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Buy to let property: How to put the “G.A.M.S.” into your business

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The concept of buy to let property is pretty simple. Acquire a property and ‘’sell’’ its space for a certain period of time. The standard business model revolves around “G.A.M.S.”.
  • Game: What type of property will your business focus on?
  • Asset: Acquire the right income-generating asset
  • Market: Is there enough demand for your asset? 
  • Sweat your assets: Milk your asset for the cash flow and sell only when necessary
►Choose your game
 
The nature of a buy to let business is dependent on the type of property you’re dealing with. There most common include:
  1. Residential
  2. Commercial
  3. Industrial
Residential properties are used by the general public for primary housing purposes. These include apartments, flats, free hold units, clusters, condos, sectional title units and others. 
 
Commercial properties include shopping malls, office complexes and other buildings, whereas warehouses, factories and storage depots form part of industrial property.
 
The idea behind your business is to become the owner of a property (or many properties) and generate revenue by leasing it (them) out to customers.
 
Residential owners will lease their properties to individuals or families. Owners of shopping malls will lease sections of their property to different retail outlets, and factory owners will lease their premises to manufacturers for example. 
 
Where do you start?
 
It is a good idea to start with residential property as this will help you gain valuable experience in running a buy to let business. This will be extremely helpful before moving into larger deals involving commercial property.
 
But this is only one option. One strategy may be to use residential property as a platform to move into commercial or industrial property at a later stage. Another strategy may be to focus exclusively on the residential market.
 
Both strategies have their pros and their cons, and can be highly successful. Your personal preferences will also play a big role when deciding. 
 
►Acquire the right income-generating asset
 
The right asset is the one that generates sufficient cash flow to expenses. The higher your rental income compared to your expenses the better the asset.
 
The Oscar winning deal of residential buy-to-let is known as a cash-flow positive property. This is a property which generates rental income that covers all related expenses including mortgage repayments from day one.
 
You don’t find these deals every day, which is why you need a network of professionals around you who will find the deals for you. Build your real estate team and give them your requirements.
 
►Select the right market
 
The right market is the one that is willing to pay you for using your asset. Each and every area forms a unique market. And it is your job to evaluate it for demand. If there is no demand for your type of property, you have no business.
 
It is absolutely paramount that you get this one right.
 
When it comes to my residential business, the approach is pretty simple. Contact three letting agents in the area of interest and simply ask them what the rental demand is. If the general consensus is high, that area is a go.
 
►Sweat your asset
 
Sweating an asset simply means that you are using it to its full potential. When it comes to property, we are specifically referring to cash flow. The more rental income you can squeeze from your property, the more you are sweating it so to speak.
 
 
sweat your buy to let property
 
 
This may mean you will have to upgrade your asset: build a new room, rennovate, add a garden, give the property a fresh coat of paint or install an alarm system. Or whatever it takes to make your customers/tenants feel at home. 
 
Assets are there to be used. You want to make sure that your property produces a healthy cash flow for as long as it can. For that to happen, tenants must be willing to pay the maximum rental.
 
When should you consider selling? Some investors would recommend ‘never’. Apologies for being the fence sitter here, but for me the answer is ‘it depends’.
 
I hardly ever sell. I would only consider selling if the opportunity or situation called for it.
 
For example, if an area in which one of my properties is situated becomes run down without any hope of a turnaround, I would definitely consider selling. Alternatively, if I need a chunk of cash for a new project, I may decide to sell one of my assets starting with the worst performing one. It all depends.
 
Only sell when you need to. Why sell for a once off gain when you can live off the passive income?
 
►'Tricks' of the trade
 
So, the tricks with a buy to let property business (in this order) is to:
  • Decide which game you want to play
  • Find the most profitable market
  • Own the best assets which cater for your chosen market
  • Sweat your assets for what they are worth.
One word of caution: The buy-to-let model is not a get-rich-quick scheme. As with any business, success comes over time. You need to stick with one plan and make it work.

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