Experienced investor and author David Lawrenson explains:
In a recent blog post I said, “It still amazes me how some people blindly believe what they are told by firms who push residential property investments.”
I then went on to list 6 things that any investor using a third party property firm should do as part of their research:
1. Find out what you can about the property company you are buying through. What does it say about them on the Internet?
2. Do they stand to lose money if the investment turns out to be a bad one?
3. Get your own valuation for both rental potential and property value. Don’t ever trust theirs.
4. Even with your own valuation, you must still do your own research – remember, lots of professional surveyors working for banks once thought all the shiny new builds going up 5 to 10 years ago were worth 50% more than they are actually worth now.
5. To avoid making the same mistakes these guys did back then, you should think carefully about supply. So, if there are ten thousand more units going up locally and they are just like yours and are all chasing a limited pool of tenants, I suggest you dig out your old economics text books and re-read the bits about demand and supply.
6. Visit the area!
Back to Basics Guide for Buy to Let Investors
In another blog post, I went “back to basics” again with a 10 point guide for buy to let investors and landlords:
1. Buy into the right location. Look at areas that are getting or have just got faster transport links. Use the Internet and publications like Estates Gazzette, available in most libraries, for news on planned regeneration. Do your own research.
2. Use today’s weak market to make “hard ball” offers at below the asking price. If the vendor won’t play ball simply walk away and make a cheeky offer somewhere else.
3. Buy the type of property that is in demand from tenants and for which there will be a strong resale market when you eventually come to sell. Ask letting agents for their view of what type of house is in demand locally.
4. Read up and understand your legal responsibilities as a landlord.
5. Try to build up a deposit of at least 25 per cent to allow you access to the best mortgage rates.
6. Carefully check all prospective tenants’ references to avoid the “tenant from hell”. If your agent does this for you ask to see the references they obtained. Don’t fully trust to an agent until you have worked with them for a while and they have earned that trust.
7. Treat tenants as you would like to be treated.
8. Keep all receipts and invoices and have a good administration system.
9. Have a sense of humour. You’ll need it from time to time.
10. If you need advice, make sure it is independent advice and not provided by someone also looking to sell a property or finance package to you.
Scam Watch
Most aspects of property investment are not regulated and so scam merchants abound – all too ready to take hard earned cash away from novice investors.
The latest things doing the rounds are …..
1. The Duff “Below Market Value Property” Lead
This is where someone pays a property-sourcing firm cash up front for leads for supposedly below market value property (BMV) deals.
But increasingly the customers are finding that the properties are simply not below market value.
A variant of this is where the punter pays for access to the mythical “secret repossession list.”
The fact is that repossessed properties are all made public because the lenders are legally bound to get the highest price for properties they repossess. There are NO secret lists.
2. Property Lease Options
I’m pretty sure that a lot of people are already being done by badly constructed Options Schemes. And in three years time, the press will eventually wake up to this and this scandal will be big news.
My advice to people wanting to buy property this way is to make sure the property lease option is fair and watertight by getting good independent legal advice.
David Lawrenson of www.LettingFocus.com