I’ve met hundreds of would-be property investors that have never even taken their first step towards turning their dream into a reality, because they feel inclined to believe the constant negative news reported on a daily basis.
They are often blinded by blatant myths about the returns they should (or won’t be able to) achieve, the money they need to get started and the risks involved in building and running a property portfolio.
And added to that is the fear of being perceived as a ‘greedy landlord’. Well, as legendary American basketball player, John Wooden, once said: “Be more concerned with your character, because your character is what you really are, while your reputation is merely what others think you are.”
So it’s time for a reality check and to put some of these common myths to bed.
Myth # 1 – Now is not the right time
I’ve said it before, and I’ll say it again and again. There is never a bad time to invest in property. Yes, the price you pay for a property, the mortgage interest rate and the
rent you can charge will always change. And of course, tax policies can change and legislation can increase. But this just means that you need to know what you’re doing, employ a strategy that is suitable for the market conditions and take the best advice. I, for one, always look at long-term strategies so that my portfolio is not at the complete mercy of macro-economic changes.
No one should even consider investing in buy-to-let property – or any type of property for that matter – without conducting thorough research and stress-testing an investment against the unexpected.
People will always need warm and comfortable homes to live in too, even if their ultimate goal is to get on the housing ladder.
Myth # 2 – Property investment is for the rich
Let me first make it clear that you do need money – at least £100,000 in my opinion to be able to start building a meaningful buy-to-let business. But with more than half of the nation’s net worth tied up in their own homes, that amount of money might be more accessible than you think.
The majority of landlords in this country are hard-working individuals with blue and white collar jobs who have invested wisely and understand how to use leverage to their advantage. Most of them only have one or two buy-to-let properties, which will be a godsend in retirement. Some of these properties don’t generate any income; some of them generate enough to send a child to university; and some of them generate enough to replace a salary.
Yes, investing in property can effectively ‘make you rich’ (or better off than you were before), but it’s not an asset class specifically designed for the rich. And this is down to the ability to ‘borrow’ money, like you can when you start any other type of business.
But, and this is a big but, being too highly leveraged can be risky. This is why the recent enforcement of stricter buy-to-let lending criteria is welcome in my opinion. It forces existing and potential investors to evaluate the current and future sustainability of their properties.
Myth # 3 – It’s all about capital growth
Boom and bust cycles are a given in the property market. No one should ever naively think that property prices are always on the up (although it is proven that they will recover and increase over time). This is why property development and buy-develop-sell strategies are higher risk than buy-to-let, because there is always a reliance on the market staying buoyant when it comes to selling.
Buy-to-let on the other hand is often a longer-term strategy. And while capital growth is usually the aim for a lot of investors, these types of properties have the potential to also produce an income – and that should be a key focus.
A high level of cash flow gives investors added protection against the downsides, such as interest rate rises, increases in legislation costs and void periods, all of which are inevitable at some point. This is why I chose to develop a specialist buy-to-let model that generates four times the income than a standard rental property.
Myth # 4 – It’s easy
OK, so it doesn’t have to be hard, but being a landlord is definitely not easy. It’s not like passively investing some or all of your pension in a commercial property fund, sitting back and waiting for the returns to roll in.
You can of course hand your entire portfolio management over to a letting agent, but that will eat into any profits. Research from Spareroom.co.uk also found that 87% of tenants prefer dealing directly with their landlord. So if you want to build and run a proper buy-to-let business, then you need to make sure you have the time to invest as well as the money.
You’ll need to source properties, refurbish them find tenants and deal with their enquiries. It can be hard work at times, but also very rewarding in both a personal and financial sense.
The moral of the story? Bad news is good news, so that’s why you’ll hear more of it, but don’t take what you read, see and hear at face value. Do you research and talk to experts; people who have been there and done it.
Most importantly, take action and stop procrastinating. If property investment is what you want to do, take action. The only bad time to invest in property is later, as I like to say.