What to look for when viewing potential investments
In the dynamic world of property trading, auctions give savvy investors unique opportunities to acquire properties at potentially lower prices to add value and secure a profitable return.
However, navigating the complexities of auction properties requires a keen eye for detail and strategic planning. Whether you’re a seasoned trader or just beginning your journey in the auction market, understanding what to look for when viewing potential investments is crucial.
This article delves into the essential factors to consider during property viewings, ensuring you make informed decisions and maximise your profit margins.
Yield
When considering an investment in a buy-to-let property, one of the primary factors to assess is the yield. Yield represents the cash flow an investor receives relative to the amount invested. Typically, yield is calculated by dividing the dividends or interest received over a set period by the original investment amount. The higher the yield, the greater the return on investment.
Location
The yield will largely depend on various factors, with the property’s location paramount. Is the area in demand? Is it on the rise in terms of development and desirability? Proximity to local transport links and schools can significantly impact the property’s appeal. Generally, a desirable location ensures a higher yield and promises better capital appreciation over time.
Exit strategy
Even if you are a long-term investor, having a clear exit strategy is crucial in case your circumstances change.
There are several types of exit strategies to consider:
- Selling at short notice.
- Re-financing to unlock equity when needed.
- Restructuring your portfolio. A balanced portfolio might include a mix of residential and commercial properties tailored to your risk tolerance and income needs. Restructuring may be particularly beneficial for those relying on income from their portfolio during retirement.
Investment mindset
It is vital to remember that emotional detachment from any property is essential for investors. The property should be viewed solely as a source of income rather than a personal asset.
Investors viewing auction property: What should you look for?
Traders viewing auction property
As a property trader, you aim to add value and sell for a profit. The old saying ‘buy low, sell high’ originates from this. If you are looking to flip a property, you are a property trader, not an investor per se. So, what do you need to look out for when searching for the perfect ‘flip’?
Location Matters
Have you heard the saying “buy the worst house in the best street”? Every property has a ceiling price, the top price a house would sell for in the area. We know this price by looking at comparable properties sold in the area.
How much value are you looking to add? It is essential to understand the different levels of work required:
Level 1: Interior redecoration
This level includes some or all of the following: clearing the property, deep cleaning, and some minor TLC.
Level 2: Room refits
This level involves refitting a new kitchen and bathroom and some or all of the tasks in Level 1.
Level 3: Major Enhancements
This is where you can maximise the property’s value by adding an extension or converting the loft. These ideas increase the interior space of the property, thus adding value.
Expert advice and assistance available to you
Have a clear budget, and set aside funds for unforeseen circumstances or “miscellaneous” expenses. What is your timeframe? Remember, when the gavel falls, you are the new legal owner, and the property is at your insurable risk. Are you doing any of the work yourself? Do you have family or friends who can help with specific aspects? How much of the project will be completed by contractors? Do you already have contact with any reputable contractors?
Conduct thorough due diligence
These are all points you should consider when viewing a property, as these key thoughts will help you evaluate if a property is profitable. Once the work is completed, get numerous valuations and weigh your selling options. The key point to remember is that you are always in control. Do your own due diligence, and you can maximise your profit margins.
What are your development financing or auction funding options?
For further information or assistance, please contact us. Our experts are here to help you navigate the complexities of property trading and ensure you achieve the best possible outcomes. To discuss your development financing or auction funding options, speak to our team today.
Please note: a mortgage is secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. Please also note: this is a long term investment which you hope will generate rental income along the way and a profit when you sell the property, but bear in mind that if you need access to some cash, a property can take time to sell or remortgage. If house prices fall, you might not be able to sell for as much as you had hoped. You would have to make up the difference if the property sold for less than you owe – a risk that increases, the higher the percentage you borrow. If you sell for a profit, you may have to pay capital gains tax. Don’t forget that with a variable rate mortgage, your costs will rise if interest rates go up. This would eat into, or even wipe out, your income and profit. It is recommended that you also maintain access to emergency funds to cover your mortgage payments during ‘void periods’ that may arise whilst you have no tenant and the property is not let.
