In this article I’ll give you guidelines on how to make money from property investment. This article could also be, “How to not lose money from property investment”. Either way I hope you find value in it and are able to use these ideas to help your decision making.
Before I jump into this let me explain why I feel I am well positioned to give my opinion. Over the last ten years I’ve helped clients invest in over 1000 properties. This is through the good and the lean years. I’ve had lots of successes and weathered a more storms than I’d like to have.
I have my own property portfolio of course. I have also experienced development overseas and had my own mortgage brokerage.
It’s the challenging moments that have taught me the most. Those experiences continue to inform my cautious approach to new property deals. The experiences might have been hard at the time, but I am grateful for the learning from them.
Please note: I am not putting myself forward as some sort of property guru. I’m not trying to flog training courses or books. I’ll give you the benefit of my experience through this blog (remember to subscribe). This will include free guides and tools. Please also understand that any deals we put forward will have been through this ‘experience filter’. We want you to be happy and likewise we prefer a quiet life!
Of course, this article is not professional advice, nor should it be relied upon. Please speak to your professional advisors before investing in property, or any asset class.
Please note that this guide is for investment property only, and not holiday or second homes. This is all about how to earn reliable, above-average returns.
This then, is my eight step guide to how to make money from property investment:
1) Identify Your Strategy (and will are you sure it will help you to make money from property investment?)
Usually when I speak to clients they are looking for one of two things from their investments:
- Capital Growth OR
- Income (which in my opinion mean above 8% net)
It’s hard to get a blend of both characteristics. If you hold out for it, there’s a chance you’ll be waiting for a long time. So, pick your preference.
You will have an instinctive answer to the question of which strategy suits best. This will be influenced by your current financial circumstances and view of your future.
You don’t need to be unwavering in your strategy. It’s likely to change as you move through the years. But trust your instinct and reject investments which don’t fit the strategy.
Like most of our clients, I prioritise income over growth.
Income is reliable and usable each month. To benefit from growth you must either sell the property or refinance it.
By prioritising income you are less susceptible to property price fluctuations. This is because changes in rents tend to lag behind sharp falls in values. In high demand areas they might not change at all.
2) Choose Your Location With Care
I’ve lost a lot of money on overseas projects, both as an investor and developer. The lure of high returns ended up being a Sirens call (not helped by the global crash). Many lessons were learned.
These days I will not entertain the idea of investing overseas. There are simple reasons why the UK is the place to invest:
- The returns are more likely to materialise. I have seen countless overseas investments over the years which have failed to deliver. In my opinion, sticking to buy-to-let residential properties in the UK is the safest way for most investors to make sure they get the returns they expect.
- The returns are excellent. For example, the HMOs that we source for clients can in most cases generate 19% gross. Why would you need to take the extra risk to get that return overseas?
- The properties are easy to reach. Anything is accessible by car within the same day.
- The legal system is secure and well-tested.
- For UK based investors investing in the UK removes the risk of currency fluctuations. This helps ensure the predictability of your returns.
- Simplified tax reporting. UK nationals must report on worldwide income for their tax returns. Why complicate it further by having properties in other jurisdictions? You might incur extra accountancy fees amongst other things, which will erode income. What’s the point, particularly in light of number 2 above? Remember this is about how to make money from property investment, not blow it on fees!
You’ll notice I’m not suggesting that you select a particular city in the UK. This is because the best deals might not be in your preferred patch. There are of course benefits to being in a single location, but there are risks too. This is why we endorse the idea of having a portfolio of properties spread throughout different locations in the UK. For large portfolio investors we advocate having properties grouped in locations throughout the country.
Most investors are not full-time landlords. They usually employ the services of a letting agent to manage the property for them. Again, this reduces the concern about the location (but does support the need for careful due diligence (see point 6 below).
3) Take A Long Look In The Mirror
Are you sure you want to do this?
This might sound strange coming from someone whose business it is to source investment deals for clients!
The truth is, property investment can be a bumpy road and isn’t for everyone.
Of course the returns can be superb, and the business of investing in property is a rewarding one. But anyone who tells you it is a simple affair frankly doesn’t know what they are talking about. Even worse they are trying to pull the wool over your eyes.
What worries me most are the people who want to get involved but who genuinely can’t afford it. I recall being at the Property Investor Show in 2015 and was disappointed to hear that some companies still encourage people to pay for courses on their credit cards. The sales pitch is if they are hard up, as they can “learn strategies to make money out of nothing”. These are pre-recession tactics which have sadly resurfaced in recent years. I didn’t have to go undercover to find this out, it was being presented to an audience of around 50 delegates!
The money you use to invest should be set aside for that purpose. It should not put you into hardship if it is dormant for a few months whilst you source and acquire your property.
If you haven’t got funds available now but want to build a property business then perhaps you could consider doing joint ventures. Those activities are not the scope of this blog.
So, assuming you can afford it, and you appreciate that there is every chance of the unexpected happening, then press on!
4) Educate Yourself on How to Make Money From Property Investment
Take your time and ask as many questions as you need. You can speak to us, or go online to forums such as Property Tribes. You may find benefit in attending PIN events (although expect to be sold their courses).
If courses are your thing there are many companies willing to charge you thousands to attend them. Bear in mind that many of the trainers also sell books via Amazon which contains much of the same stuff. Try the books first, the course second.
Clients sometimes apologise for asking lots of questions. They shouldn’t! Answering them is part of my job and any company that makes you feel like you are being rushed is one to avoid.
I’d far rather be asked lots of questions and that I give as much detail as required. We want you to be comfortable when you are ready to proceed.
So ask away, and dig as deep as you can.
5) Research Deals You Like
Look at deals that have passed, or are sold out. These can be helpful templates from which you can build a list of questions to ask of the seller or agent. There will not be the pressure of missing out on the deal because you already have!
I often get called by clients asking questions about deals that have sold, and that is fine.
We offer high-yielding HMOs, commercial to residential conversions, and off-plan property deals. The questions on the investment fundamentals are similar across all the projects.
This process will enable you to identify if your chosen strategy is the right one for you without any pressure. You can then prepare for when then next deal comes along.
6) Do Due Diligence
When you find an investment you like please do your own due diligence.
We’ll be offering free tools to help with this in the coming weeks so please remember to subscribe to the blog.
Whether you use the tools or not, please do your homework.
Nothing is more important.
7) Pick Your Team With Care
The three essential pillars are:Solicitor
- Solicitor
- Letting agent
- Surveyor
You might want to add 4) Accountant and 5) Mortgage broker if you want to refinance your deals.
The roles of the solicitor and letting agent should be obvious. The surveyor will be used to carry out a structural survey on your property, regardless of the size.
We can put you in touch with a good partners in each case. We don’t get a kickback from them for these introductions
The letting agent will change from location to location.
We will soon be offering a free Due Diligence guide via the blog. In this will be questions you can use when speaking to prospective agents.
8) Have Systems In Place
I’ll admit it. I’m a bit of a systems nerd. We run Open House Property Investment on a handful of cloud-based software systems. Some of these systems we open up to our clients.
There’s no need to get too carried away to start with though. The most important element to monitor is your cash flow. Some payments to you will be missed. It always happens. Combine a spreadsheet and calendar with reminders and you should capture most incidents.
To take it one step further there are software packages which work well for private landlords. Google ‘property management software’ to find lots of options.
Your systems should enable you to run ‘what if’ analysis. If you have finance you might want to see what impact an interest rate change might have. Or you might want to see the benefit of a 5% rent increase. This simple approach will help you to plan ahead, and sleep at night.
What Next?
I hope you find value in this post, and that it can help you to understand how to make money from property investment.
If you haven’t already I’d urge you to:
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