How can I convince my mortgage lender to invest in a property? - Your questions answered, from how to spot an up-and-coming area, to when to walk away, VideoJug asked Tina for her thoughts, don't miss it ....
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I'd always start off investing in one small project. Smaller properties will keep your risk down, so going for a big castle in the countryside might not be the best approach. It's certainly the most risky sort of project.
Location is absolutely critical when you're developing a property. It's much better to have a run-down property in a really good neighbourhood, that way you can maximize the return on your investment.
You can usually spot an up-and-coming area by what's happening in the neighbourhood. Seeing a number of skips outside of the properties is a really good indication of an up-and-coming area. And obviously there's looking out for the coffee shops, and new money coming into the area is always a really good indication of an up-and-coming area as well.
When you are buying a property to rent you've got to think about the person that is going to buy the house when you are finished. So, there's going to be certain things that are going to put people off buying a property in a certain area and that could be be anything from noise pollution. So, the flight path, the railway line or even a busy road will have a lot of noise and probably won't be suitable in a local area if you've got children anyway. Some people won't want to live next door to, or in the local area of a factory or a pub or some kind of nightlife where it is too loud and noisy for them. And others won't want to live in the local area of, for example, a fish-and-chip shop. Take smells and things like that into account in choosing an area. So, really think about the sort of local area where you would feel comfortable living and if you wouldn't feel comfortable living there then is it likely anybody else will?
You should do as much research as you possibly can. The more local the property is to where you live, the more you'll know about the general area; so, you'll know about the new development that's happening across the road or the fact that they're building a new factory down the road, or whatever it is. So, do as much local research as you can, prior to spending any money with a solicitor or anybody.
A lot of investors look at the option of buying "off plan." Buying "off plan" is when the property's not built yet but you're buying it up front with the developer. The reason it's important for the developer to sell properties "off plan", is so that they're getting money up front, and they can often give you a good discount. So that's why it can be attractive to buy "off plan". But you need to be sure that the discount that the developer is giving you "off plan" is actually a real discount, and that the properties really will sell at that extra twenty percent, or ten percent, more that they're offering you, and the numbers still need to stack up. The problem with buying "off plan" is that you can end up with so many properties coming on the market at the same time that there's too much competition, and that will then reduce the price that you'll get, so you have to be very, very careful and do lots of research before I would advise you to buy "off plan".
The great thing with ex-council properties are they're fairly large properties with a plot, so you get a very good-sized three bedroom semi-detached, for example, in a good plot size, because ex-council properties are much older than more recent properties. The downside is that ex-council property tends to fetch between 20 and 30 percent less in the marketplace, just because it is an ex-council property, so you just need to bear that in mind.
When you're buying any property, when considering its value for money, you need to make sure that the price you buy it for, plus the cost of adding the value to it, still allows enough margin to be made that when you sell the property, it will sell within the ceiling value with that particular neighborhood. Now, the ceiling value is something that is placed on a property in any neighborhood for that property type. Say, for example, it was a three-bedroom property, that will only achieve a certain value in that particular neighborhood. And that's what you really need to look at when you're buying a property, and considering its value for money, just to determine if it's good value. If it takes you over that ceiling value, you're never going to get the return on your investment, and that would be a bad buy, poor value for money.
Properties that you should walk away from, that you're not going to want to touch with a barge pole, are the properties that are beyond your own capability, and what you are actually looking for, for the investment. As a developer you will already have identified how much work you're prepared to do, and you really need to sit down and think: if it needs underpinning, for example, you would walk away from that. Or is it actually going to be worth the investment? Whether you walk away all comes back down to the idea of the ceiling value you can get on the property. Some people want to do more work than others, but don't overstretch yourself just because you think it's a good buy, and the potential's there, if you don't have the skills to be able to do it, you should walk away.
Each property with structural problems needs to be taken on their own merits. Now, it may be that there's enough margin to have structural work done, but you also need to make sure you've got the skills and the knowledge to deal with structural problems. And if you haven't got the skills and the knowledge to deal with structural problems, you need to be able to find the experts that have, to make sure you're not just throwing good money after bad.
Now I would always say to go with a freehold property rather than leasehold. Because the leasehold term will reduce as time goes by, it potentially becomes less valuable. Whereas a freehold gives you a lot more scope and it does retain its value a lot better in the market.