Fail to plan, plan to fail
Investing in property is a lifestyle option, a serious business that has the potential to shape your future and the futures of your children and grandchildren. It can provide income, capital gains, and build a valuable estate to leave as your legacy to your loved ones.
Unlike other investments, such as shares, gilts, and unit trusts, UK property investment has a long-term history of steady capital growth without the massive and regular market upturns and dives. Rental income has also grown steadily over the last 100 years, with any short-term falls limited to 1% or 2% before returning to their growth path.
UK property is a real, tangible investment that has, and is, benefiting from a long-term demand that is way higher than supply. The latest property investment news confirms that house prices are rising as a massive new homes shortfall is forecast.
To realise the maximum benefits of property investment, you must first develop a plan to do so. As the saying goes, “If you fail to plan, you plan to fail.”
In this article, you’ll learn how to start the process of planning property investment in 5 steps
Developing your property investment plan – Step 1: Start at the end
Sit down with a pen and piece of paper, or if you prefer, at a computer screen. Think about how you want your future to look, and start making notes. It may help to consider the following questions:
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- Do you want to make money by buying and selling a property?
- Do you want to create an income stream?
- Do you want to combine income with long-term capital growth?
- Do you want to replace your current job with being a full-time buy-to-let landlord?
Whenever you create a plan for your future – and throughout the development of your objectives and investment strategy – be specific. You could respond to the above questions with very general answers first and then expand on those answers to develop very targeted goals (by fully exploring each lead question). For example:
- Do you want to create an income stream? Yes.
- How often do you want income paid to you? Monthly.
- What level of income do you want? £2,000 per month?
- When do you want this income to begin? In ten years, when I reach 50 years old.
- Do you want your income to grow from when it first gets paid? Yes, and keep up with inflation.
You can see that by approaching the identification of your objectives in this way, you’ll end up with a detailed and specific set of goals. In this example:
“I want to invest in property producing an income of £2,000 per month in ten years when I turn 50. I want that income to be protected against loss of spending power because of inflation.”
Developing your property investment plan – Step 2: Assess where you are now
Every journey begins with the destination in mind. The next step is to consider where you are now. Only then can you start thinking about the route to take to your destination. Here are the types of questions you should seek to answer at this stage:
- What is your current income?
- Are you in stable employment?
- How much disposable income do you have?
- Do you own your home?
- Have you got cash savings?
- Does your partner work?
- Do you have children?
- Do you have any debts?
As before, take a lead question and expand on it. For example:
- Have you got cash savings? Yes.
- What type of savings do you have, and how much of each type? I’ve got £8,000 in a building society savings account, £5,000 in premium bonds and my bank balance is constant at around £2,500.
- How much interest do you earn? The building society pays me 1.5%. Premium bonds don’t pay any interest, but I’ve always a chance of winning £1 million! My current account doesn’t pay any interest, but its purpose is to have money to live day in day out.
- How much of your savings would you be prepared to invest for the future, to help achieve your financial goals? Okay, well, I want to keep around £5,000 in total as an emergency fund. So, I could release £10,500 for investment in my future.
- Do you save any of your disposable income on a regular basis? Yes, I transfer £150 every month into my building society account.
- Would you be willing to use some of this regular saving to invest for the future? Yes, I could commit an extra £100 a month, but I’d like to continue to save £50 a month – I like the security of having cash savings and adding to them, building bigger numbers.
In this example, your detailed start point (about your savings) is:
“I’ve currently £15,500 in cash savings, and I’d happily invest £10,500 of this. I want to continue to save £50 per month in my building society account, but I can commit £100 per month as a regular investment from my disposable income.”
By this step, you should have a couple of pages of detailed objectives and start points. You’ll be clear about your goals and what you’re willing to commit to achieving them. Now you’re ready to move on to the next step.
Developing your property investment plan – Step 3: Prepare for roadblocks
A friend of mine recently drove from Spain to the UK. His goal was to arrive by a certain date to be in the UK for the birth of his first grandchild. He knew where he wanted to get to, and where he was setting out from. He also realised that he needed to factor in what I call the ‘roadblocks’ – in his case, these included bad weather, closed roads, mechanical problems, etc.
Think about what might get in the way of moving from your current situation to your desired end point. Questions you might ask yourself include:
- How will an interest rate rise affect me?
- Am I likely to lose my job?
- Am I likely to have more children?
- Is my home likely to need major repair work?
Let’s take the first of these questions as an example:
- How will a rate rise affect me? Currently, I have no debt, other than my mortgage. My mortgage repayments would rise, but there shouldn’t be any other impact.
- What type of a mortgage do you have? A repayment mortgage.
- How large is it? £100,000.
- How much are your current repayments? £536 per month.
- If your mortgage rate rises by 1%, how much extra would you pay? £84 per month.
- Would this be doable? Yes, but it might be a squeeze.
- Do you have options to make things easier? Yes, I could change to an interest only mortgage, or use some of my savings to subsidise the mortgage payments. I may be able to redirect some of my monthly savings to help me cope with the higher mortgage payments. I could also reschedule the mortgage term.
Now you have a detailed roadblock, and a plan to tackle it:
“I’ve a £100,000 repayment mortgage which costs £536 per month. If interest rates rise by 1%, my mortgage payments will increase by £84 per month. I should be able to cope with this by redirecting some of my regular monthly savings. I also have the option of changing to an interest only mortgage or rescheduling the term. Lots of options to keep my returns on track.”
Developing your property investment plan – Step 4: Create your investment strategy
Okay, so you now know where you are starting your property investment journey and where that journey will take you. You’ve also considered what could change in your personal life to make you alter course, and you’ve considered ways to negotiate any of those life changes. Now it’s time to create your investment strategy. For this part, you’ll need to get help from property experts.
When we meet with investors for the first time, we’ll use all of the investment journey information you’ve detailed in the first three steps of the process (we can also help you through these steps). Having set your goals, we can explore the strategy that’s best for you, by asking the lead questions and then expanding. Such questions include exploring:
- What type of property should you invest in?
- Where is the best location to invest in property UK?
- What is your investment budget?
- Which financing will be best?
- What are the cash flow projections?
- How will you market your property to tenants?
- How will you maintain your property and manage its tenants?
- What’s your exit strategy?
We’ll take a similar approach to the one taken in the first three steps: looking at your end goal for your property investment, planning the route to get you there, and planning for the unexpected. Your property investment will always be prepared for those roadblocks that could derail it.
Developing your property investment plan – Step 5: Review and revise
The final part of developing your property investment plan is to understand that the planning doesn’t end. As life progresses, your objectives will change. You’ll need to review when those changes occur and revise your strategy to stay on track.
It’s not only your personal circumstances, finances, and objectives that will change. The property market changes, too, with the property and economic trend cycle. As a property investor, you’ll learn that you can make profitable investments throughout this cycle. And with the best property investment opportunities, you’ll be able to Set and Forget. Your strategy reviews will be the chance to search for the next property investment that brings your objectives closer.
You can change your future today. Book a meeting with one of our property consultants on +44 (0)207 923 6100 and we’ll help you to devise a strategy, discover the best investment locations, and buy the best property in those locations. And we’ll be with you all the way to make sure your property investments stay on track to achieve your financial and lifestyle goals.
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