- Run the numbers. Borrowing is a cost. Voids are a cost (you pay the bills - gas/elec/c tax whilst it's empty). Are you planning to sell the property on? Buying with cash is great but factor in opportunity cost too. Service charges, insurance, letting fees. Build a spreadsheet or email me for mine so you can tailor it. If you are looking to resell the property have you factored in the cost of the selling agent and the bridging finance for a period 50% longer than you think it will take because... well sales fall through don't they. Then plan b - point 2 below:
- Does the rental income cover AT LEAST 150% of the mortgage payment? Remember that stricter lending requirements mean that loans will be tougher to get if your yield is low. I'd argue that you shouldn't buy the property in the first place unless the rent isn't double the mortgage, but that's a whole other conversation!
- If you are refinancing use a metric such as Return on Capital Employed to measure how well your investment is performing. Naturally a property you've had a long time and then refinanced may well produce an infinite return, then we can start looking at ways to improve/extend/add value/add letting rooms and so forth. This is a great metric to compare properties, much more detailed than the old "gross yield." Read my previous article for more detail.
- Is there a demand for what you are planning to supply and is it "lettable?" All too often I hear grand plans of chopping up rooms and making two where there was one - but will it be liveable? Especially as HMO regulations trickle down further into the PRS there is a real need to "futureproof" your refurbishments. Get in the know and make sure you are installing fire doors from the word "go" in order to prevent having to spend more money on this later.
- Are you spending your money wisely? All too often I hear from clients that wish to self-manage their refurbishments that it's been a contractor nightmare after another and they paid more for materials than they wanted to. In fact a friend with nearly 20 years' experience in the building trade has asked me if any of my readers were interested in saving money on refurbishments. I certainly did and truth be told sitting down with Lloyd for a day probably saved me £10,000 per refurbishment (that's 1/3 off the total cost!). He's got a very worthwhile day planned so if you want to learn more about this have a look here for more information.
Friday 17 February 2017
5 Things you need to know before buying your next investment property in Clapham
I get probably a call a week asking for the "best" property to buy. Truth be told the adjective is quite vague, really. Are you looking to add value? Are you looking to park your money and forget about it? Are you looking to buy something to sell on straight away? Whatever you're planning on doing with your next property these are key things that you need to keep in mind.
In summary - know what your numbers are going to be, buy wisely and don't overspend! If you are looking for your next investment or want to partner up with someone more experienced to help you make the best returns in South London then by all means drop me a line and start the conversation or come and see me at this month's Clapham Property Meet. This month we'll be discussing adding value and I'll show my current and past projects in greater detail and show you where I think you can add value in South London.