1: Not Buying below Market Value
You may have heard me before, you make your money when you buy, not when you sell.
Sticking to the basics is important. to refresh our minds with the fundamentals. Warren Buffett has stuck to them for 50 years.
Most investors are in the business of finding motivated or desperate sellers who want to sell quickly at a discount and where you can help them with their problems. Where price is NOT their most pressing concern..makes sense right?
Buying BMV will you give instant equity and a buffer if property prices were to fall further. It also allows you to remortgage and removes your initial deposit as soon as circumstances allow, thereby significantly reducing the risk of losing money in the short term, as you will have left none of your own money in. 0% risk on finds, infinite ROI
With this concept you do not need property prices to increase in value as you are making money straight away from the discount and locked in profit
Got it? Good.
2: Cash flow
Not treating your property acquisitions as a business is a recipe for disaster. We know the old adage that cash flow is king and without a healthy flow of cash your property business will fail.
Now, I am not only talking about having good cash flow properties which are essential but also having a buffer of mortgages payments and an extra for expenses, to counter interest rate rises (not likely at the moment) which can put a dent in your monthly profits or if the tenant decides they want to leave, you have to fund the void periods.
What if you have an unexpected cost such as having to replace a boiler?
If you are starting out, this can be tough.
3: Buying for Capital Appreciation and not Yield
Many investors base their entire business model on the capital appreciation and underestimate funding the shortfall in running their property portfolio. This is a very big mistake and a very high-risk strategy to be avoided at all costs.
It was the strategy that financially ruined people 2001 – 2007
Income from rent NOT just growth. This mentality helps us make sensible decisions that the figures and the investment will provide a positive income. Capital appreciation is seen as bonus.
Sure, we all know property prices virtually double every 10 years, but as portfolios grow shortfalls can become out of control if they are bought on a growth only model.
Never ever buy with emotions. Remember, an asset is something that puts money in your pocket and a liability is something that takes money out of your pocket. You should be turning away more deals than you buy, making sure the yield is good, and factoring in ALL of your costs
Got it, good.
4: Not doing enough research
It is imperative that you do enough research and due diligence before you buy so that you reduce and minimise the risk you are about to make
Most novice investors create the supply without the demand. There is absolutely no point.
Your local postcode district within your area must be fully researched in terms of the rental market and the amount of current stock within the area. Speak to estate agents, get their take.
Buying purely because there is a big discount is a mistake, because you will be left paying the mortgage and the operating expenses that come with holding the property.
Buying property with apparent discounts without understanding comparables can give you unrealistic perceptions of actual value.
Other research you should do along the way:
Is the property mortgageable?
Is there any structural damage? Find compatible sold prices, instructing independent valuations, obtain recent sales and letting demand confirmation from agents, check both the Land Registry and current value prices, check LHA rates, have a schedule of any refurbishment costs that will require works, the local area, hospitals, transport links, regarded schooling?
5: Overdoing it on the Refurb.
If the property requires some renovation, do the bare minimum. Do not get drawn in by those magical makeover TV programmes such as Property Ladder or Homes Under The Hammer, where the selling price is largely overestimated, and the time and cost of the project are both underestimated.
Always overestimate 90% of the anticipated selling price which is a good calculation to work on.
Factor in your profit and loss AND account to see if the project is really worth your time. Remember, it’s anticipated, it could be more or it could be less!
6: Getting emotional about the numbers
The numbers never lie. Do not get emotional over property as this will cost you money. And cause you pain. Don’t chase the deals; let them come back to you. Play the long game – I had a client in London teat waiting 4 years for a particular unit, the deal fell out of bed three times.
7. Always Selling your Property
The main reason I believe selling is a mistake is that you are transferring your wealth to someone else. You are slaying the goose that is laying the Golden eggs… some would say.
Now, we do believe that IF your property is not performing well, or you have bought a property out of area or you can flip a low yielding property on a quick turnaround, then selling the property to reinvest in another better performing property project or to get out is a viable strategy.
The mistake often made is investors not investing for the long term. If we go by past property cycles, and property prices increasing in value over time, then continually selling your properties reduces your asset base and long term wealth…
8: Buying Overseas, off plan & out of area.
Investors learned this with purchases in Spain and Bulgaria. Buying off-plan and only receiving 4-5 weeks worth of rent from holidaymakers…
Many investors are often hypnotised with the fancy artist impression of some beautiful luxury apartments by the sea: somewhere in an idyllic holiday location 3 years off plan
9: Buying Next Door to Bad Neighbours
Play a significant role in the end buyers decision, regardless of whether you bought it BMV.
Plan ahead. Think “what would an end buyer see?”.
If someone does buy it they are taking on a problem and You will ultimately have to pay when You exit (reduced value, limited ability to sell,)
10: Hiring Cowboy’s
We have all been there, right? This is always a recipe for disaster. You would be wise to think how cowboy builders get away with their bad practices? It happens more often than first seems. And this is a big mistake many investors make.
Here’s what most naive green and keen investors don’t do:
-Ask for & verify references by visiting past clients
-Obtain 3 detailed quotes before instructing the refurb
-Appoint approved contractors & go for the cheaper option often paying in cash
A word of caution. These guys are smart. They will seem enthusiastic at the start. They will always return your calls.
“Trust me I’ll take care of you”. It’s amazing the majority of investors still fall for these magic words.
But You’re smarter. Alarm bells should ring especially if:
-Quotes are handwritten & you don’t get a full breakdown
-Offers quick cash discount for money upfront
-Doesn’t offer a contract or sign the one you give them or
This will result in wasted time, overrun of costs and more problems than You think. Get back on your horse mate.
11: Breaking Promises and Breaking Trust (Life rule not just property)
You just have to look on the property forums to know the property investing community is tight-knit. Word travels fast, and anyone who is dishonest and untrustworthy will be exposed. And Google will cache that for many many years! So how does it relate to you? Well the quickest way to make a bad name for yourself is to cheat, and make promises you choose not to keep. Many of the ‘Get Rich Quick’ scammers are out of business, or in prison. Reputation is EVERYTHING. ‘It’s hard to earn…but easy to lose’ Sad but true. You don’t want a reputation as someone who cannot be trusted. Word spreads quickly! Now, we know that doesn’t relate to you, but it’s good to have this conversation, isn’t it? So what can You do?
Quick guide.
– Always be open, transparent and fair
– Never take advantage of people
– Under-promise and over-deliver
– Always be reliable
– Treat others as you would like to be treated
– Don’t ever go back on your word. A handshake is a handshake
