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5 Mistakes To Avoid In Property Investment

March 15, 2024

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Key Highlights

UK
  • A round up of the key mistakes new investors make when starting their property investment journey.

Mistakes: we all make them. Investing in real estate can bring a lot of financial returns. While to err is human, mistakes in property investment can spell disaster with serious financial repercussions. A lot of people make the mistake of thinking that property investment is a get-rich-quick scheme – it takes patience, time, and money to be done right.

Below are some common mistakes that a lot of new investors make. Rather than scaring potential investors off, it’s good to be aware of mistakes and risks so you’re prepared for anything.

Insufficient Planning

Occasionally, some investors will purchase a property without a clear idea of what they want to do with the property. This can lead to costly void periods where the property isn’t being inhabited and therefore not generating income. The property they might have purchased might not also be the best choice for their plan, which can cause issues in the long run.

Before starting any investment journey, you need a clear idea in mind of what you exactly want an investment property for and what goals you want. After goals have been defined, investors can begin researching that area and figure out a purchase plan.

For example, if investors want to set their goal as making quick short-term cash, then they can benefit from buy-to-sell or buy-to-renovate-then-sell properties. Research should go into exactly how to do this, where would be best to purchase a property, the laws around it, and any financial roadblocks to expect. For those with long-term goals, investors should look towards buy-to-let properties and research that area.

Lack of Research

Perhaps the key mistake would-be investors make is not doing enough or appropriate research before investing. Understanding exactly what investment entails, where you will be purchasing property, how much it will cost, and so on. Lack of sufficient research can result in investors purchasing property in an undesirable area and struggling to get tenants. Issues such as financial problems, market demand, and bad tenants can cause a lot of negative impacts on investments if landlords and investors haven’t adequately prepared for them. 

Besides doing your research independently, it is also important to get information and second opinions from specialists. They can help you to understand the market and exactly what is the best course of action to take.

Areas of research include:

Rental Yields

Investors should research which areas and even what types of properties can bring them strong rental yields so they can find the best investment for profit. Rental yield refers to the annual percentage of profit that an investor makes, divided by the overall value of the property. It is essentially the profit an investor can make from the property. Investors should seek properties with a rental yield of 5 – 8%, which experts consider good and stable. 

Location

When it comes to property investment, the location is everything. Investors should heavily research where it is best to purchase a property. The property must be in a desirable location, with amenities, good job prospects, strong transport links, schools, and a high influx of renters. 

Properties in undesirable locations that may be unsafe, have few amenities and are inaccessible will struggle to attract renters. Investors should check the housing market in their chosen locations, if it’s mostly populated by homeowners then that might also prove hard to attract renters.

Demographics

Investors should also research into a specific target demographic of renters that aligns with their business goals. Investors should decide early on who they want to cater to, such as families, students, or young working professionals. Depending on that choice, research should go into those demographics to figure out what style of property, location, and even furnishings and amenities provided should be chosen.

Risks

No investment is without risk, even things as seemingly air-tight as property. There are plenty of risks associated with property investment, namely market changes and bad tenants. Budding investors should pay great attention to the risks associated with both investments and being a landlord. 

Other risks associated with property investment include falling house prices, renovations, damage to property, issues with the council, and even problems with neighbours. Not being prepared for these risks and not knowing how to deal with these risks as they develop can be costly.

Not Budgeting

Creating a financial plan and calculating your finances correctly is crucial to be successful with property investment. Miscalculations and shortfalls can prove to be financially costly – and in some cases devastating. Investors can often get caught up in the property’s face value, but fail to consider the hidden costs. 

To avoid this mistake, investors should plan and budget their finances to the penny. Investors should first start with what their financing for the property will be and figure out what they can afford.

Investors should plan on how they will finance their investments and see if there are any other options and help available. Certain payment routes might have additional costs to be wary of. From there, investors should make a budget that includes the exact funding they will have available.

Investors should be aware of all costs that can arise. This includes repairs, maintenance, property taxes, letting fees, agency fees, capital gain taxes, interest rates, and fees for advisors and accountants if using.

Other hidden costs include:

  • Paperwork charges
  • Prepayment penalties
  • Property registration
  • Property tax
  • Maintenance and repairs
  • Damage to property
  • Eviction processes and fees
  • Letting agency fees
  • Landlord tax
  • And more…

Investors should always plan for the worst and create a small fund to fall back on when things go wrong – which they will do. Damage to property and bad tenants can prove costly. Investors should also be wary of potential voids in payment, from if the property is unoccupied or tenants fail to pay their rent on time.

Poor Property Management

Property investment is a business, and that means it needs constant work and management to be successful. A lot of new investors make the mistake of failing to properly manage their investments, leading to problems further down the line. Good property management ensures that the property will stay profitable and accrue capital appreciation over time.

Poor property management includes:

  • Not vetting tenants. Bad tenants can cause untold problems for investors. They can cause damage, fail to pay rent, and upset locals and neighbours.
  • Failure to collect rent. This can also include poorly handling late or missed payments.
  • Failure to quickly respond to repair or maintenance requests. Not promptly fixing issues can make the damage worse in the long run and also create animosity for tenants who feel their safety and comfort is not a priority. 
  • Not performing property inspections. Inspections are crucial to ensure that the tenants are comfortable and happy and that the property is in good condition. It also gives landlords a chance to check for any damage or issues that have not been noticed or reported by the tenants.
  • Failing to adhere to laws and regulations. Landlords should be aware of the laws and regulations about renting out homes and make sure they stay on the right side of it. 

To practise good property management, investors should perform tenant screening and selection. Background checks should be performed and only tenants with a good rental history and references should be picked to avoid bad tenants.

Beyond that, investors should strive to collect rent on time, keep up on property maintenance and repairs, perform inspections, and keep good track of finances and rules.

For more on how to manage your property, check out our guide on How To Manage Your Investment Properties.

Doing It Alone

While doing it alone might seem like a great idea, not having backup or advice can prove to be a mistake. Investors just starting can benefit from using a property investment company. These companies can help throughout the entire investment lifecycle, from initial purchase to lettings to selling the property when it is time. 

These investment agencies can use their expertise and knowledge to help you find the right property, offer advice on locations and yields, manage the purchase, and more. They can also help you scale up your property portfolio when the time is right and diversify your investments. They can also handle the more difficult aspects of being a landlord, such as handling payments, late fees, and evictions if necessary.

Summary

There are a lot of pitfalls to be wary of in property investment – but this does not mean you should be put off. Proper research, funding, and knowing the law will stand you in good stead and ensure that your investments will bring strong returns for years to come.

One of the best ways to avoid mistakes is to make sure you have a team of experts on hand to guide you through your investment lifecycle. Here at North Property Group, we have years of experience in finding the right investment opportunities and securing exclusive deals for investors. 

We have a deep and extensive knowledge of the UK’s real estate market, and can provide professional advice to help you maximise your investment. Book a free consultation with us today so we can help you unlock your investment potential.

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