When I first got involved with property investment, I bought a property that, on paper, had a discount of 31%.
To date this has been my worst performing property.
It is constantly requiring ongoing maintenance work, the tenant profile for the area is really poor, and we always struggle to find a reliable tenant.
I was just blinded by the initial discount. I thought it had to be a great deal if I could buy at such a low price.
But, as I found out to my cost, there was a very good reason the discount was so large….
7 Golden Rules
Since buying this property and learning first-hand about the mistake of buying purely on the Discount alone, I have re-evaluated my whole sourcing and buying process.
As an investor, I now have ‘Seven Golden Rules’.
I use these in all of my sourcing for clients and my own portfolio, and if there is one piece of advice I would give you, it would be to consider these as the foundation of any deal you look at doing.
These rules are:
- The Area
- Tenant Profile
- Rental Yield
- Exit Strategy
- Potential for Capital Growth
- Potential to Add Value
- Discounts Achievable
As you can see, the ‘Discount Achievable’ is still one of my Golden Rules, but it is only one of seven – and it no longer is the deciding factor on what makes a great Property Investment.
How I Calculate Discounts
Firstly, I calculate market value.
For this I look at the average selling price of 3 similar properties in the same area, or ultimately you want to get an independent RICS survey.
For properties that are ready to let, the discount is simply the market value minus the agreed selling price.
For properties that need refurbishment, it’s the market value minus the refurbishment costs, minus the selling price.
If the Market Value is £200,000, the refurbishment cost is going to be £7,000, and the price is £160,000, the discount is £33,000.
Where To Find Discounts
You’re always more likely to get a discount from a motivated seller. So I look for people who need to sell, rather than those who want to sell.
Over the years, I’ve developed ways to identify those in need, with different sourcing methods, and to quickly work out the price they would be willing to sell at.
That saves me wasting a lot of time trying to get discounts from people who are able and willing to wait a long time for a better offer.
If you stick to this principle and these 7 golden rules, they will help you ensure that any Property Investment you look at will be perfectly suited to your own personal criteria and buying strategy.