A question I am sometimes asked is ‘how do I know what type of property to buy?’, which is a great question.
I think it’s a great question because I’ve seen that a lot of investors, new and experienced, often think the answer is obvious, but they often get it wrong.
The starting point for me in answering this question might seem a bit of a convoluted process, but I think it’s really important to get the foundations right, and to understand what we are doing, before we jump in and start buying properties and spending a lot of money.
So, this is what I suggest you do.
Firstly, I would sit back and consider why you want to be a property investor, because there are going to be particular goals you want to achieve, and aspirations and results which you want to get out of property.
The next stage would be to select the right strategy to achieve those goals.
At a simple level, perhaps your goals are more income based than capital based, and that will influence your choice of strategy.
In selecting the right strategy you’ll then going to start to get a clue as to the type of property that you need to be buying.
For example, if your goals are around income, it may be that you’ll want to look for a buy to let property.
For me, because of the particular strategy which I use in buy to let, it would mean looking for a cheaper property in a cheaper area, and preferably a property which needs some work doing to it so I can do a refurb and add some value. If you’ve watched any of my videos or read my other posts, you’ll know why I do it that way.
But it may be, for example, that your strategy means, based on your goals, that you need to make lump sums of cash instead of rental income. In which case you might need to look for property to flip.
This is most likely going to be a different type of property, and in a different are, than a typical buy to let property.
Why is that? Because a cheaper property, in a cheaper area, isn’t always the best property to flip. It’s going to take longer to sell than a more expensive property in a more expensive area, because there will be less of a demand for it.
Ideally you want to sell a flip property to an owner/ occupier. An owner/ occupier wants to buy the property now, and they will pay more for it, than an investor. Often an investor wants a discount from the value, and will drive your price down. This means it’s often much harder to make a profit flipping to an investor.
If I were looking for a flip, I wouldn’t look for the most expensive property in my area because there’s a smaller demand. More people can afford to buy cheaper properties than really expensive properties.
So there’s a sweet spot. It’ll be a property which will be good for, maybe, a first-time buyer or a second time buyer, so it won’t be the most expensive in the area, but it’ll be more expensive than a typical rental unit.
You can see from this simple example that by knowing what you are trying to achieve, and by knowing the right strategy to achieve that, you’ll get a much better idea of the type of property you need to be buy.
Peter Jones B.Sc FRICS
By the way, I’ve rewritten and updated my best selling eBook, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same. For more details please go to ThePropertyTeacher.co.uk