I have spoken with many first time Buy to Let property investors and there are a few misconceptions they can have that skew their mindset when it comes to potential investments. We can all make mistakes, and this article is designed to minimize those potential errors that may cost you as a first-time investor a lucrative investment.
In today’s article, I will analyse some common mistakes that some, not all, first time investors can make in my experience of speaking with them.
Don’t get emotional over your purchase.
One of the most common mistakes people do when viewing a property investment is to treat it as if it was a home for them to live in. Don’t fall into this trap; the savvy investor considers only how much money the property is set to make them and if the numbers stack up from their side. A cold approach needs to be taken on a Buy-To-Let investment and whilst getting emotional over buying your own home is perfectly acceptable, treating an investment in the same fashion can only hinder your judgment. View your investment as bricks and mortar making you money, not as a home for you and the family.
Separate your residential search from your BTL hunt.
Many would-be investors when asked if they are looking for a BTL property or a home for them to live in respond with “both.” Remove this mind-set. A residential home carries completely different objectives to those of a property investment, and because of this, many first-time buyers look exclusively within their local area. This limits the buyer to properties in one location as opposed to many across the country, and with a slew of managing companies providing a completely hands-off investment approach, this enables investors to look anywhere with no limitations. Think outside the box!
Being over-eager vs over-cautious.
Ideally you want to be neither of these two things. The over-eager investor will believe anything an agent or consultant tells them and acts in haste to secure a deal they haven’t even done their due diligence on. To go from one extreme to the other, the over-cautious investor will hesitate and place too much emphasis on minor parts of the deal that aren’t overly important in the grand scheme of things. Before they know it, the deal is gone to another investor and a brilliant money-making opportunity bites the dust. This is the kind of person that will tease an investment but never actually do so because they are afraid to take the plunge. You need to strike a balance between the two extremes- do your due diligence and investigate every aspect of the deal by all means but be decisive if a deal stacks up. Don’t procrastinate!
Second hand property isn’t always superior.
The idea of buying a run-down second-hand property and renovating to sell on at a profit sounds good on paper, but in practice proves far more difficult. For starters, second hand stock like this is hard to come by in most areas, plus many investors lead busy lives with time consuming jobs. They don’t have the time, effort and means to dedicate towards buying a dilapidated property, spending months revamping the whole thing from scratch and then selling on the market. This strategy also limits the buyer to invest in their local area as many won’t be able to travel the length and width of the country to refurbish properties elsewhere. This method is often a lot of work for little reward; we would advise prospective investors to look at new build properties which invariably have fewer maintenance issues, hire an established managing company to take it on and hold onto the site for a number of years. This maximises your rental income and if you’ve invested in a good location means you capitalise on growing house prices in the future.
Don’t have short-term investment objectives.
Many aspiring investors view property as an avenue to make a short-term gain; this is a viewpoint we disagree with. Property is a medium to long term investment and with a short-term mind-set you are not going to profit from property in the same way. One example is flipping, which is the act of buying an off-plan property and selling before completion at a higher price. This is a volatile strategy designed to make a quick buck and is not a method we encourage. Our advice is always to purchase property in a up-and-coming city in which major regeneration is happening, or set to happen, with high tenant demand with a view to sell several years down the line. We view property as a long-term game because this is the way serious money is made not only through rents but high capital appreciation.
Not knowing what you want your property to achieve.
Probably the most important thing to remember when investing in property is to know exactly what you want it to deliver on. Are you after high rental yields? Capital growth? A stable source of income or a property to sell on in 5 years’ time? Be specific in your aims beforehand and know what you expect to achieve. This will make your property search easier in the long run as you construct a property portfolio based upon your goals and targets.
By knowing these potential mistakes beforehand, you should avoid many of the common pitfalls associated with property investment. By doing so, you can begin or add to your property portfolio accordingly and achieve your BTL goals a lot easier and quicker.
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