A battle plan for building a portfolio

Updated: Jan 26





Most people will purchase one or two properties during their lifetime. But if your goal is financial security and real wealth you won’t achieve it by renting out one property. One of the first steps to become a successful property investor is to be aware that there are a full range of strategies beyond the basic rental property on offer. Whether you have a lot or little money to begin with, it is necessary to invest in knowledge to build a full understanding of each strategy before putting money down.


Most real estate strategies can generally be used successfully in a huge range of countries around the world and in fact lots of investors are actively drawn to the idea of investing overseas. Whether it's the thought of more affordable house prices, exciting returns delivered by emerging markets or just a passion for a particular country or region, real estate markets around the world have been attracting overseas buyers for years.


Whether you want to invest locally or abroad, a mix of strategies is a good way to build a robust portfolio once you have decided that real estate is for you. Below is a brief overview of some key strategies.



BTL


Simply put it is the purchase of a property for the specific purpose of renting it out.


Properties can be leased out furnished or unfurnished sometimes after a cosmetic uplift such as cleaning and tidying the inside and outside of the property and fixing anything that is broken. The presentation of the property can affect the rental income and quality of tenants and a clean and well maintained property is more liveable and attractive to prospective tenants.



Generally Buy to lets are straightforward so risk is low and generates a modest passive income.


Multi lets


A type of buy to let where the property is leased out room by room under separate tenancy agreements.


This usually results in much higher rental returns in the ballpark of 2 to 3 times the return of basic Buy to lets.


Refurbishment and structural work is sometimes involved to convert a property into a multi let to ensure the property has the optimal number of rental units (bedrooms), and is of the right standard for the local market and legislations.


To lease out a HMO, obtaining a license is required and properties must meet certain standards, such as presence of smoke detectors and fire doors. Definitions of what constitutes an HMO are set out in the law for each legal jurisdiction by local authorities.


Fix and Flips


These are properties you would buy to sell for a profit by buying low and selling high by typically adding value through renovation. The renovation works generally have a1-2 month turnaround timeframe. The aim is to find properties you can improve and add value to by redecorating, cleaning, landscapin


g, creating a space or creating a view for example. You can make nearly any property live better, look better, and feel better but be aware that this strategy works well in a rising market. Speak to people who have remodelling experience Learn what features your future tenants or buyers will pay for. It may be worthwhile thinking of forming a partnership because this will give you more funds to play with. If you know people with the right kind of skills, you can discuss how you can make this work for both of you.


Commercial


Commercial property is real estate that is used for business activities. Commercial property usually refers to buildings that house businesses, but can also refer to land used to generate a profit, as well as large residential rental properties. Commercial property includes malls, grocery stores, hotels, apartment buildings, offices, industrial estates, manufacturing shops and even land development. Commercial real estate investing involves big dollars and lots of people. It can build long-lasting wealth for the investor but is a strategy involving high risks. But risk is a facet of doing business — any business and anything that you go after which has great worth has great risk. If you think you have it in you to take the Commercial Investing route, the best thing you can do to protect yourself is to understand all the risks that are possible, and get your advisors involved to help you figure out how to avoid them.


Development


Real Estate Development is one of the most exciting but complex areas of investment you can get into. It can be described as the process of developing land or buildings into a higher use value and involves buying, designing, financing and constructing facilities. (Personally I classify a project under “development” if it involves major structural changes or breaking ground.)


Whether its a residential or commercial development, real Estate development is risky business and requires in depth knowledge of the market and area to ascertain the feasibility of a proposed project, as well as a business network and strong personal skills to work with a variety of people to bring the vision to life. It is an area which often takes a few years to fully understand thus it's recommended only for those with a real passion and drive for property development.


Note that Strategies can also be combined to give the best investment return. Depending on your specific area of interest, there are some other types of projects (such as social, student or seniors housing) which stems from or encompasses the core strategies above which you can look into or find out more about with others in the Marketplace.



No one can be an expert in all strategies and its best to focus on one strategy to begin with before expanding and diversifying your portfolio. The various strategies generate cashflow or capital with the return depending on the market and the work you put in. Simple vanilla buy to lets are a good place to start and it is common for people to build a portfolio with a couple of simple rentals first before moving to the more complex and riskier end of the investment strategy spectrum. Although in the beginning you will likely have to be hands on, over time as you build your portfolio and team, ideally you will have more free time so that you can focus on the m


ost important aspects of your real estate business which is building your contacts list and obtaining finance for projects. Due to the many variables and complexities with Property Investing, it is important to have local knowledge of your investment area and consult with professionals who can provide advice and assist with tailoring a plan for your situation, risk appetite and long term life goals.







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