Property investment is an attractive business venture for its simplicity. Like a classic game of Monopoly, you acquire properties, market them to tenants, and collect rent. If you get it right, it’s a hearty source of passive income and a tangible material investment where value tends to increase over time.
Unlike Monopoly, property investment isn’t as clear-cut as landing on a square and deciding to buy a property you can afford. You have to figure out legalities, evolving markets, and the challenges of balancing your finances to avoid real-life bankruptcy. Below are five strategies to help you succeed in property investing!
1. Do your due diligence
You’re on this page, so you’re doing this step right! Before you dive in, do your homework. Research, go to seminars, and read up on the basics of property investing.
Ask for help from experienced and reputable real estate professionals, perhaps your realtor or even your mortgage broker. Make sure your advisor is someone you can trust who understands the ins and outs of the industry, patterns and trends, and the thorny technicalities. If you can get advice from a real estate lawyer, even better. An attorney can guide you through sensitive legalities and point out loopholes.
Still, none of this research will mean a thing if you don’t take the first step and put yourself out there! Get to know your prospective property, residents, and neighbourhood. Instead of procrastinating out of fear that you haven’t read enough advice from books (and blog articles!), the most effective way to learn is from the school of experience itself.
2. Have a clear plan
At the beginning, your main task is to build a property portfolio. After that, what next? How do you imagine expansion in a year, five, ten?
Answer the five W questions:
- What are your business goals?
- When is your deadline for achieving them?
- Where is the best place to carry out your property investment plans?
- Who do you need on your team?
- Why are you in property investment in the first place?
The answers to these questions will guide you in selecting the properties to invest in to attain your business goals. More importantly, knowing why you’re in the industry will help you stick it out through the inevitable ups and downs of the business.
3. Be vigilant about your cash flow
Have a firm handle on your own finances before you start shelling out money for investments. You don’t necessarily need to have paid off all of your own mortgages, BUT you must ensure that you have enough cash flow to take care of your own debts and obligations and sustain an enormous investment such as this.
Get a realistic picture of your financial situation from your financial advisor. It’s crucial that you know your budget, as this will also affect your choice of demographic and properties to invest in.
The flow of income from your properties’ rent should be enough to cover payments like taxes, loans and interest rates, maintenance fees—and then you need to have more in reserve for out-of-pocket expenses. Your tenants might not be able to make rent on time, or there might be periods of extended vacancy. You’ll also never be able to predict when natural calamity might strike. For your own security, it’s better to underestimate your income and over-prepare for expenses.
4. Narrow down your niche
Choose your demographic: families will need homes with room for their children to play and grow; young, single professionals will prefer small, low-maintenance spaces, and empty nesters might want one-storey homes for their aging bones.
Next, make sure your property will appeal to your chosen demographic. Property investment isn’t the same as buying a home for yourself. Your needs and preferences will be different from those of the public. It might be tempting to get gimmicky to impose a unique selling point on every home, but the more specific the home’s features, the more limited your niche for potential buyers will be. A property only has to be functional, presentable, safe, and comfortable. Any customisation will be up to whoever will actually live in it.
Still, don’t sell a home half-baked. Think, if I were my client, would I want to live here? Inspect the house thoroughly for needed repairs. See whether the home gets morning versus afternoon sunlight, if it will hold up against heavy rains and hot summers, what the neighbours are like, how the traffic situation is. Knowing your assets inside out will inform your strategy when it’s time to market the property.
5. Secure your personal assets
We’re not implying you should prepare for failure, but you can’t win without being ready for the worst-case scenario. One of the wisest, most proactive things you can do is to never purchase a property invested under your own name. You know how in Monopoly, if you fall into huge debt you have to give up your hard-won assets to the bank in order to pay your obligations? You don’t want that happening to you in real life!
Stay a step ahead by holding your investments through entities like limited liability companies (LLC). In the event of debt or a lawsuit related to the property, the LLC will be held liable for the damages instead of you personally. This is a good way to put distance between your personal assets and your professional investments. For good measure, you should also always consult with a real estate lawyer that you trust about the best way for you to protect yourself.
With a risk management plan in place, you can learn your way around the business peacefully knowing that even if you make a professional error, your personal assets aren’t going to suffer for it.
Like Monopoly, but in real life
Property investment is simple in theory, but in practice it’s much more complex. It’s a misconception that property investment is a way to get some easy money—after all, shelter is a basic need! But, houses take time to build, and there are many safeguards and requirements involved in acquiring and leasing property. However, this runaround is precisely why property will be a legitimate investment in the long term.
If you do your homework, set out with a plan, have a firm grip on your finances, define your market, and secure your personal assets, property investment could be a game worthy of playing.