How Do You Recession Proof Your Buy to Let Property

In a world that feels a little shaky and uncertain at the moment, one of the most asked question I’m getting at the moment is …”Is it a good idea to invest in Buy to Let property given the current economic climate?”

 There are so many negative messages at the moment. I know! Every time I talk to my mum (sorry mum!) her current fave saying is ‘the world is a frightening place.’

I’m not in denial at all about what is going on, both closer to home and further afield, but I’ve lived a rather rollercoaster life and at one time would have allowed the doom and gloom that we’re constantly reminded of in the news and every media outlet (it seems) to affect my dreams and everyday life.

I just don’t anymore. I can’t allow it to. It doesn’t serve me.

I see it as a plot twist, Plan B, let’s see what I can do now to overcome this new curve ball I’ve been presented with. I refuse to allow the conversation to knock me off course and instead ask what I need to do differently and pull up my sassy big girl pants and forge forward with my plans.

Things are always falling apart and coming back together. Being the Queen of reframe, I like to see it as a way to do different, to do better. That’s how I’ve seen the world these last few years. The pandemic taught us adapting, making room for change was necessary. We feared, got scared and worried for the unknown when it first began, but look at the success stories that came out of it.

Those that were willing to shift and change, level up and break the rules made it work for them.

And so can you!

So……Is it a good time to invest in a Buy to let property?

My short answer, is YES! As far as I’m concerned investing in a Buy to Let is still a vibe….With it though, comes a BUT….

And that but covers a number of things…..

We have no idea in reality how long the financial instability we find ourselves in will last. There are multiple predictions, (which you’ll see below) and I would love to get my tarot cards out (Yes, I am a tarot junkie!) and give you a definitive answer, but I can’t and neither can anyone else. The current predictions reflect this in that they vary.

If your property goal is long term, then investing now, if you’re considered, smart and savvy with your due diligence and research, may just be a good decision. If your goal is more short term, then perhaps not so much and I’d urge you to reconsider and think carefully.

What I do love about Buy to Let investing though is this….Despite what is happening economically, it’s still an asset that produces consistent, regular income. I always say it, but it’s the investment, if done well, that keeps on giving. It’s why I bloody love property. It’s a transformative, life-changing, income producing, retirement planning, legacy leaving, making a real difference asset.

There is speculation that property prices are starting to and will drop, especially in 2023 though by how much, there is plenty of guesstimating going on.

Analysts from Credit Suisse have said that house prices could fall between 10% and 15% if interest rates hit the projected level of 6%.

Lloyds Bank have suggested house prices may fall by 8% next year.

And, in July this year, Rightmove said it thought that expected house price growth to slow to 7% as a whole for 2022… but location will also play a big part in this too. Some areas will fare better than others.

I could go on, but I think you get the idea?! It feels like waiting seems a better option, right? And that may be so….However, I look back at the growth predictions made at the end of 2021 and whilst growth was tipped to slow down, it was expected that certain areas would see continued growth.

You could find a property now that makes total financial sense, tick all the boxes in terms of a rental property with high Tenant demand and lock in a 5 year fixed mortgage rate, knowing that you’ve triple checked your numbers and know that it will provide you with a decent rental income and a positive cash flow.

Or, you could wait! Houses prices drop (Yay!) and interest rates go up as do repayments.

It’s hard to know exactly what the right thing is to do, so you have to assess your own situation, your position right now and do what is best for you. They say good things comes to those who wait, but could waiting mean that property dream doesn’t become a reality?

A Buy to Let, especially during a recession can seem like a risky prospect and I get it, it feels completely natural to want to hold onto your money, save it for a rainy day (just in case), and wait for things (economic climate) to improve. You worry that interest rates will continue to increase, and you’ll be left up shit creek without a paddle.  

The thing is, we end up feeling panicked and the ‘worse case’ scenario does a number on us. It’s true, recession causes increased unemployment through redundancy, lower wages, reduced economic output and as we’ve seen, a rise in interest rates. We know household budgets are becoming tighter, the rent and bills may become harder to pay and it’s perfectly natural to think that if you buy a Buy to Let property now, you may just end up in a position where your Tenants will lose their jobs, the rent won’t get paid and you’ll be left paying the mortgage, not only on your own home, but on your investment too.

It's a bit bloody scary!

But remember, this could also happen at any time. You’ve just got to up your game, channel the CEO mindset and make sure you’re recession proofing your investment, just like any other business decision you’d be making right now. You’ve gotta Girl Boss it!

So how?

Lemme tell you…..

I break it down into four categories….. 

1.     Mindset

2.     Financial

3.     The Property

4.     The Tenancy

Mindset 

It’s so easy to let the media sway our thoughts and beliefs. And it’s also so bloody easy to let the opinions of our mums, dads, friends, brothers, sisters, colleagues affect us, to allow them to project their fears onto us. They’re not the ones doing research.

So, surround yourself with like-minded people who will cheer you on, support and encourage you, not those that will fill your head with all the reasons why you shouldn’t be doing it. This is your dream so DO NOT let anyone dim your light because they fear you shining bright, or wouldn’t have the courage to do what you’re doing.

You have to see this as a business move and get into that CEO mindset. Be savvy, smart and do your due diligence.

Financially

You have to ensure that whatever you’re investing in IS fabulous for you, financially. A rule for now and always. You are not going to buy anything if it doesn’t make financial sense. If it doesn’t, you’re walking away. 

I repeat, you are walking away. Go the memo?

Right now, as much as most of us want to see the future appreciation of an asset, the focus is ensuring it generates a positive cash flow now. The numbers need to work now AND if the interest rates go up. You’re figuring out if a deal stacks up for you.

You’ve got to make sure that the rental income covers the mortgage (and satisfies the stress test) and after all your costs, you’re left with a positive cash flow.

A shift is happening too. A year ago, even three to six months ago, I was viewing properties with 30-50 other potential buyers. It was crazy, insane and most definitely a seller’s market, but it’s calming down and there are deals to be had. Negotiate. If a property ticks your boxes, work to get the best deal you possibly can. A saving is saving, no matter how big or small.

Speak to an independent mortgage advisor, who can look at the entire market for you and get the best deal for you. And fix your mortgage rate so you know what you’re paying over the next 2-5 years.

Tax, I am no expert at, but I have had enough conversations to know that tax planning now before you even start is absolutely crucial to save you the most money possible and ensure that your investment is giving you the best return, especially given interest rates and the changes in tax relief.

The Property

The property you buy needs to meet the wants, needs and desires of your ideal tenant in a location which has high tenant demand. By creating a high quality, gorgeous rental property, even if your tenants do move on, you won’t have any issues finding new tenants to call your property their home.

Consider properties close to transport links. We’re all tightening up the purse strings, so if their cars have to go, they will still be able to get to work.

Research areas. Research, research, RESEARCH! You want to know the area inside and out, BUT also check out how they did in the last recession and what development is planned for the future.

Buy a property that is versatile and saleable, just in case the shit really does hit the fan!

The Tenancy

This is a topic I love. When it comes to the tenancy experience, I truly believe with all my heart, that if you go into this building a customer experience for your Tenants, and with the right intention, this relationship will flourish and benefit both the Landlord and Tenant so incredibly positively.

But to recession proof your Buy to Let property, there are a few things you can do when it comes to the tenancy.

For a start, the moment you first have contact with your tenants, the customer journey (the relationship with Landlord and Tenant) begins. None of this ‘them and us’ BS that I still see and hear so often, but instead an appreciation that you are providing them with a safe and secure place to call home and in return, they are looking after your asset (and your financial independence and future) by paying your mortgage. It’s an eco-system, and that is what I want you to be mindful of, because believe me, it will make this experience so much better for you, and for them at every stage.

Referencing and Credit Checking – I cannot stress this enough. You need to reference and credit check any potential tenant, no matter how lovely and perfect they seem. You need to know that they have job security, stability and a history of being a good tenant, who paid their rent on time. No exceptions!

There’s always a fear and a worry, no matter how much you credit check and reference someone that they could miss payments and end up in rent arrears. A solution to this is taking out Rent Guarantee Insurance. Another cost for you, but it’ll give you added peace of mind, especially during these times.

Communication for me has always been the most important aspect of any relationship, not just between Landlord and Tenant, but in business and personal life. Building that rapport and trust is absolutely crucial to being a wildly, successful Landlord Queen. Check in with your tenants and see how things are going. I’ve always thought property inspections are a great way of checking both the property and how things are going for your tenants in a formal, but relaxed way.

Having a friendly chat with them can give you valuable insight into their plans for their future or financial stresses they may be experiencing. If they’re thinking of moving on, they’re more likely to tell you sooner rather than later, so you have more time to plan, re-market and find new tenants. If they’re struggling, it allows you to work out a solution together, rather than it being left to the last minute, leaving both you and them in a panicked state.

And finally, do you put the rent up? This is definitely a hot topic at the moment and has a mixed response. I like to take the long term approach and this is my opinion for what it’s worth…… the cost of living is increasing, people are struggling. The aim of this investment is to make money, but not to the detriment of those that are paying my mortgage – the Tenants! If you have decent tenants that pay the rent on time and look after your investment and the rent they pay covers your costs and leaves you with positive cash flow, I would, for now, leave any rent increases. Just my opinion! You can take it or leave it.

Things will shift and change, we’ll adapt and pivot, lean into thinking outside the box, finding a better way. I see these times as challenges, not easy, granted, but curve balls that are meant to make us think, refine and push us, sometimes in a new direction, other times to make us level up and elevate.

If we stay the same, nothing changes.

Trust yourself to make the right decision. Stay in your lane. It’s so perfectly normal to worry that you may f*ck it up…that’s part and parcel of stepping out of your comfort zone. But don’t allow the recession to stop you doing something you want to do, if everything lines up for you and it feels right.

You’ve just got to figure out if the right time for you is now. If it is, embrace it, lean in, apply everything you’ve learnt and make it happen. If not, that’s ok too. Keep learning, educating yourself and trust that you’ll know when the time is right to take that step.

Check out Decoding Buy to Let; The Fabulous Female Way. It will help you whether the time is now or at some point in the future.

Or if you fancy a virtual coffee (or wine), let’s get together over Zoom and talk, get planning and making those dreams a reality.