How Hands-Off Property Investment Works

Property investors fall into, roughly, three camps:

  • Serial purchasers: those who buy, do the property up, then sell and move on to their next project
  • Acquisitional purchasers: those who move into buy-to-let, which they manage themselves (or through local agents): getting tenants, checking references, collecting rent and maintenance
  • The ‘hands-off’ investors – people who buy through a large development. These may be looking for a large portfolio – or maybe just the single investment.

In this latter case there is typically a large-scale developer who is, in effect, selling ‘unit trusts’ instead of shares: you buy a small part of a whole, and thereby provide the overall funding (or enhance the cashflow) for the developer to create a block of flats or similar residential development. The developer engages an agent to manage the lettings and maintenance for instance I have a few investment properties that I have some great people at Pyramis Company managing them. In short, in return for handing over a small proportion of the overall construction cost you own a fully managed unit.

In some cases this unit can be yours to live in; usually, however, this unit is designed to be let to a tenant. Student accommodation is a growth area – most major cities have a shortage of quality accommodation. And unlike converted houses, with a random collection of tenants, the larger developments are purpose-built with, say, students or professionals in mind. Views, gyms, parking, internet – these are frequently a part of the standard offering.

The advantage of this is, of course, the hands-off aspect of it – you pay a sum of money, and sit back and receive the rents (which are collected for you!). You don’t need to worry about problem tenants, or the problems (either the hassle or the cost!) of a midnight leak or exploding boiler – or having to replace furniture for the tenants, but it would be a good idea to get them wardrobe doors to increase the value.

What can go wrong? If the development is not yet complete, you can never be completely sure it will be finished or popular! This is one reason why buying through established agencies (such as Colordarcy, among others) is always recommended. A reputable agency will always have done their homework, and carried out the due diligence to ensure that the potential investment is as secure as it could be.

Check that there is some form of ‘collective’ clause – if, for example, there is a problem with the management company, you don’t want 60 individual owners taking different actions to solve the problem. Make sure there is a formal land registry document giving you assured title of your property. How are you able to sell or exit your investment? Can you sell back at a guaranteed price? Must you sell through the developers or can you sell on the open market?

Hands-off property investment is ideal for either those who are actively seeking to build a portfolio, with minimal effort – or for those who have a degree of surplus disposal income. Current (and, for the foreseeable future) interest rates are very low and simply don’t provide for significant capital appreciation. The stock exchange does offer significant gains – but also the opportunity of significant loss! Many couples just into retirement find that, after downsizing, they can purchase their smaller property mortgage-free and may have the luxury of two state pensions and two company pensions – more than enough for their everyday living. A ‘spare’ pension of, say, £600 a month – and/or a small lump sum left over from downsizing – could be more than adequate to fund a hands-free buy-to-let property with minimal risk, and significant opportunities. In most cases the rent coming in will ‘repay’ the mortgage. With appropriate advice it is possible to ‘ring fence’ your investment for your heirs and ensure it is outside of your own capital, should issues of care home fees ever arise.

 

Join The Conversation - Be The First To Comment

Categories: Hints & Tips / Property Invest

Tags:

Like What You Read? Stay In Touch

Follow Colordarcy on Twitter or Facebook