April 22, 2021
Are you about to take your first step into the world of property investment? You are? That’s good news. But please – don’t make the kind of mistake that we see first-time investors make time and again. Read about the 5 common pitfalls … and then, get in touch. We’d love to help.
As each year passes, the option of investing in property appeals to an increasing number of first-time investors. It’s easy to see why. After all, property prices are seemingly set on an unstoppable upward trajectory. So what could be easier? You take advantage of low interest rates. You borrow. You buy. You let … and the ROI rolls in. Meanwhile, the value of your property just keeps on rising.
What can go wrong? Well, the answer is ‘plenty’. A single bad property investment decision can have a devastating impact on your plans and put you in a place where the valuable asset you thought you’d bought turns into an expensive liability.
In this article, we look at the five most common mistakes made by today’s first-time, eager-beaver property investors.
Property will almost certainly be the most expensive asset you‘ll ever acquire. So, why let your heart get in the way and put at risk those plans so carefully laid out by your head? In other words, take the emotion out of your decision.
If you catch yourself thinking, “This house is great – just like the place I was brought up in!” or “this house is the one. It’s got a great kitchen.”, then you’re in trouble, unless you stop … and think again. Listen only to cold hard facts. You’re making an investment decision – one that will impact your long-term future and security. Make that decision based on your budget, on your knowledge and on the return that your investment can provide.
You may well borrow in order to afford a more expensive property, thereby increasing your potential yield. Nothing wrong with that at all. But take care. Make sure you sign up for the mortgage that’s right for your goals and your circumstances. Getting the wrong type of mortgage could have disastrous results.
Think about –
- the structure of the mortgage
- the rate
- how long you’re tied in for
- the lender’s view of any plans you might have to add to your property portfolio
Are you fixing the mortgage? If interest rates go up, will the rent cover your payments?
Get yourself a reputable mortgage broker– one who will offer multiple products and explain the pros and cons of each.
You can see why investors choose to leave as little of their own money in their property. After all, with interest rates so low, why wouldn’t you use someone else’s money to finance your investment?
However, think carefully about your occupancy rates - plan for void periods. They’re bound to happen. Be conservative and work on 70% occupancy. Work out whether the incoming rent will still cover your mortgage?
Suppose you borrow to the max. What happens if you find you need to refinance? What if interest rates go up, but rents don’t?
It’s vital to plan for the long term. Work out your 5, 10, 15 and 20-year plan – and stick to it!
Just because you’re buying through an investment company doesn’t mean you can skip your own due diligence. It’s you and no one else who will be responsible for your investment decisions. A good investment company will work as your partner. They’ll provide you with a fully structured investment plan with valuations and rental letters. But – you must still carry out your own due diligence.
Talk to local agents, ask for any specifics in writing and ask for credit checks of the developer if they are not well known.
Unless you’re flipping properties for short term gain (something we’d only recommend if you’re an experienced investor), make sure you have a well-grounded business plan, complete with goals and a strategy.
Are you investing in order to top up your pension? Then, how much do you need to retire? Have you calculated running costs? Have you factored in potential Increases in interest rates? What about inevitable refurbishment costs?
Are you investing in property for the benefit of your children’s inheritance? If so, do you have a tax-efficient structure in place? Have you listened to the advice of a tax specialist before you buy? Check that your mortgage is on a repayment and over an achievable number of years so that you don’t over-stretch yourself.
Property investments shouldn’t be decided on a whim. Make time for serious due diligence and research. Partner up with professionals who will have your long-term interests at heart – and that’s where we come in. Talk to us at Donelan Property. We know property. We know investment – and we’re here to help.
Call - 0161641 8700
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We’d love to talk to you about property investment and how we can help you grow. Call us now on 0161 641 8700, or use the contact form and we’ll call you back.