Avoid 5 Costly Mistakes Made By The First time Property Investor
The buy to let world can be an overwhelming place, when you first start out, things are changing all the time. The prices change(weekly), the hot locations change, the tax rules change and strategies change. Here are the top 5 mistakes to avoid when buying your investment properties.
1. Paying Too Much For Your Property
Price is key to success, however there is no right price at any given time. They say you make your profit when you buy not when you sell.
So do your due diligence before you make an offer, do it fast and agree your deal. There is always talk of below market value (BMV) deals. Be comfortable with your figures. You can offer above market price, at market value and below market value, depending on the ‘Market’.
In a fast rising market you can pay market value, hold for 6-12 months and sell and make a decent profit. Conversely you could buy at 15% below market value in a falling market and still lose out, should you need to sell quickly.
2. Poor Cash Flow
There is no point buying a (discounted) property if it is costing you money every month or there is little positive cash flow. It only takes 1-2 problems such as Boiler breakdown, void periods etc to wipe out your profits.
So make sure you have good cash flow. Consider a minimum of ￡250 positive cash flow per month, however this is dependent on your risk levels and other income streams.
3. Overpaying The Tax Man
The tax rules are forever changing. Do you buy in your own personal name, as a partnership, in a pension fund, in a limited company etc etc. There are numerous options.
There is only one piece of advice here make sure you find a great Accountant/tax advisor who knows about property. They are worth every penny when it comes to minimising tax and maximising profits!! They can advise on capital gains tax, capital allowances, stamp duty variations, VAT and much much more.
4. Buying In The Wrong Location
You may spot a bargain, get a hugh discount and cash flow on paper looks great but if it takes a while to rent out or Tennant’s don’t stay very long, then it may not have been a bargain.
Location, location, location is everything. Ask the letting agents how quickly properties rent in the area, are there many to let boards about, put an add on gum tree and see how many and how quick you get enquiries for your prospective property!
5. Doing it yourself
In the past it was more common to do it your self and rent out your investment. I remember years ago renting out and managing my portfolio and ‘doing it myself’ . Having been called out so many times for minor and major issues, chasing references, chasing deposits/late payments, I realised I had neither the desire , the time or the expertise for each area of issue.
A good letting agent is key to you enjoying your investment hands off. A good agent will know all about Legal requirements, the market, managing the process for each Tennant front start to final inspection for each Tennant. For a small fee it frees you up to do something more productive and enjoyable.
These are just a few of the issues to avoid when starting out in property investment. If you are looking to buy your first investment and have a question get in touch and drop me a message.