“What’s your ‘why’?” has always been my reply when asked for advice by a novice property investor. Whether they heed it or not is another matter. But in property your “why” should always be at the forefront of your mind before you part with any cash.
I have always been a big fan of buying property at auction – it’s quick and convenient. But just because it’s possible to buy a property in a matter of minutes, doesn’t mean I don’t think through the purchase any less.
Property investment, for me, is a long-term game and when I invest I am buying into that property for a period of at least 10 years. Why? It’s a good, solid round number which you can easily divide buying and selling fees by. Plus, 10 years seems to be sufficient time to judge how an area, and your property investment, will perform. It’s handy, then, that the banks have now introduced 10-year buy-to-let mortgages.
But what many novice investors miss when they start out in property investment is that 10 years, while being a relatively short time in the economic cycle of the property world, is actually a long time to ensure you make monthly mortgage payments (there will be 120 of them) and to keep errant tenants in check.
Which brings me back again to your “why”. Why do you invest in property rather than blue-chip, dividend-yielding stocks and shares? Property is both an asset and a liability and, with increasing government regulation, the threat of interest rate rises, an increasingly competitive landlord landscape and a hot property market which makes it hard to find a deal, you have to ask yourself “why” repeatedly.
As I tramped around Tottenham – tipped to be such a goldmine of opportunity – “why am I here?” was all I could hear myself say as I winced at the prices of tattered terraces. Was this really what I wanted to be doing? Were these the properties I really wanted to be investing in? And as I looked at the people in the streets, were these the types of tenants who I really wanted to be dealing with for the next decade of my life?
My “why” deserted me and I headed back into central London for the dizzying hipster heights of Whitechapel. Sadly, the only thing which dizzied me in Whitechapel was the amount of stairs I had to climb to the ex-council flat on the market for the “bargain” price of £500,000.
Luckily, I had spied some auction hotties coming up shortly for sale, but the area left me feeling cold. Yes, I know about Crossrail; yes, I know how 10 years from now I’ll be laughing and crying incredulously that there was once a time when I could have bought an ex-council flat for a mere half-a-million pounds. But for now, my “why” has left the building.
Because that’s the thing about your “why” – it changes over time. Nobody ever warns you of that in the beginning. In the beginning, when you are all bright-eyed and full of optimism, buying up houses of multiple occupation and flipping scantily clad development opportunities seems a great idea. And it is. In the beginning. Then you get some experience under your belt and like a diva-ish catwalk model you soon start questioning why you would get out of bed for a house split into a gazillion rooms and a tiny piece of land which practically has no hope of getting planning in your lifetime, or the next.
So we are back to the “why” again. And I hasten to add that it is a much under-used word in the world of property investment. And I really think there should be a resurgence of its use as it would help a lot of people before they embark on this journey. People often set out on a “career in property investment” by buying property just because they reckon it will make them some money. Maybe it will, maybe it won’t. But I don’t think many people really think through that second option. Why? Because “why” can also be a very inconvenient truth.
Samantha Collett blogs at www.whatsamsawtoday.com