Adopting a clear investor mindset to real estate investing will encourage greater success in the form of better returns and wealth generation.
- “Property is organized robbery” (George Bernard Shaw)
- “So long as the great majority of men are not deprived of either property or honor, they are satisfied” (Niccolo Machiavelli)
- George’s comment is fairly controversial whilst Niccolo’s may be more attractive. However, we are neither looking at the moral aspects of property investing nor looking at those seeking to undertake emotionally-driven purchases or buy to live homes.
- London Property Analyst is most applicable to those with an investor mindset focused on making money from property.
Be shrewd and aggressive
- Unfortunately, you are not here to make friends as such but aiming to make the best returns / profits / cash flows for yourself.
- Being aggressive in negotiation and firm in your stance with estate agents, buyers/sellers, builders, tenants, builds a reputation of strength.
- Please note that being aggressive is not the same as being rude. Rather, a useful byproduct is developing strong relationships with the aforementioned parties.
Rely upon value investment principles
- We are not seeking to speculate in our investment decisions but make calculated decisions in the context of expected prices. A love of numbers will help you. The first building block is that it is critical to assess the underlying value of each property. It is difficult to ascertain at first but some assets will remain resilient to downturns. If a prospective purchase is beneath market value substantially, you can take comfort from the buffer provided in a downturn scenario. Value is first created at the purchase price point. The second stage of value creation is driven by an ongoing assessment of the asset in your portfolio going forward to potentially create value from refurbishment, development, lease extension, freehold purchase. The last stage of value creation is from timing considerations for refinancing or sale to extract maximum value.
- A love of valuation and numbers is critical to your investor mindset and we cannot reiterate the importance of valuation enough. This means deciphering:
- the value of the property at the time of purchase,
- the value that can be created from any subsequent works,
- the rental value pre and post work,
- the refinancing value for lending purposes, and
- the sales value for open market transactions.
- (Please refer to valuation topic for valuation techniques).
- For all London inhabitants, we are all real estate market participants. As a result, basic building blocks are already there with an implicit rough knowledge of pricing. Making the leap from tenant to real estate investor is simply growing that knowledge base. We firstly advocate in ‘investing in what you know’ with regards to areas in order to counter the risk of investing badly and paying over the odds, however it should be your aim to learn various areas over time, thus leaving yourself open to better return areas for the most efficient profitable investing.
Being open to combining strategies
- For buy to let investors, real estate investment is simply the purchase of a future income stream from property.Whilst for developers, incorporating equity gains is most applicable.
- When incorporating both strategies, equity gains plus ongoing positive cash flows presents a highly attractive proposition.
- Thus, we advocate a flexible investor mindset. (Please refer to strategy topic)
No emotion in investing
- Every purchase should be treated as an investment. Emotion is common amongst buyers (and sellers) – this is not necessarily a bad thing given this weakness can be exploited in the market in order to make your own purchases at the most favourable price. Thus, we advocate an emotionless investor mindset and focus on seeking out those parties driven by emotion.
Every asset has a price / valuation
- You may have set criteria in your mind about what sort of asset you would like to purchase and particularly with limited available financial resources, wish to stay away from certain assets, for example as ex council flats. However, every asset has a value and as an investor, an ex-council flat being sold for 50k below market value is clearly a better investment compared to the fairly valued period flat (other things being equal). We must endeavor to hone our valuation skills in being able to spot opportunities for arbitrage.
Leverage is good
- When used correctly, it is paramount to your success. We have been overwhelmed by reported news, advice from family and friends that debt is a bad thing and we should avoid incurring it if we can. However, that is complete rubbish. When applying leverage sensibly (not necessarily conservatively), more cash that would have been otherwise invested lowering your leverage is set aside for future investments and your investment returns escalate substantially. Basic principles about this strategy must be comprehended and executed correctly (please refer to financing topic). The successful investor mindset has a strong knowledge and appreciation of debt in the optimal transaction capital structure.
Read on by clicking here for Londonpropertyanalyst’s Strategy Guide.