9 Tips You'd Tell Yourself Before Investing In Property
Last updated 12th November 2019 • Lois Arcari • JaeVee
Regrets - do you have a few? Hopefully too few to mention!
Property investing can be a tricky business and it’s impossible to completely avoid bumps in the road.
But everyone knows hindsight is a wonderful thing, which is why we’ve compiled some of the most common things you’d like to have told yourself before you started getting into property investment - so that the next generation of property investors can learn from the mistakes that experts made when they were in their shoes.
1. Get expert advice
It’s never a good idea to jump into the deep end without getting advice.
That’s especially true when you’re looking to get involved in property, with all the capital that’s at stake.
A first time property investor could get advice from any number of streams - from family contacts, meeting real investors in your area, reading blogs like ours to even taking courses online or in real life.
While we think that it’s a good idea to research the property industry online for free at first as you get your bearings, we’d recommend that after you feel comfortable with the basics, you start to look for potential contacts to talk with.
Together you’ll discuss what excites you, worries you, and what you don’t understand.
Then your newly minted mentor will help you navigate the business on your own.
We’d recommend you take a comprehensive course, whether in the real world or online, to cement your learning.
Make sure not to lose contact with your mentors while you’re doing this, and then you’ll be ready to get stuck into your next property project!
Once you’ve started investing, you should keep building great relationships.
While you might want to do everything yourself, it’s a good idea to have some key personnel on hand.
For example, unless you want to become a landlord as well as an investor, it’s a good idea to hire a property manager or lettings agent to deal with the tenants and upkeep on your behalf.
Or if you can’t quite make sense of the sums, don’t risk unbalanced books.
Instead invest in you and your business and get an accountant on board - they could save you thousands compared to the cost of letting something go wrong.
If you’re wise enough to invest in yourself through collaboration with others, you’ll actually be ahead of the game.
Professional Adviser recently reported that only 3 in 10 buy to let landlords consult a mortgage broker through the process - which means both brokers and investors are losing out on value.
2. Act in your long-term interest
Yes, you’ve heard it everywhere.
But enough people are taken in by jet setting property investment gurus that it still needs to be repeated.
Property is not a get rich quick scheme.
You can face all manner of hold ups during the development process, from a snag in planning permissions or costly repairs to unforeseen void periods.
If you’re in it for the short term, these might make you afraid to invest in property again.
If you’re acting in your long term interest, then you’ll be able to grit your teeth and move with the ups and downs of the market.
You’ll understand that house price appreciation has always held steady over the long term, no matter what the economy is doing in the short term.
Investing in property for the long term requires realistic expectations and a degree of financial conservatism to reward you later.
Instead of burning up your investments to fund your lifestyle, you’ll instead use the bulk of your leverage to invest back into your property investment business.
While you might have to sacrifice a big holiday or two, playing for the long term is what enables you to retire early or leave the day job.
3. Don’t immediately quit the day job
So you want to manage your money with as much control as possible?
You’re tired of being bossed around and the everyday 9-5?
We can understand why so many people list this as their top reason for becoming a property investor.
But, as you might have guessed earlier, we’d advise you to be realistic when you’re just starting out.
According to Property Reporter, the average buy to let investor in the UK only makes just over £2,000 in real terms profit annually.
You shouldn’t let this scare you away from the industry, as the figure is lowered by ‘mom and pop’ property investors who have small investments they just use to supplement their income. It does bare thinking about though - how would you react if you earned that in your first year?
Would you throw in the towel or keep on thinking about ways to increase your ROI?
While other forms of property investment, such as commercial or industrial property, can be more viable, they can also be more volatile, or have higher costs to get into.
And even if you land the biggest ROI ever from your first property investment, that’s no guarantee that the next one will be as lucrative.
We’d recommend you hang fire and wait until you have a bigger property portfolio and a substantial amount of cash for a rainy day before you think about how you’ll earn your living from property.
4. Location is everything
If you’ve read anything about sourcing a property on our blog before, this tip won’t come as a surprise.
But that’s because location really does make all the difference.
First time property investors often assume that no matter where a property is, it will attract someone.
In some cases that may be true.
But choosing the right location will offer you so much more than a ‘quick and easy’ deal.
The location of your property will affect the type and quality of tenant you attract, how quickly you secure a sale or tenancy and what price tag you can put on your property.
There’s no excuse not to do your due diligence in the digital age.
The basics to look at are:
- comparable house prices,
- employment rate
- transport links,
- and crime rate in your chosen investment area.
But if you really want to go above and beyond, why not find out what the locals have to say about living in their area?
That way you’ll get a feel for the place that all the facts and stats can’t measure.
Knowing how the locals feel will allow you to advertise the selling points that really attract people to the area.
You can also use local knowledge to find out how residents felt about past developments - and use their mistakes to anticipate and de-escalate any issues with your project.
5. Be prepared to look outside the box
Many people see property investment as an ‘out of the box’ lifestyle anyway.
How many people invest that much cash, time and energy into any of their financial endeavours, instead of relying on cash sitting in the bank?
So don’t compromise your tenacity by trying to stick to tried and tested ways of doing what most people never do in the first place!
While you might not have the funds to invest in your ideal property, get creative.
6. Think about more than cash flow
One of the biggest reasons people invest in property for their financial needs is for the expected monthly cash flow that will come in from a rental property.
Most investors believe that in this market of sky high rents, deducting expenses from what you can charge and trying to plump out the cash flow is the best way of going about things.
But there are reasons not to take this initial figure lightly.
First of all, any miscalculation of expenses could see you dipping into negative cash flow.
Secondly, a property that seems to generate negative cash flow might still be worth your investment if it shows signs of good appreciation over time.
You might want to look at the overall capital gain instead of monthly cash flow - for example, if you’re renting the property as a stop-gap before you can sell it in the future.
If you’re renting out the property at around £400 a month for a £200 a month loss, but every month you’re on the market the property value goes up by £600, you’ve effectively created £400 interest for every month you’re renting out the property.
7. It won’t all be smooth sailing
This goes part and parcel with long term thinking and being in it for the long run.
You can forget any misconceptions about property being an easy investment.
Even if you leave tenant management to someone else, there will still always be bumps in the road.
Whether it’s a delay in completion from your developer due to unforeseen circumstances like bad weather, new taxes being brought out, or a larger market downturn, there will still be moments where you have to grit your teeth to keep going.
This is why you’ll need to have devised exit strategies and back up plans from the get go.
It’s also why you should always invest a generous amount of your cash flow into your savings, so that you can hold on tight even if you have limited equity.
8. Be prepared to deal with tenants
Okay, so we know many investors are more comfortable with using property managers and lettings agents to deal with this side of the business.
But it’s always a good idea to have your tenants in mind whenever you invest.
It should start from the minute you choose your property investment, where you think about the tenants that you want to attract for your property and what features of your area will appeal to them most.
But even if you don’t run the show yourself, you should still remember your tenants throughout the process - especially because investors frequently cite lettings agents and property managers as some of the most frustrating features of the business.
You’ll have to be able to be professional and manage your anxieties if you do end up with a bad tenant or a month’s rent unpaid.
Equally, you shouldn’t expect the worst from your tenants or treat them as the most irritating part of the business.
It might sound a tad naive, but generally your tenants treat your property as well as you treat them.
Keeping on top of repairs will make tenants more motivated to treat the house well and it may be worth securing long term tenants if that fits in with your goals.
With the insecurity of the current rental market, long term tenancies are highly sought after and you may well see your property snapped up sooner.
Not only do long term tenancies reduce the likelihood of void periods, but tenants within them usually keep better care of the property and are more invested to do minor repairs - such as fixing furniture - themselves.
And the government is cracking down on rogue landlords, making it more important than ever to work with the right professionals for your development.
You should see these crackdowns as a positive in the long run - as they leave the industry as an exclusive asset for committed professionals.
9. Treat it as a business, not an investment
But it is an investment, we hear you protest.
Well, yes, but not in the traditional sense.
This is an investment with higher liabilities than usual.
You’re responsible for where someone’s living, after all - so you’ll have to make sure you appoint the right property manager and select the right tenants.
And when it comes to your actual investment, you’ll need to develop rock solid risk mitigation streams.
With taxes like stamp duty and capital gains tax being as high as they are, it’s a good idea to incorporate your property trading business for more tax relief, and to employ others under you to further protect your business.
Property is not something that’s stuck in a bank.
It’s out there in the real world, affecting real people’s lives and subject to real world change in regulations.
That’s why you have to start developing a brain for business if you want your property investments to take you as far as they can.
Most of these tips seem like common sense, and should be used by property investors at every stage of their business.
But common sense is hard won, and everyone could use a reminder from time to time.
These tips all convey one simple message - if you want to succeed in property investment then you’ll have to be resilient to the ebbs and flows of the market.
And you develop that resilience by being smart about how you invest your cash, time and energy, always making sure there’s backup plans in place.
If you want to hear more no-nonsense tips about the property world, take a look at our regularly updated blog.
Please note, this blog post is not to be considered as investment advice. We recommend you seek independent financial advice and conduct your own due diligence before making any investment.