238: Building a property portfolio
Navigation trail: / latestnews / archive / 238 - published: 27-11-06
“I am a novice investor and would like to start to build up a property portfolio but I don’t know where to start, can you help?”
You are right to consider creating a property portfolio, property is a natural part of anybody’s investment and their plan for creating future wealth, and we all need to think through what is right for us. The reducing value of pensions, both state pension and private pensions, means that we are all now more responsible for our future wealth, retirement incomes and our childrens’ inheritance than we were in the immediate post war decades. We have all become individual businesses looking to increase our future wealth.
A property portfolio is definitely a business, or it can be a hobby, but if you want good returns it is better to start out with the aim of creating and running a ‘property business’, it is a more productive attitude.
This brings all the usual business questions, what are we seeking to achieve here, what resources do we have and what is the best way to navigate ‘our ship’ to our destination? How shall we manage this business?
So how should you start?
Decide why you want one, rather like when looking for a car, you first need to decide what it is for, for comfort, speed, for space or for heavy duty carrying. It is very similar with a property portfolio, is it for capital gain or for income, for the immediate future or for the more distant future, as a DIY activity or to place investments with others to work for you.
Your aims are crucial, and then your approach depends upon your resources. But your resources are not just financial, not just your cash and credit resources but also the less obvious things like your skills, expertise and your preferences. You should also consider what you like doing and who you know, or can get to know, so think about your friends, business contacts and people you can get to know that you don’t know yet.
How? These all affect how you start, whether creating the portfolio alone or working with others and with what focus.
Set off in the right direction…..
Consider your options, decide what you want to achieve, write it down, that really focuses the mind. Henry Ford said there should be an hour of thought for every minute of action, a little extreme perhaps, but the point is a good one, decide the problem before you leap into the solution. Then if you know clearly what you really want and how you plan to get there, you are much more likely to succeed.
Also ask yourself what sort of portfolio do you want? DIY, buying and managing properties yourself or investments where you delegate to others? What do I prefer? Can I do some of each?
It is better to have a portfolio than one investment, if you can, so although when starting out it isn’t easy it is better to have a number of different investments that are independent of one another, a portfolio rather than one big investment that succeeds or fails. Portfolios are proven to deliver closer to your planned returns than the ‘all or nothing’ approach of having everything tied up in one investment. Portfolios perform best, because not all the eggs are in one basket.
Sometimes however, if resources are limited that is the only course open to you, but the phrase ‘money makes money’ comes from being able to invest in a range of opportunities, so the sooner you can have more than one investment (in different activities) the more robust the business as long as you don’t overstretch. That famous word balance, on the one hand diversify, on the other don’t diversify too much, you decide what’s the right course, that’s half the fun.
Do remember that you are unique and others will all be starting in different places from you, so if you start the business with others make sure you all have the same objectives and aims, otherwise tensions will emerge later. You can nearly always achieve more working with others than working alone, but it has its challenges and risks, such as different views of the way forward, possible later disagreement and differences; expect those and plan for them so you can all prosper.
Business risks need managing (not ignoring). In this case, if you do work with others that brings risks that won’t be there if you act alone, think of it as a “business marriage”, what happens if we divorce, who gets what? Preferably have a written agreement so we all have the same understanding, it saves hassle later.
Do your homework
Effective property investing hinges on knowing your markets and doing your homework about property prices, costs and the big trends in the area you are considering investing in. What is happening in the area, what will be happening over the next few years?
Expect to continue to learn and move on….(to navigate as things change)…
Remember also that you can always change your approach later, so don’t think so long that you never start, for ‘fear of failing’ or getting it wrong, if you find you want to change what you are doing later then change, that is how most businesses grow, they keep evolving.
Actually if you are doing it right you will be constantly learning more and as you do learn more and meet more people, your opinions will change, it’s inevitable, expect it and even look for it. Ask yourself how should we be changing and becoming more successful (not necessarily bigger, it depends what your aims are).
First steps – a menu for action
Saying what needs to be done is easy, it is doing it that takes the effort, think through the issues relating to
It all counts for nothing if you don’t act.
Then regularly review progress, not just so you can say complacently ‘well done’ (although that is enjoyable too), but mainly so you can say, “that is that, that is good, now what do we do next to continue progressing?” It really is something that you need to constantly review because markets change and the opportunities change, new ones are emerging in markets all the time, and it’s good to spot them early, that’s often when they are most profitable.
Remember the oddly titled novel “Zen and the art of motor cycle maintenance” where the conclusion was that ‘Quality is the only thing that matters’, and the only person who can decide whether you are happy with what you are doing is you. Property investing can be hard work, and success is not mandatory, but when it works you’ll know that you did it your way.
Chris Howard is the Managing Director of 4:Property offering investors the opportunity to share in developers profits through the 4:Property Projects operating in the UK and overseas. For more information please call 01383 623322 or visit www.4you.uk.com
Source:
Ashton Billige Property Marketing Ltd