Investing in property is no cheap outing, and errors in design or business approach can seriously effect the profitability of your business.
We live in a time where capital growth can no longer be relied upon, so ensuring you get your strategy right and your product correctly positioned is vital to the long-term success of your business. I have worked with property investors for over 20-years and I see so many making such terrible mistakes when it comes to creating their property ‘product’ that I thought I’d share a couple of the biggest ones with you, in the hope it will prevent you from making those same serious errors.
So here they are ladies and gents, the huge mistakes I see investors make and how to avoid them…
BIG MISTAKE NO1: Thinking like an investor, not a Small Business Startup.
Unless you are investing your hard earned money in a simple single let property and handing it to an agent, any other strategy, be it HMO’s Serviced Accommodation or Commercial to Residential conversion, be under no illusion, it’s a BUSINESS! Don’t be fooled into thinking it’s anything like investing in FOREX or Digital Currency, Gold, Stocks and Shares blah blah blah… it’s totally and utterly different. You are going into business, you will have paying customers and if you don’t create a product that is fit for purpose, i.e it caters for your customer demands… or the demands put upon the product through its use, your business will not last, well, it certainly won’t make the kind of returns you were hoping for. Not understanding the customer or their demands is the cause of so many property business failures.
There are certain keys to success when it comes to creating a successful business and having an ‘Investors Mindset’ will damage the long term success of any business.
It’s been my experience that most property investors want to distance themselves from their customers and they do not want to spend any time thinking about the design of their product. That’s not how businesses work, especially if you are planning on operating in a competitive market environment.
Maintaining a competitive edge is vital to the long-term success of any small business. While there are a wide range of factors that determine the success or failure of any company, there are number of key components to competitive success in business all entrepreneurs should heed.
- Customer Service – Effective customer service is the largest determining factor of customer loyalty and repeat purchases. This single factor often can give small businesses an edge over their larger competitors. Focus your efforts on delivering the most satisfying customer experience in your industry or area of influence and your product will sell itself though thick and thin.
- Market Research – Know your competition both today and tomorrow, what are their strengths and weaknesses and what will they be like in 5/10-years time. In property there is no point trying to play catch-up as it’s too expensive and time consuming.
- Financial management – How many times do I hear people at property meets say “At some point you’ll run out of money”? Seriously??? That’s how businesses go bust very quickly. Any business requires investment and houses require maintenance, so running out of money when you have 10’s maybe 100’s of tenants to look after? Be realistic! Always have funds put aside just in case a roof needs fixing etc etc and one day you will have to replace kitchens and bathrooms. Don’t just rely on capital appreciation to fund future renovations, you want to be paying down mortgages, not stripping assets of all equity. (Just a matter of opinion obvs). And then there is the amount you are borrowing. A few years back some property experts were saying Max out your credit cards! Even today many are saying Max out your leveraging, borrow as much as you can! Ok, call me old fashioned, but what will happen to your business if interest rates rise? Borrow wisely and don’t bury your head in the sand hoping for the best. If rates rise, it won’t only effect your profits, it will also hit the value of your assets. Banks also have a nasty knack of asking for their money back when the fire is right at your door and is about to burn the lot down.
And huge mistake no 2: Leaving the design of your product to the last minute or leaving it to others who have absolutely no interest in the long term success of your business.
I’ve lost count at how many times have I been approached by investors who say “Hi Julian, I’ve got my builders starting tomorrow, can you help me?” In most cases luckily I can, but not everyone has the sense to use a Designer.
Truth is, most investors wait until completion before they begin to take the design of their product seriously and by then its too late. Everything is then rushed or left to the builder slash architect to put all the pieces together, and they really don’t have the time ether… Nor are they being paid to do any design work. As a result, most properties are bland and offer a very poor customer experience. That is not good business folks… Imagine if every business operated that way? The restaurant, car dealership, Coffee shop, fashion outlet. Poorly designed interior, poorly maintained shop floor and some agent who really doesn’t have the time to serve you properly… Nice…
So if you are entering into the ‘Property Business, for God’s sake, think like someone who is starting a business and creating a product that needs to survive in a competitive environment for many many years… And not like someone who is investing in Stocks and Shares who wants to get rich quick from the comfort of their armchair. Property can be rewarding, but it doesn’t come without a lot of hard work…. just like any other business.