6 Things to do BEFORE You Commit to Buying Any Investment Property
When you are buying an investment property there is a lot to consider and a lot of money at risk. When you’re under pressure, it’s easy to get overwhelmed. The trick is to take a step back, stay calm, be diligent and logical with your data, speak to as many people as possible and have faith in your instincts.
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1. Speak to Local Letting Agents BEFORE You Buy
Believe it or not, we see investors skip this crucial step time and time again. Before you buy an investment property, you need to speak to the local letting agents first.
The reason for this is simple. The chances are, that the local letting agents are going to know more about the local area than you do. Even if you know the area very well, it takes a lot of work to know really know the streets and postcodes in a location.
Every area has nuances that a letting agent will probably know a little more about than you do.
So, I fully recommend, that before you buy a property, you pick up the phone and have a conversation.
Explain what it is you want to achieve with the house you are looking at buying and see what they say. Tell them which street it is on. Ask them what they think of your chances of finding the right tenants for the rent you are looking at charging.
And, there is a good chance they’ll be able to answer your questions quickly and give you a broader idea about the area. This, in itself, will give you a much clearer picture, as to whether or not the house you are looking at, is going to do what you want it to do.
2. Make ‘Proper’ Local Comparisons
The second thing you must do – and which we also see investors skip over all the time – is to make proper local comparisons.
It’s not enough just to look at Rightmove and check what houses are selling for within a quarter of a mile of the house you are interested in.
Think of the money you are spending.
If you are putting 100 or 200 thousand pounds into a property deal then it’s only sensible that you spend as much time as it takes doing your research and due diligence.
Of course, I’m not knocking Rightmove. Both Rightmove and Zoopla are fantastic research tools.
But, what I am saying, is that when it comes to making local comparisons, the deeper you can go into the data, the better you will understand what you are buying into.
So when you are looking at a potential investment property, you want to be looking at other properties within a quarter or a half-mile radius.
You want to be comparing like with like, meaning that if you are looking at buying a three-bedroom, semi-detached house, you want to be comparing it with other three-bedroom, semi-detached houses.
But, you don’t just want to be looking at other houses that are currently for sale.
You want to be finding as many other things as possible to compare as well.
For example, you should be looking at time scales (how long are they taking to sell). You want to look at how prices have changed over time.
You want to see if you can spot market trends. Are there more houses on the market than there were a year ago? Could this be a sign that investors are dumping their stock?
Carefully comparing houses, across a range of metrics, is going to give you a full picture of what is going on in the local, housing market.
So, spend as much time as it takes on your due diligence and your investment decisions will be much wiser.
3. Look at the Right Data
The third thing to make sure you are doing right is checking sold price data. It is all too easy to find yourself, unintentionally, looking at the wrong numbers.
Let’s say you are looking at sold price data on Rightmove or Zoopla for a specific area. What often happens, if you are looking at an area that isn’t that densely populated, is that there simply won’t be any data to look at.
This can happen if there haven’t been very many properties, within your price range, that have recently been sold.
The temptation for investors is then to start changing their filters to include additional information.
For instance, they might change the settings to show data for six or seven years, rather than just one or two.
This is not necessarily a bad thing if all that is wanted is a snapshot of the market. But, it is extremely risky to rely on the story that these numbers will tell and by using old data like this you won’t get close to being able to work out what the market is doing right now.
The same principle is true when you set the parameters for the geographical radius.
If you can’t get much data from just looking at sold prices of houses within a quarter or a half-mile radius of the property you are thinking of buying, then you can go wider. But, you need to be conscious of the fact that by doing so, the data is going to tell you less.
My advice is to gather as much data on sold prices as possible. Look at what houses have sold at over the last six months, a year, two years. Look at what is going on within half a mile of the house, a mile, two miles.
Get as wide and as narrow a picture as you need to build a full picture of the market.
But, don’t do what a lot of investors do and get confused by what you are looking at. When it comes to sold-price data you need to take your time and be sure that what you are looking at is telling you what it is you need to know.
4. Understand the Local Area
Another thing that should be obvious, but is sometimes overlooked, is that you need to get to know the area you are thinking of investing in.
For a lot of investors, particularly those investing in the areas in which they already live, this is not a problem. But for some, investing far away from where they live, it can be difficult to make the trip and often tempting not to bother.
If you can visit, it is a mistake not to.
It is true that you can learn a lot about an area by speaking to estate agents, letting agents, your sourcing contacts and your joint venture partners.
There is a lot you can learn about an area without going there yourself, but more you can learn by visiting.
If you are able to do a drive-by, past the property, at different times then perfect. Try to see what it’s like during the day, during the evening. Try to see what it is like on a weekend.
You’ll find that at different times and on different days, any area can feel very different.
I have made this mistake in the past.
There have been a couple of houses that I have bought without properly checking out the areas first and these choices have come back to haunt me a little.
These houses have not performed particularly well and haven’t seen the growth that I hoped for. The reason for this is simple. The areas they are in simply aren’t that great but not in a way that you would get a sense of by looking at comparisons or local sold prices.
To really get a feel for an area you need to get out there and walk or drive around the streets. If I’d done this before I invested in these houses I probably wouldn’t have bought them.
5. Trust Your Instincts
Number 5 is to always trust your instinct or, to put it another way, follow your intuition.
This is an easy one to dismiss, but you have to be comfortable with the property that you are considering.
It’s a big investment after all. Houses cost a lot of money so you have to be comfortable with the one that you are considering.
And not just the house itself. You need to be comfortable with the location, with your adopted strategy, with the people that you are working, with the people who are going to manage the property for you.
If something doesn’t feel right, you should be prepared to walk away.
There will always be other deals.
I’m not saying that you should dismiss deals that otherwise look good on a whim. If all the boxes have been ticked then that’s great.
But, if something does not feel right, about a company, a person, the deal itself then trust your instincts. Always be prepared to change something, to walk away. There are always other options.
6. Don’t Fall Prey to Desperation
Finally, you need to keep level headed at all times. Another thing that investors commonly fall foul of is deal desperation.
This is especially common if the market is very buoyant, as, in a buoyant market, it can be a struggle to find a good deal.
You might find yourself chasing offers but not getting close to sealing a deal. In this situation, it can be tempting to offer a little more for a property.
This is where deal desperation sets in.
Deal desperation can put you in some bad situations. You can end up buying the wrong houses at the wrong prices.
If you find yourself getting desperate the answer is to firstly, stay calm, and secondly to work hard at opening up your options.
You want to be viewing as many properties as possible and putting in as many offers as you can.
You also want to be putting yourself in a situation where you can move as quickly as possible when it comes to putting in offers on the right kind of deal.
Because the more desperate you are, the more likely you are to make a mistake and end up paying too much.
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