It always important to have a strategy. Apparently people that write them down have an 80% higher success rate than those that don't. Thats quite a lot.
So with that in mind, I formulated a strategy before I started investing in Property, revolving around positive cash flow.
Having researched to death other successful peoples strategies, I realised that it was all about Cashflow.
If I was going to give up my job, and live the life of a retired beach bum, then having income coming in each month, regardless of what I was doing was key.
I always intended to buy and hold the properties for the long term, so any growth in value was a bit of a bonus, rather than me buying with the hope of making money through rising prices. It was the monthly cashflow I was interested in.
Buying for some anticipated growth in value/ equity always struck me as nothing short of speculation. Buying an asset which increases your cashflow is more of a business approach to things. This strategy is straight out of the book "Rich Dad Poor Dad" - worth a read if you haven't yet!
With this in mind, I started shopping around for bigger family houses, to convert them to HMO's. By renting the rooms out, I was really maximising the cash through the door. As good as this is, cash wise, it is a huge drain on my time, so after a couple of these, i decided i needed to adapt my initial strategy slightly.
I started looking around for smaller properties, one beds and studios specifically. The outgoings from these are miniscule compared to an HMO, so if one is not let for a while, it is not the end of the world. In order to get the highest cashflow from them, I started marketing to DSS tenants.
This is a relatively controversial topic (and one I will speak about at a later date), as some landlords avoid DSS tenants like the plague. I don't, for a couple of reasons.
Firstly, if you advertise for DSS tenants, you will get a shedload of responses. Secondly, you know (or you should if you have done your research) how much the council will pay on their behalf. In some cases this is above what you would receive on the open market. This is obviously balanced up by the fact that both the system, and the quality of tenant, dictates that you will have some issues somewhere along the line.
Before anyone starts slagging me off, for slating DSS tenants, I would just point out that I have had a lot of them. Out of 30 i could name, exactly 3 have turned out to be good tenants. That is 10%. 90% of them have been a nightmare to varying degrees. (I am writing a book about this at the moment - www.tenantsfromhellbook.com for more info!) So, my selection criteria is now very tight with regard to DSS tenants. It has to be.
When I first started investing, you could do all kinds of things tricky things to get your deposit built into the deal, and effectively put no money down at all. Examples of this are the HMO i bought that cost me £4k including all refurbishment and furniture for 4 bedrooms, and makes £800 profit a month, and the studio flat i bought that cost me £800 total, and makes £310 per month profit. Most of these techniques have gone now, as mortgage lenders have got tighter with their restrictions, so I have started looking at other options.
The main one I am looking to implement is something called "Lease Options". I will discuss this in depth soon, as its a big deal in Property Investment at the moment. Essentially its leasing and then sub-letting a property, with an agreed option to buy with the owner during the period. Its a great low cost way of growing a portfolio, and I am working on a batch of 6 at the moment for myself.
The other thing I have really made more and more important over time, is my management strategy. At first I naively thought it would be easy enough to manage them all myself, despite the fact I was working full time. This is not the way forward. As my strategy is either lots of tenants per house (HMO's) or low quality tenants (DSS), I quickly realised I needed to streamline my management strategy. To do this, I got one property manager to look after all the properties. This can only be done if all the properties in your portfolio are within the same area. Obviously you can buy a clutch in one area, appoint a property manager, and then replicate this in another area if your portfolio is big enough. Currently mine is all in one town.
So to sum it up in a nutshell, my property investment strategy is:
Buy and hold for the long term.
Buy for Cash Flow, not growth.
Mix HMO's with small DSS lets.
Buy for as little money in as possible, using the latest techniques.
Buy in the same area to minimise management costs.
If anyone has got any questions or input in that, then feel free to let me know.
Cheers!
