2021 has been an interesting year for the UK property market. Despite fears of a recession and subsequent market crash, the UK economy has posted steady growth through September and august, and will likely continue along that trajectory. This is good news for property investors because it means property values will continue to rise.
The trend suggests that this is one of the best times to invest in property. It also presents a challenge; how do you make more money or grow during this period?
If you don’t have a straight answer, you’re in the right place. Here are the best real estate growth strategies for your investment business.
Note: this guide is meant for new property investors who have little to no experience with the property market. If you’re a seasoned professional, you may want to consider joining our master class for more advanced strategies
Buy properties that provide positive cash flow.
Cash flow is the difference between what you earn and what you spend on a property. You’ll have a positive cash flow if there’s money left over from your earnings after you pay taxes and other bills. If the expenses exceed the money earned, you’ll have a negative cash flow.
A positive cash flow helps you grow by giving you the freedom to acquire and hold onto assets long enough for their value to increase. While this may take some time (since you’re focusing more on cash flow than appreciation) their value will increase eventually.
It is also useful if you’ve just entered property investing. There are 3 reasons for this
(a) Passive income
Your primary goal is to earn passive income. A positive cash flow property will generate money that can serve as a financial cushion of tough times.
(b) Increasing returns
Positive cash flow properties provide increasing returns. Rental prices tend to increase over time with little or no change in monthly expenditure. This means you’ll see steady cash flow increases from your property.
As your tenants pay down your mortgage bills, your property’s equity will increase, giving you more leverage.
As you gain full ownership of the property, you’ll gain the freedom to use it as equity for more real estate asset acquisitions.
(d) Risk management
Positive cash flow properties make money in two ways – through appreciation and rental income. On the contrary, a property with negative cash flows can only make money through appreciation. Such properties usually generate significant returns on investment. However, success is not guaranteed. You could make significant losses if the property does not appreciate.
Capital is one of the biggest obstacles to growing your real estate investment business. Getting it at an affordable rate will enable you to beat your competition.
Your capital acquisition options include (but aren’t limited to);
Buy to let mortgages
Buy to let mortgages are specifically designed for UK property investors who purchase residential buildings with the aim of renting them out to tenants for profit. For this reason, they may be expensive. The interest rate and initial deposit requirements are often higher than what would be required for traditional mortgages.
Buy to let ventures
You could partner with a family member or friend who would give you the cash. Ideally, this should be in the form of a loan on which you offer a fixed interest rate (between 6-12% a year). You could share the profits, with your partner putting in the money and you doing the work, or you could both invest equal amounts then share the profit.
Regardless of your arrangement, you should draft a declaration of trust that specifies the terms of investment, division of responsibility, and security involved. It should also specify what happens if things go as planned, and what happens when they don’t.
Diversification helps you balance risk and reward by distributing your investments across multiple locations and property types. This approach will require more direct management. But, it will protect your business from sudden market changes. If, for example, you’ve invested only in student accommodation, then you will have to deal with little to no income when schools close for the holidays.
How to diversify
Diversify by location
Real estate is highly localized. This means that one city might be doing well while its closest neighbors experience slowdowns. Diversifying across several locations allows you to capitalize on the trends in different markets and offset significant downturns in any one location. When diversifying across various locations, look for markets with significant job growth rates, job diversity, and population growth. This approach will ensure your target real estate markets achieve positive growth in the future.
Diversify by asset type
One of the best features of real estate investment is that it offers a broad variety of asset types. You can invest in anything, from small multi-family residences to single-family homes and large apartment complexes. Diversifying this way allows you to counter the threat of broad macro-economic changes.
Diversify by asset class
To understand asset class diversification, we’ll need to discuss consumer behavior. People tend to rent large, luxurious apartments during times of prosperity. In tough times, they usually change location to downsize and find more affordable housing.
The point here is that some asset classes will perform well in good times, while others perform well in bad times.
Real estate is a cyclical market. Since it’s hard to tell when the next recession will hit, it’s vital to invest in different asset classes. Doing so will keep your portfolio profitable in all parts of the market cycle.
Find a mentor
Talk to experts in the industry. A real estate investing mentor will provide coaching and knowledge. Their mentorship may take many forms and will look different for each relationship, but at the very least, it will provide support, and knowledge to help you learn new techniques and improve other aspects of your business.
We’ve covered some of the best ways to grow your business if you’re just starting out in the property market. But, there’s a lot more. If you want to know more about how real estate works and how to make the most of the opportunities it offers, you may want to consider joining a property investment training program. It will give you helpful insights into how to invest for success.