Think big and buy a block

Chris Browne tells how he dared purchase eight flats to let instead of one - and found it made great financial sense
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The Independent Online

Solid, laid-back and ultra-conventional is how my friends usually describe me. To their surprise and shock, I suddenly stopped being Mr Stable and started being Mr High-Risk when I bought a Grade II block of flats in Nottingham. After recovering from the "What on earth did you do that for" phase, several of them grudgingly admit that it wasn't such a bad idea after all. Buying a block could work as well as, if not better than, a single unit they concede - particularly as I have let most of the flats already, more than covering my costs.

Solid, laid-back and ultra-conventional is how my friends usually describe me. To their surprise and shock, I suddenly stopped being Mr Stable and started being Mr High-Risk when I bought a Grade II block of flats in Nottingham. After recovering from the "What on earth did you do that for" phase, several of them grudgingly admit that it wasn't such a bad idea after all. Buying a block could work as well as, if not better than, a single unit they concede - particularly as I have let most of the flats already, more than covering my costs.

"Small is beautiful" can certainly pay in the buy-to-let business, but "big is bountiful" is now taking hold with today's property investor - for three simple reasons. The long-term profits are greater, maintenance costs are lower than for one-off buying, and quantity often spells quality and better margins for the lender.

Then there are the tax benefits. Poole-based investor Carl Hills, who owns investment properties in the South and North-east, says: "Buying in bulk enables you to set up a property maintenance or lettings management company which helps save thousands of pounds a year in tax. Bigger deals also mean you can spread your risk over several units instead of one. While a few may flag, the others will prosper and vice versa."

I consider myself far more of a journalist than an investor. However, instead of my usual softly-softly approach, I went for the big one this time. I was doing an investigative story in Dartford, Kent, when an investment broker told me about a new property conversion in Nottingham. As I had once spent a short spell there, I asked him to e-mail me the details. There was music in the East Midlands air, so I went ahead and bought. My next step was to find a trustworthy mortgage broker. But I was instantly refused by three companies, as the flats are over a gastro-pub and, to some lenders, food spells "health hazards" and lower re-sale values.

When I eventually found a lender, instead of giving me 80 per cent loan-to-value, it included my four existing flats in the deal, giving me both the deposit and 83 per cent of the £818,000 asking price. This is known as gearing - or borrowing on old assets to buy new. It's also the new, smart way to invest - though your rent yield must be 125-130 per cent above your outgoings. As most lenders loan 75-80 per cent on multiple units and up to 85 per cent loan-to-value on single deals, I was one of the lucky ones.

Then there was the location. My property is in the centre of a student city and almost opposite one of the top 30 UK universities, the building (circa 1870) is reassuringly Victorian, robust and stylish, and the gastro-pub perfectly poised for in-house students wanting on-site music, food and ale.

Stephen Harper, managing director of the property broker Millfield Fountain, says: "One of the biggest advantages of larger property deals is that for brokers and lenders it involves not much more administration than for single transactions, while the investor gets a discount on a multiple valuation and saves time and money on legal work, conveyancing and maintenance." The same applies to property syndicates. "If ten of you decide to buy a 30-unit new-build block of flats, you can negotiate a larger discount on the purchase price than you could on a single one and use one agent to manage it - again at a corporate discount - instead of several different ones. If a block's apartments are sold individually, it can lead to buying wars between agents - and landlords - and disappointingly low rents."

I found a student lettings agent just two doors from my conversion; it meant six out of the eight units were let in two short months. Matching tenants to properties is vital for investors and you must research your area thoroughly. The university gave me my target audience. My second and third options would have been corporate tenancies or letting to individual city folk.

If, like me, you are buying a new-build or conversion, make sure you inspect at least one of the developer's other projects and visit yours three or four times - once when they least expect it - during the building phase to monitor quality. You should also pay £4 to check it out at Companies House. Apart from having to raise a large chunk of cash, the downside to buying big is that all your units are in the same spot, so you are at the behest of the local market and cannot spread your investments over different areas. But then, if you bought a single unit, you wouldn't be able to do that anyway.

Recommended funding sources for larger investments: Millfield Fountain ( www.pensionsinproperty.co.uk; 0800 917 6940); Online-Landlord ( info@online-landlord.co.uk; 0845 674 2735).

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