How to Work Out Your Property Investment Blueprint
It’s an old adage, but the saying “if you fail to plan, you plan to fail”, nevertheless holds true in property investing as in anything else.
A property portfolio is not built overnight. It requires a great deal of research and action:
- Where to buy.
- What to invest in.
- How to source, negotiate, fund, refurbish and let out each property.
This is likely a multi-year project, requiring many tens of thousands of pounds and a great deal of sweat equity.
Therefore, it makes sense to have a robust plan in place, if only to keep you honest, accountable to yourself and to avoid the head-turning Shiny Penny Syndrome.
This article walks you through how to create your own plan – your Property Investment Blueprint.
Make Sure You Have Done This First!
Before going any further, make sure you understand:
- How much time you have.
- Where you sit on the knowledge spectrum and hence what property investment strategies are most appropriate to you at this point in time.
- How much capital you have access to (or could have access to going forward, factoring savings, refinancing your own home and so on).
- What you are trying to achieve.
Please take time to go through the links above. It will be worth it, I promise!
If you have done that, then it is time to put it all together into your own, personalised, Property Investment Blueprint!
The important thing is to know where to start and what direction you are heading in. I cannot overstate the importance of actually taking action, which is only possible once you understand your own, personalised Investment Blueprint.
Property Investment Blueprint Example
To give you some idea of how to put your own Investment Blueprint together, I thought I would give a fictitious illustration as this might be simpler to tweak to your own circumstances.
Note that I made this up, do not take the investment figures and returns seriously! To keep it simple, any reference to net income is after mortgage, voids, management and maintenance. I have ignored tax considerations, as this differs by individual.
Clearly, you need to account for this in your own Property Investment Blueprint and go into much more detail.
Beginner Building a Pension
In this fictitious example, let’s consider Steve.
Steve has a good job in IT as a freelance contractor in the South East. Steve has worked out that:
- He has 5 hours a week he can devote to property, but not more. He has a full-time job, a wife and young family to spend time with.
- He is a beginner, but property appeals to him and suits him as an investment vehicle.
- He has an investment pot saved of £80k from his IT income which he is willing to invest into property.
- Steve is happy with his day job as it affords him a good lifestyle. Being a freelance consultant, he has no pension. He would like to create a future pension through property and create future wealth for his children. He has no need to take an income from property right now and will not be looking to retire for at least the next 20 years. On retirement, he expects to own his own home unencumbered and has decided that £3,000 pcm would afford a comfortable retirement.
Steve decides that points 1 and 2 rule out any intensive use strategies for the time being, such as HMO’s and Serviced Accommodation, especially as he does not need to take an income. Standard single-let’s make the most sense to begin with.
Steve lives in an expensive part of the world but went to university in Portsmouth and still has friends there which he still sees regularly. He decides this will make a more attractive investment location than Surrey, where Steve lives, given the size of his investment pot. Crucially, it is reachable in less than 2 hours from his home, making travelling for viewings tolerable.
From doing his online research, Steve determines that a single-let in Portsmouth can be purchased for £150k and will net £300pcm in income at leverage of 70%, recognising this will decrease as capital growth inflates the debt away.
Relating this back to his plan, this would require 10 single-lets and approx £600,000 in investment capital (a return on capital of 6%, very achievable). Steve thinks he can save £20k per year from his job, meaning over the 20 years he will have an additional £400k to add to his investment pot, meaning that with his starting pot of £80k he won’t achieve his objective in its entirety, based on the simple purchase of single lets.
This reminds Steve that he must:
- Buy well. At a 10% discount, his requirement for 10 properties reduces the net purchase price by £150k.
- Add value. By doing this, Steve has the potential to increase rents through the addition of bedrooms and a higher finish, meaning he may not need 10 properties.
- Buying well and adding value also gives the potential to refinance further down the line, to generate extra capital for investment (but at the expense of some cash flow).
Note: You should always be looking to buy well and add value, regardless of your strategy!
Steve also recognises that with experience, he will be able to look at other strategies enhancing his investment income for retirement and either bringing forward his retirement date or increasing his retirement income, depending on how life progresses (you can’t plan so far out – life has a habit of throwing curve balls).
It is clear though that Steve’s strategy, assuming he can buy well, add value and look at higher-income properties in future years, is entirely achievable.
There is added flexibility as he reaches retirement too. With capital growth, it should be possible to sell some of the properties to pay down the mortgages on the others and retain the same net income.
So, the beginning of Steve’s personal Property Investment Blueprint looks like this:
- Year 1: Purchase first property, using £60k of his investment pot. Remaining investment pot is £20k, with £20k added from savings.
- Year 2: Purchase second property, using investment pot of £40k plus £20k added from savings.
- Year 3-5: Save £20k per annum.
- Year 6: Purchase third investment property with the £60k of savings.
This means by Year 6, Steve owns a £500,000 investment portfolio netting £1,000pcm thanks to rent rises and capital growth from starting out 6 years ago. A third of the way to his objective! Steve doesn’t need the rental income, so is saving this into a sinking fund to pay for repairs, voids, interest rate rises and any future enhancement works. In this way, the portfolio becomes self-funding.
Steve decides that in Year 6 he will take stock and re-visit his Investment Blueprint and re-evaluate his personal TKM Triangle to see where he goes from there, with a view to leveraging his experience earned to date.
I hope the example above has shown you how to go about developing your own Property Investment Blueprint.
It doesn’t have to be complicated at this stage, it just needs to be enough to set you on the right path and to get you taking the right action steps to move forward with. As noted in the example above, this document should be regularly reviewed to check it still matches your personal circumstances and objectives.
What is the biggest advantage of doing this research and planning? Focus. In the example above, Steve knows exactly where he wants to invest, what type of strategy will suit him and hence exactly what property types will make sense. His restricted time can be best utilised by focusing just on this location and property strategy and most importantly, take action.