In her debut article for Master Investor, property investor Anna Clare Harper explains how to avoid wasting time and losing money from knee-jerk decisions in UK property investment.
UK residential property is considered by many to be one of the best investments available. It has performed well over time and has become a signifier and determinant of success.
|Master Investor Magazine
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The market has changed in recent years. As a result, property investment is no longer as ‘easy’ as it was once considered. Political, economic, social, technological and legal and regulatory changes have increased the risks and costs associated with making the wrong decisions. Investors rightly fear missing out, and even losing millions of pounds through making the wrong decisions, or no decisions at all.
Investors are facing the problems of no, low or negative real returns, uncertainty about the future, and the challenges of accessing opportunities that suit their needs, resources and the market context. The chances and costs of making common, avoidable mistakes are higher.
One of the most common, avoidable mistakes is making snap decisions, such as diving in or dithering. Some people react to overwhelm by diving in, before having done enough research. Others dither and delay, indefinitely. Diving in or dithering can cause investors to waste precious time, money and effort.
Over-analysing and delaying is getting easier in this digital world: you can research endlessly with the help of Google. It’s becoming even easier to find fault with every opportunity, which creates plenty of excuses not to invest, or at least not now. This can mean leaving capital sitting around, making low, no or negative real returns, for far longer than is necessary.
Real Life Example 1: Simone
For example, take Simone. She was fortunate enough to inherit £2m, around the time we met. She was keen to invest, and she set about attending local property events to research her options. Three years later, she had still not actually made an investment. Nerves or excuses got the better of her every time she came close to buying. Like Goldilocks’ porridge, nothing was ‘just right’. Only when we began to discuss her situation, Simone discovered that over those three years, her £2m inheritance had lost at least £270,000 in real value by failing to keep pace with modest inflation.
Real Life Example 2: Andrew
Andrew worked at a large global bank. His hours were punishing. He was keen to invest ASAP to create an income that would allow him to step out of the ‘rat-race’. A friend told him about an affordable, ‘below market value’ block of flats in Liverpool going to auction. The auction sales brochure described working tenants, and listed the rent coming in from day 1 (known as ‘passing rent’) as £70,000 per annum. Each flat was priced so low that he thought: ‘how can I lose money??’ The yield seemed so good compared with London, and the pricing was cheap. The mistake he made was diving straight in, when he had no trusted teams on the ground, and no local knowledge.
Simone and Andrew ended up ‘losing out’ by a similar amount in terms of avoidable time wasted, money lost and extra stress. But how? Here’s five tips to help you avoid the painful consequences of diving in or dithering:
- Get the right approach. Set a clear strategy, before you invest. This means knowing what you’re aiming for, what resources (time, money, skills and energy) you have available, what your priorities are, and what is happening in the market. Are you going to develop a property close to home, or hold and let properties out further afield? Do you have time to invest in properties, or need a passive, indirect approach? Decide on a plan that works or seek professional support in doing this (please feel free to contact me about this: I regularly host strategy sessions and publish content on the topic). Then stick to the plan – and say no to any opportunity that doesn’t fit the strategy.
- Assess opportunities accurately. You need to set clear investment criteria based on your strategy. You need to hold to your criteria, whether you are investing actively or passively. For many of the investors I work with, seeking a passive strategy, they target an ongoing return of 3-6%. Knowing this makes it easier to identify and capitalise on opportunities that fit with the approach you have defined. Be thorough in your analysis. Be cynical about anything that looks ‘too good to be true’, as it probably is.
- Get access to compelling opportunities. One of the biggest causes of knee-jerk decisions is the fear of missing out. Knowing that there’s plenty more opportunities enables you to make more rational decisions on each one. You don’t have to do all the work yourself in building a pipeline of opportunities to choose from.
- Be clear on how you will approach asset management. In the UK, regulatory changes over the last five years have made asset management more costly and complicated, meaning it is more hassle for the same returns, in particular for smaller investors. Make sure you have capacity for ongoing management, if you are investing directly, before you make any investment decisions.
- Adapt as your situation or the market changes. Don’t be afraid to flex.
Knee-jerk decisions are rarely the best decisions when it comes to investing. Research your options but remember there is no perfect option: there is always a trade-off, and no decision is still a decision.
Make sure you have a clear strategy that details your approach, how you will assess and access deals, how you will manage assets you have invested in, and how you will adapt in the future. This will help protect you against avoidable and all too common mistakes resulting from knee-jerk decisions like diving in or dithering.
If you are interested in finding out more about defining a property strategy, I am currently writing a book, Strategic Property Investing, and I host regular strategy sessions detailing each of the five steps mentioned. The investors I work with generally have a passion for property and know they want to invest. They also know they need help in doing so in this complex environment, to avoid common, expensive mistakes. If this sounds like you, don’t hesitate to get in touch.
Remember that you don’t have to do everything alone. There’s plenty of professionals in the property market specialised in their area of expertise, geography or approach. If you’re short on time, then ‘who you know’ is crucial to your success.
About the Author
Anna Clare Harper is a Property Investment Strategist and CoFounder of Anglo Residential, a UK residential fund that has secured seed capital to build a £100m+ portfolio of high yielding housing. She also heads up Strategic Property Investing, a boutique strategy business that works with High Net Worth Investors through to proptech start-ups looking to design a strategy to make the most of the opportunities available in the current market, and is writing a book on the same topic, due for publication in 2020. She hosts The Return, one of the leading podcasts in the UK ‘property investment’ space on iTunes. She previously worked at Deloitte as a Strategy Consultant for leading Financial Services and Private Equity clients, and studied the market academically at Cambridge. Follow her or get in touch on LinkedIn, or via annaclareharper.com.