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Which property investment strategy to use is one of the most important decisions an investor makes in his / her career or when approaching an individual deal.
Use the wrong one — or apply it badly — and the deal may fall apart or worse still… you may lose money.
Once again, I am talking from painful experience!
There are two levels at which a property investor applies strategy: I am going to call these “high-level” and “low-level”. High and low level property investment strategy can sometimes overlap.
By high-level, I mean: what general property investment strategy will you follow to build wealth through property?
For example, will you.
- Buy undervalued property at auction, and re-sell on the open market?
- Become a property developer and buy property, add value to it and re-sell?
- Buy new-build property off-plan and re-sell once complete?
- Target motivated sellers of property direct?
- Develop new houses or flats from scratch and on-sell or let?
- Seek out repossessed property?
- Source property deals for other investors?
- Specialise in HMO (house of multiple occupancy) or multilet letting?
- Buy multiple high-yield properties and let them out?
- Use creative strategies to avoid investing any of your own money?
A successful investor will normally pick one property investment strategy and stick to it. This way they will tend to get really good at it. Maybe they’ll combine one or two strategies depending on what you what to achieve.
Working with any more than a couple of strategies (unless you’re working as part of a team) will normally result in spreading yourself too thin: you’ll be a “Jack of all property investment strategies and a master of none”, so to speak.
Beware of shiny objects!
When I was starting out in property, I was very much a victim of “shiny-object syndrome”. One minute I was considering buying off-plan, the next minute thinking about straight-forward buy-to-let or turning my attention to sourcing for other investors.
It took me a while but once I learned that I had to focus on one thing, my business really started to take off.
Choosing the right high-level property investment strategy
OK, so now you know a bit about the property investment strategies available, how do you choose the right one for you?
It helps massively if you can talk to experienced investors who are already working the investment property strategy you are considering… networking events are a great place to do this.
Here are some of the things you need to take into consideration when deciding:
What type of person are you?
- Are you a people person? Do you like meeting people and talking to them on the phone? If so then you may like sourcing properties from estate agents.
- If you are more introverted, then you may prefer to source leads and team up with someone who is more extrovert who would then negotiate the deals.
What skills do you have already?
- It makes good sense to play to them and transfer them to your property activities.
- Do you have IT skills for example? Would you be able to develop websites and online marketing campaigns to source motivated sellers? Could you provide this as a service to other investors?
- Do you have sales or negotiation skills? Could you use these to negotiate deals with motivated sellers or estate agents?
How much time do you have on your hands?
- This is a big one. If you are running your property business alongside a day job, you’ll probably not have time to project manage a large renovation project for example.
- If you are time-poor but cash-rich then consider joint venturing with someone who has time and property skills. You may also think about having someone source deals for you, acting as more of an “armchair property investor”.
What is your attitude to risk?
- If you like the idea of property but do not like the idea of high-risk investments, then letting to DSS tenants in a poor area is probably not for you. A portfolio of flats or houses in areas of high employment may suit you better.
What is your location?
- Although many investors operate in areas remote to their base, it is highly recommended to concentrate on a specific local area that suits your property investment strategy.
- For example, if you live in a University town, then the HMO or multilet route will definitely be worth considering.
- It is tempting to invest all over the country – wherever a good deal presents itself. I did this when I was buying a lot a few years ago. I wouldn’t recommend it as it can be very difficult to manage problems when they arise. It also means that you have to cultivate a support team (agent, tradesmen etc) in each different area.
What are your property investment goals?
- Are you looking for short term capital gain? In which case buy-to-let is not for you… You would be more suited to trading at auction or a property development project.
- Are you looking for a retirement nest egg? In which case you will probably want to purchase a portfolio of fairly low-risk buy-to-let properties.
- Are you looking for good cash flow? Then consider lease options or instalment contracts, or perhaps HMO / multilets.
Choice of investment property strategy can also be heavily influenced by the prevailing property market. So, for example, you are probably not going to find that many great deals through estate agents in a hot, sellers’ market.
In each of the strategy sub-sections below, we rate it for each of the above criteria to help you decide.
What is low-level property investment strategy?
By low-level strategy, I mean the investment property strategy or strategies that an investor will employ for a specific deal or transaction. Low-level strategies can be traditional like buy-to-let or more creative property investment strategies like lease options.
This is best illustrated by an example…
An investor’s high-level property investment strategy is targeting motivated sellers. He finds a seller willing to sell for 25% below the market value. He decides to use a joint venture partner to buy the property, then markets the property for a tenant buyer who will buy the property on a lease option.
Low-level strategies you can consider are (but not limited to!)…
- Flip the property for profit (sell it on)
- Buy or sell at auction
- Joint venture finance
- Lease options
- Installment contracts or delayed completions
- Hold and rent out
- Add value and refinance.
Always decide the strategy you will use before committing to a deal.
Choosing the most profitable low-level strategy
This is a skill that will come with experience but we cover the circumstances in which each strategy can be used in each of the property investment strategy sub-sections, below.
Time for a sharp exit!
Your “exit strategy” is the method that you will use to get out of your investment and more importantly, how will you make money from it?
I can’t stress the importance of exit strategy enough!
Choosing the wrong one — or none at all — is one of the most common mistakes novice investors make. You need to have this nailed down before you do a deal and preferably have a backup exit strategy too, should your preferred one fail.
So, imagine you find a house with a great discount and go ahead and purchase it with a view to selling it on. But it won’t sell on the open market and if rented out, the rent will not cover the mortgage.
You need to research the viability of your property investment exit strategy and be pretty confident that it will work, and have a back-up plan if it doesn’t!
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