Investing in property is often described as a foolproof way to make money. Not only can you generate regular rental income if you let it out, but you gain in the long term too as the value of the home goes up over time.
So that’s great, but is it really foolproof? Definitely not! Here are some of the common mistakes and how to avoid them…
1. The finances are too risky
Seems obvious, but you need to do your sums. If you’re buying to let, can you generate enough rent to cover the mortgage payments as well as all the other costs: repairs, building insurance, management fees etc? Even more importantly, do you have savings to cover you if the property isn’t rented immediately, or if there’s a gap between tenants?
2. Not knowing your market
No matter where you’re buying or what kind of property it is, you need to do some detective work. If you’re buying a house to live in yourself it’s less complicated - but you should still look into local plans to see if any major construction work is scheduled nearby.
If you’re buying to let, make sure you have a typical tenant in mind. Young professionals will need good transport links; young families will want to be near a school, need a garden and probably require off-street parking… by ticking the right boxes your property will be more desirable and generate better returns.
3. You didn’t protect yourself
A lot of people buy property with the help of their parents or friends. And these are people you can trust, right? Well usually, yes, but it’s a really good idea to get something in writing so that everyone knows what they’re committing to.
You’d be surprised how many people have to go through tricky negotiations with a friend or family member who suddenly wants access to the money they contributed towards a property. If you’ve signed a contract up front, everyone knows where they stand.
4. Investing in a holiday home
People are often tempted to invest in a holiday home because these can generate much more in weekly rent than a traditional rental property. A seaside cottage in the school summer holidays could be worth hundreds of pounds a week.
The right property can definitely be a great money-spinner… but it’s a lot more work. Someone needs to manage the bookings, change the linen, clean the place after guests leave and resolve maintenance issues as and when they occur. You can get an agency to do this but it could cost you a third of the money you receive.
And don’t forget that as soon as the weather changes your bookings will drop off. Some holiday properties are empty for more than half the year.
5. Over-ambitious renovation plans
So many property TV shows inspire us to buy an old a wreck of a house building and transform it to generate major huge profits.
But all too often renovations cost far more than expected and the returns are nowhere near what you were hoping for.
The key is to be uber-strict about your budget and make sure you have at least 20% more money available as a contingency. Stick to this the plan and you should be OK!