Build a balanced property portfolio with no risk’ -The ‘What’, the ‘Why’

Build a balanced property portfolio with no risk’ -The ‘What’, the ‘Why’


17:11 PM, 24th February 2012, About 12 years ago

Text Size

Previously I’ve discussed the different types of investment techniques, but all that information is barely worth a plate of beans unless you put it into action. Armchair investing can work, but virtual investing will not.

One of the most common mistakes investors make is to only buy when everyone else is buying and selling only when everyone else is selling. Effectively, it’s buying at the near top of the property market and selling at the near bottom of the property market and makes for a perfect recipe for investment loss.
The follow the herd instinct is great for escaping a burning building, but for sound property investment it is simply not the strategy. I liken successful property investing to the paintball survival game. When all your team members rush forward to an almost certain polyurethane death, you must rush backwards to go right around the back of your opponents, doing the opposite of everyone else. That way you will not only survive but take everyone else by surprise and seize the opponent’s flag to win the game.

The term ‘only fools rush in’ applies equally to property investment and war. You have to plan your strategy and pick your moment of entry wisely; the longevity of your survival depends on it. This emphasises the importance of ‘Understanding Property Cycles and knowing which parts of the country are seeing the best and the worst of property value correction. Buying when everyone is selling takes courage but the bigger the courage, the bigger the profits will be.

As mentioned, risk is only a perceived risk. When you buy below real market value at the near bottom of a property cycle where is the risk? Aside from a resurgence of the Black Death or alien spaceships carrying off all the tenants, there really isn’t one!

Also remember the real profit in a property purchase occurs on the purchase not on the sale. You either buy into an equity gain on day one or you have a solution to unlock latent value. Buying a property at market value and just waiting for the property market to go up is not the best property investment strategy, it has more in common with gambling.

Another common mistake I see property investors make is sticking solely to the area where they live. This is fine if the area where you live offers great value and adequate below real market value opportunities but if the area where you live exhibits low gross rental yields, few property repossessions and few below real market value opportunities you will have to work twice or even four times as hard to a secure deal. Even today in some areas you will be fighting a losing a battle looking for needles in a haystack. You must come out of your comfort zone and look further afield.

People do not become successful or entrepreneurs by staying in their comfort zone. “A dream is your creative vision for your life in the future. You must break out of your current comfort zone and become comfortable with the unfamiliar and the unknown”.

When my UK property adventure started in 2003 I specifically moved from Cape Town to Grimsby/ Cleethorpes to build up a value property portfolio. Swapping the glorious scenery, sun downers on the beach and paragliding off mountains for kiss me quick hats, fish and chips in newspaper and depressive skies was a bit of a shock to the system. But, nothing is gained without sacrifice and to achieve any success you must always pay the price, and firstly pay it in advance.

Then in 2009 post-credit crunch I spent many weeks repeatedly traveling from Norwich to Manchester to build up a city centre below real market value apartment portfolio. In Norwich, a lack of repossession properties kept the prices fairly firm and too few opportunities were being chased down by a greater number of die-hard investors.

It is important to be close to the opportunities if the properties you buy need major work. I do not advocate investment into older properties built before 1980 because their frequent maintenance costs just kill the net rental yield, especially on the older terraced properties circa 1930.

Google maps street view has all changed all that. You can now be in the street without actually being in the street, a property voyeur almost. A call to local property estate agents and lettings agents will reveal the missing information you need. This sole method of investigation is not recommended for older properties however since a close inspection is always needed.

Personally, I stick to buying discounted new build property, predominantly two or three bedroom houses that young families gravitate to. They are easily rented and make great prospects for reselling quickly at a later date.

New build properties can come with two year builder warranty, 10 year NHBC cover, gross rental yields circa 8% and substantial discounts on day one of purchase. Why bother with older houses that need work? Maintenance and major rework costs just depletes your investment pot.

First of all you must formulate your property goals for 2012 and the next few years ahead. Do you want to buy one, two or six investment properties this year? That will obviously depend on your investment budget and typically you will need £20,000 to £25,000 per property for investments at 75% loan to value for properties costing £80,000 to £100,000.

Remember, you can increase your investment budget by the process of equity release. Analyse the property values in your portfolio versus mortgage amounts owed. Highlight the properties with excess equity that can be released to further grow your portfolio.

Read part two of the what and the why

Share This Article

Leave Comments

In order to post comments you will need to Sign In or Sign Up for a FREE Membership


Don't have an account? Sign Up

Landlord Tax Planning Book Now