The average person in this country spends 20 hours a week watching television, but I don’t know any entrepreneur or successful property investor that spends anywhere near that amount of time on their sofa.
If you have been considering investing in property for some time, then it’s important that you’re under no illusions about the amount of time you’ll need to build a successful buy-to-let portfolio.
Making the time
What time you have available and are willing to commit will drive whether you’re an active or passive property investor, because with just a couple of hours a week there’s no way you can be an active investor and build a property business yourself in a hands-on way.
My basic rule of thumb is if you can’t or aren’t willing to commit at least 10 hours a week to property investing, then you would be better suited as a passive investor. Put your money into investments that will still deliver a good return on your capital, but require none, or very little of your time.
So you’ve established that you probably have the time, but do you have the money?
If you have less than £100k of capital available to invest, either in equity or liquid funds, then building your own property portfolio will be pretty tough. My guidance to anyone in that situation would be to start with another investment opportunity, perhaps a passive property option, that requires a much lower cash input to begin with and use that to build up your capital.
You can make investments in property with £100k or less, but it would be difficult to build a successful property portfolio of your own because recycling capital is a key principle to getting the best return on investment.
In order to be able to keep building your property business and taking advantage of opportunities that will give good cash flow and be solid medium and long-term investments, you do need a decent amount of operating capital.
While it’s possible for professional investors to buy property using very little of their own money, that’s certainly not something you should be considering if you’re just starting out. You need to consider how you are going to fund your portfolio, what assets you have that you can borrow against, how much cash you have and how much risk you want to take.
Don’t believe the hype…
It’s so hard to get everything right in the beginning and property is very high-risk if you’re putting all your eggs into one basket in a business that’s new to you. And whatever you do, don’t believe the ‘no money down property millionaire’ hype, because that’s all it is, hype. I strongly disagree with the ‘get rich quick’ merchants in the property game, who profit from selling false hope to aspiring investors who have little or no cash.
The more money you’ve got, the easier it is to invest in property, particularly in times of major market correction and threatening economic recession. Buying a property is all about timing, knowing your market and your area and understanding what you want to achieve with your investment.
Putting a value on your time is also something that is key, but also something that most people forget to do. In many property shows, the financial summary at the end misses out two critical factors:
1. The opportunity/interest cost of the money used for deposit, refurbishment and fees.
Firstly, if someone invests, say, £50,000 into a project, there is a cost related to that money. If it is being borrowed from equity then there is interest incurred on the funds, e.g. £50,000 borrowed for 12 months at 5% interest costs £2,500. If the money is coming from savings then there is an opportunity cost of whatever interest rate would have been earned. Professional investors always factor this into their calculations.
2. The time invested by the so-called ‘investors’ doing the work.
Secondly, there is never any allowance for the investors’ time. If an investor earns £20,000 on a project over a 12 month period, then that is a loss-making venture in my eyes and it should be in yours also. If you are investing your time and money into your property business make sure you pay yourself a rate that makes sense.
Considering all of the above, do you have the time and money to start building your own substantial buy-to-let business? If the answer is yes, then find out whether investing in property is the right decision for you and if you have what it takes.