Buying a Building

Buying a Building

Anyone considering buying a building of any sort right now needs to look at all the factors for which that building is going to be used. Whilst there is plenty of cheap property around it doesn’t figure that it is cheap to own it, the on-going costs can be astronomical. Novice owners or potential landlords often overlook the hidden costs of buying and the long term costs when there is little or no return on the investment. For some people it’s a good way to reduce their tax bill but a large amount are surprisingly naive especially when buying through auctions. The amount of people who feel obliged to buy at an auction even without seeing a property is staggering. Whenever you are considering buying a building whether that be a house, a block of apartments or a commercial development do your homework first, get your due diligence right and you will save yourself a large amount of stress and money. One client we spoke with recently parted with £80K for a building that was really just a speculative buy which he now pays the overheads on, can’t get planning permission on and can’t sell to anyone other than an unsuspecting fool like himself. There is a saying that a fool and his money are soon parted. None of us like to admit to our mistakes but there comes a reality at some point that we just can’t hide from the truth and unless we have bought with the exit strategy in mind we are unlikely to make money and are far more assured to lose it.

Using an exit strategy is by far the best thinking when buying a building, even if that strategy is twenty years down the line it makes sense to know how you are going to get your money back. The days of being able to turn a property into cash quickly are far gone and if you want to make a profit there is generally a need to add value to it. The cost of adding value, either by renovation, or splitting the freehold or dividing the property itself has to be factored into any project and if you are borrowing money to buy somewhere it’s likely to be a very expensive affair. Even basic research will show that there are many different opportunities to make money when buying a building especially in this current climate but having a strategy to work to is an important factor. Whatever strategy you work with consider your level of investment as a bench mark to how you want to create more wealth. Also think about what type of tenants you are prepared to work with as these can alter drastically. Another important point is just how involved you want to be with a property, some like to be involved in every stage whilst others, particularly investors as opposed to landlord buyers like to be able to remain virtually anonymous to the property itself. The point generally though is not what strategy you choose but having it clearly defined and staying with it for the long haul. Specializing in one strategy will generally improve returns as you become more capable and prolific in spotting opportunities.

Buying a building in an area you know makes far more sense than collecting bargain properties across the country. The difficulty of managing where distance becomes involved is magnified in both time and money. When you have your chosen area, research it in every way possible to find the alternative benefits or problems. Local housing benefit rates differ from place to place. A high density of student accommodation or of HMO (Houses of Multiple Occupation) properties can bring values down simply because of the extra numbers of people coming into an area. Adversely it can also send price up making it more desirable for landlords to purchase. The more you know about your particular area and buying a building in that area the more likely you will be to make more money and reduce your likelihood of failure. The figures must add up if you want to secure borrowing so if you’re thinking of buying a building you would need to be looking at getting rental income in excess of 125% of the mortgage payment. Chances are you would only get rental income after you have met all the renovation costs. When you do come across what you consider to be a valuable deal you need to move swiftly or the chances are they’ll be another investor snapping at your heels to get it too. There is a lot to be said for being able to spot the properties that would cause you more trouble than they’re worth. It is usually a good idea to look at the net return on the money employed as an indicator of how successful a venture is. This can only be done afterwards but gives you greater understanding for the next project.

Always try to use common sense when buying a property of any type.

Written by:
Lionel Palatine – He is a regular networker and a speaker at events as well as being a property author and adviser. He joint ventures deals and shows people how to buy property for low cost which are inclusive of all fees and deposits.

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