When most investors buy a property as an investment, a buy to let, they rarely consider how easy or hard it would be to sell the property.
Which is understandable.
They are probably thinking they will own it forever, and maybe pass it on to the kids when they go.
At the very least, they will probably think of it as a long-term investment which they will own for many years.
But things change, and the reality is that none of us know what could be happening in 5 years, 10 years or 20 years, and which might affect how we see property ownership at that time.
Maybe a daughter decides to get married and you need to sell to release capital.
Or maybe you need to release a cash lump sum to supplement your pension.
Your investment strategy might change and mean you want to move money out of property and into another type of asset.
Or perhaps a particular property no longer fits your strategy or portfolio. Perhaps that type of property, or properties in that area, no longer give the returns you bought it for.
Who knows.
But the point is that there might be reasons why you want to sell in the future.
The thing is, the best time to think about this is before you buy.
One of property’s biggest downsides is its illiquidity. It is relatively hard to sell compared to other types of investments. So do not make it worse by buying something that is even harder to sell than it needs to be.
Within reason, you should try to avoid properties that are going to be hard to sell.
Now, we need to have some balance here, because some of the best properties for buy to let are cheaper properties.
Why are they good for buy to let?
Because cheaper properties tend to give better returns.
But they are cheap for a reason.
It is simple supply and demand.
They are cheap because fewer people want to buy them and so, in that sense, they are harder to sell. If that was not the case, and a lot of people wanted to buy them, they would not be so cheap.
So before you buy any property, ask yourself:
If I need to sell this in the future, how easy will it be?
Of course, you cannot predict exactly how easy or hard it will be in the future, because so many things can change over the years.
But based on how things are today, and knowing what you know today, how easy or hard do you think it will be?
If you think it might be very hard to sell, then should you buy it now?
For example, if it is cheap because it is in poor condition, then you can probably assume, and you must do your due diligence to confirm this, that once you have done it up it will be much easier to sell.
But if it is cheap because it is in a cheap area, then there will probably always be limited demand unless you think the area will improve over the next 5, 10 or 15 years, for example.
Some properties which are hard to mortgage, or unmortgageable, may always be very hard to sell.
For example:
- properties of non-standard construction
- flats over takeaways
- properties in areas with a high risk of flooding
Does that mean you should never buy a property like that?
Not necessarily.
But as part of your due diligence, you must decide whether the risks make the return worthwhile, knowing that if you ever do need to sell, you may find it hard.
And if that is not a risk you feel you can take, then you should look for properties that better fit your criteria and accept that you might have to pay more for them.
This is not advice, obviously. Just a reminder that the best time to think about your exit is before you need one.
Here’s to successful property investing.
Peter Jones
Author, property investor and ex-Chartered Surveyor
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