Property investment is always a steep learning curve for new investors. There’s plenty of opportunities to make mistakes and stop your new career dead in its tracks; with many newcomers ending up throwing in the towel before they’ve realised their full investing potential.
Here are three common mistakes that have discouraged many a new buy-to-let investor; and how you can avoid them.
Getting too emotionally invested in your investments
Buy-to-let investment can be a surprisingly emotional thing.
There’s the joy of finding the ‘perfect’ property; the fear of losing money on your investments; and the eagerness and anxiety of achieving status as a bona-fide BTL investor.
Unfortunately, these emotions can easily lead you into decisions that you’ll regret down the line. Here’s a few examples:
- Purchasing a property without first evaluating the risks and profit potential
- Holding onto an underperforming property because you’ve grown attached to it
- Keeping fruitless properties since you’ve already spent time and money on renovations
- Selling properties too early because you’re anxious about tier short-term profitability
Smart investors aim to keep their emotions entirely separate from their investment decisions.
They don’t purchase buy-to-lets because they can picture themselves living in them, and they don’t let the sunk cost fallacy (https://en.wikipedia.org/wiki/Sunk_cost)dissuade them from selling off properties that hold their business back.
Instead, they carefully assess each new potential purchase purely based on the numbers. They understand the risks going in, and they have the patience to play the long game with their investments; while still keeping a close eye on the performance of their portfolios.
Going it alone
Property investment is a lot of work.
It’s not just buying up properties and watching the pounds roll in.
It’s also the hours, days or even weeks spent hunting for those properties; travelling to viewings and estate agent/vendor meetings; filling out mortgage applications and securing finance; potentially carrying out extensive renovations to get your properties into a habitable state, and keeping your portfolio occupied with tenants all year round.
That’s not to mention the health & safety obligations you’ll need to fulfill as a landlord; the paperwork and accounting you’ll need to carry out to keep your investment business afloat; and the tax and legal hoops you’ll need to jump through to remain profitable and HMRC-compliant.
That’s a lot to manage for one lone investor.
But won’t outsourcing just end up eating into your rental profits?
Of course, there’s nothing to say you can’t take on all these things yourself if you have the time and resources.
But letting agents, property managers, property search experts and tax/accounting specialists all exist for a reason. Hiring a professional often works out cheaper and achieves your investment goals more efficiently than trying to adopt all these skills yourself.
Plus, it makes being a buy-to-let investor much less stressful too.
And speaking of investment goals…
Jumping in without clearly defined goals
Last week, we discussed some of the things that experienced landlords should consider before growing their portfolios https://www.gnsassociates.co.uk/buy-to-let-portfolio; one of which was the importance of defining your own investment objectives.
It’s just as important for first-time investors, too. Without a clear idea of what you’re looking to achieve from all this, you won’t have the strategic outlook to make smart purchases, the insight to know if you’re actually making progress, or the drive to stick with buy-to-let investment for the long game.
Start with the reason you’ve decided to get into property investment. Is it to build a retirement fund? Perhaps to replace your day job?
Your next step is to turn your reason for property investment into a tangible goal.
‘I want to achieve financial freedom from property investment’ is too vague; whereas ‘I want to earn £50,000 a year from property investment in five years’ time’ is measurable, achievable and has a defined timeframe for success.
But knowing your objective is one thing; what specific steps will you need to take to make that goal a reality?
Divide your main goal into several mini-goals, each with its own timeframes. This will not only keep you focused, but also help you follow your progress towards your main goal much easier.
Need a hand with your property investment business? GNS Associates are specialists in property tax and accounting; helping buy-to-let investors across London and the rest of the UK to take the stress out of their finances. Call us on 0208 090 2604 or email us at firstname.lastname@example.org to find out more.