In this short video, I want to look at four different models of buy to let investing and I’m going to tell you which model I think is the best model because it’s a model which I use.
Why four? Because just to start off with we often think about buy to let as being something we do with residential property but there’s absolutely no reason why you can’t buy to let with commercial property.
I think you need to be very, very careful of that because a commercial property is almost certainly going to be more expensive in terms of cash than a buy to let residential property and you’re probably not going to get such generous lending terms from a commercial lender and there’s all sorts of inherent risks with commercial property which you don’t get with residential property, which I won’t go into now but it just happens to be the case. So that could be model number one.
Model number two is residential buy to let investing and this would be buying a property, putting a tenant into the property, collecting the rent, and then hoping that at some stage the capital value of the property goes up.
And this is a model which many would-be investors use, many investors who don’t know there are other ways of doing it, many investors who perhaps haven’t really thought about what they’re trying to achieve or how the market actually works. And you know if you buy a property and you hold it for long enough then over time one would hope that the capital value is going to go up. But I wouldn’t call that investing, I’d call that speculating. As we’ll see in the next model there could be issues around cash flow and paying for the property anyway depend upon where you buy it. So it’s a relatively unsophisticated form of investing.
The next model is slightly better because that’s buying a property, putting a tenant in, and making sure that the property is cheap enough so that it has a high enough return so that once you’ve paid for your expenses there’s a surplus cash which is effectively income for you which you can then have.
That’s okay as a model, it works but you’re going to have to think about where you buy because if you want to buy in London or the southeast then that model’s probably not going to work because the returns are going to be too low. One of the big struggles about buying in a high-value area, like in London or the southeast of England, is that the returns are so low that you’re not going to have a surplus cash and you’re going to be struggling to break even. You may even not be able to break even and you may have to subsidize the property in which case I’d say is that really investing? If you’re just hoping for capital growth again well again I’d say that is speculating.
So the last model which is the model which I use and which I prefer is to buy a cheaper property, usually in a cheaper area, where I can buy a cheaper property at what I would hope to be a bargain price and then add value. Usually then adding value is by adding a new kitchen, a new bathroom, redecorating, maybe upgrading the electrics, maybe upgrading the heating system if it needs it, but principally it’s going to be bathroom, kitchen, decorations, carpets and I can then add enough value so that after six months I can then refinance the property and when I refinance, if my figures are right, I should be able to get all or at least a lot of the money which I’ve put into the deal back out again to use on my next deal.
So that would be the best way, in my world that is the best model of buy to let investing but there’s different models, and which one’s right for you will depend on what you’re trying to achieve of course.
If you found this video useful please like, follow, and subscribe, and then we can keep in touch and I can send you even more great content.
And until next time, here’s to successful property investing.
Peter
Peter Jones
(ex) Chartered Surveyor, author and property investor
https://www.ThePropertyTeacher.co.uk
PS. By the way, I’ve rewritten and updated my best-selling e-book, 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:
https://www.ThePropertyTeacher.co.uk/the-successful-property-investors-strategy-workshop