I’ve become very aware recently from talking to other investors that if we’re not careful we can get so excited, or so enthusiastic, or so keen, or even so desperate to buy property and to start building our portfolio that we can end up buying properties which we shouldn’t otherwise have bought.
There is a number of things which we need to fully understand before we buy any property, and this comes down to doing essential due diligence. Before you buy any property, and assuming we are thinking buy to lets but this would also be the same if it was a commercial property which you are going to rent out, it could be the same if it was serviced accommodation and you are going to need a flow of guests, you need to know what the rental demand is of the property.
The only way you are going to be able to find that out is by talking to the people who deal with lettings in your area, in other words letting agents, which is why as part of very basic due diligence you need to go and talk to letting agents. Preferably all of the letting agents in your target area to ascertain exactly what the tenant demand is, who the tenants are, how much they are prepared to pay and the type of property which they want to live in.
What else do we need to know? Particularly if you are buying a property through a third party you need to understand the figures, the figures that you are being given. You need to understand the figures even if you are sourcing the property yourself, but even more so if the property is being sourced by a third party. There is no standard definition for things like net yield.
You will find that many people who are offering properties will produce a calculation showing what your net cash flow is going to be, for example, and all they’ll do is deduct the mortgage if there is going to be a mortgage. They’ll come up with a figure on the mortgage which is really just a guesstimate as opposed to a firm figure because obviously mortgages are a very personal thing. You may apply for a mortgage and get a completely different mortgage from the mortgage I would receive. So, you need to think about what the figures are and what the figures are for you, and not just take figures blindly from people who produce them.
Another thing which you need to think about is the actual property itself. Never buy a property without looking at it. I’ve met a few people, I was going to say many people, its far too many people to be honest, who have gone and bought a property blind without actually looking at the property before they have bought it. Inevitably and invariably, whenever you buy a property without looking at it first there’s going to be some problem or problems which is going to either make the property unviable or it’s going to reduce the return that you are going to receive from the property.
For example, I’ve met people who have bought properties without going to see them first and it’s turned out they’ve had pretty serious structural problems which has cost them an awful lot of money to rectify. I’ve met people who have bought properties without seeing them who then discovered that the properties are not in an area where people particularly want to live and they’ve had a great deal of trouble actually keeping the properties let and keeping the properties cash flowing. So, as a very basic due diligence you must go and look at the property and I’m sure that you already understand that anyway.
Before you buy any property do your due diligence. Make sure that you understand the market, and make sure that you do your figures. There are so many great tools out there nowadays which you can use to do your research, you can go onto Rightmove Sold Prices to work out what the property is going to be worth, once you’ve bought it and once you’ve done the refurb to make sure that you are not overpaying for it, to make sure that you really are buying a bargain. It’s so easy to talk to letting agents to work out what the rents going to be, to work out what the rental demands going to be, and of course looking at the property, making sure you actually go and see it, to make sure it is exactly the type of property that you should be buying.
One other bit of due diligence which would be very useful before you even start buying properties is to talk to a mortgage broker and getting a decision in principle to make sure that before you even start looking for properties you can actually raise the finance that you are going to need in order to go and buy the properties in the first place.
Well, I hope you found that informative and inspirational. Until next time here’s to successful property investing.
Peter
Peter Jones
(ex) Chartered Surveyor, author and property investor
https://www.ThePropertyTeacher.co.uk
PS. By the way, I’ve rewritten and updated my best-selling e-book, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same.
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