I remember when I first started out in property investing, back in the day (2004), how daunting it was. I struggled to know where to start.
Many novice Landlords are keen to get going, but it’s all very overwhelming and it’s impossible to walk 100 miles before taking the first step!
I’ve always believed in K.I.S.S. … keeping things straightforward and simple, so I have put together a simple “route map” for novice investors, to help guide them forwards:
1. Understand why you are doing this and have a goal. Without a goal you have nothing to aim for! Write down what you want to achieve from your property investing in the short, medium, and long term. Crystallise your goals as that will help you move forwards and help you take sustained action. Set “big, fat, hairy goals” and go for them!
2. Start your search close to home. When starting out, I think it is important to start close to home as you know the area, feel comfortable in it, and can easily visit prospective purchases to assess them and understand them from every angle. Even if you are going to have your investments fully managed, I believe it is imperative that you understand them from every angle, to ensure that they are taking you one step closer to your goals, not a step away!
3. Find the demand before you create the supply. There is no point whatsoever in you purchasing an “investment” and then finding that no one wants to rent it! The term investment implies a “return”, so ensure that there is a demand for the type of property you are thinking of buying. Sounds obvious when you think about it, but I know so many novice investors who came unstuck because they created a supply without finding out if there was actually a demand!
A few simple ways of doing this:
i) Post a mock advert on Gumtree and see if your phone starts to ring.
ii) Contact local estate agents posing as a Landlord interested in buying property in the area. Ask them if there is a shortage of any type of property on their books.
iii) Contact local estate agents posing as a tenant looking to rent the type of property you are thinking of buying. Ask them how many properties they have on their books, if you will need to act quickly because they let fast etc.
iv) Research the various portals like Zoopla, RightMove, FindaProperty etc. to see how much inventory of any particular property they have up for rent. You should be able to see patterns emerging, such as lots of two bed flats, but only a few one bed flats, or lots of 2 bed houses, but a shortage of larger family homes.
v) Join Landlord communities like Property Tribes and seek out Landlords who are local to you and ask their advice of the sort of stock you should invest in. Landlords are a friendly bunch and love to chat about property and share strategies, so don’t be shy! Read my related blog with some great advice for newbies >>> here.
4. Due diligence, due diligence, due diligence. We are all familiar with the famous saying “Location, location, location”, and location is undoubtedly important. However, as the property market enters un-chartered waters, I believe that this should be superceded by “Due diligence, due diligence, due diligence”!
There is so much information you need to collate about a property to ascertain if it is a suitable purchase … sales comparables, rental comparables, crime statistics, flood risk, noise problems, transport links, local amenities, broadband speed, level of demand in the area, etc etc. My personal due diligence check-list runs to 8 A4 pages.
That is why we created the Yulpa iPhone app. Once you have input the postcode on a potential purchase on Yulpa’s iPhone app, Yulpa does the hard work for you. Not only that, but you can communicate with all your third party support team (brokers, mentors etc) from one place, so all the data related to that specific property stays together.
All you have to do is enter the data and let Yulpa.com do the rest.
Never again will you be in position of weakness. Yulpa.com will assist you in ensuring the certainty of making the right decision before you part with your money.
5. Stack your deals. It is imperative that your deal stacks i.e. that you have positive net cash flow at the end of each month. If you don’t, it’s not an asset, it’s a liability and none of us can afford or sustain those types of properties.
A simple calculation I use to stack my deals is this:
Monthly rent x 12 divided by ( mortgage product interest rate) divided by (product rental stress – usually 125%).
A good mortgage broker will help you stack your deals if you are unsure.
The above calculation will show you the level of borrowing the rent will support, which also gives you an indication of what you should pay for the property i.e. what it is worth to you as a business proposition.
Watch this video with experienced Landlord, John Corey, about how “numbers never lie”.
6. Buy at a deep discount. It’s risky to pay the market value for a property, so you must ensure you negotiate a significant discount. This locks in equity and protects you (somewhat) from market forces. It is also more likely that you can achieve good cash-flow if you buy significantly below market value.
7. Take action every day. Whether it is to view a property, practice stacking a deal, or reading up on new stuff on a forum like Property Tribes, you must take some action every day. Otherwise, kids, cats, and dogs get in the way, and, before you know it, another year has passed and you have not made a purchase. Make a commitment to yourself that you are going to move forwards. If you get stuck, tap into Landlord communities both on and offline for support. (Be sure to ask people who you trust, not sales people!).
Finally, remember that property is not a case of “one size fits all”, nor is it a race or a competition. You must do what is right for YOU, not what suits a third party with a sales agenda. Decide on your strategy … houses or flats, LHA or private, etc. and stick to it.
Never be seduced by the “deal” or forced to make quick decisions. There are millions of property deals out there and always will be! Be patient, be cautious, be methodical, and be professional, and you will find the right one for you to take you one step closer to your goals, and close the circle back to Point 1, above.
Further reading: How to avoid becoming property shark bait.
Top 10 fatal mistakes made by novice investors.
Good luck and I hope to connect with you somewhere down the property trail!
Vanessa Warwick
Follow me on Twitter: @4_walls
Vanessa Warwick is a former TV presenter, turned professional residential Landlord, consultant, and speaker. Along with her husband Nick Tadd, she founded Property Tribes, which is now the U.K.’s busiest on-line Landlord and investor community. Nick and Vanessa have just launched their new tech product, Yulpa, an on-line “property office/filo-fax” that helps you organise and manage your entire property life in one place. It comes with an iPhone app that does auto due diligence on any property being considered for purchase.
Vanessa and Nick advocate the use of technology and digital and social communications in property, and speak at events all over the U.K. as well as consulting for the BBC on property. They invest mainly in flats London and family houses in the South East and are also big advocates of holiday lets, having two upmarket holiday lets on the South Coast that achieve above-average occupancy thanks to the couple’s web efforts and vertical marketing strategies.
