Before you start negotiating that investment property…
Posted by markharrison on September 2, 2006
The key point to remember about buying property is that you are not particularly interested in the property!
What you are looking to buy is a future net income stream – this is very obvious when you are buying for Buy To Let, but equally try for Buy To Sell, although the future income stream there happens all in one go when you sell, rather than monthly over many years when you rent out.
As such, the focus should be NOT on the price of the house you are buying, but on the net cashflow the deal will generate. This means that things like asking buyers to give you a cashback (because up front cashflow is an issue for you), or asking buyers to redecorate to your specification rather than reducing the price (so the cost of the redecoration is mortgageable) can become things to ask for.
Many buyers will, however, only really negotiate on a single variable – the price you will pay on completion day. The comment about buying a future income stream still holds, though. Do your sums – at all times, the choice you should be making is between A: buying at a price which will make you a profit, or B: walking away from the deal.
This is why I am not too worried about Market Value issues – either the deal stacks up in cashflow terms, or it does not, and whether this means I buy at 20 per cent below market value, or whether I pay full market value is sort of immaterial. I would rather pay full market value for a property that will put money in my pocket each month than get a 20 per cent saving on something unlettable that will bleed me dry for the next 10 years!