I’m not sure, but I may need to throw up an extra disclaimer before dragging your corpse through this one.
My concern is that if the wrong type of idiot misconstrues my ‘pedestrian ramblings’ as savvy financial and future-planning advice, they may feel obligated to unleash a “no win, no fee” blood-sucking Lawyer onto my grotesque hairy back if it all goes to shit.
So here it is…
I’m not qualified to offer financial advice. I’m not offering financial advice or trying to better your future.
I don’t care about your future, screw your future.
The following content is based on my own experiences, nothing else. What works for me may not work for you. In fact, assume it won’t work for you; assume my advice will lead to crabs the size of golf balls leaching off your hairy nips xoxo
Hopefully that should protect me from any ambitious opportunistic piss-weasel going all-American on me by suing the living crap out of me, after losing their retirement pot on an allegedly “low-risk” gamble.
We good now? Cool :)
Landlords are worried about sinking!
In my most previous blog post, the one where I collapsed into my favourite position, down onto my knobbly knees, I surrendered to the pressures of being a landlord today by withdrawing any further interest in expanding my minuscule BTL portfolio… for now. I mentioned how increasingly difficult it is becoming to turn a profit as a landlord in today’s climate. The ‘financial reward’ to ‘effort/stress’ ratio is becoming depressingly shit.
It’s still possible to bank stacks of cheese through the means of landlording, but it’s not as easy as it used to be. It actually requires more time, effort and capital (I’m ignoring the “no-to-little deposit” schemes, because they’re as tragically ridiculous as they sound, if not more).
Spare me, I’m not interested in more work for less reward.
Unfortunately, I don’t really see it getting any easier with the looming inevitability of interest rates rising, and with the incoming tax relief reductions on mortgage interest payments, which was proposed in the Summer Budget by the Chancellor of the Exchequer, George Osborne. I have no idea what kind of person he is, but he looks like a smug, pompous twit. Agreed? Good.
I’ve already taken note of a few fellow landlords showing obvious signs of concern and desperation because of the much anticipated troubling times ahead. I’ve also glanced over at the
bitter assholes anti-landlord brigade rubbing their mitts together in joyful anticipation of empires falling and landlords suffering. They’re pissing their crusty pants with excitement like it’s Christmas Eve.
Of course, many landlords will go unscathed and continue to prosper and live perfectly ordinary lives, just like I did after flushing out all the ghastly infections I caught from my amazing trip to Thailand in 2010. However, we may find the rest of our kind scratching around in coffee shops, ass-up, looking for spare change in-between the sofa cushions. Better yet, dancing in front of me in a nasty little Gentlemen’s club, collecting the loose change I toss onto the stage, while wrapped around a pole, hanging upside down.
Why I’m not worried!
The one true consistent element about the property market is that it goes through a natural cycle of ups and downs. Property Investment 101. Basic shit in its truest form.
I’m not specifically talking about property crashes or booms, I’m also talking about the every day swings, like rent arrears and increased operational costs, which can both account for busts on a individual level. While on the flip-side, rising rents and tax relief can mean booms and create opportunities for lavish spending on useless and pretentious garbage that no one will ever need. Speaking of which, my friend recently purchased a replica florescent pink “hoverboard” as seen in the ‘Back To The Future’ movies. Dumbest shit I’ve ever seen; it does absolutely nothing and it’s too ugly to hang on a wall. I despair.
Anyways, so what’s my point? You’d be foolish to enter this game without being prepared for the busts, whether it be on a economical or domestic scale, because it’s eventually going to happen, shits going to hit the fan. Running and hiding is futile, but nonetheless, people consciously neglect the looming dangers (for whatever reason). I call that high-risk gambling.
I suppose some may throw me into the low-risk category, and perhaps rightly so, because I try to prepare myself for the storm(s). I’m adverse to risk by nature, and I’ve made my peace with it, because it means I’m not so induced by stress that I’m unable to whip out an erection like a pimple-faced hoodrat that’s just hit puberty. Just tell me when and where, it’s still as reliable as calling Lassie. You can’t put a price on good blood circulation, am I right, ladies?
What makes me a low-risk landlord?
People often say that property is a low-risk investment, “safe as houses” or whatever. That’s only partially true, I wouldn’t bank on it- even houses topple, especially if the foundation is made from horse shit.
The reality is, property investment can be a low, medium or high risk investment opportunity, it just depends on how you play it. The only certainty is the element of risk, the degree of risk is negotiable.
I have no qualms with what kind of investor anyone is. People can do what they wish with their money, and as long as they’re generally respectful along the way, I hope they do well. I don’t know why, but some people get terribly bitter towards high-risk takers and revel at their demise. I, on the other, would rather hold-hands, perhaps rub up against one another (depending on bust size), and encourage.
I know of some landlords that are insanely high-risk. They don’t even look at the properties they purchase, they just crunch the numbers, calculate the yields, and buy properties like they’re buying tins of soup. They put down minimal deposits, and continually remortgage and release equity to finance their next investment. Proper mad-scientist shit.
To me, that is insane- ‘house of cards’ strategy- a small nudge, like an interest rate increase, can effortlessly evaporate that empire like it’s a diluted droplet of pre-cum!
It’s the kind of strategy that was responsible for so many landlords getting wiped out in the last property crash back in 2007. However, I also know of many high-risk landlords that became insanely wealthy because they timed their exist immaculately. Timing is everything when you’re sitting at the high-rollers table- you need to walk away at the right time or at least stop buying. I guess that’s true for any investment.
But one thing is for sure, both the winners and losers endure levels of stress that I wish to never experience or even come close to.
I personally believe I’ve kept my property investment strategy, which I’ve discussed before, extremely low-risk. I’m not saying my strategy is the best overall formula for every landlord, but it has been rewarding, sensible and a relatively stress-free method that has maintained my healthy erectile lifestyle and created a stable future.
Here’s my personal formula to low-risk BTL investment…
1) Staying loyal to my aims and objections
I’ve never swayed away from my original blueprint, even though there have been times that temptation nearly swallowed me alive, especially while having the capital and after hearing inspiring stories from other investors.
I entered this game with the intentions of building a secure and comfortable future, I never entered with the intention of becoming a millionaire. It’s fair to say that property is just ONE piece of my game plan. During the weekends I’m selling Tupperware and edible lingerie on ebay.
I think it’s important to constantly remind myself why I’m doing this; that’s proved vital to keeping my strategy low-risk. Many landlords get a taste and quickly become increasingly ambitious. There’s nothing wrong with that, that’s cool. But if you want to remain low-risk, always remind yourself “why” you’re here.
I’ve had a good run so far and I’m approaching the latter stages of my cycle, with little desire to go beyond.
2) Waiting for the right property
There’s a lot to be said about being patient when you’re trying to remain low-risk. You get this bit wrong, and you’ll be screwed from the offset. I know how easy it is to become overly eager when you’ve got cash on the hips and you’re ready to draw.
I always look for below market value (BMV) properties in historically strong rental areas and respectable areas, while ensuring the yield stacks up. To be honest, it’s extremely difficult to make the figures stack up if you’re not buying BMV these days (although it is possible, particularly if you invest early in an upcoming area).
The best way to achieve free equity and high yields is by being patient; keeping your hawk-eye on the market and knowing what to look for. Auctions may seem like the obvious route, but then you start raising the initial risk. Anyways, this is the make-up of any good BTL investment, not just “low-risk”
However, the low-risk element creeps in when you start thinking about the future before you even put your foot on the gas. Often, when you’re in the mindset of becoming a Landlord you lose focus on the “end game”, the exist strategy. It’s quite ironic, because it can be argued that it’s the most important step, because that’s when you cash out.
Buy a property that is resalable, which means avoiding quirks and often the cheapest properties in awful areas- you definitely don’t want to be stuck with a piece of turd that you can’t shift. For example, buying a 3 bedroom property with 1 bathroom, which is only accessible through the master bedroom may not be an easy sale, unless you plan on resolving that issue. Another example is buying in a notoriously dangerous area with high crime-rates, which will not only effect the resale, but also the general letting experience.
Buy the right property with the end game in mind, it will make you MUCH more liquid.
3) Don’t over commit to the “long-term” aspect
I’m guilty of overemphasising how property investment is generally a stable long-term investment. While it is, I also avoid taking it too literally in every sense. There has to be an end.
I know the longer I remain in debt, the longer the risks hang over my beautiful aging head.
Getting a 25 year mortgage and continually remortgaging without reducing any debt or the mortgage term can be risky. A business model like that relies ONLY on market growth and it’s a very long-term approach. Of course, it’s also an extremely popular approach, because historically property prices have always risen over time. However, I tend to be very wary of what disastrous incident could happen somewhere at the beginning and the middle, which is when equity to debt ratio may not be so healthy.
If you’re building a flimsy business model that’s prone to topple with the slightest breeze, you may not even make it to the end.
4) Big deposits
I put down big deposits, I always have.
Bear in mind, I started investing when sub-prime lending was at its peak. I, like many others, had access to 90-105% mortgages, which quickly became insanely popular. God bless those greedy asshole bankers lining their pockets with cash by selling absolute dogshit. Literally.
But even then, I started by putting down 25% deposits. Soon after I became even more of a estrogen-filled pussy and increased my deposits to 30-40%. It meant my acquisition rate was slowed down considerably because of the heightened barrier to entry, but it felt safer, especially since there was a growing concern of an incoming crash.
Stuffing your initial deposit with more cash means high equity, which means stability, which means you’re less likely to get rammed in the ass with negative equity if the market takes a turn for the worst (which it ALWAYS does during a cycle). If you’re unfortunate enough to fall into that death-pit, life can feel unbearable, especially if your mortgage comes out of it’s fixed rate period and you’re consequently on the verge of colliding with the lender’s horrendous standard variable rate. Needless to say, you won’t be able to remortgage- no one is going to lend you a penny when you’re in negativity equity, unless you can access a lumpy cash injection.
New & first-time landlords that put down small deposits are generally EXTREMELY vulnerable and become ideal candidates for a good ass-pounding, especially if the market dips soon after, because there won’t be any equity to cushion the blow.
By putting down large deposits, it does mean more of my cash is tied up, so I do become less liquid, but it does make an investment more stable and it also usually means the rental income will cover mortgage payments.
5) Repayment mortgages
Most buy-to-let investors have interest-only mortgages, which usually means they’re completely relying on market growth for profit. As said, historical data shows that eventually property prices always rocket, so I get why interest-only makes sense. However, that strategy doesn’t protect an investor from any blips that may occur during the early stages of the investment e.g. a year after acquiring the BTL.
Technically, my mortgages aren’t repayment policies, they’re interest-only. However, I pay the repayment amount monthly for all my mortgages, I always have. I’m building equity by reducing debt, not just relying on increasing house prices. Many landlords have the intentions of paying off huge chunks of debt over time, but that’s psychologically tougher to execute and the reason why so many fail (which often leads to problems). It’s easier to reduce debt regularly/monthly, both practically and psychologically.
Prices WILL fall at some point, whether it be marginally or significantly, and either way it will have rippling effects that may have game-ending consequences.
6) Mortgage Overpayments
There’s something very cat-and-mouse about the property industry, I’ve always felt like danger is breathing down my neck. Our business is largely reliant on the state of the economy, and my concern with that is we have virtually zero control over it. That’s why I’m trying to clear my mortgage debts as quickly as possible, to escape the chase, that’s my personal strategy to get to my end-game. I know the sooner I’m out of this rat race, the sooner I’ll feel more comfortable and guilt-free when blowing my disposable cash on habits that, when thinking about, make my penis shiver, shrink and invert.
I’m making overpayments every month on all my mortgages to reach my end goal as quickly as possible. I’m able to make overpayments because I put down big deposits and have spent years making overpayments, that means the rent I receive today covers 1) a nice monthly salary 2) mortgage interest payments 3) mortgage repayment payments 4) mortgage overpayments 5) working capital.
You may not have the cashflow to make overpayments initially, but if you make monthly repayments, you’ll soon have the means. Even overpaying as little as £50 per month can have a very compounding effect.
The foundation of stability truly is equity and actively reducing debt- you end up avoiding so many economical nightmares.
7) Keep tenant turnover low
This is a really big aspect of remaining low-risk, although it may not seem like it on the surface.
The general premise is to keep your tenants happy so they have little reason to leave. Basically, don’t be an asshole landlord.
For example, I’ve always been reluctant to rise rents when I don’t need to, especially when I have good tenants. Right now I’m charging some tenants 8% less than the going rate, simply because they haven’t given me an ounce of trouble and they’ve been long-term. I know if I gave them a reason to leave I would probably lose more money on tenant acquisition, which includes marketing costs, void periods, redecorating, cleaning etc.
So how is that keeping it low risk? Well, high-risk would be increasing rent unnecessarily and running the risk of losing good tenants. Many landlords lose good tenants because of greed, and that’s a prime example of how increasing rent can often be a false economy.
Good tenants and cashflow is key to successful BTL. Focus on keeping the cashflow regular, it’s often more profitable than increasing rent or making other demands.
8) Keep savings. Stacks of it.
So many landlords plummet every last penny trying to get onto the ladder and they don’t make any practical or realistic allowances for the real ‘running costs’ of a BTL. Despite popular belief, the real running costs doesn’t stop at mortgage payments, it also involves absorbing the costs of handling idiot tenants, economical fluctuations and even self-inflicted stupidity e.g. overpaying an agent to sit on their stupid ass all day.
It’s very easy to neglect the realities when you’re brainwashed by the biggest rumour in landlord world, “the rental income will cover all my costs”
I would pay little attention to what works on paper before you’ve even invested a single penny, because those calculations will be misleading at best. If you base your investment on TODAY’S figures, you’ll soon be crying yourself to sleep and waking up early to flip burgers to compensate for your miscalculations, especially if you put down a small deposit and have little equity.
Keeping a large pot of cash aside is part of my “low-risk” model. I have enough personal savings put aside to absorb significant amounts of unforeseen disasters, and that’s on top of quite a reasonable contingency I leave aside to absorb the every day unforeseen costs. Some of you may remember, earlier this year I had breakdown when I had to unexpectedly cover the cost of a brand new boiler and a kitchen. That took a whooping 7k out of my contingency; that was painful, I was gutted like a trout with a blunt blade. That’s a lot to spend on something unforeseen, but I was prepared. I probably would have keeled over if I needed to search for the cash.
Granted, saving any amount of cash is dead money in this economy. Even tax-free ISA accounts are worthless. If you want your money to work for you efficiently, do anything but stick it in a savings account, because it will lay dormant like a cheap overweight hooker. But despite that, the undeniable fact is that cash is king. You need cash to cover your back. Most landlords aren’t “cash rich”, they’re equity rich, and in the real world that means shit. You’re only as rich as the cash you have in your hands, everything else is just bullshit.
I’m not saying you need enough reserves to feed a small country. However, I never feel comfortable unless I have a substantial amount just in case, for example, if interest rates rocket, and I’m left in a position where it makes sense to pay off large chunks of my mortgages as opposed to stomaching the interest rates.
Being low-risk is all about anticipating and being suitably equipped to deal with the “just in case”
9) Don’t take a gamble on tenants
I used to be a bit of a cheap skanky whore when it came to finding tenants. I was too easy; I’d make exceptions even when my gut was trying to warn me of danger (that’s still true in many aspects of my life, and why parts of my body are gangrene).
My biggest mistake was giving people the benefit of the doubt. It’s cool when you’re lending someone your hair-straighteners or favourite vibrating dildo, but when you’re trusting someone with £150,000k worth of investment, which they can be crushed just as easily as a vibrator made in Taiwan, you need to be an anally retentive dip-shit.
Fortunately, I learned early on how detrimental loose landlord referencing and insufficient due diligence can be to my health and wallet.
If my memory serves me correctly, my second ever tenant sucked me dry (not in the way we all pine for) after falling into arrears and refusing to vacate the property until the local authorities gave her a council house. Obviously she was a total dickhead, and her stupidity scarred me for life, but truly for the better. I’m also going to mention, because I’m still bitter about it, that I used a letting agent to find this particular tenant- they naturally assured she would make an incredible tenant.
Fuck the tenant and fuck the agents. A lot.
Ever since then I’ve been a lot more selective about who I accept as a tenant, even if that means leaving my property vacant a little longer while finding the perfect candidate(s). I’ve said it before and I’ll say it again, a tenant can make or break a landlord’s success, and that’s why I always take my time to choose wisely. Very wisely.
These days, even if I feel a slight sense of doubt, even for no real reason, I’ll look elsewhere.
Take due diligence to the next level (but do it relative to what you’re offering).
10) Let go of dead weight immediately
I often read horror stories from landlords that are on the brink of emotional and financial destruction because their tenants falling into several months of arrears, it’s truly frightening. Not the fact that the tenant could be so thoughtless, although that is an issue, but what’s more shocking is how landlords allow the problem to persist for so long. What the fuck? Come on!! Don’t be a little girl (no offence little girls)!
Let go of dead weight like it’s a plague; whoever, wherever and whatever it may be! I’ve learnt from experience that the excuses and delaying tactics rarely end in resolution, especially when they’re in so deep. It’s financially more sensible to nip most problems in the bud when you can.
There are laws in place to protect both tenants and landlords, use them.
I say again… my low-risk strategy isn’t suitable for everyone, especially because it’s not the cheapest route to entry and there are tax implications which won’t favour everyone, I appreciate all that. There’s probably a better middle-ground to suit the average investor, but either way, I hope I’ve given you some food for thought.
Ultimately, your strategy should depend on your personal end goal and how risk-adverse you’re comfortable with being.
Naturally, there are pros and cons for every strategy. Some of you may not even think my strategy is particularly low-risk, but all I know is that my strategy hasn’t been shaken or left me struggling over domestic or economical circumstances, only annoyed. The difference between ‘struggling’ and being ‘annoyed’ can be the difference between a happy and miserable life.
I personally don’t think the proposed reduction in tax relief on BTL mortgage interest is particularly fair (to find out more, go here) and that’s why I signed the petition to oppose it, and you should definitely sign it too if you haven’t done so already. And while fighting the good fight is important, I think it’s more important to invest sensibly and protect yourself, so you’re placed in a position where you can absorb and swallow incoming loads like a cum-guzzling dirt-bag, because you won’t be able to stop them all.
Granted, I believe I entered the market at a good time (not the optimum though), which has helped stabalise my position through house price growth. But also, my low-risk approach makes it easier for me to absorb the upcoming turmoil, while admittedly, isn’t the most financially savvy approach (depending on how you look at it). There are MUCH more aggressive and better ways of becoming rich through property investment. But hey, it’s making me cheese and keeping me sane, so fuck it.
I’m a pussy. What kind of investor are you? Pussy, medium or a straight up hustler? I hope you prosper either way! Good luck!