Seven deadly sins of first-time property investors
Over the years, I’ve seen a lot of beginner property investors take the same wrong turns when making their first property investment. I made a few of them myself when I started out. Fortunately, I found myself a great investment mentor early in my life as a property investor.
In this article, I describe the most common mistakes made by first-time investors. Knowing where others go wrong could help you avoid doing the same, and that will make your property investment more satisfying and a whole lot more profitable.
1. Not understanding the property fundamentals
The most profitable investments are made when you buy in the best places to invest in property UK. To do this, you must know how to measure the property fundamentals and understand how they interact with each other. Your property research should include studying the following 5 investment factors:
- Transport links
- Major employers
- Major investment
Our research process examines 108 data points across 324 UK postcodes. We examine all the above, and this gives us a fully rounded picture of the likely supply and demand in an area. This research tells us about the local economy and how it supports property investment, not just today but stretching into the future, too. Our property hotspots algorithm helps us identify the potential for rental yield and capital gain over the medium and longer terms.
2. Thinking the first property investment is the whole answer
If you’ve done your research properly, then you should have made a great property investment. But it’s unlikely to be the life-changer that you think it will be. Property investment is a long game. You don’t hit the ball out of the park with your first purchase. Instead, view it as a stepping stone on the way to building a sustainable and profitable property portfolio that will give you the capital gain or rental income you desire.
By making a plan and concentrating on the numbers, each property investment you make will take you a step closer to your goals. With the right investment strategy, anyone can become a buy-to-let millionaire.
3. Making an emotional investment
I’ve seen this so many times, and each time it hurts. It leads to buying the wrong property, in the wrong location, at the wrong time. You fall in love with a property, and mistakenly think that because you like it so much, everyone else will.
An investment property is nothing more than a box that makes you money. You must ensure that the numbers stand up to scrutiny and that there will be demand from tenants who want to live there.
I fell in love with the first property I bought, and it cost me money. I don’t want you to make the same mistake, which is why I wrote a book about it. Download your free copy of “Property Emotional Intelligence” now, and avoid this mistake that will always cost you money.
4. Poor financial preparation
Watching programmes about property investment on the television, it’s easy to think that you buy a property, do it up, and then sell it. I cringe when the presenter says something like “Fred paid £100,000 for this property, spent £20,000 on renovations, and now the estate agent has valued it at £150,000. That’s a cool profit of £30,000 in just two months.” Yeah, right!
What about legal fees, stamp duty, mortgages fees, inspection costs, estate agent fees, etc.? Then there’s capital gains tax to pay, too. And if you buy to rent out, then don’t forget the costs of property management (though landlord fees could be less than you think).
If you’re financially prepared for property investment, then your investment is more likely to be profitable.
5. Bad financing decisions
Now that I’ve opened the can of worms that is called ‘costs’, this brings me on to bad financing. Here, what I’m talking about is a bad loan decision. The bank that holds the mortgage on your home is unlikely to offer you the best terms on a buy-to-let mortgage. Some specialist lenders could provide you with a buy-to-let mortgage product tailored to your investment.
My advice here is to take advantage of the benefits of using a buy-to-let mortgage broker. You’ll be surprised at just how much a saving of a fraction of a percent of the mortgage rate is worth to your bottom line.
Within this area of mistake-making, I also include the error of cutting everything to the bone. If you go into property investment without a contingency fund, something is bound to go wrong. Having a cash buffer is essential to pay for unexpected maintenance or a void period between tenants.
6. Not doing due diligence
Rolling on from bad financing decisions is the mistake of not doing due diligence on a property investment. Knowing exactly how you expect your investment property to make returns and ensuring that the numbers you are using are correct is your responsibility. For example, just because a letting agent tells you that you will get £1,000 per month in rent, don’t assume this is correct. Go out, do your research and discover what the real rental value is. If the number comes in at £900, you’ll be down on your cash flow projections by £1,200 per year. That’s more than a month’s rent. Over a 20-year investment period, that’s £24,000 – the equivalent to leaving your property empty for two years.
7. Hiring the wrong professionals and getting bad advice
As a property investor, you’ll need to use professional services. Solicitors, mortgage brokers and accountants are not all created equal. There are good and bad. One of the biggest mistakes I see first-time property investors make is hiring a professional that has been recommended to them by a friend. Now I’m not saying you shouldn’t seek referrals, but listen to the referral carefully. Ask yourself what is being referred?
For example, a friend may tell you that their mortgage broker found the perfect mortgage and saved them money. But what mortgage? Home mortgages and buy-to-let mortgages are two completely different products.
There’s a lot of bad advice from self-proclaimed property experts. Usually, these are your friends. They mean well, but have they got the expertise and experience to offer the best advice for your personal decision and investment goals? Will they ask the questions that need to be answered before you commit to buying an investment property?
Your first stop when starting out on the journey of property investment is to find an investment mentor. That’s what I did, and I never looked back.
Contact one of our team today on +44 (0)207 923 6100, and put the foundations in place for a lifetime of profitable property investing. A meeting with one of our consultants is your opportunity to discuss all your objectives, and explore how property investment could be the Set and Forget investment that changes your life.
In future blogs, I’ll be examining each of these seven deadly sins of first-time property investors in more detail. In the meantime,
Live with Passion,