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Owning rental properties for investment purposes requires you to have business acumen, especially if you want your investments to grow. Your properties are a business, so you need to run them like one. Growing a business means you need to know how to handle risks, when to pivot and how to avoid ‘putting all your eggs in one basket’.
Each business is as different as the owner that guides its growth but there are some fundamental principles that underpin every successful business. In this article we’re going to share the principles with you, from our successful business to yours…
Let the Data do the Talking
You can’t run a successful business without data. If you don’t know how the business is performing how can you possibly make decisions? Is the business losing money? Can you tie your gains and losses back to any actions you’ve taken or anything that has happened in the local area? What is your rental yield? Can you afford to take on another property? Without data it is impossible to answer these questions accurately.
Using data to make decisions will help you identify opportunities for growth in your property business as well as identifying issues that have or will arise in future. You may not have a crystal ball, but a regular analysis of your business data is the next best thing.
For example, if you raise your rent between tenants and then find it difficult to rent your property out, it’s likely you’ve raised your rent too much. If everything has been working well for you and you’ve made no significant changes to your rent or your property but you’re still struggling to get a tenant in, it’s likely something has changed in the area. Can you afford to wait it out? Do you need to pivot your strategy? Should you sell up in order to more effectively invest your money elsewhere? Business data will help you make these decisions.
Research Matters
Research is something else that successful businesses can’t thrive without. Research will help you to see what is going on in the local area, how much your rent should be set at, what your local competition is like and more.
Going beyond the obvious reasons for conducting regular research, and it will help to make sure you aren’t limiting your growth based on assumptions.
Say for example you think HMOs aren’t for you, you’ve ruled this out, but you haven’t done the research. Maybe the rules around HMOs aren’t as harsh as you think. Maybe your property is ripe for conversion, maybe there’s demand for that kind of set up in the area your property is in. Don’t rule out a strategy or a pivot without doing the research first.
Limiting your opportunities without first doing the research is a sure-fire way to restrict your growth before it has even had a chance to take off. Changing direction or selling up in order to re-invest your money shouldn’t be seen as failure, instead you are channelling your resources into opportunities that are more suited to the time and effort you have available.
No Business is an Island
You will never know everything. Even the savviest business owners in the world take advice. The key to doing it well is to only take advice from people you trust and those who are in a good position themselves. Don’t take advice on running a business from someone who has never done it successfully.
Diversify Your Portfolio
You’ll have heard it said not to put all your eggs in one basket, the reason it’s a trope is because it’s generally good advice. When the media runs their latest story on buy to let being dead it won’t bother you so much if your entire portfolio doesn’t consist entirely of buy to let properties. Building diversity into your portfolio can help you weather any economic or legislative storms. If you have a diverse portfolio your well performing assets can ensure you still have income to support your poorly performing assets while you figure out your next steps.
There are many ways to diversify a property portfolio, not all of them require an up-front capital investment and not all of them involve property. Data, research and advice can help you decide how best to build diversity into your business model.
Make Plans
Every successful business has a business plan. Every successful property business has an exit plan. Robust business plans contain risk analysis and mitigation strategies. It is a lot easier to write these when you aren’t staring down the barrel of a huge business risk that you should have seen coming.
Writing plans at the start of your property venture (and re-visiting them regularly) means you’ve already put in a lot of the groundwork should you need to mitigate a risk or execute a pivot.
The exit strategy is also important as it helps to highlight the goals you are working towards. Having a good understanding of your eventual goals will help no end when it comes to making business decisions.
For instance, for most people, investing in property means tying up a lot of capital in your property. If you know you’re likely to need that capital at some point in the future, then you need to plan for how you can release it when it is needed. If you’re holding a property to appreciate the capital, you need to know you have the time to wait for this to happen before you pull your money out to avoid making a loss. A good exit strategy covers how and when you’ll pull your money out, how long you expect it to take, what you expect it to look like when you withdraw it and what you’ll do if things don’t work out as you planned.
The Customer is King
Listen to your tenants. It might be that your tenants are telling you that the rent is too expensive, or maybe they’re sick of asking you to fix the same thing again and again. They may not always be right, but you can’t grow a profitable business without their feedback.
If you hear the same things consistently from different tenants, you need to take notice. If you don’t hear anything from your tenants, you need to change that. Go out of your way to collect their honest feedback and act on it where necessary. Most property businesses can’t survive without tenants and the most successful property businesses do what they can to give tenants what they want.
Know When to Pivot
What is a pivot?
A pivot is where you make changes to the way your business operates; it’s usually done when the growth of your business isn’t on target or when the business is not profitable despite attempts to make it so.
A pivot involves changing your strategy which can include (but isn’t limited to) making changes to your property like converting a residential property into an HMO or an office into a residential business or even just refurbishing a property to try and force an appreciation in capital.
Pivoting can also include changing just a part of your strategy, i.e. focussing on a different demographic or tenant type. For instance, running an HMO but targeting benefit tenants instead of students, or renting out luxury flats on a short-term letting basis instead of as a private let. You could also call it a pivot when you aim to save money by using software to manage your business instead of using a letting agent or vice versa. Changing your revenue model, for instance from a standard HMO to a student let or entering into a REIT or crowdfund instead of purchasing a second property may also count as a pivot.
When to pivot
Pivoting can cause a lot of upheaval and does represent a risk to your business, for this reason you should only do it when you have exhausted other options, it is a last resort. If for instance you’re struggling to rent out a property, but it hasn’t been decorated since the 1980’s, you’d first try a refurbishment before totally pivoting your strategy.
Investing in properties requires you to walk the line between giving your strategy enough time and effort to work and responding to feedback or market forces which are beyond your control. It is hard to tell whether something isn’t working now but will work soon, or if it simply isn’t going to work at all. This is especially true if it is a new venture or if you’re operating in a fast-changing market. The question you need to ask in this situation is if the potential pay off is worth the effort and resources that you are currently putting into it.
Sometimes there are obvious things you can try to boost your earnings and your growth potential, but where nothing obvious exists it may well be the case that you need to pivot because your initial strategy just isn’t working out for you. Say for example you purchased a property and converted it into luxury flats, but you didn’t do any research in the area before you did this and now you can’t seem to rent the flats out, its likely that your strategy is wrong. There just may not be a market for luxury flats in that area. In this scenario you’ll need to pivot and either sell off the properties or choose a different demographic.
You may need to pivot if there is too much competition, for instance if you’ve got student lets but you’re struggling to get students in because of purpose built student accommodation in the area. In this scenario it may be time to pivot into non-student HMOs or SCUs.
If there’s no response from your market or the market you’ve been focusing on has changed since you got started it may be time to pivot. For example, if you struggle to find a tenant or your niche is in decline you’ll want to consider doing something different with your property. In this scenario you might attract a different kind of tenant, adjust the rent, offer more services like bill management or a unique deposit scheme. All of these represent a pivot in your strategy.
Finally, a change in circumstances may warrant a pivot. It may be the case that you wanted to set up your company to fund a pension or to quit your 9 to 5. If your goal or situation changes you may need to get the capital back out of your property thus invoking your exit strategy early.
There are many reasons to pivot, but only you can decide when it is right to pivot your business strategy.
How to Pivot
Make sure you know why you are pivoting. If you don’t fully understand the reasons you risk making the same mistakes again or making the decision to pivot based on faulty assumptions.
If you are sure you want to pivot you should do it quickly. If you’ve decided that this will help your company or your bottom line, then every day you don’t do it is a day you are wasting time and money.
BEFORE you pivot re-visit your goals and your business plans. You need to pick new goals that align with your new vision. You shouldn’t do anything without a plan in place. Your new business plan needs to include all the details of how you are going to pivot with clear actions and timeframes. You’ll need to put back up plans in to place to support you while you’re changing the strategy and so you’ll know what to do if the pivot doesn’t pay off. You’ll also need to update your exit plan to consider any changes you are making to your business.
Make sure you do due diligence on the pivot. So, you’ve decided to convert your property into an HMO but is there a demand for that kind of housing in the area? Can you afford it? Will you be able to deal with the increased amount of wear and tear and maintenance? If the answer is no or I don’t know, then reconsider what you are doing. Any pivot should be well researched in advance.
Learn More About Business
Articles like these are great for pointing out some of the key things you need to be thinking about when it comes to business. However, investing in your education and doing your own research will allow you to delve so much deeper into the world of business. We live in an information age; it is absolutely possible to teach yourself to be a business mogul and to profit from your learning. Remember, in most cases, any educational materials you buy are tax deductible (as long as they are to expand existing skills not to learn totally new skills).
Books
There are books on every property strategy and business model under the sun. You can buy these new or second hand if you want to save money. You can join a service like kindle unlimited to read electronically or audible to get audio books. You could go the cheapest route and borrow them from your local library. Libraries also offer other services like free access to e-books, audio books and trade publications. I’d be remiss if I didn’t mention Amer Siddiq’s book on How to Reduce Landlord Taxes here as this is a great guide to legitimately avoiding property tax, but for a general overview on property strategy Rob Dix has some great and easy to read titles.
You Tube
There is a lot of free video content on you tube and this is a great place to pick up some good tips and tricks.
Samuel Leeds is a popular property investor who shares all sorts of advice and useful information. While his focus is on becoming financially free via property with no up-front investment, he also has some great videos on HMOs and a series on property mentorship. There is a reason he has 156,000 subscribers.
Property Tribes is another popular channel for landlords. While they have less subscribers than Samuel Leeds, they will help you keep up to date on relevant news and learn about different strategies. They frequently interview successful property investors and property experts as well.
This is just the tip of the iceberg when it comes to what you can find on You Tube. Search for the strategy that most interests you and see what you can find.
Podcasts
Podcasts are a great way to learn because you can pop them on while you do something else. Popular while travelling, or while doing housework, you can learn a lot from these. The Property Geek Podcast is a favourite of ours as they frequently dig into business strategies and chat to experienced experts and investors. The Property Investors Podcast also covers a wide range of news, strategies, finance options and lots more, and you can watch them on You Tube as well as finding them through your favourite podcast app.
These are just a few of the places you can learn more about running your property business, a quick search online will also turn up blogs, news sites and newsletters that will help you learn just about any elements of property investing.
