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BEGINNER'S CORNER: Choosing the right property strategy
Welcome to beginner’s corner - Each month ON THE HOUSE Magazine will deep dive into an important step that will help newbie investors on their way to being fully-fledged property investors.
CHOOSING THE RIGHT STRATEGY FOR YOU
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When it comes to property, the journey of a thousand steps begins with figuring out your plan of action. Alex Daley leads the way with our first beginner’s corner how to guide.
In the first episode of beginners corner, we’re going to start right at the beginning - funny that. Choosing the right property strategy for you.
So what are the factors you need to consider?
Most commonly the answer to that question is:
• Time
• Money
• Your position
• (And knowledge - but that’s what we are here for!)
There are a bunch of other smaller factors, but let’s cover the big ones here. These are factors specific to you, rather than nonpersonal specific points, such as choosing the right property and making sure it stacks.
YOUR POSITION
I’ve chosen this one first as it’s a huge limiting factor and one that I had to battle when I first started investing. I wanted to jump straight into HMOs (house of multiple occupation), but at the age of 24, with no residential home to speak of and being selfemployed, that was a complete no-go from a lender’s perspective. You can read about why I chose to buy a BTL before a residential HERE.
So, before we decide what you want to do strategy-wise, let’s work out what you actually can do. The first conversations you want to have are with:
1. A good property accountant
2. A good mortgage broker
With the accountant (who like the broker can be found through recommendation of other more experienced investors), you need to establish how to structure your business whether in a limited company or in your personal name, if it’s just you, a joint venture with other people etc. Then you take that to your broker and tell them about
your position. You need to be armed with all of your financial information, be honest with them and then let them do the digging and find out what you have available to you. Of course, this assumes you’re going down the lending route, which most people will be.
For you, this conversation may mean you don’t have access to certain strategies, that’ll help narrow things down.
Those conversations will allow you to cross strategies off your list that you just don’t have access to yet. If that includes the strategy you thought you’d start with, don’t worry, this is a long play.
MONEY (AKA FUNDS)
Your starting position financially is of course another huge limiting factor. If you’re limited with starting funds you may be looking at the rent-to-rent route (check THIS article out for inspiration there). If you have a fair chunk of money to start with, you could look at more capitalintensive strategies - BRRR (Buy Refurbish, Refinance, Rent - read more HERE) and if you’re somewhere in the middle, you may be looking at more ready-made investments, standard single lets or ready-made HMOs. By more ready-made, I mean those which may still need a bit of work, a lick of paint, and carpets, but not needing thousands of pounds worth of work.
Of course, the other factor here to consider is where you’re investing geographically. A standard single let, down south can cost a lot more than a large HMO up north, so this isn’t an exact science, but you get my point.
TIME AVAILABLE
How much time you have to dedicate to your new property venture is going to impact a lot of decisions. Whether you self-manage or not, whether you can deal with a renovation, that sort of thing.
If you have the time (and desire to use it) and the funds, BRRR is a great starting point. Lots of investors advise starting with single lets rather than more complex strategies like HMO, largely down to their relative simplicity, both at the start and ongoing. And (entirely anecdotally) it seems most people
do start there. There’s a lot less regulation, tenant turnover, and generally a lot less stuff that goes wrong compared to say, HMOs, which means it’s a lot less hands-on (generally) for the self-managers.
So why BRRR? Well, this could take a full article, which maybe *hint, hint - looking at you Mr editor* I’ll also write. In short, BRRR allows you to re-use your money time after time to grow your portfolio much faster than the classic, buy, save, reinvest, buy type approach many adopt. By raising value (in the same way you would if you were flipping), you’re able to seek greater loans from the bank, to go again and again. It does though, come with the stresses of having to deal with a renovation, the costs of the renovation and of course, costs from the time it takes to get it ready to rent - council tax, utilities, no rent, etc.
BONUS FACTOR: GOALS
For some property is a means to an extra pension and they are content to reinvest any extra cashflow. For others it is the means to escape the nine-to-five and cashflow is key to that freedom. You need to be clear on your short-term, medium-term and longterm goals (see BTL Group’s founder Wes advice on goal-setting here) as these will also majorly inform which strategy you choose - if it is cashflow you need, you might need to look at HMOs or serviced accommodation, if it is equity growth and a pension - you can’t go far wrong with simple vanilla buy-to-lets.
SO WHICH IS BEST FOR YOU?
Well, that depends on your position, how much cash you have, how much time you have and want to dedicate to this and, of course, what your goals are. But this should help steer you with your decision making. If you take nothing else from it - get yourself set up right from the start. Get clear on what’s best for your position.
