Starting a property business can be both exciting and daunting.
There are so many ways to get started, the overwhelm can often lead to procrastination and inaction.
In this complete guide I want to help reduce the “noise” and help you make the right decision for you!
Whether it’s building your own property portfolio or starting a property business finding deals for investors, I’ll hopefully give you enough information to start those property taste buds salivating and get you on the right path to achieving your goals.
Unfortunately, I encounter A LOT of people who get started in property for the wrong reasons!
The most common reason being they have seen an advert somewhere that told them how easy and fruitful property investment can be.
The reality can and usually is quite different!
I don’t write this to put you off, only to be honest from the start.
If you’re looking for a get rich quick scheme that helps you leave your job by the end of the week, you’re in the wrong place.
If you’re realistic about what lies ahead, you’re prepared to learn and most importantly put the effort in, then the rewards can be fantastic.
Beware though, it’s not all going to be plain sailing!
Starting a property business is the same as starting any business, you must know where you’re going to plan how you’re going to get there.
The answers to these questions will go a long way to helping you understand which strategy you will end up focusing on.
I know at this stage you might not fully understand what the different strategies are. Don’t worry, I’ll come on to those in a little bit.
Now we have our “destination” we need to understand where we’re starting from.
Knowing where we’re at now will allow us to work out a realistic timeline for how long it’s going to take to get there and again, will help determine exactly which of the different strategies or property business models we need to start with.
Building a property business will require capital at some point.
The amount of capital will be determined by the path you choose to follow, but you will need capital at some point.
If you’ve got enough savings to get your foot on the property investment ladder, fantastic. You’re way ahead of the majority when it comes to getting started.
DON’T HAVE ENOUGH MONEY FOR DEPOSITS, STAMP DUTY ETC.
If you’re like most people I work with to build their property business, then you’re likely to have insufficient funding to buy property yourself right now but there are things you can do to change this.
FINANCIAL DISCIPLINE is possibly one of the most important things to learn and maintain when investing in property.
This starts with putting some money aside every month to build up your investment pot.
It also means provisioning every month when you do start generating income so you have a “rainy day” fund just in case something happens you need to pay for – which it will!
Now, don’t be put off if you don’t currently have any money to get started as I’ll discuss ways you can find money to start / grow your property business in a little bit.
You also need to have a think about what experience do you already have in property?
When I say experience, I’m talking about things like:
I’m also not just talking about property experience. Do you have any experience with:
Understanding your strengths will allow you to seek out education and support in the areas you consider yourself to be weaker in.
The experience you already have will also help you decide which strategy might be more suitable for you as you’ll potentially have a head start on certain aspects of it, which will give you the confidence so many new starters in property investment lack.
If you are like the majority of people I work with you’ll have a day job you need to balance with your property business.
This means you have limited time to commit to the activity you need to do to build your property business.
This is not a problem at all, but it does dictate when you’re going to be able to do things like lead generation, viewings, searching property portals, etc.
I see too many people be unrealistic with their time management which inevitably ends up meaning things don’t get done, momentum gets lost and stress levels increase when you feel like you’re not getting anywhere.
Take some time to work out exactly how much time you have to commit to your property business, remembering to add in downtime (and mealtimes)!
Ok, we’ve set our destination, we know where we’re setting off from, now it’s time to determine which method of transport (investment strategy) we’re going to take to get there.
At Miramar Property Group we split residential property investment strategies into two main categories which I’ll run through with you now.
Traditional property investment strategies are those you might be most familiar with. They involve a purchase and then either renting the property out or reselling following some form of refurbishment.
RELATED: Estimating Refurbishment Costs for Investment Property
When purchasing properties, you will always have higher up front costs including:
These costs can be prohibitive when first starting out, however, there are ways to leverage other people’s money which I’ll come onto later.
Traditional investment strategies include:
BUY TO LET (BTL)
This is where you buy the property with the goal to let it out to tenants.
There are variations of this strategy including Single Let (renting to a single tenancy) and Mult-Letting / HMOs (renting on a room by room basis) but ultimately the strategy involves buying properties to rent out to tenants.
Buy-to-lets build up a monthly recurring cash flow from the rent each property generates.
Buying in the right area should also give you long term capital growth gained from property price increases over time.
BUY TO SELL (also known as “flipping”)
This is where you buy the property with the intention of selling it for a profit, usually following some form of refurbishment work.
For this strategy you need to ensure you have a market to sell to when the works are complete.
There are potentially huge profits to be gained using the “flip” strategy, but you need to ensure you have done your due diligence.
Get your numbers wrong and you could very easily end up losing money!
This is a great strategy for “lump sums” of cash being created each time you sell a project.
It’s less predictable as many variables can affect what your profit might be, but it’s certainly a quicker way to build your investment pot than BTL.
BUY, REFURBISH & REFINANCE (BRR)
Whilst like buy to let, the slight difference is that you are also considering how much value you can add to refinance your money back out as quickly as possible, usually to reinvest into your next deal.
The buy, refurbish & refinance process looks like this:
Sometimes you will see BRRR which just adds “Rent out” to the other 2 R’s – Buy, Refurbish, Refinance, Rent Out.
Effectively it’s a combination of the principles outlined in buy to let and flipping, the only difference is you keep the property and rent it out instead of selling.
HOLIDAY LETS / SHORT STAY ACCOMMODATION
This is more of an “exit” (i.e. what you do with the property when you’ve bought it) but I wanted to mention it as it’s becoming increasingly popular due to the returns it can bring.
Effectively you purchase the property, refurbish it, ideally refinance it but then you let it out to holiday makers or short term contractors.
The income you can generate is a lot higher than traditional buy to let, however, the work involved is much more intense – changeovers, check-ins, cleaning, etc.
As it’s more of a commercial property business, the finance you need is likely to be specialised which may have its restrictions but I wanted to mention it to get you thinking about the possibilities.
We’ve covered the “traditional” investment strategies, so let’s move onto what we describe as the “creative” investment strategies.
Property Sourcing & Deal Packaging: The Ultimate Guide
The Complete Guide to Rent to Rent
We consider the creative strategies to be those where you control property but don’t own it.
That’s right, you can build a property portfolio that generates an income without ever having to buy or own the properties at all.
Of course, there are cons, including your inability to gain from property prices increasing over time, however if you have a low start up pot and you want to build cash flow then here are a few strategies to consider.
RENT TO RENT (R2R)
We cover this strategy in much more detail in our Complete Guide to Rent to Rent, but to give you a brief overview…
You takeover a landlord’s property in return for a guaranteed monthly payment and then you let it out for more and keep the monthly profit.
You do take on the associated running costs of the property but it’s a great way to generate cash flow without incurring the expense of buying the property.
There’s also the potential to build a portfolio much more quickly, but be warned, this might not necessarily be a good thing!
Packaging Lease Options Property Deals
As with Rent to Rent, you take on an owner’s property in return for a fixed monthly payment and then take on the property to make a profit from it.
The main difference between Lease Options and Rent to Rent is that you agree a future purchase price with the owner which you have the “option” to purchase the property by, or before, a pre agreed date.
This enables you to benefit from the potential increase in value over time and provides a little more security against the property owner reclaiming their property during the contract.
Lease Options are slightly more involved as you need to get formal contracts drawn up using specialist solicitors which incurs a higher set up cost compared to rent to rent.
This isn’t the place I’m going to go into the legalities, restrictions, and nuances of the strategy itself but hopefully it’s giving you some more to think about before starting your property business.
There are multiple variations of all these “core” strategies and as long as it’s legal, you can often find a way to make things work including hybrid versions bringing two strategies together (like Assisted Sales – Lease Option used to do a flip without ever owning the property).
As you can see, the possibilities really are endless and there’s always a risk of becoming distracted by an alternative property strategy.
The lure of it being more profitable or quicker to achieve results can distract you but don’t fall into the trap!
As we talked about at the beginning, if you know where you’re going and where you’re starting from, the investment strategy for you (your “vehicle”) should be much easier to identify which in turn will help you stay focused.
DON’T LET A LACK OF MONEY STOP YOU!
If you currently find yourself in a position with little to no money of your own, don’t worry, there are ways to move forward with ALL the investment strategies we’ve discussed.
One way is to start a property business finding deals for cash rich, time poor investors and charging a fee for doing so. This is known as property sourcing, deal packaging or property trading. We’ll come onto that in a bit more detail in a second.
BETTER RETURNS THAN THE BANK!
You can also borrow money from investors to purchase properties and then pay them back from the refinancing of the property (remember BRR).
There are plenty of investors out there who are looking for returns on cash they have stockpiled in savings accounts, or even worse…current accounts!
Investors can be closer than you think as friends and family might be interested!
You can find out more about how to find investors in another post I wrote here.
A PROPERTY BUSINESS DOING IT FOR OTHERS
So back to deal packaging.
When I left my job in estate agency, I started a deal packaging business called Goliath Property Solutions (now called Miramar Property Hunters).
I knew there was a demand from investors who had money to invest but didn’t have the time to go out and find deals. So I set up a property business going out to find deals for them.
The best part about it, I was able to charge incredibly good fees for doing so.
I did all the fun bits – viewings, offers, refurb estimates, etc. – and got paid for it!
You can read my Ultimate Guide to Property Sourcing & Deal Packaging if that sounds like it might be something of interest to you.
There are other property business models you can consider as well whether it’s to start with or to add on as you start to grow.
Personally, I would start with either building a portfolio for yourself or set up a deal packaging business sourcing deals for investors.
Build up your experience and then offer one of the following based on the model you chose.
LETTINGS & PROPERTY MANAGEMENT
As you grow your own portfolio you will reach the point where you consider hiring someone to manage your portfolio.
This could take a while if you wait until your portfolio is generating enough money to justify that cost or you could offer the service to other landlords and leverage the business to look after your properties.
Be warned, property management is HARD work, so don’t start this without being fully aware of what you’re getting yourself in for!
You may find yourself refurbishing properties with your chosen strategy.
Maybe you’re doing “flips” or BRR?
By doing so you’ll likely start building a good team of tradespeople. You may find you don’t have enough projects on the go to keep your builders full time but don’t want to risk not having them when the time comes.
So, set up a project management company who look after refurbs which align with what you do.
Again, be warned, this is not something to be taken on lightly, but the benefits of doing so can be massive.
Hopefully, I’ve given you some food for thought regarding starting your property business including some more “creative” options depending on your own set of circumstances.
The most important thing to remember is that property can be incredibly rewarding but also comes fraught with risk. Risk which you need to take very seriously.
Unfortunately, the world of social media has a habit of only sharing all the positive stories of how amazing people’s journeys are but behind the scenes it’s often not quite what it seems!
Start with the end in mind – What are you looking to achieve from your property business?
Understand where you’re starting from – Financial position, time to commit and any complimentary experience you might have.
Choose the right vehicle to get you there – Which investment strategy is going to be the right one for you?