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articles > Tips for Novice Investors
Article > Tips for Novice Investors

Jim Haliburton HMO Daddy

Article kindly supplied by Jim Haliburton

Jim Haliburton began buying property in 1992 and letting them to students, organising or doing the work on the property himself. Jim now owns over 86 HMO's / Multi-Lets with over 500 tenants. On top of this he has about 20 houses and flats which are let as single-lets plus several development projects in progress.

Here are Jims top tips for Novice Investors, which also serve as great reminders for the more Experienced.


Cash Flow
I was tempted to make this the only tip, perhaps because when I was writing it I was going through one of my regular cash flow crises, so important is it. Unless you can pay the interest and bills in operating your business then you will go bust. It is essential that you have sufficient reserves to ensure any expected contingency can be met. Three months running cost would be considered prudent. I am the wrong person to give this advice as if I had three months reserves I would buy more property! By reserves I do not mean cash in the bank, I mean available credit lines, for example, credit cards, bank overdrafts etc.

Preserve your Capital
Once you have done your capital you limit your ability to buy more property to buying below market value (BMV) and you will have to spend out for expensive bridging finance. Preserving your capital does not mean always having to buy BMV though this is a useful strategy. Too many people think they must only buy BMV without considering the alternatives. This often prevents them from buying because they cannot find a BMV property or buying unsuitable properties just because they are BMV. In a rising market all properties bought today will be BMV in a short while. This is a novel way of looking at it.

Buy the Best
I believe it is better to buy the best type of property. If property is rising at 10% pa which is about the average rate of property inflation, then in two years you will be able to release sufficient capital to start over again. OK, if you only want to buy a property every two years but if you consider I have known people to have spent longer trying to find their first BMV property. To start with this may work out because by the time you have bought, prepared and got to grips with operating your first property the best part of a year will have passed and you will need time to find your next property. The other alternatives are to buy property to which you can add value by renovating, improving, extending or turn into a HMO and valuing it on income. See my book ‘How to Become a Multimillionaire HMO Landlord’ for more on valuing on yield.

Maximise your Credit
Obtain as many credit facilities as you possibly can. Credit cards are amongst the best forms of credit you can have, they cost nothing while they are not being used or to obtain. Many offer low cost or free balance transfers which are useful to use when you need them. The second most useful form of credit are bank overdrafts again you can get some which cost nothing to open and have an overdraft facility. Of less use but still worth having are credit accounts with suppliers. Do not forget private lenders, people who have surplus cash who are looking for a better rate of interest than they get from the bank or may be interested in a joint venture.

Always ask for finance
Getting finance is not easy especially if you are buying out of the average properties or want to multi let the properties. Attend property shows and events and if a lender or mortgage broker is there talk to them, explain your requirements and see if they can help. I have by chance come across very useful lenders by that means. Do not rely totally on mortgage brokers; they rarely cover the whole market.

Do not expect logical behavior
From anyone in the buy to let market e.g. lenders, valuers, regulators, Local Authorities, courts, tenants etc. Just accept what is and get on with it – With lenders I have given up trying to understand them. One lender will be exiting the market but will not tell you so you waste time and money applying for non available finance while two more will be charging in with a shed load of money. Lenders remind me of a panicked herd of sheep who just run in the same direction because others do. Valuers are beyond contempt; the arrogance of some is unbelievable. I have strongly disagreed with some valuers over a property value or more often rental income. I have 500+ units of accommodation yet I am told I cannot get the rent level I do and have been getting for years! My greatest contempt is reserved for the regulators, Local Authorities and courts for their bias against Landlords their hypocrisy and stupidity. They have little excuse the evidence is clear that what they are doing is wrong and reducing the supply of accommodation yet for reasons beyond me, they ignore good sense and create and often zealously enforce counterproductive legislation.

Understand your market then trust your instincts
Once you know what you are doing take very little notice of what others say and just get on with it. There is so much conflicting information out there; you just have to trust yourself to make the right decision. Be very cynical of those giving advice. Ask what do they know about the subject and be even more careful if their advice results in a profit for them. The difficulty with this one is when do you understand the market? The wise are always open to new ideas yet are prepared to stand by their own opinion. Decisions in this business can make or lose substantial sums of money and are not easy to unwind.

A house is like a dog, for life!

I have never bought and sold a bad deal and got my money back, never mind at a profit. Now, what I mean by a bad deal is a property I originally bought to let and when it did not let well or had problems, I tried to sell. In fact I end up keeping some as the gradual loss per year was far less than the capital loss from a quick sale and guess what, after a few years the loss making property turned into a nice little earner. Property is like that.

Go for Quality
From experience I usually find the better the accommodation the more rent achieved and the longer the tenants stay. As a rough guide I would guess estimate money spent on improving my units of accommodation produce at least a 20 to 50% return i.e. the cost of improvement pays for itself in two to five years. New build property always lets better than old but demand and location is crucial.

Avoid Officialdom
Wherever possible keep your properties away from your Local Authority, never give them the address of your property. Most Local Authority Officials will just heap pointless expensive standards upon you and so increase your costs for few tangible benefits.
I, and any other Landlords, can give countless examples of useless and often contradictory changes imposed by Local Authority officials. I wouldn’t mind if they targeted the bad landlords but they rarely do, it is the landlords they know about, normally the better ones who voluntarily come forward they heap pointless standards on while saying they have no manpower to be able to find the bad landlords. I still do not understand why a tenant will take or stay in a poor quality property when in most areas there is an oversupply of rented property. I am not advocating unsafe or badly maintained property, any professional landlord will ensure their property is sound and safe but the excess standards heaped upon landlord which neither the tenant or the landlord want or need.

Try it and see
Where to buy and what to charge is often down to try it and see. Yes town centers are usually popular but what about out of the way places? I have tried some odd areas and have been surprised that I have managed to let the property. If demand is good I buy another property in the same area and keep buying until demand slows down. What to charge is neigh on impossible to ascertain. I charge what I guess tenants will pay and if demand is good keeping putting the rent up. In London I have found landlords charging £600pw for studios but they call them ‘Short stay hotels’. Previously they had been charging about £180pw for the same thing. Rents are often determined by what people earn and a rough guide is one third of your tenants take home pay is the maximum you can charge. I am not advocating you buy a property and then try it and see but if you already own a property or have bought a property at well below market price then what have you got to lose by seeing if it will let but your overdraft! Consider multi lets; they bring in on average three times the income that a single let does so it often makes the extra effort worthwhile. Multi letting is not that difficult to do, see my book ‘How to Become a Multimillionaire HMO Landlord’

The tenant
Treat the tenant with respect, be friendly but not expected friendship, give them, within reason, what they want. Regularly ask them if they have any problems with the property and be prompt in getting the problems fixed and check it has been done. Do not believe a tenant’s excuse for non- payment of the rent, it is almost always a lie or they do not intend to pay, take immediate action. Do not expect anything in return and you will not be disappointed. Try and become detached and philiphosical. The injustices and crap that landlords have to put up with can screw you up, just be grateful they pay their rent.What type of tenants you get is down to area, how quickly you want to let and how selective you are. All the professional letting agents will only let to people who can be credit checked and if you do the same then join the queue. If you are prepared to be more flexible then you will have more tenants to choose from and fewer voids but maybe more bad debts but bad debts is more often a product of poor management.

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