Nobody said that investing in property and building up an impressive portfolio would be easy. There are many property investment mistakes involved in buying to let, especially when you’re new to the game and there is much more risk at play. From logistical traps to financial pitfalls, the road to good returns is paved with problems that every sensible landlord should be aware of throughout the buying stage and the letting process. Luckily, these are all avoidable issues!
Of course, no kind of financial investment involves a strict set of rules which guarantee success. Since property investment depends so much on the individual and their specific circumstances, we cannot promise any kind of success across the board. Nevertheless, this blog post will cover all the unnecessary mistakes that usually take rookies a long time to correct, which you can nevertheless look out for during your own efforts. Although these are easy mistakes to make, they are not always easy to reverse – here’s how to identify and avoid them.
Choosing the wrong mortgage deal
Operating on a mortgage that is neither acceptable nor affordable is one of the most common property investment mistakes. Looking for a mortgage can be a long and difficult process. Should you take on the wrong offer, the consequences could stick with you for years and they are never easy to bounce back from. There is no right or wrong answer as to which mortgage you will need to take out. This choice depends on your financial requirements and the overall nature of your investment. However, there is a right and wrong approach to getting the best mortgage. Taking the right approach will help you make a decision conducive to long term profits.
Before you approach mortgage lenders, first think about which type of loan suits your needs. Look at factors such as interest rates, borrowing periods, exit penalties, deposits and fees; work out your requirements in relation to the property. Do you want rates to be fixed or variable? Would your prefer to take comfort in a capped rate mortgage? Or what about a flexible contract?
Will the incoming rent cover your mortgage repayments? Without answers to such questions, you should not be approaching banks and brokers with concrete offers. Do your homework first. Banks can be very convincing, but always shop around for different loans and never just settle on whichever sounds most convincing. Draw up the pros and cons of many different loans, rather than simply opting for the very first offer you receive (as many beginners often do).
Failing to plan adequately
Property investment involves finding your niche and figuring out what exactly works best for you, so you need to define your approach before rushing straight into any life changing investments. Contrary to popular belief, this business is not just about buying and selling anything you can: it’s about buying and selling the properties that will be most lucrative for you.
Making the most out of your investments will require focus, defined targets, and a clear vision. The ‘spray and pray’ approach will never provide consistent ROI as there is little to no reasoning behind each investment you make. Concentrate your efforts on a particular kind of investment – one which proves most beneficial for you. Decide between commercial and residential property, figure out if you want to work on HMOs or single family homes, devise a specific tenant profile, and hone in on a location that proves most convenient and yields the most long term profit. Regarding this last point, you should conduct plenty of background research into a location before investing in property in the area and trying to compete on the market. Take note of:
- Average gross rental yields for properties of your chosen type
- House prices and cost of rent in the area
- Time required to find tenants for property in the area
- Crime rates in the neighbourhood (use this online police crime map)
- Rate that house prices are increasing or decreasing (if applicable)
- Local amenities that make the area more appealing
- Type of people (age, profession, income) who live in the local area
- Distance between the property and local transport links
It’s important to stick to your plan by only investing in properties which are likely to make a profit, as opposed to buying properties which suit your personal tastes. You are not buying for yourself, you are buying for your prospective tenants. The requirements and preferences that you have and those of people who suit the property will be greatly different. Always cater to the latter!
Not protecting your income
New landlords often fail to take control of their income and make the most out of their property. Therefore you should make streamlining and safeguarding your monthly income a top priority. One of the main ways to do this is foregoing the management fees required by letting agents and managing the property on your own. This will inevitably entail some extra work on your part, but many landlords benefit from the autonomy and the increased monthly income as a result.
The most common property investment mistakes often involve tenants who fail to pay their rent. Since rent payments are the main source of income for landlords, they need to be protected; this means safeguarding these rent payments to prepare for those tenants who cannot meet them. Avoid this mistake at the first stage by finding tenants who you know will pay their rent on time and take good care of your property.
It’s not just about how the tenant comes across in person, it’s about whether or not they can guarantee your income. This might sound cold and selfish, however this approach will often involve taking the best possible care of your tenants so that they are more willing to stay on top of their rent. More satisfied tenants are more likely to pay up, as well as stay on board and save you that stressful void period. You may also look at their annual income and credit score alongside references and guarantors to build up a more complete financial profile of the tenant and protect your income in advance of the tenancy.
Slacking on maintenance
Buying the property is just one part of the investment equation. You should also be adequately maintaining the property in order to preserve (and perhaps improve) its overall market value, prevent any long term damage, keep your current tenants happy, and avoid expensive disputes. Slacking on maintenance is a classic property investment error that often catches out new landlords unprepared for the amount of everyday maintenance that buy-to-let properties need. Without hiring a handyman, it is the landlord’s responsibility to deal with necessary repairs in a timely and effective manner. It may be a chore, but when the value of your investment (and the happiness of your tenants) is on the line, it is definitely worth the effort.
It is important that your property is properly maintained and cleaned from the very beginning. This not only makes it more attractive to tenants but also reduces the level of maintenance required throughout their tenancy (and thus reduce costs). You may form an agreement with the tenant which makes sure that all maintenance problems with your property up to a certain cost (whether its a broken bulb or a broken boiler) are reported and resolved straight away.
If you are a prospective landlord currently looking to purchase a new property in South West London, feel free to check out the sales we currently have available or have a chat with a member of the James Anderson team.