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DIY buy to let

In this article, I want to explore how you can manage to get into 'buy to let' without any help or buying in expertise, based upon a number of success stories.

Many people have made a major success of 'buy to let' helped admittedly by a rising market where mistakes can be survived. many of the major success stories however have a common pattern, and perhaps it is one that may prove of continuing success in the future.

Although many of these people have drifted into 'buy to let', when not being able to sell their home, or having bought a council house with a discount where they had to hold it for a period or pay back part of the discount, or when they have inherited a home from a parent, some have from the beginning had a more structured approach.

Don't let this article put you off for the next one will show you services available and how you can reduce risk.

So looking back what is the secret to their success

• Buying at a discount or buying in a rapidly rising market, so equity becomes available quickly.
• Choosing property where the rental income is going to be able to cover all costs and leave some over.
• Selecting or being lucky in the area and getting more growth than the average.
• Making all purchases in an unemotional way, spotting all faults and costing the corrective action required.
• In many cases sticking to a common type of property in a defined and well known area.
• Building a support team to cope with building, mortgages, legal work etc.
• Clever letting, making sure you get all rents.
• Understanding the rental market for any home purchased.

Where have these same people often come unstuck, or had less profitable experiences

• When moving into another market or area.
• When trying to move up from lower priced property to quality homes.
• When something has happened to affect the value of all their holdings, i.e. property type fault, or area problem.
• Where they have had a market change, as in central London, where demand has diminished for some property types.
• When they found the perfect pretty property and fell in love with it.
• Where they bought a bargain just because it was cheap without understanding the costs of putting it right.
• Where they have used low start mortgages assuming a property will have a rapid increase in rental value in a large new development.

What they have also learnt

• Never rely on an estate agents recommendation, or what they say, but check everything out yourself. They are employed to sell it and are working for the seller not you.
• If you are going to buy in a new area to you, or a different type of property, research the market first.
• Read the newspapers, but bear in mind that journalists, however good they are, have deadlines to meet and more articles that need writing so are not able to put as much research into an article as you could into the same subject.
• Understand all the variables and how to make a poor deal into a good one, or avoid missing good opportunities by just not spotting them.

So from this, if you want to be a DIY buy to let tycoon, you can see some of the does and don'ts that you need to consider. 

To get the best rewards you also often need to go against the trend, for example if the buy to let mood in the area is against ex-council houses, look at the costs and rental returns available, several people have found a niche here, sometimes with the property let through housing associations meaning they got guaranteed rents and no costs.

The major 2 secrets is of course in the buying, buy under value, knowing and allowing for all repair costs, and understanding the rental market for the area you have chosen really well, so you know exactly what you can get.

You have to be able to look on it as a business decision, and not become romantically involved, you cannot ever afford to be in a position where you just 'must have a property', get used from the start to the idea that, you will research and put in offers on many houses for each one that you get. 

Risk reduction

Being lucky, is one approach, making sure that you are lucky is another.

To achieve a lower risk, you need to do the opposite to what many have found successful above, and spread the risk.

This means not having all your properties of a common type, or all in the same close area. 

Winning formulas are all very well but what happens when a condition occurs that suddenly affects all or many of your properties, or their values, flooding, a mine shaft discovered, concrete rot, asbestos discovered, riots, a new road, pollution source, or other problems, and sudden unemployment rocketing in the area are a few that come to mind. However too many people buying buy to let properties in the area may cause large voids (unlet periods), and in commercial property a new shopping centre, office complex or other development, can mean many moving to it creating an ocean of empty property on the market and rents plummeting, and voids running into years.

As you get more properties the risk factor becomes more important. With a single property if you had to pay its mortgage yourself, you would probably be able to manage in the medium term, but if you had invested in 20 city centre properties in London for high end executive lets, and the market vanishes, can you pay all these mortgages yourself. Yet you may be able to foresee that this market could be more risky than  the more boring, economy, social housing where people just need a home whatever happens. 

As you only tend to hear of people who are saying how well they have done, and some areas will be better than others, if you stick to one area you may be further ahead, or behind. If you fully research and understand a number of areas and markets, you should be able to take the best opportunity of each and therefore over time do far better at a lower risk.

Some will say its not a problem as you can always sell, and while this is true, how long can you afford to hold out for the right price, or would you have to take  a heavily discounted offer. If you feel that property is always easy to sell for more than you paid for it, ask yourself why people get trapped in chains, when buying, or why in many auction catalogues there are pages of repossessions, as surely people would be better selling and paying off their lender and keeping the proceeds than being in a forced sale.

It is likely that some of the largest gains as well as the smallest will be obtained by those involved in DIY buy to let, quite simply because they will take risks that are too far from the model. Taking uninformed risks can end up with great opportunities or great losses, however if you use a quality model and understand all the variables, and have the energy, interest and time, as well as being wealthy enough or not concerned about the investment made, it can be a great game and most rewarding.

My intention is not to put you off, but to stress the importance of understanding what you are buying, its market value, the cost involved, and the rental market you are to enter. Given that you research this all fully and you create a model that is safe from the beginning, and spread your risk you will not make too many mistakes.

In the next article we look at the services that are available to help you, so you can get going faster and reduce risk.

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