By Steve Spragg, Underwriting & Processing Director at Affirmative Finance
What questions should I ask myself?
Whether it’s the draw of a healthy return on your investment or gaining long term security for your future, once you’ve decided to enter the property market there are factors to consider when organising your time and money.
We address three questions that every property investor should ask themselves before venturing into the marketplace.
1. Should I have a strategy or wait and assess the state of the market?
Investors cannot control the market, and fluctuations will inevitably dictate some of the decisions that you make regarding your property. However, if you have a goal in mind such as creating an income stream or capital liquidity then it is wise to approach your property with a well planned strategy.
Generally speaking, investment strategies will fit into one of three categories: investing for long term equity growth, investing to gain regular income or investing to profit from a quick turnaround. Each one requires a different approach in order to ensure you can achieve your end goal.
• When investing for long term equity growth it’s wise to seek out high value, low yielding properties in desirable areas making them easy to rent out with relatively little risk of losing value over a prolonged period.
• Investing to gain regular income requires a similar strategy yet if you can secure low value properties in an area experiencing regeneration, you are likely to see rents rise year-on-year as demand increases.
• Profiting from a quick turnaround requires that you seek out low value properties that have been poorly maintained – if you can manage to make the repairs and refurbishments in both a timely and cost effective manner this can be very profitable.
Before you begin a project it’s important to know what your end game is, taking into consideration the potential for unforeseen circumstances such as a market downturn, and the need for an effective exit strategy.
2. Should I manage my properties myself?
This is an important question when considering what you want from your property investment and how it could affect your lifestyle; for many investors their motive is purely financial and the passive income provided by a successful venture is the main attraction of the industry.
However, some investors relish their role as a landlord and are more than happy to get their hands “dirty” attending to repairs or talking to tenants.
Another factor to consider is that it is not uncommon for agents to charge as much as 15% for their services and whilst this reduces your role to simply decision management through a weekly phone call, this can amount to a large portion of your income as your portfolio grows over time.
It’s simply a case of considering your skills, contacts and whether you are able to dedicate the necessary time and energy to managing a property.
3. Who do I have in my phonebook?
If you’re looking to increase your operation beyond one or two properties then even the most proficient of handymen will need to develop relationships with various contractors including: carpenters, electricians, roofers and plumbers.
The benefit of long term relationships is that the potential for consistent trade is more likely to result in better deals and quick favours, which should in turn lead to an increase in profit.
This is also true of estate agents, or any professionals that you meet in the industry for that matter. It is advisable to seek out the best people in your area as you strive to make contacts and build your reputation as a property investor.
Accumulating Skills and Experience
Becoming a property investor is an exciting endeavour that with a carefully considered approach and a closely maintained plan can be a prosperous venture. Yet there is the potential for pitfalls to occur along the way and in most cases the experience you garner as you undertake each investment will feed into the next, making the process progressively smoother each time.