10 tips to help you think logically and invest in property successfully
In our last article, we described how property investment is an emotional roller coaster. This is especially true for inexperienced investors. The more experience you gain, the less your emotional bias will affect your judgement. These tips will help you make investment decisions with your head, rather than being ruled by your heart.
1. Be patient
Patience is a virtue. Never chase a property simply because ‘you must invest’.
Your buy-to-let property must be right for you; for your finances, your investment strategy, and your investment objectives. Not all properties are the perfect property for all investors. Your circumstances are unique, and what may be a great investment for someone else may not be the best property for you.
Sometimes the market isn’t ripe for investment. If this is the case, then be prepared to walk away and search in another location. Just like investors did in the three years following the EU referendum – they shied away from most of London and took advantage of better investment potential in the regions.
2. Don’t fear missing out
You found a great property. Now, understand that it isn’t your dream home. If it were, you could bid upon it to secure the purchase. Buying a property for investment purposes is different. The numbers must stack up. You must calculate what your maximum price is to meet the financial side of your investment strategy and objectives. And you mustn’t pay over that price.
Don’t waste your energy on trying to make the numbers work. If they don’t work, don’t invest. Your dream investment is out there waiting for you to find it. You don’t need to pay over the odds.
3. Do your due diligence
Make sure that you do your research and due diligence. Ensure that the property benefits from the strongest fundamentals (shops, schools, transport links, major employers and major investment). Conduct a thorough analysis of local rents and costs, and compile a conservative cash flow projection.
Take advantage of comprehensive building surveys and valuations to ensure that there are no problems that may rear their ugly heads in the future.
4. Don’t buy your dream home, invest in your ideal investment property
The emotional pull of investing in a property that you could turn into your ideal home is strong. However, your tastes are not likely to appeal to the widest audience. Your investment property is a box that makes you money, it is not a home for you.
You may have a dream of living in a rural retreat, but few renters have the same dream. If you decorate the property in your style, you are likely to overspend and restrict your target market. Not everyone wants to look at purple walls and draw orange curtains.
5. Be flexible
You are unlikely to find a property that meets your detailed brief. You must be flexible. Your desire to have hardwood floors throughout could mean you miss a great investment opportunity. Keep your investor head-on. Think about what is most important to tenants.
6. Remember that property investment is a long game
The best property investors understand that it is a long game. Very few investors make money consistently by flipping properties. A long-term strategy centred on cash flow and sustainability, benefitting from good risk mitigation tactics, and with a defined exit strategy will help to ease natural fears and improve confidence.
7. Remember that nightmare tenants are the exception
If you get a nightmare tenant, don’t fall into despair. They really are the exception and not the rule. You can protect yourself against bad tenants by investing in landlord insurance. Proper vetting of tenant applicants will help you avoid the bad apples, too. And if you do get a nightmare tenant, remember the law will be on your side when you start eviction proceedings.
8. Understand your own emotional biases
Perhaps the best way to avoid making rash emotional decisions is to understand how you react. Take yourself out of your personal space and learn to look at situations and circumstances with a fresh pair of eyes. If a final demand drives you to visit the local pub and have a drink, know that this is your reaction. Only when you understand your emotional biases and natural reactions can you react differently and more positively.
9. Focus on your strategy
Your property investment strategy will be personal to you. Once you have devised it, ignore the noise around you and focus on putting your strategy into action. Have a plan, believe in the plan, and create smaller milestones that keep you on track. If things do not go your way (life is undeniably erratic), you should always have an exit strategy to fall back on. It’s your parachute if you need to eject.
10. Partner with the right people
Your friends and family are unlikely to be the right people to give you advice unless they are seasoned property investors themselves. Seek partnership with and mentorship by experienced property investors. Ensure that you have a relationship with them built on trust and understanding. Discuss your investment plans and objectives frankly with them. Let them help you as you start out and continue your journey toward your investment goals.
Put your heart into investing with your head
Eliminating your emotional biases is not easy. They have been developed over your lifetime to date. However, investing with your head and not your heart is critical to your success as a property investor.
With your emotions under control, you can invest rationally, and more successfully with decisions formed logically.