Peter Sharkey’s Top Real Estate Investing Advice

11:45 a.m. July 15, 2022

I was so keen to enter the investment property market that when my first suitable opportunity presented itself, I had no time to take out a mortgage, so I took the plunge and bought it using a combination of cash savings and a credit card. It was in 1986.

Fortunately, I had just returned from four years of work in the Middle East where I had managed to build up my savings, but explained to the bank that I needed a mortgage on a property that I had already bought with a About their credit cards was an interesting conversation. Today, I cringe at the number of mistakes I made during the day, mostly because I was in too much of a rush. Today’s owners are taking notice.

The property was a three-story Victorian house rented to six university students who usually paid their rent on time and looked after it as well as one would expect. However, I hadn’t taken into account how often they called asking for things like a replacement bulb (seriously) or help with turning on a heater. Fortunately, I was introduced to a reliable handyman who would take care of the maintenance work.

A random property acquisition model became the norm for several years. Whenever a suitable opportunity presented itself, I advised people likely to be involved before or after the acquisition (mortgage brokers, lawyers, builders, decorators, etc.) while carrying out often complicated financial juggling to ensure the “stack” of the project.

Eventually, however, I began to move away from high-yield student rentals and focus instead on the young professional market – college graduates who no longer wanted to live as students. The young professionals wanted better housing. Realizing this, I started buying newly built properties that were likely to appreciate at a faster rate than the Victorian homes I had invested in.

The penny began to drop. I realized that if portfolio expansion was my ultimate goal, it made sense to have a business plan in place, as well as a group of professionals I could rely on. Estate agents who could give you a few days warning when they knew a property was coming on the market; a mortgage broker (mine calls himself a “financial engineer”) who was familiar with what was still a rudimentary buy-to-let mortgage market; a lawyer you could trust and who would occasionally advise against buying. It was also extremely helpful to speak with other residential property owners.

In the meantime, the business plan was created with the aim of expanding the real estate portfolio, although it became clear that this could not be done in isolation. It was also necessary to take into account existing and anticipated market conditions. It was impossible, for example, to make a “stacked” investment because base interest rates were in the double digits and lenders charged between 1% and 3% above base on their loans. Between summer 1988 and early autumn 1991, base rates never fell below 10.38 pc, a three-year period that required constant financial juggling and efficient rent collection. Unsurprisingly, as base interest rates remained above 5% for the next nine years, ambitions and objectives changed.

For example, it has become apparent that if a property is mortgaged and the interest charged on the loan is over 7%, the chances of making a nice monthly income from it are limited. Better to focus on longer-term capital appreciation. This has led me to sell older, higher yielding properties and buy newly built homes that stand to benefit the most from capital appreciation. Gradually, I began to align longer-term real estate goals with a larger financial plan and began to view real estate as a supplement to my pension.

I try not to make as many mistakes today as I did yesterday, which is easier said than done, but I still believe that maintaining strong relationships with lawyers, mortgage brokers and real estate agents are essential precursors to the success of real estate transactions.

Many rental investors are experiencing choppy conditions for the first time and, as I mentioned above, things could get worse. Anyone who doesn’t like it or cares about it should probably get out. For those who stay, I would say that buying a new, low maintenance property saves a lot of time and money, although there is one thing I wouldn’t recommend: using a card credit to buy.

For more financial advice, check out Peter Sharkey’s regular blog, The Week In Numbers.