6 rules to avoid mistakes and build a sustainable property investment

Avoid the mistakes and grow your property portfolio

We first met with Nigel a few years ago, just before the Global Financial Crisis. His was a typical story at the time: despite a market that seemingly had no top, none of his property investments had worked out as he had expected them to. Sure, he was making money, but nowhere near the size of profits that newspaper reports said were being made by other property investors.

We took a look at Nigel’s property portfolio, and something unsavoury leapt off the page. We couldn’t have been more shocked if we’d have been slapped round the face with a wet kipper.

Not a single one of his four property investment had the cash flow to sustain a rise in interest rates or a void period of more than a couple of months. If a tenant stopped paying his or her rent, Nigel would have been stuffed.

Hard as it was to first hear the bad news and then act upon it, we persuaded Nigel to sell one of his properties and reset his cash flow with a more clearly defined property investor strategy. He did this, banking a small profit, and then set to work on the strategy we suggested. Here’s a brief outline of that strategy:

1.    Get educated

Investing without knowledge is like flying a plane without lessons – eventually, you’re going to crash and burn. Nigel’s whole basis of property investment had been to follow the hotspots reported in the newspapers. The problem with this is that those locations have already had their move. Smart investors piled in first and were now getting out. By the time some media guru had got hold of the story of ‘the next big thing’, it was already on the way to becoming the last big thing.

Nothing can replace good property investment education. If that means spending some money to get educated, then you should do so (though you’ll find that our investment education resources for property investors are free).

2.    Research, research, research

Concentrate firstly on research. This is how you’ll find the location, location, location that every property guru talks about or what we call ‘Good Solid Fundamentals'. We examine 108 data points in our research with the objective of finding the next property investmen hotspot, and only then do we dig deeper.

3.    Invest in infrastructure and regeneration

If there are two things that drive property prices and rental demand, it is good infrastructure and regeneration programmes. And I don’t mean regeneration and infrastructure development that has already taken place. What you want is to know that over the next few years, or even decades, a location is going to become even more popular than it is today.

Look for evidence that regeneration isn’t simply planned, but is budgeted for. Take Southall investment opportunities in London, for example. A property market that has underperformed for years, it is now undergoing a major programme of infrastructure and regeneration build. It has been budgeted for, planned, and started. Crossrail is arriving, and that will make the area even more appealing to commuters and people who enjoy London’s nightlife.

However, simply picking an area and then confirming its potential because of new infrastructure in the pipeline isn’t enough.

4.    Buy an everyperson property

In reality, an everyperson property investment is an unachievable objective. I doubt that there is a single property that will appeal to everyone, anywhere: students want different things to singletons, who want different things to families. What I mean by this phrase is to look for the type of property that has the widest appeal.

During your research, you will already have discovered that the area has a high appeal to renters, but you should also have discovered who those renters are. In Southall, for example, we see plenty of demand for property from young professionals, and people who work in the city and have young families. They also want to live within walking distance of the new Crossrail station: so this knowledge limits the area of search in both the exact area of Southall and the type of property to buy.

5.    Buy below market value

Do your research and your sums, and figure out what market value is. Then buy below that price. It could be that this is achieved through negotiation of terms and extras (which will add to rental value) rather than an actual discount on price.

6.    Before you buy, do your due diligence

Go through all the sums a second and third time. Work out your cash flow, allowing for void periods (few, if you are buying the right property) and possible increases in mortgage interest.

How did Nigel’s new property investments do?

Nigel started buying properties again just as the Global Financial Crisis hit. But he bought better, and now has a substantial property portfolio. He hasn’t lost a single penny on any of his investments, and his void periods are lower than the average of our clients (and that’s low).

What about you? Do you think that you’d have been willing to sell and restructure? Have you ever invested in a property hotspot just as it’s gone cold? Have you bought property in a long-time out-of-favour location and then seen property prices driven higher by regeneration programmes?

We love hearing from our readers – give us a call on +44 (0)207 923 6100.


David Lines 

Brett Alegre-Wood
July 1, 2016

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