Even if that plan is just “I think I can buy this widget for £1 and sell it for £1.50”, it’s still a statement of what the business will do and how it will make a profit.
But many – in fact, most – wannabe property investors start out without even the most basic of plans.
It very much is a “bet” because you're taking something of a gamble on capital growth, but it's got a lot of time to happen – and when it does, your returns will dwarf the higher rental income you'd have made from the other property.
That's just one example of why making even simple decisions in your property business are impossible without having that most basic ingredient of your plan: where you ultimately want to end up, and when.
You'll need to be clear about: – because it involves honesty about what you can commit, and self-knowledge to determine where your strengths lie.
Knowing how much money you've got to invest should be straightforward, but it's probably worthwhile speaking to a mortgage broker to check that you'll have borrowing options – because this will determine your total investment figure.You might be surprised by how much thought is involved in answering these questions properly.It's easy to throw around terms like “enough to fund my lifestyle” and assume that it might involve an income of £10,000 per month, but it's another matter entirely to look honestly at your ideal lifestyle and determine what a genuinely meaningful figure is.Well, that's where it's time to start thinking about the details of the third step: the strategy you'll use to pursue your goal. It's an unusual way to look at it, but I find it useful – because it tells you (given your timeframe and your goal) how much heavy-lifting your strategy will need to do to keep you on track.Think of it like this: if you had £10m in the bank and your goal was to make an income of £5,000 per month within a year, you wouldn't need any strategy at all.It certainly doesn't need to be 100 spiral-bound pages of projections and fancy charts.In fact, the best plan would be so simple that it fits on the back of an index card – meaning that you can commit it to memory and use it to drive every decision you make.The same is true for “when” – and it's an often-ignored factor that actually cuts to the heart of the most basic of investment decisions.For example, take a choice between two properties: If your goal is to create a certain monthly income within three years, the Property 1 is likely to be a better choice.Sure, it'd be a pretty stupid thing to do – you should really have had a more ambitious goal – but you get the point.Obviously, most of us aren't in that position – and that's why we need a strategy. A handy way of looking at it is to take the amount of money you've got to invest in property, and assume that you can get a 10% annual return on that money (ROI) – which is a rough rule-of-thumb for a normal property bought with a 75% mortgage.