Admit it, you’ve been thinking about investing in property?
You’ve read all the books, magazines and property reports. You’ve been religiously checking real-estate websites for properties and you may have attended the odd seminar. Yet when push comes to shove, you get stopped in your tracks.
How many properties do you have making you money? If the answer is 0, then it’s time to stop bluffing, and posturing. The time to invest in Spanish property is right now.
However if this sounds like you, you’re not alone. In fact less than 6% of adult UK residents, or roughly 1.3 million people, own an investment property anywhere, even though property is a national past-time in the UK.
It’s not surprising. A lot of people talk a good fight, but they tend to get overwhelmed by the process and quit before they even begin. But it doesn’t have to be this complicated. The reality is, property investing is relatively straightforward, but property will not buy itself.
To help you begin your journey, here are H&Gs 10 steps to starting a property portfolio on a solid foundation, without losing your mind.
- Check your finances
This can be as simple as listing all your assets, including incomes and work out your expenses.
This will give you an idea how much cash you have available to invest. Don’t immediately assume that you can’t afford to invest. As long as you have a stable and reasonably good paying job with solid employment history, you shouldn’t have a problem getting a loan if you require one.
- Cash is king
There is simply no substitute for a cash purchase at the moment, if you can buy your first investment property with cash, do so. It will give you automatic equity, and if you are in at the bottom of current Spanish BMV (Below Market Value) market for example, you could do very well indeed.
Please remember to exit at the top though, don’t hang on for an extra few %.
- Getting into debt
The idea behind smart property investment is to use other people’s money, (from banks and from people renting the property) to fund YOUR property investment.
Not everyone is happy or comfortable with taking on high levels of debt in order to fund property purchases and that’s fine, it’s horses for courses and quite frankly it doesn’t suit everyone’s position. We wouldn’t advise it for elderly people for instance as if there was a short term downturn in the market (‘gearing’ or ‘leverage’ magnifies the downside as well as the upside) it would be more difficult for them to ride out a difficult period waiting for values to bounce back….as they always have…. A good thing about property is that when a slump in values does occur it has a (but again delayed) knock on effect on rents as they then rise. Which means that rental yields rise even more to reflect lower property values. There’s always a silver lining!
Returning to the debt issue we don’t see some types of debt as a bad thing. Our view is that debt to pay for exotic holidays, or depreciating assets such as sports cars (that you can’t really afford!) really is a bad thing. However debt taken on in order to secure assets which will appreciate in value and therefore make very substantial on-going profits are a very good thing!
- Get a pre-approval
You can get pre-approval through your lender directly or through your trusted mortgage broker. Going through a broker before applying for a pre-approval can be beneficial if you’re not sure you’re financially ready to invest.
Applying for multiple pre-approvals is not a good idea. Each time you apply, the lender will check your credit record. If there are multiple inquiries, this sends a red flag to the lender and they may refuse your application.
- Find out if you qualify for a loan prior to making your move.
- Check your credit rating.
- Consider reducing your debt or credit card limit.
- Set your goals
What are you looking to achieve?
What does success look like to you?
Property investors generally invest in property for 2 reasons.
- To secure their financial future, or
- To be free to do what they want, when they want to do it.
In order for you to achieve your goals, you must first identify and articulate what your goals are. More importantly, you need to set a deadline as to when you want to achieve these goals. Then you can work backwards.
For example, if you’re looking to replace your income and retire on your investments within 10 years, you can start by creating a 10-year plan, broken down further to 5-yearly, bi-annual, or yearly, all the way down to a weekly timeline if required. This way you will not get overwhelmed by the enormity of the task.
- Understand your attitude to risk
Your risk profile will dictate your strategy. What sort of risk can you tolerate?
Getting an understanding of your own attitude to risk will help you create a strategy that reflects this.
It’s not sexy, but budgeting is the only way to ensure you’re able to balance your income & expenses
- Start budgeting
It’s really isn’t sexy. It’s not even remotely interesting! But budgeting is the only way to ensure you’re able to balance your income and expenses. It allows you to see where you’ve been spending your money and helps you to plan for bigger expenses down the line. There is good budgeting software available, such as a budget planner or a spreadsheet tool.
- Create a purchase plan
What does an ideal purchase plan look like?
It should facilitate your goals, it should help you grow your portfolio to a point where it’s producing the growth or income you’re aiming for. It should serve as a structure which helps you stay in the game.
Here’s an example of a purchase plan you can follow:
- Define your strategy
- Set up your criteria
- Do your research
- Cull your list
- Get appraisals
- Do your due diligence
- Make and offer and negotiate
- Get informed
Knowledge is the key to successful property investing. Use all of the tools available to you in order to make an informed decision. Understanding the market can be the key to making the right investment choices, at the right time.
Being well informed also means being wary of the “get rich quick schemes” and property peddlers. If someone is promising you guaranteed returns and overnight riches, walk away; the only person getting rich is the broker.
On another note, the person who seeks out the maximum return on investments at all times. Is the same person who would buy a Ferrari and drive it at top speed without checking the breaks work? It’s going to be a very hairy ride!
There’s no such thing as a property psychic and while there are tried and true methods to research investments (algorithmic forecasting), no one can make guarantees.
So understanding your tolerance for risk will help you shape how much you’re willing to take on over the shorter and longer term.
- Stay focused
Make sure you stay focused. Investing in property is a business decision, not an emotional reaction to market sentiment.
- Be clear about what you want to achieve.
- Set a date as to when you want to achieve this goal.
- Identify milestones which you need to pass, to get to your goals.
It’s easy to get overwhelmed when you’re starting something new, but it’s not rocket science. You simply need to be in and out at the right time.
But please don’t give up. Just imagine in 10 years, if you buy the right properties this year, you could be sitting back, feeling happy, secure and even proud that you bought properties that more than doubled their values while your peers and everyone else , wishes they’d bought back in the day.
You should have a steady rental incoming dripping into your account if your smart, and if you manage the properly intelligently, it could also be very Tax efficient.
How good would that feel?