What type of property investor are you?

When building a property investment portfolio, understanding what type of property investor you are will allow you to focus on the best strategy and investment opportunities to achieve your goals.

There are many strategies to make a profit investing in property:

  • Buy to let
  • Real Estate Investment Trusts (REIT)
  • Flips
  • Refurbishment
  • Rent to rent
  • Crowdfunding
  • House in multiple occupancy (HMO).

Determining your risk profile

Understanding your risk profile and its limitations will dictate what type of property investment strategy is right for you. The following steps will help you determine what type of property investor you are:

  • Setting your property investment goals.
  • Understanding your current financial situation.
  • Knowing your risk tolerance.

Setting your property investment goals

To choose the right property investment opportunities, you first need to consider what you want to achieve. Ask yourself what your short and long-term goals are?

Are you hoping to gain a constant income stream, or are you looking for long-term growth? This will be determined by your financial situation, your property investment journey stage, and the time you have available to manage your strategy.

For instance, if you are starting to build a property portfolio, you are likely to have different goals compared to someone nearing retirement and looking for a steady flow of income.

Outlining your objectives will help you build a short and long-term plan to achieve your goals and help you make informed decisions when buying property.

What is your current financial situation?

Your current financial situation and how secure it is will determine your tolerance to risk and your ability to deal with housing market fluctuations.

For example, a property investor with low debt and fewer commitments will potentially be able to take more risk and be offered more credit than an investor with high debt and several other commitments.

Likewise, an investor with a stable source of income may be able to tolerate more risk and short-term losses from a volatile housing market compared to an investor with low financial security and a fluctuating source of income.

Understanding and being honest about your current financial situation will help guide your property investment strategy and goals.

How risk-averse are you?

Now you have understood your property investment goals and reviewed your financial situation, the next stage is to understand your risk tolerance.

The general rule for investing is the higher the return, the more risk involved. Therefore, it would be best to consider the different property strategies and how much risk is involved.

For instance, answer these questions:

  • Can you financially tolerate a reduction in a property’s value or rent?
  • Are you prepared, and can you afford to incur short-term losses for the prospect of higher long-term returns?
  • Would you prefer a steady, reliable income with longer-term growth?

When you can understand the relationship between risk and reward, you can begin to formulate a property investment strategy that matches your goals.

The long-term property investor

The long-term property investor may have a generous pension, looking to add security for their family and an asset to pass on. The key attribute to this investor is time.

Investing in property is a popular strategy for people on a defined benefit pension. They take a 25% tax-free cash lump sum when they do a pension transfer into a personal pension. They then use this cash to invest in property that’ll provide them an income in retirement, an asset that grows, and a tax efficient way to pass assets onto family.

Long-term investors want to make money from a property. Still, they are prepared to take their time in finding a suitable investment – find out why location is so important when investing in property.

The key characteristics of the long-term property investor are:

  • See property investment as a pension.
  • Has a 10+ year view when it comes to property investing.
  • Prioritise capital growth over yield.
  • Has time on their side / does not have to take high risks.
  • Will often want to be hands-off with their property investment.

The Income property investor

Income property investors are focused on maximising income from their property portfolio and will prioritise income over growth. 

The key characteristics of Income property investors are:

  • Focused on passive income.
  • Look to supplement their salary or perhaps replace it.
  • Will prioritise yield over capital growth.
  • Look for property investments that provide high income in the short term.
  • Open to looking at more underdeveloped areas to achieve a better yield.

The hands-on property investor

The hands-on property investor will want to be involved with each aspect of the property investment process. They enjoy property investing and want to be involved in every decision. 

The key characteristics of hands-on property investors are:

  • They are looking to maximise profits by adding value to the properties in their portfolio.
  • They will be able to undertake extensive research on their investing areas.
  • Are suited to refurbishments or buy and flip.
  • They will likely be based in the area they are investing in.
  • They have good trade contacts or are ex tradesman.

The financial freedom property investor

The financial freedom property investors main aim is to replace their current occupation and become full-time investors. 

The key characteristics of financial freedom property investors are:

  • Want their property portfolio to replace their current occupation.
  • Will be suited to strategies that require a higher degree of time management.
  • They want their property portfolio to allow them the freedom to pursue specific passions or to spend more time with their family.
  • Happy to be more hands-on with their investments.

Key takeaway 

Setting your investment property goals, understanding your risk, and deciding on your strategy is key when determining what type of property investor you are. 

Take time to reflect and think about your investment objectives. Then, write them down and make sure you are clear on them before investing.

There are many factors to consider when developing a property investment strategy. We have outlined several above; however, contact our specialised property investment team if you are looking for tailored advice.

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