250: Property Investing Education - try our test
01-31-2009
PropertyInvesting.net team
The best property investment returns come from investors who have:
· Knowledge - of the local and national markets
· Experience - in purchase, adding value and rentals
· Savvy – have the knack, intuitive foresight and business skills and savvy to identify an opportunity then capitalize through asset value increase and/or improving rental yields – hence increasing overall returns
The PropertyInvesting.net team have prepared this short free educational tool to help improve your property investing skills online. It should get you thinking, learning and help gauge how good you are as a pro
perty investor. If you improve your property investing education, savvy and financial literacy, your returns should improve considerably. So have a go – and find out how good you are. And please do not be disappointed if you have areas that need improving – we all do. It’s also somewhat subjective, so there is no clear-cut “right” answer. In any case, we learn from mistakes and failures. The more failures we have the more we will learn. And boy, we’ve had a few failure as well as successes! So let’s get going.
There are four multiple choice questions below – please choose one answer for each, write down if you have time the reason why you have selected your answer. When you’ve finish, scroll down to the answers section, and score yourself whilst reading our interpretation of the answers.
QUESTIONS
Question A
You have an opportunity to purchase a clean Victorian one bedroomed flat at 15% below true market value for a buy-to-let rental in three different
1. In a beautiful quaint small hamlet 6 miles north of a village and 15 mile north of a town of 20,000 inhabitants – and 20 miles from a prosperous city with many jobs
2. In a historic village and 15 mile north of a town of 20,000 inhabitants – and 20 miles from a prosperous city with many jobs
3. In a market town of 20,000 inhabitants – and 20 miles from a prosperous city with many jobs
4. On the fringe of the suburbs of a prosperous city with many jobs with population 2 million inhabitants
5. About ½ mile from the city centre of a prosperous city with many jobs with 2 million inhabitants
If you have time, write down the answer why?
Question B
You have just purchased a one bedroomed flat and tenants have been secured and are shortly to move in for rental of £500 per month. The estate agent advises that investing £5000 would probably add about the same amount of value to the property. You think it might be a good opportunity to replace the kitchen before they move in – do you
1. Go ahead with replacing the kitchen at a cost of £5000?
2. Do nothing – consider doing the work at a later date?
3. Tell the contractor you’ll only go ahead with the work if he can do it for £3000?
4. Ask the prospective tenants whether they would mind paying an extra £50 a month to help pay for the new kitchen, then if they say yes, go ahead with the work?
If you have time, write down the answer why?
Question C
You have an opportunity to purchase lovely 2 bedroomed Victorian house in
1. ¼ of a mile from the town centre in a quiet street, about 50m from the main road
2. ¾ of a mile from the town centre in a quite street, about 100m from the main road
3. ¾ of a mile from the town centre on the busy main road with bus service to the rail station ¾ of a mile way about 100m away along from the main road
If you have time, write down the answer why?
Question D
Someone offers you an opportunity to by the same 2 bedroom flat in a block in
1. Ground floor flat with no access to garden
2. First floor flat with no balcony
3. First floor flat with balcony
4. Second floor flat with no balcony
5. Second floor flat with balcony
6. Ground floor flat with access to large communal garden
If you have time, write down the answer why?
ANSWERS
Question A
1 = 0 point
2 = 1 points
3 = 2 points
4 = 3 points
5 = 4 points
For the best tenant demand and lowest void periods, the flat ½ mile from the city centre will likely be your best investment. The city is prosperous with many jobs – there is likely to be good demand from young professionals in a reasonable area, close to rail, bus, shops, amenities and nightlife-leisure activities. Job and location equal strong tenant demand and normally higher rental rates. The next best would be in a market down close to the city, then in a village – the least tenant demand would be in an isolated hamlet. This could be a holiday let, but again voids would be many and most holiday lets are cottages and houses. With economic problems in the
Question B
1 = 0 points
2 = 5 points
3 = 1 points
4 = 1 points
Why go to all the trouble and expense of replacing the kitchen if you have already secure tenants? Especially when the cash put in will only increase the value in present day terms by the same amount – cash is king – don’t waste it! If the current kitchen is fit-for-purpose, best leave. Remember, as soon as you get builders in – there could be delays, cost overruns – and if they are not finished by the time your tenants are due to move in, your tenants could then take you to court of the contract has already been signed! Don’t expose yourself. If you try and ask the tenants for a rental increase – they’re likely to head to the door – they never even asked for a new kitchen! Why should they pay – are you crazy – interesting idea though, but likely to back-fire! Okay, if you got the price down to £3000 and you had no tenant coming into the flat – it may be worth considering. But why bother when you have a good tenant lined up. In any case, the builder is likely to be rather offended by a 40% cut in price – and might not be interested in working for you again!
Question C
1 = 5 points
2 = 2 points
3 = 0 points
This type of rental property is ideal for young busy professional couples or singles – they may or may not have kids. In any case, it’s middle-lower end – and they are likely to appreciate being in a quiet street but very close to rail, tube, amenities and services. Tenants are LAZY – or put politely – they don’t like more than a 5 minute walk to the station. So ¼ mile to the town centre is best. Furthermore 50 metres from the main road is ideal for ladies –they don’t like walking down dark quiet streets at night – for personal security reasons of course. Some men don’t like it either. So ideally 50m from a busy road, but in a quiet street is best, very close to the town centre. But don’t buy a flat on a house – which might have tenants with kids, on a busy main road but miles from the town centre – worst of both worlds! Remember, mothers are quite rightly petrified of kids being involved in traffic accidents – no wonder people living on main roads have higher blood pressure!
Question D
1 = 0 points
2 = 4 points
3 = 5 points
4 = 2 points
6 = 2 points
We’d go for the first floor flat with balcony. Most tenants hate gardening – the garden can be a liability. That said, about 30% of them would enjoy it, but if it’s communal garden in a city, don’t expect to see tenants sitting outside with the neighbours watching. More importantly, ground floor flats are easy to burgle – so best to avoid them. First floor flats are only up one flight of stairs – so for lazy tenants, tenants with furniture and elderly tenants, it’s better than being on the second or third floors. Tenants live balconies – a real selling point. If its private and south facing – even better for sun bathing and hanging up the washing. So first floor with balcony probably ranks highest.
Evaluation of Scores
· 15-20 marks – you are a savvy property investor, your intuitive knowledge is excellent, well done!
· 10-15 marks – you have good knowledge already – probably could learn more by reading and doing
· 15-20 marks – you are a savvy property investor, your intuitive knowledge is excellent, well done!
· 5-10 marks – you probably have a fair bit to learn but you’ve definitely got some knowledge – need to learn more by reading and doing
· 0-5 marks – you’re at risk of loosing money in the conventional buy-to-let property investment business – be careful and you need to learn more by reading and doing – you’ll get the knack eventually, we all started out by knowing very little so it's not a set back. Ask for expert impartial advice before making an investment and learn as much as you can soonest. Get friendly with some experienced property investors - make sure all the advice is objective - from people that truly want to help you.
If you like this Special Report, and would like us to prepare more questions and expand this toolkit, please contact us on enquiries@propertyinvesting.net . We’re keen to give our visitors what they want!