Buy-to-let investment guide: quality -V- quantity
- 20th September 2011
- Property Tips
Should you reduce risk of voids with cheap properties or invest in fewer quality properties that will be easier to let?
A buy-to-let property portfolio consisting of five cheap flats has a lower void risk - periods where the property is empty/unlet - than a portfolio of the same value with three higher quality flats.
The aim is to build up a portfolio with several cheap flats, perhaps in different areas. If one of the properties is not let only a small proportion of the total portfolio is void.
This strategy requires more time and effort to manage for the landlord, because the tenants are more likely to have problems with cheaper properties (repairs etc) that the landlord will have to resolve. That puts a lot of landlords off diversifying their portfolios to cheaper properties.
The alternative strategy is to invest in fewer high quality properties that will be easier to let because they might seem more attractive to prospective tenants and therefore command a higher rent. However any void period on more expensive properties will be much more damaging to the investment returns from the portfolio. Yields tend to be higher on cheaper flats, because the lower purchase price and rates and rates are lower but the rents are almost as high.
Stephen Ludlow, Chairman of ludlowthompson, comments: “New buy-to-let investors are often concerned that buying a few cheap properties will mean they have to dedicate a lot of time to managing their portfolio. That pushes them to invest more in a property that may be less time consuming but the trade-off is a higher void exposure and potentially lower yields.”
“One way to keep a diverse portfolio of cheaper flats without having to dedicate too much time, is to use a managed lettings service.”
“Managed properties are very attractive to tenants, who will sometimes pay a premium for the service that can cover the additional cost to the landlord.
Managed properties are very attractive to tenants, who will sometimes pay a premium for the service that can cover the additional cost to the landlord.
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