Managing my financial journey
Managing my financial journey

Start this free course now. Just create an account and sign in. Enrol and complete the course for a free statement of participation or digital badge if available.

Free course

Managing my financial journey

3.3 Property investment – a boom in buy-to-let investors

In this video Shaun Cummings explains how he got started in buy-to-let and shares tips with those thinking of this type of investment. He also looks at the pitfalls.

Download this video clip.Video player: ou_futurelearn_managing_my_journey_vid_1087.mp4
Skip transcript

Transcript

MARTIN UPTON
So Shaun - how did you get into property investment?
SHAUN CUMMINGS
I guess pretty much by mistake in a way. We had a company that was producing lots of surplus cash and we were looking for a premises for it to operate out of because we currently rented. And the first building we bought was a place in Birmingham and it's the Carillion Training Centre and we stumbled across it. It was up for sale. They'd still got five years lease on the building and we got it for what we thought was a decent price and it was making about a 12 per cent return and that was how we got into it. It was literally we had some spare capital and we couldn't find anything for us to operate out of so we decided to purchase something else.
MARTIN UPTON
So how did it grow from there then? That was the start ...
SHAUN CUMMINGS
That was the start, myself and the then business partner split and he went off to the South of France and I took the rest of the business over and we then found an office to operate out of, which we bought and that would have been in about 2004 and that was the second building. I owned it in one company and a trading company which I shared with someone else who was operating out of there for about five or six years and then we decided to change tack. Because the businesses were still generating capital we thought that maybe we'd go into residential. And so we then moved on into the residential market. Returns aren't so good but you haven't got such a loss if they're empty. The problem with the commercial market of course is you've got very big rates to pay when they're not occupied and you can have a lot longer periods where they're void of rent. So that's how we did it.
I guess now we've got twenty-four properties. Five are commercial, which are a shop, or two shops, one training centre in Birmingham, which is the Carillion place which trains bricklayers and carpenters. We've got one office set up which originally was a PDSA vets and then became our offices and we've got another one which is a mixed development of, I guess, offices and a couple of flats in Birmingham. And then the balance, the other eighteen or so, are all what I class as reasonable quality residential lets.
MARTIN UPTON
Why did you invest in property? I mean there are many other things to invest in. You could actually put your money with a fund manager and you wouldn't have to sort of deal with day to day issues which arise when you do invest in property.
SHAUN CUMMINGS
I guess because of my background I've been in buildings all my life. I understand buildings. Most of the maintenance I do myself. So I get my hands dirty and it's something I know. I know the markets well. I know when to buy when not to buy so effectively it's something that I'm comfortable with. I've got stocks and shares as well but this is something that I do I suppose with the company's money rather than invest the company's money in stocks and shares.
MARTIN UPTON
Okay. Focusing particularly on residential property - if you were looking to invest in a residential property for you know to buy to let as they say what sorts of features are you looking for in a property?
SHAUN CUMMINGS
All the properties I look at are usually distressed in one way or another. They're generally mortgage reclaims which have been wrecked and because of being able to do them up myself I can go in there quite quickly and turn them round. You buy them at a much lower price normally but quite often because of the things that have been ripped out of them they're not mortgage-able, so virtually everything I've bought bar two or three of the properties have been non-mortgage-able. They haven't got sinks left in them. As you can imagine when people get into financial difficulty they start to sell things and then they start to wreck things. One of the houses I bought had no conservatory. The door support walls about this high were there and the tiled floor and the electrics were there but there was no UVPC windows or roof.
MARTIN UPTON
So they'd ripped out the windows and ...
SHAUN CUMMINGS
They'd sold them -
MARTIN UPTON
- And sold them -
SHAUN CUMMINGS
Yeah - they'd sold them to the person who lived across the road.
MARTIN UPTON
Okay. Looking back on your portfolio - what have been your best moves and what have been your worst moves - to date?
SHAUN CUMMINGS
To date - yes this one could be one of them - no. The best move I think was a fairly small house up in the eastern district of Northampton which I picked up for £75,000 about three years ago and even at the time they were changing hands at about a £110,000 so that was a steal. Had its problems. The mortgage company who had put it onto the market didn't realise that it was a shared ownership and they had to do what they call a stair case payment to actually get the equivalent of freehold on it, which they eventually did, but it took about nine months from saying I'd have it to actually getting hold of it. But you know it's a house that cost me in the end with all the re-decorations and new windows and things about £83,000 and now returns a very healthy £650 a month. MARTIN UPTON: And what about your worst move?
SHAUN CUMMINGS
Worst move is probably the office in Birmingham. We're currently trying to dispose of it and having owned it for almost seven years it's worth no more now than we paid for it.
MARTIN UPTON
Now you know things are changing in the buy to let markets, changes in terms of tax relief on mortgages for people who use mortgages to buy properties for buy to let and also changes in stamp duty with a 3 per cent surcharge on stamp duty when you're buying property which isn't your own home so obviously if you are in buy to let investing situation in you're buying properties you're going to be paying 3 per cent surcharge on stamp duty. Do you think these things are sort of marking maybe the end of the boom in the buy to let market and in investment in property?
SHAUN CUMMINGS
I don't think so. I mean the 3 per cent stamp duty, quite a few of the properties we've bought have always had some form of stamp duty so it's a little bit more if you're buying you know a house now than it would have been, but overall I would think the returns are good enough that people will still do it. In terms of the taxation on the mortgage it's not an issue we get into because we only use cash. We've not really considered that point. The only thing we've looked at is what effect it will have and what our returns will be. But because we're I would say long term investors there's no intent for us ever to live in the houses we're buying and they're bought through a business we look at it as being still a market that's acceptable to be into.
MARTIN UPTON
Okay. Now you know that a lot of people point at buy to let investors and say well you're part of the reason why property prices are booming and as a consequence you're part of the reason why youngsters can't get on the property ladder and you're part of the reason why there isn't a greater supply of properties for people to buy to live in as opposed to rent. So what do you feel as - sorry but you know I've got to raise these questions. What do you feel as a, now kind of a big buy-to-let investor? What do you feel about those questions? You know, what do you feel about your social responsibilities?
SHAUN CUMMINGS
Okay. As a company generally we don't buy the first time buyer houses. The one in the eastern district that I talked about a few minutes ago is the only one of that size. Most of our units are three bed detached with two bathrooms and we generally attract an older person you know a fifty or plus year old person to rent them. Normally they've fallen on hard times. They've sort of lost their own houses and they're happy to rent and want to rent and won't ever be able to get themselves into a mortgage-able position again. If you look at the rental market as a whole, including the first time buyer type houses, there is a very good market in it. Is it socially unacceptable that people are buying these up to rent out? Possibly but then you've always got a lot of people who can't afford and never will afford to buy who need to rent something and you can't get council houses any more so you have to have a private sector that steps in to provide people with those houses that they can afford.
MARTIN UPTON
Understandably you often get approached by people who ask about getting involved in buy to let, getting involved in property investments. I mean what would be your best tip to someone that says I want to get involved in property investment. What would be your number one tip for them?
SHAUN CUMMINGS
Try not to over extend yourself financially. As I said earlier we don't borrow money to buy ours. We wait until we've got the cash and then it's a no risk scenario. A lot of people are taking on mortgages that are fairly high compared to the value of the houses and of course if you get any void periods then you can come unstuck and you can lose the property. One that I picked up in Duston belonged to a mortgage adviser and his mortgage advice company went bust and he lost that property. So the best advice is don't over stretch yourself. Make sure that you can survive on probably about 80 per cent of an annual rent going out on your mortgages and if you can do that then you should be okay.
End transcript
 
Interactive feature not available in single page view (see it in standard view).

The UK has seen a boom in buy-to-let investments in recent years, partly as a result of the low interest rates which have made many people seek alternatives to savings products. The boom has also been supported by the growth in demand for rental properties from those not in a position to buy their own home.

Buy-to-let mortgages normally have higher interest rates than mortgages for purchasing your own home. The deposits required from those borrowing to finance the purchase of buy-to-let properties tend to be higher too. This is because of the risks associated with such lending – particularly the fact that the ability to repay the mortgage is linked to receipt of rental payments by the tenants of the properties. If tenants default on rental payments or if the property is empty (‘void’) for periods of time, the buy-to-let landlord may struggle to keep up with their mortgage repayments.

This boom might be coming to an end though. In July 2015 the government announced that, from the 2017/18 financial year, the tax relief that landlords receive on mortgage payments will, in stages, be reduced to 20 per cent. Currently landlords can receive tax relief up to 45 per cent, the highest marginal rate of tax on incomes. This move may lead to some landlords quitting the market and selling their properties. One alternative, though, is that the additional mortgage cost arising from the reduced tax relief will be passed on to tenants in the form of higher rents. This, though, could result in some tenants opting to buy their own property instead of carrying on renting.

From April 2016, those buying property to let out have also become liable to a 3% surcharge on the Stamp Duty Land Tax (SDLT) paid on property purchases. This may also take some of the heat out of the buy-to-let market.

OUFL_27

Take your learning further

Making the decision to study can be a big step, which is why you'll want a trusted University. The Open University has 50 years’ experience delivering flexible learning and 170,000 students are studying with us right now. Take a look at all Open University courses.

If you are new to University-level study, we offer two introductory routes to our qualifications. You could either choose to start with an Access module, or a module which allows you to count your previous learning towards an Open University qualification. Read our guide on Where to take your learning next for more information.

Not ready for formal University study? Then browse over 1000 free courses on OpenLearn and sign up to our newsletter to hear about new free courses as they are released.

Every year, thousands of students decide to study with The Open University. With over 120 qualifications, we’ve got the right course for you.

Request an Open University prospectus371