We are so honoured to have a Rob Moore (co-founder of Progressive Property and owner of over 650 properties) writing a guest blog post for us.
Demystifying bad advice around about investing remotely:
Low yields, London, tax changes, Brexit etc all making people think & opening them up to 'investing up north'. Frankly this is some of the most dangerous advice being bandied around. I can count on one hand people who have successfully managed to build a significant portfolio remotely. It is the exception to the rule. I'm not talking 1-5 over 10-20 years, that's easy enough (though still much harder remotely), I'm talking a portfolio that can be a real pension, replace job etc.
One of my good friends is one of the few. he has 60 properties in Newcastle but lives in Nottingham. He made it work because he had to, but it took him way longer & was much harder work & he himself says if he were to start over he'd have done it quicker & easier in Nottingham. Many, if not most of the 'horror stories' you hear about property are overseas, off plan/way up north/miles away from where people live. Here are some of the reasons:
1. Time away from family/life increases exponentially
2. Travel time increases
3. Travel cost increases
4. Opportunity cost of time away increases
5. Local mindspace (being sen, noticed & known) decreases
6. Control reduces significantly (out of sight, out of mind)
7. Ability to manage gets way way harder
8. Number of viewings gets harder/takes a lot longer
9. Specific knowledge of locality takes way longer if ever possible
10. You get put 'bottom of the pile' with letting & estate agents because locals are seen more & around more
11. Stress/worry/unknowns increase
It takes less time, money, energy & emotional investment to invest as close to you as possible. If you are in a high value/low yielding area search as close as you can away from your area first and DO NOT chase yields in far northern cities for the sake of it or in reaction to a fleeting change in tax/government. If a gross yield on a single let is 2% better, the net result on a sub £100k property might be an increase of £100 to £120 a month net pcm (rough; always work it out yourself).
ONE 100 mile train fare can cost that. You could be £150 gross income UP & £250 to £400 in extra travel, accommodation, maintenance etc costs DOWN.
There are many different strategies that work in lower yielding for single let areas. Take time to learn what they are and do not be in a rush to chase yields up north. HMOs, SAs, lower loan to values, JVs, commercial conversions etc all may be viable in lower yielding single let areas.
This is in the top 5 single biggest mistakes I've seen 1000s of investors make in the last 10 years.
There are some (rare) exceptions. If you are hellbent on investing ‘remotely’. Read on:
‘Invest locally', can mean 'a tight geographical area' and not necessarily 'a tight geographical area very close to where you live'. In a way this strategy is 'non-local local!’
If one finds a goldmine area that they believe to be the best based on good research that is 'remote', then they are wise to stick to that area for the long term to get the long term benefits (economies of scale, deep relationships, deep knowledge, etc). My friend did this too (Lives Nottingham, invests in Newcastle).
But he is honest about all the extra pain and cost up front & he might start more locally if he were to do it over again. This is common feedback of people who do 'remote investing' when you talk to them privately, which in and of itself is not 'wrong' as stated here.
Points of distinction & in summary:
1. The closer the area to you, when you start, that works (yield or strategy), the easier, cheaper & faster it will be
2. The bigger the portfolio (that works), the more incentive & reward there may be to go further out
3. If you are in a very low yielding very expensive area you may have to look outside of where you live (but it doesn't have to be 250 miles away)
4. If you choose to chase the highest yield furthest away, be prepared to make additional short term (and maybe medium term) sacrifices you wouldn't have to make if you invested closer to home (time, travel, cost, lack of leverage, wastage, etc)
5. There are alternatives to single let yield you should/could consider first (adding value, changing use, different strategy (HMO, R2R, SA, DP etc)
So you need to look at yield <<but add in these extra costs inc time>>, not just gross yield area by area.
Be wary of advice of a few people saying 'I invest remotely and I have a successful portfolio' because you need to know what that exactly means. Very few people are going to be candid enough to say 'I have a remote portfolio & it was a nightmare for ages/is still a nightmare/I sorted it in the end but wish it was closer. Look at common sense: would you rather manage a property, portfolio, business (anything) very close to where you live or 200 miles away)? 400+ of my properties are within 7 mile radius, 200-300 more are within 25 miles. And they still are like a baby that you love but needs its nappy changing, lots of love and attention & gives you labour pains. There are always challenges. Plus the furthest away ones seem to take the most management. A 25 mile remote one can take more management than 15 local ones all close together. It's common sense.
I'd love to see a remote investors deal analyser include travel costs, including train, fuel, car depreciation & maintenance, subsitence, and opportunity cost of time, because they are real costs of investing further away. I'm not saying this out of bias other than bias for what a. as worked for us (Mark's first properties were in Bulgaria in 2003 & he had nightmare after nightmare because he didn't have the experience) b. learning from all the mistakes we made and c. what I have seen MOST (there's always an exception) people succeed with for the long term (local or tight geo-area) and fail with (scattergun or a long way away).
Many people are (& are being taught) to blindly run up from London to Newcastle to invest for yield. New investors doing this are very exposed & probably not aware of all these unknowns.
I also understand that it 'is OK for me because I live in a decent yielding area' - that is exactly why I can share this. When we started we invested scattergun, overseas, off plan, and none of it worked even 10% as well as local (tight geo-local) area. If I lived in Mayfair and wanted to invest in single lets for the long term, what advice would I give myself?
1. Consider investing in Peterborough (or area like it). It is 70 miles not 300 miles away) as close as possibe but further away 'non-local local'
2. Look for HNW investors who could leave all the cash in and consider more local properties
3. Look at what works closer (R2R, SA, etc)
4. Do not scattergun
5. Be aware up front of the time & real cost of investing further away
Rob Moore is a property investor, entrepreneur & host of the “Disruptive Entrepreneur” podcast.
He co-founded the UK’s biggest property education company Progressive Property in 2006 with Mark Homer and has since helped over 100,000 entrepreneurs to achieve their property ambitions. He is also the best-selling author of “Money” and “Life Leverage”.
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