9 things every first-time property investor should know
Hi Grant, I would like to know how to become a successful property investor. Where do I start? – Mbali
Hi Mbali, property investment is an attractive way to make money, but also an excellent opportunity to either lose money or end up with your money stuck in an underperforming asset. It is vitally important that first-time investors understand the risks associated with investing in property, rather than focusing only on the potential upside of their property investment.
First and foremost it is important to have a clear goal before entering the property market. Each property you buy must serve a purpose in achieving your goal: Be it cashflow, capital generation or as a legacy investment. Once you have clarity on your goal you will need to decide on the investment strategy that aligns closely with your goals.
The 4 strategies
Property investment strategies include buy to let, multi let, capital flip, and development. The strategy you decide to employ will then provide you with guidance on the area in which you should be investing. Area selection is important; the old adage “Location, Location, Location!” certainly applies, particularly when employing a specific strategy to achieve your goal.
Understanding your numbers and being able to run these comfortably is extremely important. Property investment is a numbers game: You let the calculator decide, not your head.
You must be prepared to assess your resources. Capital, time and knowledge are your most important resources. Capital should be viewed in two parts: Your own capital and other people’s money. Any first-time investor must ensure they are comfortable with utilising other people’s money; in other words, leveraging the property in order to maximise return on investment.
Fortunately, or unfortunately, you pay for your education one way or another, whether in a formal environment, through a mentor or coach, or lastly, by making your own mistakes. It is certainly far more valuable to invest in your property investment education and yourself. By education yourself, you are able to reduce risk when entering into a property deal.
It is important to build a strong power team of professionals who can assist you in your property business. This power team could include any professional involved in the property investment process: Your builder, attorney, accountant, transferring attorney, estate agents, architect, etc.
Property investment is full of risk but can be lucrative if done right. My last point on risk would be to ensure that for every property deal you assess, you make sure you have a viable and realistic second option should your primary strategy not work out.
Lastly, ensure you are consistently analysing your property portfolio to ensure the return being achieved is consistently optimised.
#1 Have a clear goal you would like to achieve
#2 Decide on a strategy to achieve your goal, which in turn will help define the area into which you’d want to invest
#3 Make yourself an expert at running the numbers
#4 Get comfortable with other people’s money and the concept of leverage
#5 Educate yourself
#6 Get a coach or mentor that has been successful to help you get started
#7 Build a strong power team of working professionals
#8 Minimise your risk by having a second option if plan A doesn’t work
#9 Ongoing portfolio assessment to ensure you money is working as hard as possible (return on equity)
Got a question about property investing? Email email@example.com
Who is Grant Smee?
Grant Smee, MD and franchisor at Only Realty, has been operating as a property investor since 2005. He has a solid financial foundation gained through tertiary studies in finance and accounting, and experience gained in large international financial institutions. Extensive property investment and rental knowledge has been gained through personal property investments and property business ventures since 2005 in both South Africa and the UK. Smee’s specialties include property investment and rentals in the residential housing market.