How to build contingency into your investments
Do you ever find yourself worrying about everything which could go wrong with property investments?
You are not alone!
From refurbs going over budget, to a change in regulations absorbing all of your profits... there are plenty of things which might not go to plan.
However, there are some simple steps you can take to build contingency into your investments and avoid many a sleepless night!
Contingency in purchases:
Whatever you do, do NOT base your offer on the asking price of the property.
I know that sounds a bit bizarre at first, but you need to offer based on what is most important... so, you should base your offer on what the house could be worth to YOU.
Look for comparable properties that have sold within half a mile of your property and within the last 6 months.
Speak to several estate agents in the area and discuss the potential value of the specific property that you are offering on once you have done any refurbishment works.
Work out your costs (estate agent fees, mortgage broker fees, mortgage admin, building work etc) and take all of those costs away from the potential value before you even consider putting in an offer.
That is the true cost of what it's going to take to acquire the property and get it up to standard.
Contingency into refurbishments:
Rogue builder stories - we've all got them!
Unfortunately there isn't actually an effective way to completely remove the risk of a rogue (or overly optimistic!) builder.
So, the best way to deal with it is to expect your project to go over budget and run over schedule.
Personally, I add 10% to builders quotes and usually double their time estimates!
And on top of that, I also assume the property isn't going to be let out for a minimum of six months.
I set myself up to expect no rental income for at least 6 months and allow finance so that I can pay both council tax and a mortgage during this time.
I would much rather be pleasantly surprised when a project comes in under budget and quicker than expected than the other way around!
Contingency in cashflow:
When you have a property set up and ready to rent out, how do you make sure unexpected changes don't completely derail you?
I always recommend completing a cash flow calculation BEFORE putting an offer in and ensuring that you have at least £100 of profit per property per month.
And when I say profit, I mean what is genuinely left in your bank account after you have taken away the cost of mortgage interest (watch the video to find out why I opt for interest only mortgages), a letting agent (whether or not you plan on using one), any bills AND a "just-in-case" fund.
Catch up on the full Property Success Bites episode to find out more:
P.S. If you want to create a profitable property investment business with clarity and confidence, have you considered working with a property investment mentor? To find out more about the coaching and mentoring services which Nala Coaching offers, book in a completely FREE Discovery Call and let's have a chat!