Before you read this article, I will start by irritating 10-15% of readers with this. Sadly, you can’t get into property without money. I don’t want to say it’s impossible. I’m sure there are anomalies out there but even the strategies designed for investors with little funds still requires some funds. Attending viewings and mailshotting people isn’t free after all. Of course you knew that right? If this wasn’t the case there wouldn’t be an army of people moaning that they can’t get onto the housing ladder as everyone would be doing it.
With that lovely sentiment above, if I were to start all over again, completely again, I would start by telling all my family and friends my plans to see if they want to share in the journey, after all who trusts you more than the people close to you. I would then attend as many networking events as possible to soak up the content but mostly the contacts. Most importantly, I would begin saving hard. There is a great book called ‘The Richest Man in Babylon’. You can read it in a day – I recommend you do. The book describes how you should treat your accounts - 10% to savings for the future you, pay yourself first then the rest follows. That’s a good model to follow if you’re not very good with saving. Once you have a small pot you can begin without putting any strain on anything else. I would say £3-25k can workdepending on your goals.
Before that I would sit in a quiet room and ask myself where do I want to be and how quickly do I need to get there? After I’ve answering the above, I would ask where do I need to be as they are two completely different levels. Need would be a level whereby I could pay the bills and keep my head above water and want is where I would want to be to live comfortably. See below diagram.
Once answering those questions, I would plan my strategy which will help me to reach that need level as quickly as possible. Ideally within a year. I would do that by breaking my yearly goal down into smaller chunks over each quarter of the year.
(See below diagram A, this is designed to plan your goals effectively without the need for a formal business plan, each ring represents a year, each line represents a task that stretches over the years. Using this you can see quickly whether your plan can work or if it can't where its let down and by what. So for an example if you wanted to earn £10k NET passive income from property by the year 2022 you would put that in the outer ring, then work backwards to now in manageable chunks. I normally say that the need level (shown in the cashflow pyramid) should be the first year so if you then divide the other two years in the middle to give you goals for those years. Moving around the circle clockwise you then need to put down how many houses that would mean you needed to get to achieve that cashflow, and again work it backwards to this year. The following string asks you to consider what cash you would need to get to that point. Don't worry too much about this one the main thing is to have the cash to fulfil the first ring (2019) after that you will be more than capable of sourcing alternative funds through investors or JV's. Once you have completed the 4 year plan, move onto the yearly plan. The idea of this is to use the inner ring 2019 from orbit A to populate the outer ring of orbit B and work backwards to today, breaking the year down into quarters so that you can see if that 1 year goal is achievable. Remember this is just an exercise of course it will move, its just to give direction to year one and set a bigger picture!
So with your goals set the plan could go 2 ways. This is dependent upon where your own goals and cashflow ideals are and how quickly you have to get there. There is no right or wrong way, the above exercise will show you the best way for you. But if I had to start again the first way and the preferred way for me is:
1) To start with a single let, that’s right a single let. I bet you thought I was going to say HMO! In fact, I would probably go the same route that I did in 2014. I think it’s how most investors start. By design or by accident. The opportunity in this economical climate is still the same. I would buy a house to live in using a 95% LTV product. Then renovate the property and add value to it. ideally +25% so that my cash left in was at a minimal. Then after some time I would refinance the property onto a BTL, take some equity out and move on. If for some reason I couldn’t refinance the property I would sell it. With the proceeds I would buy another house to live in but again one where I could add as much value as possible with the plan of doing the same. The main target with any deal if I were starting from scratch would be to get all the cash invested back out, so the pot doesn’t deplete.
There is no shame in buying single let’s. They are relatively passive, easy to look after and reliable. Exactly what you need to begin with. They are not the shiny HMO that most people aspire to do. However, buying a single let first teaches you so much. I literally can’t tell you how much I learnt from my first deal. It’s a stepping stone and an important one as it builds confidence. And of course, it will also look good on your future finance applications.
Then I would sweat the asset base to the max and look at some of the different strategies that generate quick income such as HMO’s. If that cash base was small I would explore the R2R model.
Alternatively, if the pot couldn’t afford a single let or I needed cashflow and I needed it quick, the second option would be to look at:
2) The R2R model. I would develop a base of R2R that was big enough to sustain the first tier of my cashflow goals and then begin saving for a deposit. After all it’s all about ownership! Every person using the R2R strategy intends on moving to own a portfolio so they can not only benefit from the cashflow but the capital gains too. Alternatively, you could develop the portfolio to a size where you could sell the business and reinvest that into owned assets. Once I had done one project I would leverage it as much as possible. Using it as proof of capabilities/competency and begin looking for joint venture/investment funding through social media/networking events. I would stick to HMOs to get you to ‘the comfort level’ (middle of cashflow pyramid) They are the best way to create large chunks of income but because of the current HMO market conditions I would be very strict on criteria for those projects. By having the same that I have now, location, price, amount of beds. The HMO market is undergoing some changes so I would be cautious here and would only develop as much as I needed.
If you are already doing HMO's and you haven't got it already (and if you have thank you) I've created a ten page PDF showing you a range of case studies from standard BTL to the 3-7 bed HMO on how to get the most space and value from your property projects. Each case study shows bathroom details, plans, drainage and images of the type of property you should look for. There are also hints and tips on how to make the most from your projects! It is a must have for any aspiring or active investor and it took 5 years to create! You can download it here www.jmiholdings.co.uk/playbook.
I would possibly rethink my growth strategy and not do the typical 50/50 joint venture. Instead only the 1-1 model where I provide a turnkey project and in return the investor provides me with an interest free loan. That way the joint venture break would be much easier and there would be no need for all of the infrastructure that’s needed when operating joint ventures in the typical manner.
Moving forward to take me past that level of comfort and stabilize the portfolio through diversification I would think more about SA or small commercial properties. I think there’s a lot of opportunity with properties that are on a high street with a retail unit on the ground floor and some flats above. Some of those properties cost less than HMO’s have smaller running costs and can provide similar returns!