House prices are considerably lower than they were in 2007. The recession has hit the property market hard and there are now more repossessions than ever with many of the properties repossessed with negative equity because of the drop in perceived house value. The lack of liquidity in the market is definitely hurting house prices, but that is something anyone looking for a quick return should also be aware of because most people making money in investment properties are aiming at the rental market.
Do your Due Diligence
As with any investment, market research is critical. You are guaranteed a bargain just because a house is classed as repossession and this often catches people out. The previous owner may have been in money trouble and had mounting debts, which means the property may have lacked essential maintenance and the general state of the property will place it below the house price threshold for the area. As with all things, a little research can unmask many potential problems with and investment and it’s important to remember that not all that glitters is necessarily gold. If a property is around £30,000 below market value, but needs around £20,000 worth of refurbishment, there is a good chance your money produce better results if invested in another property that does not need the attention and time to produce a return.
Never Buy without Inspecting a Property
Inspecting a property prior to purchase may sound like an obvious move for anyone who has an ounce of sense, but you would be surprised by the number of people who go to auction with a property in mind, but leave with a completely different property in their portfolio. Auction scenarios tend to get the blood racing and you often find people buy on impulse rather than good judgement. What seems like a bargain now, can turn into a nightmare quickly when you realise you need to underpin the property and completely gut or rebuild the building.
The Utility Trap
If people have been missing payments for their home, you can bet they have been missing payments for other things too. This means you could face problems finding out which utility companies are supplying the property or you could even find that utility companies have removed the connection from the street. This process is de-energising a property and it happens more often than you would think. Re-connecting energy supplies can be a nightmare and some people have found it easier to pay off the existing bills left by previous owners to ensure a quick result. These bills can run into the thousands, so be careful and check supplies are in place before you buy any property.
Is the Property a Bargain
Always assume the property you purchase will end up costing you at least 20% more than you think because there will always be some expense you didn’t account for and you may need to spend more to sell a property in a reasonable timeframe. With this in mind, do you still think the property you had once seen as a bargain with lots of return on investment potential, could provide a good profit that is worth the effort? Sometimes the answer is yes, but often the correct answer is no or not right now. Tying your money into a property can create pressures you are not prepared for and turn what could have been a good lifestyle business, into a life of worry and disappointment. Despite all the pitfalls with investments in the property market and in particular, with repossessed properties, good profits still exist. You just need to know what you are getting into.