The biggest mistakes in property investment
In this article I am going to tell you the biggest, most common mistakes that you need to avoid. These are the key mistakes to watch out for when:
- Making an informed investment
- Managing your finances
- Renovating and refurbishing your property
Making an informed investment
Failing to fully research every aspect of an investment is a big mistake which can have serious financial implications. You need to know everything you can about the property, its history and its location.
If you don’t, you might pay far beyond a property’s actual worth, or worse acquire a nightmare property that drains time and money.
Your research should include arranging inspections and surveys to confirm the property is structurally sound and the services (electricity, gas etc) are in working condition.
Be very worried if the seller refuses this!
Even if you intend to take on a property that is in bad repair, knowing the full extent of the damage will put you in a stronger negotiating position.
Always remember to visit the property at different times of the day and week.
Too many investors get their research spot on but miss this detail!
- Does the area feel safe at night?
- Is it affected by noise from people going into town on a Friday night?
- What is the traffic like at rush hour?
Being there at the right time is the only way to answer questions like these.
You should also think about any work you will have to do at the property before it goes on the market. Even down to a simple fresh coat of paint, it all adds up and you should know how much it adds up to before committing to it!
Where possible, try to get quotes for any major work before investing.
One of the biggest financial mistakes you can make is also the most obvious.
Make sure you have the cashflow to support the property!
Calculating your return on investment is a major part of this, and the only way to reliably compare properties.
Here are a few things to consider when working out if an investment is viable:
- Allow at least 10% of the property’s value for ongoing costs like tax
- For buy-to-lets, assume no more than 70% occupancy
- Will the property’s income outgrow inflation?
Doing all of the above give you an accurate idea of the property’s real worth.
If the seller is asking too much and will not lower their price, move on and follow up a few months later.
Having made the decision to invest, another massive mistake is to mortgage all your properties through the same lender.
This can tie up your money and prevent you from selling, or buying your next property.
In addition to ensuring mortgages are suitable for your strategy, buying rate and portfolio, keep mortgages as separate as possible.
Debt repayment is another that can trip up new investors.
Certain debts can have benefits for investors such as being tax-deductible or boosting credit rating and can actually be used to help build a portfolio. Tempting though it is, don’t clear off all your debts immediately.
Consult a financial expert to build an advantageous debt repayment plan.
Another big mistake is not getting a depreciation schedule. This might set you back a few hundred pounds, but it will save you much more.
A depreciation schedule outlines how your assets will lose value over time and maximises your claims for those assets.
Remember to get the property surveyed again after renovations and refurbishments!
Some of the most expensive mistakes are made during the renovation and refurbishment phase.
Do not underestimate costs here, particularly as a new investor.
If you already have a few investments under your belt you will have a better picture of likely costs, but you should also know it is always best to plan costs with a wide margin.
Never forget to check building regulations!
Depending on the work, compliance issues can be expensive to fix.
If you find yourself in that situation, get your information from as high an official as possible before paying for the fix, as it is possible to get conflicting guidelines.
When it comes to getting the work done, hiring unlicensed contractors is always a bad idea.
Always work with licensed and insured contractors, and the contract for any major work should be checked over and confirmed by an attorney.
Don’t expose yourself to the risks of poor craftsmanship, reliability and insurance issues just to pinch a few pennies; you will pay more in the long run!
I will be sharing with you the methods I use for finding reliable tradespeople in an upcoming article, watch this space!
You can’t always blame it on the builders though! In many cases, the cause of a mistake is lack of proper oversight at the property. Be there on-site to advise your builders and check their work, or hire a manager to do it for you.
One last point - unfortunately, some contractors will simply quote whatever they think you will pay. Always get multiple quotes, and an independent assessment is ideal.
- Stay on top of rising rent prices. Nobody likes it when their rent goes up, but if you freeze it now, you will have to raise it more later, which can be harder to stomach.
- Consider hiring someone to manage properties for you. Managing a large number of properties is a job in itself!
- Always get background checks on tenants! Too many landlords’ horror stories start with forgetting to do this!
- If you have an unoccupied property, hide the lockbox! A lockbox on a property is a sign to potential burglars that the property might be vacant.