If you’re just taking your first steps in the property industry, there are a few things that you need to think about before you really get started.
It’s not simply a case of ‘buy property, sell property, make money’ – you want to have a think about what kind investor are you today, and what kind of investor do you see yourself being in the future? By the way it’s OK if you don’t know the answer yet – but it can be helpful to have clarity around the kind of investor you’d like to be eventually.
Firstly, you should consider whether you want to be a passive investor, or an active one. There are pros and cons to both. Passive investing is the way to go if you’ve got some money saved up and want to buy something, but you don’t really want, or don’t have the capacity, to do much more than that. It more about ownership than developing, which is the route to take if you have a full-time job that doesn’t give you much spare time.
The negatives are that it’s not the most dynamic thing in the world. Your returns are going to be fairly limited insofar as you’re buying something that doesn’t need any work done on it, so the likelihood is you’re only going to see slow (but steady) capital growth: a lift in value will come from the market rather than anything you’ve done to improve the property.
Nothing wrong with that strategy at all, but you might have a little more fire under you and want to be much more hands on – that’s where active investment comes in. When you’re an active investor, you’re going to be looking for property that you can quickly add value to and roll that profit into your next deal.
You do need to give serious consideration as to whether you have the capacity for this, as it will be time-consuming. When I started out I had my own architectural practice and was my own boss, which meant my time was largely my own and I could (for example) run out at lunchtime to meet the builder. If you work 9-5 you might not have the space to do this – yet!
Each type of investing has its own merits. You just need to figure out what’s going to be best for you. To go back to my original question – there’s still a little bit more to think about. Where are you now, and where do you want to be?
It’s not a complicated question and luckily the answers are fairly simple:
No property – you don’t have any property but would like to own one or more in the future. You’ve saved, or are saving for, your first deposit.
Homeowner – you own your own home but no other property.
‘The Accidental Landlord’ – you may have bought a home in the past and rather than sell when you moved, you hung onto it to rent out. This wasn’t necessarily what you’d planned, but by circumstance you’ve become a landlord by chance and often find you have done quite well in the process. Alternatively you my have inherited a property and have it rented out.
Property investor – you’re intentionally buying property and have more experience than the average Joe. You’ll often start out doing buy-to-lets or flips and perhaps graduate to BRRR. What happens next will depend on your longer term vision.
Property developer – this is more complicated: you may own/want to buy a piece of land to build on, there’s more risk and more to think about on each deal: funding, hiring the design team, planning, construction and the sales process. It’s a lot more involved, but you stand to make bigger profits.
Real estate entrepreneur – this is a full on real estate career and usually on a far bigger scale. You can originate/structure deals and you’re most likely dealing with multiple investors and lenders. You’ve created multiple streams of income from various sources whether that’s projects or other revenue drivers. This is a career rather than a side-hustle.
There is no right or wrong answer here. Becoming a real estate entrepreneur isn’t necessarily what you should be aiming for: its all about deciding what’s best for you. The journey of a property investor doesn’t have to end with plans for global domination!
Stop comparing yourself with others and don’t let other people’s goals, ambitions or plans be the things that guide you – get clear on the lifestyle and responsibilities you’d like to have a decade or two from now and get to work on your roadmap to get there.
If you’d like some more property investment tips, tactics and strategies join me on my free weekly training workshop – the Property Investor Roundtable.