Investing in property and becoming a landlord is not just a hobby, it is a business. So if you are a first time property investor, make sure you think about these 6 essentials before you get started. You can be as hands-on or as hands-off as you wish but you must still take some time to guide and approve the direction of your investment.
1. Identify why you want to be a property investor?
People choose to invest in property for a number of reasons including to:
- Raise money that will pay for a particular project.
- Achieve a regular income that will enhance a current lifestyle and pay for ‘treats’ like home improvements and holidays.
- Achieve a regular income that will enable them to give up full-time work.
- Enhance an existing pension plan and improve the standard of living in your later years.
- Build a legacy that can be passed on to a future generation.
Be clear and write down your own reason(s) for choosing to invest in property. Making a note of why you want to invest in property will give you clarity and help you decide later on which type of property and how many properties you will invest in.
2. Time
As a first time property investor, how much time do you have to dedicate to buying, refurbishing and managing your property? If you have a good job or successful business then you may choose to let someone else manage all aspects of your property investment while you remain in employment and generate further cash for future investments.
Example
Let’s say you earn £30 an hour in your employment.
One of your properties has a broken toilet that will take 2 hours to fix @ a cost of £25 per hour and it needs fixing immediately.
Could you take the time to fix the problem yourself? This will mean you lose at least 2 hours x £30 = £60 income (plus travel time) to fix the issue or you could pay someone else, more qualified and experienced to make the repair for £50.
You will also need to consider if you are able to leave work to deal with this kind of emergency or whether you are prepared to spend your evenings and weekends being on-call to make repairs and deal with maintenance.
3. Resource
Without cash you are unable to invest. There are several options available to help you get started;
- Commit to saving a large portion of your income on a monthly basis to build a pot to get started. What are the expenses in your life that you’re willing to sacrifice to be able to get onto the investment ladder? This is very basic knowledge but requires discipline.
- Borrow money from a family member (you will need to talk to a broker to understand how this is structured).
- Use an investor’s money to fund your project (this is something we do and would only advise to more experienced investors).
- Invest with a partner who will front the cash for the deposit (this is how the directors of New Mills Properties started) leaving you to find the deal and manage any refurbishment.
4. Skills and Knowledge
Do you, as a first time property investor you have the skills and knowledge to navigate the property investment market. It is quite a simple business but it can be punishing if you get it wrong.
We would recommend the following:
- Get yourself online and use the power of the internet – there are 1000’s of property investment websites like ours that will give away free knowledge.
- Property Education – Lots of companies offer education and mentoring that could save you lots of time and hassle by getting it right first time.
- Find a mentor – somebody that has been there and done it, made the mistakes and come out of the other side. This is what the directors at New Mills Properties did and it was an invaluable experience and investment of time and cash.
- Joint ventures are a good option if you’re not confident enough to go it alone. In many situations, this structure works well as each party brings different skills, resources and knowledge to the party. If you don’t have the skills but you do have the cash then you may be able to utilise more experienced investors knowledge whilst they benefit from your cash. Win, win and half the risk but half the reward.
- Until you take your first step and buy a property you will not truly understand. We encourage new investors to take baby steps and invest slowly and steadily until they are skilled enough to step onto the next level and start buying potentially higher risk properties.
5. Mental Strength
As a first time property investor, there will be times when you will question why you got into this business. You will almost certainly encounter the following;
- Bad debt
- Unforeseen maintenance issues
- Tenants leaving your property in a poor state
- Uncertainty in the economy
- Void periods
To counter your doubts you will need to consider a plan of action that kicks in when these challenges occur.
Be aware too that people get emotionally attached to their properties. They get carried away with the renovation and spend far more money on furnishings than is necessary. Expensive tiles and taps may look good but they eat into your profit and may not be to the new owner’s or tenant’s taste. Aim to make the house structurally sound, clean, modern and ready for the new owners to make it a home.
6. Contingency
You must have a plan B. If things do not go as expected make sure you have a back-up plan.
- Have access to an emergency fund for cash flow challenges. This may be in the form of an overdraft, credit cards or contingency pot.
- Factor in interest increases when you’re considering buying any properties (they will increase soon).
- Bad debt – do you have an agency that will minimise the amount of bad debt that you encounter?
- If you have long-term bad debt do you have a process in place to deal with this and possibly legal support that you can access?
- What happens if the local economy has a downturn where your properties are? Are your properties desirable enough that they will still be tenanted when times are hard?
Mentoring For A First Time Property Investor
We would always recommend that you find someone to guide you through your first steps into property investment. Take advantage of their experience and learn from the mistakes that they have made. At New Mills Properties, Keith Newby is happy to share his knowledge with you. You can chat with him free by booking a meeting.
