Fergus Wilson-Top Ten BTL Tips?

One of the biggest landlords in the country- Fergus Wilson has been doing the rounds in interviews because he has chosen to sell his portfolio of 700 properties in one go.

I saw his ‘Ten Tips” for landlording and thought it would expand on his comments here and to see how many landlords out there agree with them.

In 1991 the Wilsons began buying tenanted properties at rock bottom prices. The rent covered their outgoings and the capital values rose in the mid-Nineties. Their strategy was then to keep the properties over a very long term, remortgage and reinvest the capital, much like many of the new investors out there now. It has to be said that unless you plan to keep your properties long term, and that you keep the leverage low, that this is a high risk strategy. The mistake most investors made, is that they geared up to high ( mortgaged to levels which had high loan to values.) By doing that it left them no where to go if the market changed against them. Remember we are only talking about landlords here- not property traders.

Fergus’ Tips

1 You are in the business to make money, not to help people

Property is an investment and a commodity. Don’t get emotionally involved with your tenants. “You may have to reject them if they don’t have the deposit or a guarantor. Don’t let your heart rule your mind,” says Fergus. Decide whether you are a professional landlord looking to earn income from your rent, or a property investor expecting the rent to cover the outgoings while the house rises in value.

2 Buy two or three-bedroom houses – and never flats

Except if you’re in London, where flats will be in greater demand than in suburban areas. “One-bedroom starter homes are no good as people want to move on within six months,” Fergus says. There is also limited demand for four-bedroom houses. “Why would anyone pay £1,300 a month in rent when they could get a mortgage for less?” he asks. “Rock-bottom rates have shifted the balance, but generally it should be cheaper to rent than buy.”

3 Buy new or nearly new

Avoid the cost and time spent doing DIY. “You don’t want the hassle of having to fit a new bathroom and kitchen. Most people with about £200,000 to spend are older and not the DIY type,” Fergus says. New-build properties have the added benefit of a NHBC warranty, boiler guarantees, double glazing and tend to attract more professional tenants.

4 Choose your tenants carefully

“I had no trouble [with tenants] for 19 years, then four people inviting me to a punch-up in a year – luckily I’m a big man,” says Fergus, a former rugby prop-forward. “You’ll see all sorts if you do it as long as we have, but generally it’s a bed of roses.”

Do checks to ensure they are creditworthy and have a guarantor who is a home-owner. And the best tenants? “Middle age couples who have recently got together from previous relationships,” Fergus says. “They won’t be moving for promotion so are likely to stay a long time.”

5 Leverage your money

If you have £200,000 to invest, don’t buy one £200,000 property, buy two and put £100,000 down on each house, says Fergus. He then recommends getting a 50% LTV interest-only mortgage on each. “If you can find interest rates under five per cent, the rent will cover your outgoings,” he says.

6 Magnolia wins every time

“Don’t impose your tastes on others by painting your house lots of colours. Stick to bread and butter houses. A two-bedroom mid-terrace house painted in magnolia and white is what most people want to rent,” Fergus says.

7 Avoid ex-council houses or bungalows

“In ex-council houses, rents will be lower as you will only get as much as the rents office will pay. Ask yourself: ‘Who will want to buy it?’ ” Fergus says. “[With bungalows] you can pay 65 per cent more and receive only 15 per cent more rent than you would for a two or three-bedroom house on the same size plot.”

8 Buy close to home

All of the Wilsons’ properties are within 30 miles of their home, mainly concentrated on new-build estates in Maidstone, Ashford and Hawkinge. “Go for an area such as the M20 corridor, where there is rental demand and rising prices. The prices of our houses returned to July 2008 levels by July 2009 and have risen since,” Fergus says. Don’t, on the other hand, buy in an area with a big retirement community. “You don’t want economically inactive tenants.”

9 No smokers or mechanics – but dog owners welcome

These are personal preferences of the Wilsons, “but generally dog and cat owners tend to keep the house in better condition as they are always hoovering up the hair,” Fergus says.

10 Enjoy the experience of being a landlord

Ah yes, enjoyment, easily forgotten for those who have spent the past year watching property values fall and then rents plummet when too much unsold stock came on the rental market. “If people find themselves in trouble, it’s because they didn’t use their common sense. Otherwise, it’s like real life Monopoly. What could be better than watching the money roll in?” Fergus says. You get the feeling he’ll know just what that windfall feels like soon enough.

Our Notes & Comments

1. This portfolio is leveraged to only 50%. The well known ‘safe haven tax strategy’ (for those using tax in this country) is 66% LTV. This should cover any potential capital gains hikes in values or other nasty tax shocks etc. Most new landlords in the last 5 years were taught by the various ‘guru’s’ to max out on the LTV’s and are leveraged to 85% on avarage. This is a very dangerous place to be, and is why we are seeingh so many landlords with medium sized portfolios going to the wall of late.

2. All the Wilsons’ portfoilio are new properties. Traditianally, new properties don’t hold their value as well as older styles which are always in greater demand.  The Wilsons had one formula and stuck to it. Again this can leave you dangerously exposed should your ‘rental market’ sector change for any reason.

3. Owning 700 properties-the reality. Whilst we may be impressed with someone owning 700 properties, think what this really means- ie several thousand tenants potentially, large amounts of admin and staff to deal with them all plus all the associated expenses.

4. Expecting capital value appreciation only as profit- This is a very long term strategy with lots of work in between keeping those tenants happy for many years. In other words it’s a J.O.B.

5. His strategy works in his area- due to an unusually large amount of new builds and unique placing to the channel tunnel route. It may not work near you. Remember, this portfolio was set up when finance was very easy to obtain. It’s unlikely that banks will allow this again, Fergus was not trying to invest in the biggest bank bust in UK history such as we have now.

6.Allowing  animals-Animals tend to wreck carpets and cause a smell. Some people are allergic to pets and would not want to rent with the smell of someones dog/ cat lingering, thus narrowing your potential supply of tenants. You need very strong washable flooring which will get a LOT of wear and tear and need to be replaced more regularly to allow pets in your properties.

7. Bungalows can make great flat conversions due to large gardens, parking and even space per room. It’s rather short sighted to only look at houses as one thing. There is lots of money to be made in conversions.

8. Magnolia and white paint as a base, but we always inject some colour on a feature wall, or use removeable large pictures when showing. We would still use neutral colours such as soft yellows or greens. It makes a place feel more homely and less temporary.

9. Flats can be great investments, depending on the area demand, and it is good to diversify a portfolio. This too makes your long term survival a better prospect.

10.Your tenants. We find getting to know your tenants makes them less likely to rip you off due to guilt factor, they are also more likely to tell you when things go wrong, giving you a chance to rectify problem rather than look for a new tenant or have a void.

And Finally…

For me personally owning a large portfolio of BTL properties is my worst nightmare! I do property for the freedom and for the money. By freedom, I mean not being tied to to a particular set of things day in day out. That to me is a job. The freedom of setting my own daily workload is my goal. So, how many of Fergus’s poits above would you agree with? Would they work in your area? Would they even work for a novice starting out now? What do you think? Your comments are welcome as always.

My Property Mentor

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