So you’re about to invest in your first property deal. Everything is in place – the survey, the contracts, the mortgage finance. But how do you know that the deal you’re about to sign is a good one? You might argue, ‘well, it’s a gamble. That’s just how property investment works. I’ll know it’s a good deal when, in twenty years, I decide to sell’.
Here’s the good news.
Investing in property needn’t be as risky as you might think. In this article, we’ll look at steps you can take to check, in advance, whether or not your investment may be a good deal. We’ll also help you to spot the opportunities that other investors may miss.
Making money from day one
One of the best ways to profit from investing in property is to start making make money the day you buy. In other words, you don’t have to wait for the property market to go up. It’s all about buying at the right price. If you know you buy at below the market price (even just by a few thousand pounds), then you’re already making money. The question is – how to achieve this simple but valuable goal?
The answer - find motivated sellers. People who are in a hurry to sell. For many, a quick sale matters more than the cash they receive. We’re not necessarily talking about pushing for a discount - a property might already be on offer at below market value.
Here’s where you might be able to get ahead of a competing buyer – someone who hasn’t studied the market closely and automatically assumes they can get away with negotiating a discount. By offering the asking price, you’ll make the purchase and be the winner in the long term.
We’re not advocating taking advantage of a seller who’s in financial distress. Instead, you can try to understand their situation and then offer a price that will be a ‘win’ for both of you.
Can you add value?
Try looking for ways where you can add value to the property you’re about to buy. Examples include-
- Refurbishing the property to improve its condition and appearance
- Extending into the roof space
- Dividing the property into smaller units
- Building an extension
- Digging down to create a basement
- Change of use and conversion
It’s vital that you invest wisely. Always be sure that the value you add is more than the capital you have to spend.
Research rental demand
This is vital if you’re to make the most of your property investment. Whether you see your purchase as a long-term investment, or you plan to sell on quickly to another investor, the same applies. The rental demand in your location and for your type of property will make all the difference.
Suppose the current tenants are planning to move out. How easy will it be to find a replacement who will be prepared to pay the market rent? You need to be sure that the ‘void period’(the time when your property is vacant and failing to generate rental income)is likely to be brief.
A classic mistake made by investors panning to ‘flip’ (buying a property with a view to a quick re-sale) is their failure to assess local rental demand. If your potential purchaser isn’t convinced of the demand for local renting, a re-sale won’t be easy.
The simplest way to checkout the local demand for rent is to phone a few letting agents. Tell them you’re a prospective tenant looking to rent, and you’ll soon get an idea as to the kind of income your property can expect to earn.
Does the property allow you to maximise your cash flow?
Are you buying your property with a few to renting it out long term? Then you need to be sure of regular monthly positive cash flow. In other words, you should be looking at a reasonable amount of profit, after outgoings, at the end of each month. Here’s a simple calculation –
Your rental income needs to be at least 125% of the monthly mortgage interest. If the mortgage interest is £400 a month, then the rental income needs to be at least £500 per month. But is this enough to cover your other expenses, such as agency fees and repairs? Maybe you should be looking at a rental of income of £595, to give you some financial ‘wriggle room’.
Talk to a property investment specialist
Property investment inevitably involves a degree of risk. As long as you carry out thorough and focused due diligence before you invest, then you won’t go far wrong. It’s best to play it safe. Get to know a professional who will have your long-term interests at heart – and that’s where we come in. Talk to us at Donelan Property. We know property. We know investment – and we’re here to help.
Call - 0161641 8700
Email - info@donelanproperty.com
