With interest rates predicted to remain low for the foreseeable future, more people than ever are ploughing their hard earned savings into property. Property investment can be a fabulous way to make money – but it’s important to bear in mind that *horrors of horror* you can also lose money in property. So, if you’re thinking of investing in property, bear in mind that property prices are not a one way (upward-only) street. Values can fall – and that includes rental prices as well as capital values.
So without further ado here are my top 10 things you should know before you invest in property:
1. Tenants don’t always behave in a ‘tenant-like’ manner
The electricity going out at 10pm on Christmas Eve is a bind. I’m not sure how it makes it better to wait until Christmas day to call the emergency electrician – but apparently that was doing me a ‘favour’. Which is how I guess I was meant to see the tenant response to the emergency electrician when he tried to call round to fix the problem: “I’m going to a hotel and I will send you the bill for that and all my meals”. Sadly (for the tenant) he was mistaken – a landlord is not Santa Claus and is not liable for any Christmas excursions and additional expenses. Acting in a tenant-like manner means looking after the property and living in it as though it were your own – which also includes checking the trip switch (doh!!). However, it does NOT mean pretending to be the landlord and sub-letting the house.
And the Financial Ombudsman doesn’t give two flying figs about buy to let loans which remain unregulated. Banks get to choose when to change their terms and conditions to pump up their balance sheets. I’ve been screwed by Skipton to the tune of God-knows-how-many-thousands and now I’ve been buggered by West Bromwich. It’s only a matter of time before more lenders will take a pop at easy-target-don’t-you-know-we’re-all-loaded-landlords. Be prepared for more wanky pranks from the banks in the years to come.
3. Everybody wants their palm crossed with your gold
Local councils up and down the country have introduced stealth landlord taxes by disallowing previous empty property exemptions. Voids and refurbishments have become even more expensive now you’re got to foot the additional council tax bills. More and more councils are withdrawing any sort of leniency towards empty properties (even if you are spending a fortune renovating it to make it habitable) and it will be you, the landlord, picking up the tab to bloat their coffers. Of course, the fact the property is empty and not using any resources is neither here nor there – in fact it would be cheaper to move in yourself and claim a single-person discount than have it empty completely! The next gold-palm stalker to watch is the water companies who want to make landlords responsible for all water bills (of course, next to the money tree down at the bottom of the garden I also have my own private reservoir…)
Given how banks set out to purposefully shaft customers it’s no surprise that you really, really, and I mean really, really need to check the small print. Of course, most of it you probably won’t understand and even if you do, the wanker-banks will most likely find a way to change the meaning of it at some point in the future. However, it’s important to still try and understand as much as you can about the deal you are signing up for. Low attractive rates may look good now – but remember rates will rise and that deal tagged to base may not look such good value in two years time.
5. You won’t become a multi-millionaire overnight
If you believe the news reports property is like the best investment since, well, property – and property prices are inexorably rising every day. Of course, if you are fortunate enough to own in a prime London bubble then you can sit pretty and earn a fortune for not doing much. For the rest of you – it’s bad news – most property in the rest of the country (yes, there is a land outside of London) is still much, much lower than at the 2007 peak. In many places you can still buy property at 2002 prices – or lower! Forget the old adage of property prices doubling every 7-10 years – the worst housing crisis in living memory has hit and many parts of the country have still yet to recover. Property is a long game – don’t let anybody convince you it’s a get-rich-quick-route.
Investing in property is not like buying a lottery ticket – you won’t wake up one day to find your numbers have come up and you’re rich – in fact, you’re more likely to be woken in the middle of the night by a screaming tenant who has a water leak. Property investment is hard work and requires buns of steel. Tenants, God-love-‘em, are people and people have problems. As your customers they will need looking after, the same way your property will need looking after. Successful property investment is a bit like looking after small children – always ensure you keep your eyes and ears open – and remember you will need to be telepathic and have the ability to be in two places at the same time.
7. Every sod thinks they know how to make money from property
And that’s why you should sign up for their course, go on their mentorship programme and all the rest of the shebang. Of course, making money from property is not easy – which is why so many people then decide to start selling exorbitant courses to tell other people how to make money from property. I’ll tell you now – there’s no great secret to this game: buy well (i.e. in a location where people want to live), manage the property well (i.e look after your tenants as customers) and then wait (i.e. plan for long term income and capital growth). Be wary of the dream sellers and get a grip on what it is you want to achieve from property. The most important thing you can ever do before you invest in property is to know why you are investing and what you hope to achieve from it.
Investing in property requires so much more than just the initial upfront deposit of 15-25%. You then have the buying fees such as solicitors, stamp duty, mortgage arrangement fees etc., not to mention if the property requires any works before you sell or let it. But don’t forget that properties also need maintenance to ensure they remain in a lettable condition. Boilers break, roofs leak and tenants can lose jobs – all of this needs to be factored into your money-making plan as there will be times when you have more money going out than what you have coming in. I know it’s a bummer and most people won’t tell you that little gem – but property investment requires continual investment: think of it like a dripping tap and you’ll be on the right track.
9. You need more money than you think
Property investment is a funny old game; one day you can be quids in, and the next at a complete loss wondering how you’re going to pay a gazillion different bills. Having a financial buffer is critical to keeping your head (sane!) and helping you sleep at night. It’s best to have a minimum of the equivalent of six months rent saved in a separate bank account. That means when the rainy season comes (and believe me, one fine sunny day those storm clouds will thunder down) you’re ready. Desperation makes you do funny things and act in ways you wouldn’t ordinarily. Avoid being an Epic Salmon Fail and stash some cash.
Everybody thinks they’re such a property expert (even if they don’t have a piece of brick dust to their name) but the fact is, property investment is a personal choice. That means it’s down to you to make your own investment choices about what you like and what you believe in. It’s great to listen to other people and get ideas, but don’t get overly analytical about what such-a-body says: the most important thing is what you do. Don’t procrastinate too much and worry that you don’t know what you’re doing. You will make mistakes and you will learn oodles from doing them. Learn as much as you can – sign up for property forums, landlord organisations and talk to lots of people – but don’t forget: it’s action which separates those who do from those who don’t.