So, you are thinking about getting in to the buy-to-let property market after hearing so many positive things about it. You have saved some cash for your first down payment; you have looked around on sites like www.fruitfulproperty.com, and even taken one of those one-day seminars explaining how to become a millionaire with property. You are convinced that you are ready to go.
Investing in residential rental property is not hard in principle. However, practice is something entirely different. Like any investment, buy-to-let property has to be looked at, and dealt with, in a specific way in order to be profitable. Not approaching your investments properly could easily lead to financial disaster.
As a new property investor, here are five mistakes you need to do your best to avoid:
1. Investing for Capital Growth
There is a big difference between house flipping and buy-to-let investing. House flipping is primarily intended for short-term capital growth and is highly dependent on property values in the short term. You purchase a house cheaply, renovate it, and turn it around for resale in 30 to 60 days. Repeating the cycle often enough enables you to make money – at least as long as prices remain stable or continue to rise.
Buy-to-let investing is a long-term proposition intended to build wealth over years of investing. Its main advantage over house flipping is that it is less dependent on the volatility of retail housing prices. Do not make the mistake of expecting to get quick rich with buy-to-let property. If you are going to do it, plan to be in for the long haul.
2. Becoming Emotionally Attached
Property can have a strange effect on people in that leads them to become emotionally attached. This is a mistake for investors. Investing in buy-to-let property requires you always remember one simple fact: what you are doing is a business. Avoid becoming emotionally attached to the properties you purchase, no matter how wonderful they may appear to you.
Also, be very careful about becoming emotionally attached to tenants. There are times when unpleasant decisions have to be made regarding unpaid rent or property damage disputes. If you allow business decisions to be clouded by your emotions, you could find yourself in the poor house very quickly.
3. Failing to Shop for a Mortgage
Buy-to-let mortgages can be just as competitive as those for the purchase of primary residences. One of the biggest mistakes new investors make is not taking the time to shop for mortgages. Compare mortgage options for that first property, and then continue comparing every time you purchase a new house. Do not simply go with the same lender because it’s convenient. Make them earn your business by always giving you the best deal.
4. Purchasing from the Retail Market
Perhaps the second biggest mistake among new property investors is trying to purchase investment properties from the retail market. Why is this a mistake? Because buy-to-let investing is no different from any other type of investing in as much as you want to ‘buy low and sell high’. Buying low is not possible when you purchase from the retail market. Never forget that retail prices are determined by a combination of supply and demand along with the profit earned by estate agents and others.
Your best option is to search for off-market properties such as bank repossessions, auction properties and derelict properties. Off-market channels offer the best prices and leave you plenty of room for renovations without breaking the budget.
5. Failing to Research Locations
Finally, do not make the mistake of assuming that purchase price and rental yield are all that matter for buy-to-let investing. There is more to it than that. Remember, rental property is a long-term investment designed to build wealth over many years. Property location is a big part of that.
For example, the best possible price on a given property may not be enough to warrant investment if the area where it is located has a high unemployment rate and very little hope for a better outlook. On the other hand, it might be worth paying a little more for a property in a town where employment is high in the future outlook is strong.
The point of researching a location is one of understanding who lives there, who is likely to live there in the future, and what types of people your tenants will most likely be. Stay away from any market that appears too weak to support a long-term investment.
Buy-to-let investing is among the most common, and most profitable, investments in the UK. You can make the best of your portfolio by avoiding the common mistakes of the new investor. Combined with a sound strategy and very good advice, you could do very well in the property market.