Some people might feel that property is not about making money. It’s about enjoying what you do and providing a place for people to live. But for those who might set their sights on becoming property moguls we thought we’d run through a few strategies for achieving it.
Think short as well as long term. Property is often described as a long term investment. That’s true to a great extent. But it’s mainly because property prices have always risen over the long term, making it hard to go wrong when working to a long timeframe.
But – thinking long term involves trying to predict the future to a certain degree. While there’s nothing wrong with that it will always involve a greater margin of error. Thinking short term, however, reduces the time and reduces the margin of error. So the fact that a long term strategy is still generally a good idea shouldn’t deter you from a short term approach if and when it is appropriate.
One example of a short term strategy in property might be flipping – buying a property at under market value and selling it quickly for more.
Diversify. Or not putting all your eggs in one basket as it is more commonly known. Putting all your time and effort into one type of property investment, even though it is doing well at that point in time, is risky indeed. Not only that, but it’s often the case that when one type of property investment strategy is struggling others will be performing well.
One of the advantages of property is that it offers not just one but multiple opportunities. So it makes sense to take advantage of them and diversify. Examples of diversification in property might be, for example, having involvement across single family lets, student property and commercial property rather than three investments all of one type.
Hedge. It’s sensible to aim to invest in diverse property opportunities which offer a degree of hedging too.
For example, in property investors traditionally invest for either income or growth. Yet it can be more effective to have a mix of investments which offer both. Also aim to split your time, effort and investments between ‘safe’ projects and ‘risky’ ones – in whatever combination you’re comfortable with. Another way to hedge – seeing as how the London/south east property market tends to operate to different cycles to elsewhere – might be to have some involvement in London/the south east and also in the regions.
Be a contrarian. A contrarian approach is to broadly do the opposite of what everyone else is doing at the same time. Contrarian strategies can be particularly relevant in property since when others are piling into a particular type of property it reduces supply levels and pushes values up, and vice versa.
In property a contrarian approach might be to buy, sell or get involved in those locations and types of property which are considered unappealing by everyone else. Another approach might be to sell property when everyone else is buying it. (Something that could well turn out to be a good contrarian strategy at the moment!)
Use OPM. Use other people’s money. It’s true to say that there are many more people with money to invest than people with the ideas and ability to produce a return from it. Right now, with historic low interest rates, there are many more people with money looking for a good return on their money too. That offers an opportunity for entrepreneurs to link up those with money and looking to invest it for a return with attractive property investment opportunities.
While using OPM isn’t anything new – traditional lending is essentially using OPM anyway – new lending channels have added a new aspect to this of late. Peer to peer lending and crowdfunding are some of the newer sources of OPM to become available.
Add value. The concept of adding value essentially means find ways to increase the value of an asset in addition to any change in the value of the underlying asset. Adding value not only means you can add to capital return and add to yield, it also hedges against any fall in the value of the underlying asset as well.
Ways to add value in property include renovation, extending, or converting property from one use to a higher value use. For example, converting a house into a HMO is generally a value adding technique. New planning and permitted development rules are now offering new opportunities to add value at lower cost too.
Control rather than own. Use control rather than ownership models in your property projects. The idea of a control rather than an ownership model is to acquire most of the benefits of owning property whilst taking on fewer of the disadvantages and risks of doing so.
In property, control rather than ownership models can have a number of advantages. They can mean you need to raise less (or even no) finance, there can be tax advantages (fewer property-related taxes to pay on property you don’t own) and they are short term rather than long term.
Contemporary property control rather than own investment models include rent to rent and WeWork type shared workspace schemes. So consider what other kinds of property opportunity you might be able to apply a control rather than ownership model to.
At the end of the day, when you look at the strategies for succeeding in property they all have one thing very much in common: They are not just strategies that apply to property. They are very much the same strategies that apply in any business, with the added advantage that they can be particularly effective when applied to property.