How to become a property investor

For new property investors, it can be a daunting market, but whether you're wanting to become an investor by house-flipping, buying off-plan apartments or houses, or buying a house the 'normal' way, these top ten tips can help you start off your business as successfully as possible.

Original article written by Prime Location based on Gary McCausland's (presenter of Channel Five's 'How to be a Property Developer') top ten tips.

1. Location, location, location... the myth

Although everyone thinks they know what this means, they don't. A good location doesn't mean the best area in town when you are a developer. If you buy in the centre of the best area then you are going to pay the highest price and that doesn't leave you any room to make a profit. A good location means ... somewhere on the fringes of a good area that, in time, can become part of that good area.

Being near schools, public transport and green areas is essential when it comes to selling a property, but being in the nicest street with the smartest postcode isn't. Some of the richest property developers in the world specialise in buying in what most people would consider the worst possible locations, when in fact they are great locations for developing a property, making tons of profit. The trick is learning to spot these areas, because often the only way is up.

2. You make your money when you buy, not when you sell

You make money when you buy a property rather than when you sell it. Thus, it is essential to pay the right price for a property. Every pound you can knock off the asking price is money straight in your pocket. If you pay top dollar for something, however good it may seem, you are not going to be able to make a decent profit because the margins are so slim. Look our for properties or land that have planning applications in with the local authority. They might accept a good offer subject to planning permission, and if they eventually get planning permission, you get the upside.

3. Going, going, gone

Buying at auction is a good way to pick up a bargain, provided you don't get carried away with the emotion of the auction itself. Set yourself a limit and stick to it and don't get carried away with winning at any cost. An auction is like a game of poker, only in this case, you can see everyone's hand before you place a bet.

Don't even bid until you have seen what everyone else is doing and put your first bid in towards the end. Only the last bidder ever wins at an auction. If the bidding doesn't reach the reserve price, try and negotiate with the seller afterwards. The property wouldn't be at an auction if the first place if they weren't very keen to sell.

4. Do your homework

Property development is a risky business. You could make a fortune, or you could lose everything and end up in debt for the rest of your life. You have to do your research thoroughly before you buy. Find out how much other properties go for in that area, how much stamp duty, searches and fees will be. Are there any restrictive covenants and what is the cost of any refurbishment? When you have done your sums, work out exactly who you will be trying to sell to, how much you will realistically get and whether the profit margin is worthwhile. Property development is very capital intensive and you have to get your sums right. If it was easy, we would all be millionaires.

5. The right seller

When you are looking to buy a property you need to find a motivated seller, someone who will give you a good price because they really need to sell. Estate agents will have background information about why someone is selling. Anyone moving abroad, getting divorced or going bankrupt will need a quick sale, which is when you will get a good price. Check out the tiny ads in newspapers and on the internet as motivated sellers often try to sell the property themselves. Remember, the more desperate they are, they better deal you will get.

6. Target the ideal buyer/tenant

Always have in mind who you are aiming to sell to once you have refurbished your property. If you plan to rent or sell to students, there is no point spending a fortune on the highest quality fittings, but a professional couple may expect more. If it is a family home, think about the decor. And importantly, it isn't about your taste, it is about what would appeal to the type of person who is going to buy.

7. Keep looking

Just get in your car and drive about. If you know the area you'd like to look in buying in, but don't want to search through a number of agents sites, driving around an area can help you spot the properties you may like. Lots of properties ripe for development and refurbishment can be found just by driving around. If they are derelict, the Land Registry will help you trace the owner.

8. Avoid the most common mistakes made my amateurs

Remember, property investment isn't like cooking a recipe from a Jamie Oliver book. It's much, much more important and difficult, and if you get it wrong, it could potentially have a devastating effect on your finances. Everyone seems to think they are property investors or developers these days just because their house has (until recently) gone up almost automatically in value in a rising market. Property investment for profit means adding value, not just sitting back and waiting for the market to rise.

9. Don't pay over the odds and think you will make it back in the long run

You make your own money when you buy, not when you sell. Always protect yourself against the downside; against the worst case scenario. If you don't see a profit from the start, stay away ... 'Buy at haste, repent at leisure', and in property, if you get it wrong, it becomes a headache and a money pit that can last for years. Also, be careful of buying anything with structural issues such as HAC or asbestos.

Always be aware of the area you are buying in, especially noisy neighbours. They can ruin a sale or put off potential tenants. This is more difficult when renting a property next to other rental accommodation, or when buying off-plan as you don't know who will be buying or renting next door in the future. Make sure the legals are OK. Are there any restrictive covenants, is the garden included?

Loads of property experts band on about adding value, but the truth is there's a limit to how much value you can add to a property with a refurbishment. And because you can never know what will happen to your development, or the market, in the months it takes you to get your property back in estate agents' windows, it's imperative that you build in your best chance of making a profit by buying below the market price in the first place.

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