When investing for the long haul, it is important to select the right property for your deals. We already have finite resources, so it’s only good sense to ensure you make these limited resources work even harder for you.
Buying a simple BTL which makes money when you sell is not extracting the most value you can from your deals and will take an investor aaaggeeesss to grow any meaningful portfolio. A savvy investor knows there are top tips to selecting the right sort of property that will make your deal stack up quickly, and ensure that in very little time you can extract the most value and maximise your investments’ potential exponentially.
The below system is fundamental to the growth of my portfolio and makes for an investment property to be considered a great deal, anything less, and the property is not maximising it’s value. Therefore, when I’m buying investment properties or checking out deals, I’m constantly evaluating against these initial 5 criteria, so i know it’s has the elements of a good deal. This is even before we get to the core number crunching exercise.
lf you’re just getting your 1st property or you’re thinking of expanding your portfolio, you’ll definitely get value from reading on....
So, I thought long and hard for how to present the system that has consistently delivered for me and finally inspiration came! You see, I had been on a product creation course that had explained the principle of “making your message sticky” and it is basically a way to present your content in a way that makes it much easier for your listeners to remember, and therefore reduces their chances of forgetting every you just said! Indeed, it would be easier to just reel out step-by-step principles that delivers each point, but if I tell you I’ve come up with a GREAT system that works for me when looking for the right investment property, in which each letter of the word GREAT speaks to each of the steps then guess what you’re more likely to remember (or at the very least, you have a higher a chance of recalling the word GREAT and you can then possibly remember the paints i made).
A good example is the well know S.M.A.R.T methodology for setting goals where each word makes up the elements of effective goal setting.
Now, back to my G.R.E.A.T methodology which works as my minimum criteria in selecting Buy to let property deals:
G – Generates Cash (positive cashflow)
R – Rental Demand is strong (great area)
E- Equity built in on day 1 (discounted rate)
A – Ability to Add value (able to reconfigure the property to add more value)
T – Takes care of itself (generates Passive income)
Lets elaborate each point:
G – generates enough cash from the deal to provide positive cashflow and means that once you’ve worked out your monthly rate, the property’s rent always exceeds the mortgage. You would think “duh” this is not rocket science, but I have met a number of people who are topping up their mortgages as the rent doesn’t quite cover it and annual services charges, maintenance charges etc have not even been factored in! and whilst I understand that as a strategy (especially if one is buying in a highly desirable area or has arranged a repayment mortgage instead of interest only), it is not scalable at all and infact can lead to serious potential issues if there’s a change in personal financial circumstances (as we have seen with COVID19) and can expose your portfolio to undue risk. For me, it is completely unnecessary, as there are always other deals that will stack up and will bring the positive cashflow from a property, so I always ensure the numbers stack up for a positive cash-flow that exceeds the mortgage and leaves enough to actually save from. (disclaimer – it is always good practice to discuss your investment plans with a professional adviser to make sure your personal circumstances are addressed before making any investment decisions).
R – Rental demand is strong and certainly this comes down to location location location and with all the different property investing strategies, it important to know that the rental demand in the area actually works for the strategy you’ll be employed for the property. For example, securing a HMO or Serviced accommodation property in a location that doesn’t have easy access to transportation or deciding to buy a property in an area with only one major player eg University towns with just one or 2 universities, is definitely leaving oneself more exposed to rent fluctuations and voids. It could however work as a Single BTL but then the margins would be smaller but consistent, so it’s important to work out the property location and ensure there in rental demand for the chosen strategy.
E – refers to the Equity built in from DAY 1 and in simple terms it means making money or locking in profit when I buy a property. In most cases, I’ve already identified how i can secure a discount to the market value, so the value is locked in from the onset and it means that when combined with the next item we will be discussing, you can further realise more value so that by remortgaging within a few months, it is possible to extract most of your initial capital out of the deal to move unto the next deal. However, this criteria does have it’s own challenges, depending on the local market it might be a struggle to find them. Obviously, in hotspots and desirable/ highly appreciating areas, it is more difficult to secure these deals, but it is one to bear in mind. Sometimes, I will source through professional deal packagers, and there are also direct-to-vendor routes where you can source directly from owners. Savvy investors are constantly be thinking of creative ways to source and negotiate deals or possibly lock into a deal to buy it at a later date with an option.
For me, I find it easier to spot these deals in Auctions (though I caveat that auction purchasing can be much higher risk for a 1st time buyer or novice buyer) but it has consistently delivered for me. So my last project, I located a lovely flat in zone 2 in London Maida Vale area priced at £320,000 guide price in auction which looked like an AMAZING BUY, but actually didn’t mean anything, as I’ve seen these desirable properties start off really low and then due to popular demand, the price then blows past the market value to sell at £150K above the guide price! The auctioneers have perfected this act, and they will list properties at these prices to draw attention knowing, all too well, that the combined demand is likely to achieve spectacular results due to the amount of interest they’ve generated.
Anyway, back to the story, I decided to go to the auction to see what would happen to the property, as it ticked all my pre-selection boxes, and low and behold to my utter utter surprise, the price started to stall at £340 -350k and I was like …“no way, this is an absolute steal!” . You see, the month prior a smaller flat just down the road had gone under the hammer at £427,000 and it was an ok buy, now, this was already being called “going 1, going 2 …and my hand just shot up! with the strategy I had I knew it could easily be uplifted to at least £550k (which is actually what it eventually valued) but that day, i won the bid just narrowly at £400k and thereby locked in the value from the onset. This is not a one off, deals like this are constantly around and even more so if one is able to source directly from the owners before they hit the auction!
A – Ability to Add value by modifying the property – the previous step might be difficult to achieve, but for someone looking to employ the BRRR method (*sticky concept alert*) which is a well known investing strategy and means to BUY – REFURBISH – REMORTGAGE – RENT – REFINANCE & REPEAT, it’s important to approach each deal with a view to work out what creative ways you can identify to add the value to the property, otherwise, it’s just a simple deal, in which you’ll need to wait for the market to move up in your favour to get anything out. Its a strategy… but its a very slow strategy.. and while it is not the most efficient use of investment funds, it honestly depends on your GOALS. If your goal is just to buy 1 property every couple of years, then it won’t be for you. This requires you’re happy to get work done to the property, or find ways to get planning gains but it is very well worth the effort as lots of deals work out such that you can then realise the value and move on to the next shortly after and rapidly add properties to your portfolio. It might be just simply reorganising the layout, or adding an extension or loft to make sure you can refinance & extract the initial investment to roll into the next project and is the best way I’ve found to expand my portfolio.
And finally T…
T – Takes care of itself – The property takes care of itself and provides a light touch approach to managing it. Let me preface that your selected investment strategy will determine what effort you’ll need to put into it – The simplest and most obvious strategy would be to simply let the property to a single household for the longest time frame available. However, even with high yielding, high cash turnover strategies, such as Serviced Accommodation or HMOs (houses of Multiple occupancy) you need to spend a bit of time to develop it, systemise it and then it can run itself. It is never quite as light touch as Single lets but it does have its rewards and can help you attain FIRE (Financial Independence & Retiring Early *see another sticky concept *) much quicker. The best deals do take care of themselves and require little input from you so you can earn while you sleep, and as you scale you can create systems and processes that remove you from the day to day running and still provide that income.
So hopefully I’ve done a GREAT job of at breaking out the GREAT way I generate GREAT returns to achieve GREAT profit and build up a GREAT portfolio!
Now, you see you’re less likely to forget 😉
