Do you want to know the five mistakes as an investor you absolutely should avoid when looking to invest in property in London?
As a property investor myself, I own property here in London as well as in America, I definitely have made some of these mistakes. With this understanding I help my clients maximise their investment and avoid the mistakes I have been through myself, to make their investment more profitable but also to make the process a lot smoother. If you’re planning on investing in property here in London, particularly as an international investor, make sure to avoid these 5 mistakes!
Mistake Number 1 – Not Knowing Your Goal
Mistake number one you should absolutely avoid as a property investor is to not know your goal, which is to really understand what it is you’re trying to achieve.
Whether it’s capital appreciation or cash flow, which are typically the two things you might want to consider, or for some investors it might simply be a place to park money or an alternative investment strategy that allows you to diversify beyond stocks, bonds, gold, or anything else so it’s important to really be clear in what you’re trying to achieve. The reason that this is important that your goal might impact the time frame and how long you hold on to the property.
For example, if the market is bumpy over the last few years, as it has been doing in London, it might not be the time to bail if you’ve taken a long-term strategy of capital appreciation which might also dictate when you have bought your property. If you’re looking for more cash flow, perhaps London might not be the best place to invest because here yields are typically in the 3-4% range and that yield is the reference to the cash flow you get off of your rental versus your investment, so many investors in London are willing to defer or trade off on yields in order for long-term appreciation given how well London properties have appreciated over the last 15-20 years.
So again, it’s really important to know your goal and to be clear on that strategy and to not panic such that if something happens in the interim you start second-guessing yourself. If you’re clear on the goal stick with it and stay through to it.
Mistake Number 2 – Not Knowing the True Cost of Investing
The other key mistake you want to avoid as an investor is not knowing the true cost of buying or holding an asset. Whether it’s stamp duty, the implications of recent tax changes, the different allowances you can get – such as mortgage interest – there are so many costs associated with buying a property and you want to make sure you’ve adequately budgeted. However, your budget should not just cover the front end in terms of the cost of buying but also the cost of maintenance.
I often work with landlords and when their property is turning over there’s usually an investment you have to make to make that property fresh again. A lot of landlords just think that if they’ve had a tenant in for three or four years, they should be able to command the same rent, if not higher yet not be willing to do anything to make that property competitive in the local market.
Making sure you know the cost of buying a property, whilst making sure you set aside sufficient costs to maintain it not just on repairs but also on improvements when it comes time to turn the property over and to get the next tenant. If the market has changed you might still have to invest to make that property competitive, even if rents have come down, and that’s certainly the situation right now given that we’ve been in the middle of the pandemic the rental market’s been decimated, tenants have had their run of properties, and so the property you might have gotten away with marketing at £2,000-£3,000 you might be getting less and yet you still have to invest to make that property competitive.
With this in mind, you must make sure you know the true cost of buying as well as maintaining your property to get the maximum rent that the current market can bear. This doesn’t guarantee you’re always going to get top dollar, what you’ve always gotten, or that the rent is always going to go up – you must abide by what the current market will bear.
Mistake Number 3 – Not Knowing What Tenants are Looking for
Mistake number three that you should avoid is to not know what renters are looking for. Now through Covid, everybody wants outdoor space wherever they can get it. Whether it’s a garden or balcony, make sure that if you are investing now, you consider a property that has those features versus one that doesn’t because that’s definitely what renters are looking for. Renters are also looking for an extra bedroom, as it seems many are going to be working from home for the foreseeable future, so people who might have settled for one bedroom, knowing they’d be out of the house a lot, they now might need the two-bedroom or two-bedroom might need three, so if you can perhaps squeeze and get that extra bedroom or be able to dedicate space in the room for that home office you definitely want to show that off as a feature.
Mistake Number 4 – Not Knowing the Rental Market
The fourth mistake that you as an investor should avoid is to not know what’s going on in the rental market. As I’ve previously mentioned, we’re in the middle of the pandemic and we’ve had a loss of international renters. Whether it’s international students, tourists, or multinationals that would normally be sending staff over, we lost that over the last year and that just really decimated the rental market and rents plummeted. This was also due to many tenants going back to live with their parents knowing that they could live further out of the city due to working from home.
It’s really important that you understand the dynamics of the market and in this market, I would highly advise my landlords to hold on to the tenants that they have right now. I know we all want to maximize our investment and continue to have that increase, but sometimes you do not want to even give tenants a sniff of a reason as to why they might want to move. If you’ve got good tenants paying rent, it is advisable that you don’t always increase the rent every single year, so you can hold on to those tenants because every month of vacancy you’re actually now trying to catch up in increased rates. This is why it is so important as an investor to make sure you know what’s going on in the current rental market, and maximise your property manager if you have one, like myself, who can always advise you on the best options.
Mistake Number 5 – Not Investing in your Rental Property
Finally, the fifth mistake investors should absolutely avoid is to not invest in your property. I mentioned that already but it’s absolutely critical that you see your property as an asset, a living breathing asset that needs to be well-maintained!
I had a landlord with a property in Notting Hill who came down last year, and did a complete renovation, which included the garden, the kitchen, and the bathroom to help attract the next wave of tenants. She took my advice to invest in the property being updated as we were seeing that tenants had a lot of choice and not really picking up her property. A lot of tenants are looking for ultra-modern properties, or if yours has character they want to see true character, but they don’t want things that look tired and forgotten.
This is why I always advise my landlords to set 10% aside from the rental income that they’re getting for maintenance issues but also potential capital improvements, depending on how old that property is because you’re going to have to need to spend money over time to maintain it.
I hope this article has helped you to understand a few mistakes to avoid when it comes to investing in property. Please leave me a comment below on other mistakes that you perhaps as a landlord have experienced that you might advise other landlords to avoid, or if you have any questions about investing in property, please get in touch.