Buying Investment Property
Primarily, the 1
Stop Property Shop specialise in sourcing and buying investment property in specified
areas for people who want to own and develop a property portfolio.
We can also assist with property surveys on behalf of our clients, arrangement
of finance and mortgages, refurbishment and repairs to property, insurances
and management. If you need help with these services, please let us know in advance of completion of your purchase.
You will find that there are lots of advice and tips
in this website about how to get a good result in all aspects
of buying investment property, and how to spot and avoid a bad deal.
We have gained extensive experience over the years, most of it
from past employment with other companies and have experienced
the good, the bad, and the very ugly!
There are two
main financial benefits for the buy-to-let property investor. The obvious
one is the rental income, and the other is the capital
appreciation (increase in value) of the property.
How To Get Started
You agree to buy
investment property from ourselves, or from one of our associate companies.. You can use your own solicitor
for the purchase, or we can give you a list of local independent
solicitors that investors have used successfully. Investment property
prices at the time of writing generally vary from £45,000
to £100,000 for established (already built) property, and up to £450,000for new build, off plan investment property. I strongly suggest that the property is purchased
with a valuation report from a R.I.C.S (Royal Institute of Chartered
Surveyors) high street surveyor. Preferably, you should use one
that is contracted by the major lenders. Their report will be
proof that the property is value for money, and will confirm any
work required to promote to a standard for tenancy and to maximise
its market value.Of course, any buyer should be diligent, and
in addition, check out comparable prices for the property with
local estate agents and via internet facilities.
Remember at all times
that whenever you are buying investment property --DO NOT GET
EMOTIONALLY INVOLVED WITH IT. The property is a vehicle to
provide a capital return for your invested funds. You are not
living in the investment property. All properties have to be attractive
to potential tenants and should be decorated neutrally. A basic,
clean property is what you should aim to tenant, and any decisions
regarding content etc should be financially based. The decision
about buying investment property or not to buy is straight forward:-
Make sure the
property is tenantable. Seems obvious, but I have witnessed
investors getting excited about buying investment property that is really cheap and in bad areas. The Investor
sees potentially attractive returns, the amount of rent being
high compared to the cost of the property. What they don't see
is a property that has limited attraction to "good"
tenants. Cheap normally means poor quality, poor property generally
attracts bad tenants which means high maintenance, irregular rent
payments, high turnover of tenants and significant void periods.
The potential capital growth is also limited because the property
is not attractive to the majority of the marketplace. The value
of any product is only determined by what someone is prepared
to pay for it, and if demand is low, so will be its value.
"Should
I be buying investment property that is ready to let, or one that
needs work doing to it?" is probably the most common
question I have been asked. If you buy established property that needs refurbishment
to some degree, you can sometimes get a better deal. This
is because its condition allows us to negotiate a better buying
price on the grounds that the amount saved can be used for the
refurbishment. There also tends to be less of a demand for these
types of property (generally because these properties are within
the first time buyers realm but they don't want to, or have the
funds/ability to refurbish). This helps greatly, as it is the
demand that drives prices in the housing market. Providing the
work needed can be carried out for a reasonable cost, you could
end up getting the property (including the refurbishment costs)
for below potential market value. The upside of this is that you
can gain equity in the property from the outset. The down-side
to buying investment property like this is that it can't be
tenanted while the work is being done. They are also bought with
cash because it normally can't be satisfactorily mortgaged initially.
This is because a lender will normally only offer a buy to let mortgage at up to 85% of a properties'
valuation, and a property pre-refurbishment will have a value
of considerably less than its post-refurbished condition. So if
a property comes in with a low valuation, even with a potentially
much higher value after work has been done, they may only offer
50%-60% of its potential market value. These properties also normally
go to cash buyers because when we make an offer to the vendor,
we normally negotiate a much better deal by offering a very fast
completion of purchase (if they will reduce the selling price
further). Obviously, a mortgage takes time to arrange and can
extend the purchasing period by up to 6 weeks or even longer.
This is not attractive to the seller.
However, we do
have properties that can be mortgaged from the outset, and
enable you to use a property investment loan to develop your portfolio. This is the secret
to developing a large portfolio in a relatively shorter time.
Paying a deposit of say, 15%, means that you can use OPM (other
peoples money) to buy and very quickly own a number of properties.
80% - 85% is the normal LTV (loan to value). The figures mentioned
here are a general guide, because the lenders criteria varies
with each client.
However, mortgaging
is very practical after the property has been purchased using
cash, and refurbished. In other words, a mortgage can be raised
towards further purchase of property using the "gearing"
facility. Obviously,
an investment property after refurbishment will increase to full
market value. This property can then be mortgaged and the funds
subsequently released are used for buying investment property using an investment property loan. This process
can be repeated over and over again
