The five gold rules of property investing – by a self-made property millionaire

Love to invest in property but aren’t sure how to get started? Self-made property millionaire Bronwen Vearncombe shares her five golden rules.

Bronwen Vearncombe is a full time property investor, coach, speaker and is the director of Property Investing Foundation, offering support to property investors.

Bronwen worked in banking before purchasing her first rental flat. After just 12 months, Bronwen and her husband John owned over £2m worth of rental property and created an income of £60,000 per annum, enough for them both to leave their day jobs. 

She’s now written a new book, Building Your Dream Life – How Property can Help You Quit the Rat Raceto help both first-time and established investors alike. This is her advice on getting started in property.

How I got into property investing

The catalyst for my property investing happened in the form of considering our savings and investments. With so many bank shares I’d collected over the years, and their plummeting value during the recession, I decided to sell them and invest the money in something that would provide a higher return.

“Let’s try property,” I thought. It’s getting a lot of press and I love our commuting city of Winchester, so let’s find a flat to rent out, using the share funds plus some savings as a deposit.

With very little hesitation, John (my husband) and I bought a two-bed ex-council flat right in the heart of the city and, as the agent had promised, we let it immediately.

The problem is that there are so many rules and regulations to understand as a landlord. You can’t just expect an agent to get on with it – as you are ultimately responsible.

There are many fear factors with property which a good education can overcome and perhaps a coach to support you too. That way you can understand the risks from someone who has experience and practical knowledge. 

Of course, it usually comes down to finance and making sure that you maintain good rental income with few void periods to keep the cash flowing. 

The five golden rules of property buying

I’ve got five golden rules which have kept me safe and minimised risk – let me share these with you:

1) Always buy from motivated sellers 

This gives you an opportunity to buy below the market value and create a chance to add value. When starting out, it’s easy to think that everyone needs to sell their house fast and is motivated, but this is not always the case.

There are many reasons why someone is selling their property: moving jobs, retiring, divorce, downsizing, upsizing, probate, problems with maintenance, structure or found their dream home.

As an investor you can provide speed and certainty to a seller as you are not in a chain and you have the ability to get finance. 

2) Always buy in an area of high rental demand

This is purely to enable surety that if a tenant leaves, there will be a good opportunity to replace them fast at the full market rent – minimising your void period and therefore risk of being out of pocket.

Who are your tenants going to be? Students, young workers, professionals, families? Where will they want to live and what facilities might they need to have nearby? This is how you can consider where the demand might be and where you might invest. 

3) Always buy for positive cashflow 

Make sure that you end up making a healthy profit with contingency, so that you end up with an asset, not a liability!

The thing you must always do is work through the numbers – check out the return on investment, work out the major costs like the mortgage, agents fees, maintenance costs, etc. and add in a contingency. That way, you know what price will work for you and the returns you will be happy with.

4) Invest for the long term – buy and hold 

Some people are happy about buying, doing up and selling– but to me this is a risky strategy – let me explain why.

Understand the market you are in – what’s happening to the economy and the property prices both nationally and locally? There will always be short-term fluctuations in the marketplace so if you have to sell quickly you will be at the mercy of these.

Don’t get me wrong – there’s always some value in buying, doing up and generally improving a property. However, if you are looking for cashflow, you can always re-mortgage the property to take funds out.

Use a professional agent who looks after tenants, deals with the payments and provides the compliant contracts. That way you can be assured that legally you are managing them properly. 

5) Make sure you keep a short-term cash pot in case of need

No matter what due diligence you do, things can go wrong. In an emergency, e.g. boiler breakdown or a damp problem, you need to have something to fall back on – a cash buffer for contingency.

Assume there will be void periods when you have an empty house or room, or perhaps increased interest rates on mortgages and maybe tax changes, so make sure you can afford these if needed.

And my three key messages

I also have three very important key messages:

  1. Get the best education you can.
  2. Keep your networking and knowledge going even though you might not be buying any more properties. That way you stay up to date with regulation and tax changes. Its worth joining the National Residential Landlords Association NRLA too.
  3. Work with expert advisors – accountants, solicitors, tax advisors and agents as a minimum.

Want to learn more? Bronwen’s new book, Building Your Dream Life – How Property can Help You Quit the Rat Racegives a comprehensive guide to the property investment process for first-time and established investors. 

Photo by Alex D’Alessio