It's well known that property is a great asset class that can give you a high income as well as a fantastic work/life balance. Today we look at how to start a property business whatever your personal situation, whether you're cash-rich and time-poor or time-rich and cash-poor.
Don't get me wrong. If you have the money to invest then your progress will be faster, but not having available capital is no barrier to you getting your property business started.
The key is choosing the right strategy to suit your situation right from the beginning.
- Growing A Property Portfolio Vs Starting A Property Business
- What Kind Of Property Business Should I Start?
- How I Started Out
- Getting Started In Property With Buy To Let
- What Not To Do When You're Starting A Property Business
- Property Due Diligence Checklist
- 7 Golden Rules
- Getting Started In Property With Property Sourcing
- How to Start a Property Business with no Capital
Growing A Property Portfolio Vs Starting A Property Business
When it comes down to it, there are two distinct approaches to investing in property.
The first approach is to grow a property portfolio. So, you might want one or two properties - a small portfolio to form part of a pension plan, perhaps?
Nothing wrong in that.
The second approach is to look at investing in property as a cash-flowing business that you can scale. And, with this approach, you are going to want a whole lot more than a couple of houses under your belt.
What Kind Of Property Business Should I Start?
What Are The Options?
There are a lot of investment strategies and property types to choose from.
And, a property business does not need to involve buying houses for yourself. You can set up a business property sourcing, meaning that you are out in the field finding below-market-value property deals for investors.
You could look to property joint ventures, where you bring the expertise, a partner brings the money and you split the profit in a way agreed amongst yourselves.
Your Personal Situation
The direction you choose needs to be informed by your personal situation and the assets you have available.
Do you have time, contacts, money?
If you have a lot of time but little money, then property sourcing or JV deals might be the way to go. If you have contacts - letting agents, estate agents, mortgage brokers, refurbishment contractors - then these are all assets that you can bring to the table.
So, don't worry if you have come here because you want to know how to start a property business with no money - the good news is that you can.
But, if it's money that you have - for paying deposits, or buying houses outright - then you might choose to put together a team, bringing in the skills to make that money work for you in the best way possible.
The truth is, there are loads of different assets or skills that you can bring into play that will help you scale a property portfolio and ultimately grow a property business quickly.
How I Started Out
There are a lot of options when it comes to property and that's one of the reasons I love it.
But, it can be quite confusing, to begin with at least (difficult to know where to start, right?).
When I left my job as an estate agent to become self-employed as a property investor - intent on building a portfolio - I was limited in my options because I was limited in what I knew.
Because of my estate agency background, I thought the way forward was buy to lets.
My opinion was formed, simply because buy-to-let was what the investors I had met in the agency, were interested in.
I didn't have much in the way of funds. I knew I wasn't going to be able to buy any houses outright and refurbish them - like those other investors were doing.
I knew I was going to have to start my property business with very little money.
So, I secured some finance and got into buy-to-let.
Getting Started In Property With Buy To Let
When I started out in property, I was looking at buy-to-lets.
When you are investing in buy-to-lets, in the right area, you are looking at a slow but steady property growth.
Because of that I was more focussed on rental yield, discount and cash flow.
Now, the buy-to-let strategy can work very well, but there are problems associated with it. For instance...
Below Market Value Property
As I mentioned, capital growth on buy-to-lets, in the right areas, is slow and steady.
This can be a problem.
If all your funds are tied up in your investments, then growing your business quickly will be very difficult. This is because you will have to wait a long time before you are able to sell your property at a profit.
When you are investing in property, having an exit strategy, is key.
One option would be to go through a refurbishment process and add value to the property that way.
Another option is to make sure that you only ever buy buy-to-lets at a decent discount. That is to say, you make sure that you only buy property at below market value or at less than you are sure you can sell for, immediately.
You should always hold some equity tied up in the deal.
But, you need to be careful here. Securing properties at below market value is important but, in the long term, your rental yield is going to be much more vital.
The trick is to always try and close your deals at a number that is below market value. But, don't focus on this element to the exclusion of all else.
Remember, a great discount on a house you can't find tenants for or can't sell, will sink you as fast as any other bad investment.
What Not To Do When You're Starting A Property Business
One of the first properties I bought was a buy to let.
In truth, the house I bought was in an area I didn't really know and I was out of my comfort zone with the tenant profile.
What I was focussed on was the potential for capital growth and on securing the property at below market value.
I didn't have contacts in the area who could tell me if it was a good or bad street or a good or bad postcode.
From working as an estate agent I thought I had picked up a few fundamental skills but the reality was they fell short of the mark. Whereas I knew the area I had worked in as an agent very well, I found that in a new area I was flying blind to a much greater degree than I had anticipated.
But, I bought the property anyway and the reason I bought it was, on paper, the property was being sold at a fantastic discount.
Fast forward to now and this property has consistently been the worst performing property in my portfolio.
And I have learned a valuable lesson - if you are going to keep a property in your portfolio the potential rental yield is far more important than the discount.
How To Work Out Rental Yield For A Buy To Let Investment
For more information, check out our article on rental yield.
- What Is Rental Yield?
- Why Rental Yield Matters
- Capital Growth and BMV Deals
- How To Work Out Rental Yield
- An Example Calculation
- What Is A Good Rental Yield?
- Costs Your Rental Income Needs To Cover
- What Makes A Good Buy To Let Investment?
- Price, Yield and Growth. Finding the Right Balance
But of course, there is more to a good property deal than just discount and yield. There are a lot more things to consider.
Property Due Diligence Checklist
My first few properties were not great successes, so I decided to formalise by research methods and due diligence into a checklist - 7 things to think hard about before investing in property.
Due Diligence Checklist:
- Tenant Profile
- Rental Yield
- Potential For Capital Growth
- Exit Strategy
- Potential To Add Value
- Acheivable Discount
(I had made the mistake of buying on discount alone but a discount is still something I recommend you consider.)
7 Golden Rules
Whatever style of property you are looking at, or whatever strategy you want to follow, these seven items still apply and each needs to be researched thoroughly before you buy.
If you focus on just one thing you might find yourself making a mistake with your investment. And, when it comes to property, mistakes can be very expensive.
So, if you focus on discount and not on rental yield then you might find, what money you save by securing the discount is soon eaten away by monthly rental shortfalls.
If you focus on capital growth then you might find yourself locked into a deal, waiting for that growth to achieve a certain level - meaning you don't have a quick exit strategy, should something sour or should you find yourself needing to release funds.
If you find yourself working with the wrong tenant profile then you find yourself unable to rent the property out or find you have tenants that don't pay, or who neglect or damage the property.
You will have to find the right balance for your investments and furthermore, each investment will have its own unique balance.
So, my advice is that you take these seven factors and use them to form the bedrock of your due diligence before you buy.
Getting Started In Property With Property Sourcing
The second thing I started doing when I left my job with the estate agent was property sourcing.
I fell into doing this.
The reason was that I was already finding property deals with a mind to adding them to my own portfolio but, I either couldn't afford them or they didn't quite fit the criteria I had chosen.
So, I started to pass these deals on to other investors, charging a finder fee for my work.
How to Start a Property Business with no Money
Not everyone has the funds to grow a portfolio. But, it is entirely possible to start a property business with no capital.
There are several ways of doing this, but the one I preferred at the beginning was property sourcing.
I started property sourcing as a means of raising cash flow in my business. I was coming across great deals that I didn't have the money to buy.
There was no point in wasting them, so I decided to start selling what I'd found?
Property sourcing is a great strategy to follow when you are just starting out and don't have the ready cash to start investing in bricks and mortar yourself.
Depending on the style of property, location and discount, a freelance sourcing agent can expect between £1,000 and £3,000 (though more is possible) per property and it is more than possible to quit the 9-5 life with this kind of work.
It can also be a fantastic way of quickly gathering the funds together to start investing in properties for your own portfolio.
Of course, there are more ways to start a property business than investing in a few buy-to-lets. And, there are more ways to start a property business when you have no capital than pursuing a career in property sourcing.
Here, I just wanted to give you a taste of the options that are out there.
If you want to find out more, we have a lot a lot of articles on our blog. If you're just starting out I suggest looking at the section on property investment tips and advice.
Your research is going to be the key to your success and this needs to be around the 7 key areas I've mentioned above.
There are so many ways of investing in property, so it's important that you don't confuse yourself by trying too many at once.
To this end, I suggest you focus on no more than two or three core strategies at any one time to grow your business.
The important thing is to be methodical, slow and steady, and not to panic or worry. A career investing in property is well within your grasp.
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