6 Common Property Investment Pitfalls to Avoid
If you’re looking to invest, there are plenty of options available to you. You could play it safe and get a nice reasonable ROI with a stocks and shares ISA, or perhaps you could be a little more outlandish and invest in a collection of fine wines or whiskies.
In truth, there are plenty of options for people in the position to invest, but the fact remains that property is, and has been for many years now, one of the safest bets, along with the most lucrative.
Generally speaking, the property market can only go one way, and that way is up. Here in the UK, as of this writing (Dec, 2020) house prices are 6.5% higher than this time last year, and experts predict this trend will continue.
Currently, the average UK property is valued at £229,721, and if you invest in the right property/properties, your investment will pay dividends. That does not mean that property investment is not without risk.
If you wish to succeed as a property investor, here are 6 common property investment pitfalls to avoid.
In a perfect world, those investing in property and looking to sell would find a house for the right price, do the necessary repairs and sprucing up, would list the property for sale, and a few days or weeks later, the property would sell and they’d bank a very tidy profit.
Sadly, we don’t live in an ideal world and sometimes selling a property can be a logistical nightmare. You could find the nicest house in the area, decorate it to the very highest standard, list it for a very reasonable price, but there’s no guarantees that people will buy it right away.
Sometimes people don’t have access to the funds, sometimes sales can fall through, and sometimes houses just do not sell. It’s rare, but it has been known so as a property investor, please do not bank on a quick sale.
Failing to research the area
Another common property pitfall to avoid making is failing to research the area you’re looking to buy in.
Whether you’re looking to sell a property or are using it as a buy-to-let, the area the property is located in is just as important as the property itself, if not more so.
When you’re looking to invest in property, first off you should do as much research into the area as possible. Find out average house prices, look for things like schools, hospitals, rail links, travel links, and find out about the overall reputation of the area itself.
If you find a lovely looking house in an area with a reputation for crime and antisocial behaviour, this will not only bring property prices down, it will also make it harder to sell or rent the property.
Letting your heart rule your head
Investing in a property is not like buying an old second-hand car. It will likely be the largest purchase you will ever make, and when you’re dealing with life-changing money, you can’t afford to let emotions take over.
If you’re looking to invest, approach the process from the perspective of an investor. Don’t purchase a property that you’ll struggle to sell or rent because you grew up in a house just like it, or because it has a quirky garden or unusual décor inside that you like.
The simple fact of the matter is that you’re looking to invest in a property to get the best return you can get, not for a nostalgia trip down memory lane.
Poor financial planning
Whether you’re looking to invest in a house as a one-off, or to build a portfolio, poor financial planning can derail you right in your tracks.
Before investing, you need to ensure that you have your finances in order and that every penny is accounted for. This means finding the right mortgage, factoring in refurbishment costs, legal fees, selling fees, how long the money will be tied up for, and a whole lot more besides.
It’s no good putting all of your money into a property, only to find that it needs a brand new boiler, kitchen, and bathroom before it’s ready for the market.
Again, this is where research and planning can pay dividends.
Not factoring in interest rates
Ah, interest rates, the bane of the property investor.
Interest rates can have a very large effect on property investments. To ensure this isn’t an issue for you, ensure that you either budget for increased repayments (again, a reason why poor financial planning can bite you), or that you secure a fixed-rate mortgage.
If you’re investing in property with the intention of selling, this pitfall won’t be an issue. For those of you who are looking to invest with the intention of renting the property out, though, challenging tenants can be a real, well, challenge.
For the most part, tenants will look after your property, will pay their rent on time, and you’ll find that you don’t need to worry.
Sometimes, though, tenants will come along that do not respect the property, that causes issues with the neighbours, and do not pay their rent on time, and this is where life becomes a whole lot more difficult.
Try to vet your tenants whenever possible, ask for references, including any clauses in the tenancy agreement which you deem pertinent to the property. For example, you could include a clause stating that the tenants should leave the property in the same condition as when they first moved in. Take a deposit and state that failing to maintain the property will result in forfeiture of their deposit.