In the current environment of low interest rates, many people are turning to investment in property and often for the first time. However, those new to property investment need to be savvy in order to avoid a variety of pitfalls that can damage their return.

 1. Know your personal investment goals and have a business plan

What do you want to get out of your property investment? Are you looking for short-term returns (cash flow), or long-term returns (capital growth), or a mixture of the two (preferably)? Your choice of property and your legal structure should align with your investment objectives.

‘Failing to plan is planning to fail’ – make a business plan that sets out what you want to achieve, how, and in what timescale. Give yourself short, medium and long-term goals. Create spreadsheets/KPIs to monitor cash flow and capital growth. Apart from having benchmarks against which to measure your success, you will also have much of the information that mortgage lenders now want to see from portfolio landlords (4+ properties).

2. Leave emotion at the door

If everything goes well you won’t be living in this property, so you need to use a different kind of logic (i.e. financial) when making your purchase decision.

Think about it from a tenant’s perspective; does it give them what they need, and what they want? Extra added value always attracts better tenants and gives you more stable financial returns.

3. Don’t be too motivated

While money in property may be better than money in the bank, money in the bank is still better than money in the wrong property. Just because you’ve got it, you don’t have to spend it. Take your time and make sure that your buying decisions are driven by your investment goals and your business plan. Don’t be tempted to fudge your business plan to align with a property purchase – you may live to regret that decision!

 4. Don’t wait for perfect

Although you need to choose the right property, one that fits your investment goals and your business plan, there’s no such thing as a ‘perfect’ property. If you wait for perfect, you will be waiting a long time and losing out on income in the process. Remember, time is a property investor’s best friend – it increases your wealth through capital growth and – like a bad haircut that grows out eventually – it can smooth out some of your ‘less than perfect’ decisions.

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5. Take appropriate advice

Make friends with the best letting agent in town; their advice could be invaluable to you. Just make sure they are also landlords themselves; that way, you are investing ‘alongside’ the experts, not just taking ‘advice’ from someone with no skin in the game.

You will also need a competent independent tax advisor, mortgage broker and accountant to give you advice that is appropriate for your specific circumstances. There is no ‘one size fits all’ advice in this business.

There are so many rules, regulations and tax implications associated with property investment; this isn’t the place to cut costs and their advice will put you in the best position to get the return you’re aiming for.

6. Do your (own) due diligence

Make sure you take the time to thoroughly research everything about your business before you make your first investment. Don’t put too much weight behind so-called ‘advice’ given by people selling you something; their advice might be good for them, but not so good for you. Instead, put your trust in your peers; preferably those who have had some success themselves.

7. Don’t pay too much

It’s exciting once you find the right property to invest in, and you’ll no doubt be keen to see it through. If you’re an investor, you should ideally be aiming below asking price – but what is the property worth to you? How much can you afford to pay without compromising your margin? Establish that figure and don’t go above it. You never know, you might be able to snap up a bargain later if it doesn’t sell.

8. Never underestimate the cost of renovation

This is where you can really make, or lose money. Set yourself a budget by talking to trusted advisors and always use professionals, like Chartered Surveyors and Engineers, or accredited builders (Federation of Master Builders www.fmb.org.uk, or National Federation of Builders www.builders.org.uk) … and stick to it!

9. Always know the market rent

You should review the rental prices of comparable properties every year to ensure you are charging the right rent. Remember, a really great letting agent will keep your investment returns as high as they can be.

10. Invest for the long term

Selling properties is expensive; you ideally want to be doing this as infrequently as possible. If you buy the right property (see points 1-4), it should be one that you can hold onto and that will generate income for you for a long time.

Clearly, investing in property in the UK has its challenges, but the financial reward makes it one of the most reliable investment options out there at the moment – provided you get it right. The advice above should go some way towards making your first investment in property a successful one!

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