Property Investment – Buy-To-Sell the basics
People are not often blessed with a family estate in the Hamptons or a stunning Edinburgh townhouse – you will need to invest in your own property. This is one of life’s biggest expenses and certainly one that is not easy but if done correctly it can be life changing. How does investing in one property sound? Imagine that one turned to two then that two to four and before you know it the snowball effect has kicked in and with your drive, passion and enthusiasm profits are coming in from your properties.
What is property investment?
What is property investment? The purchase of a property with the aims of enhancing it in order to either sell it on or leasing it out in order to gain a return. Property investment is highly diverse basically any property can be bought as an investment property such as apartments, family homes, garages and plots of land.
In the simplest terms property investment is;
- Buy a property and let it out
- Buy a property and sell it on for profit
What is Buy-To-Sell?
Buying to sell also known as “Flipping” aims to buy at one price with the goal to sell at another – thats it. This requires goals to be set, determining where you want to end up and a cohesive plan on how to get there.
The main attraction of this strategy is the possibility of generating a substantial amount of cash in a short space of time. If comparing to letting a property where in which you could make a couple of hundred pounds a month – a successful Buy-To-Sell would have you make tens of thousands of pounds in a matter of months.
The downside to this is the property does not make you monthly income. Income comes when projects are complete – if there are no projects there is no income.
Money, money, money
Mortgages are not ideal for flipping – they are given with the knowledge that the property will be held on to for long term and rented out. Obviously peoples plans do change and using a mortgage may work but if the lenders see a pattern forming in your borrowing they may end up refusing you and informing other lenders of this. Mortgages also take time to come through – so if it was quick turnover of cash from the flip you are wanting this will not happen.
If you have the cash to pay for the property – this is good – but remember that all of your money is then tied up in the property and you may not have the cash for any unexpected costs. You may also miss out on a great deal if all your equity is tied up in the one project resulting in a opportunity loss.
Bridging is a short term mortgage which is well suited for flipping projects but it does come with its costs. You will have to put in some of your own money but a lot less. Bridging is quick and easy but be sure to factor in the interest and fees in to your costs so you can be sure that the project is profitable after the finance costs as well as the refurb and any other costs.
Who does the refurb? There are two ways to go here. You can hire a main contractor who will run the project and who will hire in the sub contractors when needed. The second option is to hire individual contractors and mange the project yourself. Being the project manager should work out cheaper however you may lack experience and delays caused by your bad planning will cost you. A main contractor will charge a higher fee to start with or build the margin in to the sub contractors fees.
Plan a time line but be realistic. No matter the job something alway comes up so be prepared for a particular trade not showing up or a delay in receiving materials. Timings are important especially if you have a bridging loan as if you have been a bit keen and not given yourself enough time then you will end up over running the agreed terms and consequently pay penalty interest charges.
People will find it hard viewing an empty property and trying to imagine it as their family home. An empty shell is not the most warm and welcoming. If you can set a couple of the rooms up to look as though they are “lived in” it will make all the difference. The aim is to make it look homely don’t over crowd the rooms with too much furniture such as wardrobes – keep it to the necessary minimum.
We need to get our researcher hats back on when deciding on the price we want to sell the property at – just incase prices have increased/dipped since the project began. You soon will get an idea of the range of prices you can hopefully sell at, it is up to you what you decide. Try not to be over enthusiastic as you will end up with little interest. In a ideal world it would be great if a couple of people were interested and resulted in bidding the property up. If the property stays on the market too long it will send out a message that you are struggling and this will be costing you money in holding costs and you may end up having to reduce the price. Once an offer comes through which you are happy with stay on top of all communications calling every day making sure everything is in place – often this gets dragged out for months for no real reason other than a misunderstanding which can easily be fixed with continuous check ups.
How can my Flip be successful?
Buying the property at the right price is imperative. Acting too impulsive or over cautious is often big factors when people start out in the investment journeys. Learn as much as possible so that you are comfortable with your investment decisions but remember you can never know it all before you begin.
Get the fieldwork done, know the area in which you are hoping to buy in. Speak to the locals, real estate agents and property managers. Find out about the amenities, schools and parking. Research in to the historical values of property in the area.
Emotions come to play in everything that we do and of course every emotion will come out whilst making that first investment decision. Emotions can cloud our judgements and we may end up poorly negotiating the best price inevitably resulting in the over-capitalising of the purchase. Letting your heart rule your buying decision is best to be avoided – investing is about the economics not the emotions.
Be patient. People often have the view property investments will make them rich, make them overnight millionaires. This simply is not the case. It is not a easy feat to buy and sell property, and it rarely will make you rich. That initial property is just the first step of the ladder use the gains from that initial project for the leverage on to the next project and then combine the two you can then add more to your now growing portfolio. Growing consistently over the long term is a sure fire way to make it to the top of the property ladder.
If you would like more information about property investment in Edinburgh then reach out to us today and our team will answer any questions you may have.