One of the key benefits of using property as an investment is the due diligence available to you. Compound this with the fact that many people already have a general understanding of property and you can see why it’s an attractive option to many investors.
However, a bad decision when investing can have an adverse effect and put you in a situation where the valuable asset you thought you were purchasing turns into an expensive liability.
Property will probably be the most expensive asset you will ever purchase; which is why it’s more important than ever to take emotion out of the decision.
From buying a property because “we used to live in a house just like this” to buying it because its “got a nice kitchen”. We’ve heard them all. Stick to cold hard facts, its an investment decision and should be based on your budget and the return it can provide.
Most investors leverage their purchase thereby increasing their yield. Signing up to the wrong mortgage can have terrible effects on your ability to build a portfolio.
Investors need to consider the structure they are buying their properties in, the rate, how long they are tied in for and the lenders attitude to adding more properties to your portfolio.
If you aren’t fixing your mortgage, will the rent cover your payments if interest rates go up? Stress test this to see how well covered you are.
We have always felt that a good mortgage broker was crucial, they will offer multiple products and explain what up front and early repayment charges you need to pay.
It’s natural for investors to try and put as little of their own money into an investment as possible. With interest rates so low why wouldn’t you highly leverage?
However, it is important to look at your occupancy rates and properly plan for void periods. We generally work to a 70% occupancy; will your rent cover your mortgage after voids?
A high ltv mortgage may mean that when you look to refinance it may become impossible if you’ve borrowed to your limit. This will be further tested if interest rates rise but rents do not follow suit.
Our best investors plan for the long term, taking into account their living expenses not just now but potentially into the future. If you have a 5/10/15 or even 20-year plan, stick to it.
Even if you are buying through an investment company it is paramount you do your own due diligence. A good investment company will present you with a fully structured investment providing comparables, valuations and rental letters, however this is not an excuse to not do your own due diligence. Many of these things can be checked online.
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 are flipping properties for short term gain (something which we would only recommend the most knowledgeable investors even entertain), you should have a firm business plan in place.
Many investors start investing without a firm plan in place as to what their long-term goals are.
If you are investing in place or as a top up to your pension, how much do you need to retire? Have you factored in running costs? Increases in interest rates? The need to refurbish every few years? The last thing you need is to fall short of your optimum amount.
If you are investing to leave to your children, is it in a tax efficient structure? Have you taken the advice of a tax specialist prior to purchasing as it’s hard to change once you have. Make sure that your mortgage is on a repayment and over an achievable amount of years for you to pay it off.
Purchasing an investment property should not be done on a whim, make sure you set aside the time to do proper due diligence or at least check the professionals who may have done it for you. Also, engage the right specialists, just because someone says they are a “property guru” it doesn’t mean they have the knowledge you need or are willing to work in your best interests.Back to news