Property investors know how to time their purchases so they get the properties for below market value and therefore have immediate additional equity in the investment. For example, a property investor gets the property for 10% below market value. A home worth $1,000,000 bought for $900,000 has $100,000 additional equity for the investor.
Buy-and-hold property investors say they make their money when they buy, and the capital gain thereafter is a bonus.
Investopedia lists ten habits of successful property investors, and the top habit on that list is making a plan.
Affording a rental property and knowing your budget is not the only consideration – you must also take into account what’s happening in the property cycle. Is it boom or bust or in recovery? Being knowledgeable of market conditions is another key habit of successful property investors.
Have A Plan
The most important habit as a property investor is having a plan and changing it when needed. You may need to adjust your property investment strategy when your circumstances change. For example, say you get offered a new role in a different country; owning investment properties may still work. If you’re managing them, you must outsource the job to a property manager or team if your properties are in various locations nationwide.
The end game
Astute property investors plan for the end game. Is it selling all the rental properties to pay for retirement? Or is it selling each rental property after, say, ten or twenty years?
The investment strategy, what the investment looks like, and the end game are in the plan.
What’s Your Plan?
Buy and hold an investment property for a minimum of 10 years. This is a good plan. Buy well, i.e. below market value, to lock in the immediate equity. Then look after the property taking care of maintenance and replacement, including the roof, exterior cladding, windows, insulation and core heating sources.
Use a property manager to select and manage good tenants. Always raise the rent to cover inflation and property expenses. You are running a business, and it must be profitable. Income must exceed expenses for your investment to return a profit.
Between tenants, do cosmetic renovations to secure tenants willing to pay more rent. Your renovations also will help attract homebuyers when it comes time to sell the property and get the best sales price.
Plan For The Worst
A general rule of thumb is to plan for the worst and hope for the best. Property investors who invest for the long term are conservative in their approach to growth equity. The capital gain is gradual as houses increase in value over time – i.e. years.
Buying a rental property, letting it grow in equity, and using it as collateral to buy an additional investment property is a conservative approach compared to buying multiple properties simultaneously.
This is a plan. The critical habit of successful property investors is going into the business with a strategy like this, but more detailed, and taking into account the market factors. You want to err on the side of caution, expect things to work against you, budget accordingly, and apply these tactics to a plan with a long-term goal.