Property Investment Principles
If you’re new to the world of property investment, it can be very difficult to know exactly where to start. The process can seem quite daunting, maybe even intimidating. Inevitably you are investing a large amount of hard earned capital or perhaps even your life savings, so you’re wanting to make sure your investment is sound.
Before undertaking such a big journey, especially if you don’t have much experience in buying or renting property, it is important to make yourself aware of the universal principles of property investment. Hopefully once you’ve taken the time to familiarise yourself with these important principles, you can move forward with much more confidence, knowing that your investments will be both sound and potentially profitable.
Always Buy At Discount
It may seem an obvious thing to say, but one of the first and most important things to take into account when deciding on a property to invest in is value for money in terms of the amount of capital you are looking to invest. Never be afraid to negotiate for a discount. If you are buying a property that is not relying on you selling another, then you immediately have a huge advantage when it comes to negotiations. You are seen as a more secure buyer with less chance of the sale falling through. Pitch a lower offer and stand your ground. Be confident. Many property owners will bring their price down if it means securing a quick and reliable sale.
Another great way to secure a discount is to look at the possibility of purchasing a property off plan, when you purchase a property in advance of its completion. Off plan investments are often priced very competitively and give investors opportunities in exciting new areas. At Aspen Woolf our property experts and sales team can advise you on what is available in up and coming areas.
Don’t Spend Much On Your Buy To Let Property
Make sure that any further investment made, outside of the initial purchase cost, adds value to the property. Whether it is as simple as a new coat of paint or new carpets, to any major remodelling or construction work. As a rough guide, try to ensure that for every £1 spent you see a £3 increase in value. Also if you are ever looking to sell the property, don’t be afraid to invest a little back into it to increase the sale price.
Invest In Buy To Let For Rental Yield, Not Capital Growth
A mistake many new investors make when purchasing a property, is buying under the assumption that property prices will continue to rise. As has been made obvious in recent years, this is not always the case. Make sure that your numbers add up for you to be seeing a decent return with the property at it’s current value. You want instant cash-flow. Don’t “buy-to-hope” that you’ll see dramatic increases just based on the market.
Always Have A Contingency Plan
What do you do if you have tenants and something goes wrong at the property that will need fixing? How about if a tenant leaves and it takes a while before you are able to secure a new one? Making sure you have a bit of a cash buffer “just in case” is essential if you want to stay on top of any mortgage payments or other costs that you have when running your property.
Don’t Let Your Heart Rule Your Head
Any successful property investor will tell you that you should never invest your money based on emotion. Don’t be seduced by bright colourful brochures that are selling a dream. Don’t choose your property based on something you’d love to live in. Buying an investment property is a very different task than buying your dream home. Be sensible. Detach yourself from it as much as you can. Look at facts and figures and buy something you know will make you money. Also, make sure you are not rushed or pressured into a deal. If they do not accept what you are willing to pay then move on and find something else.
You can never be too thorough when “doing your homework” on a property. It is a big investment so you need to make sure you don’t overlook something that could potentially affect your return. There are three things that need to be investigated fully. The property, the numbers and the deal.
The property: Make sure the property is fully surveyed and valued independently. Get all the reports done that you can, including getting builders to give you their evaluation. The physical structure of the house needs to be sound or you can end up losing a lot of money, either by needing to do unexpected building work, or by taking a loss if selling it on.
The numbers: You need to check the value you have been given matches up to other properties in the area. You must know how much rent you are going to be able to get and also any running costs which need to be paid on top of the mortgage. You cannot be too careful when checking this to ensure that your returns will be as predicted.
The deal: Make sure you have your goals in mind before you even start looking for a property. Then find a property that fits those parameters and will bring you the returns you want. Don’t tailor your deal to suit a property. Find a property that suits your deal.
Invest For The Long Term
Unless you’re a property developer then buying property is a long term investment. Your property (or properties) should be making you money just by having you own and maintain them. That is the type of property you are looking for. Something that will continue to make you money. Now of course if situations change, a property isn’t performing as well as predicted, or perhaps if it needs a lot more work than you originally thought and it is out of your capabilities, then know when to call it quits and sell. You will then be free to invest your reclaimed capital in something else that will be more successful for you.
Using an agent can be invaluable in this process. Not only can they help you with a potential resale of your property, but many of them will offer guaranteed returns as part of their package making them especially useful for new investors.
Buy Older Properties
Buying older properties, as opposed to new builds, has a number of advantages. Their value is established and has been for a number of years, which means that any valuations will be more stable and accurate. There is no immediate depreciation in value like you get with a new build. Because the property is established there are less things that can go wrong or be unpredictable so it makes for a much safer investment.
Invest In What You Know
Many new investors can be tempted to invest in off-shore properties in exciting or exotic locations. Often this can be a risky, simply because you are not familiar with the area, the market or the type of property. It can be much harder for you to be able to work out numbers accurately if you’re not working with locations and types of property that are familiar to you. For first time investors it may be better to stick with what you know if you want a more stable return. That being said, if the idea of investing in foreign property is something that really interests you then always make sure you seek proper, professional advice. The right advice leading to the right location can be lucrative if you invest wisely. Aspen Woolf have a dedicated team of specialists on hand to advise you if you have dreams of off-shore investments, please feel free to check out the International Investment section of our website.
Know Your Target Audience
Think about who you are wanting to rent to and make sure you have those people in mind when deciding on a property. You’re not buying for yourself, you’re buying for them and you need to keep that in mind when choosing a suitable property.
No matter what type of property you are looking to invest in or what goals you have, these basic principles will always remain the same. If you keep your head and plan effectively, then you are much more likely to achieve those goals when looking for that perfect property.