The Top Do’s and Don’ts of Residential Property Investment
December 10, 2013
Property as an investment class is a tried and tested proposition for stable, long-term wealth creation. Add the effects of gearing (using mortgage finance), buying the right property in the right location at the right price and the returns regularly outperform all other asset classes.
So what’s the key for successful investment in residential property? David Mackenzie, Young Group Director of Asset Management, shares his top 10 dos and don’ts for sound property investment.
- Research, research, research
Know the area you are buying into, regeneration plans and new tube stations are great indicators of up and coming areas and capital appreciation. Apply the 10 minute rule for access to transport links, bars & restaurants and local amenities.
Consider who your ideal tenants will be. To attract quality tenants you need quality locations.
- Buy well
Consider both price & content. Research prices in the area and look for comparables. Can white goods, flooring or furnishing be included in the purchase?
- Make sure the numbers work
Most wealth is created through capital appreciation, so buy a property that supports this type of growth. Ensure you include all costs in your financial projections (such as legal fees, stamp duty, service charges, ground rent, contingency to accommodate void periods between tenants etc). These costs are all too often ignored leading to negative monthly cash flows.
- Appoint the right advisors
Trusting your mortgage advisor is imperative. A regulated advisor can secure the best deals free from fees and aligned to your investment strategy. Good letting agents will minimise void periods. Remember that not all solicitors are off-plan specialists.
- Don’t expect to ‘get rich quick’
Property investment should be approached with a long-term view. It is an asset class that in the medium to long-term has outperformed all other asset classes and I would encourage people to build a sustainable, appropriately geared portfolio over a number of years.
- Never ignore the basics of supply and demand
Speak to local agents to find out what’s needed in your chosen area. The markets for 1 bedroom flats and 4 bedroom houses do not follow the same patterns.
- Don’t be influenced by your emotions
You’re not living in your investment so decorate and furnish at an appropriate level of quality. Speak to local agents to understand what quality is required. Don’t be tempted to furnish cheaply if you want to retain quality tenants.
- Never be swayed by gimmicks
Be wary of incentives, particularly ‘no money down’ deals, get rich quick schemes or developments where you are under pressure to sign up quickly to secure the ‘deal of the day’, and never buy an off plan / new property without the guarantee of either an NHBC or Zurich 10 year warranty.
- Never pay over the odds
Avoid paying finders fees, commissions or subscriptions to agents or advisors, particularly prior to completion. If the investment proposition is a sound one there should be no reason to pay up front fees.
Finally, remember anyone can buy property; your aim is to buy an investment that will generate long-term wealth. Chosen appropriately, there are plenty of solid investment opportunities out there.
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