Investing in Property: A Beginner's Help Guide to Avoid Common Mistakes

Location, Location, Location.

That's the first quote that springs to mind when most people think of property.

Some would argue that it is the single most important factor when house shopping, I'd disagree. Personally, I think every little thing is important, from the window frames to the distance between the two nearest bus stops, to knowing what sort of weeds are growing in the back yard; all factors—both in and outside of the house count as important. That's the advice I give to family and friends; "everything matters" and all things need to be taken into careful consideration with this high-value purchase. Every day, people shop online, in-store, measure length, width and the height of garments, compare and contrasts colors; that's the same meticulous care that should go into arguably the most expensive purchase made in most people's lifetime.

But before we get to actual house shopping, and virtual viewing, we first need to consider, how best to spend our investment. A few weeks ago I took to Twitter (@whoisparadise) as Mayfair Marcus to find out exactly how the average person would invest 90k given the opportunity. Rather than weigh everyone down with the gravity of spending their own money, instead, I asked them to help Tyrone spend his. Have a look at the poll below:

Help Tyrone Invest 90k

Should Tyrone...

• Buy x1 property worth 90k? 18% of those surveyed think so.

Mayfair Marcus Says: Ty should not... well, possibly only under one condition. My initial answer is a resounding "No!" The key word in the question is investment. What is it we are trying to achieve? We want to invest Ty's money into a property asset class (commercial or residential) and position that investment to get the greatest return (ROI) possible. In my experience, the best way to achieve this is to spread the deposit pot across multiple properties. Don't get me wrong, there will always be varying factors, like future regeneration plans for example, that can make "Location, location, location" translate into a hotspot winner, but even in that case, wouldn't having multiple properties in that hotspot more profitable?

The only time that I would advise an all eggs in one basket approach is when the property in question is intended to be the primary home. The marital home if you like. And on that, we want to take out a mortgage that decreases the debt/loan/capital amount borrowed over the course of the loan. We would be looking at a repayment mortgage vs an interest only mortgage.

• Buy x2 properties worth 60k? Withholding £30k.

Mayfair Marcus Says: Ty should not. We are here to invest. I know from your DMs that some of you wanted to keep a little money back as a safety net and some suggested a contingency for home improvements, but bear in mind, we have 90k (100%) of Fly Ty's money to flip, and you're suggesting we only flip 60K (66.66%). This is all in money. Mayweather in 10-rounds over Macgregor "we won the bet money."

Being cautious is good, but in this case, we assume the financial due diligence has been done and our pal, Mr. Tyrone "Fly Ty" Williams III, is in a good financial state to proceed, all in... with solicitor, estate agent, auction house, and/or conveyancer fees also taken care of.

• Buy x3 properties totaling 90K? Only 13% surveyed think so.

Mayfair Marcus Says: Absolutely spot on! We came to invest. The money is there, let's get those three buy-to-let mortgages on interest only repayment. Then, ensure the rental income covers the monthly mortgage repayments, possibly earn a little premium off of each, but if not, it's a long term game—the value of each property is very likely to increase in the long term, while in the short and medium term, they can provide a steady monthly income in rent. With vetted tenants in place, I would advise Ty to chill, keep a loose eye on the economy, and revisit the portfolio in another 5 to 7 years, if not longer.

NB: There's also something good to be said for spreading risk by investing in different locations. Say one area or postcode for whatever reason fails to increase in value at the same rate as another or lawd forbid one should go down in value (a riot, a recession, a failed Olympic legacy, etc), at least the total investment isn't at risk, only a portion. It's a smart position, but being a landlord can be difficult enough with just one property, having three different locations can be dauntingly hard work. Not too sure Ty has the right disposition to deal with too many tenant problems.

• Buy (into) x5 Rent to Rent Schemes? This was ranked the 2nd highest suggestion by those surveyed.

Mayfair Marcus Says: I honestly do not have enough experience with Rent to Rent (R2R) or Let to Let (L2L) to advise Ty informatively. I'm actually trying to get into this now. For those who don't know, R2R is where someone, or a group of people (let's call them investors to legitify the process) rents a property from a landlord paying a fixed guaranteed rent (a lot of the time 3 months, sometimes more up front), no voids, a lil refurb, and a long contract. Then the investors in effect sub-lease the property.

In theory, it sounds like a win-win for all involved. The landlord gets paid whether the property is occupied or not, he's cool, the investors work proactively to find tenants that will pay more than it cost them to pay the landlord. How? I've seen living rooms turned into bedrooms in effect turning a marketable three-bed flat into an illegal four-bed flat.

There are actually loads of other ways to flip and win at R2R, but controversially there is a growing open debate about R2R as an investment strategy. I've heard loads of success stories alongside an equal amount of horror stories from tenants and landlords alike, some even from naive, too-willing, new investors who join groups that turn out to be nothing more than pyramid schemes.

I think here is where I should write some sort of disclaimer about investing wisely and opinions being my own, encouraging readers to seek impartial, regulated advice from a solicitor, The Law Society, and/or a mortgage broker.

My Best Advice... Roll Safe

Thank you for reading.

I earn an affiliate commission with each read and share of my articles which helps support my independent writing career. Please support by sharing.

I guess, “Sharing really is caring.” scroll down to see my other articles.

▶︎ TwitterFacebookInstagram