5 Steps to Becoming a Successful Property Investor
Property investing can be a scary concept, with many people worried about taking on debt and not knowing where or what to buy. When starting out it’s really important to plan and think things through, otherwise, it could lead to you taking on unnecessary amounts of risk and making costly mistakes. However, it can be very easy to fall into a state of ‘analysis paralysis, where you overthink every possible scenario, and the fear of the unknown leaves you unable to act. Finding a balance between the two is key to becoming a successful property investor.
We’ve helped many of our clients make the first move and these are the 5 steps we use to guide them through that process.
Successful property Investor | Step 1
Get out there and network! There are plenty of property meet ups all over the UK that are easy to find. You can also join one of the many groups on Facebook or LinkedIn where property investors love sharing their experiences. They’ll often go out of their way to help anyone starting out.
Don’t be shy. Ask questions or even invite them for a coffee. You’ll be surprised at how generous people can be with their advice.
There are lots of really useful books on property investing. Whether you want a general guide or an in-depth explanation of a specific strategy, there are plenty of options for you to educate yourself at an affordable price.
The internet can be full of misinformation, but if you know where to look it can be a really useful resource for learning a new subject. There are loads of free educational videos, eBooks and podcasts posted online by experienced property investors passing on what they’ve learnt.
You can also join some property forums, where other users will answer any queries you have about the industry.
And please don’t pay thousands of pounds for an expensive ‘property investment course’. Network, read or go online instead, and put the money you’ll save towards a deposit on your first property.
Successful property Investor | Step 2
Define Your Goals
Defining your goals is one of the most important steps when starting out in almost any new venture. You need to be clear on why you want to invest in property to start with. Do you want to have a secure retirement? Would you like to completely replace your income? Or maybe you just want to leave a legacy for your children?
Whatever it is, working out exactly what you want will help you decide what type of properties to buy and where to buy them.
The best goals are SMART:
Your goals should be clear and specific, so that you can focus your efforts and feel truly motivated to achieve them.
This is so that you can track your progress, meet your deadlines and feel the excitement of getting closer to achieving your goals.
They should stretch your abilities, but they need to be realistic and attainable, otherwise they’ll seem impossible and you may lose interest.
Make sure that your goals matter to you and that now is the right time to commit to them.
You need a target date so that you have a deadline to focus on and something to work toward.
Successful property Investor | Step 3
Choose Your Strategy
Now that you’ve outlined your goals, you can choose the strategy that will get you there in the desired timeframe.
There are a number of ways to make money from property. Here are some of the most popular strategies:
Buying property that you can add value to and then sell for a profit. This is suited to people that want to build up large amounts of capital quickly. But it is one of the riskier strategies, because there is a lot more that can go wrong.
BUY AND HOLD
This is the simplest form of property investing, as it just involves buying good quality single-let properties and not doing much with them, other than bringing in the rent and benefiting from the long-term capital growth. It’s perfect for people that want a more passive investment.
BUY, REFURBISH, REFINANCE (BRR)
Refurbishing properties and increasing the value. Then refinancing to make your initial capital go further and increasing your returns. Similarly to flips this can be very profitable but there is also a lot that can go wrong when refurbishing a property.
These are high-yielding investments allowing you to maximise your rental income, but they generally involve more work and experience lower capital growth than single-lets.
Choosing the right strategy is essential to being able to achieve your goals, so you never want to rush into the wrong one. Stay focussed and don’t get distracted. Stick to your chosen strategy until you reach your goal – only then think about changing strategy if your goal changes.
Successful property Investor | Step 4
What You Need To Invest
One of the most obvious things you need to start out in property is money. A typical buy-to-let mortgage will allow you to borrow 75% of the purchase price. In addition, you’ll have other costs such as stamp duty and professional fees (solicitor, mortgage broker, surveyor). Once you add up all the costs, the total cash you’ll need to buy a property works out to be around 30% of the purchase price. Therefore, for a property worth £120,000 you’ll need roughly £36,000 in cash.
Please follow this link to download our property investment spreadsheet. It helps calculate how much money you’ll make on each property deal. It will help you keep organised and to keep on top of all your costs.
Get in touch with a mortgage broker to find out if you’re able to get a mortgage. They will be able to advise you on your options and make sure you meet the lenders’ minimum requirements, such as an income and a good credit history.
A buy-to-let mortgage is different to a normal mortgage on your own home. Personal income is not the only factor the lender considers. They will also look at the value of the property and how much rent the property produces every month.
Being self-employed or being a part-time worker can make things a bit trickier, but it’s always worth having a chat with a broker to see what options you have.
Successful property Investor | Step 5
Location, Location, Location
Get to know an area that you want to invest in and make sure you do the research. You want to be focussing on areas with good fundamentals (transport, employment, schools, amenities, local investment).
You shouldn’t necessarily stick to your local area just because it’s convenient, there could be better opportunities out there which significantly affect the performance of your investments.
For example, from July 2019 to July 2020, property prices in Nottingham increased by 4.4% whereas in Aberdeen they fell by 1.4%.
If you invested £150,000 in Nottingham, the value of your property would have increased by £8,700. However, if you invested that money in Aberdeen instead then you would have lost £2,100 in that one year alone.
Also, your chosen strategy will dictate the areas where you should be looking. For example, when looking for a flip you don’t necessarily need to take into account how popular an area is for renters, whereas if you’re targeting HMOs rentability is an essential requirement to your search.
Now that you know how to get started, the next step is to take action. Many people get this far but don’t go any further. Some get scared and others become stuck in analysis paralysis.