ASK492: Should I buy in an up-and-coming area? PLUS: Do I have enough money to invest?

0:02Hi, I'm Rob. And I'm Rob. And this is Ask Rob and Rob. Hello everyone, welcome to Ask Rob and Rob, the show where you give us your wonderful questions and we do our very best to give you a good answer in return. That format rolls on this week, it comes back every single Tuesday and we've got some great questions lined up. But before we do, let's give you a quick reminder of how you can get your fabulous self on the show. Yeah, so easy. Just go to propertyhub.net slash ask. When you're there, if you want to leave us a written question for our Sunday Times column, you can do. Or we love it the most when you leave us a voice message because then we can feature you on this here podcast, just like we're about to for Bon.

0:39Hi, Rob and Rob. It's Bon here. I'm a new property investor and I've been a listener of your podcast since the start of this year. Thanks for sharing all the helpful content and taking the time to prepare your podcasts. So I've recently found a deal in the Midlands for a four bedroom HMO and I'm planning to do a full refurb and turn it into six bedrooms. The numbers make sense and could be an all-money deal after remortgaging. The property is close to a well-known factory in the area and would be a handy location for young professionals to live in. However, I was hesitant to make the offer as it is not in the best area of town and wherever I look online, people are saying it's not a desirable area to live in.

1:19But I find that there is a new development down the road of 300 brand new homes, all detached and semi-detached with two to four bedrooms. So my question is, should I pass on the deal since the location is generally the most important thing when it comes to an investment property? Or should I go ahead with the deal since the numbers are good and hope that the new development will bring in shops and amenities into the area, which could potentially make the area more desirable? I'm not sure how the new homes will affect the demand as they are targeting families and I'm targeting young professionals.

1:51But my plan is to hold the property over the long term and hope for good capital appreciation while having a decent yield. Many thanks. Bob, thank you for your question. It's really good. I like this question because it helps educate not just yourself, but so many others. Because one of the things with HMO is you do HMOs for yield. You've talked about that you want to benefit from capital growth, and that's understandable, right? Why not have it all? the yield and the capital growth. But the yield is why most people go the HMO route. They want that short-term income. For Rob and I, it's about the long-term capital growth, and the rental income is a bonus.

2:32But for HMO, it's all about the now. That's normally why you do it. If you're in it for the long-term growth, change your strategy. Because the downside to HMO is it's a lot more work. You work for that income. You're going to work by doing a refurb, better you got to work to manage it even if you use a management company but you probably know that and that's fine but i'm just saying it for the benefit of everybody listening so with that in mind it doesn't mean that your investment opportunity is an automatic pass because you would expect a hmo to be in that part of town now this isn't an all-encompassing rule but generally with hmos they tend to be in the cheaper areas not always but just more often than not they're in the areas where there's strong rental demand but not necessarily strong residential demand.

3:23And the other thing is from a residential point of view people don't like HMOs in their area and that's another reason why that dynamic exists and is in play. Now where you may see capital growth is that your yield improves over time. So if you believe that the fundamentals from a rental point of view are very strong in this area and your yield continues to improve then that's where the value of the HMO could be because unless someone is going to completely refurb that property back into a normal property the value really is to somebody else who wants a HMO so you still may achieve capital growth from a HMO perspective and that is your most likely exit and the fact you're turning it into HMO even if it was in a better part of town it still would be hurt from a capital growth point of view because whoever takes that property on they want to live in it, they'd have to refurb it back.

4:15So that will impact the value. So there's a lot to take in there. And it's more about the overall strategy of HMO and taking all those things into account rather than this particular property and this area. But if you do all that, I'm sure you'll make the best decision for you. So good luck, Bon. Okay, let's move on to our next question. Hi, Rob and Rob. It's Sarah. I'm a huge fan of your podcast. I live in London and Amigo 2, start investing in properties, even though I only have a small initial capital to invest, I'm considering buying a small flat to rent out for 50 ,000 or less, so at the very lowest side of the spectrum.

4:58Is that possible, you think, or even advisable? And if so, where about would you suggest to look for it in terms of areas? Thanks for all you do. Sarah, thank you for your question. So if you have a question, you said you're looking to buy a small flat to rent out for£50 ,000 or less. But what I'm not clear about is if you're planning to use a mortgage. So if you're saying you want to buy a property outright for£50 ,000 or less, I'd say that it's possible in a select number of parts of the country, but not necessarily advisable. So if you're looking to buy something that cheap, it's never going to be in the best part of town.

5:35It's never going to be in the best condition. It's never going to attract the best tenants. And also importantly, over the long term, it's never going to generate the best capital growth. So it might generate you on paper a decent rental income, but there's going to be a lot of management involved, a lot of risk involved. And so especially for your first investment, I would be nervous about that one. However, if what you're saying is I've got£50 ,000 to invest, can I with a mortgage make an investment? Then I would say yes. So it's a very simple rule of thumb. You can assume that you can multiply the amount that you've got to invest by three.

6:04That's normally because you can borrow up to 75%, but you can have costs, you can have stamp duty, things like that. So I'd say multiply by three, which gives you a conservative estimate of what you've got to spend, assuming you're not doing any kind of major works, which of course you need to factor in if you were. So with your 50 ,000, you could be buying something up to 150 ,000. Now in London, where you are, you're still pretty much in parking space territory with 150 ,000 pounds, but there are many parts of the country where you can make a very solid investment. You're still going to be looking at smaller properties, but that's okay because they tend to work out better as buy to let properties anyway and you're not even necessarily just restricted to flats we through property of invest in some parts of the country have been able to secure brand new high quality houses at that price so if you're used to london prices that might sound insane but it is possible so in terms of where there are lots of places i'd recommend going to our youtube channel we've got a video on there about our hot spots for this year and we've got various other videos about where you should invest shouldn't invest running the numbers on deals and all that kind of thing.

7:04So I would say use that as a starting point of your research and start building up a picture of what your options are and deciding where you want to dive deeper. But if you were planning to buy with cash, then I'd say start by getting comfortable with the idea of using a mortgage. See if that's right for you, because that really is the only way that you're going to make this work. But it's not even a negative thing. Using a mortgage is a good thing because if you've got an investment that grows, it multiplies that growth. So Sarah, thank you for a question. I hope that helps. And we hope it's helped you as well.

7:32And we want to help you even further because on Thursday we'll be back with the main event, the Property Podcast. And of course we'll be back on Sunday, the Sunday Times, answering more of your questions there. So until all those momentous events take place, take care. Have fun. Bye-bye. Bye-bye.