The past few weeks concentrated on what it takes to become a property investor as well as where to find the most suitable investment property. However, even with a rapidly growing market, there are still a few common pitfalls investors make. Investing in property is a big deal – theres no doubt about that. So its best to ensure its done properly to avoid any potential mistakes.
It all comes down to planning. Having an end goal and a structured plan to help you achieve the end result. But where can it go wrong?
As an investor, one of the main aspects of investing is the finance. Its also where potential mistakes can be made. When looking at an investment property, take into consideration the current interest rates as well as potential rises in interest rates in the future. An increase in your mortgage interest rate impacts your mortgage payments as well as the percentage yield – the amount being made on the property investment – leaving a decline in your gross income.
Consider the worst case scenario. Regular void periods or even no rent payments. Doing so helps prepare for the financial element of a property investment. Undertake a thorough amount of research by examining the local market and its economy as well as the demands from tenants.
Investing in property requires factoring in a lot of potential costs. Experts say an investor should retain at least 35% of their gross rental income. This includes costs of any voids, maintenance and repair costs, rent arrears as well as refurbishment costs. Ongoing costs such as gas safety certificates or letting agent fees – currently 0% management fee if you sign up with us this month – must also be taken into consideration.
Other Common Pitfalls
Another common mistake is buying a property in an area an investor knows very little about. Potential rental yields vary from place to place so don’t always make the assumption it’ll be relatively same to a place you’re familiar with. Not knowing an area means you cant appreciate the market conditions or even if there is a rental demand from tenants.
Research undertaken by a property investors should include a viable plan to ensure their investment is kept as an asset and not a liability. Realistically calculate how much rent will be achieved after all ongoing costs and consider whether the amount which remains is enough to bring in the returns expected.
Investing in property is business. Don’t get emotionally attached to an area and buy an investment property there because you like the area. Buy it because it offers a good business opportunity.
Consult with a local expert on the best way forward and create some form of business/investment strategy to help you avoid any potential common pitfalls.