The Complete Guide to Property Investment

by Rob Dix

  As you can see, the price you should pay for the property has precisely nothing to do with the asking price (or the “guide price” in an auction). Taking this approach is what separates the professionals from the amateurs: an amateur will knock 10% off the asking price and think they’ve got a great deal, then realise after toiling away for six months that they’ve spent much more than they imagined and will never be able to turn a profit. (Frustratingly, this means that you’ll frequently find yourself being outbid on development opportunities by amateurs who are willing to pay more than really makes sense – which doesn’t ultimately help them, but sucks for you too.)

  Again, this is vital stuff – so as part of the “extras” for this book, you can watch my screen as I go through a real assessment of a buy-to-sell opportunity. It’s totally free, so just sign up at propertygeek.net/extra.

  So, say you’ve found a property you can secure for a price that allows you to make a nice 20% margin – even after being conservative on the resale price, and building in a healthy contingency for your costs. Snap it up, right?

  Whoa there – we haven’t yet considered the “demand” part of the equation… will anyone want to buy the final product?

  Although you might have a niche in selling to investors looking for a buy-to-let opportunity, the majority of the time you’ll be selling the property on to someone who wants to occupy it as their home. In this respect you’re plucking the property out of one market – one populated by investors – and plonking it in a market of owner-occupiers who are only interested in “finished” properties that they can move straight into.

  Is the owner-occupier market buoyant in the area surrounding your target property? This is a critical question, because you want the property to shift quickly at a good price. As we saw when we were talking about bridging finance, the costs rack up quickly each month – and even if you’re using your own money, there’s an “opportunity cost” to having it tied up in this project where it’s not earning you a return (and you’re still footing the council tax, insurance and utility bills).

  The best way to find out, yet again, is to talk to local estate agents. Yes: some will try to put a gloss on things, but they still know what’s what on their patch. Asking questions like “How many weeks on average is it taking to get an offer?” and “How many viewings on average is it taking to produce an offer?” will give you an insight.

  You can supplement this with online research on two fronts. Firstly, on Zoopla, you can click “Agents” in the top menu and enter a postcode to bring up a list of all the agents who are registered with the site and operate in that area. Next to each one it has “Average sale listing age” – which tells you how long their listings typically sit on the site for. (Bear in mind that the property will stay there for the entire conveyancing process until the transaction finally completes.)

  Also, by using a tool like Property Bee for Firefox or Property Tracker for Chrome (which cleverly scrape the Rightmove database and insert extra information into each listing), you can see the history of individual properties. These tools will show you the date each property was listed and the date that it was marked as “Sold STC” (meaning that an offer was accepted and the conveyancing process started), which of course is exactly what you want to know. There’s going to be a lot of individual variation because you don’t know which properties had unrealistic vendors, rubbish agents and so on, but by looking at enough properties you can build up a picture.

  For me, resale is the absolute key to flipping properties: it’s the difference between being able to use the same funds to do one deal per year or two, and the difference between six months of finance costs or nine. Given the choice between a smaller potential profit in an absolute slam-dunk location or a bigger potential profit in a slightly more marginal area where you need a bit of luck, I’d take the former every time.

  Chapter 10

  The buying process

  In this chapter we’ll cover the whole process of buying a property, from the initial viewing to collecting the keys when the deal is done.

  What you can’t see on the page is the number of grey beard hairs I now have, as a direct result of going through this process myself. But don’t worry: you’ll have your own before long, because buying a property in England and Wales is nuts.

  (If you live in Scotland: congratulations! You guys seem to have got it pretty much sorted. This chapter doesn’t cover the Scottish legal process, but feel free to read along with an ever-increasing sense of smugness.)

  The bonkers-ness of the whole situation comes from the fact that you need to make an offer on the basis of nowhere near enough information, incur a load of costs in finding out the full story… then if you still want to go ahead, potentially find that the vendor has changed their mind because nothing is binding until contracts have been exchanged.

  So the process itself makes no sense, and it isn’t exactly helped along by the cast of characters you’ll encounter:

  An estate agent, whose strengths don’t necessarily lie in the conveyancing process – and who has a million other things on the go in any case.

  A lender (and their surveyor) who is similarly stretched, and holds all the cards: even though they may have lending targets to meet, it isn’t really any skin off their nose if this transaction doesn’t happen.

  Solicitors, who remain a mystery to me and every investor I’ve ever spoken to. Key character traits include being out of the office, writing tetchy letters to each other, and just plain failing to do anything at all unless badgered endlessly.

  A vendor, who can find the whole situation “emotionally charged” if we’re being polite, or just be plain crazy if we’re not.

  You. You think you’re perfect, but you’re probably just as irrational and inefficient as everyone else. Sorry.

  In short, it’s a collection of humans with often opposing interests who need to carry out a complicated process with large sums of money at stake. It was never going to be easy, was it?

  So now would be an excellent time to take up meditation, find religion, or do whatever it takes to become at peace with delays, setbacks and disappointments. Maybe I’m over-egging it somewhat, but I think it’s important to realise that the buying process is hard work. Sometimes, you’ll even have a deal irreparably fall apart somewhere along the way – possibly after spending lots of time and money on it. Be prepared for the worst, and maybe (just maybe) you’ll be pleasantly surprised.

  Viewing the property

  So far, you could have done all your research without leaving your desk (assuming you’ve got the postcode and a few internal photographs). In most cases at this stage, you’ll probably want to go and kick a few bricks before you take things any further.

  Why “in most cases”? Because if your approach is to be hands-off, you might decide not to visit at all. If you’re buying through a sourcing company, it probably won’t be an option anyway. And I own several properties that I’ve never been inside, because I bought them via trusted contacts and I frankly couldn’t be bothered to go there and see what I’d already seen in photographs.

  Most people will tell you that this is supremely risky, and they’re right – it can be. By not viewing, you’re relying purely on someone else’s word: the photos might look great, but had they cropped out the industrial waste site next door, or neglected to show you the crumbling rear elevation? For that reason, you should research like crazy the person or company who’s presenting the opportunity to you. If you trust them as much as you trust yourself, all good.

  But let’s be real here: viewing is better than not viewing if you’ve got the option. The investors who secure the best deals view a lot of properties: it wouldn’t be uncommon for someone to view 50, make serious offers on five and end up buying just one. They’ll keep on doing viewings even after they’ve seen hundreds of properties in their local area and will pretty much know from the address what they’re going to see. Why do they bother?

  Because as we
ll as being able to see what works need doing and mentally cost it all up, viewings aren’t just about the property itself – they’re about building relationships and gathering information. The more time you spend with an estate agent or auctioneer, the more likely they are (if they like you) to give you advance notice of something that’s about to come onto the market. They’ll also tell you more in person than they would over the phone about the vendor’s situation, which is critical: you might value a property at £80,000, but is it worth a £10,000 discount to the vendor if they can shift it next week?

  So if hands-off is your thing, no problem. But given that most people will want to view before they buy, let’s look at what you want to have on your mental checklist as you walk around.

  Location factors

  Where is it? In other words, how does it fit into the overall geography of the town or local area? Is it in an established residential area, or right in the thick of things, or a bit out of the way?

  Where are the nearest shops? Clearly this is something that tenants or buyers would care about, so local shops are good – but next door to a kebab shop isn’t.

  What are the transport links like? Again, this is a major concern for most tenants and buyers. Proximity to train, bus or major road links make a huge difference to price and demand. But having a bus stop directly outside isn’t great from a noise and litter point of view, and nor is having a house that shakes every time a train goes past.

  What is the parking situation? This matters more for some areas and demographics than others. It’s particularly important for HMOs (where you might have five tenants with a car each), except in places like London where people tend to rely on public transport.

  How busy is the road? Lorries and boy racers using the street as a cut-through will be a turn-off.

  What are the conditions of surrounding houses like? You can tell a lot about the demographics of an area just by looking at front gardens and peering (in a non-creepy way) through a few windows.

  What can you tell about the area from sitting in your car for ten minutes observing comings and goings? Do you see a lot of people in suits getting home from work? Or groups of children hanging around? You can also make inferences about the neighbours from the cars that are parked. This all sounds very judgemental, but it’s not about determining whether a street is “good enough” for you, the above-it-all property investor. Instead, it’s about whether it’s appropriate for your target market: realistically, there are streets where your target market will feel comfortable and others where they won’t. For some people, children playing in the street on their bikes is a positive – for others it could be annoying or intimidating.

  Condition factors

  Does the property appear to be structurally sound? You’re not an expert and that’s fine, but you can look for obvious slope and cracks. If it’s a house, I tend to look at the lintels of the upper-floor windows from across the road to see if they’re straight.

  Does the roof seem to be in good repair? You may or may not be able to see missing tiles from the front or the back. You can also see how much (if any) of the roof is flat, which tends to require more upkeep.

  Does it appear to have been extended? If so, you’ll need to get your solicitor to check later whether it had the necessary consents. If not, are neighbouring properties extended – indicating that it would be possible to do so yourself if you wanted to add value?

  If it’s a flat, what is the condition of the communal areas like? This is something beyond your control, but it will nevertheless impact on how desirable the property is, so it’s worth taking note of.

  Is there double glazing? This will affect your assessment of the property’s value, and tell you whether you need to budget for adding it yourself.

  How many bedrooms and bathrooms are there? Obviously.

  Is there the potential to reconfigure to add rooms or improve use of space? You could sketch a quick floorpan, or just look out for how you might be able to squeeze in an extra bedroom or en suite without making any of the rooms too cramped.

  Is there central heating? If so, does the boiler appear to be new or ancient? I’m no expert about these things, but I’ll sometimes take a quick photo of the boiler to work it out from the model number afterwards.

  From looking at the consumer unit, what can you tell about the state of the electrics? Even if you’re clueless about these things, snap a photo and you can show it to an electrician (or ask in a forum) later.

  Does the kitchen need updating? This is very much relative to your intended purpose. It might not be your style, but would it work for a rental property? Could you jazz it up just by changing the cupboard doors?

  Does the bathroom need updating? Again, what’s “good enough” depends on your plans. You can get an idea of what the competition is like just from the photos on Rightmove and benchmark from there.

  What is the general decorative condition like? You won’t necessarily know whether the wallpaper will take a new coat of paint without peeling or whether the whole thing will need replastering, but try to get as much of an idea as you can.

  Are there any obvious signs of damp? Using your nose is a good way to tell, as well as looking out for telltale black patches – especially on external walls and around windows. If you can smell something and you’re suspicious, look behind strategically positioned furniture too…

  Situation factors

  If it’s a flat, what is the service charge and ground rent? This makes all the difference to the world to your ROI, so you can’t make an offer without knowing.

  If it’s a flat, how many years are left on the lease? Again, this is critical – so if the agent seems unsure on the matter, push them to find out and get back to you.

  Who lives there now? Is it rented out, and if so, will the property be vacant when you buy it? Does the vendor live there now, and if so do they have somewhere to move to? Is it empty, and if so, why – has the owner recently died, or has it just been vacated for sale, or has it just been refurbished?

  Why is the vendor selling? An honest answer is hard to come by (the agent is unlikely to say “To be honest, they need to sell by the end of the month or they’re stuffed so they’ll accept any price”), but you’ll never know less after asking. You can also look out for telltale signs like “do not use” tape over toilets and sinks, which normally signals a repossession.

  How long has it been on the market? Agents are often either deliberately vague about this or just don’t know, but it’s worth asking – and you can look out for indications like a huge pile of post behind the door or waist-high grass.

  Have there been any offers yet? In agent lingo, “We’ve had a lot of interest” means “No”. They’ll sometimes tell you about offers that have fallen through because it helps to explain why it hasn’t sold yet.

  The circumstances surrounding the sale are the most valuable things you can find out – and because the agent knows this, it’s seldom easy to get straight answers. This is why building relationships is a long-term game that’s worth playing. Agents are only human (believe it or not), and as they get to know and like you they won’t be able to help themselves from letting more slip.

  Offering and negotiating

  Once you’ve viewed the property, you should have a firm idea of the two numbers we talked about earlier: what it’s objectively worth, and what it’s worth to you. Your maximum offer should be the lower of those two numbers.

  (If it needs refurbishing, then calculating these numbers can be tricky if you don’t have experience. If possible, ask a builder to view the property with you and give a rough quote – but if that’s not an option, your offer will just need to be highly conservative.)

  Of course, you don’t start by making your maximum offer: instead you want to make an offer that gets rejected. You read that right. Here’s why:

  In a negotiation you can never go backwards. If you make an offer and it’s accepted immediately, it means you could have gone in lower. I
t’s too late to do anything about it now though, because the vendor knows that you’re actually willing to pay that amount – so backpedalling won’t work. By having your first offer rejected you can satisfy yourself that you’re not going in too high, and also “anchor” the conversation around your number. Even if the vendor is mortally offended by your offer of 40% below their asking price, somewhere in the back of the mind they’ll start to question whether, hey – if that’s the number you came up with, maybe it’s also the number that everyone else will come up with and their own valuation is way off base.

  When it comes to making the offer itself, some people prefer to make a formal written offer (email is fine) in a set format, while others are happy to do it verbally. There’s an argument that putting it in writing makes you appear more serious and avoids the potential for misunderstandings, but I’m not convinced that it really matters either way.

  What you should remember when making your offer is that a negotiation is about more than just the price. The other key factors are certainty and speed – so if you have these in your favour, you should make this clear in your offer. You’ll then be a more attractive prospect to the vendor, especially if these factors are of particular importance to them.

  In terms of certainty, you need to demonstrate that you’re the kind of person who can be relied on to get the deal done. It’s not just about attitude though: at a minimum, you should also be able to show proof of funds for the deposit and a decision in principle from a lender. The agent and/or vendor will still be aware that plenty could go wrong, but showing that you’re financially prepared means your offers will be viewed more favourably than someone who’s unable to back up their offer with cash.

  You’ll naturally benefit from speed by not having another property you need to sell (chain-free is highly attractive to agents and vendors alike), but you’ll climb even further in their estimations if you’re not relying on a mortgage at all. This is why asking the “situation” questions at the viewing is so important: if you get the impression that the vendor is under pressure to sell quickly, an all-cash offer that’s 10% lower than a mortgage-contingent offer may be the more attractive one.