Swiss approach to Property Investment
Vinclair Investment Partners bring 3 decades of aggregate personal experience participating in 6, 7, 8 and 9 figure projects, together with a unique and proven formula to capital investment, in order to source, fund and develop sound, yet lucrative property projects of any size in the key target markets of Switzerland, Germany and the United Kingdom.
How to Minimise Your Risk with Property Investing
by Valeria and Cedric Vinclair - Switzerland
One of our most asked question from you guys is about how to minimise risk when it comes to investing in property. To be honest with you, when we first started investing in property that was our biggest concern too!
It’s a scary prospect, investing £250,000+ in anything. So we thought we’d share with you how we minimise the risk of the property investments that we get into.
Before we get into today’s topic, please note that any investment is never risk free. There’s always a chance that you can lose money, however, using the strategies in this article (and by investing with a trust worthy investor) means that you’ll minimise the risk of the investment.
Now despite being called “exit strategies,” these techniques may also be used to ensure that you get the return on your investment. Like anything, property investing is an ever-changing game that requires creativity and innovation to stay financially rewarding.
In today’s article, we’ll be sharing with you three strategies that we use with our clients to ensure that their investment is safe, secure, and profitable.
Expect the best, plan for the worst
When it comes to property, it’s vital for the security of your capital that you work with your investor to build a “worst case scenario” plan. It may seem like a waste of time to spend so much effort on planning for a situation that’s unlikely to ever happen, but we’ve seen people lose fortunes simply because they failed to plan.
Think about any and all potential “disaster situations” that you may run into, for example:
· If there’s a fire in the property
· If the building team can’t work
· If the property market collapses
Once you’ve created your list of “disaster situations,” you can then start finding solutions to the problems. Here’s a basic example of what we’re talking about:
· If there’s a fire in the property => Insure the property and restructure the investment deal
· If the building team can’t work => Find someone in your network that has a building team near the properties location
· If the property market collapses => Look at market trends and evolve the investment strategy
These are all basic solutions to the problems designed to help you understand the thought process behind planning for these situations. No matter what the problem is, with some creativity, there are solutions.
Our biggest learning is to maintain communication with everyone involved in the deal. This way, any potential problems or delays can be spotted as soon as they come up. As long as the majority of the minor problems are solved straight away, most of the bigger “disaster situations” never happen.
Always have two exit strategies
In a previous article (How to Free Up Capital in Poor Investments) we spoke briefly about having an exit strategy. The truth is that it’s best to have two. An exit strategy allows you to exit the deal without suffering too much of a loss (and sometimes generate more profit).
With our clients, we divide the two exit strategies into “short-term” and “long-term”. It’s important to have both because you never know when you may need to exit out of a property deal.
In the examples we share of strategies, we’re going to use an example of a property with a “Buy and Hold” strategy. This is where you store capital in a property and wait for the housing market to increase the value of the property.
Short-term Exit Strategies
Property is a long-term investment in which the term of the investment will often be five or more years. So, when we say “short-term” we’re talking about a time period of three to six months. Typically, a short-term exit strategy will only be used if a particularly bad situation happens.
Sell the property
The most obvious exit strategy is to simply sell the property to recoup part of the capital put into it. Typically, we don’t use this strategy if we’ve just bought the property as the costs of selling a property that we’ve only had for a year means that we’ll be making a loss on both the time taken to acquire the property and on the capital that was used to buy it.
This is where we take another mortgage out on the property to free up the capital locked inside the property; refinancing only works if the property’s value has increased.
If we bought the property for £500,000 and the value has increased by £100,000, then we can refinance and get a mortgage on the new value of the property, freeing up that £100,000. The freed up capital can then be used to invest in further projects.
This is far more effective as a strategy than selling as the asset is kept and capital is still freed up. However, as mentioned before, requires the market to have gone up.
Rent out the Property
This is where we switch the investment model from “Buy and Hold” to “Buy to Let” and use the rental income to sustain the investor whilst we wait for, say, the market to go up. The returns aren’t as quick or as great as some other strategies, but it provides investors with a continual source of income that allows them to invest in other projects or buys them more time to look at other options.
This may require a smaller investment in order to get to correct licence or to convert the property to a state in which it can be rented out.
Long-term Exit Strategies
The long-term exit strategies take 12 to 18 months to put into place. This is because these strategies require a lot of legal work to change the property’s classification.
This strategy is based on converting the property into multiple properties in order to sell each one individually. For example, if we invested in a five-bedroom house, we could turn that house into three small apartments that would sell for more than the five-bedroom.
There are two reasons that this is a long-term exit strategy is. The first is simply the amount of time it takes to physically convert the property. Knocking down walls, putting in new plumbing and electrics takes time. The second is going through the paperwork that’s required i.e. making sure the apartments are safe, getting planning permission from the local authorities, etc.
This technique is also often used by property investors that specialise in “flipping”. “Flipping” is where you renovate a house in order to sell it for more than you bought it for.
Convert the deed
This strategy is where you change the classification of the property. For example, you may convert the property from “residential” to “commercial”. Simply put, this means that instead of the property being used as a home, the property can instead be used as an office or store.
Like refinancing, using this strategy depends on what the market is doing and the location of the property. If the property is located on a main street in a city then converting the deed is likely to be effective as there’s going to be a lot of people that can visit the office or store. If the property is in the middle of a housing district, it’s far less likely to be attractive to commercial buyers/renters.
Always Look at the Market Data
The most important thing to remember when investing in property or choosing a property investor is to look at the market data.
As I mentioned in the introduction, changing the properties strategy doesn’t always mean that you have to “exit” the deal. What we wanted to show you in this article is that if you invest with the right property investor, there’s always a way to make a deal profitable.
When you’re choosing which property investor to use, make sure that you:
· Ask about the “worst-case scenario”
· Talk to them about all other ways the deal can make money
· Make sure they back-up their claim with market data
In order to minimise the risk to your investment, look for creative property investors that have a wide range of knowledge and understanding about the property market. If you’re looking for a low-risk property investment, or want to provide a better life for your family send me a PM.