Investing in property can provide an excellent return on your money, but there are a few pitfalls to avoid along the way. Here are our top tips for the main property investment mistakes to avoid:
1.Not knowing why you want to invest. Just because investing in property sounds like a good idea doesn’t necessarily mean it’s right for you. So first and foremost be clear about WHY you want to invest. For example, would you like a regular monthly income? To save for the future? Or provide yourself with a pension?
2.Not having an objective. Before you buy a property always have an objective in mind. For example, do you plan to let it, develop it, or perhaps flip it for a quick profit? Once you’ve decided you can then look for the properties that best fit your objective.
3.Forgetting the importance of location. The old adage of location, location, location is as true as ever. It affects how easy your property will be to rent or sell, and how much it will be worth in future. So take some time to check out the location. Aim to invest in up-and-coming locations if you can.
4.Overlooking the importance of yields. Yields are really important if you’re buying to let. They reveal exactly what return you’re getting on your money.
To calculate yield divide the likely annual rent by the purchase price x 100. For example, a property costing £150,000 and renting at £900 a month or £10,800 a year will give you a 7.2% yield (£900 x 12=£10,800/£150,000 x 100).
5.Failing to target your market. The rental market is made up of several different sub-markets and each is quite different. For example, professionals, families, students or short term rentals. Think about what sort of tenant you’re planning to attract and invest in a property that’s best suited for that market.
6.Buying where rental demand is weak. If demand is weak you might struggle to find a good (or any) tenant, might need to reduce the rent and even suffer costly void periods. On the other hand, buying where demand is strong means you’ll be able to rent your property easily, pick from the best tenants and even charge more rent.
7.Neglecting to take the best professional advice. No matter how much you try, you can’t be good at everything – and small errors can turn into costly mistakes. So don’t be afraid to take advice from legal, financial and property experts where you need it.
8.Not managing your property professionally. A professionally managed property will not only save you time, money and hassle …. but make you more money too. Think about whether you plan to manage your property yourself or use a professional agent to manage it.
9.Not planning your finances properly. Even in these days of low interest rates there can be a huge difference between the most expensive mortgage and the cheapest one. Financing your investment in the most cost effective way can add thousands of pounds to your bottom line every year.
10.Overlooking the tax implications. There are two important aspects to consider here: Buying investment property can involve extra tax liabilities. Yet it can also open the door to attractive tax allowances. Taking professional advice here is the best way to minimise your tax bill and take advantage of any tax breaks.
11.Not having an exit strategy. Every property investor should have an exit strategy. For example will you sell in 10 years? Twenty years? When you retire? Or when the value of your property peaks? At the end of the day it’s essential to know when and why you might exit the market …. before you even enter it.