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Investing in property requires “big” decision making, sometimes with tens of thousands of pounds at stake in a single transaction. It’s no surprise that some first time investors become paralysed by fear at the thought of the risks involved, and many a good deal has been lost through unnecessary delays caused by trying to find an absolute certainty. 

Based on our own investing over the last few years, and through watching many others learn the processes involved, there are three pitfalls that novice investors need to consider from the outset. If these risks are properly addressed during the early stages of a negotiation, it is possible for even the most nervous newbie to successfully complete on their first investment property.

Risk of paying too much for the property

Property values are an approximate science, driven by supply and demand in the first place, and then by fear and greed. It is extremely unlikely that the advertised price for a property will accurately reflect the true price to be paid, whether the market is moving up OR down at the time of purchase, and at best it reflects the sellers’ highest ambition … NEVER pay the asking price!! 

New investors can easily do some homework on prices in the local area by using web sites such as www.rightmove.co.uk or www.propertyfinder.com , which also carry recently sold prices as an additional guide. Another resource worth checking before making an offer is at www.zoopla.co.uk . This allows individual house price checking, based on previous sales prices and mathematical formulas that are continually updated. All of these resources allow buyers to check rental values in the same area, so that a good impression of demand for the property can be seen before any funds are committed.

In practical terms, the first offer on a potential investment property should be the lowest figure felt to be realistic, and it will almost certainly be rejected. However, this sets the ball rolling and starts to drop the expectations of the seller. We’ll cover exactly how to make offers in a future article.

As a cautionary note, the only value the really matters is the figure reached by the mortgage lenders Valuation Officer (Chartered Surveyor regulated by RICS), who will view the property and do the same research to assess the risk from the lenders perspective. This should stop any potential to overpay on the value of the property.

Location, location, location…

Yes, it really does matter!

When considering an investment property, new investors should put themselves in the shoes of the potential tenant. The best rental demand comes from locations where there is good access to the major road network and public transport, a good selection of shops and facilities, parks and open spaces etc.

Would you live next to the neighbours from hell? Walk the local area and make your own assessment of the living standards. A good house in a bad neighbourhood will not let well, and new investors can ill afford periods of rental voids that kill cash flow.

Lack of general due diligence.

Finally, be wary of leaving all the due diligence checking to the Solicitors. Local authority plans can be bought cheaply (sometimes even downloaded from the web free of charge), and will usually include some form of medium term plan for the area being considered. Investors need to know   about future developments that could impact on housing values – demolition, construction, change of road priorities, change of building usage nearby – which can all have unforeseen consequences.

Investors should also make the effort to research the major sources of commerce and employment in the area, and consider any risks of shrinkage or redundancy that could affect lettings in the future.

Related posts:

1. Five Rising Trends in the Property Market.