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i remember there was a post about numbers never lie, or you should not get emotional about investing as it will cost you money, can we get some thoughts as you will never be able to buy a property for btl if the rent never exceeds the mortgage x 125%, and if you have bought at a good 30% discount, so just wanted to know different ways emotion will cost an investor.
Sorry, but I do not really understand the question.There was this post Numbers do not lie.And John Corey and I recorded this video "Numbers never lie".
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
thanx vanessa, all i meant I was looking for a post about the numbers never lie and how you can lose money by getting emotional in property
Alternatively, falling in love with the property itself rather than the deal? Also, I've never bought at auction, but I understand that emotions can run away with a person at that time, as they get caught up in the bidding process and go over their limit.
Jayne Owen @jayneowen
Editor and Writer: Your Property Network magazine
Investor: Mozaique Property, South & West Wales and South West England
Occasional reviewer at The Property Bookshop (@Property_Books)
On the flip side maybe understanding emotions can help.
For example as an investor if I buy X property, on a Buy-to-Sell (BTS) strategy, whereby the target end user is a homeowner (as oppose to another investor) then it may be good idea to understand what emotions a homeowner may have when they walk through the door and how to evoke/amplify it.
I only say this because it's often said that homeowner have a tendency to buy based (partly) on emotions...e.g. I like the curtains, isn't that carpet cute, etc.
So maybe you want to keep your emotions in a little black box, ready to be released at short notice.
I actually remember that not too long ago I was with an estate agent friend, looking at a house, with another viewer (unrelated to me). They were a couple with a small child. I could very quickly tell that that the lady liked the house, and had more of an emotional attachment because it had a little room for the baby, the interior was nice and a host of other things. On the other hand the husband was trying to make practical decisions, e.g. parking, council tax, etc. After the viewing the Agent told me that the husband started to make a few demands, based on practicalities (e.g. parking). I told him to (politely) forget the husband. It was the wife who had the power and her decision making process was less about practicalities and more of a basic emotional need for her and her child to have a house that they can play in a be happy. So the agent rejected almost all of the demands of the husband and instead re-enforced what fun the wife and child would have playing in the garden, taking their first steps in the lounge – she was won over. The husband had to choose between the practicalities and his wife…guess who won!
Hope that makes sense.
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Perfect sense Ahm!The woman is the one who puts down the roots, she is the "home maker" - whether looking to rent or to buy. Therefore, it's good sense to appeal to her. The two most important rooms for her are the kitchen and the bathroom and that is where the money should be spent.
That is so true, and Ahm - spoken like a true investor who understands the power of emotion.
Vanessa, that point about the blue house is interesting. I am always surprised at the number of people who "see it as it is" (ie a white house) rather than "see it as it could be" (blue).
I am not completely sure I understand the question.
If I am reading it right, I focus on the cash flow when looking to by a rental. If the property does not pay me monthly to own it I am taking on a liability. I will need a day job to support the property in that case. If the property does pay me each month (after all operating expenses plus debt service - similar to the 125% in your question), then I can afford to own the property for a very long time. In this sort of situation you are buying an income stream and not speculating on future appreciation.
To make the cash flow work you might need to raise the amount of equity you put in.
One caution. Almost any rule or thumb, ratio or other measure lives in a context. Just because a lender asks for 125% mortgage cover does not mean that is the right number for an investor to use. You need to understand the underlying details and you have to be prepared to change the indicators as the ground shifts. Just be careful about lowering standards to chase business rather than sit on the sidelines.
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Hi John- with the latter part of the answer, do you mean just because the lenders use the 125% mortgage cover (which may work for them to lend to you), although may cover the mortgage, running expenses in your locality etc may be higher which could mean the property shortfalling so it is cash flow negative and you having to fund it every month?
Side question: why do lenders care that the rent has to meet the running expenses, what skin is it off their nose if you stop paying letting agents, (i can understand insurance,voids) etc, surely they shold be concerned with you paying the mortgage, as you do not get repossessed if you stop paying agents, boiler repairs etc