I’m going to put a spin on something, it could be controversial but I want to put it out there. I want to give you a bit of advice about how you can make your money work for you.
I see a lot of mistakes from so many property investors that cause them to reduce their yield, lose return on investment and I want you to avoid making those mistakes.
I know an investor – he’s flipped a few properties but he’s not particularly seasoned to the industry. He bought a property, did a refurbishment and was going to sell it on afterwards. On the face of it, it was a pretty good deal and he’s worked it out really well – he calculated it all in the right way however he didn’t bank on the market slowing down. The value of the property didn’t go down but the demand did, and this meant that it didn’t move as quick as he had expected it to.
He couldn’t sell his property once he’d finished the refurb. He’s got a mortgage that he’s paying each month, insurances and he’s got his money tied up in the investment and he’s now losing money.
The problems he’s faced with – he’s waiting for the asking price.
He wants £145,000 for the property. It’s a fair price; it’s what it’s worth and other agents have told him the same but it wasn’t selling – the market wasn’t there.
The thing is, he’d had a couple of offers; one of £135,000 and one of £137,000. He didn’t take them because he wanted the £145,000. I get it, I understand it – you have that figure in your mind because you’ve calculated it that way but then the market dropped. And he’s then left with an empty property for 6 months. SIX months!
He wanted to make his £30,000 profit on the deal which is fair enough. But now he’s losing that profit anyway because it’s empty. And the money that’s tied up in the property can’t be accessed, whereas if he’d accepted the £137,000 – he’d at least have released that and have moved on to the next one.
Now I’ not saying that you should always take the first offer that comes in – not at all. Nor should you take a really low offer. But you should weigh up your options. What is it going to cost you if it doesn’t sell for another 6 months. Let’s face it – I can guarantee there’s a fair few people in the UK that have been in a similar situation as a result of lockdown.
You never know what’s around the corner. Whether it’s BREXIT, Covid-19 or whatever – there are always economic factors at play.
Now if he’d accepted the £137,000 at the start, he’d be onto his next property now and potentially doubling his profit by completing, say two flips in a year. But as it stands, he looks to only complete 1.
So how do I do it?
I set 3 numbers for myself.
- The Dream
That’s the one. If I can get 145,000 for this flat, I will be over the moon. However, I’ve got to set myself a deadline for that. If I don’t get that price in a month, I’ve got to come down.
- Average Value
The one that I can get my costs back, whilst still making a decent profit.
- Walk Away Price
This covers the costs and a small amount of profit. You also need to factor the risk in – you might even have a next level down which covers your costs – the break even point.
Everyone makes mistakes – and yes, property mistakes can be costly, but learn from other peoples. If you don’t network with other landlords or property investors – start doing it because I can almost promise you – someone else has been in a similar situation to you at some point and will have a story to tell.