Using property as an investment tool is incredibly smart if it is done the right way.
If you are looking for ways to create wealth, property can be a very lucrative way to do it.
In some ways, property can be more secure than investing in stocks. That is if you do it the right way.
Buying your first investment property in the right way can set you up for life especially if you keep duplicating the process.
You might think that buying property can only be a sure thing but as I have learned from my own personal mistakes there are things that you need to be on the lookout for if you want to avoid losing a lot of money along the way on that first investment property.
Let’s take a look at some things you need to steer clear of.
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8 First investment property buying mistakes you need to avoid
1. Not doing clear research
Research is going to be your best and most trusted friend in this process. It is not a step that should be taken lightly.
At this stage, my advice to you would be to spend most of your time on this step.
When you start to look for your investment property don’t just pick an area to buy in because you perhaps know the area or you just like it.
Take the time to do your research and look into other areas that you may not be as familiar with, they could prove to be more lucrative.
Look for locations where the demand for rental is high.
If you buy a property in an area where there are no renters you will have huge difficulty renting it out and will either have to live in it yourself or resell it, probably at a loss if you get desperate.
You don’t want to do that.
Your research into the right area will be critical to your purchase.
2. Buying with your heart instead of your head
It’s an easy trap to fall into but you have to remember that you are buying a property as an investment not because you are going to live in it yourself.
When you do go shopping make sure you are wearing the right hat, metaphorically speaking.
Is the house you are buying for students, a family of for a couple. It makes a difference in the type of property you buy as well as the location.
If you buy a property because you feel as though your family would love it but the market around you is mainly for couples then the 5 bedroom house you are about to buy might be difficult to rent out.
Couples tend to look for smaller houses. Something like a 2 or 3 bedroom would probably be more appropriate.
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3. Overspending without calculating the cost
Make sure you always crunch your numbers. Even when you think you have everything covered go over the numbers again to make sure that they make sense.
There are many costs involved in buying an investment property and you do not want to be caught short.
If you are purchasing with a buy to let mortgage then you must remember that the lender offers are different compared to getting a mortgage as a residential property.
Your deposit will likely be around 25% and you will have to prove to the lender that the property can rent out for at least 125% of the mortgage repayment.
4. Not looking at enough properties
You buy investment properties very differently to how you buy residential properties.
When buying a residential property (a property you will live in yourself) as soon as you walk into the right home you feel it in your gut. You almost instantly know that you could comfortably live there.
The house makes sense to you and you start to imagine how you will live in it with your family.
With an investment property, it’s very different you have to resist the urge to do that because you are buying in a very different way.
You can’t, therefore, walk into a house and then think that it is the right house, you need to look at tons of them to see which one makes sense logically
Keep looking, it may take you months before you find the right house at the right deal so don’t be in a rush to commit to something until you know it is the right house.
5. Not having a good deposit
As mentioned before if you are purchasing a buy to let property you will need at least 25% to even stand a chance if you want a mortgage.
Don’t let that be the end of it. Make sure you look at the different options available to you. 25% might seem like a lot but if you are buying a good deal then its worth it to have more of a stake.
It could be that if you put down 30% you can get a much better deal on your mortgage. Remember mortgages are front-loaded with interest so the more you can comfortably put down initially the better off you will be. You could save yourself thousands of pounds here.
If a 30% deposit is a better deal and you only have 25% then it might be worth holding off until you have a bigger deposit if it means getting a better deal in the long run.
6. Taking on too much financial commitment
It can be easy to get carried away once you have found the property that will fit your circumstances but you must keep a level head.
Keep your costs maintained and don’t be afraid to pull out of the deal if costs start spirling.
Remember this is an investment, therefore, you only want to buy it if it will make you money.
Taking on too much financial comment will just put you under huge financial pressure.
You must also remember that there may also be improvements to the house that you need to make before you can rent it out especially if it will be a house of multiple occupancy.
Make sure you have money set aside for that so that you can get the property rented out as soon as possible.
7. Not doing a full homebuyers report
When you buy a property you must get a homebuyers report done if you are buying with a mortgage agreement.
There are different levels of the homebuyers report that you can buy.
As this is an investment property I would suggest that you get the full wack so you don’t get any nasty shocks later on.
The full survey will give you the ins and outs on any structural problems as well as cosmetic ones that you may need to address.
A small upfront cost now could save you thousands later on down the line.
If your survey does come back with anything negative you can always use that as a point of negotiation too so don’t be too discouraged by it.
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8. Consider the income
Your end goal is the amount of rental income that you will receive.
Yes, if you decide that you want to sell the house later on you will want to make sure that you can sell it for more than you purchased it for but right now you need to make sure that that your numbers make sense.
Take a look at the other properties in the area that are rentals and see how much money they typically rent for to make sure that you can get a good return on your money.
If your mortgage payments make this unrealistic then you need to reconsider the property you are buying.
Final thoughts on your first investment property
I won’t lie to you here, there is a lot of information you need to learn and take note of before you sign on the dotted line. The good news is that once you do learn it you just need to stay up to date on the information.
Property can be a great way to create wealth as long as you are prepared to get stuck in and do the hard work upfront.
Getting your first investment property is super exciting!
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