Why You Need a Property Investment Strategy
Every property investment company will tell you that the only way to succeed in this sector is to have a robust investment plan in place. A property investment plan is integral throughout every stage of your investment career. From your very first purchase to your exit strategy, your investment plan will keep you on the right path to making the most lucrative property decisions.
What Is a Property Investment Plan?
A property investment plan is essentially a business strategy for those who specialise in property. There is no correct way to build a property investment plan. It entirely depends on your needs and budget. Your property investment plan will also vary significantly depending on how ‘hands-on’ your investment style is. An investment strategy means that you will consider potential properties armed with thorough research, allowing you to make the safest moves possible. A solid approach will also allow you to make projections and forecasts, enabling you to build and diversify your portfolio.
What Do You Want to Achieve as a Property Investor?
A property investment strategy considers three very crucial factors.
The first is your current situation. This will include your budget, any other assets in your portfolio, and your current career commitments.
The second element of your strategy will then focus on your targets. What do you want to achieve? Some investors aim to achieve an additional passive income to supplement their main career. Others are looking to ditch the day job and build a property empire.
Crucially, the third component involves researching and planning how your journey will take you from point A to point B. Your strategy will consider the time frame and funds you have available, as well as your risk appetite.
Buy To Let vs Buy To Sell
Most property investment strategies fall into one of two categories. The first is buy to let, where a property is bought to be rented to tenants. These properties generate a monthly income, as well as an appreciation in value throughout ownership.
The second of these categories is buy to sell. These are generally untenanted properties that are purchased and then sold on to generate a lump sum profit. Investors with renovation expertise often favour this method, capitalising on below-average properties in lucrative areas.
Superficially, these two categories appear straightforward. However, there are many nuances where property investment is concerned.
Residential Buy to Let
Residential buy to let is probably what springs to mind when most think of property investing. It is where an individual purchases a home and rents to tenants, who pay monthly.
This is generally where most investors begin their journey, as buy to let mortgages can be acquired to fund the project. These loans typically require a 25% deposit. Those who favour the buy to let process but are looking for something a little more specialised may consider a House in Multiple Occupation (HMO). Here, individual rooms in a property are rented out to different tenants. These generally attract a much higher monthly income but also require significantly more administration.
Alternatively, buy to let landlords may consider student property. The student population in the UK grows tremendously every year, meaning the pool of potential tenants is continually increasing. Additionally, the demands of students are evolving, with more now preferring to pay higher rents for better quality accommodation.
Commercial Buy to Let
Commercial buy to let is where an individual will purchase a property to rent to a business owner to use as their premises. These commercial lets may include offices, studios or retail spaces.
A considerable advantage of commercial buy to let is that tenants tend to take significantly longer leases than a residential alternative. Many companies deem a constantly changing address to be bad for business. However, the downsides include the fact that financing can prove slightly more tricky, and many report that it takes much longer to find a genuine tenant to occupy the space.
Buy to Sell (Property Flipping)
Buy to sell is excellent for those who have connections in the world of renovation. As the name suggests, this method of investing is where a home is purchased and resold in a short timeframe, generating a profit.
One of the most significant benefits of this method is that it provides a lump sum payment that can be used to reinvest very quickly. Additionally, the stress of dealing with tenants or managing agents is entirely removed.
There are plenty of improvements that can be made to a building to increase its value. Some choose to give homes a quick and inexpensive facelift, which can often add a surprising amount to the property’s overall worth. Others prefer to remodel and renovate the home completely. Adding extensions, loft conversions and redesigning gardens will all help add a tremendous amount of value.
Another trick many investors use is to apply for planning permission on the home. Applying for planning permission can be a confusing and laborious task, and many families will pay a premium to purchase a home with planning permission already in place.
This is where an investor will develop a brand-new home for the sole purpose of selling it on or renting it out. This investment strategy requires the most amount of expertise. It is also arguably the highest risk of them all. Blowing the budget on the build or becoming too emotionally attached to the project can be catastrophic.
Building Your Portfolio – Executing the Plan
Building your portfolio can seem like a distant dream when you are embarking on your property investment journey. However, reinvesting your equity is the fastest way to build a portfolio and reach those long-term goals. Working with an investment company can enable you to grow your portfolio much faster, using their knowledge and connections to help implement your business strategy.
There is certainly a sweet spot involved with withdrawing equity from properties, allowing you to reap the rewards of capital growth whilst still enjoying a monthly rental income. For off-plan homes, many property investors choose to take money from the properties around the three-year mark. But this can vary dramatically depending on personal circumstances.
Mistakes to Avoid
Property investment can sometimes feel like a minefield. There is so much misinformation online; meaning investors are often drawn to unwise decisions.
Neglecting Off-Plan Homes
Off-plan homes are properties that are purchased before completion. They attract a much lower price tag as developers offer significant discounts for secure, early purchases. A massive benefit to off-plan property is the capital growth potential during the build process. In addition, these properties often offer solid rental yields as they tend to be city centre, high quality, serviced homes.
Expecting Returns Too Quickly
Property is a long game. It takes vast amounts of planning, perseverance and patience to be successful in this industry. Investors are prone to becoming frustrated, resulting in rash, reckless decisions.
Failing to Plan an Exit Strategy
Many investors lose the ‘why’ in their journey. You likely have a very specific goal. This may be to accumulate a certain amount of wealth by retirement, at which point you will sell up and drift into the sunset, enjoying the fruits of your labour. If this is your goal, choosing city centre apartments where limited land is available is the best choice. Where demand outweighs supply, the properties grow in value quickly. Although the rental yield may not be quite as high, the capital growth accumulated by retirement will be staggering. Lower cost suburban housing is the best option for those who want to earn a steady monthly income and pass property onto their family. These often have less potential for capital growth but higher rental yields due to their low initial cost.
Going it Alone
Property investment is not a solitary career path. You will require advice, guidance and friendship along the way. Working with an investment company can give you the best access to incredible off-plan homes. Making friends with other local investors is also a fantastic way to gain insight into the industry.
Failing to Diversify
Every investor will have a preferred asset class. Many investors are drawn to residential buy to lets. Steady capital growth and strong yields in many cities offer an excellent opportunity for landlords. However, diversifying your assets is the safest option and the best way to create a robust portfolio. It can also help build resilience against market dips.
Becoming Emotionally Attached
Property is unlike many other investment types, as it is undeniably personal. You are providing a service to your tenants. Be those businesses setting their base in commercial property, families relocating to residential lets, or eager students moving into purpose-built accommodation.
Successful property investment involves choosing homes with the best potential rather than emotional or aesthetic attachments to your personal preferences. Properties should always align with your goals, strategy, and budget. Working in partnership with a dedicated investment company can help remove the emotional attachment and enable you to make the most sensible decisions.
Property Investment Plan Recap
- A property investment strategy is a business plan specifically for those who specialise in property.
- To develop the most robust investment plan, you must consider your personal long-term and short term goals, as well as your risk appetite.
- Nearly all property investment falls into one of two categories: buy to sell, or buy to let.
- There is a range of mistakes all investors must avoid. These include failing to diversify, becoming emotionally attached to the homes, and neglecting an exit plan.