How to get started with your strategy for property investing:
Recently, we decided to scale up our investing. We had spent a year and a half saving every dollar and investing in safe stocks in the stock market. Over that time our nest egg grew into something a little more substantial and we started to look at ways to diversify and to look for a higher return.
We decided the next step was property.
Here’s the 7 Step Strategy for property investing we learned from Robert Kiyosaki and other luminaries on the web:
- Formulate a game plan
- Know your location
- Learn the Market
- Generate Leads
- Analyze Properties
- Learn about Financing
- Find the Right Deal
Learn more about the strategy for property investing success.
Strategy for Property Investing Success
(To read more about our decision to get into property read Starting Your Investment in Property.)
Ultimately, your approach to investing will depend on your goals
We could have scaled up our investments with large cap companies, or we could have gone for higher risk speculative investments. However, that’s not our style. We believe slow and steady and you will get wealthy. Fast and risky, well you might get wealthy, but you might just get a heart attack from all the stress.
Our goal is diversification and moderate increase in returns. And given our context, we decided on small size land developments as a good option to give us diversity and the opportunity for some possibly quite lucrative returns.
Our Investing Style
We also favor a passive approach; we don’t have a lot of time and we don’t have a massive amount of experience. So we want to start safe and build up. As we develop knowledge and experience we will grow into other avenues – but to start we want to keep it simple.
So for us, the easy way is buying land. There’s no tenants, no upkeep and little annoyances. We’re looking to buy and hold and wait for appreciation in a growing market.
However, you may think differently. You might understand rental concept better and favor that approach.
So here’s the simplest strategies generalized for your favorite approach.
Here I’m guided by months of scattered research on various sources, but especially by Robert Kiyosaki of late. He puts it together quite easy on YouTube. Here’s a link to him on Evan Carmichael’s Top Rules for Success.
How to Develop a Strategy for Property investing.
1. Work out your game plan
As outlined above, you need to work out your goals and then work out how you are going to achieve those goals.
Basically, in the beginning at least, there are two major goals you might pursue. You are either looking to invest for income or invest for capital gains.
Income Strategy for Property
If you are looking to invest for income, you are looking to put your money into a rental property – a unit, duplex, house, or if you’re at a higher level maybe an office block, shopping center, hotel or casino. You are effectively buying the property and renting it out, or operating it, for an income.
If this is your strategy then you need to look for a property in an area that has a high rental demand, you need to be aware of your responsibilities as the owner of a rental property and you need to know how to manage a rental property.
Capital Gain Strategy for Property
If you’re looking for a capital gain strategy, you are looking to buy a property, hold it for some period, and then sell it on for a profit.
If this is your desired action, you need to pick a property that is currently undervalued and will soon be valued higher. You need to understand the mechanisms of property pricing and know how to evaluate property deals. You also need to know a lot about the hidden costs of buying and selling, and also the taxes incurred by holding property.
There are more property strategies, such as diversification, tax gearing, and so on, but at this stage we’re keeping it simple.
Which ever strategy you choose to pursue, it’s important to know that they have both rewards and risks. So it’s important to pick the strategy that works best for you and your circumstances.
Read more here for the basics of property wealth creation Understanding Property – Investing Made Easy.
Once you know what deals you’re looking for, the next step is to find location.
2. Location and your Strategy for Property
So you’ve decided on your game plan. Now you need to pick your location.
And the good thing about property is there’s property everywhere.
What do you need to know
The key, according to Kiyosaki, is to start with places near to you. I guess you could start with places further away, but the point that he makes is that you need to know the area.
If you just go and randomly pick a property in an area you don’t know, you have no idea about how the property will perform. Even in a hot industry, you need to know the characteristics of the properties in that area.
Once you know the basic information about the area, you have a fighting chance at making educated and calculated decisions about how the property will perform and how you should evaluate its value.
Need to know your area:
Need to know geography
What are the land features of the property and the features of the environment around the property. You don’t want to get any surprises and find out your chosen area is subject to flooding or chemical spills and so on. You also want to know what the positive features of the property are – near by amenities and high value sights.
Need to know demographics
What is the population factors? Is the area for old people, families, single professionals or so on? Maybe it’s a young and vibrant community or an established wealthy community? Or it could be growing, with lots of new development, or is it in decline with stale economic development?
This knowledge is essential for your evaluation of a property.
Need to know the market
What phase is the market in? Is it hot or cold? Is there high demand and low supply? Or is there over supply?
Need to know the laws and taxes
What are the hidden costs of rates and local taxes.
And on and on.
Given that variables will change from place to place, the efficient and effective way to invest is to look at a few prospective areas. Look for favorable features like economic activity and demographics. Choose a place that is growing and one you can become acquainted with well. And then stick to that area.
Once you know the area, you can start to evaluate property deals and start to narrow down your search for the best investment.
3. Market Strategy for Property
Now you know your game plan and you’ve picked the area you like, you need to dive into analyzing the market for property; knowing both the overall trends and traits of the property industry, but more specifically knowing your area.
You need to know the market – supply and demand.
You must then decide if it’s the right moment. If you understand the market and you buy at the right time, you can fairly well be assured that the market will go in the right direction. This is one of the benefits of property, it’s fairly predictable.
However, if you don’t know the market and you just throw your money in at the wrong time, well then don’t be fooled, property can go down. But even still, if you do pick the wrong time, things are likely to turn around in the long term. (If you choose a good area.)
Simply following these trends, you should be fairly safe in property.
But you should go further, to understand what gives value in that market, and also what is needed in that market? Who are the contacts? What are the special features? And so on?
Special Factors That Add Value
[To learn more about the special factors that add value to real estate, follow this link to read a good article on both the micro and macro factors that influence property value.]
When you know the special features of your area, and the prospective property, and you are aware of the special factors that will give value in your area for the specific target buyer/renter you are looking for, then you can go from average returns to high returns.
Once you know this specialist information, you can do deals that ensure you have the highest yielding property on the block. It’s that kind of knowledge that allows you to buy an undervalued house one day and the next day, or next month, or next year flip it for a huge profit.
4. Lead Strategy for Property
Now you know your game plan, you have chosen your area and you have studied the property market.
So by this stage you are probably right into the next step of the process; generating leads.
General leads are the leads you get from looking at the listings. You search the net and look at all the lovely pictures. As you look you spot the properties you like; you like the price, the view, the specifics. And you collect a list of possible targets.
So you have gone through the lists and searched for something that you like. Then you start to contact the agents. Or perhaps you skipped this and went straight to contacting an agent. The agents will start to ‘sell’ you on the properties and they will most likely show you some more properties that you didn’t see, or you looked over, or weren’t currently listed. So these will lead you to more leads to add to your list.
As you start to search, after some time, you will start to develop relationships with agents and with people related to the industry. Or you might meet someone randomly in that area. Or a friend will say something. Either way, once you start to get dedicated to looking, you will start to find secret, hidden deals that just pop up.
Maybe the agent has a great deal that they can’t act on that they decide to share, or you meet an old guy who’s just curious about selling, or someone has a death in the family and they can’t be bothered with the hassle of dealing with the inheritance and they just want to get it out of the way. Or maybe someone lost their job and they’re suddenly upside down on their mortgage.
Those are not all great thoughts, but they are great opportunities.
So you have done the search and your agents have provided you with leads, lots of leads.
5. Analyze 100 deals Strategy for Property
Then it’s time to run the numbers. Do it now, even just for fun. Start to run numbers on properties and learn how to quickly evaluate the value of a property. Practice is the only way to get good. I’ve only just started, and I suck. I know nothing, but I’ll get better.
So look at your leads, rank them if you like, but don’t rely on your gut. You must cut that idea out. Be smart. Analyze 100 deals or even more if you have to, until you find the deal you have to have.
We will be looking more closely at evaluating deals in future posts.
By taking on this mentality you learn how to evaluate properly and the decision becomes easy. Run the numbers until you find a deal you have to have.
6. Financing and Strategy for Property
Financing, or getting a loan, for many is a necessity. And for many, it’s a stumbling block. ‘We’d be rich big time investors, if we could just get the money to start’. And we were in the same boat. Living and working in a foreign country, we’re limited in our ability to get finance. I’m sure there’s options, but for now we’re happy to start small and build up.
(Even now I know I’m making excuses. I know there are plenty of options, but I’ve just started to learn about finance, so we are taking it slow. If you want to know more there’s plenty of advice out there.)
However, in future, definitely once I head home, financing is on the agenda.
Debt, that big scary term for many, is actually the key that magnifies your opportunities and enhances your returns. It’s how you scale up quickly and really go to the next level.
By accessing debt, you can start with a fraction of the cost you need for a property. This allows you to start with little money, or if you have a lot, allows you to diversify with more properties by spreading your money around and multiplying it through debt.
Also, debt enhances your returns. If you put down $100,000 on a property, and you sell it for $110,000, you’re making 10% return on your money. But if you put down $10,000, and loaned $90,000 for the rest, and then sell it for $110,000, you made $10,000 from $10,000. That’s a much bigger return on your money. And if you had the $100,000, just think you could have had 10 deals instead of one.
Sorry for Overly Simple Math’s
Of course this simple math’s covers all the hidden charges, like interest and other extras, but at the end of the day the idea is solid. Using debt extends your capital and enhances your return on cash investment. (Again, we will be doing more on this as we learn more going forward.)
But as always, debt is dangerous if you don’t know what you are doing. Make sure you learn about it and if necessary seek advice.
7.Choose the deal that you just can’t resist.
Finally, you’ve chosen your game plan, you’ve picked your area, you analyzed the market, you ran the numbers and learned all about financing. Now you are ready to pull the trigger. Now you just need to wait until you find that deal that you just can’t resist.
There will always be risk with any investment, and so it could take time to find a good deal. But if you keep running the numbers, sooner or later you will find a property that looks good to you and you want it.
If needs be get more professional advice.
We are not experts and we only just started. In the end we’ve taken on a slightly risky deal as we are following the advice of our mentors and we are hoping for a bit more of a return. At the end of the day, we feel safe that in the long run our investment will be safe, and there is a good chance that in the near future we will have a reasonable return. But either way, it’s a good feeling being the owner of assets. We feel like we are building something for our future, for our children and for our family.
Final thoughts on Strategy for Property
Whatever your ideas about investing, we hope you have the courage to become an investor. It really is the only way to become financially free, for most of us who aren’t going to have a billion dollar idea.
If that’s property, I hope these simple ideas about strategy for investment in property help to encourage you to do get involved, but also to do it right.
We’re no experts, we’re just sharing our adventure with you all and hopefully together we can all have a successful journey towards the life of our dreams.
Mission to Success
The mission for success is to take our life to the level of awesome. We are actively learning the lessons that will bring us more success, that will improve the future for our children and will help make the world a better place.
If that’s something you want for your life, feel free to come join the mission for success by clicking here: Mission for Success!
All the best, and remember to keep striving for success.
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