With so many things to consider when purchasing a property for investment purposes, it can be easy to miss something. To help you with your property journey, we have compiled a short list of five important things that should always be considered during the buying process.
1. What is your strategy?
Before going into any deal, an investor should always have a game plan in mind. It is important that you know what your strategy is, or in other words, what you plan to do with the property.
Many of these approaches are intertwined, with some elements of one strategy being relevant to another. Common strategies include Buy to Sell, Buy to Let, Houses of Multiple Occupation (HMOs) and Development.
Your chosen strategy will impact how you view a deal. If, for example, your chosen strategy is to Buy to Sell (or flip), you may be more conscious of what the projected value of the property will be after a given period of time or after you have completed refurbishment works. This may not be as critical for a property you are looking at as a Buy To Let investment, where yield is more important. Hence, a property that may not be attractive for one chosen strategy, may be attractive for another.
2. What is your true rate of return?
Have you taken every cost into account? Missing something vital before purchasing could seriously hurt your wallet. It is common for landlords to calculate a property's rental yield by only taking purchase price and rental income into account. But what about stamp duty, refurbishment costs, legal costs and finance charges? These are some examples of costs that can be easy to miss but can turn an attractive deal into an ugly one if not properly accounted for.
3. Is there a demand for your property in the area?
So you have chosen your strategy, but is there a demand for the kind of property you wish to have? In an area dominated by 3 bedroom houses, building an 8 bedroom house may not be as profitable as you may first think. The demand for such a property will be limited and as such, your selling price may have to come down accordingly. This is a simple example, but it shows the importance of researching an area before buying.
4. Can you raise the finance required?
This is a key point and again, could be the difference between the deal being a success or not. You should speak to your finance broker to get an idea of what terms you can realistically achieve on finance. This is affected by all kinds of factors, such as your credit profile, the proposed security property and what your chosen strategy is. This is why having a broker that understands the market and has great relationships with their lender panel is paramount.
5. Should you buy in your personal name or in a Special Purpose Vehicle (SPV)?
With the implementation of Section 24 affecting landlords, it is becoming increasingly common to see investors buying in a Special Purpose Vehicle such as a private limited company, rather than in their personal name. Announced by the government in 2017, Section 24 looks to stop landlords claiming back mortgage interest as tax deductible. As such, buying in a limited company may be more tax efficient, however it is always recommended that you seek the advice of a tax specialist before purchasing a property.
Speak to one of our specialist finance brokers today to see how we can help with your property journey. Give us a call on 020 3488 3760 or email us on info@asset-lend.co.uk.
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