10 Investment properties to avoid as a new BTL investor
In my opinion, any new or inexperienced investor should avoid these 10 properties to ensure they pick up a safe, solid, sound and secure investment property.
1. Non-standard construction properties. A non-standard construction house is built from materials that do not conform to the 'standard' definition e.g. concrete blocks, wooden frame etc. Standard houses have brick or stone walls with a roof made of slate or tile. A non-standard construction is, therefore, anything that falls outside of this.
Mortgage lenders and insurers don`t like nonstandard construction and this will, of course, affect the resale of the property.
2. Properties with subsidence. Subsidence occurs when the ground underneath a property sinks. According to the Financial Ombudsman Service, subsidence is caused by the 'downward movement of the site on which a building stands – where the soil beneath the building's foundations is unstable.
Again, mortgage lenders and insurers don`t like subsidence and this issue will affect the resale of the property even if the issue is rectified.
3. Cheap properties in undesirable areas. Undesirable areas attract undesirable tenants and undesirable tenants cost an investor money and create a headache.
The numbers may stack up however if the rent isn’t paid or the property is damaged then numbers change rapidly.
4. Listed buildings. A listed building is a property placed on a national register of buildings with architectural or historical importance. The list is aimed at protecting these buildings and maintaining them for future generations.
Pretty much anything built before 1700 – that is still in its original condition – is listed. This could mean they were designed by a famous architect or are an excellent example of a certain style or technological skill.
Listed buildings are protected by law. This means homeowners will need listed-building consent in addition to planning consent for any changes – inside or out. The idea is to preserve important buildings from alterations that aren’t in-keeping or that may cause damage.
5. Student pods. These properties can look very attractive to investors looking for hand’s off investments, they are frequently advertised very well and sold using glossy brochures. A student pod can only house students, so what happens if the university closes, moves on or struggles with attracting students? What if the room/pod isn’t taken one year?
There will be minimal capital appreciation on these properties.
If we look at the resale, there will only be a very small pool of investors who would be interested in this type of property.
Often come with guaranteed rent for the first year and then the rent following that is difficult to achieve.
6. Hotel Rooms. these are very similar to the student pods and come with all of the points previously raised.
7. Walkthrough bedrooms. Sometimes advertised as an ensuite these properties have typically been extended out the back and the bathroom then sits behind one of the double rooms. No tenants want a bedroom as a walk through to get to a bathroom. These properties are always left to let and are cheaper to buy. They are simply undesirable to tenants and future buyers.
8. Negative cash flowing. Investments need to generate cash flow and any property that gives a negative cash flow is one to be avoided.
9. Lease Hold houses or flats with less than 125 years. It is advisable to only consider apartments with a lease length of more than 150 years and to check the terms of the lease. Leasehold houses are not usually the best investment properties and should be avoided by inexperienced investors if possible.
10. Areas with no rental demand. If an area doesn’t have schools, local employers, transport links – main roads, train stations, supermarkets then there is very little to attract potential tenants.
All of the properties mentioned above can and do work for some investors however if you are new or inexperienced my advice would be to steer clear.
