How does property investment start for many property investors?
Why do more than 80% of people who have invested in some sort of property training don’t do anything after their training?
We at Limitless Monks, what did I and Sudheer do different when we were thrown similar challenges along our journey?
This post is specifically designed to talk about the challenges that people go through when starting their investment journey and few that we successfully manoeuvred?
Did you feel that ever after going through your training’s, be it formal or if you have self trained yourself with your own research?
People tend to drop off when there is information overload and unaware on how to take things forward practically.
I and Sudheer, having gone through quite a few challenges before by setting up few businesses we hoped it should be straight forward.
We had our share of challenges during the start of our property investment journey.
Here are a summary of a few that I would like to share.
Challenge 1: The Beginners Syndrome
With the information overload most of the property investors find it confusing on what to do next.
Below three questions is where the confusion starts
- What strategy to pick, Cash strategy, cashflow strategy?
- Which areas to invest in?
- What should their plan be? How many properties can we invest in the current year?
First level of procrastination.
The procrastination isn’t the willingness to take action but many a times its overthinking on questions like:
Is this right area for me to invest?
We had the same question.
We took an approach where we just went for an investment area that we shortlisted in our analysis and started viewing properties.
Didn’t work out.
We went for second area and viewed more properties. Soon, we found the new area to be investor heavy and completely saturated.
Properties being bought at asking price.
That is when the reality kicked in to get creative and choose an area that is less investor focused at that time and nearest pocket to the saturated area, a potential future growth area.
It takes a small journey of sampling few areas before you settle down on one that works for you.
Finalising an area does not mean anything if we can’t find enough properties to invest in.
Challenge 2: Finding The First Property
After finalising on the area, next challenge that investors face is what do we do about viewing properties.
Specially if investment area is hundreds of miles away, how to manage those viewings required in volumes consistently over a period of time.
The next wave of uncertainty will be surrounding following questions:
- How do we approach estate agents?
- After a property viewing, if offer price is way less than asking price what do we do?
- If estate agents are not happy with the offer and blacklist you, what do you do?
- If we don’t have money with us, should we really be viewing properties?
- Believe me, few more people drop off not knowing answers to above questions.
- Should we do direct to landlord to get better deals?
The easiest thing to do there is to replace all above complex questions with viewing properties and then retrospect on questions above.
Many a times your action to view properties will often address the very questions that are listed above.
The four simple things we did were
- Keep it simple and stick of estate agents as source of our properties until we settle down in the journey.
- Recognise that viewings are heartbeat of our investment journey and create a viewings system that worked for us.
- View properties every fortnight and build rapport with estate agents.
- Chase up on offers every 3 weeks once an offer is given.
First offer was accepted after viewing over 50 properties.
Challenge 3: The Funding Tussle
The real fun begins when an offer is accepted and the financing challenges kick in.
If you are anywhere close to our first deal that we bagged with pride then below will be the questions you need answered with limited help.
With a view into the market, its safe to say that most drop off when such issues are hit on their first deal.
- Proof of deposit on day one when offer is accepted.
- Realisation of the fact that you negotiated a property well below market value and below £40000 and find that no bank will be willing to give mortgage under £50K at sensible interest rate.
- An angel investor has just backed off at the point close to exchange.
- Find that option of a bridging loan actually pushes the deal you have in hand into no-deal.
- Searches within conveyancing have thrown up issues resulting in increased refurbishment costs making your deal a non-deal.
Internal dialogue starts its play with what-if scenarios at this point pushing investors to fear zone leading to next level of procrastination.
Exactly the time when you need those creative dendrites to work and in our case we were fortunate to be able to raise funding via refinancing of a residential property down south enabling us to do a cash purchase.
Here is the deal:
It is never a question of how did we end up in this pickle, it is about what can we do to push through to the next stage.
Challenge 4: The Risky Refurbishment
The role of builder will either make you or break you as a property investor at this stage.
If we have to go by the first hand experience of what experienced on our very first property.
The first challenge for us in our very first refurbishment wasn’t a potential issue within the house but the power team member.
Here it is:
Builder takes about £7000 and runs away without notice and the referrer of power team member ends up in same situation with nowhere to go.
Here is what we observe when we as investors start on property investment at this stage.
- Give in to emotions and build that urge to get first property out of the way resulting in investors loosing their way.
- Not being pedantic on quality assurance, specifically when it comes to things like schedule of works, snagging list, cost control on a day to day basis, question things that don’t go to plan.
- Inaccurate due diligence on choosing a builder or power team member.
- The weekly detailed review of refurbishment progress.
- Finally, actually living in the property for a night to witness quality of living within the property.
This warrants a whole different post which we have written in one of our blog post “6 Tips To Find A Builder For Your Property Renovation”
Internal dialogue plays its part when financial loss hits a property investor.
Here is the deal:
There is no investor within property industry who has never lost money on one of his/her deals.
You are not the first one and you certainly are not the last. The better thing will be to find for solutions by taking ownership of the situation and progress ahead.
We recovered the loss of up to £5000 during our refinancing phase getting the refurbishment to the highest quality standards possible within the street.
Challenge 5: The Refinance Relish
I say relish simply because this is the moment of truth phase.
You either have an asset or a liability based on the outcome of refinance valuation that comes out from the lender.
The challenge to most investors is for those who are less organised and who are less focused on documentation and accounts.
- Many struggle to get the refinance documentation in time given the documentation is scattered and at time non-existent.
- If the deal is done without consideration for numbers and property purchased due to emotional pressures, it becomes clear at this point.
- Revaluation not meeting expectations only results in mounting debt if you are unable to pay to your investor.
To address the revaluation challenges we have been taking feed on best practices and tried and tested few things which eventually became our system.
- Before and after refurbishment pictures of the property in exactly same angles/views.
- Create the refinance pack as soon as refurbishment is completed and not wait until the refinance period.
- File all the documents including schedule of works, proof of bills, paid receipts so they are downloadable instantly when required.
- Hometrack report and sold comparables from rightmove and zoopla websites supporting our own valuation.
- Dress the property before revaluation to give that visual effect.
Property has been re-valued £5000 higher than the number we have factored in our estimates there by clearing the majority of loss of money that the builder has run away with.
The refinance best practices have been detailed out in a separate blog post here “Refinance – What Can You Do To Get Best Deal? “
We got the property refinanced to a respectable number of £80,000. That indeed helped in recovery of some of the money lost during refurbishment.
Property investment is a journey. Investors stop at various stages when challenges are thrown at them.
At Limitless Monk we kept on with simple principles of “Solution Mindset, Ownership leading to Wealth creation”.