This is especially true when it comes to property investment. Property investment is guaranteed to deliver healthy long term profits for many people and hence makes it a very attractive proposition. However, it is an investment that should not be made lightly. People should be aware of the facts surrounding the property investment business. Property investment is more than just easy profit, as there is a decent potential of making bad investments

If you plan to invest in renovation property, you must take precautions that will limit your risk and exposure when you can. If you cannot reduce the risk, be prepared for financial loss and be mentally prepared to accept potentially life changing losses. In property investment there are several risks that you need to look out for, including:

Loss of investment

When you are dealing with property, it is possible that you may lose some or a lot of the investment that you make to purchase your property. If your investment is high in a renovation project but the demand is low for the end product, then you may be dealt a devastating blow if your property does not sell for at the price or the speed at which you expected. So researching the market to choose a property that is in the right area and in demand is critical. Also research the pricing levels of the properties in the area and what the end cost will be to renovate a property and how that is likely to affect any profit (or loss) when it comes to renovating and selling.

In addition, do the obvious and be aware of the market conditions within which you are planning to sell. Be aware of the potential of a non sale. If you strategy is to renovate, hold and rent the property then assess the rental potential of the market and make sure that you get a suitable return to keep you in the black against your outgoings and mortgage.

Also make sure you take out appropriate insurance cover during the renovation process to make sure that you are covered against unexpected occurrences.

Cover Your Risk

Remember that in property investment, there are sometimes unforeseen costs that you may not initially allow for. Here are some examples:

Natural Disasters - the economy collapses - the local market is crumbling - people change their minds when you are trying to sell - accidents or injury claims when someone is working on your property and so on

Anyone of these things can lead to real consequences and can end up being catastrophic. The above events are totally beyond your control. Therefore you must be prepared to account for such risk.

In addition to these risks, there is the risk of discovering unexpected flaws in the actual property. Most investors tend to abandon a good inspection and often end up discovering unwanted and sometimes costly problems. The repairs will cost money and these costs will eat into any potential profit on the horizon. So never buy with your “eyes closed”.

If you have found problems with your property, you generally have two options:

- Firstly, you can undertake the repair work yourself before putting the house on the market.

- Second, you can sell the property as is and reveal the problems to potential buyers.

To save the hassle, it is very important to locate these problems before buying the house. Make a careful inspection of the house and that way you will discover any potential costly faults that may adversely affect your property investment. This will not only save work but will also save a lot of money.

Keep in mind that you should not let the two risks to stop you from investing in this market. However, as an investor, you need to clearly identify these risks so that they are priced into the investment and assessed accordingly to make sure that the anything you buy is worth buying in the first place.

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The benefits of appointing a property manager for our property investment can easily outweigh the reasons for not to have a manager in place. A good property manager will always communicate effectively with the owner in all circumstances and perform well.

Duties and functions of a manager of property are extensive and will vary depending on the conditions and demands of the property owner. Here is a list of some of the responsibilities a property letting agent may assume:

• Advertise for and interview (credit checks, referees contact) potential tenants
• Gather initial payment of deposits
• Collect monthly rents
• Arrange any necessary repairs
• Periodic inspections and inventory checks of property
• Paying workers, gardeners, council tax and other bills out of incoming rent
• Make the regular lease payments to the owner
• Contact the owner of tenants giving notice to vacate property
• Contact the owner to arrange for repairs above a certain value
• Notifications and appropriate to issue letters to tenants
• Provide reports of rent and expenses to the owner

The above is just a sample of functions performed by a property manager. A good property letting agent/ manager is not necessarily someone who charges lower fees. Most managers around where your property is located charge similar fees, however their ability to control the property according to your requirements differ and so it is necessary to follow a strict screening process to choose the right letting agent for your needs.

The best way to select the right property manager is to interview a number of property managers and ask them a series of predefined questions. Some owners prefer to do this in an interview, while others are content with perhaps a call and email to phone.

So what type of questions should you ask? There are several different aspects of property management that must be looked at and so I have listed some possible questions accordingly.

Fees and services offered
What monthly fees do you charge?
How many properties do you control?
Do you charge a fee to leave?
How often do you conduct inspections?

Reporting
How often are payments made to the homeowners?
Under what circumstances do you contact an owner?

Tenants
How do you find and interview prospective tenants?
How often do you collect rent?
What is the typical period of notice?
How do you treat non-payment of rent?

Maintenance
What action is taken if a tenant should damage the property?
How do you control the major and minor repairs?
How long have you worked with your preferred trades people?

These are only sample questions and will differ depending on your situation, however they provide an outline of what you may need to ask.

At the end of the day, do not settle for less than what you expect from a property manager. After all, your investment property, bought with your hard earned money, is placed in their hands. Make whatever effort you need to ensure that your property is in the hands of someone you consider capable and trustworthy.

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Description

The interest rate on a variable rate mortgage changes with the base rate of the Bank of England. The lender does not give you a fixed rate but a discount off the basic rate. For this reason, variable rates are expressed as the base rate less a percentage.

Example: “if the rate is based on base rate minus 0.90% in this case, if the base rate is 6.00%, the customer will pay their mortgage rate of 5.10% (6.00 - 0.90%) for this period of time. Some time later if the base rate is 5.25% then the mortgage rate of the mortgage will be 4.35% (5.25% - 0.90%) for this period. The Bank of England sets the interest rate every month. That does not mean that the rate will change 12 times but its more a review and a decision of whether the rates need to change, and deciding on a new rate if the rates need to change.

Advantages Of Variable Rates Mortgages

Historically, this is a very good strategy, especially when rates are stable or decreasing. This strategy allows borrowers to:

• Take advantage of rates that go down during the term of the mortgage.
• Payments are usually lower.
• Available from many lenders.

Disadvantages

• Rates are variable, so they can ascend or descend (a risk factor).
• Payments vary with interest rates.

When Using The Long-Term Strategy

It is clear that the variable rate is a good choice when the rates tend to go down or are stable. Since it is difficult to know for certain which way the rates are headed, if you take a variable rate mortgage, you will have to keep a close eye on the trend of interest rates every month.

All products offer a variable rate has also an option to convert the variable rate to a fixed rate. It is a fairly easy process: you call the lender and you tell it to convert your loan to a fixed rate.

Caution: Lenders Increase Rates When You Switch To Fixed Rates

If you see that the interest rates are rising and you wish to change your mortgage from a variable to a fixed, you need to take account of the fact that the fixed rate offered will usually be higher. When someone wishes to convert a mortgage from a variable rate to a fixed rate, lenders are usually known to increase the fixed rate offered to a borrower.

How To Stay Updated On The Movement Of The Base Rate?

Due to the fact that your mortgage rate varies with the base rate, it is important to keep an eye on the base rate. Keep note of the following points to track the interest rates:

First, the base rate may change as much as 12 times a year. When the Bank of England adjusts its policy rate this news is usually disseminated to all mass media (newspapers, radio and television). Your mortgage broker will also have first hand knowledge of the interest rates so keep in touch with your broker and keep an eye on the media. The interest rate announcement is usually made on the first Thursday of every month by the Bank of England.

Consider A Variable Rate With Ceiling

Some lenders offer variable rate with a ceiling. That is to say that if variable rates rise above the ceiling rate, your mortgage will be adjusted so that your rate is equal to the ceiling. Your maximum rate therefore, is the maximum rate for your mortgage.

Conclusion

The strategy of variable rate is often an option that must be examined carefully. Several thousands of pounds can be saved as a result of the right choice. Consider the following 2 tips before choosing your variable rate mortgage:

1. Choose a variable mortgage with the right lender. There are so many variations in the variables rate mortgages.
2. Stay up to date on interest rates or make sure your broker is in contact with you to advise you.

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Over the years, many mortgage lenders have added or changed dozens of mortgage products. There are hundreds of mortgage products available for borrowers and trying to choose the right mortgage product can be daunting. Choosing mortgages is a full time job. It requires the mortgage broker to know all the options, products and strategies in the mortgage market today.

Some signs of an expert mortgage broker

When you contact a mortgage broker, look for signs to determine how knowledgeable the broker is likely to be. Pay particular attention to the following:

1. He does not speak only of a mortgage product (eg 5 year fixed), but several opportunities to handle the mortgage strategy.
2. He knows the factors that influence the rise and fall of interest rates and can explain clearly the current situation in the cycle of interest rates.
3. He knows all the products offered by all lenders in the market and can easily compare. As an example, the best variable rate of 5 years is with the lender XYZ because … while the best mortgage line of credit is offered by ZYX because …
4. He is able to compare the best rates available for each lender and at the same time you can select one with the best offer.
5. The broker tries to understand your situation and your goals.
6. He shares with you ideas about how your mortgage may be repaid quickly.
7. He is authorized by the Financial Services Authority (FSA)
8. He works for a company that has a good volume of business
9. He explains clearly and easily the concepts and ideas of more advanced mortgages
10. A new trend in the mortgage market is to see more and more mortgage brokers who specialize in a certain market area.

There are specialists for:

• Mortgage customers who have a good credit score.
• Bad credit mortgage clients with less than perfect credit history.
• Mortgages for construction.
• Mortgages for residential property buyers
• Buy to let mortgage specialists
• Commercial mortgage specialists

The fact that some consultants specialize enables them to better understand the nuances and details of specific mortgages and can better understand a strategy and products available in that specific mortgage market.

The expertise of your mortgage consultant will be a big benefit for your property purchasing strategy and could help you save thousands of pounds.

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Integrity in a person is defined as: “Good character, as a person of integrity, incorruptible, whose conduct and actions are beyond reproach.” A mortgage broker with integrity will put your interest before their own and the lender

If you have any doubts about your mortgage broker then keep looking for another mortgage broker. You must have confidence that the advice or recommendations he/ she gives you is good for you (not him/ her!)

Finding a mortgage broker with integrity

When you are searching for a mortgage broker and are in the selection process, the first step is to have a telephone conversation with the mortgage consultant and see if he/ she listens to you without saying exactly what you want to hear. (Example: Do not tell the broker that you are looking for “the best mortgage rates for 5-year fixed” but instead ask him/ her of their recommendations for a mortgage). Let him/ her speak and answer your questions. A good adviser will probably start by understanding your situation and your goals to be able to advise you properly.

More than a product or an interest rate

If your broker speaks instantly of an interest rate or product (5 years fixed, a line of credit mortgage or even a variable rate mortgage), he/ she is probably too focused on a quick transaction rather than a long term relationship. The biggest savings come from little things over the years. Your advisor should be able to give good advice to pay your mortgage more quickly (and save interest) without putting strain on your budget.

A good mortgage consultant will probably have several solutions (preferably with several lenders) custom made for you. The best mortgage consultants have even developed several strategies they use with mortgages to save money for their customers.

All these are signs of integrity to the profession – he/ she tries to save you money

A long-term relationship

Find a mortgage broker who has a management approach to your ongoing mortgage needs. Such a broker will contact you annually to review your situation, check your mortgage strategy and give you advice.

Advisors who want only a quick transaction are easy to find, but a good advisor who is in touch year after year are in a class of their own.

• In summary, take time to find a mortgage broker who:
• Does not look only for a fast mortgage product,
• Does more than just shop for interest rates,
• Has no conflict of interest with you

Helps you save money with a good mortgage strategy

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The repayment of a mortgage is a “sport” of endurance. There are several strategies that can help you gain (paying less interest). A good mortgage consultant is an important asset who can help you get a good mortgage with a good mortgage strategy helping you year after year to pay off your mortgage faster without changing your standard of living.

Finding a good adviser does not have to be rocket science. It is like hiring an employee who works for you. If you plan to pay your mortgage in 15 years or 25 years, your mortgage professional will be there to help.

Here are some considerations that can help you find a good mortgage consultant.

Types of mortgage consultants

There are 2 main types of mortgage consultants who each have their strengths and weaknesses:

The representative of the bank branch offers products from a single lender, is responsible for several tasks including mortgages and is an employee with a possible annual bonus.

The mortgage broker: Offering products from several lenders, specializes in mortgages and works only on commission (paid by the lender) and some charge an additional one off fee.

Factors to consider when choosing a mortgage broker.

Choosing a mortgage broker is primarily a question of trust. There are 2 things that normally help us trust a professional:

• Integrity Will the mortgage broker put my interests before his own and that of the lender? “The negotiation of a mortgage involves two parties who are opposed and whose interests diverge: the lender and the borrower. It is important that you are confident that the recommendations of your advisor reflect the best strategies and solutions for you.
• Expertise: Does your mortgage broker have the ability to offer the best solutions? Your mortgage broker should be able to compare for you the various mortgage products and determine which is best for you.

The two components, integrity and expertise are necessary for trust. Here are two examples to explain this point:

A good used car salesman probably had the expertise to sell you a car, but will you trust him? It depends!

Even if your car salesman is the most honest man you know and works hard, does he the right knowledge and expertise to be able to select the best car deal for you?

Choosing

Trust is often a feeling that one has with a person. It is based on the fact that we think that this person demonstrates integrity and has some expertise. If you find the right person to be your mortgage broker, you will probably end up with a professional who will be able to advise you for many years.

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Choosing the right mortgage strategy

The easy answer for choosing a good strategy is to contact a mortgage broker who specializes in creating customized mortgage strategies for the clients.

Why?

There are three good reasons:

1. Nobody knows the future of interest rates in the UK.
2. Good strategy must take into account the current economic climate and changing situation.
3. It must be customized with your goals and your personal situation.

Working with all this is not an easy job and it is better to check a mortgage professional who does this day after day.

But do not stop there.

You need to take on the more difficult task of analyzing several factors to create a mortgage plan.

In order to choose the right mortgage strategy, you need to:

know the strengths and weaknesses of the mortgage products available;
identify your current position in the cycle of interest rates, and
assess the probability of higher or lower rate for the next 10-15 years.

Cycles of interest rates.

There are basically 3 types of scenarios and 2 basic rules to understanding interest rates (all this could take several books but we’ll keep our issue at the way).

Scenario:
1. Rates are generally higher
2. The rates are generally falling
3. The rates are generally stable.

Two Rules of Interest Rates:

• Interest rates below inflation. When the index of consumer prices rising rates are increasing.
• Interest rates are linked to the economic health of UK. When the economic situation is healthy, the interest rates rise and when things go wrong rates go rates down.

Nobody knows the future of interest rates. We just need to remember that each scenario requires a particular strategy and getting it wrong can prove very costly. For example, it could be disastrous for a strategy to be linked to lower interest rates and they start rising.

A borrower may want to “stay on the safe side” and opt for a pre-determined risk strategy with a mortgage that is fixed at the same rate for say 5 years. Alternatively, someone may want to opt for fixed rate for much longer, but at times this strategy has proved costly. Choosing the right product, therefore, is crucial to saving thousands of pounds on the long run.

What are the different strategies?

There are several basic strategies, each may have several options and it is often advantageous to combine two strategies together to take advantage of the market. The most important thing is to consult a certified professional in the mortgage market.

Properly evaluating the different the strategies means a borrower can enjoy a proper mortgage planning and savings throughout the duration of a mortgage. Remember that a good mortgage strategy is significantly more important than simply negotiating the best interest rates. Each strategy deserves an explanation must and be customized and combined with your long term goals and the state of the economy today.

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The first benefit of property appreciation is that the decision of renting versus buying a property is made easy. If you know that the property will soon rise in value in the next year or so, it will be more advantageous if you purchase it. Not only will you get your money back once you sell the property, you will also earn a sizeable profit by just waiting a couple of years or so.

Appreciation is not only a term for property value but also in personal value. If you currently have the money and you are deciding whether to buy a house or a luxury car, property appreciation can tilt the decision in favor of a property purchase. If you buy a car, after five years, the value of your car would have depreciated, meaning it will cost less than what you originally paid for it. However, if you buy a house, it is immediately considered as an appreciating asset. On the long term, properties will most likely appreciate than depreciate, and this will add value to your personal worth. Purchasing a property is sometimes the option exercised by successful investors to generate sizeable long term profits.

If property appreciation is high enough, and you buy and rent a property, you can actually buy a property at a minimal cost to you. If you buy a property on a mortgage and rent so that the rental covers the mortgages and property maintenance and taxes then you effectively end up owing a property without paying most of the cost. Given that the property market conditions are favorable, all you do is wait for the property value to appreciate to cash in on some healthy profit.

Property appreciation is out of the hands of a real estate investor. What he can control is his decision on what properties to buy and where. Make informed and smart decisions by researching the market and asking the opinion of the experts in the field.

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If you are a buyer and you want to be thorough in your property viewing, have a surveyor accompany you. The cost of the survey is fairly minimal; just about a couple hundred pounds will normally do to pay for the survey, maybe even less. However, if the property you want to be surveyed is exceptionally large, if it is waterfront or heavily wooded, if it is located in a rough terrain, then be prepared to pay a bit more for a more detailed survey.

So why should a buyer conduct a survey on a property? Well a property survey does not only provide you with information on the internal aspects of the house, but it will also provide you with essential information regarding easements, encroachments and right-of-ways on the property. The issue of easement and right-of-way is not that big of a deal, yet it is still valuable to know. Encroachments and infringements issues should be corrected before you close the deal with the property owner. If there is a neighbor’s shed in the property you want to buy, ask the owner to remove the shed first before you close your deal for you might have problem with that in the future.

Now, if you do not have the funds to hire a professional surveyor and the house you are about to buy is small and is fairly new, then you can probably do the survey yourself. There are just some basic areas you need to focus on in order to do the survey properly. First of all, look for malicious roots. Roots of large trees can interfere with the foundation of the house so if you see one, have it removed immediately. Check also the downpipes and the drains. Inspect the walls and check for any cracks or bulges, also the roof. Check the boiler. Feel the temperature inside the house and see for yourself if it is properly heated. Ask the owner how old is the boiler and when it was last serviced. In addition, check the property for damp, any pest infestations in walls or floor boards, check for any structural movements or damage (a major problem to fix), any cracks in the walls, the roof, ceilings, any musky damp smell, flooring and state of the floor boards, the attic, internal doors, state of the décor, signs of any attempts to cover up any problems such as damp and cracks, guttering, leaks, state of fixtures and fittings state of the electric wiring, check loft spaces thoroughly, state of the garden, out buildings just to name a few.

Buying a property without a thorough professional survey is a dangerous sample to take and it must be conducted to ensure that you don’t end up with a disastrous property investment.

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One of the things that you should consider when looking for tenants is their credit history. This is to take care of the financial aspect of the deal. A person who has a superb credit history means that he is able to keep up with his debt. It may also suggest that he or she has a good paying and stable job that enables him or her to pay diligently. In any case, this is a good indicator that your tenant will be able to pay the rent regularly as well. Just to be thorough, make sure you also verify the employment of the potential tenant.

As part of the background checks, obtain at least 2 references from previous landlords to ensure that the potential tenant has a good track record of looking after previous properties they may have rented. If they have not rented before then ask for 2 character references from 2 independent parties that the tenant has dealt with before. In fact the landlord should go one step further and ask the tenant for a Guarantor to sign a Guarantor form on behalf of the tenant.

A tenant Guarantor form is essentially a form that is signed by someone who knows the tenant to take responsibility of any costs that may be owed by the tenant that they fail to pay. It is a binding agreement that may be signed by either friends or family of the tenant and (although it is optional) it must be signed to ensure that you add further security and protection in case the tenant defaults on any rent payment.

If a tenant has arrears and you have a Guarantor sign the Tenant Guarantor form then you can legally chase the Guarantor for the payments that the tenant has not made. It is wise to ensure that the Guarantor also has good financial circumstances so that he/ she is able to pay you any dues on behalf of the tenant. As a guideline, a good Guarantor should at a minimum be employed home owner.

There might be a lot of good tenants in your area but the problem is they are all staying in other apartment or houses for rent. How do you find good tenants for your property? It all boils down to good advertising. To start getting the word out to the public, you can make use of word of mouth advertising. It is fast, easy and it will not cost a penny. Spread the word through your family members, friends, neighbors, and office mates. Put up notices on your work notice boards and any other community boards. You would also of course need to do other forms of advertising to find your tenants including the Internet.

If you find a tenant who is related to someone you know, the good thing is that they would not want to destroy their reputation. This means that they will do the best they can to maintain the house or apartment. You can interview them and do background checks before you admit them into your property.

Once you have found good tenants, your next job is to hold on to them for as long as possible. Make sure that you are a good landlord so that the relationship is mutual. Handle all complaints properly and keep your reputation clean. Tenants would love to rent in properties where they would have a good working relationship with the landlord. Discuss restrictions before your tenants move in so they will not be surprised when they actually get to live in the property. Be completely clear about the terms of the tenancy and encourage your tenants to read the tenancy clear from the outset to avoid and arguments and differences later on down the line.

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