Making mistakes when investing in buy-to-let property can be hugely costly – not just in terms of money, but also time, and energy.
When it’s done right, you can expect a health return on your investment (a high yield) and a steady increase in the value of your property (capital growth).
To help you avoid making costly mistakes, ask yourself these 5 questions:
1. Are you buying for the sake of buying? Where does this property fit in your Grand Plan?
Investing in property can be very rewarding, but it shouldn’t be done lightly. It might seem obvious, but knowing why you personally want to invest and having a clear idea of your end goal are both essential.
You then need to ask yourself the following: Do you want monthly cash income, or would you benefit more from equity gain? Do you want to be mortgage free? Are you funding a private pension for the future? Answering these questions will narrow down your investment search.
2. Do you understand your market?
Is there anything about the type of property you might be interested in that requires extra knowledge or advice, such as Houses of Multiple Occupation (HMO) or properties built Not to Standard Construction?
Not understanding the type of property you are planning on buying can have very costly implications. There are several areas in Swansea where HMO regulations are very strict, for example. Not setting your property up correctly from a legal standpoint can lead to hefty fines in the thousands. It could also impact your eligibility to actually let the property under Rent Smart Wales.
3. Have you taken stock of your resources?
We aren’t just talking about money here, but also your knowledge, and your time. Not having enough resources can lead to costly delays, overspending or buying the wrong property (as the good ones go too fast).
You need to do an honest assessment. What funds you have available? Do you need a BTL mortgage and will you have any cash left over for refurbishments? Do you have the time or the funds to handle a property that requires renovation? Do you have any contacts that might be able to assist with any work that needs to be done?
Most people would be looking to obtain a buy to let mortgage to fund their purchase, so this will also determine what type of property you will buy. Many lenders will now want to ensure that the rental income will cover a certain percentage over what the mortgage payments are (stress testing). As an example, a lender probably wouldn’t entertain a purchase price of £200,000 with a rental income of £650pcm as the yield would be too low.
4. Have you instructed surveys?
Buying a property without a detailed survey may sound like a cash saving tip, but in many cases a good survey can highlight faults in the property that you really need to be aware of before committing your financial resources.
It can also aid in getting the purchase price down, either increasing your yield if its an easy fix, or gives you the flexibility to get the repair done yourself afterwards.
In the worst case scenario, a survey will save you from making the ultimate costly mistake of buying something that isn’t worth what you have paid for it.
5. Who’s advice are you taking?
Getting advice before making any kind of investment decision is essential, but getting advice as to what type of property is going to suit your investment needs from a selling agent can be a very costly mistake.
If you think about it, their key aim is to sell you a house. Any house will do for them, regardless of whether it is the right one for you.
Buying with your emotions, buying too cheap, buying a wreck, etc
I’ve actually identified 17 common mistakes landlords and property investors make when expanding their property portfolios.
If you’ve read my blogs before, you may already know that I set up my letting agency business when I was 26, and that we have this year been recognised as being within the top 3% of agents in the whole of the UK by Property Academy and portal giant Rightmove.
Buy-to-let in Swansea is my specialism. I’ve put together a guide listing all 17 common mistakes and what you can do to avoid them, and it’s free to download: click here to download.
I’ve also just launched a Facebook group for landlords to get together, discuss your concerns, and support each other. I’d love if you’d come and join in the conversation: Join our Swansea Landlord Circle Facebook Group.