The two things you must do to profit as a property investor
When it comes to making money in property, there are many different concepts and principles that will help guide you to success. Depending on the strategy you are using (and these strategies evolve through the property trend cycle), you might use those investment principles in different combinations. But there are two laws of property investment you must always observe.
They may not be laws that will send you to prison if you break them, and you won’t end up with a criminal record, either. But if you do break them, you will lose money. Perhaps a lot of money.
In this article, you’ll learn about the only two property investment laws you’ll ever need to be successful.
Law 1: Always buy at below market value
Before we get into this, I firmly believe that property investment is for the long term. It’s a buy-and-hold investment vehicle that will eventually rise in price if you hold it long enough – even if the market is going through a rough patch or has simply stagnated.
Technically, even if you paid over the odds for a property, if you were able to hold it long enough you will make a profit. History of property investment over hundreds of years proves this theory. However, who would buy above market value when it is possible to buy below and see a return much quicker?
Real estate is so named because it is REAL. It has substance. It takes a long time to create, and even longer to degrade or depreciate. This gives us a massive time window to make a return on our investment. So, given enough time, you will make money; but why would you pay full price or over the odds and then sit around waiting for time and inflation to affect your property for you to make a return? Only a fool (or someone investing on their emotions) would choose this strategy… especially when, with the tiniest bit of research, you can find something that is below value and lock in an immediate paper profit at the time of purchase.
Sadly, many new investors get stung with the slick sales presentation of ‘Location, Location, Location’, or perhaps by the other old favourite, ‘It’s an up-and-coming area’. Law 1 is all about buying below value. This means below today’s current valuation, and a future promised one. To do this, ignore the sales patter and invest on fundamentals.
Law 2: Buy something that is tenantable
To fund a growing property portfolio, you will rely on the rent that your residential investment property produces. In turn, a growing property portfolio will fund your desired lifestyle.
Now, this only works if the property is rented out: you need a tenant. This is the heart and soul of the second law: always buy a property that is tenantable. In its simplest description, always buy in an area where people want to live, and always buy a property in which people will want to live.
Thanks largely to the TV programme of the same name, the phrase ‘location, location, location’ conjures up images of a perfect house in a perfect setting; probably in a field with a pony grazing outside. If this forms the entire basis of your property investment strategy, you will end up sorely disappointed. Successful property investment is about much more than ‘location, location, location’.
In short, the old adage ‘location, location, location’ doesn’t tell the whole story. There are other factors that you will need to consider when looking for tenantable properties. You must make sure that your property is tenantable, and that means investing in property where the fundamentals are strong. It must benefit from shops, schools, transport links, major employers and major investment.
Why the two laws are vital to the health and survival of your portfolio
You must always think of your property investments as ‘boxes that make you money’. Nothing more, nothing less. You want to set them up and then forget about them, while they get on with the job of generating a return on your investment and lifestyle-changing income.
You will make money in the long term by selling and remortgaging. But in the short to medium term, your profit comes primarily in two forms: rental income and capital growth. Investing in line with these two laws of property investment ensures that your property generates on both fronts from day one:
- If you buy a property under market value, you have locked in some equity, and therefore some profit, immediately. In other words, if you sold it the next day you would make money. You’re ahead of the game from day one.
- If you buy a property that is tenantable, you are giving yourself the best chance possible to guarantee a good rental income stream that is going to pay the mortgage and other costs you will incur. Provided you do everything else right, that income stream should be switched on within a maximum of six weeks.
So, as you start out on your property investment journey, you must always remember your purpose. And that purpose is to buy a property that is:
- A means to generate capital growth and rental income that covers costs
- Under value and tenantable
When you buy below market value, you will give yourself greater flexibility. You’ll be able to realise a real return more quickly, and you’ll be in a better position to ride out the swings and roundabouts of the property cycle.
If you invest in a property that is untenantable, you’ll be paying the mortgage yourself. At worst, you may have the property repossessed. Hence, the word ‘tenantable’ should be at the front of your thoughts at all times. One of the best questions you can ask yourself about a property before you buy is “Yes, but is it tenantable?”
To discuss your property investment strategy options, get in touch with Gladfish on +44 207 923 6100. We want you to be successful in property investment and enjoy the cash flow and profits that we’ve helped hundreds achieve to date.
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