From not having a strategy to buying in the wrong location and trying to cut corners in order to save money – there are several costly common mistakes overseas investors make when buying a property in the UK.
In this blog, we highlight the most common investment mistakes and how to avoid them.
Not having a strategy
Some investors sit on the fence for too long and miss countless opportunities, others dive straight in without any real consideration because a friends cousins business partner said it was a good deal. Not having a strategy can lead to unsuccessful and costly investment mistakes.
The first step towards successful property investment is to put down your aims and objectives, this will help guide where and what to buy, plan for scaling, time frames and exit strategies.
Choosing the wrong location
Whilst the UK is a small island, it’s not simply a case of buying a property anywhere and it will make a good investment. Yes overall average UK property prices steadily increase as they have done historically but a good investor will look for locations which have real potential for capital growth supported by local economic trends and plans for infrastructure and regeneration – factors that will boost price growth way above the country’s average.
Not understanding applicable tax or legal implications
It is often the case that investors who ‘go it alone’ come a cropper due to their lack of knowledge of the overseas market they’re investing in. Legal structures and tax liabilities vary widely across the globe.
There might be buy-to-let taxes specific to foreign owners, or a type of ownership structure that you’re planning to use, tax on income, capital gains and local taxes might all be applicable so it’s important to investigate fully or seek professional advice to ensure you don’t incur penalties.
Legally investors also have certain obligations, especially as landlords, a good property management company will ensure you are up to date and on top of obligations to tenants.
Getting bad financing
Getting a mortgage on an investment property allows you to profit from other people’s money. Whilst your capital investment (cash deposit) will be relatively small, you’ll reap the rewards of the full value of the property, massively boosting the return on your investment – that’s if you get good financing. Your profits can be lost though if you get bad financing.
Bad financing doesn’t just mean high interest rates that take away from rental yield, it’s important to look forward and consider that you might want to restructure in order to reinvest a few years down the line – steep early repayment charges can wipe out any profit.
We always recommend working with an experienced buy-to-let mortgage broker who can guide you through the process and help you avoid costly pitfalls.
Poor financial management
Planning financially for property investment isn’t simply limited to the process of buying a property – once you own an investment property it is incredibly beneficial to have an accountant on board to manage your finances. Coming unstuck with financial management can result in you having to put more money into an investment that could have been avoided if cash flow and planning had been in order.
You will have rental income coming in and expenses going out for the mortgage, management and maintenance, and you might be liable to pay tax. An accountant who has a history specifically working with overseas investors who understands the systems and how to reduce tax liabilities can be extremely useful.
Trying to cut corners to save money
Employing the services of a letting agent and paying for full property management can often seem like a cost that takes away from your yield. Finding and vetting good tenants is the first hurdle, thereafter property management can hugely taxing – keeping up maintenance, attending regular inspections, keeping paperwork in order and generally being available to help tenants with property queries.
Managing one investment property can be hard work, managing a portfolio is a full time job and one that, if not done well, can lead to unhappy tenants and void periods affecting rental income. A good professional letting and management company is worth every penny.
Waiting too long to get started
Potential investors will often wait, justifying their hesitancy by saying the market isn’t right or the economic climate too uncertain, they don’t know the area as its overseas or they’re just not ready yet – before they know it the opportunity has passed.
If fear is stopping you from investment it’s often useful to try to educate yourself a little more and speak to an experienced property investment advisor who can answer any queries and help you to make the first steps towards investment. No matter of market conditions there is always an opportunity for investment if you look in the right place.
Not understanding the rental yield
Agencies selling investment properties might often advertise an ‘expected’ yield figure that seems excellent, the numbers aren’t always what they seem, it’s important to understand the rental yield figures fully:
- Is the figure gross or net yield?
- Is the rental yield based on existing income or simply an expected number?
- Is the rental income assured?
- If yes, how long for and what are the terms?
We’ve worked hard to ensure we offer our investors only the very best rental opportunities and believe that rental assurance is a necessary part of setting investors on the right path when purchasing a UK property.
Learn more about rental assurance here.
Working with experienced property investment professionals
A key step to successful UK property investment is to work with an experienced property investment advisor who can guide the entire process, ensure you buy a property in a location that is ripe for investment and set for impressive capital growth and with rental yield assurance.
Talk to us about your plans to invest in UK property. We’re available on +44 (0) 2039507939 or send us an email at email@example.com.