How to avoid buying a bad investment

How to avoid buying a bad investment

Property investment can be hugely rewarding financially, purchasing a bad investment can topple your success as an investor and can leave you stuck with an asset that doesn’t generate immediate income or have potential for capital growth in the long term – so how do you avoid buying a bad investment?

Even the most successful of property investors will have likely purchased a bad investment at some point, likely at the start of their venture into rental property. There are ways to ensure you don’t buy a bad investment, key factors to consider when making an investment decision.

The below highlights the top points for consideration when buying a rental property to avoid making a bad investment.

Location

Those investing in property will wisely look at the potential for a blended return of both capital growth and rental yield. The location of a property will have an impact on both these elements and is a top consideration when avoiding buying a bad investment.

Attracting tenants

To immediately attract good tenants a property should be located in an area which offers transport connections to nearby places of work, have access to amenities, perhaps be close to green space and ideally have low crime rates.

If you’re considering a property that is the very first of its type, perhaps built to a higher standard than other properties in the vicinity, be sure that tenants have good reason to want to live there.

Potential for price growth

For the purpose of capital growth an investor must consider the potential of an area; are there plans for gentrification should an area need it, are there plans for improvements to infrastructure and transport or nearby new developments in the pipeline. These factors can help an investor determine if there is strong potential for capital growth.

This said an investor needs to consider the length of their plans for the property. Some areas are more ‘up and coming’ than others and might take considerably longer to see their full potential. Whilst property prices might be cheaper in an area that has considerable plans for regeneration it might not be 10, 15 or even 20 years before the area is established as a desirable place to live.

Finding the sweet spot for capital growth potential can be a challenge if you don’t know the local geography or have knowledge of the plans for an areas future; deciphering which are only proposed plans and those that will definitely be going ahead.

Check the math

Investors often make quick decisions to avoid missing out on an opportunity, whilst this can result in great success it can also result in a nightmare situation. Snap decisions can result in a bad investment being made, especially when the figures turn out to not add up.
Firstly, committing to a purchase usually requires immediate financial input, whilst this sum might not be extremely high should an investor not have the rest of their finances in order to support to entire purchase they could lose deposit monies and any expenditure on legal work that they might have begun.

As well as having finances in place to purchase a property, the structure of how the property is purchased can affect its success as an asset. Speaking to an accountant or tax advisor regarding the best property purchasing structure to suit your unique position can better your position as an investor.

Once you’ve conducted your research on the property and the location you will have an idea of whether or not the figures add up to make the property a good investment prospect. Whilst no one has a crystal ball or method to predict exact capital growth understanding historic price trends and considering any plans for improvement to and area, infrastructure and transport will provide an idea of what could be expected.

Reputable developers

Buying off-plan requires an investor to commit to the developer in charge of delivering the property. If a developer is known for meeting deadlines and delivering an excellent standard of housing an investor can rest assured they’re in good hands.

Most investors purchase property for their portfolio with the long term in mind, a reputable developer will build a property that will stand the test of time and continue to attract tenants and see continued price growth for many years to come.

Avoid buying a bad investment

Our team of property experts can help you avoid buying a bad investment. With so many factors to consider when looking for a good investment property, it is understandably often difficult to see the best opportunities available.

With intricate area knowledge, an understanding of local rental markets and indications for price growth we can provide thorough advice to discerning investors. We work only with the very best developers to deliver impressive investment opportunities to our clients.

If you’re considering purchasing a rental property we can help, for more information contact us on +44 (0) 2039507939 or send us an email at info@thirlmeredeacon.com.

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Stuart Williams

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