Here are some helpful tips for newbie property investors;
1) Not having the right finance in place
When purchasing an investment property it is imperative you have the correct type of finance in place. For example, if you are purchasing a single let property to refurbish and refinance you should consider using bridging finance, or a bridge to let product. If you were to purchase this property on a standard mortgage product on a 2 year fixed rate, for example, you are tied into that mortgage for the initial 2-year term and won’t be able to refinance at a higher value without incurring redemption penalties.
In order to know what finance product suits your project best, it is always best to speak to an expert. In property, your mortgage/finance broker will become your best friend so it is of upmost importance to find one that understands your circumstances and goals.
2) Underestimating the cost of refurbishments
When starting out in property people often underestimate the cost of the works required to bring it up to a modern liveable standard. This is because the properties we are usually buying are of the old Victorian terrace type. When you start ripping out these houses you can often unearth issues that you may not have foreseen and additional remedial works may be required that weren’t budgeted for.
It is therefore important when calculating your refurb numbers to include a contingency amount of between 10-20% of the total cost of the works. Unexpectedly going over budget by £5k can have a detrimental impact on your ROI and Yield figures if you aren’t careful.
3) Missing out on hidden costs when calculating ROI & Yield figures
This follows on nicely from our previous point about underestimating refurbs. There are a lot of costs involved when it comes to purchasing a property which can be loosely grouped as follows: Finance costs, legal costs, stamp duty (if applicable) & professional fees (such as surveys/planning etc).
Now let’s take Finance costs as an example, within this group are potential fees which may include:
- Broker fee
- Valuation fee
- Arrangement fee
- Telegraphic transfer fee
- Early repayment charges
- Exit fee
Some of the above may or may not be applicable to your scenario, however, it is important you understand all the hidden costs involved in a transaction as they can soon add up and suddenly a deal is no longer a deal.
4) Self-managing your rental properties
Now, this may be a contentious issue however we firmly believe that it is wise to leave the management to the professionals.
When first starting out you may be tempted to self-manage and save yourself that extra £50-100 per month, I know we’ve all been there! It is all well a good when you only have one property and you have the time to do it yourself, but as your portfolio grows so do the headaches!
Get yourself an AWESOME managing agent such as our sister company Amplo Lettings and relieve yourself of the stresses of tenants, ASTs, Compliance, Maintenance, Fire/Gas/Electrical safety and so on!
Sound good? I bet it does!
5) Becoming emotionally invested in the deal
When looking to purchase your first investment property it can be easy to get your heart set on buying a particular house after doing the viewings and making an offer. However, if you have done your numbers, submit your best offer and the offer has been rejected it is important you rule with your head and not your heart and keep your discipline. You need to remember this is an investment, stick to your guns and move on to the next one, DO NOT get into an emotional bidding war or this can end in tears!