By Ashley Osborne | Head of UK Residential & Managing Director – International Properties
When it comes to buy-to-let investment advice, focusing only on what you should do is not enough. This is especially true when you are new to property investment. At Colliers International, we believe in giving you an understanding of the risks and problems you may face, to help you better navigate through them. In this article, we highlight the top 4 mistakes you should avoid for a buy-to-let investment.
1. Buying the right property, but at the wrong place
Most buy-to-let investors are focused on finding the right property, one that is relatively new, void of any damages and has high prospect value. But, often, they make the mistake of not enquiring about the neighbourhood it is located in. It is important to ask the following questions, as they impact your potential rental income in the long run:
- Will there be any construction nearby? Train lines, offices, schools might be good additions to the neighbourhood, but they can also bring a lot of crowd and noise to an otherwise quiet neighbourhood.
- Is the location prone to natural disasters such as floods and earthquakes? Although rare, if your goals are long-term oriented, it is advisable to consider the topography of the location.
- Is the area safe, and does it have low crime rates? Safety will be a concern for tenants, so it should be something you consider when buying property.
2. Estimating returns without considering the miscellaneous costs
One of the biggest mistakes in property investment is calculating potential returns or total expenses based only on major costs associated with your rental property. It is important to keep in mind that unforeseen circumstances or additional costs may occur, for instance:
- When the country’s economy is undergoing a trough, it is common for people to move out and buyers to pull away from investment opportunities, resulting in lower rent prices.
- Hidden structural issues with the property that were not noticed during the professional inspection will entail additional maintenance cost.
- Prolonged period of vacancy can mean mortgage and insurance payments will need to come from your own pocket.
A good practice is to add a certain percentage on top of your monthly expenses to cover for these costs. This may lower your estimated income, but it will help keep your potential earnings at a more realistic level.
3. Impulse buying without doing your homework
New investors may enter the property investment market after hearing about market potential from peers or family. Sometimes this involves jumping on an opportunity that is too good to be true, or one that is not well researched. Unfortunately, this does not always work out, as buy-to-let investment should be treated as a strategy, not a transaction.
We recommend that you first set a goal and create a plan on how to achieve it – by planning your finances, getting in touch with consultants and doing your research, just like we outlined in our article, Tips for your First Property Investment, a few weeks ago.
4. Managing multiple properties because you successfully managed one before
Managing one buy-to-let property on your own may have worked well for you, but it is not advisable to have the same approach when you have multiple properties to look after. As your portfolio expands, the time and level of effort needed to manage your properties increase, especially when your properties are located in different countries. Not only will you have to consider numerous sets of tenant laws and regulations, you will also need to put some time into finding tenants, conducting inspections and managing tenants.
When you do grow your portfolio to multiple properties, it is recommended to have the right resources and support in place. Ensure you also have access to a team of consultants that can advise you on any of the challenges you face.
Over and above this, ensure you have a clear buy-to-let strategy. Refer to our insights and tips on our Quick Guide to Buy-to-Let Investment. Or to find out more about how you can successfully avoid the common property investment mistakes, get in touch with one of our consultants.