Investing in property can be perilous if not well-planned and things end up going wrong. For every would-be investor there are common mistakes to avoid.
As a landlord who has hands on experience investing in property for rental purposes, Tony Clarke, Managing Director of the Rawson Property Group, says the first, and possibly most common mistake, is being negligent about checking out not only the property itself (which is often done fairly thoroughly) but also the neighbourhood in which it is sited.
It is important to understand just how strong or weak the demand for property in the area is, he says. “The prospective buyer has to find out what prices have been achieved recently and try and assess what returns buy-to-let investors are getting.”
He advises, wherever possible, the buy should be in a property where the yield per square metre is significantly above average. “Such properties are usually found in the high density, high demand suburbs which have become the flavour of the month.” Clarke says the landlord must try to assess the ambience of the area in which he is buying because this will be important to the tenants who will want to feel that they are part of the community and are safe. So do research and find out as much information about the area as possible.
It is necessary, he says, to find out such factors as the average age of the inhabitants, their average incomes and what form, if any, the community functions take. Most importantly, enquiries should be made on the crime situation in the area.
“The point I am trying to get across, therefore, is do not be in a hurry to buy. Be patient and cautious,” says Clarke.
When it comes to choosing a tenant, he says, a similar need for care is highly advisable, and the use of an experienced estate agent to check out the tenant’s track record on previous rentals, employment history and his credit standing is an essential part of the selection exercise.
“It is far better to leave the premises unoccupied for a month or two than put in an unreliable tenant, especially these days when the eviction of some tenants can be costly and time-consuming.”
He says if, however, a landlord is confident that he has found a good tenant, it will usually pay him to arrange a long-term lease in which the rental will be below the going rate in return for the tenant’s commitment.
“One of the advantages of entering a long lease with a reliable tenant installed is that this will make the sale of the unit, should this become desirable, far quicker and easier,” says Clarke.
Do not skimp on maintenance, says Clarke, as poor maintenance (and too high rentals) are the prime reasons for good tenants leaving. If properly handled, regular inspections will not be resented by the tenant, and good maintenance will add significantly to the value of the unit.
“Repainting and carpet replacement,” says Clarke, “should be done more often than they are. Every tenant likes to live in a pristine, well-cared for home.”