How to avoid the buy-to-let pitfalls

Nick Carlile, co-founder of the Platinum Partners Group of companies and a qualified quantity surveyor, warns the easy money has already been made in property.

This year is providing some superb opportunities to acquire profitable property investments – we are unlikely to see again in our lifetime a series of circumstances when property investing has looked so attractive.  The caveat is that those you are advising really have to know what they are doing; this is not a market for amateurs and gone are the days of property being ‘easy money’.  Changes in the mortgage lending market and tightening of legislation governing buy to let have meant landlords now have to be more professional and possess real business acumen.

It seems that everyone wants to be a property investor, but, in reality, few possess the skills, flexibility, drive & determination, or can adapt to the kind of life that comes with running a successful property business.  It is not about how big your client’s portfolio is, it is about the return on capital it gives, the income they can extract from it, and whether it can operate without their needing to exchange time for that profit.  Your clients need to work with property experts to ensure they have a sound investment model that insulates their property business against potential downsides, surround themselves with the right legal and financial advisors, and understand that they will need a decent level of operating capital.

There are too many unethical,  so-called ‘industry professionals’ trying to convince aspiring investors that ‘no money down’ deals can still be done and offering them a supposedly easy route to buying property ‘below market value’.  All of these propositions, when you look into them, are either illegal or so borderline it is not worth taking the risk. At the time of writing, if a purchaser’s deposit funds are not their own, and the lender is not informed, they are highly likely to be committing mortgage fraud. 

In my business, we are focused on acquiring the kind of property that gives strong cashflow and an average 14% yield.  The average pre-tax profit per property is £12,000 per annum – that is after the mortgage & all bills have been paid, and allowances have been made for maintenance and voids.  Yes, running a highly profitable property portfolio can be time consuming if you are doing it all yourself, but the right, systemised, buy to let investment models make for a very attractive business proposition.

Those who get it right will prosper hugely; those who don't will face potentially disastrous consequences.  An increasing number of ‘cash rich, time poor’ first time and existing investors have a desire to take advantage of the excellent returns offered by the buy to let market but don’t want the associated hassles.  The good news is that it’s possible to find reputable companies offering very good passive investment options, and use existing equity or other funds to build a solid, sustainable property business that delivers immediate cashflow and long term growth, on a completely passive basis.

In doing due diligence specifically on a property investment opportunity, I would advise the following as a minimum:

• Be wary of any individual or company promoting low or no money down deals
• Speak to previous/existing customers
• Find out if they have a vested interest in ensuring their clients prosper on an ongoing basis

And remember that property is not a get rich quick scheme; it’s a get very rich, steadily business, which can deliver significant rewards in the medium to long term.