Property Investment for Newbies

Before purchasing an investment property, there are two vital questions you should ask yourself: ‘How much am I prepared to spend?’ and ‘How long am I prepared to wait to see a return on my investment?’ Nowadays, it's becoming increasingly difficult to find a suitable project and even more difficult to manage a fast turnaround on renovations. It's often the case that you will need to hold on to a property and rent it out for several years until you can make any significant financial gain.

First of all, you need to budget and stick to it rigidly unless some unforeseen expense occurs such as necessary repairs to protect the fabric of the building. The whole process is similar to managing your own household budget but on a grander scale. Flexibility needs to be maintained if an idea is clearly not going to work or proves too expensive and if it cannot be adapted to fit your initial specifications and requirements.

It's no use installing a brand new kitchen if there is damp to the ground floor walls. This may seem blatantly obvious but it's surprising how many amateurs think if you can't see it, then it doesn't matter. Having a survey is advisable but it's wise to bear in mind that surveyors are not obliged to move furniture, lift carpets or crawl into loft spaces but this is where some of the most serious defects in a property can be found. Roof and floor joists may be rotten and carpets and floor coverings can hide a multitude of sins from woodworm infestation to dry rot and worse. It's wise to assume that the older the building, the more severe the problem will be. Most of the terraced housing stock in the UK is at least a century old and the wooden parts of the structure may have been exposed to damp conditions long enough for the supporting beams to be well rotted. Homeowners are sometimes blissfully unaware of the horrors that lie beneath floorboards and in loft voids until these beams actually collapse.

Another problem to consider which can literally bring the house down is the removal of chimney breasts. Previous owners in their greed for extra living space may have removed them without a thought for the now unsupported chimney. You could call this ‘Floating chimney syndrome.’ When viewing a property, go out into the road, look at the roof and see where the chimneys are located. Then go back inside and see if the appropriate chimney breasts are still in situ underneath. It's amazing how many unsupported chimneys there are, which could easily come crashing down through roofs, causing injury to people and damage to property. A re-enforced steel joist will easily solve the problem but DIY enthusiasts often assume a few lengths of wood will be sufficient to support the weight of an entire chimney or will fail to put any support in place at all.

Whether you are purchasing a house to rent out or sell on, the same principles apply. Whatever work needs doing it's always prudent to find the most competent workmen who can do the best possible job with the best materials available as this will save on further expense and it will add value to the house whether you eventually decide to keep or sell on. When it comes to houses everything costs far more than you originally anticipate and you have to allow for this. Delays with workmen and availability of materials will hold up even the most well-thought-through projects. Labour costs can add huge amounts to the basic costs of kitchen units, fireplaces etc. so all this needs to be taken into account. Problems with wiring, plumbing and central heating can be expensive but will need to be sorted before any money is spent on redecoration and flooring. Builders usually agree on three magic words: preparation, preparation, preparation. Time and money spent on preparation are always worthwhile as any corners cut initially will be certain to cause further costs later.

Every novice investor would love to buy the ideal investment property that needs very little spending on it so they can find a tenant and start receiving rental income straight away but realistically speaking, these properties are few and far between. In order for a purchase to be viable, it will need to be well below market value and thus will be in a poor state of repair when compared to a similar house in the same street. It is up to the canny investor to gauge how much money this will take to bring up to standard and how much rent can be achieved after the necessary works have been carried out.

Whenever you purchase a new investment property, start a totally new folder in which to store all the relevant documents pertaining to that house. Gradually you will build up a dossier of all the information required so you know you'll always have the information to hand when you need to submit details to estate agents, solicitors, council officials etc. This method works just as well whether you own just one or two properties or twenty. Write everything down and keep lists of previous and ongoing expenses. This will have to be done for tax purposes anyway so you may as well keep thorough records for your own benefit too.

Always get three quotes for everything and never part with any cash until the job has been completed to your satisfaction. Acquiring a reliable team of workmen takes time so be wary of anyone who says they are competent but has no documentation to back their claims. They will no doubt disappear shortly after payday leaving the job unfinished or worse still messed up, to such an extent that you have to pay more good money to someone else to put things right. There are also many hidden and unforeseen costs such as legal search fees and finance charges which are sometimes not taken into consideration when a house is purchased but can amount to quite a hefty sum.

Try to have several contingency plans. Do you have access to further funds if you run out of money? If the roof needs repair then you will need to pay for the hire of scaffolding as well as the materials for the roof. If one window is rotten it is likely they all are. What if you cannot sell the house once your renovation is complete? Are you prepared to let it out if you cannot sell at the price you expected? There is no point in working on a project for up to six months and then coming out of it with absolutely nothing to show for it. You may have no choice but to remortgage and find a tenant.

View any potential purchases twice so that your views are not clouded by sentiment or first impressions. A second viewing will generally highlight things you have missed. If at all possible take a reputable builder along with you who will be able to give you at very least a basic idea of the overall costs involved and will tell you if you are perhaps taking on more than you can realistically deal with.

Become familiar with Internet property portals and do some diligent research on the area you wish to invest in. Rightmove and MSN real estate are brilliant property sites which will give you invaluable information whichever side of the Atlantic you live on.

One of the daftest phrases of all time must be: ‘As safe as houses,’ because if a residential property is maintained badly over the years or left to become dilapidated, it can easily become a threat to the health and safety of its occupants. It will, therefore, be your duty as a conscientious investor to rectify the mistakes of the past and maintain your investment property in a reasonable state of repair. Investing in bricks and mortar can be enormously rewarding and a great sense of achievement can be felt when a project is completed to your satisfaction and a reliable tenant found but it can all cost a great deal in time, money and effort and if you are not willing to accept this responsibility it would perhaps be wiser to leave your money sitting in the bank.