Getting into property could be one of the best business decisions of your life. It is practically the only asset class where you can safely lever up and use other people’s money to generate a return for yourself.
Property empires can become vast quickly. What’s more, the more time you invest in them, the stronger they become. When you own half a dozen properties, you’re usually able to replace your regular income from rentals.
Leveraging To Get Your First Property
The bad news is that to get on into the property market, you’ll need a downpayment. This sum of money, usually somewhere between £20,000 and £50,000. You can then use that to borrow more from the bank, essentially getting access to their credit to buy a property.
If you don’t have the money for a deposit already, you can sometimes offer equity to people with capital. For instance, if they put 50 percent towards the deposit, you might offer them 50 percent of the profits from the project, after expenses and so on.
If you don’t have a well-developed credit history, it actually makes a lot of sense to join up with a partner. This way, you can slash the cost of a mortgage and even use them as a guarantor.
During the partnership phase, make sure that you team up with someone you can trust. There are all sorts of horror stories of people going into business, only to find their teammates doing the dirty on them.
Remember, if you’re buying a property for investment purposes, you’ll need to put down a larger deposit.
Buy Properties, But Don’t Manage Them
Eventually, you can manage the properties in your portfolio, but when you first start out, get a management company to do it for you. Don’t attempt to do it by yourself. It’s time-consuming, complicated and, in many cases, gets in the way of earning passive income.
Property management agencies charge a fee — usually around 10 to 15 percent of your gross rental income — but it’s well worth it. It means that you can put your property business on autopilot, and you don’t need to fear problem tenants.
Decide Which Type Of Real Estate Business You Want To Run
Of course, when it comes to real estate businesses, you have a lot of choices. There are many business models out there. These include:
- Buying and flipping: This is where you purchase a property, renovate it, and then sell it for a higher price, pocketing the difference. For this strategy to work, you usually need to understand the market well and buy at auction
- Wholesaling: This approach is becoming more popular, particularly among sellers who want to get rid of properties fast (perhaps because of divorce, job relocation or a death in the family). Instead of going to the private market, they approach a wholesaler (you) who offers them a lower price. The wholesaler then makes small modifications to the property and sells it onto the primary market at the normal price.
- Buy and rent: Buying and renting is perhaps the most common strategy. Here, you’re not looking to sell the asset. Instead, you simply rent it out for a monthly income indefinitely, perhaps selling after twenty or thirty years or so.
Estate agents, such as Madison Fox, can offer advice on the types of properties suited to each business approach. You may want to have a mixture in your portfolio, depending on the opportunities that arise in your catchment area.
Get Your Finance Sorted
Once you prove to lenders that you can run a successful real estate business, they’ll become more willing to lend to you. At first, you might only be able to take out one or two mortgages before lenders get jittery, just in case you are a bad decision-maker. However, eventually, they will learn to trust you, making more credit available so that you can expand your property empire.
Don’t Forget Insurance
When you run a real estate business, getting insurance is paramount. You need to protect your buildings (not renters’ possessions) and get liability protection, just in case someone hurts themselves on your premises.
Before buying any products, talk to an insurance broker about precisely what you need. Often, insurers will oversell insurance products, suggesting that you need more than you actually do.
Become Diverse
Lastly, you’ll want to make sure that your property portfolio becomes more diverse over time. By all means, purchase several properties in a row early one while you’re finding your feet, but expand later. Move into different cities and types of properties to ensure that you protect yourself from downswings in any particular sub-market.
