At Your Property Network we are often approached by first time property investors who are confused about the best way to set about building a small to medium sized property portfolio. Many have a reasonable amount of capital behind them and can see the very real attractions of long-term investment for capital growth and pension replacement, or a mixed strategy for cash flow in the short to medium term.
Starting out, these potential investors have done whatever any sensible individual would do and have sought to educate themselves about all the available investment strategies. Spending a considerable sum on expensive property courses, and we’re talking thousands, can work out for the driven, financially creative, risk happy punter. However many a first time investor would like to take cautious first steps into what is, without question, the daunting world of property investment. Bombarded with talk of lease options, aggressively marketing for BMV property or hunting down those elusive “motivated sellers” many landlords forget how theoretically straightforward buy-to-let portfolio building can be.
Simply recycle your deposit
This simple, inarguably effective, time proven strategy has been employed by tens of thousands of investors to build cash flow positive portfolios with a view to long-term capital growth and positive short-term cash flow with modest initial capital investment.
At a recent networking event I was having a discussion with a first time attendee who was expressing his frustration at being unsure which guru’s model to follow or which complicated strategy to employ.
Even before I could answer myself one of the most experienced investors in the room lent over and said, “Just recycle your deposit!”
A deceptively simple process, buying, refurbishing, letting and refinancing after six months should be the bread and butter for every serious buy to let investor. Its sounds so simple, but as a strategy it is often ignored, or even worse implemented badly.
The moment you find a potential deal, a clear, defined and tested process should kick in.
- Research the area – LHA rates, local employment statistics and recent sold prices should be as high on your list of required information as purchase price
- Do your sums – With a target yield in mind work out what you are prepared to pay to get the required return, baring in mind that you need to allow for refurbishment. Check with a surveyor for a post work valuation estimate. If the property doesn’t stack up don’t waste time on trying to work round it, move on to the next deal.
- Don’t skimp on the refurb – better finish, better tenants, but make sure every pound you spend translates to built in equity. Aim for 20% built in.
- Let – are you prepared to manage your property yourself to maximise your return? Or put it in the hands of professionals for less hassle?
- Re-mortgage after six months, leave as little of your own money in the property as possible, get your deposit back and repeat!
Recycling your deposit is a simple process that is so often over looked in the world of property which has become increasingly filled with smoke and mirrors.
Simple does not, however, equate to easy, but implemented effectively, traditional buy to let methods can still realise a more than respectable return from a portfolio built over time with relatively modest initial capital.
At Your Property Network magazine we pride ourselves on sharing the experience of other investors devoid of the myth and mystery of the property game. We run the numbers on real investments to show how successful landlords are creating substantial cash flow positive portfolios to secure their long-term financial future.
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