Low yields, London, tax changes and Brexit are all making investors think about the realistic prospect of ‘investing up north’.
Frankly, this is some of the most dangerous advice being bandied around.
I can count on one hand people who have successfully managed to build a significant portfolio remotely. It is the exception to the rule. I’m not talking 1-5 over 10-20 years, that’s easy enough (though still much harder remotely), I’m talking a portfolio that can be a real pension or replace a day job.
My good friend Peter Jones is one of the few: he has 60 properties in Newcastle but lives in Nottingham. He made it work because he had to, but it took him longer and was much harder work; he himself says if he were to start over he’d have done it more quickly and easily in Nottingham.
Many, if not most of the horror stories you hear about property are overseas, off plan, way up north or miles away from where people live.
Here are the main downsides to investing in property remotely:
It takes less time, money, energy and emotional investment to invest as close to you as possible.
If you are in a high value/low yielding area, search as close as you can away from your area first and do not chase yields in far northern cities for the sake of it or in reaction to a fleeting change in tax/government.
If gross yield on a single let is 2% better, the net result on a sub £100k property might be an increase of £100 to £120 a month net pcm (roughly). One 100 mile train fare can cost that. You could be £150 gross income up and £250-400 in extra travel, accommodation and maintenance costs down.
There are many different strategies that work in lower yielding for single let areas. Take time to learn what they are and do not be in a rush to chase yields up north. HMOs, SAs, lower loan to values, JVs, and commercial conversions all may be viable in lower yielding single let areas.
This is in the top 5 single biggest mistakes I’ve seen 1000s of investors make in the last 10 years.
There are some (rare) exceptions. If you are hellbent on investing remotely – read on.
‘Investing locally’ can mean a tight geographical area and not necessarily a tight geographical area very close to where you live. In a way this strategy is ‘non-local local!’
If one finds a goldmine area that they believe to be the best based on good research that is remote, then they are wise to stick to that area for the long term to get the long term benefits; economies of scale, deep relationships, deep knowledge.
Be wary of advice stating “I invest remotely and I have a successful portfolio” because you need to know what that exactly means.
Very few people are going to be candid enough to say “I have a remote portfolio and it was a nightmare/is still a nightmare”, or “I sorted it out in the end but I wish it was closer.”
Would you rather manage a property, portfolio or business very close to where you live or 200 miles away? 400+ of my properties are within 7 mile radius of my home, 200-300 more are within 25 miles. Even then, they are still like a baby that you love but needs its nappy changing, lots of love and attention. There are always challenges. Plus the furthest away ones seem to take the most management. One remote property investment can take more management than 15 local investments in close proximity.
It’s common sense.
I’d love to see a remote investors deal analyser include travel costs, including train, fuel, car depreciation and maintenance and opportunity cost of time, because they are real costs of investing further away.
I’m not saying this out of bias other than bias for what a) as worked for my business, b) learning from all the mistakes we made and c) where I have seen most people succeed and fail in the long term.
Many people are being taught to blindly run up from London to Newcastle to invest for yield. New investors doing this are very exposed and probably not aware of all these unknowns. I also understand that it “is OK for you Rob, because you live in Peterborough which is a decent yielding area” – that is exactly why I can share this.
When we first started investing in property we adopted a scattergun approach – overseas, off plan, and none of it worked even 10% as well as local area investing.
If I lived in Mayfair and wanted to invest in single lets for the long term, what advice would I give myself?
Rob Moore is a property investor, entrepreneur & host of the “Disruptive Entrepreneur” podcast.
He co-founded the UK’s biggest property education company Progressive Property in 2006 with Mark Homer and has since helped over 100,000 entrepreneurs to achieve their property ambitions. He is also the best-selling author of “Money” and “Life Leverage”.