In the last series of videos that I shared with you, I looked at how to find properties to fit the various types of strategies. But, how do you buy the RIGHT property for your chosen strategy? After all, whilst this sounds obvious, the secret to becoming a property millionaire is exact that – buying the RIGHT property!
Now, you might say if it’s that obvious, then why do so few property investors put this into practice?
Here’s what I’ve seen. In my time, I’ve spoken to many, many investors at all levels of experience and what I regularly see is that they buy property with little thought as to what they are buying and why.
Does this surprise you? It shouldn’t. Although it’s less true now than it was a decade ago we are a nation of home owners. Many investors have bought and own their home. It’s true that a little bit of knowledge is a dangerous thing and the danger is that investors put on their “home owner’s hat” when doing investment deals.
The problem with this is it can make us feel a little complacent when it comes to buying investment property, and it can also send us down the road of buying “on emotion” and not on the figures.
This is easy enough to imagine with a beginner investor. Perhaps anxious to buy a property and get one under their belt, possibly seduced by how nice the kitchen is, or by the fact that the property is just down the road and easy to keep an eye on, or that it’s the type of house they would like to live in themselves, or by the fact that they offered £5,000 less than the asking price and so they think they have bought a ‘bargain’.
But none of this takes into account the fundamentals such as will it produce a good cash-flow or is it suitable for future capital growth.
Believe it or not, many buyers are influenced by thoughts like these and even experienced investors can succumb – from time to time – if they lose their focus. Of course, the serious investor should realise that the starting point is to know exactly what they are trying to achieve from property before buying the property which fits those aspirations. Why? Because it’s these properties that turn out to be the RIGHT BUYS.
It’s for this reason that I’m so strident about goal setting, strategising and planning. If you can get these foundational principles right, then the rest should follow – including, buying the right property. Just as the old saying goes “if you don’t know where you are going, any road will do” in the same way “if you don’t know why you are buying, any property will do”. Of course, this is an ironic statement because NO, not any property will do.
Unless you buy the right property, (which fits with your strategy and plan) success will be a matter of chance and not design and, to be brutally honest, unlikely.
You also need to remember that for investors, property is technically not an investment… it’s a business.
In the words of the American self-made property millionaire Robert Allen, “those who treat it like an active “hands on” business generally prosper while those who treat it like a passive “armchair” investment are the ones who moan and groan loudest about how lousy real estate is as an investment. It is lousy as an investment, but it is simply marvellous as a business.”
It seems that sometimes, when it comes to choosing a property investors have totally unrealistic expectations of the rent and the costs, and as a result are often totally dissatisfied with the actual returns received from their investment.
Here’s the thing. Running property as a business requires a completely different mindset from keeping property as an investment – with the major difference being one’s emotional involvement.
Going back some years to when I first started out, I was somewhat guilty of this too and there have certainly been plenty of times in the past when acting as an investor, I had felt that I had lost control over my properties. Even the smallest setback had created in me a disproportionately negative emotional response.
Fortunately, I realised quite early on that things could not continue this way. If they had, I would soon have become emotionally burnt out and possibly broke. Without consciously naming the process, I endeavoured to stop being a passive investor at the mercy of my tenants and managing agents, and converted myself into a proactive business owner with a high degree of control over all the processes of property investing and managing.
For example, an area where I previously felt ‘out of control’ was when managing agents arranged for repairs and improvements. I often felt that if I had my own builders and other contacts, I could make considerable savings. So, this was one of the changes that I made. I started to take more control over my costs and ultimately, this ended up being reflected in my bottom line.
With this in mind, this week I’m encouraging you to give a little thought as to what you’re buying and why, and to consider if you’re running property as a business, or as an investment when you’re choosing your properties.
Here’s to successful property investing.
Peter Jones B.Sc FRICS
Chartered Surveyor, author and property investor
By the way, I’ve rewritten and updated my best-selling e-book, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same. For more details please go to: www.ThePropertyTeacher.co.uk/the-successful-property-investors-strategy-workshop.