How to choose the right property strategy

Turning your goals into a property strategy

As Michael Porter of Harvard Business School said, “the essence of strategy is choosing what not to do”. At the heart of Porter’s view of the world is the concept of trade-offs. In a world of unlimited resources, there would be no need for trade-offs or strategy. But we live in the real world. Our resources are limited, and on a long enough timeline, the survival rate for everyone drops to zero. So, we’re going to need a property strategy, quick.

Although it might sound like rather a grand term, a strategy is nothing more than a plan to achieve your long-term goals. We’ve looked at how to set property goals previously. We’ve even touched on how to turn those goals into long term action. In this post, we’re going to look at how to turn your goals into a strategy that works for you. We’ll do that by looking at some of the key questions you should ask yourself when you’re creating that plan.

Picking a property strategy that’s right for you

Throughout the property world, there are lots of property ideas, approaches, and tactics you can use to reach your goals. These ideas are neither good nor bad in themselves. However, they might be better or worse for you depending or your goals and your specific circumstances. For example, the play that achieves the best ROI may be no good for you. This might be the case if it requires lots of time and you’re time poor. We’re going to keep things pretty high-level, rather than consider specific investment approaches. Here we’re going to cover the five key questions you should ask yourself when you’re deciding on your property strategy.

1. What’s your timeframe?

If you’ve followed our previous advice on goal setting, you’ll have set some goals that are both measurable and meaningful. One of the key factors in determining your property strategy is your timeframe for achieving those goals. For example, suppose your goal is to generate £2,500 per month in rental profits within five years. If you have £200,000 to invest over this period, you’re unlikely to achieve this with basic buy-to-let investments. So, you’ll need to look at another approach.

2. How much capital can you invest?

You should think about how much capital you have to invest. This is both in the shorter term and over the longer term via additional savings. The amount of capital you have to invest is a key determinant in how quickly you can build your portfolio. This is key to understanding whether certain strategies are open to you in the first place. For example, it may be possible to secure a discount and buy below market value if you buy in cash. But that’s only a useful approach to you if you have cash available.

3. How much time do you have?

Each investment approach will have its own time requirements. If you’re time poor and working 80 hours a week in the city, certain higher yielding strategies like houses in multiple occupation (“HMOs”) or self-management of basic buy-to-lets might be off the table. You need to be honest with yourself about the amount of time you have available. You need to think about what trade-offs you’re willing to make.

4. What’s your risk tolerance?

Each investor will have their own view of what’s risky. Each investor will also need to get comfortable with the risks inherent in the projects they’re taking on. For a conservative investor who’s not a big fan of debt, sticking to a moderate amount of leverage and investing in buy-to-lets in areas with high tenant demand might be as “risky” as they’re prepared to go. For a skilled tradesperson with good local contacts, refurbishing a property and selling it on for a profit may not seem risky at all, provided the price is right and there’s margin for error in the calculations. It’s all a matter of perspective and what works for you personally.

5. What’s your superpower?

When picking your strategy, you should think about what unique abilities you have that could unlock extra value. If you’re a great negotiator, think about how to use that. If you’re a skilled interior designer, then pick a strategy where you can use your superpower to generate supernormal profits. Carry out an audit of your skills and try to be honest with yourself. Enlist the help of a good friend or partner (not a parent) to help determine your strengths and weaknesses. Come up with a plan to work on your weaknesses and make the most of your strengths.

Common pitfalls and mistakes

There are lots of potential pitfalls and mistakes that people make when they’re picking a strategy. Here are a few common ones.

Picking something you’ll hate

Sometimes, the strategy that’s right from a financial perspective and which takes into account all your constraints turns out to be something you’ll hate. If that’s the case for you, think about how you might relax one or more of your “constraints”. For example, you might consider working to a longer timeframe or lowering your income or wealth target.

Overestimating your resources

Whether it be free time or capital to invest, lots of new property investors overestimate their available resources. Even worse is when investors don’t agree the trade-offs they’re making with their life partner. Good luck explaining that you can’t pick little Billy up from football practice, because you decided to self-manage one of your properties and the tenant just locked themselves out of the flat.

Not moving with the times

Property, like any other business, is constantly changing. Good areas to invest two years ago are yesterday’s news. Property financing strategies that once worked like a charm are no longer available. If you’re going to succeed in property (or any other business) over the long term, you need to be clear about where you want to go, but flexible about how you get there.

Finally, it’s worth a comment on celebrating your successes. Property investors (the successful ones at least) can be driven types who are good at sticking to a plan and working themselves hard to achieve remarkable things. If you fall into this camp, remember to take the time to celebrate your successes every once in a while. It doesn’t have to be reaching a big goal, it can be filing your first set of annual accounts or finding a tenant for your latest property. This kind of positive reinforcement can help keep you motivated over the long term. It will also buy you some brownie points for that time when you leave little Billy hanging. In all seriousness, be kind to yourself and celebrate your successes.