Making money from property and building a profitable property portfolio is a numbers game, when broken down to its basic form. Numbers may be your strong point so if they are you are in luck and can get excited. If numbers and analysis are not your strong point then you will benefit strongly from learning this. When I first started I found that I enjoyed running the numbers on properties in my head and on my calculator, but I found out that this was not enough to get systemised to the highest level. (There is more on systems later in the chapter)
I soon realised that I had to learn the skill of thinking in numbers if I was going to make money from property investing.
Important note: Viewing property numerically
The first skill in numbers is knowing exactly where you are now.
Viewing numbers when starting out in property
I often hear people say something like ‘I have tried looking for properties and there just aren’t any suitable deals out there for me’. An old mentor of mine often said that the devil is always in the detail. That taught me to delve deeper into situations to find out more of the detail to make a conclusion.
So when this has been said in the past I have then asked how many viewings they are doing weekly and monthly and usually get a response like ‘ well I viewed five the other day and they all went at asking price and some even above.’ This is a typical response and this is where playing the numbers is so vital.
No matter what some people say, even the most experienced investors will have times when they view properties which are not suitable or the seller or agent just gets a higher offer. It happens, and the key is to accept this and move on, and not give up. (The importance of never giving up is discussed in another section).
Experienced, seasoned investors have a system in place. That means they do regular viewings and play the numbers game, as this increases their odds of success, and allows them to track performance as well.
That is the beauty of numbers: they don’t judge and they don’t lie.
So when you are starting out, the key is to throw as many darts against the board as you can in a strategic, planned way. Planning your strategy and area is vital and this is mentioned earlier in the book, so once you have done this it is key to get your viewing numbers up. Now there are many benefits to this including building long lasting solid relationships with agents which will likely prove very fruitful over the years for you. But as well as that you will be able to get a real-time idea of the amount of viewings you need to do to achieve your goals.
Now property investing is like any other business or walk of life in that the more you do it, the slicker and more polished you will become. I am sure when Roger Federer first picked up a tennis racquet he wasn’t immediately the unbelievable tennis player that he became. I am sure it took years and years of practice, repetition, testing and perfecting his craft to achieve that.
You should look at investing in property no differently – if you are serious of course. Remember: treat property as a business from day 1.
So you start out and let’s say you initially view 50 properties over a period of time. Now it’s important to say here that there were a lot of properties that I viewed when I started that I wouldn’t ever touch again with a bargepole, like low cash-flowing property and I also got emotionally attached and overpaid for a property. Hopefully, with this book, I have connected with you before you have started, so you won’t make the same mistakes that I did. If not, then don’t worry we are always learning and improving along the way. Even years down the line you will be testing and tweaking to find new ways of improving what you are doing.
When you initially view the first 50 properties you will find that some will fit your strategy and work, and some will not because, even if they do work at a certain figure, the vendor may not be willing to accept that figure. The key here is to not panic, just systematically go through each property one by one to assess them. If the property just does not work then you can put it to the back of the pile. You can then cherry pick the main contenders from the 50 that you have viewed. It is important to clarify the profile of the types of properties that you feel are ones you can offer on. This means that when you view the next 50 properties you will not arrange to view ones that don’t fit that profile.
When you start out and view 50 properties, then if 10 are good investment propositions you will be doing well. From that ten you could offer on all and then if you can strike deals on 2 or 3 then you will have a good conversion rate. As I became more experienced in property I have found that for every 50 I viewed, half of them, or even over half, may be suitable investment properties. This is because my knowledge had increased but I had also built solid agent relationships and they knew what I was looking for. That meant I began to only view ones that would fit a strict criteria and fit my rules, which we know is key.
This is where the numbers come into their own as you can test and track. If it takes 50 properties to agree two sales, then you will know that if you want to buy 4 that month, you will need to increase your viewing numbers. This process is key and something that I found really helped me to systemise my business and see what was actually happening. Another advantage of working in this way is it allows you to put the associated costs against this, and work out the true profitability of your business.
Your numbers with your property purchases
The same rules will then apply with properties that you buy and add into your portfolio. By getting into the habit of using numbers as your guide, you are in a much better position to make informed decisions about this as well.
The key with property investing as with any business is to spend your time on things that generate income. The less time you spend on things that don’t generate you money, and the more time you spend on things that do, based on your numbers, this will be directly proportionate to the amount of money you make from property.
Spreadsheets, statistics, data and things such as this did not come naturally to me when I started buying property. I believe this is an important point as often we have strengths in, and enjoy, certain parts of the process more than others. I enjoyed the sourcing of the property, the negotiation, the relationship building which seemed to come more naturally to me as I had been exposed to these areas in previous jobs before. I had to learn to embrace the statistics and data side, to make sure this was all in order and up to speed. One of the key things that I learnt was that by doing this and focusing on the numbers you can actually highlight where you are making money, which is very exciting. You can then do more of this particular thing to make more money, which is even more exciting.
Now some people will be reading this and thinking that getting excited about the numbers is like watching paint drying but I have found that there are certain skills needed in every walk of life and property is the same. If you want to drive a car you have to pass your theory test and learn to do this. The numbers are key as you need to know what you are doing to be able to improve it. If you do not know what you are doing then you can’t improve it.
The most successful property investors and businesses are not there by accident and most of them have not had a silver spoon or a head start through their upbringing. Once they have based their strategies around those who are already successful, they can then test and continually improve. It is that final 10% that often makes the difference to your success and bottom line.
Your use of time with evidence from the numbers is key. It all comes back to spending the majority of your time on things that generate income. If the numbers show that one particular strategy makes the most profit, then you should be spending more time on this, and this will directly boost your income accordingly.
Sounds simple but many people often miss this.
Summary: Using the numbers as your benchmark is key to tracking your progress. If you spend your time in the most productive way, based on the information your numbers give, then you will be well on your way to achieving the success you desire.