How To Go Pro As A Property Investor
Last updated 26th September 2019 • Lois Arcari • JaeVee
No one wants to stay an amateur forever - but in such a crowded market, it can seem impossible to stand out.
Luckily, we’ve come up with an extensive guide looking at what can take you to ‘the big league’.
Follow these steps and you could avoid some of the mistakes that have stopped many a budding investor’s career.
Read more to find out how you could make your mark as a true property pro:
Look into location
One of the fundamentals of property will always be location.
Due diligence (e.g: knowing your chosen area’s position in terms of amenities, schools, average house price, average rental price, employment rate and average income) is one of the most important parts of research you can make to ensure you’ve made a worthwhile property investment strategy.
That’s why so many first time investors choose to invest close to home - and that’s not a bad decision to begin with!
Knowing all the best areas in your locality, along with how the locals feel about living there, allows you to take a neat shortcut in order to spend most of your time learning the more specific skills of the trade.
But this strategy will most likely have a use by date.
However well your local area is performing, like all ‘bubbles’ in property - it’s likely to burst at some point.
Even if your area only goes from strength to strength, you might be missing out on an area that’s made even bigger strides.
You’re also missing the opportunity to predict a growing market and ‘get in on the game’ before most people have even thought about it.
For example, London’s always been seen as a market leader.
But according to research from Savills, growth in the London market will only go up by 4.5% in the next 5 years, whereas growth in the previously under served North West of England is expected to grow by a whopping 21.6% over the same period.
You don’t have to imagine the potential in these areas - top property experts are breaking down the data for you!
Figures like these provide a stark warning for how much money you could potentially lose by being stuck in your ways.
If you want to go pro, you’ll have to always be willing to move outside your comfort zone to increase your capital gains and create an impressive portfolio.
If you’re even more ambitious, there’s lots to be gained from investing outside of the UK. Once you’re content with your property portfolio here, why not look abroad?
You can start comfortably just by networking with contacts who manage properties both in the UK and abroad, ask them how they made the transition and if there’s anything they’d recommend.
You can then do some research and contact specialists who can report on the market performance of the areas you’re interested in.
If you decide that this is something you want to go into and a reasonably realistic goal, you could see a lot of benefits.
Having some investment internationally gives you a safety net of being able to relocate your business or even yourself if the property market here ever turns hostile.
Understand the 18 year property cycle
The property cycle is a neat bit of theory that can help you pinpoint the best times to make decisions and when it might be best to hang fire, and put your yearly strategies or opinions in context.
A theory developed by economic commentator Fred Harrison, and maintained by hundreds of property experts, predicts that house prices crash every 18 years.
From there on, the cycle goes like this:
- Once the crash has happened, the market takes between 4-5 years to pick up again
- Then grows more in the next 6-7 years
- It has a small 1-2 year ‘corrective blip’
- Then booms for another 5-6 years before the crash happens again
One of the reasons people subscribe to this theory is that some slumps can be checked against it - the crashes from 1953-1954, 1971-2 and 1989-90 all seem to prove Harrison’s theory right, and he also accurately predicted the crash in 2008.
What might make people wary is that the economics surrounding the complicated Brexit possibilities are likely to be far more substantial than a ‘blip’, although some do maintain that a ‘Brexit boom’ (once we know what form our Brexit will take) will stabilise the market as fears and uncertainty become allayed.
The whole theory boils down to placing certain time markers on the obvious property theory that ‘every bubble must burst’.
Create opportunities out of potential problems
There’s no doubt that property can be a risky business.
With things like Brexit uncertainty and changing legislation altering the face of the industry as we know it, some would-be investors are being put off property altogether.
But that’s almost the opposite of how they should feel.
Risk is just another part of property - a part that the best investors have learnt to thrive off.
Don’t be afraid to do things differently - why not try to build while others sell?
You can rapidly expand your portfolio by buying when property is at its lowest.
Plenty of experts are advising investors to aim for properties now in the pre-Brexit slump, where some sellers will be so desperate to shed their portfolio that they’ll massively undersell some quality properties.
Some investors that took such a risk during the financial crash are now sitting quite happily on their profits from the subsequent boom in buy to let.
It’s easier to do with a more built-up portfolio, or with a substantial amount of gains that have been brought back into your business.
And don’t worry about getting people on your side.
If you know how to pitch your projects well, you can get loans from private equity investors.
If you emphasise the quality of the developments and the strategy of your plan, your belief can win others who would normally be cautious.
You can also build up a reputation as a ‘problem solving investor’ more generally.
This involves taking a risk on properties that less experienced or confident investors stay well away from, repossessed houses for example.
But don’t worry that you’ll be leaping before you can properly look.
You should always back up your risks by doing your research - ideally looking at investors who have managed to build up their portfolio by doing the same thing, but you can even engage with books, articles, videos and podcasts that can show you the steps to success.
Just remember to double check everything and be cynical of anything that seems too good to be true - because it probably is.
In the end, whatever strategies you decide to take on, you should accept that investing in property will always have some level of inherent risk.
After all, many people in this business will agree that you often regret the deals you didn’t do, more than the ones you did.
Don’t be afraid to be diverse
Many people like to stick to the same strategies and think that they can spend their years doing the same things to increasing yields, but it rarely works out like that.
Even if you don’t want to take bigger risks by investing in a down period, or investing in an unusual type of property, a great way to take a calculated risk is to diversify your investments.
Buy to let is often seen as the go to for property - but could you make bigger yields elsewhere?
If you’ve only invested in residential, it could be a good next step to invest in commercial property, as it can often afford to be more diverse.
It’s just as important to utilise a diverse array of buying platforms.
If you’ve never looked into them before, it might be a good idea to expand your buying strategy to looking at:
- Portfolio selling
- Property gazettes
- Local newspapers and property listings
- Specialist sellers
Of course, expanding your networking skills can never hurt.
Networking is actually seen by some in the industry as just as important as any other form of research - after all, how else will you see how other experts got to where they wanted to be?
Even for the most introverted person, the benefits are big enough to give it a whirl - and the more that you practise, the easier it will be to ‘flex your muscles’.
You should always be prepared to update your strategies if the market demands.
Don’t see any dips in your market as solely a scary thing, but an opportunity to invest elsewhere - whether that’s moving to an area with bigger yield growth or changing your property class entirely.
You can even ‘start off easy’ by merely instigating a change of use - e.g from commercial to residential or vice versa.
It might help to realise that the best investors are never arrogant enough to go it alone, especially when undertaking something new.
While independent research can help, there’s no shame in bringing in specialist help when you need it to understand a new market.
Whether you’re changing from will or market force, it’s essential to both.
Be aware of changes and try to embrace them instead of wasting all your time worrying about your current strategies.
Learn from the professionals
You should research and network in order to get the best information possible.
But it’s not only daunting to start with the big cheeses - it’s also counter intuitive!
You could be missing out on some crucial insights that may well be much easier to apply than blanket recommendations by super wealthy investors.
Instead it’s a great idea to keep networking with people who started out just like you and have grown modestly.
This doesn’t necessarily mean that you should only network with professionals within a certain income bracket - but you should always pay attention to how they market themselves, and how willing they are to give advice to starter investors - rather than just sell to them.
Always be wary of self professed gurus - they’re probably more interested in selling themselves and their products than of generating real, hard won advice.
You need to know what’s important to you and for your business, and look around properly for it.
Take a ‘step-by-step’ approach towards your goal, without expecting it all to be met in one fell swoop.
But you also need to know the potential drawbacks of each strategy, analyse any barriers or opportunities to using this strategy over the next few years and be prepared to adapt to the demands of the market.
It might seem too early to jump the gun, but you should be thinking about your exit strategies even just as you properly begin to start.
Having a good idea about your exit strategy and the yields you can expect it to generate will help give you confidence in your developments.
Make sure that your strategy always goes back to your bigger purpose as a business and investor.
You don’t have to want your property schemes to save the world, but you should certainly think about your desires beyond the bank.
Maybe you want to grow your portfolio in a different area, or have a more experimental career?
Fall in love with the investment, not the property
We know you’ve been told this 1000 times before, but that’s only because it’s true.
Don’t fall in love with a property for the sake of it!
No matter what nostalgia it drums out, or how beautiful it looks, it still won’t make you happy if it generates a loss.
You’re certainly allowed to have a good gut feeling about a property, sure - but it’s best backed up by the data - look again at the price it’s selling for, the area that its located inside, and your potential ROI before you let negotiations get too serious.
Property is far too big an investment to take lightly.
Even once your offer has been accepted, it’s still a good idea to keep looking in case the deal falls through - or you might just find something even better!
Maintain great relationships
Make sure that you build good relationships with your estate agents - as they can look out for you to get a better deal.
Managing your properties successfully and profitably is also important.
While it’s pretty likely that you’ll have gotten in an external landlord to manage your property for you, it could potentially be a more efficient business model to operate as a landlord yourself, with a few trusted personnel underneath you.
Managing your properties yourself will mean that you know what’s going on in-house without having to communicate through potentially crossed wires across the country.
Don’t be arrogant enough to think you’ll save money by cutting out the necessary accountants and advisors.
In the long run you’ll be sacrificing your profits if you don’t have the perfect financial records.
Even if you have a mathematical mind, you aren’t an octopus - you can’t balance everything at once.
Don’t sacrifice big rewards in the long term for small fees in the short term.
Good relationships are key to the business.
Too many investors who were clever enough to invest in extra staff stay too loyal to the accountants and advisors that they started with.
While you might have a great working relationship together, you should ‘upgrade’ your financial advisors at every growth stage of your business.
This isn’t just being ruthless, they’ll usually have much more specific knowledge, especially of taxes and tax breaks at the higher level.
Protect wealth and legacy
Once you've generated your first respectable figures from property, take steps to protect it.
There are plenty of steps you can take:
- If you've chosen to continue operating in your own name, you should always use a separate bank account specifically for your property transactions.
- Avoid voids. This will primarily be the work of the property manager - but there’s certainly things for you to think about as well.
A property with endless potential when you walk with your investor's eyes in can quickly be scuppered for tenants if you have to overlook anything ugly like a row of bins!
You should also keep in mind that no property is fresh off the market forever. You should budget for a facelift every 5-8 years- because every property gets worn down over the years, but you don’t want your profits to downturn with it.
Make sure there have been thorough mould checks throughout the building, as this is also a top bug bear when it comes to getting tenants through the doors - and be wary of anyone describing it as 'minor' or 'normal levels' - that might just mean it's too hard for them to get rid of and they've just stopped trying!
Make sure you also look out for any areas of bad lighting, a lack of storage space, oddly shaped rooms and especially an out of date bathroom - no one wants a time warp to the 70s when they're going to the toilet!
- If you want something to protect yourself in down turns, it's a good idea to manage multiple income streams - which we'll talk about later.
- Protect your money long term. Make sure that all the wealth you've accumulated over the years stays safe.
You should protect your financial future by writing a valid will early. This is also where those tax planning experts you’ve invested in will come in handy - they can let you know about all sorts of schemes like a director’s pension, inheritance vehicle and family investment company.
- The best incentive for looking after your money is knowing what you want to do with it, beyond just letting it sit there.
You should use your money to grow the life and business you want, otherwise it’s really doing nothing for you.
Look at all your biggest, long term ‘pie in the sky hopes’ and set aside a portion of your profits to inject back into them - and you might find they’re more realistic than you first thought!
So - what could your profits go to in your life?
What are your passions when you're not investing?
Why not engage with local charities - if you love art, you can donate to the theatre, or if you’re into local sports you could sponsor a team or donate some kit.
It's all about harmonising your profits, your business, and your general legacy.
Manage multiple income streams
Having multiple income streams can help tide you over whenever there’s a lull in the market or simply help you to consolidate your wealth. Here are a few ideas:
- You could rent out a spare room in your home or any of your own personal property.
- Become a property consultant, whether to others in the industry or to the general public
- Run courses/seminars or host paid for content on your personal website
- Try your hand at Airbnb
- Look at developing the roofspace of any apartment development
- Run a property networking event
- You could host ads on the side of your building quite profitably
- Become a "peer to peer" lender
- Write and publish a property book/freelance articles for fees
Highly profitable property investors all seem to agree on one thing - that you know you've gone pro when you can make an offer first and think about financing later.
It will take a lot of budgeting to get to this point, but it will all be worthwhile when you know you don't have to count your pennies before taking on a great investment.
Check that your financing strategy works for you on every next step of your journey.
While bridging finance might have worked for you when you were starting out on a smaller scale, maybe it would make sense to use joint venture financing to get larger investments off the ground.
You deserve the best deal on your loans and to feel confident that you’re going to be able to get the best profit possible.
Longer term, remember to reinvest your profits back into your properties every time you can.
Make sure it makes sense
Obtain the right corporate structure - does it still make sense to operate as a sole trader or will you benefit more from operating under a limited company? If you want to operate as a sole trader:
- You'd only really have your annual self assessment tax return to do in terms of paperwork.
- You'll also have a lot more privacy as your details won't have to be screened on Companies House.
- You won't have as good a deal on tax as you could do under a limited company. Many business people convert to limited traders as their business grows so that they get better tax rates.
- Banks tend to prefer lending to limited companies, so it could get hard to raise the necessary finances.
- Because UK law doesn't distinguish you from your business, you have unlimited liability. This means that if your business ever goes into debt, you are personally liable, which, in turn, means you could face losing your own personal assets if anything should go wrong.
If you're thinking of becoming a limited company:
- Limited companies are generally more tax efficient than sole traders, because they pay Corporation Tax instead of Income Tax on their profits.
At the minute, this offers a better tax rate - so a limited company can be more profitable.
You'd also have a much wider range of tax allowances and tax deductible costs that you can claim back against your profits.
- Once you've registered your company name, no one else is allowed to use it. This isn't the case for sole traders.
- A limited company has limited tax liability - meaning that your own personal assets are protected. You would only be liable for the money you put into the company.
- Business details such as your directors and company earnings have to be shown via Companies House in the interests of transparency. You might prefer this information to be private.
- The benefits of being a limited company come with added responsibilities. You'll have to follow the Director’s Fiduciary Responsibilities - these outline the legal requirements for a company director. These include filing a yearly annual return and annual accounts.
- These added responsibilities can take up a lot of your time and be quite costly to your business. You'll either need to take on these extra responsibilities yourself or hire a good accountant to do them for you.
- You'll need to pay a £15 fee to incorporate your limited company.
If you're still unsure, we'd recommend that you consult a financial advisor to weigh up your options.
Look after yourself
There's a lot to take in if you want to be a 'pro' property investor.
From getting to grips with the lingo when you’re just starting out, to analysing the changing whims of the market as you grow.
It can all seem like a bit of a whirlwind.
But one of the most important things you can do is to look after yourself as much as you look after your business.
Your time and energy are another resource, just like your money or staff.
If you don’t allow yourself a little rest and relaxation, the decisions you make won’t be level headed - this could end up costing you money, as well as motivation.
Know yourself and your best habits to keep your stamina for this sector.
If you can’t keep motivated, you’ll never create the wealth you crave.
Chances are that you’ll opt out of the industry when conditions get harder - because you lack the confidence and courage to look beyond the headlines and find opportunities.
All about attitude
In the end, the most important thing about being a pro investor is all about your attitude.
If you go into this industry thinking it will be an easy 'get rich quick scheme' then you'll quickly disappear.
But if you're committed to working hard, thinking smart and taking chances - you're already halfway there to your dream portfolio.
Be prepared to hire the right people to get to where you want to be and look after yourself.
A pro investor never makes excuses - they make opportunities instead.
What do you think distinguishes the best from the rest?
Let us know your thoughts on our social media channels.
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.