Avoid Investor Pitfalls When Buying Derelict Property for Sale

Some 10 years ago, the idea of purchasing derelict houses for investment purposes began to be less attractive to investors. Interest rates were high, real estate prices were high, and realising a high yield was more difficult than ever. However, with the housing crash things have changed. Many new investors are now looking at buy-to-let opportunities as a way of establishing a long-term investment portfolio.

While it's true that residential property offers tremendous bargains and substantial profit margins, you need to understand that there are potential pitfalls with every derelict property for sale. You'll remain relatively safe only if you make yourself aware of those pitfalls.

Knowing the Market

Seasoned investors caution new players not to spread themselves out to thinly in multiple areas. Rather, they say you should look for a concentration of derelict buildings within a relatively small geographic location. This lets you become an expert on the market in that area.

If you are too quick to purchase properties in too many locations, you're often left to guess on market values, what renters are looking for, the quality of surrounding neighbourhoods, and so on. So avoid being in too many places all at once. Concentrate on getting to know one area thoroughly before expanding to the next.

Don't Over extend

Buying a derelict property for sale comes with a big temptation: over extending yourself financially. According to reports from many outlets, lenders are now looking for monthly rental payments at least equal to 125% of the mortgage payment. If you cannot realistically get that much for the life of the mortgage, you may be over extending yourself financially.

Along those same lines, do not fall into the trap of just accepting the first mortgage you can get your hands on. Investors can shop around just like individual buyers. Every pound you can save on your mortgages is more money you can invest in your portfolio.

Moving on, you can also over extend yourself by purchasing more properties than you can handle. It's better to buy one derelict property for sale at a time, get it ready to rent, and even find a tenant before you purchase the next house. This way, you will have cash coming in before you make another purchase.

Unrealistic Sale Prices

Perhaps the biggest pitfall for property investors is paying unrealistic sale prices. Keep in mind that derelict property for sale is going to move quickly once the bank makes the choice to get rid of it. That means you have to know what you are willing to pay before you make your first offer.

Also keep in mind that while rental homes do offer great margins, you are going to have to spend a little money to earn those margins. Learn how to realistically assess how much money you will need to put into repairs and improvements before you can rent a property. The costs associated with these sorts of things have to be considered as part of your initial investment.

Building a long-term investment portfolio through derelict properties is now more attractive than ever. If this sounds like something you want to pursue, make sure you learn as much about real estate investing as possible – before you get involved. The more information you have, the more likely you are to achieve the maximum yields on your investment properties.

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Jonathan Caplan

by Jonathan Caplan - Property developer, investor and Fruitful founding Director.

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