Friday 3 February 2017

5 ways to add value to your investments in Clapham in 2017!

I mentioned in my last post that it is becoming increasingly difficult to make a living as a regular buy to let landlord. This year is the year of having to add value somehow, simply buying and parking an investment will not get you the returns that you did in years gone by. With the increased red tape, taxation and scarcity of good deals you will have to work that little bit harder in order to maximise every pound you invest.

Here's 5 ways to add value and make better returns:

  1. Multi-let
    Yes it's as it sounds, you let the same property with sharers but instead of letting it on one tenancy you let it room by room. You CAN make better returns employing this strategy, but do check the terms of your mortgage, some lenders prohibit it. Point to note is that it will be more time intensive and potentially you will have a void now and again. Not for the time poor. You will need to add value to the customer by including bills such as gas, electric, broadband and the such.
  2. Extend - the sky is the limit
    If you have a freehold house, an ideal way to add to your gross rental income would be to do a loft conversion. In most areas you can get a loft conversion done under Permitted Development or PD and get another two bedrooms and a bathroom up on the second floor. An average room in Clapham goes for £700-900pcm, so let's say you make an additional £1800pcm/£21,600pa by converting the loft. That's not a bad return on a say £50k expenditure, over 40% return on capital employed! If you have a spare £50k sitting around then it's worth thinking about (£50k won't buy you another property)! You can do this on leasehold flats too providing you own the loft, otherwise you'll have to negotiate with your freeholder to purchase the loft space, which can add to the cost. Often times it still makes sense to proceed though, although with a flat you can't do this under PD, you will have to apply for planning permission. Not to worry though, your loft company can sort this all for you. Check with the local HMO office though if the property will be more than 2 storeys, the textbook definition of an HMO is "five occupants over three storeys living in two or more households" so freehold houses would often fall under this. Some councils' definitions vary though, so please do check if you will become licensable if you decide to go down this route.
  3. New purchases - add value from the outset
    This is key for all those investors looking to add to their portfolio this year. Say for instance you were to price up a normal BTL opportunity. You do your sums and you calculate the potential return based on your input. Deposit, stamp duty, legal fees and you divide the net income (so gross rental less agency and finance costs). There will often be other things involved as well, the "set up costs" like a lick of paint, new furniture and so forth. Now here are two golden nuggets in one: when purchasing, get the seller to leave the furniture. You're probably thinking "oh it's rubbish I'll have to replace it" and that's exactly why you should get them to leave it. Because a REPLACEMENT of said furniture is tax deductible, whereas the first purchase is not. Stained mattress/broken frame? Excellent reason to replace, no? Exactly. Here is nugget number two... If you purchase the property with bridging finance, spend money on refurbishment and ADD VALUE so that your property is worth significantly more then you can refinance to a new lender and withdraw 75% of the NEW value. This means that you will, if you do the sums right, get your money back in your pocket that you just shelled out on the refurb, leaving you with that money to invest further. If by using this strategy you could leave £30-50k less in a property, even taking into account the bridging costs, this would create leverage and you can then take that money and invest it elsewhere - after all if you are looking to maximise the returns you are better to leverage. This of course depends on whether you are expanding, you could also refinance and simply ask for a lower LTV (loan to value) so that you get a better rate and pay less interest monthly. Food for thought; this will be a personal choice. Personally this is my strategy of choice as I'm aggressively expanding my portfolio and I'm looking to leverage as much as possible. I recycled nearly 60k out of my previous purchase.

  4. Refurbish your existing property
    Bathrooms and kitchens sell! Not just that but if your property isn't up to scratch then you won't be getting the best returns. If an average 3bed property can fetch a rental increase of £150pcm or £1800 per annum then spending £5000 on a refurbishment provides you with a 40% return and it will pay for itself in 2.5 years. Bathrooms and kitchens tend to last about 10 years mind, so it's not like they will last forever, but do go the whole 9 yards and raise your game. Make your property more desirable. After all the competition is fierce for good tenants - do you want to be an average landlord with an average property or do you want to be good/better/best and offer a good product? I'm not talking gold taps and marble flooring incidentally. If you want me to advise you on cost-effective refurbishments then get in touch - I'm sure you've seen the quality of my own projects so I'm happy to manage your refurbishments too if you're looking to go down this road.
  5. Work together with a fellow investor to pool your resources.
    The life of an investor can be lonely - it needn't be though. You would be amazed at how many people came to the Clapham Property Meet earlier this week to learn more about investing. If you network with other investors you will get the confidence to do things with your portfolio and your money in order to create better returns. So take action and experiment with strategies that are tried and tested by others. Never bought an ex-local authority property? Talk to someone about the pitfalls. Never invested outside of Clapham? Learn from others' experiences. Never multi-let before? There will be someone who has done it and is happy to share.

So - how are you going to add value to your investments? As a thank you for reading I'm going to offer a FREE 20 minute phone call to run through your strategy and give you some hints and tips. I'm going to limit this to the first 5 readers that respond, so if you're interested in a quick strategy pep-talk for 2017 then do drop me a line and we'll get a call scheduled in.

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