Nick Carlile, experienced property investor and founder of Platinum Portfolio Builder shares how’s best to start your property investing journey and why you should steer clear of the capital.
When you’ve got money to invest knowing where to begin can be a minefield. For many investors stocks, shares, commodities, currencies and commercial and residential property are the standard fare. While property is arguably no another stock, the fact that it is inexorably linked to only permanent monopoly – land – means that it deserves to be placed in a category of its own.
If people are going to buy land – or freehold property – my advice is to go for it. But first wipe away the mist of hype that says that London is the best and only place to invest and examine in more detail the basic maths and inherent practicalities. After all, what’s the big deal about London? Why are so many people focused on buying property there when there are other far more profitable places to buy residential property? There are places with far less competition where property is much, much cheaper and most importantly where the rental yields are significantly higher.
Many novice investors are drawn like moths to the bright lights of the UK’s capital – usually for the wrong reasons. They don’t realise that there are opportunities elsewhere that promise better returns on a like-for-like basis. To those people my message is clear and that’s ‘don’t believe the hype, believe the results’. If the rental yields are better in somewhere like Leeds City Region or Sheffield than in London it makes much more sense for the passive investor to invest their money there.
In my experience of purchasing properties on behalf of individuals looking for reliable passive investment opportunities, rental yields of between 8% and 14% on those purchases are the norm. All of those purchases were made hundreds of miles away from the capital.
Compare that to the average rental yield of 4.7% in the City of London, why invest in a place that is more likely to deliver poorer results? Still people will continue to fixate on London, the lure of prestige outweighing their investment sensibilities. It simply doesn’t make sense, especially for people with working capital of £100,000 or less and they want to develop a portfolio of 3 or 4 properties with that level of capital.
Forget Bogoffs … Get Four Properties For The Price Of One!
Good investors diversify their portfolios as much as possible in order to spread their risk. Investing your capital in the north of England is the easiest way to spread risk. How so? – Because for the price of one property in London you can buy four properties in Leeds City Region* and its surrounding areas. For passive investors looking for long-term capital growth in their portfolio who are happy with a guaranteed yield of 8% or more, does it matter whether those properties are in the north or the south of England? I can tell you, it doesn’t.
For any landlord void periods are always a possibility. When voids strike there are no tenants to pay the rent until a new tenant is found. No rent means no income and no income means no business, because – you guessed it – the rental yield forms the core of the business, not the capital growth. Capital growth is an unknown variable that shouldn’t be factored into a short-to- medium term business plan.
So all things considered, let me ask a simple question: would you rather have all of your eggs in one basket in a single property in London, or would you prefer to spread your risk across several properties somewhere else? It’s worth thinking about because a void in just one property out of four or five is an inconvenience, but a void in the only property in your portfolio (if you could even call it that) could be disastrous.
Therefore, in my opinion it doesn’t make sense to spend sky high prices on skyscraper (leasehold) accommodation in the capital when you could secure four or five freehold properties a little further north of the Watford gap – in good quality towns with high rental demand and better yields…for the same money.
*The Leeds City Region refers to the local authority districts of Barnsley, Bradford, Calderdale, Craven, Harrogate, Kirklees, Leeds, Selby, Wakefield and York.