Even the newest property investor can become successful. Copy the professionals. Get a good plan.
After I had been in the property business a few years I came across an article that said just that. Get a good plan. Taking that advice helped me considerably.
Looking back on it now, several years later, I think that I can improve a little on that advice.
Firstly, don’t start out without a good plan and secondly, once you have a good plan, look for a better one.
Making your living from real estate is exciting. It is a most interesting voyage of discovery. However, you don’t start any journey without a map of some sort and then you get the very best map that you can.
So what should you be including in your plan?
An executive summary
A description of your business
Your short term and long term goals
Your strategy of finding properties
A competitive analysis
How you plan to develop your properties
Plans for daily operation and management
Details about your finances, as well as projections.
If at all possible there is one last ingredient you should add to your plan and that is to find other investors. Whilst there are some parts of their method that some folk just love to be mysterious about, I have found most other investors to be a fantastic source of information. Of course they are going to boast about the big deals, but I am always surprised at how ready they are to recount their rookie mistakes.
Now you are not going to find them listed in the yellow pages, but your local realtor might be helpful. I don’t go in for joint ventures myself although I do know of people that have found this a good way to make quick progress. Just sharing information is for me a very profitable enterprise.
Here is something else that many of us have found to be successful. The very first project is to buy something cheap and trade up. Doing this will give you the experience and establish you as a property investor. Then, before you move outside your comfort zone, do it again. Act as though you are a newbie again, review what you might have done better the first time and buy another inexpensive property and trade that up. The old rinse and repeat philosophy.
In your early days you will start to see some money coming in. You will hear stories or read about other areas of property investment that are more profitable. You should resist the temptation to diversify until you are fully established with your original plan. Once you feel confident enough to diversify, do keep a healthy balance between net income and borrowing levels. Nobody likes surprises, at least not those unexpected events that cost you money and can unsettle your plans.
A successful property investor knows that the rental income has to service its own outgoings. A generally held belief is that the rent will be dictated by the area. That is to say that the amount being produced by similar property will be the maximum that can be earned. Well, I’m here to tell you that It ain’t necessarily so.
That will be the case if you are acting like a run-of –the mill landlord with run-of-the-mill properties. Perhaps you can dare to be different. Perhaps you can dare to be better. How about attracting the best renters to the best properties? (For just that little bit more money).How about contract cleaners or contract gardeners? The better renters may expect it and there will be a little more money in it for you.
If you go for multiple unit properties, as part of your portfolio, you will want to include vending machines. Don’t forget that washers and driers can be a good additional source of revenue. Just get a bit inspirational and increase your productivity.
When you have a few properties you can tackle some of the repairs and maintenance yourself particularly if you have some DIY capabilities.
However, once you have a larger portfolio you will need to use some contractors. This is where you can leave yourself open to some unplanned expense. Most tradesmen will want to supply and charge you for the materials as well as the labour.
Now he is going to charge you a little over the retail price for the materials. If he is a tradesman of any standing he will be getting a discount or wholesale price for those materials. Effectively they are loading your costs twice. So have him do the work on a labour cost only and monitor the time that he is on the job. You can open an account yourself with the wholesalers.
After a few orders you can negotiate a good discount and they will almost always deliver for free. In this way you can use your savings to keep all of your properties in tip top condition and earning at the top rate.
Keeping up with maintenance and being prompt with repairs is cheaper in the long run. As with many things in life, keeping up is easier than catching up.
Probably the greatest result of this is that your tenants stay longer. It is imperative that you look after your tenants, for if you look after them they will look after you. A frequent turnover of tenants is expensive. When they move out there is almost always some redecorating or making good required. This often takes up all of the security deposit and even the nicest tenants can leave suddenly owing money or an unpaid bill.
There are probably many different reasons or circumstances that persuade people to become tenants rather than property owners. Whatever they are I am glad that they exist and keep up the supply of needy renters.
My philosophy with regard to most properties but particularly family homes, and one that I recommend to my students, is to provide the circumstances in which the tenant is able to act as though he were an owner occupier.
If he is a model tenant, the sort that I want to keep, I will provide the garden contractor if he selects and pays for the planting of his choice.
Similarly, I will provide the decorator if he selects and pays for the decorating materials.
In this way he is able to have the circumstances of his choice. The neighbours, friends and family would have no reason to think of him other than as an owner occupier. He will wish to keep his relationship with me for as long as possible.
And that my friends, is just as it should be.