Unfortunately, many people see buying a property as an investment as simple as viewing a few properties on Rightmove and Zoopla and making a decision. Often this is based on "gut feel" and is completely unsubstatiated by knowledge and reason. So here are my top five tips for things to be aware of.
When you buy a new car, it’s value drops by thousands of pounds the moment you drive it off of the garage forecourt. And so it is with property. A new property will typically come with a 20% to 30% premium price tag. As soon as you have moved in, its not new anymore. Your £100k apartment is now only worth, say, £75k.
Top Tip: Do your homework. Check out prices for similar, previously owned, property on property portals such as Rightmove and Zoopla
Most houses in the UK have a Freehold title. In simplicity this means you own the property and the land that it sits on. Over time, the value of a Freehold title will normally increase.
In contract, most Apartments and Flats have a Leasehold title. You don’t own the land that the property sits on and you don’t actually own the property either! You are actually leasing (renting) it on a long term contract. As the contract term starts to tick down, the value of the lease may also reduce.
As a further complication, most UK lenders will not remortgage a property with less than about 75 years remaining on the lease.
Top Tip: Wherever possible, and affordable, chose a Freehold property for investment purposes. If starting with a Leasehold apartment, check that there is a long lease period remaining and sell the property on whilst it is still mortgageable by your buyer.
When you buy a home, it is for your comfort and enjoyment for many years ahead. You will pay that bit extra because it is the dream house of your nearest and dearest. If you pay a bit over the odds, well, it doesn’t really matter because the price will go up in time anyway.
But if is an investment bought for rental income, its ability to generate profit will be mostly driven by the number of bedrooms and bathrooms. Renters are much more interested in what it looks like inside rather than the external appearance. They actually often prefer to have free standing domestic appliances rather than the built in look so loved by your nearest and dearest.
Top Tip: Talk to local letting agents in your investment area. They will tell you what types of property are most in demand and what standard of finish is acceptable. Buy what they need, not what you would like.
You have probably seen the TV series called “Homes under the Hammer”? So you have found this tired old house that needs a makeover. New kitchen, new bathroom, some paint and sell it on for a decent profit. It is a well known property investing strategy.
But what if, whilst all of the work is being done, and costing you money, the property prices crash? Your exit strategy to sell it doesn’t work anymore because it’s now worth less than you have spent on it. You are stuffed! Or are you? So you might chose a different strategy in the short term. You might rent it out to a family or offer it as a holiday let or market it on Airbnb for short stays.
Top Tip: When looking at an investment property, you need to have multiple exit strategies so that if the unforeseen happens, it’s not financial ruin.
You have probably heard the expression; Location, Location, Location? And it is very true. Yes you want to be in the right road with the best transport links and with the best school catchment areas. But here is a thing.
Most roads have houses on both sides of the road. So on one side of the road, the back gardens might be South facing and be great for lots of sunshine. But in contract, houses on the other side of the road will be North facing and get little or no sunshine. They will also cost more to heat in winter. So what side of the road do you want to live?
Top Tip: Most smart phones have a Compass App built in. Learn how to use it. When doing a viewing stand at the bottom of the garden and away from any sources of electricity. Which way does the garden face?
I'm a degree qualified Engineer whose career and passion evolved into Property.
I worked for three FTSE 250 property companies over a 17 year period. This included both Business…
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