Are you buying for yield?
Speculation on cap growth?
Or to add value?
Too many investors buy without having a clear strategy, or buy the wrong type of investment for them ie they want income but buy an off plan property that requires a 30% deposit and 10% buying costs, tying up all of their savings – and do not realise until further down the line. Or buy a buy to let and then realise do not like the idea of being a landlord!
They can also have a perfectly reasonable strategy, which is working for them ie buying buy to lets for around £60,000 in their local area, and suddenly get distracted by a sexy new deal, buying a very expensive villa in Dubai, or a discounted apartment in Spain which does not fit into their overall strategy.
Or buying a renovation project without the skills or adequate funds to complete.
It is vital that you plan out your strategy before start buying. Ie how much time do you want to put into this, how much in terms of funds, what skills do you have, what timescales are you working to?
Too many people go with too wide an investing strategy, for example I know investors who have bought individual properties in 5-6 countries which I would think is too many. They may be good deals, but can be difficult to manage all the legal/tax and finance issues – I would aim to go with 2 or a maximum of 3 types of investments at a time, as it is easier to keep an eye on the overall market this way. It is better to become an expert in 2 or 3 markets than spread yourself too thin over 5-6 markets, whether it is buy to let/buy to sell/overseas.
Part of your strategy should also include looking at exit strategies ie when do you plan on holding on until – what triggers will make you want to hold or sell? How soon will/may you want out, and how easy will it be to realise your profits?
For example what may seem an excellent purchase when you buy may be difficult to sell on, which would mean it is difficult to realise your profits. For example purpose built hotels or student accommodation, where you can buy a room may give a good rental yield but not have a strong re-sale value. If you suddenly need to sell up – will there be buyers ready to snap your property/room up?
Or many apartment blocks in UK and overseas are sold purely to investors. This means all may have similar investment strategies ie buy to rent or sell, and could be a large number trying to sell at once. This again will affect the re-sale value, purely down to supply and demand.
It is often best to target an area where is a good mix of local owner occupiers and investors – so there will be a good mix of strategies and you will not be competing with many others all with the same strategy.
For this reason it can be better to target smaller developments, as are less likely to attract the large numbers of investors, or investment clubs that look for 30-50 apartments at a time.
Some areas will see an immediate increase in capital growth, whereas some will be more of a case of hold for 3-10 years to see the best levels of growth. You need to be aware of this before buy and also be sure about how desperate you may be for the money you have tied up.
If you think there is a chance you may need to call on this money sooner rather than later, you need to ensure there is a strong exit strategy or you will become desperate to sell, and therefore not be able to sell at such an attractive price.
So considering your strategy at the start is very important – you should consider:
How much do you want to invest?
What are your goals? Over what time period?
How much time do you want to put into this?
What will your exit strategy be?
This should help you going forward, and achieving your goals and is incredibly important.
By Andrew Watson