When you are investing in property you always need to have an exit strategy and ideally a good idea about how long you want to hold a property for. Your exit strategy needs to be front-and-centre when you’re deciding which property to buy. Afterall, if you don’t know your destination, how can you plan your journey?
Begin With The End In Mind
Before you start sourcing and buying property, it’s worthwhile spending a bit of time thinking about your end goals.
Even considering just these three simple questions:
- What is the most important thing you want to achieve from your property investment?
- How long do you want to invest for?
- How you might exit and who is your likely buyer profile?
Will help give you some understanding of which property strategy may be best for you to follow.
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For every client, I undertake a personal consultation before I even start sourcing properties and you should consider doing something yourself with your own goal setting.
Check out this goal setting article for tips on how to do this targeted & efficiently.
When working with clients part of this initial consultation analyses their preferred exit strategy, and based on this, will help define the most suitable strategy for their goals.
Because it’s such a complex process, I can’t give you too many rules of thumb.
So, instead, I’ll give you a few examples to show how different exit strategies affect can directly affect your own property sourcing.
- Goal: To earn a higher return from my savings, protect the original investment.
- Time Frame: Over a longer term (10+ years)
- Method: Buy to hold
- Exit: Sell at the end
- Sourcing: Will focus on properties in areas with stable house prices and historically regular home buyer demand, which can be purchased at a modest discount. Rental income is a by-product, but would need to be sufficient to cover costs AND provide a safe return
- Goal: high returns, looking to out-perform returns from other investment options.
- Time Frame: short-term (1-2 years)
- Method: buy to sell
- Exit: sell at the end
- Sourcing: will focus on properties where there’s the potential to add value, where a high discount can be achieved, and – so a short term exit is available, are still in areas with current active buyer demand. Maximising short-term rental income is less important, as they won’t be renting the property out.
- Goal: high cashflow and the ability to leverage with standard buy-to-let mortgages.
- Time Frame: medium term (5+ years)
- Method: buy to hold
- Exit: sell at the end
- Sourcing: will focus on properties with the highest possible rental yields, which appeal to mainstream tenants (so the availability to finance at the best terms is available). But there also needs to be a good mix of homebuyers and investors in the area, so the property can be sold on easily after the hold period. Capital growth in that time may be minimal, so the potential for adding value at the beginning to increase the equity is important.
As you can see from these 3 examples, small differences in investment goals lead to significant changes in the type of properties and areas, you should consider.
Hopefully this mini series of ‘5 Tips For Property Investment Success’ have helped you come to a better understanding of property investing, and will assist you in avoiding a number of the pitfalls that trip up so many investors.
(I wish I’d been given these tips when I started out – it would have saved me a lot of money and a lot of stress.)
Property is a great investment tool and, when done right, can give you fantastic returns – especially in these times, where bonds are yielding very low returns and the stock market is so volatile.