What Should a First-Time Property Investor Buy?

One question I get asked a lot...

“What's the first property investment you should make if you want to get into this game?”

There's so many different ways to get in the real estate or property sector, but for most people, it tends to be through residential property. Residential property is pretty accessible because we're all familiar with it. You rent it to live in or you buy it to live in it as your first home. That was one of the ways that I got into this business and if you're lucky enough to get in at a good price then you're off to a good start.

What people often decide to do is buy their first place, which might be a small apartment and then as they get a little older or maybe they're start a relationship, they want to move to a bigger place. They decide they’re not going to sell that first property and instead want to keep is as a place to rent. This is a common way to do it and we call it the "accidental landlord".

A common strategy is the B-R-R-R-R strategy.  One of the benefits of this strategy is that you can add value in a tried and tested way that the banks are familiar with it.  What does B-R-R-R-R mean?  B is for Buy, R is for Refurbish or Renovate, R is for Rent, the next R is for Refinance and the final R is for Recycle - which is to take the profit and go again.

When you have done up your property and have a tenant signed up to pay you rent the market value will have risen and a property valuer should be able to formally verify this.  You can then take go back to the bank to refinance the property on the back of the increased value.  This often allows you to pull cash out in the form of an equity release.

You might have put down say 20k and borrowed 80k and you have a property worth 100k, but then after the refurb that you've done maybe it's now worth 150k.  If you spent 10k doing the property up it means there is a 40k profit there that can now be extracted via that equity release.

The big idea is simply to rinse and repeat - to hang on to the property and go again, keep the game going as long as you can. You use that 40k as a deposit on your next deal, so you have your second deal on the go while you're collecting rent from the first deal and you just keep recycling it. Keep doing it over and over again and its starts to accumulate.  

There are many ways to get into property, some more complicated than others.  The BRRRR strategy is pretty straight forward, a more complicated method could be development.  One of my first deals was the development of a small site. I got planning permission for four houses, and before I knew it I was able to sell the property for a 100k profit, bought for 25k sold for 125k. That was my first taste of the potential rewards from property investing so I got into it in a much more serious way after that. 

If you want to know more about this kind of stuff you should listen/watch to my podcast Behind the Facade - http://behindthefacadepodcast.com/ or https://www.youtube.com/@BehindTheFacade 

An earlier version of this article first appeared in my Gavin J Gallagher Blog in August 2020 - https://gavinjgallagher.com/2020/08/04/what-should-a-first-time-investor-buy/