Blazoned across the brochure of an exciting property investment are the words ?Passive Investment?!?Awfully attractive to astute investors who are cash-rich and time-poor. Is that the reality though? Often times, investors I speak to have found it?s not so. Here?s why.
The success of a buy to let property investment hinges on a number of factors; location, purchase price, timing of purchase, running costs, the state of the building and so on.
If we assume an investor?s purchased at the right time in the property market cycle, and for the right price, there are two absolutely fundamental requirements to optimise returns and minimise stress and investment of time. Those two requirements are 1) the service provider the investor chooses to manage their property, and 2) the constant monitoring and reviewing of all aspects of the investment.
A passive investment often conveys the image of the investor being completely hands-off, having no involvement or input. It would be foolhardy, surely, to appoint a lettings agent and not to keep track of their management of a buy to let property.
Whilst one would hope that an investor has chosen a reliable and trustworthy lettings agent, one also has to be aware that this is not a fully regulated industry, and there are numerous poor performers offering a service. Some are downright unscrupulous. The property investor should know whether the lettings agent is conducting tenant referencing thoroughly, inspecting the property regularly, forging a good relationship with the tenant, and whether they?re ensuring the property?s compliant with all the lettings legislation ? remember that the landlord, not their appointed agent, is legally responsible for duty of care issues to safeguard the tenant?s health and safety.
What about consideration of other issues, such as mortgage funding, buildings insurance, landlord?s insurance, repairs and renewals, cashflow forecasting and management of the bank account, annual tax returns, managing the sale of the property, to name but a few? If an investor expects a passive investment, are they prepared and informed sufficiently to deal with all these issues? Not many lettings agents will deal with all of these issues as part of the property management, nor can they monitor and review their own service to the investor.?These are all aspects to be dealt with either by the investor themselves, or by a property portfolio management company.
I conclude that a property investment could only really be accurately described as a passive investment for the property investor, if and when they?ve delegated all of the issues mentioned above to a competent person. If a passive investment is your heart?s desire, I would challenge the concept that property is the way to go.