How do you make money from property when you’re a property investor? Well, the first thing is to acknowledge that when you’re buying a property the sole purpose of a property investment is to make money. When a lot of people buy properties, they mix their emotions and their feelings into the purchase. If you’re a home buyer and you’re buying a house to live in, you’re going to look at all the different factors. You will ask what the garden’s like; what the colour of the house is; what the neighbours are like; where the nearest schools are. There are hundreds and hundreds of different factors in your purchase decision.
However, when you’re buying a property as an investment, you need to be saying does it tick the three boxes, and every single box boils down to the money. Now some people might be thinking, ‘Samuel, it’s not all about the money’; however, it is all about the money. When you’re buying a property as an investment, you have to make a financial decision. You have to purchase with your formulas not with your feelings. So what are the three ways that a property investment makes you money?
1. Capital Appreciation
It’s very, very simple. The first way that property makes money is when you buy a property, it is likely to appreciate in value over time. Now the reason the property goes up in value is because there’s limited supply in the country; there’s only so much land available in any given country. When there’s a limited amount of something, it holds its value especially when it’s a necessity.
We have an overpopulation of people on the planet and we have a shortage of houses and a shortage of land. On average property prices double in value every 10 years, so when you buy a property you need to look at the capital appreciation of that property.
The second way that you make money in property is, of course, via the rent. When you buy a property, you’re going to try and make sure that you get as much rent as possible. How are you going to do this? Are you going to do this by forcing the rents up and being a really greedy landlord?
Of course not, you’re going to do this by buying a property in an area that is popular. An area that has a high demand, that tenants are wanting to rent. So instead of thinking about how you feel about the house, you should ask how will tenants feel about the house? What are letting agencies local to the area saying the rent will be? You need to make sure that your rent is going to cover all of the expenses of owning the house, and you’re going to need to make sure that you’re left with a nice profit on that property every single month. That is what you call your passive income.
The third way to make money when buying property, is to buy Below Market Value (BMV). If there’s a house that’s worth a hundred thousand pounds and you buy it for eighty thousand pounds, you have just made twenty thousand pounds in equity.
You have just added twenty thousand pounds to your net worth. The great thing about property is it’s not like Bitcoin or gold or silver where the price is fixed. You can find motivated sellers that are in a rush to sell and you can buy it BMV and add to your net worth.
Is this ethical? Is it ethical to buy from people that are in a really bad situation, maybe they’re in dire straits, and they need to sell their house quickly? Is it ethical for you to come along and to agree to buy at a cheap price? In business you always need a willing buyer and a willing seller. So if someone’s in a rush to sell their property because they’re about to be repossessed or maybe they’re about to move abroad, or whatever it may be, you need to remember you’re actually helping that person move on in their life.
Because you’re helping them move on quickly and promptly in their life, your reward is you’re getting a discount. This is a win win; everything in business has to be win win. That is how most businesses, in fact pretty much all businesses, make money and become successful.