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Landlord and property guru Phil Spencer offers his top tips

4:00PM BST 09 Aug 2013


The business of getting a buy-to-let mortgage can take time and needs thorough research. You also need to factor in the safety checks that must be passed before you can legally start taking in tenants. Once the preparation is done though, there is no doubt that it will pay off, says Channel 4’s, Phil Spencer.

“There is only one way house prices can travel in the decades ahead,” he says. “Which is why I believe it is good news to invest in property. And if capital values are set to rise over the long term, what about rents?“ An increasing number of tenants chasing a relatively stable number of investor-owned properties has meant that rents have risen quickly in recent years. It’s that old law of supply and demand. I don’t think we’re seeing it quite yet, but we may well reach a stage when young people simply mentally commit – or resign themselves – to being lifelong tenants.”

Lifelong tenants are going to need lifelong landlords, who treat renting out their properties as a profession, not as a hobby. Members of the Daily Telegraph Property Club will receive regular mailings on updates to nitty-gritty landlord legislation. There will be plenty of tips and advice on a host of other aspects too.


“The key thing is to work out who is your most likely customer, and present your property accordingly,” advises Spencer, a landlord in his own right.

“Young professionals might not expect the garden. But they will want the basics in terms of furniture, which should be, if not trendy, at least not unfashionable.

"With recession still not yet a thing of the past, it is advisable to budget for times when, for one reason and another, no rent is forthcoming.

The good news for landlords, though, is that if one set of tenants falls by the wayside, another set will soon be along. So while letting is not without its risks, all the arithmetic is in your favour.

"I find it amazing how many middle-class people live in homes where £500,000 worth of value sits locked up,” says landlord Vicki Wusche. “Yet instead of buying a rental property, they invest in stocks and shares over which they have absolutely no control. They might as well bet on a horse.”

Far less of a gamble, then, to dip your toe in the lettings market.



With online managing agents, you need to ask if there is any level of tenant care. If your tenant leaves and there is a void, you will face a double whammy of having to pay the agent to find you a new tenant and also suffer lost income.


Losing tenants because you did not look after them can turn a good yearly return to nothing. Tenants like to feel they can pick up the phone and talk to someone who has direct contact with the landlord.


You need to be confident that an online letting or managing agent is adding value. They will certainly be cheaper – but will they deliver what they promise, given they are dealing with properties and maintenance nationally?


I’ve come across parking space issues while helping clients buy property in London, particularly when there’s the sudden realisation that owner-occupiers in certain blocks of new-build flats don’t qualify for parking. Developers see space as money, so would rather convert potential parking spaces into flats. Otherwise, they’ll charge a fortune for them. In one new Battersea development, parking spaces cost up to £60,000 each.


If you analysed the extra rent you could charge for the privilege of somewhere to park, I’m not sure the price for a space works out favourably. But a flat will be more marketable with a parking space when you sell, if not necessarily for a let.


Parking spaces, like a lift, concierge or gym, are a nice bonus but may not command a relative rise in rent. However, in London especially, their value may grow rapidly.


It’s a scam where agents charge both the landlord and tenant for a certain service – and that’s been a big part of the problem with lettings agents’ fees. Hopefully the new regulation will make it clear who pays for what. Equally important is knowing who holds the deposit. That needs to be kept in a separate account and not with the agent.


The type of property you buy may also determine your ability to haggle down the price a lettings agent charges. An older property will require maintenance and management. A new-build will need less attention.


I’ve always chosen a specialist lettings agency who is local to the area to manage my properties and I feel that has given the best result. So if you say you’re looking for that service, even if it turns out you don’t then go for it, it may give you scope for negotiating their management fees. These can be high.


I think let to let is an excellent plan. I’ve come across a lot of people doing this, particularly those in first jobs in London who can’t buy where they would like to live but feel they should be in the housing market.


It’s a good hedge, rather than waiting until you can afford your ideal property — and your tenant pays your mortgage. The other upside is you can go about it without getting muddled about if it’s an investment or a home for you. It’s purely the former.


It is difficult buying in an area you don’t know well or is a distance from where you live. University towns are good for investment. If you work in Manchester but can’t afford to buy there, and you went to uni in Newcastle, then you could buy a student property there in a market you understand. Life changes between your twenties and mid-thirties and you don’t know where you’re going to end up.


I’ve worked with a lot of people who want a coastal investment property that’s also a holiday home. Combining the two is unlikely to get the best of either. You need to be clear which it is.


A lot of flats on the south coast incur paintwork damage and need regular window-cleaning. Keep the property in good nick – otherwise the maintenance jobs become far bigger. If you are buying a leasehold, ensure the building has a property management company with a sinking fund and planned works.


If you are targeting the families-moving-out-of-the- city market, you may pay a premium for a home in a good school catchment area, but rent will be at a premium and there’s more chance of capital growth. Relocating families, perhaps renting with a view to buying, make good tenants. They have money in the bank and look after a place.


Voids are the real killer of the financial model behind buy-to-let. Do anything you can to avoid them. A long one, or even three short ones in successive years, can turn what would have been a profitable investment into a loss-making one.


One-beds, studios, smaller, cheaper, tatty flats tend to entail a higher turnover of tenants. If it’s not somewhere they aspire to live in, the greater the likelihood your property is a stopgap. Clearly, the higher your churn of tenants, the more void periods you endure.


Flats at the lower end of the ladder also take longer to rent. However, the opposite is also true. Decent-quality family homes within walking distance of highly rated schools should be quick to let and also mean families are more likely to settle for longer. Once children are happy in school and local friends are made, the decision to uproot and move again becomes far harder.


A really successful property investor outperforms the market. That may be through adding value, or it may be because they have invested in something that will benefit from the infrastructure that is predicted to lift an area. In other words, rather than go for a new-build development — where you are likely to be paying a premium — they will go for an older property in the next street.


If an area dramatically changes, people think they have been clever because their property goes up by 20 per cent. But when the market rises, it covers up any mistakes you make. When searching for the right buy-to-let property to buy, yes, read the press and websites, but get out on the streets, too, and talk to people.


If you’re starting out in buy-to-let, it’s better to put down a smaller deposit. That said, with a cheap investment, it takes a long time to find, buy and rent out, and the area has probably up and come by the time you realise you’ve done a decent job. You’re better of making a 10 per cent return on something worth more.


Levels of deposit, gearing and rent are all in a state of flux, so sort out exactly what you can afford — and what you will need to recoup in rent — before you start looking at locations and what type of property you can afford to buy.


It may be tempting to buy in the area you know. But remember why you’re doing it. It’s purely about maths and a commercial decision rather than what you like or know.


Certain areas may be hyped because they are predicted to see huge price growth due to big new infrastructure projects. But that hype is usually created by the PRs of large developers, so take it at face value. It doesn’t mean it’s not going to happen, but the timing or extent of growth may be unclear.


It is difficult to identify what tenants want if you aren’t that person, don’t do that job or live that lifestyle. So sound out rental agents locally. Ask what kind of property they wish they had more of, and then find out what the type of tenant who wants that property looks for when renting.


Resist the temptation to over-furnish or overstock the property. Ask yourself how much these additions will add to the rent – and the answer is probably none. Tenants won’t choose a property because it has every last gadget in the kitchen. They’ll base their decision on factors such as location and proximity to transport. If your property offers those, you should already be able to get the going rent for it.


When looking at improving fixtures and fittings — say a £10,000 new kitchen that will boost the rent by only £20 a week — ask yourself if it will increase income or add value to your property. If the answer is neither, it’s probably not worth doing.


On the continent, lifestyle tenants are the norm and it’s an increasing trend here — particularly among the younger generation who think they will never get on the property ladder, like the freedom of renting and are used to moving around more for work.


Are long-term tenants more demanding than short-term tenants? Not really. Tenants, on the whole, are pretty demanding — and why not? For the landlord, a long-term commitment to rent is good news and it does not mean your tenant pays less rent. If it does mean spending a bit on improving the property, it’s a small price to pay.


You may also get an arrangement, such as a landlord I know with tenants on a 10-year lease. The house needs work he is reluctant to do, so they are paying to put on the extension and change the windows in return for a lower rent.


Once you know a market and have a model that works, it makes sense to carry on with the same formula and build up a portfolio of similar properties. Why try to fix something that’s not broken?


A balance of risk across a portfolio is the way I’d go. A balanced property portfolio combines properties with more chance of capital appreciation and others that offer greater yield.


Add commercial properties to the mix and you have assets requiring less landlord involvement than residential — until the lease is running out and you need a new tenant. The landlord must be far more strategic then: if you get things right, you are set for the next 10 to 15 years. With residential, if you pick the wrong tenant, you only have to wait a year to sort it out.


Buy for the long term and finance carefully. Use the smallest deposit possible. The ability to “gear up” is one of the things that makes property investment so attractive — but bear in mind you will suffer any market falls in the same way you will benefit from rises. And remember, too, that interest rates go up as well as down.


Have a clear strategy about why you want to invest and what you are going to be investing in. Research the characteristics of the tenant market you target. What do they want? Where do they want it? How much will they pay to live in it?


Include in your calculations one month a year as a void period with no rent collected.


When investing at an older age, income is more likely to be the main driver than capital appreciation. Where this is the case, something like a student let or an HMO tends to provide higher yields, but bear in mind the hassle factor. Also weigh up the relative costs of using a property management agent versus the potential hassle of doing it yourself, which you may have time to do in retirement.


Ex-local authority properties don’t tend to rise in capital value at quite the same rate as other stock when prices in the general market are rising. They will also fall faster when/if the market turns negative. But they do rent well and offer good annual yields, so could offer retirees a half-way option.


I understand the need for income in retirement, but remember you are tying up cash in an asset that is fairly illiquid. It is a good, steady income, though, and it’s an investment you feel you can control – particularly if you have lost confidence in the stock market, as many have in recent years.


The thing to remember with offers of free this and that is that you are paying for them somewhere. Developers are not charities and are not offering you a gift. The chances are they are adding a few thousand pounds on the price of the property to offer you the “free” stamp duty or furniture pack.


If that hidden amount they are charging simply goes on your mortgage and it means you don’t have to pay stamp duty – and hence find an extra few thousand pounds up front – then maybe that’s a good thing.


By bumping up the price of new-build properties, developers are trying to establish a new market rate for that kind of property in the area. Say they are selling a flat for £300,000 and they are paying your stamp duty, then really it’s only worth £295,000. If they sell enough at £300,000 to convince the market the flats are worth that much, it will set a new level. Again, as an investor, that is not necessarily a bad thing as it is increasing the value of your investment.


Building a big portfolio today is hard because of the equity needed. It was easier when there were 100 per cent mortgages and you could say: “I’ll have five.” Of course, that has risks. When gearing works well, you can do very well, but when it doesn’t you are very exposed.


If you are building a big portfolio – say, more than 15 properties – while also going out to work, you must look at whether the money you are paying to your managing agents starts to exceed what you earn by working. Then maybe it’s time to change things. If you can focus on your portfolio full time, it’s probably time to buy more or improve those you have.


When this situation arises depends on how much you earn and then on management fees. As these are a percentage of the rent collected, it is not about the number of properties you own, but their value and income. It takes pretty much the same time and effort to manage a property worth £150,000 as £1.5m.


A lot of developers target expats – and they make life very easy for you. But in property, if something is easy, you are not going to get the best value. As long as you realise that, however, buying new-build may still be the best way for you and may be worth it, given the hassle it will save you.


If you are an expat landlord and concerned about whether you can leave your property to tick over in your absence or should be returning frequently to check all is OK, I would say you are safe to leave it. That’s one of the attractions of this type of investment; you shouldn’t have to worry about it if you put it in the hands of a reputable lettings agent.


Property can be a more emotional investment than others because it’s tangible. But if the maths work, you don’t need to be able to see and touch it. It will help you choose which property to buy if you are familiar with the area and type of property, but then you can leave it to someone else to manage and you don’t need to see it.


Small things can become big issues when you’re a landlord. I was in a flat two weeks ago where the shower door fell out. Blocked gutters can cause expensive damage. It’s a 30-second job to sort out up a ladder in the first place but, once they’re blocked and you leave them, you only know when water appears months later and comes through beneath the brickwork. Your tenants won’t notice until it's too late.


Another hazard is leaking drainpipes. You need to be at the property when it’s raining to spot the problem. If you’re a distant landlord, you need a diligent lettings agent to look out for you.


Bathroom ventilation is important. It’s easy to get wrong and everyone advises you differently. Also beware of houses let out to young lads (even if they are graduates, which is my target market) who have a tendency to keep all windows shut and dry washing indoors. One of my houses is let entirely to girls and they keep it beautifully.


Pensions haven’t been performing and people see property as a long-term, reliable, tangible investment. You can even live in it if you want to. But these days it’s a lot harder to become a landlord as the banks are now interested in who you are in a way they didn’t used to be and you need a lot of spare income to save up a 25 per cent deposit.


Many people got involved in buy-to-let in the days of 100 per cent or even 120 per cent loans, simply because they could. Luckily, it’s not like that any more. If you got into the market late, just before it crashed in 2008, and took out a big mortgage, you could be paying for that property for the rest of your life.


Now, you need to be able to prove that you can achieve a certain level of rent to cover the mortgage – most lenders ask for 125 per cent, which means that your monthly rental income is 125 per cent of your mortgage payments.

That’s pretty tough.


Many landlords don’t like letting to housing benefit tenants. But in the current state of play, within 10 years there won’t be any social housing in London, so properties are needed for families on housing benefit.


Real Lettings wants more landlords to offer properties in return for guaranteed rent. There are no fees, no management, and although you will get perhaps 80 per cent of the going rate, you won’t have any void periods.


My dad always said there’s an awful lot that can go wrong in the world, but if you own the roof over your head, you can cope with almost anything. When my sons were born nine and seven years ago, I bought them each a house so they will have a roof over their head.


If you rent in London but can’t afford to buy there, it’s an excellent idea to look elsewhere to get on the property ladder.


A combination of factors – longer lifespans, high divorce rates, housing shortages – means there’s only one way the London property market can go. So if the best way is to look elsewhere because you are priced out, I’d be tempted to look where you come from.


Steer away from modern flats in city centres, particularly in northern cities. And don’t follow what all investors are doing, as you’re likely to see an oversupply of similar properties. Target your tenant type – young graduates are consistent, reliable and will always exist – and make sure it fits in with what you can afford in your chosen location.


Corporate tenants are talked about in hushed terms as the holy grail of property investment – they’re more reliable and longer term. They are also likely to take properties other tenants might not take, such as family houses owned by so-called “accidental landlords”.


While the bulk of corporate tenants will be in London, there are other areas that will see high numbers of them. It’s not all about bankers: look for areas that have multi-national companies such as telecoms, manufacturing or pharmaceuticals. They’re likely to be near regional airports – you’ll find a lot of them in the M4 corridor.


Aberdeen is also stuffed full of corporate tenants. You can buy a very nice house for £300,000, yet people drive £100,000 cars. People don’t spend a lot on their properties there, so it’s a good place to be a landlord.


By having a portfolio of properties, you can balance out your risk. If one property out of 10 has a problematic tenant, such as a shop that goes bust, the other nine can cover it.


The economy and wider markets will influence the commercial (and residential) property market. But unlike stocks and shares, the relative illiquidity of property investment means peaks and troughs can last for years.


Commercial property is a more complicated proposition than residential property. If you get it right, you’ll get an attractive yield. But you need to know what and where to buy and the usage class – if it has a licence to sell food, for example. That can make a big difference to your rent.


Where serious investors get excited is buying a property they let with a full repairing and insuring (FRI) lease for 10-15 years. They get quarterly payments in advance, no repair bills and it runs itself. But it usually means a bigger upfront investment.


You can also create a nice investment by buying a whole building, converting two floors into flats – which you then sell – and letting out a commercial space on the ground floor. But you need money and experience to do it.


Finance is a hurdle that’s difficult to cross with commercial property. If you borrow to buy you need to closely weigh up what the future performance of the property might be, bearing in mind you will pay back a lot in interest to the lender.


As a small-scale investor facing commercial property agents for the first time, develop a good personal relationship and leave them a set of criteria showing what type of property you want and how you’re financing it.


Auctions are transparent but you must be organised on the day. You and your solicitor should have looked at the lease and got your finance ready. Basically you need to get all your ducks in a nice, neat row.


Something new commercial landlords may not be prepared for is understanding the business of the tenant — and being able to read their accounts almost forensically in order to form an opinion about the investment. That’s a very important skill.


Any form of investment is about balancing risk and reward – and the risk is greater if you don’t know what you’re doing. If a commercial tenant goes bust, you may be looking at a six-month void period. If you can’t cover that, it’s a scary place to be.


As an individual investor, you need to ask yourself whether you can manage a good opportunity in a town that’s a long way from where you live?


Landlords with an empty shop need to consider offering rentfree periods to tenants. If your property is a rundown newsagent and a smart stationery shop approaches you for a 15-year lease, they will need to spend thousands fitting out the property. Agreeing to a couple of months rent-free will ultimately benefit you as the owner.


You need to have confidence in your tenant’s business and their ability to pay the rent. The better their track record, the more comfortable you will be. One in three UK start-up businesses — and about two thirds of restaurants — fail within the first three years.


Make sure you take a big enough deposit to cover the possibility of the tenant being unable to pay the rent. It’s useful to get a clause written into the lease whereby, if one tenant passes on the lease to another, the former is responsible for the rent.


Location is key — you need to have a good understanding of the market in a specific area. You’ll often see empty shops a few streets away from a major high-street brand whose neighbouring shops are benefiting (though they’ll be paying more rent).


A successful commercial property investment is, to a large extent, about the quality of tenant. A property may well have one already, which can make the numbers far easier to crunch because you know what rent is being collected – and that will be pretty high, compared with residential rent.


The quality of a commercial tenure has a big impact on the price you’ll pay. If it’s a major high-street brand name, your risk is reduced. If it’s a betting shop or a takeaway and this is their only business, it’s a risky proposition.


Commercial property is a very different area to residential property. You’ll be looking at different high streets with different footfalls and target markets and you are competing with big, corporate investors.


If you have a buy-to-let property that won’t let out, try dressing it. If it looks tired, paint it. If there’s condensation on the windows or a mouldy shower, get rid of it. The property must be clean and it must feel like a home rather than an investment property that you don’t care about.


If road noise is a problem, swap the rooms around, shifting bedrooms to the back. There’s no reason why, because a room is a bedroom when you buy the property, it can’t become the dining room if that’s more practical.


If overgrown trees are blocking out light, trim them or even remove them if you are allowed to. People want to rent homes that are light, bright and clean.


A property’s purchase price may be affected because it’s on a busy road, overlooking a railway or lacks pleasant views. It will be harder to sell, so it will be cheaper to buy — but it will rent out, making it a good buy-to-let investment property.


Former local authority properties make good rentals as they usually have generous floor space, are well laid out and lack the kind of period detail for which you pay a premium.


Few people want to own a home over a shop, worrying it will become a noisy and smelly restaurant. But many investors buy above shops for the lower prices, space and local amenities that tenants like.


The best tenants are families who, you hope, will treat your property like their own and stay for a long time.


Whether they are renting with a view to buy or because they can’t move on to ownership in the current climate, generally families are the least transient of tenants as it’s unsettling for a family to move around, so your void periods will be less.


Elderly couples/retirees are also desirable tenants — though not common — and corporate tenants who are relocated to the UK for a couple of years are good news as the rent is often paid long in advance.


Buying new-build is the easiest option for expats as it comes with a new lease, a management company who will take care of everything, less hassle and probably more attractive finance.


It’s easier to buy a new-build for a reason — the developers and/or agents are making some money out of you, too. You may also be paying high service charges for lifestyle luxuries. Will prospective tenants pay more rent as a result?


In a new-build block, many other owners will probably be landlords, too. Leases will be allocated at the same time, with everyone moving at the same time for a while, so there will be a lot of competition for tenants.


If it is practical to add fresh flowers and light a few candles, it will help make it look homely. But unless you live next door to the property, that’s probably unrealistic. I’d advise cleaning carpets and painting walls between each tenancy.


A clean property will appear in a better state of repair, making it far more appealing than rival properties to tenants.


When preparing your property for viewings, the most important thing is cleanliness. Your property doesn’t need to be in immaculate condition but it does need to be spotlessly clean, and kitchens and bathrooms must gleam and shine.


The costs of decorating and furnishing a BTL hit you at once so they need to be budgeted for carefully. If you don’t do it properly, you won’t get the right tenants.


Set aside three months’ rent in case things go wrong or tenants leave. There will always be maintenance costs too, particularly in older buildings, so there needs to be an allowance for that.


Don’t assume you can furnish with items you’ve kept stored for years. If they don’t meet fire and safety regulations, they’re no good.


Don’t get caught out by giant mortgage admin fees. £1,000 can easily go without feeling you’re getting anything for it.


You should furnish and decorate an investment property to a level that matches the property’s value. But there are certain features that most tenants will want these days such as a dishwasher and a washing machine.


If you’re in the two bedroom flat market, two bathrooms are much preferred. Ideally, the bedrooms would be of a similar size and set apart from each other.


Some landlords with larger and more expensive properties charge a higher rent but also provide a cleaner and a gardener. The cleaner is useful in that they are in a position to let you know if problems such as bathroom leaks occur.


When deciding how much you should be charging for your rental property, you have to go with market rates. If you can demonstrate to your tenants that they are not currently paying market price — and that they will pay it elsewhere locally for a comparable property — then you have a case for putting up the rent.


You have to be confident to let your tenants go and risk a void period. You need to work out whether getting a high rent from new tenants would cover the money lost during the void period in between tenants. Or you need to be confident that when your tenants start looking elsewhere for comparable properties, they won’t find anything offering better value.


If your investment property is a long way from your home, you need an agent who will manage your property. I use a specialist lettings agent — someone who purely focuses on letting properties, not selling them, too.


For a standard management and tenant-finding service, expect to pay around 15 per cent of your monthly rent. If you have more than one property, consider a deal, such as you find the tenants and they manage the properties.


Lettings agents’ fees can seem chunky. But if you can’t get to the property easily, and you don’t have a contact for a good plumber who can get there quickly, then maybe it’s a price worth paying.


If you have good tenants, then look after them. Then if they have a grumble about something going wrong, it’s probably warranted. Fix the problem as soon as you can and if you have to interrupt them to send someone to do repairs, then maybe a free week’s rent is worth offering as a goodwill gesture. You need to look after tenants these days as void periods are the killer.


Flooded bathrooms are a common problem. Bad ventilation, sealing or grouting are small problems that, in your own home, you would fix rapidly and for next to nothing. In a rented house, tenants will see a leak and think, so what? It leaks month after month, they forget to mention it to the agent, and it stains the ceiling of the flat below. That means taking the ceiling down, two damaged properties and expensive repairs. And blocked gutters should be cleared quickly before water begins to drip down the wall and damage the plasterwork.


Hotspots pop up if there are changes to the transport infrastructure or employment, or if a university is expanding by building a big new campus. This has happened a lot in recent years.


Also look for anomalies in value. If you find two or three expensive areas with a slightly down-at-heel neighbour, that’s an anomaly that won’t last for ever.


Examples in London are Earl’s Court, which was always seen as the poor man’s Chelsea, and Paddington, with Notting Hill and Holland Park nearby. The councils closed down the cheap hostels and imposed strict fire regulations they knew the landlords couldn’t comply with. What was seen as shabby but as architecturally beautiful as its neighbours — the attractive architecture is a crucial component — had virtually caught up pricewise within five years.


When deciding whether you are going for yield, capital appreciation or a bit of both, I go for a bit of both. Bear in mind, though, that with this option, you won’t maximise either. And look at net yields – not gross. Net yields needs to be ahead of all your expenses and some amateur landlords underestimate the costs involved in owning an investment property.


Void periods are the killer. If the tenants haven’t looked after your property and you need to repaint and recarpet when they leave, suddenly you’re left with a month’s void. That can ruin your year’s figures.


Fix things as quickly as you can and respond pleasantly if they tell you there’s a problem – otherwise, next time, they may not bother, and the problem will escalate from being a tiny one into a big, costly one.
