We’ve put together a comprehensive checklist of the top property marketing tactics any property investor needs to consider. What to be aware of and how to avoid common mistakes when picking your next buy-to-let investment.
1. Overnight ‘Financial Freedom’ & No Money Down Deals
“Become a millionaire with no money down”. Sounds too good to be true, doesn’t it? That’s because it is!
Property investment can be a fantastic long-term strategy for growing and maintaining wealth, whether you’re a professional investor, part-time landlord, or just simply building a nest egg for your retirement.
A popular asset class for entrepreneurs and millionaires worldwide, quality property investments are the cornerstone of any diverse investment portfolio.
Yet, take caution. Many property training courses and Real Estate gurus promise a short cut to get rich through the property without any money or cash. This overnight success is promised without any of the potential risks being highlighted or the significant work involved. All the while, you’ll be charged with a sizeable training fee in the process.
In nearly all of these cases, these are not property investments – they are forms of ‘get rich quick’ or wealth creation schemes. So be on your guard and look out for con-entrepreneurs and motivational speakers who use pressure selling tactics to sell expensive training and mentoring programmes.
For genuine property investment, you will require at least:
For any typical Buy-to-Let mortgage, you will need at least a 25% cash deposit.
✔ GOOD CREDIT SCORE
To secure a mortgage, you will likely need a decent credit rating to access finance.
✔ LONG TERM STRATEGY
The best returns always come to those who have waited. Don’t rush your investment strategy.
Anything else isn’t a property investment, it’s a get rich scheme.
2. Unrealistic Rental Yields (%)
Property investments are often marketed with yields between 7%-12%, despite the fact the average yield for the UK is closer to 2-3%.
Even popular investment cities like London (2-3%) and growing secondary cities like Birmingham (4-6%), Leeds (4-6%) and Manchester (4-6%) don’t get yields anywhere close to that. Always take these figures under caution; they may not reflect the actual costs or be based in reality.
When considering a property investment, it’s easy to be influenced purely by the yield. Generally, a rental yield can be assured for one year or more depending on the developer, and investors will focus on this to determine their buy to let income.
Yet yields are not the be-all and end-all of an investment, and it’s imperative that investors consider other factors and impacts of their interest rather than just purely focusing on the rental yield. It’s essential to look beyond the yield, and focus on the return on investment.
Every market is different, so be sure to research what average yields and rents are going for in the area. However, keep in mind that the yield is a tool to measure ongoing performance, so it’s essential to look beyond these and consider Return on Investment (RoI) and where there is a clear high rental demand.
It’s a common marketing trick to use high rental yields in order to mask other issues. Always look into the whole proposition and be cannily aware of all of the risks involved with investing in an off-plan opportunity.
Some ‘guaranteed’ rents or returns and types of void insurances are regulated by the FCA. There is often a legal requirement for companies to comply with promoting and offering these. Yet many still do without complying. It’s important to ask how your guarantee is being funded? Who is providing the guarantee or insurance? Are they regulated? and when it starts? These questions will reveal a lot.
4. Assured Rents
Assured rents are often bundled in the property price of new-builds, so it’s important to be aware that in some cases this is not often transparent and can be used to manipulate the property value.
If developments are heavily marketed with these types of incentives. Valuers can sometimes highlight a development as investor-led, which can cause challenges and reduce the number of mortgage providers. It might be that you can get a similar arrangement via an independent provider.
5. Short Term Strategies
Be aware of regulations when investing in newer or niche investment strategies. These can lower your yield, so it needs to be taken into consideration.
Houses in Multiple Occupation (HMOs) in particular are under increasing scrutiny and licensing. For example, some HMO investors have been caught out with council tax. Some councils and management associations are also banning online short-term letting agents such as Airbnb. This can open yourself to fines and short-term yields.
Different lenders have varying criteria for mortgages on off-plan property. Developments with contracted yields often make surveyors flag and mark the scheme as investor-led. These sorts of off-plan deals could make it harder to get a mortgage. Traditional buy-to-let deals often have good mortgage-ability, so it’s important to ensure the developer isn’t contracting yields.
Always do your own research on regulations and risks, a good place to start is these helpful articles. Please be aware these 3rd party website links not managed by us, suggested for your own research – Salboy cannot offer advice on regulated financial products; you may need to consult with an IFA or solicitor for further enquiries.
- Short-Term Lettings Guide For Landlords (Airbnb, Holiday & Private Lets)
- HMO Legal Requirements & Regulations (England Only)
- Short-Term letting, not without its problems… LandlordZone
- HS253 Furnished holiday lettings (2020) HM Revenue & Customs
- HMO Licensing, Landlord Licencing & Planning Law Changes
- If you’re thinking of investing in a hotel room, you need to read this (or parking space or any other investment promising 8-12%pa)
- Airbnb clamps down on ‘house party’ short lets bookings
- What is a Collective Investment Scheme (CIS)?
It’s important to look into the details of what you are being offered. Are you being overpromised? Is the yield contracted? What happens after two years? Is this reasonable or realistic? If it sounds too good to be true, it probably is.
7. Below Market Value
Cheaper properties are not always the best option. Are costs being cut to keep the price down? With contractors, the lowest bidder often comes with higher risk of issues.
Be sure to guarantee the quality of the final product. Look for developments that are covered by a warranty. This can then be used to cover any remedial costs if problems arise due to the contractor failing to meet specific standards.
Do your due diligence and look for a good track record. Is this one of many other high-quality developments? Have you heard of previous delays? Why is the seller willing to make a loss or sell at cost? Is it even BMV? Seek out reviews and trusted recommendations.
8. Ignoring Tenant Profile
Every tenant is different – some require more time to manage, more stress increased void periods and possible increased wear and tear. Consider what your return on time invested will be?
Just like any property investment, location is key. Get to you know your market and make sure the location is attractive to your target tenant profile. In the location you’re looking to buy, what is the top and bottom yield? What is the supply and demand for rental properties there? Is there strong demand for a specific type of property?
9. No Options for Exit
What is the resale market like for this kind of property? Is it mortgageable? There is more resale value for traditional buy-to-let properties than short-term holiday lets and student lets. Traditional buy-to-let lets are less risky and more flexible forms of property investment.
Avoid getting caught out – Do your own research!
Make sure you buy a property that fits your own investment strategy, not a strategy that fits the training or property that you being sold. Do your own research and get educated.
Always prepare for the unexpected. Set money inside in case you have extra expenses that come up and factor this into your yield and return on investment. For example, the boiler might break.
Never forget that every type of investment has a degree of risk, just some more than others. Due diligence and your research is essential, here are some great online resources that can help you research your investment strategy, property developers and housing prices.
Create a long term strategy based on return on investment
Instead of focusing on yields, have an investment strategy built around ROI. That can help determine if a property investment is a good investment option. Consider whether you want a short, medium or long term investment strategy.
⚀ SHORT TERM
For a short term investment strategy with off-plan properties, investors can flip the property. This involves having assignable contracts and selling before completion. This can be lucrative if the property was purchased at a discounted price and if the property prices rise during the construction phase of the development.
While this could be an effective investment strategy for an investor looking to see returns quickly, there is a lot of risks involved as property prices can go down. And you’ll need to ensure there are funds to complete the transaction and pay stamp duty. This is not recommended as you may need to hold onto the property to earn a rental income first in order to be able to earn a profit.
⚂ MEDIUM TERM
For a medium-term strategy, an investor could rent the property out for a 4-5 years, earning rental income and then sell the property afterwards.
⚅ LONG TERM
A long-term strategy includes earning decades of income, and then earning capital appreciation once selling the property 10-20 years after purchasing the property.
Investing in Salboy Developments
When investing in off-plan, it’s key to buy from experienced property developers with a proven track record. Look through their portfolio and visit built-out developments or current projects being constructed.
Salboy is a property developer based in Greater Manchester delivering high-quality, first-class developments without compromise. With a track record of delivering on time and with quality, we have delivered more than 2,400 homes across the UK and continue to bring forward new residential accommodation in Manchester and Salford.
Salboy has developed a range of properties with appealing amenities that are attractive to high-quality tenants. With our developments, we also have solid management companies to help for a more hands-off investment. And as one of the biggest property investors in the UK with the finance part of the business, we build our developments with investors in mind.
- Work with a transparent & honest developer with a solid track record for delivery.
- Invest in traditional buy-to-let properties in high growth locations.
- Excellent investments that are proven to offer long term ROI .