With a number of budding investors looking to take advantage of current market conditions and build property portfolios, this post aims to provide guidance and advice to deal with some of the concerns and issues that many have when doing the initial deal. Indeed, whilst it could be argued that the lower LTVs and stringent credit requirements have limited peoples ability to invest, we’re nevertheless operating in a buyers market with properties being negotiated at over 50% below their peak value. Moreover, there are several perceived barriers to entry which are more closely related to mindset, preparation and an understanding of the basics – all of which can be eliminated and/or managed.

Education – The importance of learning the trade is a fundamental tool to any investment strategy. Reading this blog, our Twitter feed and e-course are good starting points. There is also a wealth of knowledge and information via the property forums, property related RSS feeds, networking events and generally speaking and communicating with anyone who is involved in the business.

Due Diligence / Financial Analysis – as mentioned in a previous blog post, due diligence has become more difficult in the current climate. Generally speaking, you should be conservative with your figures as it would be more than likely a surveyor will be too. Prior to agreeing to any kind of deal, you should ensure that you undertake the correct and thorough analysis of the numbers: looking at realistic market values and rents then calculating your monthly mortgage payments leaving yourself with an adequate level of cashflow to support the investment. Keep in mind the fact that your re-financing ability will be tough over the next few years and always be sure to account for the extra costs which are often forgotten about – such as gas checks, repairs, maintenance, voids.

Start small – as with most things, learning often best comes from action and making errors and for this reason we would recommend that your first few deals are kept relatively simple (perhaps focusing on 2/3 bed houses in visibly stackable areas). In the unlikely event that things do go wrong, you would have minimised your risk by, for example, having lower mortgage payments to meet.

Contingency planning – this is essentially strategising, as best you can, on answers to the ‘what if’ questions that may be lying at the back of your head. Below are some potential solutions to a handful of issues that can arise:

“What if the property gets undervalued?” – have you got solid comparables of properties that have sold and rented within ½ mile of the property (within the last month) to prove your figures to the surveyor? If not, and the yield is good, there are investors that are willing to take on the property (at a less of a discount) which could earn you a finders fee.

“What if I have trouble financing the deal” – you may be able to find a joint venture partner or, again, you could pass deals on and earn fees whilst you work on improving your credit rating (see part 2 of our e-course).

“What if I can’t find tenants for the property?” – always ensure that you speak to a few lettings agents with regards to the demand for tenanted property in your area prior to doing the deal. You may also want to speak to your local council who, by and large, have long waiting lists of housing benefit tenants. You will gain confidence of the fact that any void periods can be negated quickly and easily. Also keep an eye out for local social, economic and political factors which may be attracting or indeed putting off tenants moving into your areas of investment.

Power team – Have in place a good team of mentors, solicitors (who can work fast), mortgage brokers (preferably ones who can package), accountants, financial advisors, estate and lettings agents readily to give you advice on any aspects of your investment decisions and related issues.

Viewing properties – you’ll probably be aware of the fact that property is a numbers game and you should be prepared to view a lot of properties and make lots of offers. Taking a builder/tradesperson with you for your first viewings may help you hone your skills in noticing issues with a house. You may be able to use any potential refurbishments, replacements and repairs as a negotiating tool to knock down your purchase price. See our previous blog post on property defects to look out for.

Understand property management – whether you decide to manage the properties yourself or hand them over to an agent you should have a clear understanding of your responsibilities as a landlord/lady. Some essential duties include:

• Ensuring that correct procedures with regards to Assured Shorthold Tenancy (AST) agreements are adhered to (we would recommend joining a reputable association such as the National Landlords Association (NLA) or the Residential Landlords Association (RLA);
• If the property is empty, ensure that a Energy Performance Certificate (EPC) is undertaken;
• Undertake credit checks on your tenants (using Experian or Equifax) as well as requesting for previous landlord and/or landlady references;
• Ensure an adequate inventory of the property is undertaken and the deposit (usually one month’s rent) is placed with an approved tenancy deposit scheme;
• Take a photocopy of the tenants passport or ensure that your lettings agent has;
• Ensure that the gas safety certificate is renewed on an annual basis;
• Ensure your tenant(s) have a point of call with regards to any maintenance/repair issues;
• Ensure that the property has adequate buildings insurance cover.