Which Property Strategy would you choose if starting again?

Something that is often said but not often actually thought about in real terms.

“Choose your Strategy before you invest!”

But why is this important and more importantly what are the options?

Why choose a strategy?

Think of a strategy in property like choosing a car. If you have a family of 7, it’s unwise to buy a 2 seater convertible sports car as your single mode of transport…of course unless you dislike all but one of the family members.

Similarly it would be prudent to buy something fast if you wish to race it around a race track 90% of the time for fun. Choosing a 7 seater here might not be the most fun or practical.

If you do however choose a 2 seater sports car to transport a family of 7 then you may find you have a sum optimal output for your end goals.

Property is much the same. If you need income now to replace a job then choosing a capital appreciation strategy with low immediate yields will be less than helpful in most cases except if you have an abundance of cash right now and low expectations of immediate high returns.

Which Strategy is the best?

Best is subjective of course, best for you will be determined by a few key questions which you will need to honestly ask your self.

What outcome am I looking for by investing in Property?

What does good look like in 1, 3, 5 ,10, 20 years?

How much time have I got to invest into this?

How much money have I got to invest into this?

What happens if I don’t achieve my outcome?

It’s important to really take the time to thing about the questions posed above, because without them you could take yourself on a path that will never reach your goal.

Let’s take a few examples much like the car one above.

Answering the questions above:

I want to quit my job in 1 year and spend all my time on a beach whilst earning £5k per month with no hassle.

1 year – Job quit

2 year – Beach every day £5k per month

2-20 years as above.

I have no time to invest

I have £20k to invest

If I don’t achieve my outcome I’ll hate my life as I’ll have to continue to work in a job I hate, for a Boss I hate.

Let’s say the above was the answers to the questions that you gave. Let’s also say you heard someone was doing amazingly well from investing in Buy to Let strategy in London. Let’s also say you think this is a great idea.

So you start looking for property in London to buy, with £20k, that will produce an income of £5k inside 1 year, with little work and no hassel.

Sure you can buy property in London

Sure London properties can produce a £5k a month income

Sure London property can be little work and no hassel.

But it’s highly unlikely all of these things are achievable together.

The typical property to purchase in London on a buy to let basis for your £20k deposit will likely be small, in an area not close to town and possibly not desirable, and likely need a LOT of work.

So with the above in mind, what options and strategies can I look towards???

What Strategies are out there?

There are many strategies and combination of strategies, but here are a few to think about

Buy to Let – Some say the Vanilla Sponge of Investing – BTL

Buy to Let says it all in the title, you purchase a property with the intention to let it out under typically an AST. Most Property investors start here, why? Because it’s probably the easiest and historically the most traditional way of entering into property either intentionally or accidentally (you keep an existing property and rent it whilst you buy somewhere new)

Typically although not always this is done for longer term Capital Gains (appreciation of the property price of many years) with some rental income ongoing from purchase.

Typically it can be lower maintenance, lower input and fewer issues, although not always.

Houses of Multiple Occupation – HMO

HMO is similar to BTL in that you buy a property with the aim of renting it out however rather than renting the whole property to a person or a family, you split the property into rentable rooms and then have people share communal space.

Typically this is done for shorter term higher rental income as you can rent the same space but for more money.

Example:

4 bed house –

Rental income as a BTL – £1000 pcm

Bills including insurances – Minimal, typically insurance, rental management, certificates for boilers etc – £100pcm Plus of course finance costs, which I wont estimate here as they will vary widely.

Rental income as a 6 bed HMO (typically a reception room is split or converted into another bedroom giving more rentable rooms – £2500pcm

Bills – higher as you would need to pay council tax (unless it’s solely for students) and all utilities as well as communal cleaning etc – £1000

As you see here the income difference can be large, however the work involved is typically much higher as well. Having 6 tenants is already 6x having 1 but put them all under one roof and the work gets larger still dealing with disputes and wear and tear.

Serviced Apartments – SA

You can take just about any property and let it out on a Serviced Apartment basis, typically holiday lets or to companies looking for longer term but still short for AST durations.

Here, much like HMO the income would be higher as you can rent it on a nightly basis.

A 1 bed apartment that rents for £900 per month on a AST can easily be let for £150 per night on the weekend and £100 on a week day, so 1 weeks rental income can easily be £800.

Costs are higher, you need to clean after every tenant, potentially daily, at £25-£35 per clean this can add up.

Some people will also do a Rent to Rent deal here, so they would pay a landlord the £900 above to then rent it out nightly to profit on the difference.

Income levels are high, capital costs can be very low on a Rent to Rent deal as you do not need to find the deposit to buy the place, however the work load is very high in comparison.

Buy Refurbish Refinance Rent – BRRR

The best way to keep your money moving and earning is to buy low, add value in a refurb and then, if you do well, take some or all of your original investment back out.

Adding value typically is more than just painting the place and taking some professional photos.

Can you extend? Convert a garage or loft? Convert to HMO or split into flats? the possibilities are endless, but so is the work involved.

If you do well though, you can move your money from one deal to another and another, meaning you only need capital to get going, then it funds itself after that and you end up with properties to keep earning from forever.

Buy Renovate Sell or Buy to sell – B2S

Like above but with the intention of selling rather than keeping. This way you free up all capital each time and you keep any profits as either income or for the next project.

Again rewards can be high and fairly short in terms of turnaround. The work is high though.

Commercial to Residential

As it says, find a good commercial building and with the relevant approvals, you can turn office blocks in to flats, pubs into HMO’s etc

With commercial buildings typically costing less these can be profitable deals and with your average investor looking at Residential, often the competition is less.

Work wise, these are typically larger projects involving longer turnarounds and higher amounts of working capital needed.

Lease Options

Lease Option agreements or LOA’s are a great way to secure a property at a pre agreed price (hopefully Below Market Value – BMV) but with the purchase happening some point in the future, 1 year, 5 years 10 years or more.

Why?

Well if you can secure a property today valued at say £100k but not need to buy it until 10 years from now, you would hope that the property cycle has been good to you and it has appreciated, how much is the gamble but it wouldn’t be unreasonable to think 10-20%. Meaning in 10 years you should be buying a £120k property for £100k. The added bonus is in the 10 years prior you will be leasing this property from the owner making some money each month to either fund your income or pay towards the deposit needed when you do come to sell!

Joint Ventures

Don’t have the money to invest but do have the knowledge?

Why not find someone with money looking to invest and you provide you knowledge as your portion of the deal. Maybe 50/50 maybe 60/40 maybe 40//60. You negotiate the deal that works for you and your investor but it means you can, with the right knowledge get started in property with little or no money of your own in the deal. Now I would say if you are reading this, you shouldn’t likely start here, as if it goes wrong you will lose your investors money and any chance of a future deal with them.

Build you knowledge and then the opportunities will come.

Sourcing

Can you find good deals? Don’t want to actually own property? Why not sell good deals to willing investors.

Property Sourcing companies have come under the spot light recently as anyone with a laptop and a facebook account can call them self a deal sourcer but doing it properly means being compliant and understanding the rules.

Do this and find good deals and you will have people willing to pay thousands of pounds for you to find them the right deal. £3k per deal 2 a month and suddenly you are earning £72k per year!

Conclusion

As you can see there is many options and you can even combine them, having a single strategy might not be right either.

But if you want to live on a beach 5000 miles away, buying a self managed SA apartment or HMO isn’t going to work to get the same returns as if you want to be hands on.

Want a Property job? Want a hands off income? Want to be rich in 1 year, or Rich in 10 years? These are all possible and rely heavily on your property investment approach and strategy.

Take the time to work out what works for you, then build your strategy around this, review how much money and time you will need to invest, then work out how to make this work.

Anything is possible, you just need to make sure you are focused on your outcome and not get distracted by shiny pennies…