Mistake number five – They do sloppy research.
Sometimes a deal is so evidently good, that one might assume there’s little point in doing any research. However, no matter how good a deal seems to be, I’d still like to reassure myself that it is a good deal.
How much research should an investor do? I honestly believe that you can’t do enough research unless, of course, it pulls you into the trap of mistake number one and it becomes an excuse for doing nothing.
And I also believe that it is something you can do alongside the steps I outlined in mistake number one. In an ideal world it would be nice to get all your ducks in a row before you shoot, but that’s not always possible. Sometimes you have to adopt the “ready, fire, aim” principle.
One thing a lot of investors do is to use opinions as facts. A classic example is estimating the value of a property by reference to estate agent’s asking prices. They are good for an initial guide, but they are just asking prices. They are based on opinion and not on market results. You might not have any other evidence on which to base your research. That can happen, but at least look at the asking prices objectively and recognise that is all they are. Somebody might be asking £250,000 for the house next door but that doesn’t make yours worth £250,000. Not necessarily. Chances are they won’t get £250,000, so why stick that figure into your appraisal?
This is something investors often do, especially if they are refurbishing properties. They tend to over estimate how much the finished property will be worth. After all, they are going to do the best possible job with all mod cons. The trouble is, the market won’t know how much work they’ve put in, or how much they’ve improved the property. When they look back at the amount of work they put in they might feel that they “deserve” to get their price, but that doesn’t cut any ice with the market.
The same is true of rents. Don’t take an asking rent from an advert in the paper as firm evidence. It’s only an opening bid on behalf of the landlord. And don’t discount the possibility of voids. All rental properties are empty from time to time. No matter how smart or slick you are, no matter how well you plan to juggle tenants so one is moving in as one is moving out, in practice it’s often harder to arrange this than you’d think.
In the next post we’ll take a look at mistake number 6.
Here’s to successful property investing.
Peter Jones B.Sc FRICS
Chartered Surveyor, Author & Property Investor