For the best long-term returns, buy an every person property
Experienced property investors will be quick to tell you that there is one thing guaranteed to lose you money on an investment property: owning one that doesn’t rent. Void periods – those times when your property is empty – can be very expensive. You’ll need to continue to pay the mortgage and other costs of property ownership, without the benefit of rental income.
While there are ways to deal with the effects of rental income fluctuations, the best strategy is to ensure you invest in a property that will be in high demand. In this article, you’ll learn about the concept of the ‘every person property’.
What is an every person property?
One of the two laws of property investment is to buy a property that is tenantable. The easiest way to explain this is that the property must be attractive (as a home) to the widest range of people possible.
Property in the UK and other wealthy, developed countries is distributed according to a bell curve like the one below:
A small proportion of housing is occupied by the poorest section of society, and a small proportion is occupied by the richest. The rest – the bulk of the property market – is occupied by everyone else in the middle. This is the area of the market where the investor needs to operate.
Why you must buy an every person home
If you buy property in an area where the poorer section of society lives, you are going to get a high proportion of people who don’t pay their rent. You are also going to get a lot of people who won’t look after your property and disrespect it. Believe me, I know from hard experience that this is true. This will defeat your twin goals: it will slow down your capital growth and damage your income stream. So, this type of property is to be avoided.
Equally, buying a property in a rich area is not advisable either. Why? Well, when times are good, you may do very well and rent your property out easily. But when times become a little tougher, people are going to move from where the rich live to where the ‘every person’ lives. And you are going to face void periods where you don’t get any rent. This, again, undermines the two laws and the Set and Forget principles that are key to everything you should be doing.
As a rule, therefore, never invest in mansions and million-pound penthouses that might attract footballers, rock stars, and business tycoons. And never invest in low-value properties in deprived or rundown areas. Instead, you should always think, ‘If I buy this property, who will be renting it?’
And if the person renting it is an ‘everyperson’, then you are on to a far better prospect.
The danger of not investing in every person property
Vince was a mate of mine, we’d done some deals and he was a successful investor who had made serious money during the last boom. He’d started out in small developments and buying discounted property. Over time, Vince had built up a sizable portfolio.
As his portfolio grew, he bought more expensive property. Eventually, he was investing only in penthouses in large apartment blocks. He focused on Canary Wharf and the surrounding areas of Lond on. As interest rates began to rise he began renting his portfolio as serviced offices (much like a hotel), which increased the yield.
Then along came the Global Financial Crisis of 2008. Bankers ran for cover, and Vince’s income dried up. His apartments remained empty. The double whammy was that the price of a high-end property fell around 40%, leaving many of his properties with negative equity. Before long, his strategy of high-end property fell flat.
Vince’s story also spells out why most investors should avoid specialist strategies. They often promise much but fail to deliver on that promise. I define specialist strategies as any of the following, or a combination of them:
- The property isn’t rented to a single family
- The property is rented to a family unit that is ‘outside middle of the range’
- The property is rented to someone outside their country of residence
Such strategies might include student rents; room-by-room rent; penthouse; mansion; luxury; social housing; storage space; overseas property; rent with option to purchase; etc.
To discuss which property investment strategy would be best to meet your goals, get in touch with Gladfish on +44 207 923 6100. We’ve helped hundreds achieve their lifestyle objectives with property. You could be the next.
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