even a cheap buy to let property is going to cost many £10,000s.
But in a relative sense a buy to let is a cheap way of trying property investing, to see whether you like it or not, and for getting used to the idea of dealing with agents, getting used to dealing with solicitors, brokers and using it to build your team. And if you do find that you don’t like property investing for any reason, then you haven’t taken on £100,000s worth of debt
Another practical reason why starting with buy to lets can be a good idea is because, when you do start to move on to other strategies like HMOs, many of the specialist HMO lenders will like you to have experience in investing already.
Many would like you to have a couple of properties under your belt, so you can show a track record of being a competent investor, and a competent landlord. Not all lenders require this, but many do.
So, starting in buy to let will often increase your access to the finance for the ‘bigger’ strategies.
When you think about it buy to let is just a great strategy so why not start there?
I know that there are a lot of different strategies in property at the moment, and there is a lot of buzz around a lot of those strategies. Don’t get me wrong, those strategies are good and I am not saying they are not, but as a foundation for ‘building your wealth and creating a portfolio’ buy to let is fantastic.
Obviously I can’t give financial advice but if you are thinking of starting in property I suggest that you research and consider buy to let.
And once you start in buy to let, even if you later add new strategies to your portfolio, I would keep the buy to let going as well.
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