SlideShare a Scribd company logo
1 of 124
Download to read offline
The Ultimate Property Investment Guide2
http://www.proebayer.com



Don’t get ripped off on eBay!
Down load your free eBay buyers guide and sellers guide from:

http://www.proebayer.com/tips.htm

Sign up for your free monthly newsletter for more eBay money making tips,
tricks, reviews and much more

http://www.proebayer.com/news.htm
FORE WARNING



THIS PUBLICATION DOES NOT CONSTITUTE ADVICE WITHIN THE TERMS OF
THE FINANCIAL SERVICES ACT 1996 (OR ANY SUBSEQUENT REVISIONS, ADDITIONS,
OR AMMENDMENTS).

The contents are a general guide only and are not intended to be in
substitution for professional advice. All readers are strongly advised to take
advice from their solicitor, accountant and surveyor before proceeding with
any property purchase.




                                      4
Contents

Page 8     Section One     Why this e-book was written

Page 14    Section Two     Do I need property to achieve my goals?

Page 26    Section Three   The Planning system

Page 49    Section Four    Deciding on, and forming, your system of business

Page 51    Section Five    The Financing system

Page 57    Section Six     A Buying system

Page 91    Section Seven   The Innovation system

Page 99    Section Eight   Management systems

Page 114   Section Nine    The Accounting systems

Page 122   Section Ten     A system for reviewing




                                    6
The magnificent seven

SEVEN qualities are needed to make a successful entrepreneur, say researchers at
the Durham University Business School, who reviewed other research and
interviewed 16 graduate entrepreneurs and 100 small businesses.
David Johnson and Rosa Ma say the qualities are a:
    • ability to envisage where the business should be at points in the future
    • motivation to succeed
    • ability to set realistic goals
    • desire for autonomy, though tempered with the readiness to accept advice
    • ability to calculate real risk and plan to reduce it
    • knack for spotting opportunities
    • willingness to take the blame rather than ascribing performance to luck
    • creativity and innovation

But Mr Johnson said people acted differently. Venture capital providers and bank
managers “tend to decide intuitively whether the person in front of them is worthy
of support”.

As the list indicates behaviour it may be possible to train people to be more
effective entrepreneurs, he said.
                                                       Daily Telegraph 1st August 1994




My aim in this e-book is to show you how to be a more effective property entrepreneur.




                                           7
Section One
Why this e-book was written
In this section you’ll learn:

       •   How I discovered the contents of this e-book and why I think they are so
           important to your success


But first a quick recap…

I was very pleased with “An Insider’s Guide to Successful Property Investing” and
judging from your comments, so were you. It covered the topics a lot of other property
information doesn’t cover, but which is essential information for a private property
investor to have, such as:

       The attitude and attributes of successful property investors

       A laymans guide to the three main valuation techniques, so that you can be sure
       to buy low and sell high

       A comprehensive look at why gearing is an investors best friend and how you
       can benefit

       Other people’s money and how to legally use it to fund your deals

       The truth about buying at auction

       Strategies for achieving income or capital growth: and

       The things you need to be aware of when you are a landlord

Having laid the background it then went on to look at the different types of property
investments such as flats and houses, and some of the more unusual and niche
investment opportunities including residential reversions, freehold ground rents, and
lock–up garages, and how to get the maximum returns from them.

It’s now just over two years since I first launched “An Insider’s Guide”. In that time I
have successfully started my own property business and am building up a sizeable
portfolio.

I’ve also spent the last 2 years reading thousands of pages about “Nothing Down”
deals, mainly from America. It’s fascinating reading. In the USA property
entrepreneurship is big business with a lot of full time investors and developer/traders
who started out like you and me.


                                              8
I think we can learn a lot from the States about creativity and flexibility in property, but
apart from anything else we can learn that:

“the small guy” really can become a successful property investor, even if he
doesn’t start with a lot of cash of his own.

When I was looking around at the Internet a few months ago, I came across a web site
hosted by a property entrepreneur who is a millionaire on paper, but who was moaning
that at one time his cash flow had been so poor that he had been almost bankrupt.

To survive financially he had to completely change his tactics and instead of buying
property to hold as investments, he now concentrated on refurbishment and selling on.
By doing so he had intended to build his cash flow and not his capital. However
because of the margins he was able to create between purchasing a run-down property,
refurbishing it and selling it on, he had in practice increased both.

This wasn’t a surprise to me because it was around that time that I realised that owning
properties wasn’t the answer in itself. You see, when I first started out building my
portfolio, I was determined to create cash flow. That was my most immediate need.
Remember, owning property isn’t a goal in itself – it is merely the means of realising two
of my principal goals

   •   to quit the day job and do something more interesting

   •   to create a permanent passive income

When I first started buying property, my strategy was to assemble a portfolio of high
yielding properties. I figured that if I were able to buy enough of them, then at some
point in the future, the income would be so good, that even after allowing for
management fees, mortgage repayments, repairs and even voids and re-letting fees
when the odd one became vacant, there would be sufficient income to pay me a good
salary, and some left over to plough back into the business. I’d use this extra to
purchase more properties.

I had calculated that it would take me about two years to become financially
independent, by which time I would have around fifty properties. When this stage was
completed, I intended to sit down and look at my strategy again. I thought at that time I’d
switch into commercial property safe in the knowledge that the activities from phase one
would give me a decent income no matter what.

However, what looks good on paper doesn’t always reflect reality. I’ve got to say, this
was my first attempt at building a property portfolio. Up until then I had always worked
for clients who were all established property owners. So although I was able to help
them build their portfolio, it was always in the context of assisting them with an existing
portfolio. So I wasn’t prepared for how the system really worked for “newcomers”, when
you start from scratch.

After reflecting on the conflict between ownership and cash flow I realised that there are
traps to fall into which are not obviously apparent until it’s too late. I’m glad to say that I
haven’t fallen into all of them, but having been in and out of several, I think I am in a

                                               9
position to help the unwary avoid most of them. Mainly this comes down to common
sense but sometimes it’s hard to see the wood for the trees.

So, sitting at my computer that Saturday morning, I read those words on the internet
and thought, “Yes, I can relate to this, it’s about time I did some serious thinking” about
what I am doing and what I should be doing.

The result of that serious thinking is this, “An Insider’s Guide to Successful Property
Investing – Part 2”.

I came to the conclusion that there are key questions that need to be asked and
answered by every prospective or active property investor before they do anything.
These are:

   •   What am I trying to achieve and why?

   •   Do I need to own property to achieve this?

   •   Where and how do I start?

   •   What strategy do I need to adopt?

In a sense, any success will be traced back to the quality and quantity of planning and
research made prior to taking the first steps.

I suspect that many inexperienced property investors have never thought very deeply
about any of these questions, especially those who are currently piling in on the Buy-to-
Let scheme.

Their failure to do so illustrates what Brian Tracey calls the two main reasons why
businesses fail:

   •   Lack of direction

   •   Lack of a (financial) plan

I hope to be able to give some thoughts in this e-book so that you can answer these
questions for yourself. However, answering these questions is only the first step, we
then need to put the theory into practice.

The transition between knowing what you want to do, and how to actually go about it, is
where most would be investors get stuck. If they understood clearly

   •   How to buy the most suitable properties for their purposes, and

   •   How to do so with the minimum of risk

then jumping in at the deep end, whilst daunting, would be do-able.



                                             10
The next stage is then to learn
:
   • How to best protect their investments

The more I thought about it, using my own experience of the realities of property
investing, I came to the conclusion that the best answer to these questions is to have
the systems in place which will automatically steer you in the right direction.

In fact, I have subtitled this e-book “Milking the System” because I believe that no
matter how clever you are, if you don’t have the right systems in place to find, buy, run
and manage your property business, you are never going to be successful.

On the other hand I believe that if you do have the systems in place, and you use them,
you almost can’t help but be a successful property investor or developer.

This is not to say that you won’t need to think and use your common sense but there
are things you can do, almost on automatic pilot, to make sure that you get the best
possible results and avoid the problems.

In this e-book I will show you the systems you need.

Interspersed with these principal themes, I have also dealt with some of the most
common issues that have arisen during some of my “one on one” consultations, which I
can see are genuine concerns to new and experienced investors alike.

Before I show you the systems all good property investors could and should use, let me
give you some of the background behind how I stumbled upon them.

Now let me say from the start that I am relatively new to direct property investment and
I am not too proud to admit that I made loads of mistakes. So what I am about to tell you
in this e-book really is the result of trial and error.

However, if I can help you to start and run a property business, and to avoid the
mistakes I made, I will think it’s a job well done.

Here are some of the reasons I spotted early on as to why people’s businesses fail.
Firstly, there are the lack of planning reasons

   •   Not knowing why they are in business
   •   Not knowing which business they should be in
   •   Not really understanding how they can use their business to get where they want
       to go

The antidote to these uncertainties is to have a proper system of goal-setting, so you
know what you want and why, and secondly a proper planning system so you can
formulate a strategy which will help you to achieve those goals.




                                            11
The next reason for failure is setting up the business in the wrong form. There are only
four basic forms that one can realistically choose, excluding a Plc, but the choice will
impact on cash-flow, tax, red-tape, and ultimately your exit strategy, if you ever need to
sell the business. Most buyers and investors give this hardly any thought at all.

The next reason property businesses fail is because they don’t have proper financing
systems in place. If your aim is to have one or two investment properties, then shopping
around on the internet or ringing a couple of building societies for details of their best
‘Buy-to-Let’ deals might be sufficient. If you want to run this as a proper business, you
need to have proper systems in place. This will become very apparent when you are
offered deals which you lose through not having ready funds available. This is why I
think having a finance system in place should come before having a buying system.

The next reason for failure is not having a proper system for identifying and buying
properties. I could be pedantic and separate this out, but they really go together. Partly
this goes back to strategy; you need to know what you are buying and why. Randomly
acquiring properties ad hoc may seem like a good idea if they are all bargains, but how
will this affect the speed and ease of your exit if you ever need to sell? How will the
bank treat them if you need to refinance? And without the proper system in place, how
are you going to avoid properties which look like good purchases at the time but which
turn out to be unsuitable?

Next, many property businesses don’t look ahead to the day they own their first
property. How are they going to manage it? Do they do it themselves or get someone
else to? Either way there are fundamental implications for the business.

The business itself needs to be managed. A lot of this is about implementing and
overseeing the other systems. It would be nice if they worked on auto-pilot, but it’s really
more like spinning plates. If you leave them they’ll fall down. Then, and this may
surprise a lot of people, there’s self-management. Property is a people business and if
you are not in top form, it will be reflected in how well you do.

Then there are businesses which don’t have proper accounting systems. These
businesses just do not last. This is more than having the accounts prepared once a
year, this is more about early-warning systems to alert you before things go wrong. It’s
also about not missing opportunities because you don’t realise you can afford it.

Finally, there has to be a system for reviewing. This isn’t about slapping yourself on the
back at the end of the financial year. This is a constant process of refining what you do
and learning to do it better. If you don’t review where you’ve been, you’ve no chance of
getting where you’re going.

In the e-book you’ll find links to other sites, some run by developers and agents dealing
in property, I have identified these mainly by use of search engines, as any potential
investor doing their own research would do. The fact that the link exists is merely to
show that the site is there, it is up to you to decide whether it is useful or not. The
presence of a link should not be treated as an endorsement of either the site or its
operator by either the author or More Than Two Publications, it is purely for information
only.


                                            12
This book is not designed as a once only read. It is intended as a tool that you’ll want to
use regularly. Instead of being a dull and dusty textbook, I’ve added a few light touches
to make it even more interesting. (So I very much hope that you enjoy it and find it
stimulating and exciting)

If you find there is something that I’ve missed and you think should be included in the
next edition please email me:

mailto:peter@propertydeals.fsnet.co.uk and if I use your idea I’ll send you a copy of the
new edition free of charge.

Please refer to this e-book again and again as you work through your preparation for
buying your next property or starting your business. Take your time to come back to
specific chapters and review the points.

So let’s start by looking at arguably two of the most important systems, those for goal
setting, and those for planning.




                                            13
Section Two
Do I need property to achieve my goals?
In this section you’ll learn:

       •   Why you need to think carefully about whether property is right for you

       •   Five things that property can do which other investments can’t

       •   Why you need clear, measurable, and achievable goals


Before I show you the systems that you’ll need to build a property business, you’ve got
to know whether you really need and want to own property.

You may be wondering why I would even ask the question “Do you need property to
achieve your goals?” In the UK we just take it for granted that owning and trading
property is a good thing to do, and that more is better. It’s in our blood.

Traditional thinking says that property is a great investment mainly because:

   •   It can produce rental income
   •   There can be rental growth
   •   There are potential capital gains
   •   It can be a hedge against inflation in certain economic conditions.
   •   It can be very tax efficient

This is all true, and as an investor you may be trying to achieve one or more of these.
However, property is only one of many different types of investment available. Whether
property is the right one for you or not will depend upon what (and why) you are trying to
achieve.

Property is not perfect and has its drawbacks, for instance:

       •   it is relatively illiquid, meaning it is not easy or quick to sell
       •   acquisition costs are high, especially when you get into higher bands of stamp
           duty
       •   management costs are relatively high
       •   unlike other forms of investment, it needs to be repaired and maintained
       •   disposal costs are also relatively high

Before putting any money into property you need to consider whether it will achieve
what you require of it.




                                            14
Property can provide an investor with:

       •   capital growth and “security”, but usually the trade off is low returns from
           income.
       •   high returns from rent but the trade off is low capital appreciation and poor
           security
       •   any permutation in between.

The tension between income and capital growth is discussed in more detail in An
Insider’s Guide to Successful Property Investing.

The type of property, and the location you choose will reflect how you weigh the merits
of returns against risk, but if your buying criteria requires you to be able to invest and
deinvest quickly and easily, property may not be suitable.

Alternative investments such as high income bonds, shares or gilts (the traditional
marker for commercial property investments) may be more appropriate for you.

When I first started writing about residential property investing about ten years ago, it
was a really very much a minority interest. There were only a relatively small number of
private landlords, and there were also a few semi-professionals doing house
renovations and conversions. The majority of residential investments were owned by a
number of small private and quoted companies, and by family trusts.

Over the last decade things have changed completely.

It seems that more people than ever before are thinking about, or actually, putting their
money into property. On the face of it there has probably never been a better time;
record low interest rates, close to full employment, increasing capital values, and the
success of the Buy-to-Let scheme have given smaller investors the confidence to have
a go.

In fact, everyone wants to get a piece of the action. You can decide what you want to
read into this but I’ve just read an article in the Sunday Times entitled

                      “MPs rush to join the homes-for-rent club”.

The article says “More than a fifth of MPs supplement their incomes with second homes
or businesses, according to the new register of member’s interests…landlord MPs
declaring property interests, including 65 on the Labour benches, are taking advantage
of the booming housing market of recent years…..Labour’s landlords are joined by 44
Conservatives and 11 Liberal Democrats…the MPs are part of a growing phenomenon,
the Buy-to-Rent market. Rising prices and looser tenancy laws make property attractive
to those seeking stable investments…..In the second half of the 1990’s second home
ownership in England rose by 22% from 936,000 to 1,139,000. More than 130,000 Buy-
to-Let mortgages, worth £10 billion, have been taken out.”

So why has everything changed? At long last it seems that the residential property
investment scene is recognised as an industry in it’s own right. Government interference
is at an all time low, for the time being at least, although the recent proposals to licence

                                             15
owners of Houses in Multiple Occupation may become an issue. Finance is available for
most aspiring landlords through Buy-to-Let. Interestingly, following the relatively poor
performance of the Footsie over the last couples of years, residential investment
property is now of interest to the large institutional investors who are queuing up to get
their hands on as much stock as they dare to take.

However, not everyone is convinced that residential property investing is a dead cert.

In November last year (2001) the Sunday Telegraph ran a piece entitled “No Room Left
for Buy-to Let” which suggested that buying for investment surged after the attack on
the twin towers on September 11th, when nervous investors decided to put their money
into solid bricks and mortar.

The article went on to say “There are now 130,000 Buy-to-Let mortgages in the UK. But
many of the 28,000 borrowers who have become landlords since the beginning of this
year have already seen the value of their property drop”.

It continues “the major attraction of Buy-to-Let is that the typical investor, who borrows
about 70% of the purchase price of the property, covers mortgage payments with the
rental income and pockets the capital increase when he sells. This goes horribly wrong
if property prices stall or fall, particularly if the property proves hard to let or rents have
to be slashed to get tenants.”

Subscribers to my newsletter, Property @ Investment, will remember that last year
(2001) I commented on an article published in the Estates Gazette which suggested
that Buy-to Let had reached it’s peak in the South East, and that over-supply was going
to push down capital values and rental values.

Six years into the Buy-to- Let scheme, are we finally about to see the bubble burst?
Despite the dire warnings from the Estates Gazette and Sunday Telegraph, Buy-to-Let
lending to private investors carried on increasing during the last half of 2001.

In fact 2001 was a record year for property price increases, with average prices across
the country rising something like 15.5%. And the statistics seem to be showing that
things are not slowing down in 2002, yet.

However, there are suggestions that property values in the South East are poised to
collapse because of the boom in Buy-to-Let.

This is interesting and is backed up by anecdotal evidence. A colleague of mine who is
a very successful property investor, has recently bought a house in a prestigious
London borough, which he is now trying to sell asap. This he will be able to do, and he
will make a good 10% to 15% on his investment in a little under 6 months, so he’ll be
happy.

But he’ll also be relieved. He was intending to keep the property and let it out, but in the
same London borough he knows of many properties which were bought through the
‘Buy-to-Let’ scheme, which have not been occupied since because of a lack of tenants.
The owners are having serious problems with cash flow.


                                               16
To maintain and cover the mortgage payments these properties need to be let for
£1500+ per month. If the rents were £1000 a month or less, they’d be plenty of takers,
but demand is limited at the upper ends of the market. One lady investor I was talking to
says she has had to cut her rents by £50 a week. As you’ll see later, most of my
properties are only let for £50 a week (well, about £70 a week on average to be factual)
so I feel for her.

The owners of these properties are being eaten alive by the negative cash flow. Our
American cousins call properties like these ‘alligators’. These properties are going to
come back onto the market, and probably in sufficient numbers to depress the owner
occupier market, if only temporarily. I’m not saying prices will fall, necessarily, and if
they do I am not predicting a massive crash, but inevitably I think things will have to
slow down.

So is property investing finished?
No, not in my opinion. The Buy-to-Let scheme’ is great and has opened up property
investing even to people with modest means. But like all good things it got too popular
too quickly. Many people just didn’t do their homework as they jumped on the band
wagon.

A correction was, or is, inevitable. However, that is not to say that the idea itself isn’t
sound.

My view is that we have hardly started yet. In my opinion there are two principle reasons
why the private rental sector will boom in the long run:

       •   Changing demographics

       •   A shortage of rental properties

As they say ‘It’s an ill wind…’ but unfortunately as society continues to fragment the
small, private landlord will come into his own.

According to the official statistics the private rented sector is destined to explode over
the next 15 years as demographics change Britain into a country of “live alone singles”.

In 1996 10 million households comprised married couples, 6 million households had just
one person. By 2016 it is predicted that this will reverse with only 6 million households
comprising married couples, and 10 million households with just one occupant

Because of this it is predicted that the number of households in the UK will jump from
around 20 million to about 26 million in 2021. And of the extra 6 million households most
are expected to be small family units, singles and couples, many of whom will want to
rent, not buy.

Now consider these predictions in the light of two further trends that have occurred and
which are set to continue.

The number of households in the private rented sector has dropped from around 12% of
the housing stock since 1981 to around 10% today, although the trend is now on the

                                              17
way up again. During the same period, presumably as a result of the success of the
Right-to-Buy scheme, when council tenants were offered their properties to buy at a
discount, the number of households in social rented housing dropped from around 30%
of households to around 20%.

Unless I am mistaken, if these two trends continue, by 2021 there could well be a
severe shortage of rented accommodation, both private and social, particularly social.

This suggests two possible areas where private landlords may well prosper, and provide
a desperately needed social service.

The first is in the “middle ground” providing good quality rented property to middle
income, working tenants. Ten years ago the average age of a first time buyer was 21,
now it is over 30. A lot of these people will buy, but for now they want to rent good
quality accommodation.

The second area is by making up the shortfall in publicly provided social housing for
socially excluded tenants. Local authority housing stocks are reducing. Despite efforts
to boost the role of Housing Associations, private landlords may prove to be the only
way to get rid of the current dependence on Bed & Breakfast and hostel
accommodation.

Unfortunately there are still some in Government who dislike private property in
principle, but I think their power base is quite weak. The thing they don’t understand is
that the Government now need private investors to provide social housing and asylum
seeker accommodation. This is a real tangible service which is meeting a real tangible
need.

It’s a classic symbiotic relationship with both sides benefiting. The landlord gets a ready
supply of tenants, and when the benefits system works, money backed by the
Government. On the other hand the Government gets cheap accommodation for
socially needy groups, but without having the hassle of ownership and all that goes with
it, such as the trouble and cost of maintaining the housing stock. Just think of all that
capital which was once tied up in Government and council owned property which can
now be put to better uses.

Over the last few years the Government have been falling over themselves to sell off
easily disposed of housing. A good example is the privatisation of armed forces
accommodation. Another example is that Local Authorities are now being encouraged
to sell on whole housing estates to “socially responsible” landlords, and these aren’t just
Housing Associations.

So unless politics gets in the way, it’s difficult to see how small private landlords can fail
over the next twenty years.

But does this necessarily mean that property investing is a good idea for you?

The answer is that it makes sense, if it makes sense for you. Whether it makes sense
for you will depend upon what you are trying to achieve through property ownership. In
the UK over the last 50 or more years, rightly or wrongly, we have developed a culture

                                              18
of property ownership. Most people assume that property ownership is a “good thing”
and don’t question it. As the success of the Buy-to-Let scheme shows, given the
opportunity, people will just charge off and buy as many properties as they can.

What they may be overlooking is that, as I said earlier, owning property is not an end in
itself, it is a means to an end.

People associate property with security, giving us the expressions “as safe as houses”
or “as safe as bricks and mortar.” It can be a great hedge against inflation. If we buy the
right properties in the right areas, it can provide the means to grow our capital. Used
properly it can be a very tax efficient way of accumulating wealth to supplement a
pension. And if we really know what we are doing, it can provide an income. We’ll be
looking at aspects of all these in later sections.

Property Versus other types of investments
Although we’ve already seen that property isn’t without its problems, it is supremely
versatile which makes it an excellent investment for most people.

Here are five reasons why property gets my vote as a better investment than all others:

       •   Capital values grow at a higher rate than money rates

       •   Returns can be supercharged through gearing

       •   Property values can be disproportionately increased by spending on repairs
           and improvements

       •   Virtually any one can borrow to buy property

       •   It’s never going to go out of fashion

Let me illustrate each of these by comparing property to other types of investment. To
make it a bit easier I’ll assume that we have £10,000 to invest as we wish.

Capital values grow at a higher rate than money rates

My definition of an investment is something which provides an income. Some may
disagree with this definition, and I realise it’s rather simplistic, but I think that most
people would recognise that this definition is reasonable.

An example would be if you had some spare cash you may choose to invest it in a
Building Society account. Say you put our £10,000 into a Building Society, and the
account is paying 4% pa gross interest, then over the next year you would earn £400,
less tax if you are a taxpayer. Not very exciting, but it ’s an income of a sort, and so by
my definition this is an investment.

Property compares extremely favourably. The average return for a Buy-to-Let property
has been calculated as being around 7% to 8%, and it’s possible to purchase rental
properties so cheap in some areas that the return can be 15% pa or more. (By contrast,

                                               19
in high value locations such as central London, the yield will be much less, probably
between 4% and 6%).

I was reading recently someone else’s view that an investment is only a true investment
where the capital invested grows in its own right, regardless of the income generated.

Going back to our example of the cash deposit in the Building Society, that wouldn’t be
considered an investment under this definition because the amount deposited won’t be
growing in isolation to the interest.

This may seem rather confusing but let me give you another example. Instead of
investing the £10,000 in a Building Society, we could use it to buy some stocks or
shares instead. Assuming that the company whose shares we buy are doing OK, we
should receive a dividend, which is effectively income and the equivalent of the interest
from the Building Society. A lot of companies in the FTSE 100 will pay dividends
equivalent to 3 or 4% of the share value. So we should still receive an income of around
£300 or £400 per year.

However, if things are going reasonably well, and there is sufficient demand from other
investors for these shares, then the share price will go up as well. So, if we had bought
1000 shares at £10 each and the value of each share went up by £1, our £10,000 would
then be worth £11,000. So we’ve had growth on the capital element of £1000, or 10%,
and a dividend or income of, say, £300 which is 3%.

Let’s compare that to property. If you buy even a modest property in a reasonable area,
then you’ll know from long term historical trends that the capital value is almost sure to
increase.

According to the latest Quarterly Review from the Nationwide, house prices have
increased on average by 7.5% per annum since the beginning of 1993. There’s no
reason to assume that in the long run this trend won’t continue, and historically the rate
of growth has been higher, nearer an average of 10% a year over the last 30 years.

And if you’ve bought with letting in mind you will get a rent, or in other words an income,
as well.

Returns can be supercharged through gearing

So far, property is comparing very favourably. But now we can even blow stocks and
shares away by doing something with property that you can’t do with most other types
of investments.

“ I’m now going to tell you probably the most important secret known by, and used by,
all the great property investors. I think you are going to be surprised. “Nobody ever rises
above mediocrity who does not learn to use the brains of other people and sometimes
the money of other people too… it takes a combination of the two”. So said Napoleon
Hill, the man who through his philosophy of personal achievement probably helped to
create more self made millionaires than any other person in history.



                                            20
The trouble with using other people's money is that debt makes us squeemish. From an
early age we are told that debt is bad and should be avoided. And that is true, or at least
partly true. There are certain types of debt that we should avoid at all costs, but, like it or
not, any businessman will tell you that most businesses cannot grow without the proper
use of investment debt.

This is especially true of property where the sheer scale of the figures involved mean
that only the super rich can afford to be seriously involved without some form of debt. If
you want to build a sizeable and profitable property investment business the truth is that
you will require some short term debt.

So the first rule of property is “ investing in property works better when you use
someone else’s money” “.
                               Source ‘An Insider’s Guide to Successful Property Investing’

Let’s apply this rule to our example.

Ordinary investors can now borrow considerable sums of money to buy property. This is
something you have difficulty doing with any other type of investment unless you are
‘something’ in the City. However, with the introduction of the Buy-to-Let scheme, most
people can borrow a sizeable proportion of the purchase price of residential investment
properties.

For example, the bank I deal with will lend 85% of the lower of the purchase price or the
valuation. So, let’s assume you use the £10,000 to buy a property. If you can borrow at
85% to gear up, then after allowing a bit for legal fees, stamp duty and bank charges for
setting up the loans, you should be able to buy a property worth around £63,000.
Assuming a fairly modest yield of 10%, your gross income will be £6,300 a year, and at
today’s interest rates the mortgage will probably cost you around £3,100 a year (to keep
it simple this is assuming an interest-only loan at 1.75% above Bank of England base
rate).

Let’s look at what you’ve achieved.

After allowing for management fees, insurance and mortgage repayments, your net
income will be around £1,900 a year. That’s a return on the original £10,000 invested of
19%.

You also have a property worth £63,000, the value of which is compounding probably at
around 7.5% pa if the trend of the last decade or so continues. So if you hold the
property for ten years it will be worth £130,000. If you deduct the original purchase price
of £63,000, you have made a profit of £67,000. That’s a 570% return on the original
£10,000 invested, not including the 19% per annum you’ve been making from the rent.

And all this is being paid for by somebody else, by the tenant.
“This is the power of gearing and the effect is even more pronounced with higher
yielding properties, and when you are able to arrange loans at lower interest rates.




                                              21
If there is a key to success in property this is surely it. When you understand what is
happening you will see why buying property with other peoples’ money is much more
profitable than buying property with your own money.”
                              Source ‘An Insider’s Guide to Successful Property Investing’

Even if you do have enough money to buy a property outright it would pay you not to
use all your own money. Let me prove it.

If you had bought a property outright, and without a loan, using the £10,000 (yes, in
some areas of the country, this is possible) you would still have a decent return from the
rent, probably around 15.75% after deducting costs, but the capital growth would be
compounding from a much lower base. If you achieved 7.5%, which is doubtful for this
type of property, the value after 10 years will be at most £21,000. The profit will be
£11,000, so the initial investment will have grown by only 110% compared to 570%

That’s why being able to supercharge the returns on the money you put in makes
property so attractive, and gearing a property investor's best friend.

Property values can be disproportionately increased by spending on repairs and
improvements

It’s a “rule” in property that cost does not equal value. You’ve probably got neighbours
who you know have spent thousands of pounds on their homes but you know that if
they ever put them on the market they’d never recoup the full amount they’ve spent.

A classic example is conservatories. You can spend £20,000 on a conservatory but add
only £10,000 to the value of the property. An even more extreme example is swimming
pools, which can cost thousands and thousands of pounds to put in, but which many
estate agents will tell you add nothing to value of the property. This is because potential
purchasers see them as a liability rather than an asset. They are hard work and can
cost a lot of money to maintain.

Another less extreme example is double glazing. I wouldn’t be without it but you’re
unlikely to get back in extra value what you spend.

The good news is that this rule also works in reverse. There are things that you can do
to a property which will increase the value by more than the amount you spend. Two
prime examples are kitchens and bathrooms. You can spend £5000 putting in a new
kitchen safe in the knowledge that it will increase the value by £10,000. The same with
the bathroom. And, to a lesser extent, it also works with central heating.

So the ideal is to find a property that requires some renovation and to do it up. Let’s say
that you buy the property worth £63,000 but which has an old-fashioned kitchen and no
central heating. You spend £10,000 improving it, and end up with a property worth
£85,000, which you then let out.


You now have the best of all worlds. You have:

       •   an instant capital gain of £22,000 for the refurbishment

                                            22
•   compounding capital as house prices increase, but now the baseline from
           which that will be calculated will be £85,000 and not £63,000

       •   an income from the rent, which will be higher, reflecting the improvements
           you have made

You can’t actively “work” and “add value” with the other types of investment we’ve
looked at because they are passive investments. To do the same you’d have to be able
to influence the Building Society is run so it is more efficiently and can pay more
interest. Or you’d have to have a direct say in the running of the company in which
you’d bought shares in order to improve the way it is run, or even find new activities for
it to undertake which are more profitable. Both of these are impossible for a small
investor.

Virtually any one can borrow to buy property

With the Buy-to-Let scheme, and much more positive attitude by the banks to property,
virtually anyone with a job can now borrow to buy property investments.

It’s never going to go out of fashion

This comment is really self explanatory. In the case of residential property in general it
is 100% true, every one needs somewhere to live and always will. However, don’t
overlook that certain types or ages of property can become functionally obsolescent,
and certain areas can go out of fashion.

In the case of commercial property, certain types of property regularly go out of fashion;
we’ve seen the demise of the corner shop, the high street bank, the rural post office.
Wine bars look as if they are on the way out, as are smaller cinemas. Other things arise
to replace them; at the moment gyms, themed pubs, internet cafes and other leisure
activities.

However, as a general principle, we will always need property, especially residential
property, and at the moment we need a lot more than we have.

Compare this with other types of investment like internet stocks, which came and went
in a flash, leaving a lot of lost money and heartache behind them.

So if after reading all this you think that property is the most suitable form of investment
for you, you will need to think about the systems you to put in place to start, run and
manage your property business.

The starting point is effective goal-setting and planning.




                                             23
What am I trying to achieve and why?

In its simplest form your goal setting and planning systems should work together like
this:

Step One: Know what you are trying to achieve and why.

I dealt with goal-setting in detail in “An Insider’s Guide to Successful Property Investing”,
and so I don’t propose to cover it again here. However, knowing what you are trying to
achieve and why is a crucial question for anyone thinking of getting involved in property.
It’s a major investment, even the most basic of the “raw material” required to start you
off in property will cost you thousands of pounds.

My reasons for going into property investment were primarily to create a short-term
cash flow, hopefully coupled with long-term capital growth which will substitute or
supplement my pension in 20 or so years time.

You will have your own reasons for wanting to invest in property, and these should be
considered in relation to your goals and aspirations in the other areas of your life. This is
important because when we consider devising a strategy to help you achieve your
property goals, you will find it impossible to do so if you don’t know what you are trying
to achieve or why.

Remember, owning property is not an end in itself, it is merely a means to an end.
Investment in property for investment’s sake is completely pointless unless you are
striving for an anticipated outcome.

The other steps in the planning process then follow on:

Step Two: Develop a strategy which you feel comfortable with and which is right for
you, with the aim of achieving a predefined goal or target.

Many investors have no strategy as such, they would say that their strategy is “To buy
property”. This is asking for trouble. Any one can buy a property, the key is to buy the
right property.

Step Three: Take action following that strategy in order to achieve that goal

Step Four: Review progress regularly and fine tune your strategy as necessary. When
you achieve your goal, set another and produce a new strategy to achieve it

Step Five: Repeat the above

Before we go any further, just think about your answers to these questions.

   •   What do I want to achieve from property?
       i.e. capital (state a specific amount) and/or income (state a specific amount)

   •   Why do I think I can use property to achieve these goals?


                                             24
•   Am I prepared to pay the price?

The first two questions may seem self-explanatory and with some careful thought you
should be able to find accurate answers. However, the last of these questions needs
more thought.

Let’s face it. Property investing isn’t everybody’s cup of tea. First there’s the fear that
goes with putting so much on the line. Even the cheapest property investment is
relatively expensive. If you do it properly and take out bank financing, it can be an
uncomfortable feeling to be in debt to the bank for thousands or even hundreds of
thousands of pounds.

I’ll talk more about the fear of buying later.

Even when you break through this psychological barrier, we all know that owning
properties can be stressful. Having tenants doesn’t make it any easier, most tenants are
fine but one bad experience with a tenant can last you a lifetime.

But you know there’s no such thing as a free lunch, and it’s usually true that the greatest
returns are achieved by taking the greatest risks.

Even before I went into property investing, I had never had a hassle-free ‘proper’ job.
Property investing has its difficulties but I see it as swapping one set of problems for
another. In my opinion I am no worse off, even when I have severe management
problems to resolve. In fact, because of the potential returns, I’m actually much better
off.

So, assuming you’ve taken the time to write down your clear, specific, measurable and
time limited goals, and that you are quite clear what you are trying to achieve in
property, let’s move on to making a plan.




                                                 25
Section three
The planning system
In this section you will learn:

                    •   What your trading options are:

                                    Cash generation

                                    Cash flow

                                    Equity

                    •   How to devise a strategy to achieve your goals

                    •   What sort of property suits your purposes

So, assuming you’ve established your goals, you’ll now need to make a plan to achieve
them. If you are going to use property to achieve them, we now need to look at what
options property gives you, and how property can form part of your plan.

If you already own property, now is good time to review your current goals, strategy and
progress, and familiarise yourself with the processes that follow to make sure you are
on track.

What are the options?
There are three basic functions of property. It might help if we describe them as “cash
generation”, “cash flow” and “equity”.

In plain English they can be defined as follows:

      •   “Cash generation” is the active creation of immediate profits as lump sums,
          usually through trading, which you can put into your pocket.

      •   “cash flow” is the building of a positive passive income where the rent
          received exceeds all on-going costs and outgoings

      •   “equity” is the net worth of your interest in the property, usually defined as the
          open market value less any loans still outstanding against the property.

The reason for buying any property should be to benefit from one or more of these.

Let’s have a closer look at each.


                                             26
Cash generation
The easiest way to generate cash in property is by buying and selling. There are three
ways to approach this, being:

   •   Retailing
   •   Renovating
   •   Wholesaling

       Retailing

   •   The first main form of cash generation is ‘retailing’ which is to “buy low and sell
       high”. In it’s simplest form, this is where you will identify and buy a bargain
       property i.e. a property where you can negotiate a purchase price below market
       value, and resell it at a higher figure, or it’s full value.

       If you are prepared to put in the hard graft you will be able to find properties at
       below ‘market value.’

       An alternative to you putting in hard graft is to get someone else to do it for you.
       We’ll look more at buying systems later, but just as a taster over the last month
       I’ve bought 7 properties at well below their market value. This is solely due to the
       activity of an agent who wants to build his management business.

       He has sourced and identified the properties for me, at no charge. On average,
       by keeping his eyes open and talking to his fellow agents on a regular basis, he
       has found properties which he knows are being sold at prices below their market
       value.

       In most instances the vendors want a quick sale, but in one case the property
       has simply been put on the market at the wrong price. As a result of steering me
       to these bargain properties he has saved me at least 20% on every deal. That
       means I’m in a profit situation as soon as I complete each purchase.


       Renovating

   •   The second main method of cash generation is when you buy a property which
       needs work doing to it to make it saleable. In other words, to renovate it, or as
       the Americans say “Rehab it”.

       If you can buy the property at a bargain price, in other words at a price lower than
       it’s value even after taking into account the repairs required, then the profit
       potential is even greater.

       If you get this business right, you can do very well from it. A couple of houses a
       year in the right area and at the right price can make you a decent living.

       There are a lot of books and manuals available which cover the subject in great
       detail, so I don’t intend to do so here.

                                             27
However, before you rush out to buy a wreck there are a few things you should
think about.

There are drawbacks:

       •   It takes time. This isn’t necessarily your time, unless you decide to do
           the works yourself, but the time taken to run and complete the project.
           You should budget on 180 days from start to finish, depending on the
           size, type and location of the property and the works required. This
           assumes everything goes well and that you find a buyer in a
           reasonable time. Don’t expect to see any profit for at least 6 months. In
           the meantime you will need to live.

       •   These projects are cash intensive. How much you will need to spend
           will depend on the size of the project you opt for, but even relatively
           small properties requiring renovation may need £20,000 spending on
           them. Add that to the price of the property and you’ll see that you need
           a lot of working capital to start with.

           This doesn’t necessarily have to be your capital. Some lenders will
           finance this kind of project, and you may be able to juggle credit cards
           (especially using credit card cheques and the offers of ‘nil interest on
           balance transfer’ deals) to cover the cost of the works themselves.
           However, this means that you have to have an eye on the interest paid
           and this will make your timing even more critical if you want to exit the
           project with a (decent) profit.


If you think that renovating houses could suit you, you will need to set up a
system to find un-modernised houses or houses in disrepair. The most obvious
way is to register with estate agents in your target territory. Also to “drive the
area”. This is covered elsewhere in this e-book.

When you find a house, you’ll need to estimate the cost of repairs and
improvements. Once you’ve done two or three projects you’ll find it relatively
easy to estimate the costs yourself. For the first few you may have to make
arrangements to obtain quotes from contractors before making an offer, or make
an offer subject to obtaining quotes.

When you first start out you might want to start small and build up slowly. I’ve
heard it suggested by other professionals in this field that you shouldn’t start
with houses with major structural problems. Instead you should cut your teeth on
houses in need of cosmetic repairs or updating. Then once you become more
confident you can step up to take on bigger challenges.

When you find a suitable property you’ll have to work out how much you can
afford to offer. Working backwards from the estimated resale price is the best
way to calculate the maximum price you can pay. Here’s a very rough and ready
guide:

                                     28
Estimated Resale Price (conservative)
Less:       Repair costs
Less:       Holding costs (i.e. interest on house price and repair costs)
Less:       Resale costs (i.e. agents fees and solicitors fees)
Less:       Minimum Profit, £10,000
Equals:     Maximum Purchase Price

A more detailed example of a spreadsheet for calculating the value of
redevelopment and refurbishment projects is given in “An Insider’s Guide to
Successful Property Investing”.

Try to buy it for less than the figure you arrive at. If your maximum purchase price
is so far removed from the vendors expectations that you can only buy it by
trimming your profit, then walk away. Don’t be tempted into a project where the
profit is less than £10,000,or whatever you think is appropriate bearing in mind
the size of the project. This is really your minimum buffer. It only takes one
unforeseen problem to significantly reduce this amount.

For example, on my first renovation project I unexpectedly found that I needed to
re-render the property. This extended the refurb period by about a month, so as
well as adding the cost of the rendering work itself, it added a months interest to
the holding costs.

Once you’ve purchased, you’ll need to do the repairs and renovations. There’s a
lot of material available which suggests ways you can plan your projects so that
everything runs smoothly and in order. It’s important to do the jobs in the right
sequence so one contractor doesn’t have to undo the work of the contractor who
has just finished. For example, there’s no point having the plasterer in if the
electrician and plumber then arrive and start hacking chunks out of the wall to run
cables and pipes. It’s all common sense but needs to be thought through before
you start.

If you aren’t going to do the work yourself, you’ll need to put a team together. The
best way to find them is word of mouth recommendations by friends and family.
Otherwise look in the local paper and the Yellow Pages. Always get more than
one quote.

For example. When I arranged replacement windows for one of my renovation
projects, I had about 5 firms come and visit who offered various deals, but all at
prices more than I had budgeted, and all of which would have significantly
reduced my profit.

In the end I went direct to a local manufacturer, explained I was renovating a
property as a business and asked for a “trade discount”. I got 50% off. I also got
free fitting. The fitter told me that if I had pushed harder I would have got a 60%
discount.

Always go to trade outlets for your materials: you can now always ask for, and
legitimately claim, a trade discount on anything you buy for your properties.

                                     29
The final stage is to sell the property. In a very “hot market”, you may be able to
    do this yourself. Otherwise it would be preferable to use an agent.

    If you decide renovating and reselling should be part of your plan, buy with
    selling in mind. In other words operate in areas where owner-occupiers want to
    buy. If not you’ll be disappointed if you can’t sell for a long time, and your profit is
    eroded by interest payments.

    Wholesaling

•   The third main method of cash generation is ‘wholesaling’. This is where you buy
    low and sell low. This could be a starting point if you have no capital at all
    because the idea behind it is that you’ll identify bargain properties and then resell
    them on to other property investors at a price which will give you a profit, albeit a
    modest one.

    If you have no cash to put down on a property in the first place you could instead
    source suitable properties and then introduce them to other investors or
    developers. You can then charge a finder’s fee for your efforts and, depending
    upon the value of the property, you may still receive a sum similar to the profit
    you would have achieved if you had been able to purchase and sell the property
    on.

    I’ve seen this done, and I know that it works. You just have to know who’s in the
    market and what they are looking for. My old boss, who is a master wheeler and
    dealer, identified a maisonette in Kensington which he knew could be converted
    and split to make two separate flats and a decent profit. He knew this because he
    had done it for himself and he knew what was required: he knew how to get
    planning and building regulation consent, and he knew to within a thousand
    pounds or so how much it was going to cost to do the works.

    Just as importantly, he also knew that a fellow investor had admired his previous
    work and had said that he would like to do a similar scheme to keep one of the
    flats for himself and rent out the other. My old boss merely had to walk into the
    Estate Agent’s office, make an offer which, after one or two phone calls, was
    accepted, and then ring up his contact and tell him the good news. Contracts to
    buy and sell were exchanged simultaneously and on completion the funds came
    from his purchaser and by electronic transfer went through his account straight
    on to the vendor. And he made £10,000.




                                           30
Cash flow
The creation of cash flow is the second basic function of property.

Is it possible to create a positive cash flow by buying and holding properties to let as
investments? The answer is yes, but probably only if:

   •   you pay cash

   •   you are prepared to wait, or, alternatively

   •   you buy high yielding properties

If you buy properties where the gross yield is 9% or less, you will find it hard to finance a
purchase and create a positive cash flow. This is especially true if you have other
income and any profit on the rent received is taxed as income.

Even without accounting for income tax, and taking into account current low interest
rates (the Bank of England base rate is 4% as I write), it will be hard to produce a
positive cash flow on yields as low as 9% because finance and running costs will almost
certainly exceed the rent.

These are the costs you will need to take into account:

Firstly, letting and management. You may be able to do both yourself. If it is not easy,
quick and cheap for you to find tenants, then by not using a letting agent you will be
creating a false economy.

Management can be very time consuming, and depending on the tenant, quite stressful.
A few weeks ago a pipe burst in an empty flat of mine (nothing to do with cold weather,
an old joint just gave out), and water seeped into the flat below. The owner of the other
flat was besides himself with worry in case it got any worse, but there was nothing I
could do. I was in Spain 1000 miles away.

One phone call later and my managing agent was there in ten minutes, and a plumber
within the hour. The whole incident was sorted for just £50.

A full management service like this will usually cost between 12½ % and 15% of the
rent collected, plus VAT. For a ‘letting only’ service you will probably have to pay 10% of
one years rent plus VAT.

I’ll tell you more about management in a later section.

The second major cost is finance. My lender lends at 5.5% on loans over £25,000, 6.5%
on loans under £25,000. You can reduce the monthly payments by taking out an
interest only loan, but you will have to pay off the capital one day. There are different
theories and views about this which I’ll tell you about later.

As an aside, I started with interest only loans to build maximum cash flow which I was
able to plough back into building the portfolio. My lender doesn’t require interest only

                                             31
loans to be backed by endowment policies which is handy, and meant I could keep
more of the rent. I was able to put this back into buying more properties. I used the
surplus as a deposit to cover the difference between the purchase price and what my
lender would allow me to borrow. I have now reverted to traditional capital repayment
terms.

You can also reduce monthly payments by increasing the length of the loan period,
although you will pay more interest in the long run.

Another way to reduce monthly payments is by borrowing less if you have the cash to
do this, but you will then be losing the ‘gearing effect’ I showed you earlier.

The next major cost is repairs and maintenance. These are difficult to quantify as they
will relate directly to the age, and type of construction of the property, how well it was
built, and how well it has been maintained. I suggest budgeting 10% of the rent. Even if
you don’t spend all that in any one year, keep the balance to one side as a fund,
because you will have to upgrade decorations, fixtures, fittings and furniture at least
every 5 years.

Then there are voids. These are bound to happen but are unpredictable. I’ve had
tenants stay in a property for two years, others have left after 6 months. How quickly a
property will re-let will depend on what and where it is, and what the potential tenant
market is like.

You should get warning of the tenant leaving because strictly they should give a months
notice, so you can start advertising before they go, and start showing potential tenants
the day they leave.

Finally, there’s insurance. Again this is difficult to quantify for the same reasons as
repairs. There are special schemes for landlords, and if you own several properties you
will probably find it cheaper to insure under a Bock policy.

Let’s have a look at the effect of these costs on cash flow assuming the purchase of a
£100,000 property yielding 9% gross. I have assumed that a repayment loan has been
taken out for the full 85% loan to value available.

Annual rent received                                    £9,000 per annum
Less management at 15%          £ 1350
Less VAT on management          £ 236.25
Less repayment loan on £85,000 for
20 years at 5.5%                £ 7016.4
Repairs say                     £ 900
Insurance, say                  £ 350
Total costs                                             £ 9852.65
Balance                                                 (£ 852.65) negative




                                            32
Even if you are able to negotiate a better deal on the management, and take out an
interest only loan, the cash flow will look like this:

Annual rent received                                     £9,000 per annum
Less management at 12½%             £ 1125
Less VAT on management              £ 196.88
Less interest only loan on
£85,000 at 5.5%                     £ 4675
Repairs say                         £ 900
Insurance, say                      £ 350
Total costs                                              £ 7246.88
Balance                                                  £ 1753.12

This is the equivalent of 11.69% on my own money invested, which is not very exciting.

Because of the difficulties of generating a positive cash flow on properties giving the
national average yield or lower, I purchase properties with gross yields of 13%. This
suits me, although I have sacrificed potential long term gains in capital value.

You would probably think that large family homes in London and the south east should
be a great long-term investment. After all, the capital growth in these areas has been
phenomenal over virtually any period of history except for one or two recessionary blips.

But because they are relatively low yielding, in other words the rent is likely to be low
relative to the capital value, they are often, at best, only a break-even position in terms
of cash flow. Even if they carefully select a property to show a positive cash flow, very
few “newbie” investors think ahead to all of the real expenses which crop up with
property ownership such as ongoing maintenance and repairs, insurance, management,
the cost of voids when the property is vacant and the associated costs of re-letting, and
periodic upgrading.

You can be sure that no matter how much you are expecting to spend on your property,
you will always need to spend more.

Equity
Property is great for building equity which is mainly generated by:

   •   increases in capital value

   •   paying off the capital element of the loan

   •   undertaking repairs and improvements which disproportionately enhance the
       value.

We’ve already looked at the last point in ‘renovating’. Let’s have a closer look at the first
two.




                                             33
Increases in capital value

There is common misunderstanding which has given rise to the popular view that
“properties always go up in value.”
This is not true.

For example, from first hand experience I know that the areas where I buy are unlikely
to show signs of significant capital growth in the short to medium term. At best there
may be some minor growth in the long term – I’m talking about a few percent over ten
years.

In the short to medium term I always have the prospect of a fall in values hanging over
me. The plight of the inner city areas has been well documented where demand for
terraced houses fell, values plummeted and whole streets are now empty and boarded
up. In many of these areas prices have hopefully stabilised, and demand from investors
has taken up some of the slack.

However, the average wage in this country, coupled with the lending multiples available
from the banks and building societies, means that first time buyers are able to leap-frog
properties at the lower end of the market. They are able to go straight to the next level.

I predict that market forces will eventually correct the balance, and that this extra
demand will push prices in the next level up to a point where the ‘first tier’ properties will
be of interest again to the first time buyer. This may take years to work through the
system, unless interest rates rise significantly over a relatively short period and building
societies and banks tighten their lending policies.

One of the areas I bought in a couple of years ago has seen a lot of properties being
bought by investors to put asylum seekers in. The result is that the usual tenant market,
which comprises claimants on benefits, are reluctant to live there. In the long run this
may have a depreciating effect on capital value. Of more concern is that if the
Government cancel their contracts for asylum accommodation with private landlords, a
large number of properties could become vacant and available to let or for sale at the
same time. That could force capital and rental values down.

However, having said all of that, most peoples’ experience in most areas of the country
is that the long term trend is for property prices to rise. For as long as anyone can
remember, this has been true, and is true even though we have seen occasional
general downturns during recessions.

I’ve just downloaded the latest Nationwide Building Society commentary

http://www.natonwide.co.uk/hpi/quarterly/headlines.htm

which says that year 2001 was the strongest year of price growth since1988. Even
though it was predicted that the house market would slow, house prices are still
shooting ahead in 2002. Some experts are predicting a correction. They point out there


                                              34
is pressure on the Bank of England to raise base rate, and talk of unlet ‘Buy-to-Let’
properties coming back on the market and depressing values. We’ll see.

In “An Insider’s Guide to Successful Property Investing” we looked in some detail at how
rises in capital value can produce significant long term equity growth, and how this can
be enhanced by buying in ‘hot spots’ early in the economic cycle.

As an aside, and remember that I said capital growth is a bonus which I am not counting
on, I’ve just discovered that one of the properties I bought about 18 months ago has
probably literally doubled in value.

I tell you this not to be smug, but merely out of interest that even depressed areas can
come back. This is a useful lesson to learn.

In fact, one strategy I have seen promoted by a successful investor is to invest in areas
which have ‘bombed’ but which for well researched reasons will come back up over a
thirty year time frame. I’ll tell you more about that later.
Paying off the capital element of the loan

Logic suggests that this is even more worthwhile when:

   •   there is an increase in capital values

   •   the loan is paid off by other people’s money, for example, by rent received from
       tenants

One of the strongest combinations is both of the above occurring simultaneously.

As I said earlier, I am not relying on growth in the value of my properties. I see any
growth as icing on the cake. However, while I am receiving rent I am effectively getting
these properties for free because the tenants are paying the mortgage and buying them
for me.

Even if I put the properties into an auction and sell them at the end of the loan term, and
only get back what I paid for them (unlikely, even I am expecting growth over twenty
years) I am still quids in. Because the rent produces a surplus over the mortgage
payments I will have taken my money out long before.

Which option is right for you?
So how do you know which is the best option for you? The answer is, they are all right
for you, but they aren’t necessarily all right for you now.

New investors will opt either for refurbishing properties and selling them on, or buying
properties to hold and rent out.

This decision may be based on something as naive as they like DIY, so they opt for
refurbishing. Many people get stuck because they don’t know which one they should be
concentrating on first. Of the two ideas, holding to rent out is the most popular.


                                            35
If they are in full time employment they may assume that they don’t have time for going
the refurbishment route. Or they may think they only want to create an income to
supplement their salary or pension, and so jump straight into being a landlord.

These influences may sound logical but even so they are wrong, and can lead to
unexpected results.

Most people charge off and start accumulating rental properties. The thinking behind
this is quite sound on the face of it. They assume that they can produce a healthy cash
flow while, at the same time, building up equity for the future.

If you are able to keep paying the mortgage then after 20 years you’ll have loads of
equity. But what happens in the meantime?

It is likely that they’ll wake up one day and realise that actually their income is no better
than it was before, sometimes it’s worse, and they always seem to be broke.

The idea of being a professional landlord is much more appealing and much easier to
achieve now that the Buy-to-Let scheme is in full swing. It’s for you to understand that if
you go into the rental side you’re really tying your capital up and overlooking the
opportunity to make capital lump sums.

What a lot of people getting involved in the Buy-to-Let stampede don’t realise, because
they haven’t thought it through, is that they need to carefully select the type of property
with their goal in mind.

There is a strong argument that if you are just beginning in property then cash is the
most important consideration, especially if you are hoping to get into property full time
as quickly as possible.

In fact, cash doesn’t just fund your costs of living, but it also helps build your savings,
which in due course can accelerate your investment programme.

Firstly, let me put paid to one false assumption that trips up a lot of would-be investors,
which is that, ‘being a landlord is good and will pay a decent income.’

There is a school of thought that says you should not become a long term landlord
during your first year in the property business.

Instead you should concentrate on cash generation. Buying rental properties won’t
necessarily create a cash flow you can live on in your early days. The best advice I’ve
seen is:

“If you think this is the case, take a current landlord to lunch and ask him or her where
all the money goes from rentals. You won’t like the answer.” Ron Legrand.

And this isn’t just an isolated view.




                                              36
I’ve seen owning multiple rental properties being compared to running a large business.
When a new business first starts up, it takes quite a long time before you see a profit.
This is also what happens with rental properties. Most properties will need some
modernising or repairs when you buy them, and this can mean it could be months or
even years before you get back the money you put in.

I’ve seen it argued that if a boiler blows, for example, or if you have another major
problem, you may have to spend hundreds, or maybe thousands, of pounds to put it
right. That’s why you need cash reserves.

So if you don’t have a lot of money you might be better off not going into the rental
business and instead should be concentrating on refurbishing and trading to build up
your capital.

You’ve also got to consider this in the context of how much rent you get from the
property that you purchase. My particular forte is low value property with a relatively
high yield. These are the sort of properties that let for £60 or £70 per week. I only need
one or two small items of repair to crop up and half the month’s income can be wiped
out. If you’ve geared up and have mortgages on the properties that can mean no profit
that month, or even worse, a loss. Every time I arrange a gas test to get a CP12
certificate I lose the equivalent of a week-and-a-half’s rent.

I’m not necessarily saying that being a landlord would be bad for you. I don’t know your
needs or resources. Remember, all these comments are really geared towards
professional landlords who need to live off their income.

If you have the resources and income to live independently of your property
investments, and you are happy for the properties to break even while you build capital,
this may not be a concern. But either way, I think you should know that renting property
isn’t necessarily the money-spinner many people assume it is. At least, not in the short-
term.

To try and redress the balance some owners of property investments will increase their
borrowing against the property. If the figures stack up then through the use of over
gearing they can borrow more than they put in. If they are able to do this again and
again they can build up quite a cash deposit in their bank account.

For example, they may be able to:

       •   Buy a property cheap

       •   Wait for increases in capital value as property prices rise

       •   Do improvement works which increase the value of the property

In any of these situations they will be able to remortgage the property to take out part of
the extra equity as a loan. If they wish, this could go straight into their personal bank
account.



                                             37
However, no matter how satisfying this may seem, it is still debt and the more debt you
have the more rent will be going towards paying it off. Unless they are careful, what
seems like an asset, in other words having cash in the bank, can quickly become a
liability. It only takes a couple of interest rate rises and cash flow is suffering again.

Now let me deal with two misconceptions to do with property refurbishment.

Firstly, renovating houses doesn’t necessarily take a lot of your time. If you subcontract
the work out, and merely attend to the project management, it can take only a few hours
a week, and most of that can be done on the telephone.

The second misconception is that the way to make money from renovating properties is
to do the work yourself. In the scheme of things your time is much better spent
organising the refurbishment, or looking for new projects, rather than trying to do tasks
yourself. You are only going to be saving £4.50 an hour which you would otherwise
have paid to a school leaver.

If you want to do the works yourself, you will only be creating another low paying job for
yourself.

How to devise a strategy to achieve your goals

“The main thing is to keep the main thing the main thing.”
                                                                          Stephen Covey
Let’s quickly summarise where we’ve got to so far.

   •   We have set goals (specific financial targets) to achieve and dates to achieve
       them by

   •   We have reviewed our various investment options and decided that property best
       fits our requirements

   •   We’ve seen that property can be used

              •   for cash generation through retailing, renovating and wholesaling

              •   for cash flow

              •   for equity

   •   We’ve seen that cash flow and cash generation can be mutually exclusive; what
       seems like a good idea to novice investors, i.e buying rental property, can kill
       their business there and then

Once we have decided which of the options is our priority we can start to think about
strategy. So how do you devise your strategy? There are so many books, courses and
seminars about property nowadays, I’m sure that most people feel overwhelmed and


                                            38
don’t really know where to start. Often the more you read the more confused you can
become.

In my opinion most private investors would be wise to start with residential property, as
other forms of investment property require more specialist knowledge.

Also other types of property investment sell at higher prices and therefore need more
initial capital, and an investor potentially has more to lose.

Then you have to make the decision whether you buy and hold for capital growth,
whether you buy and let out for rental income, or whether you refurbish and trade on to
make a capital profit. Each way seems attractive but most people don’t have the ready
finance to try all three at the same time.

This is an individual process. I assume that 99 times out of 100 property investors and
entrepreneurs will be looking to increase their capital or net worth in the long term and
so will be looking to build their equity. This suggests owning and holding properties for
the long-term increases in capital value and this will inevitably be supplemented by
rental income.

However, you will still have to decide whether your current priority is cash generation, or
cash flow.

If it is cash generation, then the best strategy may be to concentrate on the use of the
three methods listed, but coupled with a plan to set aside a certain proportion of the
profits generated to fund the acquisition of an investment portfolio.

Alternatively, if like me you are able to keep the day job going, you may wish to skip
step one and go straight to cash flow through the selective purchase of property
investments to hold mainly for growth in capital to build equity (either by increases in
value or by using the rental income to pay the mortgage) but also over time to create a
cash flow surplus for income.

Or you may choose to keep the day job going but opt for cash generation, to
progressively build your capital. This will be accelerated due to you not needing to dip
into it for living expenses. You can then choose to build a portfolio purchased for cash,
with the possibility of an instant cash surplus, or instead you can gear up on a larger
scale.

You will need to decide which permutation of these best fits with your financial goals.

Most beginners in property find it confusing devising a strategy because of the large
number of permutations of property type, location, tenant type etc etc. Just think about
the lists that follow:

Reasons for buying
Cash generation
Capital growth
Tax breaks
Income

                                            39
Methods of trading
Refurbishment
Buy-to-Let
Wholesaling
Retailing
“Buy low sell high”

Property types
Cheap properties
Expensive properties
Single properties
Multiple properties
Portfolios

Residential
Commercial

Flats
Houses

Offices
Factories
Shops

Tenant Types
Professional
Working families
Working singles
Students
Benefit claimants
Asylum seekers

With so many choices in each category, how can anyone come up with a strategy that
they can follow consistently? The danger is that you can easily be distracted and try too
many different approaches.

What you need is an approach or strategy that suits you, and then to stick with it.

There is a school of thought that any strategy or plan with an aim in mind, followed with
persistence and consistency will produce better results than a series of random but
otherwise worthy actions backed by no overall plan.

      “Consistently putting deals together is easier than you think. Really! Making
      things happen and making serious money as a real estate investor doesn’t
      require luck or extraordinary negotiation skills, and it doesn’t take talent or money
      or a masters degree in business.

      Heck, none of that stuff matters. What does it take? In a word, PERSISTENCE”
                                                                            Joe Kaiser

                                            40
Exit strategy

A key element to an any strategy is knowing what the end game is. It really worries me
when people have no exit strategy.

For example, if you are buying to refurbish and sell on, the exit route should be
straightforward, but you will still need to know

   •   how am I going to sell it? i.e. by auction or by private treaty

   •   who is going to sell it? i.e. an estate agent, and auction house, or myself,
       privately

   •   who am I going to sell to? i.e. investors or owner-occupiers?

Often, things may not be so obvious. For example, if you are buying
investments to let and hold you may need to ask questions like these:

   •   should I sell the property to an investor as an investment with the tenant in
       place?

   •   Would I be better off waiting for the property to become vacant and then selling
       to an owner-occupier?

   •   Which of these options will produce the quickest sale.

   •   Which will produce the best price?

   •   What do I need to do if I need my money back in a hurry?

As I have said my niche is low value, high yielding residential property. The locations I
deal in have a limited owner-occupier market, and if I ever need to sell I will be planning
on selling to an investor.

Rather that selling individual units, I will sell the portfolio as a whole. This is my plan and
I have deliberately put together a portfolio with a mix of properties which is regionally
focused for ease of management. They are all held in a limited company which will save
a potential purchaser stamp duty, and which will make conveyancing easy – it only
requires a sale of the shares.

This is a plan, and when I ever want to get out of property, or if I ever need to get out, I
will be several steps ahead of other investors who have thought no further ahead than
the next rent cheque.




                                              41
What sort of property suits my purposes?
Unless you have specific reasons for considering a niche investment category like fish
farms or telecommunication aerials, most investors will choose between either
residential property, or more mainstream commercial properties such as offices, shops
or industrial or warehouse units.

I’m now going to look a bit closer at the pros and cons of:

       •   residential property

       •   commercial property

Residential property

In “An Insider’s Guide to Successful Property Investing” we looked at different types of
tenancy arrangement, the legal requirements of being a landlord, and even some niche
residential property investment opportunities such as residential reversions, freehold
ground rents, and holiday homes.

For most property investors the choice will lie between houses, flats or houses in
multiple occupation - an HMO. A house in multiple occupation could be a single dwelling
house, in which individual bedrooms are let and amenities like the kitchen and bathroom
are shared, or could be a property comprising a number of individual, self-contained
flats, accessed off a shared landing.

The definition of an HMO is given within the various Housing acts, and this definition is
currently under consideration by the government. Of the three principal types of
residential property you are most likely to get involved with, HMOs are the least straight-
forward.

Unfortunately there seems to be a lot of uncertainty surrounding the government’s
current review of licensing HMOs, which I understand is now mandatory for all local
authorities. Although I have read plenty of articles in the professional property press,
have visited the government’s website dedicated to the licensing of HMOs, and have
spoken to environmental health officers in local authorities, whose job it is to undertake
the licensing, I have to admit that I am still confused as to what the scheme is
attempting to achieve, what the requirements are to comply, and which particular
properties are affected.

As far as I can see, and I am prepared to be corrected on this, it is down to individual
local authorities to plan their own programme for licensing. If you own, or want to own,
an HMO, the best advice I can give is to ring the environmental health officer at the local
authority concerned, and discuss with them what is required.

I went through this process a few months ago when I considered buying a property
which had been constructed in Victorian times as a single dwelling house but which has
                                            42
subsequently been converted to provide four self-contained flats. Although the flats
were self-contained, they are all accessed off a shared stairway and landing, which
brought them within the definition of an HMO even though for practical purposes they
are not.

The conversion had only been done about 10 years ago and I rang the local authority
Planning Officer and Building Inspector and confirmed for myself that planning consent
and building regulation consent had been granted. However, even though it is a
relatively recent conversion, I thought I should check that it complies with the current
requirements for an HMO licence. One thing I didn’t want to do was to purchase the
property and then find that I had not budgeted for several thousand pounds of work to
bring it up to standard.

The conversion had been to a good standard, and included the provision of a proper fire
alarm system with break-glass alarm boxes to the stairwell, and even the provision of an
external metal fire escape from the upper flats at the rear of the property.

Even so, the Environmental Health Officer informed me that to obtain a licence, strictly,
the accommodation within each individual flat would have to be arranged so that each
room was accessed off a common lobby rather than having access direct from room to
room.

The idea is that the lobby can then be fireproofed to ensure a safe exit for the occupant.
Also, that all principal doors would have to comply with the required standard for fire
resistance, and would have to have intumescent strips. These are fire-resistant strips
held in a groove around the edge of the door which melt to provide a firm seal to keep
smoke and poisonous gas out.

Also that the common landing and staircase would need mains-powered secondary
lighting and that the stairs would need suitable fire protection, possibly some kind of
enclosure.

I could see that the property complied with some of these requirements, but not all. The
Environmental Health Officer was more than happy to make an appointment with the
Fire Officer from the local Fire Brigade to inspect the property and even to give a rough
estimate of the cost of the works, before I signed a contract to purchase.

Unfortunately the deal fell through for other reasons before the Environmental Health
Officer and the Fire Officer could inspect the property. But I could see they recognised
that the situation was confusing, and were very willing to help me.

Most of the properties in my portfolio are individual self-contained flats, each with their
own front door at street level. This really reflects the area in which I have purchased,
and I haven’t deliberately sought out properties of that construction. If the right HMO
became available, I certainly would consider purchasing it, subject to making proper
enquiries of the local authority.

Whether you choose to purchase houses or flats should ultimately be driven by market
forces. I talk elsewhere about my own experiences where my preliminary investigations


                                             43
into the suitability of buying properties in a particular area revealed that the demand
from tenants for houses was stronger than the demand for flats.

If you intend to buy properties to refurbish and sell on, it may be that the best option is
to specialise in houses. Houses tend to be freehold and although some works may
require planning consent or building regulation consent, at least you won’t have to go
cap in hand to the freeholder for consent as well.

It’s also worth remembering that whether you are buying for refurbishment or to hold as
an investment, individual flats held on a long lease usually require the payment of
ground rent and a service charge, which can impact the profitability and the cash flow.
One way around this is to try to buy the freehold, though this may mean buying
individual blocks of flats.

There is a school of thought that it is better to buy multiple units i.e. a building divided
into flats, or even adjoining houses, than single family homes.

Firstly, there is less cost per unit. For example, a small 2-bedroomed family house in
your chosen locality may cost you £90,000. A property divided and converted to provide
two 2-bedroomed flats may cost £120,000. Although the overall cost is £30,000 more,
the actual cost per unit is £30,000 less. As a general rule of thumb you will find that the
more units there are in an individual property, the less per unit you will be paying.
What makes this exciting is that in many areas the rent paid for a 2-bedroomed flat will
be the same, or not much less than, the rent paid for 2-bedroomed house. This means
that the net initial yield per unit is also higher.

Then there’s the question of financial security. If you have one letting unit, such as a
family home, you will usually find there is one family living there. If you have financed
the property, you have in effect one family making the repayments for you through the
rent received. If, on the other hand, you buy a property with two or more units, you will
have two tenants paying the rent. As the amount of mortgage per unit is less, you have
more chance of collecting enough rent to cover the mortgage, even if one of the units
becomes vacant.

Similarly, if you have a single family home and it is vacant, it’s 100 % vacant. However,
if you have four flats in a property and one of the units is vacant, you only have a 25%
vacancy rate. The more letting units you have in a property, the less impact the void will
have on your cash-flow.

Owning multiple units also simplifies the management. If you have a number of single
family homes scattered around your target area, you or your managing agents can
potentially be running around all over the place.

If instead, you buy a property divided into flats, you potentially have all of your tenants in
one location. If you have enough units located close enough together you could even
consider employing your own caretaker and could probably afford to provide his
accommodation, instead of putting the management in the hands of a management
company.



                                              44
Buying multiple units can also save on expenses. For example, if you have to call an
electrician or plumber out to deal with the ground floor flat, you may as well get him to
look at the problem in the first floor flat at the same time. This makes a lot of sense if
you have to pay a call-out charge. One call-out charge will cover two flats.

Commercial Property

There are distinct advantages and disadvantages to investing in commercial property.
Let’s have a look at both.

The first main advantage is that the most common form of lease used for commercial
property makes the tenant responsible for all repairs, and for reimbursing the landlord
the cost of any insurance policy. This can be contrasted with a residential assured
short-hold tenancy, which will make the landlord responsible for all repairs and for
paying for insurance.

Secondly, rent will be paid quarterly in advance, meaning that the landlord has only to
invoice the tenant four times a year. As the tenant will be a commercial business, it
should be relatively easy to collect the rent by standing order if the tenant is agreeable.

Compare this with residential tenancies where the rent is technically due at the
beginning of the month, known in the trade as “monthly in advance”. In my experience,
managing agents pass on the rent at the end of the month in which they collect it, so it
is usually received by the owner “monthly in arrears”.

If your tenants are receiving Housing Benefit there can be even more delay. At the
moment a Housing Benefit office I deal with is about 11 weeks in arrears, so by the time
I am passed payment by my managing agents, I’ll be receiving the rent about four
months in arrears.

If there is any management required, (in the case of multi unit investments such as an
office building let as floors or individual suites, or an industrial estate let as individual
buildings where there may be a service charge) the lease will invariably allow the
landlord to re-charge the tenant any costs incurred by managing agents and their fees.

By contrast, residential managing agents will charge from 12½ to 15% of the rent
collected plus VAT, and this cannot be recharged by the landlord to the tenant.

In reality most commercial properties are easily managed by the landlord, often all that
is required is posting out an invoice for the rent once a quarter. However, the option of
appointing a managing agent and recharging their fees to the tenant is usually provided
for in the lease.

The result of all these advantages is that the landlord should receive the full rent stated
in the lease. In other words the rent agreed with the tenant is the net rent because there
should be no deductions from it.

This can be contrasted with the rent received from a residential property where the
landlord will pay say 15% of the rent +VAT for management, and a suitable sum for
insurance and repairs.

                                              45
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2
The Ultimate Property Investment Guide2

More Related Content

What's hot

Passport to passive income
Passport to passive incomePassport to passive income
Passport to passive incomeClaudia Baier
 
Live Your Network Marketing Dream
Live Your Network Marketing DreamLive Your Network Marketing Dream
Live Your Network Marketing DreamCheryl Stinchcomb
 
Secrets to subconscious_autopilot_wealth
Secrets to subconscious_autopilot_wealthSecrets to subconscious_autopilot_wealth
Secrets to subconscious_autopilot_wealthMOMOBACHIR
 
Success secrets for Talentelle leaders
Success secrets for Talentelle leadersSuccess secrets for Talentelle leaders
Success secrets for Talentelle leaderssuperpeter
 
Secrets to subconscious autopilot wealth Creation
Secrets to subconscious autopilot wealth CreationSecrets to subconscious autopilot wealth Creation
Secrets to subconscious autopilot wealth CreationHameer Singh
 
Its time for network marketing
Its time for network marketingIts time for network marketing
Its time for network marketingKrishna Gali
 
What Steve Jobs Taught Us
What Steve Jobs Taught UsWhat Steve Jobs Taught Us
What Steve Jobs Taught UsRon Kish
 
Want to Be Your Own Boss
Want to Be Your Own BossWant to Be Your Own Boss
Want to Be Your Own BossJarle Thorsen
 
Motivators and Barriers to Entrepreneurship by Vivek Kumar
Motivators and Barriers to Entrepreneurship by Vivek KumarMotivators and Barriers to Entrepreneurship by Vivek Kumar
Motivators and Barriers to Entrepreneurship by Vivek KumarVivek Kumar
 
Executive training for Talentelle leaders
Executive training for Talentelle leadersExecutive training for Talentelle leaders
Executive training for Talentelle leaderssuperpeter
 
Entrepreneurial "AHA" moments from Female Founders
Entrepreneurial "AHA" moments from Female FoundersEntrepreneurial "AHA" moments from Female Founders
Entrepreneurial "AHA" moments from Female FoundersEnrichHER
 
Cashing in big_on_the_health_and_wellness_industry
Cashing in big_on_the_health_and_wellness_industryCashing in big_on_the_health_and_wellness_industry
Cashing in big_on_the_health_and_wellness_industryFlora Runyenje
 
Secret To Financial Freedom
Secret To Financial FreedomSecret To Financial Freedom
Secret To Financial FreedomSiddharthBhader
 
The copycompilation 2010
The copycompilation 2010The copycompilation 2010
The copycompilation 2010ideawriter
 
Top Entrepreneurial Lessons from Female Founders
Top Entrepreneurial Lessons from Female FoundersTop Entrepreneurial Lessons from Female Founders
Top Entrepreneurial Lessons from Female FoundersEnrichHER
 
Questions Are The Answers by Allan Pease
Questions Are The Answers by Allan PeaseQuestions Are The Answers by Allan Pease
Questions Are The Answers by Allan PeaseJamal T. Alyacoub
 

What's hot (20)

So you want to start a small business
So you want to start a small businessSo you want to start a small business
So you want to start a small business
 
Passport to passive income
Passport to passive incomePassport to passive income
Passport to passive income
 
Live Your Network Marketing Dream
Live Your Network Marketing DreamLive Your Network Marketing Dream
Live Your Network Marketing Dream
 
Secrets to subconscious_autopilot_wealth
Secrets to subconscious_autopilot_wealthSecrets to subconscious_autopilot_wealth
Secrets to subconscious_autopilot_wealth
 
Success secrets for Talentelle leaders
Success secrets for Talentelle leadersSuccess secrets for Talentelle leaders
Success secrets for Talentelle leaders
 
Secrets to subconscious autopilot wealth Creation
Secrets to subconscious autopilot wealth CreationSecrets to subconscious autopilot wealth Creation
Secrets to subconscious autopilot wealth Creation
 
Its time for network marketing
Its time for network marketingIts time for network marketing
Its time for network marketing
 
Thairobbin speedwealth
Thairobbin speedwealthThairobbin speedwealth
Thairobbin speedwealth
 
What Steve Jobs Taught Us
What Steve Jobs Taught UsWhat Steve Jobs Taught Us
What Steve Jobs Taught Us
 
Want to Be Your Own Boss
Want to Be Your Own BossWant to Be Your Own Boss
Want to Be Your Own Boss
 
Motivators and Barriers to Entrepreneurship by Vivek Kumar
Motivators and Barriers to Entrepreneurship by Vivek KumarMotivators and Barriers to Entrepreneurship by Vivek Kumar
Motivators and Barriers to Entrepreneurship by Vivek Kumar
 
Executive training for Talentelle leaders
Executive training for Talentelle leadersExecutive training for Talentelle leaders
Executive training for Talentelle leaders
 
Entrepreneurial "AHA" moments from Female Founders
Entrepreneurial "AHA" moments from Female FoundersEntrepreneurial "AHA" moments from Female Founders
Entrepreneurial "AHA" moments from Female Founders
 
Intelligent investing
Intelligent investingIntelligent investing
Intelligent investing
 
Cashing in big_on_the_health_and_wellness_industry
Cashing in big_on_the_health_and_wellness_industryCashing in big_on_the_health_and_wellness_industry
Cashing in big_on_the_health_and_wellness_industry
 
The real secret about start ups
The real secret about start upsThe real secret about start ups
The real secret about start ups
 
Secret To Financial Freedom
Secret To Financial FreedomSecret To Financial Freedom
Secret To Financial Freedom
 
The copycompilation 2010
The copycompilation 2010The copycompilation 2010
The copycompilation 2010
 
Top Entrepreneurial Lessons from Female Founders
Top Entrepreneurial Lessons from Female FoundersTop Entrepreneurial Lessons from Female Founders
Top Entrepreneurial Lessons from Female Founders
 
Questions Are The Answers by Allan Pease
Questions Are The Answers by Allan PeaseQuestions Are The Answers by Allan Pease
Questions Are The Answers by Allan Pease
 

Viewers also liked

Viewers also liked (7)

Build a brick barbecue
Build a brick barbecueBuild a brick barbecue
Build a brick barbecue
 
Colour schemes
Colour schemesColour schemes
Colour schemes
 
About kitchens
About kitchensAbout kitchens
About kitchens
 
Fireplace
FireplaceFireplace
Fireplace
 
Wallpapering techniques
Wallpapering techniquesWallpapering techniques
Wallpapering techniques
 
Fixing to plasterboard and plasterboard fixings
Fixing to plasterboard and plasterboard fixingsFixing to plasterboard and plasterboard fixings
Fixing to plasterboard and plasterboard fixings
 
All about decking
All about deckingAll about decking
All about decking
 

Similar to The Ultimate Property Investment Guide2

The Ultimate Property Investment Guide1
The Ultimate Property Investment Guide1The Ultimate Property Investment Guide1
The Ultimate Property Investment Guide1Praveen Sudarsan
 
Could a franchise be the right way to grow your real estate business?
Could a franchise be the right way to grow your real estate business?Could a franchise be the right way to grow your real estate business?
Could a franchise be the right way to grow your real estate business?John Triplett
 
Zack childress smart tips for real estate investing
Zack childress smart tips for real estate investingZack childress smart tips for real estate investing
Zack childress smart tips for real estate investingZack Childress
 
The 10 step checklist for buying an investment property
The 10 step checklist for buying an investment propertyThe 10 step checklist for buying an investment property
The 10 step checklist for buying an investment propertyMichael Putnam
 
2017 Special Report 25 Ways to Buy Commercial Properties with No Money Down
2017 Special Report 25 Ways to Buy Commercial Properties with No Money Down 2017 Special Report 25 Ways to Buy Commercial Properties with No Money Down
2017 Special Report 25 Ways to Buy Commercial Properties with No Money Down Andrew Williams
 
indian share market for beginners.pdf
indian share market for beginners.pdfindian share market for beginners.pdf
indian share market for beginners.pdfSumni Uchiha
 
Intelligent Investing
Intelligent InvestingIntelligent Investing
Intelligent InvestingEsterBenceti
 
Making money by investing in Real Estate
Making money by investing in Real EstateMaking money by investing in Real Estate
Making money by investing in Real EstateAbhishekYadav999
 
Making money by investing in Real Estate
Making money by investing in Real EstateMaking money by investing in Real Estate
Making money by investing in Real EstatetechnicX
 
Making Money by Investing in Real Estate
Making Money by Investing in Real EstateMaking Money by Investing in Real Estate
Making Money by Investing in Real EstateVisheshVerma32
 
How to invest money properly ?
How to invest money  properly ?How to invest money  properly ?
How to invest money properly ?viditgrover3
 
What Investors Look For
What Investors Look ForWhat Investors Look For
What Investors Look Forniinue123
 
what_is_your_ent_profile_14apr07
what_is_your_ent_profile_14apr07what_is_your_ent_profile_14apr07
what_is_your_ent_profile_14apr07Lisa Gerr
 
Real Estate Essentials
Real Estate EssentialsReal Estate Essentials
Real Estate EssentialsCecilia O
 
FixFlipStategyGuide
FixFlipStategyGuideFixFlipStategyGuide
FixFlipStategyGuideKen Meyer
 
PRIVATE MONEY MADE EASY - Your Guide To How & Where
PRIVATE MONEY MADE EASY - Your Guide To How & WherePRIVATE MONEY MADE EASY - Your Guide To How & Where
PRIVATE MONEY MADE EASY - Your Guide To How & WhereLaura Alamery
 
James Sinclair - The Millionaire Clown
James Sinclair - The Millionaire ClownJames Sinclair - The Millionaire Clown
James Sinclair - The Millionaire ClownBALPPA
 

Similar to The Ultimate Property Investment Guide2 (20)

The Ultimate Property Investment Guide1
The Ultimate Property Investment Guide1The Ultimate Property Investment Guide1
The Ultimate Property Investment Guide1
 
Could a franchise be the right way to grow your real estate business?
Could a franchise be the right way to grow your real estate business?Could a franchise be the right way to grow your real estate business?
Could a franchise be the right way to grow your real estate business?
 
Zack childress smart tips for real estate investing
Zack childress smart tips for real estate investingZack childress smart tips for real estate investing
Zack childress smart tips for real estate investing
 
The 10 step checklist for buying an investment property
The 10 step checklist for buying an investment propertyThe 10 step checklist for buying an investment property
The 10 step checklist for buying an investment property
 
2017 Special Report 25 Ways to Buy Commercial Properties with No Money Down
2017 Special Report 25 Ways to Buy Commercial Properties with No Money Down 2017 Special Report 25 Ways to Buy Commercial Properties with No Money Down
2017 Special Report 25 Ways to Buy Commercial Properties with No Money Down
 
indian share market for beginners.pdf
indian share market for beginners.pdfindian share market for beginners.pdf
indian share market for beginners.pdf
 
Intelligent Investing
Intelligent InvestingIntelligent Investing
Intelligent Investing
 
N9 book review
N9 book reviewN9 book review
N9 book review
 
Making money by investing in Real Estate
Making money by investing in Real EstateMaking money by investing in Real Estate
Making money by investing in Real Estate
 
Making money by investing in Real Estate
Making money by investing in Real EstateMaking money by investing in Real Estate
Making money by investing in Real Estate
 
Making Money by Investing in Real Estate
Making Money by Investing in Real EstateMaking Money by Investing in Real Estate
Making Money by Investing in Real Estate
 
How to invest money properly ?
How to invest money  properly ?How to invest money  properly ?
How to invest money properly ?
 
My Strong Argument Analysis
My Strong Argument AnalysisMy Strong Argument Analysis
My Strong Argument Analysis
 
What Investors Look For
What Investors Look ForWhat Investors Look For
What Investors Look For
 
what_is_your_ent_profile_14apr07
what_is_your_ent_profile_14apr07what_is_your_ent_profile_14apr07
what_is_your_ent_profile_14apr07
 
Real Estate Essentials
Real Estate EssentialsReal Estate Essentials
Real Estate Essentials
 
FixFlipStategyGuide
FixFlipStategyGuideFixFlipStategyGuide
FixFlipStategyGuide
 
PRIVATE MONEY MADE EASY - Your Guide To How & Where
PRIVATE MONEY MADE EASY - Your Guide To How & WherePRIVATE MONEY MADE EASY - Your Guide To How & Where
PRIVATE MONEY MADE EASY - Your Guide To How & Where
 
book review report
 book review report book review report
book review report
 
James Sinclair - The Millionaire Clown
James Sinclair - The Millionaire ClownJames Sinclair - The Millionaire Clown
James Sinclair - The Millionaire Clown
 

More from Praveen Sudarsan

More from Praveen Sudarsan (20)

How to install pvc downpipes
How to install pvc downpipesHow to install pvc downpipes
How to install pvc downpipes
 
How to hang wallpaper
How to hang wallpaperHow to hang wallpaper
How to hang wallpaper
 
How to construct a suimple garden pond
How to construct a suimple garden pondHow to construct a suimple garden pond
How to construct a suimple garden pond
 
How to build a retaining wall
How to build a retaining wallHow to build a retaining wall
How to build a retaining wall
 
How to build a raised formal pool
How to build a raised formal poolHow to build a raised formal pool
How to build a raised formal pool
 
How to build a deck
How to build a deckHow to build a deck
How to build a deck
 
How a lighting circuit works
How a lighting circuit worksHow a lighting circuit works
How a lighting circuit works
 
Home security
Home securityHome security
Home security
 
Heat guns
Heat gunsHeat guns
Heat guns
 
Hanging wallpaper
Hanging wallpaperHanging wallpaper
Hanging wallpaper
 
Hanging a door
Hanging a doorHanging a door
Hanging a door
 
Handrail anatomy
Handrail anatomyHandrail anatomy
Handrail anatomy
 
Upvc fascia
Upvc fasciaUpvc fascia
Upvc fascia
 
Timber care
Timber careTimber care
Timber care
 
How to avoid the cowboy builder
How to avoid the cowboy builderHow to avoid the cowboy builder
How to avoid the cowboy builder
 
General do it yourself safety comments
General do it yourself safety commentsGeneral do it yourself safety comments
General do it yourself safety comments
 
Garage floor insulation
Garage floor insulationGarage floor insulation
Garage floor insulation
 
Foundations for light garden walls
Foundations for light garden wallsFoundations for light garden walls
Foundations for light garden walls
 
Fixing to lathe & plaster
Fixing to lathe & plasterFixing to lathe & plaster
Fixing to lathe & plaster
 
Fitting a mortice latch
Fitting a mortice latchFitting a mortice latch
Fitting a mortice latch
 

Recently uploaded

Mphasis - Schwab Newsletter PDF - Sample 8707
Mphasis - Schwab Newsletter PDF - Sample 8707Mphasis - Schwab Newsletter PDF - Sample 8707
Mphasis - Schwab Newsletter PDF - Sample 8707harshan90
 
Stock Market Brief Deck for March 26.pdf
Stock Market Brief Deck for March 26.pdfStock Market Brief Deck for March 26.pdf
Stock Market Brief Deck for March 26.pdfMichael Silva
 
Hungarys economy made by Robert Miklos
Hungarys economy   made by Robert MiklosHungarys economy   made by Robert Miklos
Hungarys economy made by Robert Miklosbeduinpower135
 
Stock Market Brief Deck for March 19 2024.pdf
Stock Market Brief Deck for March 19 2024.pdfStock Market Brief Deck for March 19 2024.pdf
Stock Market Brief Deck for March 19 2024.pdfMichael Silva
 
Introduction to Entrepreneurship and Characteristics of an Entrepreneur
Introduction to Entrepreneurship and Characteristics of an EntrepreneurIntroduction to Entrepreneurship and Characteristics of an Entrepreneur
Introduction to Entrepreneurship and Characteristics of an Entrepreneurabcisahunter
 
MARKET FAILURE SITUATION IN THE ECONOMY.
MARKET FAILURE SITUATION IN THE ECONOMY.MARKET FAILURE SITUATION IN THE ECONOMY.
MARKET FAILURE SITUATION IN THE ECONOMY.Arifa Saeed
 
The Power Laws of Bitcoin: How can an S-curve be a power law?
The Power Laws of Bitcoin: How can an S-curve be a power law?The Power Laws of Bitcoin: How can an S-curve be a power law?
The Power Laws of Bitcoin: How can an S-curve be a power law?Stephen Perrenod
 
Work and Pensions report into UK corporate DB funding
Work and Pensions report into UK corporate DB fundingWork and Pensions report into UK corporate DB funding
Work and Pensions report into UK corporate DB fundingHenry Tapper
 
20240315 _E-Invoicing Digiteal. .pptx
20240315 _E-Invoicing Digiteal.    .pptx20240315 _E-Invoicing Digiteal.    .pptx
20240315 _E-Invoicing Digiteal. .pptxFinTech Belgium
 
2024.03 Strategic Resources Presentation
2024.03 Strategic Resources Presentation2024.03 Strategic Resources Presentation
2024.03 Strategic Resources PresentationAdnet Communications
 
Solution manual for Intermediate Accounting, 11th Edition by David Spiceland...
Solution manual for  Intermediate Accounting, 11th Edition by David Spiceland...Solution manual for  Intermediate Accounting, 11th Edition by David Spiceland...
Solution manual for Intermediate Accounting, 11th Edition by David Spiceland...mwangimwangi222
 
What Key Factors Should Risk Officers Consider When Using Generative AI
What Key Factors Should Risk Officers Consider When Using Generative AIWhat Key Factors Should Risk Officers Consider When Using Generative AI
What Key Factors Should Risk Officers Consider When Using Generative AI360factors
 
Remembering my Totem _Unity is Strength_ growing in Bophuthatswana_Matthews B...
Remembering my Totem _Unity is Strength_ growing in Bophuthatswana_Matthews B...Remembering my Totem _Unity is Strength_ growing in Bophuthatswana_Matthews B...
Remembering my Totem _Unity is Strength_ growing in Bophuthatswana_Matthews B...Matthews Bantsijang
 
ACCOUNTING FOR BUSINESS.II BRANCH ACCOUNTS NOTES
ACCOUNTING FOR BUSINESS.II BRANCH ACCOUNTS NOTESACCOUNTING FOR BUSINESS.II BRANCH ACCOUNTS NOTES
ACCOUNTING FOR BUSINESS.II BRANCH ACCOUNTS NOTESKumarJayaraman3
 
Stock Market Brief Deck for 3/22/2024.pdf
Stock Market Brief Deck for 3/22/2024.pdfStock Market Brief Deck for 3/22/2024.pdf
Stock Market Brief Deck for 3/22/2024.pdfMichael Silva
 
Buy and Sell Urban Tots unlisted shares.pptx
Buy and Sell Urban Tots unlisted shares.pptxBuy and Sell Urban Tots unlisted shares.pptx
Buy and Sell Urban Tots unlisted shares.pptxPrecize Formely Leadoff
 
LIC PRIVATISATION its a bane or boon.pptx
LIC PRIVATISATION its a bane or boon.pptxLIC PRIVATISATION its a bane or boon.pptx
LIC PRIVATISATION its a bane or boon.pptxsonamyadav7097
 
Slideshare - ONS Economic Forum Slidepack - 18 March 2024.pptx
Slideshare - ONS Economic Forum Slidepack - 18 March 2024.pptxSlideshare - ONS Economic Forum Slidepack - 18 March 2024.pptx
Slideshare - ONS Economic Forum Slidepack - 18 March 2024.pptxOffice for National Statistics
 

Recently uploaded (20)

Mphasis - Schwab Newsletter PDF - Sample 8707
Mphasis - Schwab Newsletter PDF - Sample 8707Mphasis - Schwab Newsletter PDF - Sample 8707
Mphasis - Schwab Newsletter PDF - Sample 8707
 
Stock Market Brief Deck for March 26.pdf
Stock Market Brief Deck for March 26.pdfStock Market Brief Deck for March 26.pdf
Stock Market Brief Deck for March 26.pdf
 
New Monthly Enterprises Survey. Issue 21. (01.2024) Ukrainian Business in War...
New Monthly Enterprises Survey. Issue 21. (01.2024) Ukrainian Business in War...New Monthly Enterprises Survey. Issue 21. (01.2024) Ukrainian Business in War...
New Monthly Enterprises Survey. Issue 21. (01.2024) Ukrainian Business in War...
 
Hungarys economy made by Robert Miklos
Hungarys economy   made by Robert MiklosHungarys economy   made by Robert Miklos
Hungarys economy made by Robert Miklos
 
Stock Market Brief Deck for March 19 2024.pdf
Stock Market Brief Deck for March 19 2024.pdfStock Market Brief Deck for March 19 2024.pdf
Stock Market Brief Deck for March 19 2024.pdf
 
Introduction to Entrepreneurship and Characteristics of an Entrepreneur
Introduction to Entrepreneurship and Characteristics of an EntrepreneurIntroduction to Entrepreneurship and Characteristics of an Entrepreneur
Introduction to Entrepreneurship and Characteristics of an Entrepreneur
 
MARKET FAILURE SITUATION IN THE ECONOMY.
MARKET FAILURE SITUATION IN THE ECONOMY.MARKET FAILURE SITUATION IN THE ECONOMY.
MARKET FAILURE SITUATION IN THE ECONOMY.
 
The Power Laws of Bitcoin: How can an S-curve be a power law?
The Power Laws of Bitcoin: How can an S-curve be a power law?The Power Laws of Bitcoin: How can an S-curve be a power law?
The Power Laws of Bitcoin: How can an S-curve be a power law?
 
Work and Pensions report into UK corporate DB funding
Work and Pensions report into UK corporate DB fundingWork and Pensions report into UK corporate DB funding
Work and Pensions report into UK corporate DB funding
 
20240315 _E-Invoicing Digiteal. .pptx
20240315 _E-Invoicing Digiteal.    .pptx20240315 _E-Invoicing Digiteal.    .pptx
20240315 _E-Invoicing Digiteal. .pptx
 
2024.03 Strategic Resources Presentation
2024.03 Strategic Resources Presentation2024.03 Strategic Resources Presentation
2024.03 Strategic Resources Presentation
 
Solution manual for Intermediate Accounting, 11th Edition by David Spiceland...
Solution manual for  Intermediate Accounting, 11th Edition by David Spiceland...Solution manual for  Intermediate Accounting, 11th Edition by David Spiceland...
Solution manual for Intermediate Accounting, 11th Edition by David Spiceland...
 
What Key Factors Should Risk Officers Consider When Using Generative AI
What Key Factors Should Risk Officers Consider When Using Generative AIWhat Key Factors Should Risk Officers Consider When Using Generative AI
What Key Factors Should Risk Officers Consider When Using Generative AI
 
Remembering my Totem _Unity is Strength_ growing in Bophuthatswana_Matthews B...
Remembering my Totem _Unity is Strength_ growing in Bophuthatswana_Matthews B...Remembering my Totem _Unity is Strength_ growing in Bophuthatswana_Matthews B...
Remembering my Totem _Unity is Strength_ growing in Bophuthatswana_Matthews B...
 
ACCOUNTING FOR BUSINESS.II BRANCH ACCOUNTS NOTES
ACCOUNTING FOR BUSINESS.II BRANCH ACCOUNTS NOTESACCOUNTING FOR BUSINESS.II BRANCH ACCOUNTS NOTES
ACCOUNTING FOR BUSINESS.II BRANCH ACCOUNTS NOTES
 
Stock Market Brief Deck for 3/22/2024.pdf
Stock Market Brief Deck for 3/22/2024.pdfStock Market Brief Deck for 3/22/2024.pdf
Stock Market Brief Deck for 3/22/2024.pdf
 
Buy and Sell Urban Tots unlisted shares.pptx
Buy and Sell Urban Tots unlisted shares.pptxBuy and Sell Urban Tots unlisted shares.pptx
Buy and Sell Urban Tots unlisted shares.pptx
 
Commercial Bank Economic Capsule - March 2024
Commercial Bank Economic Capsule - March 2024Commercial Bank Economic Capsule - March 2024
Commercial Bank Economic Capsule - March 2024
 
LIC PRIVATISATION its a bane or boon.pptx
LIC PRIVATISATION its a bane or boon.pptxLIC PRIVATISATION its a bane or boon.pptx
LIC PRIVATISATION its a bane or boon.pptx
 
Slideshare - ONS Economic Forum Slidepack - 18 March 2024.pptx
Slideshare - ONS Economic Forum Slidepack - 18 March 2024.pptxSlideshare - ONS Economic Forum Slidepack - 18 March 2024.pptx
Slideshare - ONS Economic Forum Slidepack - 18 March 2024.pptx
 

The Ultimate Property Investment Guide2

  • 2. http://www.proebayer.com Don’t get ripped off on eBay! Down load your free eBay buyers guide and sellers guide from: http://www.proebayer.com/tips.htm Sign up for your free monthly newsletter for more eBay money making tips, tricks, reviews and much more http://www.proebayer.com/news.htm
  • 3. FORE WARNING THIS PUBLICATION DOES NOT CONSTITUTE ADVICE WITHIN THE TERMS OF THE FINANCIAL SERVICES ACT 1996 (OR ANY SUBSEQUENT REVISIONS, ADDITIONS, OR AMMENDMENTS). The contents are a general guide only and are not intended to be in substitution for professional advice. All readers are strongly advised to take advice from their solicitor, accountant and surveyor before proceeding with any property purchase. 4
  • 4. Contents Page 8 Section One Why this e-book was written Page 14 Section Two Do I need property to achieve my goals? Page 26 Section Three The Planning system Page 49 Section Four Deciding on, and forming, your system of business Page 51 Section Five The Financing system Page 57 Section Six A Buying system Page 91 Section Seven The Innovation system Page 99 Section Eight Management systems Page 114 Section Nine The Accounting systems Page 122 Section Ten A system for reviewing 6
  • 5. The magnificent seven SEVEN qualities are needed to make a successful entrepreneur, say researchers at the Durham University Business School, who reviewed other research and interviewed 16 graduate entrepreneurs and 100 small businesses. David Johnson and Rosa Ma say the qualities are a: • ability to envisage where the business should be at points in the future • motivation to succeed • ability to set realistic goals • desire for autonomy, though tempered with the readiness to accept advice • ability to calculate real risk and plan to reduce it • knack for spotting opportunities • willingness to take the blame rather than ascribing performance to luck • creativity and innovation But Mr Johnson said people acted differently. Venture capital providers and bank managers “tend to decide intuitively whether the person in front of them is worthy of support”. As the list indicates behaviour it may be possible to train people to be more effective entrepreneurs, he said. Daily Telegraph 1st August 1994 My aim in this e-book is to show you how to be a more effective property entrepreneur. 7
  • 6. Section One Why this e-book was written In this section you’ll learn: • How I discovered the contents of this e-book and why I think they are so important to your success But first a quick recap… I was very pleased with “An Insider’s Guide to Successful Property Investing” and judging from your comments, so were you. It covered the topics a lot of other property information doesn’t cover, but which is essential information for a private property investor to have, such as: The attitude and attributes of successful property investors A laymans guide to the three main valuation techniques, so that you can be sure to buy low and sell high A comprehensive look at why gearing is an investors best friend and how you can benefit Other people’s money and how to legally use it to fund your deals The truth about buying at auction Strategies for achieving income or capital growth: and The things you need to be aware of when you are a landlord Having laid the background it then went on to look at the different types of property investments such as flats and houses, and some of the more unusual and niche investment opportunities including residential reversions, freehold ground rents, and lock–up garages, and how to get the maximum returns from them. It’s now just over two years since I first launched “An Insider’s Guide”. In that time I have successfully started my own property business and am building up a sizeable portfolio. I’ve also spent the last 2 years reading thousands of pages about “Nothing Down” deals, mainly from America. It’s fascinating reading. In the USA property entrepreneurship is big business with a lot of full time investors and developer/traders who started out like you and me. 8
  • 7. I think we can learn a lot from the States about creativity and flexibility in property, but apart from anything else we can learn that: “the small guy” really can become a successful property investor, even if he doesn’t start with a lot of cash of his own. When I was looking around at the Internet a few months ago, I came across a web site hosted by a property entrepreneur who is a millionaire on paper, but who was moaning that at one time his cash flow had been so poor that he had been almost bankrupt. To survive financially he had to completely change his tactics and instead of buying property to hold as investments, he now concentrated on refurbishment and selling on. By doing so he had intended to build his cash flow and not his capital. However because of the margins he was able to create between purchasing a run-down property, refurbishing it and selling it on, he had in practice increased both. This wasn’t a surprise to me because it was around that time that I realised that owning properties wasn’t the answer in itself. You see, when I first started out building my portfolio, I was determined to create cash flow. That was my most immediate need. Remember, owning property isn’t a goal in itself – it is merely the means of realising two of my principal goals • to quit the day job and do something more interesting • to create a permanent passive income When I first started buying property, my strategy was to assemble a portfolio of high yielding properties. I figured that if I were able to buy enough of them, then at some point in the future, the income would be so good, that even after allowing for management fees, mortgage repayments, repairs and even voids and re-letting fees when the odd one became vacant, there would be sufficient income to pay me a good salary, and some left over to plough back into the business. I’d use this extra to purchase more properties. I had calculated that it would take me about two years to become financially independent, by which time I would have around fifty properties. When this stage was completed, I intended to sit down and look at my strategy again. I thought at that time I’d switch into commercial property safe in the knowledge that the activities from phase one would give me a decent income no matter what. However, what looks good on paper doesn’t always reflect reality. I’ve got to say, this was my first attempt at building a property portfolio. Up until then I had always worked for clients who were all established property owners. So although I was able to help them build their portfolio, it was always in the context of assisting them with an existing portfolio. So I wasn’t prepared for how the system really worked for “newcomers”, when you start from scratch. After reflecting on the conflict between ownership and cash flow I realised that there are traps to fall into which are not obviously apparent until it’s too late. I’m glad to say that I haven’t fallen into all of them, but having been in and out of several, I think I am in a 9
  • 8. position to help the unwary avoid most of them. Mainly this comes down to common sense but sometimes it’s hard to see the wood for the trees. So, sitting at my computer that Saturday morning, I read those words on the internet and thought, “Yes, I can relate to this, it’s about time I did some serious thinking” about what I am doing and what I should be doing. The result of that serious thinking is this, “An Insider’s Guide to Successful Property Investing – Part 2”. I came to the conclusion that there are key questions that need to be asked and answered by every prospective or active property investor before they do anything. These are: • What am I trying to achieve and why? • Do I need to own property to achieve this? • Where and how do I start? • What strategy do I need to adopt? In a sense, any success will be traced back to the quality and quantity of planning and research made prior to taking the first steps. I suspect that many inexperienced property investors have never thought very deeply about any of these questions, especially those who are currently piling in on the Buy-to- Let scheme. Their failure to do so illustrates what Brian Tracey calls the two main reasons why businesses fail: • Lack of direction • Lack of a (financial) plan I hope to be able to give some thoughts in this e-book so that you can answer these questions for yourself. However, answering these questions is only the first step, we then need to put the theory into practice. The transition between knowing what you want to do, and how to actually go about it, is where most would be investors get stuck. If they understood clearly • How to buy the most suitable properties for their purposes, and • How to do so with the minimum of risk then jumping in at the deep end, whilst daunting, would be do-able. 10
  • 9. The next stage is then to learn : • How to best protect their investments The more I thought about it, using my own experience of the realities of property investing, I came to the conclusion that the best answer to these questions is to have the systems in place which will automatically steer you in the right direction. In fact, I have subtitled this e-book “Milking the System” because I believe that no matter how clever you are, if you don’t have the right systems in place to find, buy, run and manage your property business, you are never going to be successful. On the other hand I believe that if you do have the systems in place, and you use them, you almost can’t help but be a successful property investor or developer. This is not to say that you won’t need to think and use your common sense but there are things you can do, almost on automatic pilot, to make sure that you get the best possible results and avoid the problems. In this e-book I will show you the systems you need. Interspersed with these principal themes, I have also dealt with some of the most common issues that have arisen during some of my “one on one” consultations, which I can see are genuine concerns to new and experienced investors alike. Before I show you the systems all good property investors could and should use, let me give you some of the background behind how I stumbled upon them. Now let me say from the start that I am relatively new to direct property investment and I am not too proud to admit that I made loads of mistakes. So what I am about to tell you in this e-book really is the result of trial and error. However, if I can help you to start and run a property business, and to avoid the mistakes I made, I will think it’s a job well done. Here are some of the reasons I spotted early on as to why people’s businesses fail. Firstly, there are the lack of planning reasons • Not knowing why they are in business • Not knowing which business they should be in • Not really understanding how they can use their business to get where they want to go The antidote to these uncertainties is to have a proper system of goal-setting, so you know what you want and why, and secondly a proper planning system so you can formulate a strategy which will help you to achieve those goals. 11
  • 10. The next reason for failure is setting up the business in the wrong form. There are only four basic forms that one can realistically choose, excluding a Plc, but the choice will impact on cash-flow, tax, red-tape, and ultimately your exit strategy, if you ever need to sell the business. Most buyers and investors give this hardly any thought at all. The next reason property businesses fail is because they don’t have proper financing systems in place. If your aim is to have one or two investment properties, then shopping around on the internet or ringing a couple of building societies for details of their best ‘Buy-to-Let’ deals might be sufficient. If you want to run this as a proper business, you need to have proper systems in place. This will become very apparent when you are offered deals which you lose through not having ready funds available. This is why I think having a finance system in place should come before having a buying system. The next reason for failure is not having a proper system for identifying and buying properties. I could be pedantic and separate this out, but they really go together. Partly this goes back to strategy; you need to know what you are buying and why. Randomly acquiring properties ad hoc may seem like a good idea if they are all bargains, but how will this affect the speed and ease of your exit if you ever need to sell? How will the bank treat them if you need to refinance? And without the proper system in place, how are you going to avoid properties which look like good purchases at the time but which turn out to be unsuitable? Next, many property businesses don’t look ahead to the day they own their first property. How are they going to manage it? Do they do it themselves or get someone else to? Either way there are fundamental implications for the business. The business itself needs to be managed. A lot of this is about implementing and overseeing the other systems. It would be nice if they worked on auto-pilot, but it’s really more like spinning plates. If you leave them they’ll fall down. Then, and this may surprise a lot of people, there’s self-management. Property is a people business and if you are not in top form, it will be reflected in how well you do. Then there are businesses which don’t have proper accounting systems. These businesses just do not last. This is more than having the accounts prepared once a year, this is more about early-warning systems to alert you before things go wrong. It’s also about not missing opportunities because you don’t realise you can afford it. Finally, there has to be a system for reviewing. This isn’t about slapping yourself on the back at the end of the financial year. This is a constant process of refining what you do and learning to do it better. If you don’t review where you’ve been, you’ve no chance of getting where you’re going. In the e-book you’ll find links to other sites, some run by developers and agents dealing in property, I have identified these mainly by use of search engines, as any potential investor doing their own research would do. The fact that the link exists is merely to show that the site is there, it is up to you to decide whether it is useful or not. The presence of a link should not be treated as an endorsement of either the site or its operator by either the author or More Than Two Publications, it is purely for information only. 12
  • 11. This book is not designed as a once only read. It is intended as a tool that you’ll want to use regularly. Instead of being a dull and dusty textbook, I’ve added a few light touches to make it even more interesting. (So I very much hope that you enjoy it and find it stimulating and exciting) If you find there is something that I’ve missed and you think should be included in the next edition please email me: mailto:peter@propertydeals.fsnet.co.uk and if I use your idea I’ll send you a copy of the new edition free of charge. Please refer to this e-book again and again as you work through your preparation for buying your next property or starting your business. Take your time to come back to specific chapters and review the points. So let’s start by looking at arguably two of the most important systems, those for goal setting, and those for planning. 13
  • 12. Section Two Do I need property to achieve my goals? In this section you’ll learn: • Why you need to think carefully about whether property is right for you • Five things that property can do which other investments can’t • Why you need clear, measurable, and achievable goals Before I show you the systems that you’ll need to build a property business, you’ve got to know whether you really need and want to own property. You may be wondering why I would even ask the question “Do you need property to achieve your goals?” In the UK we just take it for granted that owning and trading property is a good thing to do, and that more is better. It’s in our blood. Traditional thinking says that property is a great investment mainly because: • It can produce rental income • There can be rental growth • There are potential capital gains • It can be a hedge against inflation in certain economic conditions. • It can be very tax efficient This is all true, and as an investor you may be trying to achieve one or more of these. However, property is only one of many different types of investment available. Whether property is the right one for you or not will depend upon what (and why) you are trying to achieve. Property is not perfect and has its drawbacks, for instance: • it is relatively illiquid, meaning it is not easy or quick to sell • acquisition costs are high, especially when you get into higher bands of stamp duty • management costs are relatively high • unlike other forms of investment, it needs to be repaired and maintained • disposal costs are also relatively high Before putting any money into property you need to consider whether it will achieve what you require of it. 14
  • 13. Property can provide an investor with: • capital growth and “security”, but usually the trade off is low returns from income. • high returns from rent but the trade off is low capital appreciation and poor security • any permutation in between. The tension between income and capital growth is discussed in more detail in An Insider’s Guide to Successful Property Investing. The type of property, and the location you choose will reflect how you weigh the merits of returns against risk, but if your buying criteria requires you to be able to invest and deinvest quickly and easily, property may not be suitable. Alternative investments such as high income bonds, shares or gilts (the traditional marker for commercial property investments) may be more appropriate for you. When I first started writing about residential property investing about ten years ago, it was a really very much a minority interest. There were only a relatively small number of private landlords, and there were also a few semi-professionals doing house renovations and conversions. The majority of residential investments were owned by a number of small private and quoted companies, and by family trusts. Over the last decade things have changed completely. It seems that more people than ever before are thinking about, or actually, putting their money into property. On the face of it there has probably never been a better time; record low interest rates, close to full employment, increasing capital values, and the success of the Buy-to-Let scheme have given smaller investors the confidence to have a go. In fact, everyone wants to get a piece of the action. You can decide what you want to read into this but I’ve just read an article in the Sunday Times entitled “MPs rush to join the homes-for-rent club”. The article says “More than a fifth of MPs supplement their incomes with second homes or businesses, according to the new register of member’s interests…landlord MPs declaring property interests, including 65 on the Labour benches, are taking advantage of the booming housing market of recent years…..Labour’s landlords are joined by 44 Conservatives and 11 Liberal Democrats…the MPs are part of a growing phenomenon, the Buy-to-Rent market. Rising prices and looser tenancy laws make property attractive to those seeking stable investments…..In the second half of the 1990’s second home ownership in England rose by 22% from 936,000 to 1,139,000. More than 130,000 Buy- to-Let mortgages, worth £10 billion, have been taken out.” So why has everything changed? At long last it seems that the residential property investment scene is recognised as an industry in it’s own right. Government interference is at an all time low, for the time being at least, although the recent proposals to licence 15
  • 14. owners of Houses in Multiple Occupation may become an issue. Finance is available for most aspiring landlords through Buy-to-Let. Interestingly, following the relatively poor performance of the Footsie over the last couples of years, residential investment property is now of interest to the large institutional investors who are queuing up to get their hands on as much stock as they dare to take. However, not everyone is convinced that residential property investing is a dead cert. In November last year (2001) the Sunday Telegraph ran a piece entitled “No Room Left for Buy-to Let” which suggested that buying for investment surged after the attack on the twin towers on September 11th, when nervous investors decided to put their money into solid bricks and mortar. The article went on to say “There are now 130,000 Buy-to-Let mortgages in the UK. But many of the 28,000 borrowers who have become landlords since the beginning of this year have already seen the value of their property drop”. It continues “the major attraction of Buy-to-Let is that the typical investor, who borrows about 70% of the purchase price of the property, covers mortgage payments with the rental income and pockets the capital increase when he sells. This goes horribly wrong if property prices stall or fall, particularly if the property proves hard to let or rents have to be slashed to get tenants.” Subscribers to my newsletter, Property @ Investment, will remember that last year (2001) I commented on an article published in the Estates Gazette which suggested that Buy-to Let had reached it’s peak in the South East, and that over-supply was going to push down capital values and rental values. Six years into the Buy-to- Let scheme, are we finally about to see the bubble burst? Despite the dire warnings from the Estates Gazette and Sunday Telegraph, Buy-to-Let lending to private investors carried on increasing during the last half of 2001. In fact 2001 was a record year for property price increases, with average prices across the country rising something like 15.5%. And the statistics seem to be showing that things are not slowing down in 2002, yet. However, there are suggestions that property values in the South East are poised to collapse because of the boom in Buy-to-Let. This is interesting and is backed up by anecdotal evidence. A colleague of mine who is a very successful property investor, has recently bought a house in a prestigious London borough, which he is now trying to sell asap. This he will be able to do, and he will make a good 10% to 15% on his investment in a little under 6 months, so he’ll be happy. But he’ll also be relieved. He was intending to keep the property and let it out, but in the same London borough he knows of many properties which were bought through the ‘Buy-to-Let’ scheme, which have not been occupied since because of a lack of tenants. The owners are having serious problems with cash flow. 16
  • 15. To maintain and cover the mortgage payments these properties need to be let for £1500+ per month. If the rents were £1000 a month or less, they’d be plenty of takers, but demand is limited at the upper ends of the market. One lady investor I was talking to says she has had to cut her rents by £50 a week. As you’ll see later, most of my properties are only let for £50 a week (well, about £70 a week on average to be factual) so I feel for her. The owners of these properties are being eaten alive by the negative cash flow. Our American cousins call properties like these ‘alligators’. These properties are going to come back onto the market, and probably in sufficient numbers to depress the owner occupier market, if only temporarily. I’m not saying prices will fall, necessarily, and if they do I am not predicting a massive crash, but inevitably I think things will have to slow down. So is property investing finished? No, not in my opinion. The Buy-to-Let scheme’ is great and has opened up property investing even to people with modest means. But like all good things it got too popular too quickly. Many people just didn’t do their homework as they jumped on the band wagon. A correction was, or is, inevitable. However, that is not to say that the idea itself isn’t sound. My view is that we have hardly started yet. In my opinion there are two principle reasons why the private rental sector will boom in the long run: • Changing demographics • A shortage of rental properties As they say ‘It’s an ill wind…’ but unfortunately as society continues to fragment the small, private landlord will come into his own. According to the official statistics the private rented sector is destined to explode over the next 15 years as demographics change Britain into a country of “live alone singles”. In 1996 10 million households comprised married couples, 6 million households had just one person. By 2016 it is predicted that this will reverse with only 6 million households comprising married couples, and 10 million households with just one occupant Because of this it is predicted that the number of households in the UK will jump from around 20 million to about 26 million in 2021. And of the extra 6 million households most are expected to be small family units, singles and couples, many of whom will want to rent, not buy. Now consider these predictions in the light of two further trends that have occurred and which are set to continue. The number of households in the private rented sector has dropped from around 12% of the housing stock since 1981 to around 10% today, although the trend is now on the 17
  • 16. way up again. During the same period, presumably as a result of the success of the Right-to-Buy scheme, when council tenants were offered their properties to buy at a discount, the number of households in social rented housing dropped from around 30% of households to around 20%. Unless I am mistaken, if these two trends continue, by 2021 there could well be a severe shortage of rented accommodation, both private and social, particularly social. This suggests two possible areas where private landlords may well prosper, and provide a desperately needed social service. The first is in the “middle ground” providing good quality rented property to middle income, working tenants. Ten years ago the average age of a first time buyer was 21, now it is over 30. A lot of these people will buy, but for now they want to rent good quality accommodation. The second area is by making up the shortfall in publicly provided social housing for socially excluded tenants. Local authority housing stocks are reducing. Despite efforts to boost the role of Housing Associations, private landlords may prove to be the only way to get rid of the current dependence on Bed & Breakfast and hostel accommodation. Unfortunately there are still some in Government who dislike private property in principle, but I think their power base is quite weak. The thing they don’t understand is that the Government now need private investors to provide social housing and asylum seeker accommodation. This is a real tangible service which is meeting a real tangible need. It’s a classic symbiotic relationship with both sides benefiting. The landlord gets a ready supply of tenants, and when the benefits system works, money backed by the Government. On the other hand the Government gets cheap accommodation for socially needy groups, but without having the hassle of ownership and all that goes with it, such as the trouble and cost of maintaining the housing stock. Just think of all that capital which was once tied up in Government and council owned property which can now be put to better uses. Over the last few years the Government have been falling over themselves to sell off easily disposed of housing. A good example is the privatisation of armed forces accommodation. Another example is that Local Authorities are now being encouraged to sell on whole housing estates to “socially responsible” landlords, and these aren’t just Housing Associations. So unless politics gets in the way, it’s difficult to see how small private landlords can fail over the next twenty years. But does this necessarily mean that property investing is a good idea for you? The answer is that it makes sense, if it makes sense for you. Whether it makes sense for you will depend upon what you are trying to achieve through property ownership. In the UK over the last 50 or more years, rightly or wrongly, we have developed a culture 18
  • 17. of property ownership. Most people assume that property ownership is a “good thing” and don’t question it. As the success of the Buy-to-Let scheme shows, given the opportunity, people will just charge off and buy as many properties as they can. What they may be overlooking is that, as I said earlier, owning property is not an end in itself, it is a means to an end. People associate property with security, giving us the expressions “as safe as houses” or “as safe as bricks and mortar.” It can be a great hedge against inflation. If we buy the right properties in the right areas, it can provide the means to grow our capital. Used properly it can be a very tax efficient way of accumulating wealth to supplement a pension. And if we really know what we are doing, it can provide an income. We’ll be looking at aspects of all these in later sections. Property Versus other types of investments Although we’ve already seen that property isn’t without its problems, it is supremely versatile which makes it an excellent investment for most people. Here are five reasons why property gets my vote as a better investment than all others: • Capital values grow at a higher rate than money rates • Returns can be supercharged through gearing • Property values can be disproportionately increased by spending on repairs and improvements • Virtually any one can borrow to buy property • It’s never going to go out of fashion Let me illustrate each of these by comparing property to other types of investment. To make it a bit easier I’ll assume that we have £10,000 to invest as we wish. Capital values grow at a higher rate than money rates My definition of an investment is something which provides an income. Some may disagree with this definition, and I realise it’s rather simplistic, but I think that most people would recognise that this definition is reasonable. An example would be if you had some spare cash you may choose to invest it in a Building Society account. Say you put our £10,000 into a Building Society, and the account is paying 4% pa gross interest, then over the next year you would earn £400, less tax if you are a taxpayer. Not very exciting, but it ’s an income of a sort, and so by my definition this is an investment. Property compares extremely favourably. The average return for a Buy-to-Let property has been calculated as being around 7% to 8%, and it’s possible to purchase rental properties so cheap in some areas that the return can be 15% pa or more. (By contrast, 19
  • 18. in high value locations such as central London, the yield will be much less, probably between 4% and 6%). I was reading recently someone else’s view that an investment is only a true investment where the capital invested grows in its own right, regardless of the income generated. Going back to our example of the cash deposit in the Building Society, that wouldn’t be considered an investment under this definition because the amount deposited won’t be growing in isolation to the interest. This may seem rather confusing but let me give you another example. Instead of investing the £10,000 in a Building Society, we could use it to buy some stocks or shares instead. Assuming that the company whose shares we buy are doing OK, we should receive a dividend, which is effectively income and the equivalent of the interest from the Building Society. A lot of companies in the FTSE 100 will pay dividends equivalent to 3 or 4% of the share value. So we should still receive an income of around £300 or £400 per year. However, if things are going reasonably well, and there is sufficient demand from other investors for these shares, then the share price will go up as well. So, if we had bought 1000 shares at £10 each and the value of each share went up by £1, our £10,000 would then be worth £11,000. So we’ve had growth on the capital element of £1000, or 10%, and a dividend or income of, say, £300 which is 3%. Let’s compare that to property. If you buy even a modest property in a reasonable area, then you’ll know from long term historical trends that the capital value is almost sure to increase. According to the latest Quarterly Review from the Nationwide, house prices have increased on average by 7.5% per annum since the beginning of 1993. There’s no reason to assume that in the long run this trend won’t continue, and historically the rate of growth has been higher, nearer an average of 10% a year over the last 30 years. And if you’ve bought with letting in mind you will get a rent, or in other words an income, as well. Returns can be supercharged through gearing So far, property is comparing very favourably. But now we can even blow stocks and shares away by doing something with property that you can’t do with most other types of investments. “ I’m now going to tell you probably the most important secret known by, and used by, all the great property investors. I think you are going to be surprised. “Nobody ever rises above mediocrity who does not learn to use the brains of other people and sometimes the money of other people too… it takes a combination of the two”. So said Napoleon Hill, the man who through his philosophy of personal achievement probably helped to create more self made millionaires than any other person in history. 20
  • 19. The trouble with using other people's money is that debt makes us squeemish. From an early age we are told that debt is bad and should be avoided. And that is true, or at least partly true. There are certain types of debt that we should avoid at all costs, but, like it or not, any businessman will tell you that most businesses cannot grow without the proper use of investment debt. This is especially true of property where the sheer scale of the figures involved mean that only the super rich can afford to be seriously involved without some form of debt. If you want to build a sizeable and profitable property investment business the truth is that you will require some short term debt. So the first rule of property is “ investing in property works better when you use someone else’s money” “. Source ‘An Insider’s Guide to Successful Property Investing’ Let’s apply this rule to our example. Ordinary investors can now borrow considerable sums of money to buy property. This is something you have difficulty doing with any other type of investment unless you are ‘something’ in the City. However, with the introduction of the Buy-to-Let scheme, most people can borrow a sizeable proportion of the purchase price of residential investment properties. For example, the bank I deal with will lend 85% of the lower of the purchase price or the valuation. So, let’s assume you use the £10,000 to buy a property. If you can borrow at 85% to gear up, then after allowing a bit for legal fees, stamp duty and bank charges for setting up the loans, you should be able to buy a property worth around £63,000. Assuming a fairly modest yield of 10%, your gross income will be £6,300 a year, and at today’s interest rates the mortgage will probably cost you around £3,100 a year (to keep it simple this is assuming an interest-only loan at 1.75% above Bank of England base rate). Let’s look at what you’ve achieved. After allowing for management fees, insurance and mortgage repayments, your net income will be around £1,900 a year. That’s a return on the original £10,000 invested of 19%. You also have a property worth £63,000, the value of which is compounding probably at around 7.5% pa if the trend of the last decade or so continues. So if you hold the property for ten years it will be worth £130,000. If you deduct the original purchase price of £63,000, you have made a profit of £67,000. That’s a 570% return on the original £10,000 invested, not including the 19% per annum you’ve been making from the rent. And all this is being paid for by somebody else, by the tenant. “This is the power of gearing and the effect is even more pronounced with higher yielding properties, and when you are able to arrange loans at lower interest rates. 21
  • 20. If there is a key to success in property this is surely it. When you understand what is happening you will see why buying property with other peoples’ money is much more profitable than buying property with your own money.” Source ‘An Insider’s Guide to Successful Property Investing’ Even if you do have enough money to buy a property outright it would pay you not to use all your own money. Let me prove it. If you had bought a property outright, and without a loan, using the £10,000 (yes, in some areas of the country, this is possible) you would still have a decent return from the rent, probably around 15.75% after deducting costs, but the capital growth would be compounding from a much lower base. If you achieved 7.5%, which is doubtful for this type of property, the value after 10 years will be at most £21,000. The profit will be £11,000, so the initial investment will have grown by only 110% compared to 570% That’s why being able to supercharge the returns on the money you put in makes property so attractive, and gearing a property investor's best friend. Property values can be disproportionately increased by spending on repairs and improvements It’s a “rule” in property that cost does not equal value. You’ve probably got neighbours who you know have spent thousands of pounds on their homes but you know that if they ever put them on the market they’d never recoup the full amount they’ve spent. A classic example is conservatories. You can spend £20,000 on a conservatory but add only £10,000 to the value of the property. An even more extreme example is swimming pools, which can cost thousands and thousands of pounds to put in, but which many estate agents will tell you add nothing to value of the property. This is because potential purchasers see them as a liability rather than an asset. They are hard work and can cost a lot of money to maintain. Another less extreme example is double glazing. I wouldn’t be without it but you’re unlikely to get back in extra value what you spend. The good news is that this rule also works in reverse. There are things that you can do to a property which will increase the value by more than the amount you spend. Two prime examples are kitchens and bathrooms. You can spend £5000 putting in a new kitchen safe in the knowledge that it will increase the value by £10,000. The same with the bathroom. And, to a lesser extent, it also works with central heating. So the ideal is to find a property that requires some renovation and to do it up. Let’s say that you buy the property worth £63,000 but which has an old-fashioned kitchen and no central heating. You spend £10,000 improving it, and end up with a property worth £85,000, which you then let out. You now have the best of all worlds. You have: • an instant capital gain of £22,000 for the refurbishment 22
  • 21. compounding capital as house prices increase, but now the baseline from which that will be calculated will be £85,000 and not £63,000 • an income from the rent, which will be higher, reflecting the improvements you have made You can’t actively “work” and “add value” with the other types of investment we’ve looked at because they are passive investments. To do the same you’d have to be able to influence the Building Society is run so it is more efficiently and can pay more interest. Or you’d have to have a direct say in the running of the company in which you’d bought shares in order to improve the way it is run, or even find new activities for it to undertake which are more profitable. Both of these are impossible for a small investor. Virtually any one can borrow to buy property With the Buy-to-Let scheme, and much more positive attitude by the banks to property, virtually anyone with a job can now borrow to buy property investments. It’s never going to go out of fashion This comment is really self explanatory. In the case of residential property in general it is 100% true, every one needs somewhere to live and always will. However, don’t overlook that certain types or ages of property can become functionally obsolescent, and certain areas can go out of fashion. In the case of commercial property, certain types of property regularly go out of fashion; we’ve seen the demise of the corner shop, the high street bank, the rural post office. Wine bars look as if they are on the way out, as are smaller cinemas. Other things arise to replace them; at the moment gyms, themed pubs, internet cafes and other leisure activities. However, as a general principle, we will always need property, especially residential property, and at the moment we need a lot more than we have. Compare this with other types of investment like internet stocks, which came and went in a flash, leaving a lot of lost money and heartache behind them. So if after reading all this you think that property is the most suitable form of investment for you, you will need to think about the systems you to put in place to start, run and manage your property business. The starting point is effective goal-setting and planning. 23
  • 22. What am I trying to achieve and why? In its simplest form your goal setting and planning systems should work together like this: Step One: Know what you are trying to achieve and why. I dealt with goal-setting in detail in “An Insider’s Guide to Successful Property Investing”, and so I don’t propose to cover it again here. However, knowing what you are trying to achieve and why is a crucial question for anyone thinking of getting involved in property. It’s a major investment, even the most basic of the “raw material” required to start you off in property will cost you thousands of pounds. My reasons for going into property investment were primarily to create a short-term cash flow, hopefully coupled with long-term capital growth which will substitute or supplement my pension in 20 or so years time. You will have your own reasons for wanting to invest in property, and these should be considered in relation to your goals and aspirations in the other areas of your life. This is important because when we consider devising a strategy to help you achieve your property goals, you will find it impossible to do so if you don’t know what you are trying to achieve or why. Remember, owning property is not an end in itself, it is merely a means to an end. Investment in property for investment’s sake is completely pointless unless you are striving for an anticipated outcome. The other steps in the planning process then follow on: Step Two: Develop a strategy which you feel comfortable with and which is right for you, with the aim of achieving a predefined goal or target. Many investors have no strategy as such, they would say that their strategy is “To buy property”. This is asking for trouble. Any one can buy a property, the key is to buy the right property. Step Three: Take action following that strategy in order to achieve that goal Step Four: Review progress regularly and fine tune your strategy as necessary. When you achieve your goal, set another and produce a new strategy to achieve it Step Five: Repeat the above Before we go any further, just think about your answers to these questions. • What do I want to achieve from property? i.e. capital (state a specific amount) and/or income (state a specific amount) • Why do I think I can use property to achieve these goals? 24
  • 23. Am I prepared to pay the price? The first two questions may seem self-explanatory and with some careful thought you should be able to find accurate answers. However, the last of these questions needs more thought. Let’s face it. Property investing isn’t everybody’s cup of tea. First there’s the fear that goes with putting so much on the line. Even the cheapest property investment is relatively expensive. If you do it properly and take out bank financing, it can be an uncomfortable feeling to be in debt to the bank for thousands or even hundreds of thousands of pounds. I’ll talk more about the fear of buying later. Even when you break through this psychological barrier, we all know that owning properties can be stressful. Having tenants doesn’t make it any easier, most tenants are fine but one bad experience with a tenant can last you a lifetime. But you know there’s no such thing as a free lunch, and it’s usually true that the greatest returns are achieved by taking the greatest risks. Even before I went into property investing, I had never had a hassle-free ‘proper’ job. Property investing has its difficulties but I see it as swapping one set of problems for another. In my opinion I am no worse off, even when I have severe management problems to resolve. In fact, because of the potential returns, I’m actually much better off. So, assuming you’ve taken the time to write down your clear, specific, measurable and time limited goals, and that you are quite clear what you are trying to achieve in property, let’s move on to making a plan. 25
  • 24. Section three The planning system In this section you will learn: • What your trading options are: Cash generation Cash flow Equity • How to devise a strategy to achieve your goals • What sort of property suits your purposes So, assuming you’ve established your goals, you’ll now need to make a plan to achieve them. If you are going to use property to achieve them, we now need to look at what options property gives you, and how property can form part of your plan. If you already own property, now is good time to review your current goals, strategy and progress, and familiarise yourself with the processes that follow to make sure you are on track. What are the options? There are three basic functions of property. It might help if we describe them as “cash generation”, “cash flow” and “equity”. In plain English they can be defined as follows: • “Cash generation” is the active creation of immediate profits as lump sums, usually through trading, which you can put into your pocket. • “cash flow” is the building of a positive passive income where the rent received exceeds all on-going costs and outgoings • “equity” is the net worth of your interest in the property, usually defined as the open market value less any loans still outstanding against the property. The reason for buying any property should be to benefit from one or more of these. Let’s have a closer look at each. 26
  • 25. Cash generation The easiest way to generate cash in property is by buying and selling. There are three ways to approach this, being: • Retailing • Renovating • Wholesaling Retailing • The first main form of cash generation is ‘retailing’ which is to “buy low and sell high”. In it’s simplest form, this is where you will identify and buy a bargain property i.e. a property where you can negotiate a purchase price below market value, and resell it at a higher figure, or it’s full value. If you are prepared to put in the hard graft you will be able to find properties at below ‘market value.’ An alternative to you putting in hard graft is to get someone else to do it for you. We’ll look more at buying systems later, but just as a taster over the last month I’ve bought 7 properties at well below their market value. This is solely due to the activity of an agent who wants to build his management business. He has sourced and identified the properties for me, at no charge. On average, by keeping his eyes open and talking to his fellow agents on a regular basis, he has found properties which he knows are being sold at prices below their market value. In most instances the vendors want a quick sale, but in one case the property has simply been put on the market at the wrong price. As a result of steering me to these bargain properties he has saved me at least 20% on every deal. That means I’m in a profit situation as soon as I complete each purchase. Renovating • The second main method of cash generation is when you buy a property which needs work doing to it to make it saleable. In other words, to renovate it, or as the Americans say “Rehab it”. If you can buy the property at a bargain price, in other words at a price lower than it’s value even after taking into account the repairs required, then the profit potential is even greater. If you get this business right, you can do very well from it. A couple of houses a year in the right area and at the right price can make you a decent living. There are a lot of books and manuals available which cover the subject in great detail, so I don’t intend to do so here. 27
  • 26. However, before you rush out to buy a wreck there are a few things you should think about. There are drawbacks: • It takes time. This isn’t necessarily your time, unless you decide to do the works yourself, but the time taken to run and complete the project. You should budget on 180 days from start to finish, depending on the size, type and location of the property and the works required. This assumes everything goes well and that you find a buyer in a reasonable time. Don’t expect to see any profit for at least 6 months. In the meantime you will need to live. • These projects are cash intensive. How much you will need to spend will depend on the size of the project you opt for, but even relatively small properties requiring renovation may need £20,000 spending on them. Add that to the price of the property and you’ll see that you need a lot of working capital to start with. This doesn’t necessarily have to be your capital. Some lenders will finance this kind of project, and you may be able to juggle credit cards (especially using credit card cheques and the offers of ‘nil interest on balance transfer’ deals) to cover the cost of the works themselves. However, this means that you have to have an eye on the interest paid and this will make your timing even more critical if you want to exit the project with a (decent) profit. If you think that renovating houses could suit you, you will need to set up a system to find un-modernised houses or houses in disrepair. The most obvious way is to register with estate agents in your target territory. Also to “drive the area”. This is covered elsewhere in this e-book. When you find a house, you’ll need to estimate the cost of repairs and improvements. Once you’ve done two or three projects you’ll find it relatively easy to estimate the costs yourself. For the first few you may have to make arrangements to obtain quotes from contractors before making an offer, or make an offer subject to obtaining quotes. When you first start out you might want to start small and build up slowly. I’ve heard it suggested by other professionals in this field that you shouldn’t start with houses with major structural problems. Instead you should cut your teeth on houses in need of cosmetic repairs or updating. Then once you become more confident you can step up to take on bigger challenges. When you find a suitable property you’ll have to work out how much you can afford to offer. Working backwards from the estimated resale price is the best way to calculate the maximum price you can pay. Here’s a very rough and ready guide: 28
  • 27. Estimated Resale Price (conservative) Less: Repair costs Less: Holding costs (i.e. interest on house price and repair costs) Less: Resale costs (i.e. agents fees and solicitors fees) Less: Minimum Profit, £10,000 Equals: Maximum Purchase Price A more detailed example of a spreadsheet for calculating the value of redevelopment and refurbishment projects is given in “An Insider’s Guide to Successful Property Investing”. Try to buy it for less than the figure you arrive at. If your maximum purchase price is so far removed from the vendors expectations that you can only buy it by trimming your profit, then walk away. Don’t be tempted into a project where the profit is less than £10,000,or whatever you think is appropriate bearing in mind the size of the project. This is really your minimum buffer. It only takes one unforeseen problem to significantly reduce this amount. For example, on my first renovation project I unexpectedly found that I needed to re-render the property. This extended the refurb period by about a month, so as well as adding the cost of the rendering work itself, it added a months interest to the holding costs. Once you’ve purchased, you’ll need to do the repairs and renovations. There’s a lot of material available which suggests ways you can plan your projects so that everything runs smoothly and in order. It’s important to do the jobs in the right sequence so one contractor doesn’t have to undo the work of the contractor who has just finished. For example, there’s no point having the plasterer in if the electrician and plumber then arrive and start hacking chunks out of the wall to run cables and pipes. It’s all common sense but needs to be thought through before you start. If you aren’t going to do the work yourself, you’ll need to put a team together. The best way to find them is word of mouth recommendations by friends and family. Otherwise look in the local paper and the Yellow Pages. Always get more than one quote. For example. When I arranged replacement windows for one of my renovation projects, I had about 5 firms come and visit who offered various deals, but all at prices more than I had budgeted, and all of which would have significantly reduced my profit. In the end I went direct to a local manufacturer, explained I was renovating a property as a business and asked for a “trade discount”. I got 50% off. I also got free fitting. The fitter told me that if I had pushed harder I would have got a 60% discount. Always go to trade outlets for your materials: you can now always ask for, and legitimately claim, a trade discount on anything you buy for your properties. 29
  • 28. The final stage is to sell the property. In a very “hot market”, you may be able to do this yourself. Otherwise it would be preferable to use an agent. If you decide renovating and reselling should be part of your plan, buy with selling in mind. In other words operate in areas where owner-occupiers want to buy. If not you’ll be disappointed if you can’t sell for a long time, and your profit is eroded by interest payments. Wholesaling • The third main method of cash generation is ‘wholesaling’. This is where you buy low and sell low. This could be a starting point if you have no capital at all because the idea behind it is that you’ll identify bargain properties and then resell them on to other property investors at a price which will give you a profit, albeit a modest one. If you have no cash to put down on a property in the first place you could instead source suitable properties and then introduce them to other investors or developers. You can then charge a finder’s fee for your efforts and, depending upon the value of the property, you may still receive a sum similar to the profit you would have achieved if you had been able to purchase and sell the property on. I’ve seen this done, and I know that it works. You just have to know who’s in the market and what they are looking for. My old boss, who is a master wheeler and dealer, identified a maisonette in Kensington which he knew could be converted and split to make two separate flats and a decent profit. He knew this because he had done it for himself and he knew what was required: he knew how to get planning and building regulation consent, and he knew to within a thousand pounds or so how much it was going to cost to do the works. Just as importantly, he also knew that a fellow investor had admired his previous work and had said that he would like to do a similar scheme to keep one of the flats for himself and rent out the other. My old boss merely had to walk into the Estate Agent’s office, make an offer which, after one or two phone calls, was accepted, and then ring up his contact and tell him the good news. Contracts to buy and sell were exchanged simultaneously and on completion the funds came from his purchaser and by electronic transfer went through his account straight on to the vendor. And he made £10,000. 30
  • 29. Cash flow The creation of cash flow is the second basic function of property. Is it possible to create a positive cash flow by buying and holding properties to let as investments? The answer is yes, but probably only if: • you pay cash • you are prepared to wait, or, alternatively • you buy high yielding properties If you buy properties where the gross yield is 9% or less, you will find it hard to finance a purchase and create a positive cash flow. This is especially true if you have other income and any profit on the rent received is taxed as income. Even without accounting for income tax, and taking into account current low interest rates (the Bank of England base rate is 4% as I write), it will be hard to produce a positive cash flow on yields as low as 9% because finance and running costs will almost certainly exceed the rent. These are the costs you will need to take into account: Firstly, letting and management. You may be able to do both yourself. If it is not easy, quick and cheap for you to find tenants, then by not using a letting agent you will be creating a false economy. Management can be very time consuming, and depending on the tenant, quite stressful. A few weeks ago a pipe burst in an empty flat of mine (nothing to do with cold weather, an old joint just gave out), and water seeped into the flat below. The owner of the other flat was besides himself with worry in case it got any worse, but there was nothing I could do. I was in Spain 1000 miles away. One phone call later and my managing agent was there in ten minutes, and a plumber within the hour. The whole incident was sorted for just £50. A full management service like this will usually cost between 12½ % and 15% of the rent collected, plus VAT. For a ‘letting only’ service you will probably have to pay 10% of one years rent plus VAT. I’ll tell you more about management in a later section. The second major cost is finance. My lender lends at 5.5% on loans over £25,000, 6.5% on loans under £25,000. You can reduce the monthly payments by taking out an interest only loan, but you will have to pay off the capital one day. There are different theories and views about this which I’ll tell you about later. As an aside, I started with interest only loans to build maximum cash flow which I was able to plough back into building the portfolio. My lender doesn’t require interest only 31
  • 30. loans to be backed by endowment policies which is handy, and meant I could keep more of the rent. I was able to put this back into buying more properties. I used the surplus as a deposit to cover the difference between the purchase price and what my lender would allow me to borrow. I have now reverted to traditional capital repayment terms. You can also reduce monthly payments by increasing the length of the loan period, although you will pay more interest in the long run. Another way to reduce monthly payments is by borrowing less if you have the cash to do this, but you will then be losing the ‘gearing effect’ I showed you earlier. The next major cost is repairs and maintenance. These are difficult to quantify as they will relate directly to the age, and type of construction of the property, how well it was built, and how well it has been maintained. I suggest budgeting 10% of the rent. Even if you don’t spend all that in any one year, keep the balance to one side as a fund, because you will have to upgrade decorations, fixtures, fittings and furniture at least every 5 years. Then there are voids. These are bound to happen but are unpredictable. I’ve had tenants stay in a property for two years, others have left after 6 months. How quickly a property will re-let will depend on what and where it is, and what the potential tenant market is like. You should get warning of the tenant leaving because strictly they should give a months notice, so you can start advertising before they go, and start showing potential tenants the day they leave. Finally, there’s insurance. Again this is difficult to quantify for the same reasons as repairs. There are special schemes for landlords, and if you own several properties you will probably find it cheaper to insure under a Bock policy. Let’s have a look at the effect of these costs on cash flow assuming the purchase of a £100,000 property yielding 9% gross. I have assumed that a repayment loan has been taken out for the full 85% loan to value available. Annual rent received £9,000 per annum Less management at 15% £ 1350 Less VAT on management £ 236.25 Less repayment loan on £85,000 for 20 years at 5.5% £ 7016.4 Repairs say £ 900 Insurance, say £ 350 Total costs £ 9852.65 Balance (£ 852.65) negative 32
  • 31. Even if you are able to negotiate a better deal on the management, and take out an interest only loan, the cash flow will look like this: Annual rent received £9,000 per annum Less management at 12½% £ 1125 Less VAT on management £ 196.88 Less interest only loan on £85,000 at 5.5% £ 4675 Repairs say £ 900 Insurance, say £ 350 Total costs £ 7246.88 Balance £ 1753.12 This is the equivalent of 11.69% on my own money invested, which is not very exciting. Because of the difficulties of generating a positive cash flow on properties giving the national average yield or lower, I purchase properties with gross yields of 13%. This suits me, although I have sacrificed potential long term gains in capital value. You would probably think that large family homes in London and the south east should be a great long-term investment. After all, the capital growth in these areas has been phenomenal over virtually any period of history except for one or two recessionary blips. But because they are relatively low yielding, in other words the rent is likely to be low relative to the capital value, they are often, at best, only a break-even position in terms of cash flow. Even if they carefully select a property to show a positive cash flow, very few “newbie” investors think ahead to all of the real expenses which crop up with property ownership such as ongoing maintenance and repairs, insurance, management, the cost of voids when the property is vacant and the associated costs of re-letting, and periodic upgrading. You can be sure that no matter how much you are expecting to spend on your property, you will always need to spend more. Equity Property is great for building equity which is mainly generated by: • increases in capital value • paying off the capital element of the loan • undertaking repairs and improvements which disproportionately enhance the value. We’ve already looked at the last point in ‘renovating’. Let’s have a closer look at the first two. 33
  • 32. Increases in capital value There is common misunderstanding which has given rise to the popular view that “properties always go up in value.” This is not true. For example, from first hand experience I know that the areas where I buy are unlikely to show signs of significant capital growth in the short to medium term. At best there may be some minor growth in the long term – I’m talking about a few percent over ten years. In the short to medium term I always have the prospect of a fall in values hanging over me. The plight of the inner city areas has been well documented where demand for terraced houses fell, values plummeted and whole streets are now empty and boarded up. In many of these areas prices have hopefully stabilised, and demand from investors has taken up some of the slack. However, the average wage in this country, coupled with the lending multiples available from the banks and building societies, means that first time buyers are able to leap-frog properties at the lower end of the market. They are able to go straight to the next level. I predict that market forces will eventually correct the balance, and that this extra demand will push prices in the next level up to a point where the ‘first tier’ properties will be of interest again to the first time buyer. This may take years to work through the system, unless interest rates rise significantly over a relatively short period and building societies and banks tighten their lending policies. One of the areas I bought in a couple of years ago has seen a lot of properties being bought by investors to put asylum seekers in. The result is that the usual tenant market, which comprises claimants on benefits, are reluctant to live there. In the long run this may have a depreciating effect on capital value. Of more concern is that if the Government cancel their contracts for asylum accommodation with private landlords, a large number of properties could become vacant and available to let or for sale at the same time. That could force capital and rental values down. However, having said all of that, most peoples’ experience in most areas of the country is that the long term trend is for property prices to rise. For as long as anyone can remember, this has been true, and is true even though we have seen occasional general downturns during recessions. I’ve just downloaded the latest Nationwide Building Society commentary http://www.natonwide.co.uk/hpi/quarterly/headlines.htm which says that year 2001 was the strongest year of price growth since1988. Even though it was predicted that the house market would slow, house prices are still shooting ahead in 2002. Some experts are predicting a correction. They point out there 34
  • 33. is pressure on the Bank of England to raise base rate, and talk of unlet ‘Buy-to-Let’ properties coming back on the market and depressing values. We’ll see. In “An Insider’s Guide to Successful Property Investing” we looked in some detail at how rises in capital value can produce significant long term equity growth, and how this can be enhanced by buying in ‘hot spots’ early in the economic cycle. As an aside, and remember that I said capital growth is a bonus which I am not counting on, I’ve just discovered that one of the properties I bought about 18 months ago has probably literally doubled in value. I tell you this not to be smug, but merely out of interest that even depressed areas can come back. This is a useful lesson to learn. In fact, one strategy I have seen promoted by a successful investor is to invest in areas which have ‘bombed’ but which for well researched reasons will come back up over a thirty year time frame. I’ll tell you more about that later. Paying off the capital element of the loan Logic suggests that this is even more worthwhile when: • there is an increase in capital values • the loan is paid off by other people’s money, for example, by rent received from tenants One of the strongest combinations is both of the above occurring simultaneously. As I said earlier, I am not relying on growth in the value of my properties. I see any growth as icing on the cake. However, while I am receiving rent I am effectively getting these properties for free because the tenants are paying the mortgage and buying them for me. Even if I put the properties into an auction and sell them at the end of the loan term, and only get back what I paid for them (unlikely, even I am expecting growth over twenty years) I am still quids in. Because the rent produces a surplus over the mortgage payments I will have taken my money out long before. Which option is right for you? So how do you know which is the best option for you? The answer is, they are all right for you, but they aren’t necessarily all right for you now. New investors will opt either for refurbishing properties and selling them on, or buying properties to hold and rent out. This decision may be based on something as naive as they like DIY, so they opt for refurbishing. Many people get stuck because they don’t know which one they should be concentrating on first. Of the two ideas, holding to rent out is the most popular. 35
  • 34. If they are in full time employment they may assume that they don’t have time for going the refurbishment route. Or they may think they only want to create an income to supplement their salary or pension, and so jump straight into being a landlord. These influences may sound logical but even so they are wrong, and can lead to unexpected results. Most people charge off and start accumulating rental properties. The thinking behind this is quite sound on the face of it. They assume that they can produce a healthy cash flow while, at the same time, building up equity for the future. If you are able to keep paying the mortgage then after 20 years you’ll have loads of equity. But what happens in the meantime? It is likely that they’ll wake up one day and realise that actually their income is no better than it was before, sometimes it’s worse, and they always seem to be broke. The idea of being a professional landlord is much more appealing and much easier to achieve now that the Buy-to-Let scheme is in full swing. It’s for you to understand that if you go into the rental side you’re really tying your capital up and overlooking the opportunity to make capital lump sums. What a lot of people getting involved in the Buy-to-Let stampede don’t realise, because they haven’t thought it through, is that they need to carefully select the type of property with their goal in mind. There is a strong argument that if you are just beginning in property then cash is the most important consideration, especially if you are hoping to get into property full time as quickly as possible. In fact, cash doesn’t just fund your costs of living, but it also helps build your savings, which in due course can accelerate your investment programme. Firstly, let me put paid to one false assumption that trips up a lot of would-be investors, which is that, ‘being a landlord is good and will pay a decent income.’ There is a school of thought that says you should not become a long term landlord during your first year in the property business. Instead you should concentrate on cash generation. Buying rental properties won’t necessarily create a cash flow you can live on in your early days. The best advice I’ve seen is: “If you think this is the case, take a current landlord to lunch and ask him or her where all the money goes from rentals. You won’t like the answer.” Ron Legrand. And this isn’t just an isolated view. 36
  • 35. I’ve seen owning multiple rental properties being compared to running a large business. When a new business first starts up, it takes quite a long time before you see a profit. This is also what happens with rental properties. Most properties will need some modernising or repairs when you buy them, and this can mean it could be months or even years before you get back the money you put in. I’ve seen it argued that if a boiler blows, for example, or if you have another major problem, you may have to spend hundreds, or maybe thousands, of pounds to put it right. That’s why you need cash reserves. So if you don’t have a lot of money you might be better off not going into the rental business and instead should be concentrating on refurbishing and trading to build up your capital. You’ve also got to consider this in the context of how much rent you get from the property that you purchase. My particular forte is low value property with a relatively high yield. These are the sort of properties that let for £60 or £70 per week. I only need one or two small items of repair to crop up and half the month’s income can be wiped out. If you’ve geared up and have mortgages on the properties that can mean no profit that month, or even worse, a loss. Every time I arrange a gas test to get a CP12 certificate I lose the equivalent of a week-and-a-half’s rent. I’m not necessarily saying that being a landlord would be bad for you. I don’t know your needs or resources. Remember, all these comments are really geared towards professional landlords who need to live off their income. If you have the resources and income to live independently of your property investments, and you are happy for the properties to break even while you build capital, this may not be a concern. But either way, I think you should know that renting property isn’t necessarily the money-spinner many people assume it is. At least, not in the short- term. To try and redress the balance some owners of property investments will increase their borrowing against the property. If the figures stack up then through the use of over gearing they can borrow more than they put in. If they are able to do this again and again they can build up quite a cash deposit in their bank account. For example, they may be able to: • Buy a property cheap • Wait for increases in capital value as property prices rise • Do improvement works which increase the value of the property In any of these situations they will be able to remortgage the property to take out part of the extra equity as a loan. If they wish, this could go straight into their personal bank account. 37
  • 36. However, no matter how satisfying this may seem, it is still debt and the more debt you have the more rent will be going towards paying it off. Unless they are careful, what seems like an asset, in other words having cash in the bank, can quickly become a liability. It only takes a couple of interest rate rises and cash flow is suffering again. Now let me deal with two misconceptions to do with property refurbishment. Firstly, renovating houses doesn’t necessarily take a lot of your time. If you subcontract the work out, and merely attend to the project management, it can take only a few hours a week, and most of that can be done on the telephone. The second misconception is that the way to make money from renovating properties is to do the work yourself. In the scheme of things your time is much better spent organising the refurbishment, or looking for new projects, rather than trying to do tasks yourself. You are only going to be saving £4.50 an hour which you would otherwise have paid to a school leaver. If you want to do the works yourself, you will only be creating another low paying job for yourself. How to devise a strategy to achieve your goals “The main thing is to keep the main thing the main thing.” Stephen Covey Let’s quickly summarise where we’ve got to so far. • We have set goals (specific financial targets) to achieve and dates to achieve them by • We have reviewed our various investment options and decided that property best fits our requirements • We’ve seen that property can be used • for cash generation through retailing, renovating and wholesaling • for cash flow • for equity • We’ve seen that cash flow and cash generation can be mutually exclusive; what seems like a good idea to novice investors, i.e buying rental property, can kill their business there and then Once we have decided which of the options is our priority we can start to think about strategy. So how do you devise your strategy? There are so many books, courses and seminars about property nowadays, I’m sure that most people feel overwhelmed and 38
  • 37. don’t really know where to start. Often the more you read the more confused you can become. In my opinion most private investors would be wise to start with residential property, as other forms of investment property require more specialist knowledge. Also other types of property investment sell at higher prices and therefore need more initial capital, and an investor potentially has more to lose. Then you have to make the decision whether you buy and hold for capital growth, whether you buy and let out for rental income, or whether you refurbish and trade on to make a capital profit. Each way seems attractive but most people don’t have the ready finance to try all three at the same time. This is an individual process. I assume that 99 times out of 100 property investors and entrepreneurs will be looking to increase their capital or net worth in the long term and so will be looking to build their equity. This suggests owning and holding properties for the long-term increases in capital value and this will inevitably be supplemented by rental income. However, you will still have to decide whether your current priority is cash generation, or cash flow. If it is cash generation, then the best strategy may be to concentrate on the use of the three methods listed, but coupled with a plan to set aside a certain proportion of the profits generated to fund the acquisition of an investment portfolio. Alternatively, if like me you are able to keep the day job going, you may wish to skip step one and go straight to cash flow through the selective purchase of property investments to hold mainly for growth in capital to build equity (either by increases in value or by using the rental income to pay the mortgage) but also over time to create a cash flow surplus for income. Or you may choose to keep the day job going but opt for cash generation, to progressively build your capital. This will be accelerated due to you not needing to dip into it for living expenses. You can then choose to build a portfolio purchased for cash, with the possibility of an instant cash surplus, or instead you can gear up on a larger scale. You will need to decide which permutation of these best fits with your financial goals. Most beginners in property find it confusing devising a strategy because of the large number of permutations of property type, location, tenant type etc etc. Just think about the lists that follow: Reasons for buying Cash generation Capital growth Tax breaks Income 39
  • 38. Methods of trading Refurbishment Buy-to-Let Wholesaling Retailing “Buy low sell high” Property types Cheap properties Expensive properties Single properties Multiple properties Portfolios Residential Commercial Flats Houses Offices Factories Shops Tenant Types Professional Working families Working singles Students Benefit claimants Asylum seekers With so many choices in each category, how can anyone come up with a strategy that they can follow consistently? The danger is that you can easily be distracted and try too many different approaches. What you need is an approach or strategy that suits you, and then to stick with it. There is a school of thought that any strategy or plan with an aim in mind, followed with persistence and consistency will produce better results than a series of random but otherwise worthy actions backed by no overall plan. “Consistently putting deals together is easier than you think. Really! Making things happen and making serious money as a real estate investor doesn’t require luck or extraordinary negotiation skills, and it doesn’t take talent or money or a masters degree in business. Heck, none of that stuff matters. What does it take? In a word, PERSISTENCE” Joe Kaiser 40
  • 39. Exit strategy A key element to an any strategy is knowing what the end game is. It really worries me when people have no exit strategy. For example, if you are buying to refurbish and sell on, the exit route should be straightforward, but you will still need to know • how am I going to sell it? i.e. by auction or by private treaty • who is going to sell it? i.e. an estate agent, and auction house, or myself, privately • who am I going to sell to? i.e. investors or owner-occupiers? Often, things may not be so obvious. For example, if you are buying investments to let and hold you may need to ask questions like these: • should I sell the property to an investor as an investment with the tenant in place? • Would I be better off waiting for the property to become vacant and then selling to an owner-occupier? • Which of these options will produce the quickest sale. • Which will produce the best price? • What do I need to do if I need my money back in a hurry? As I have said my niche is low value, high yielding residential property. The locations I deal in have a limited owner-occupier market, and if I ever need to sell I will be planning on selling to an investor. Rather that selling individual units, I will sell the portfolio as a whole. This is my plan and I have deliberately put together a portfolio with a mix of properties which is regionally focused for ease of management. They are all held in a limited company which will save a potential purchaser stamp duty, and which will make conveyancing easy – it only requires a sale of the shares. This is a plan, and when I ever want to get out of property, or if I ever need to get out, I will be several steps ahead of other investors who have thought no further ahead than the next rent cheque. 41
  • 40. What sort of property suits my purposes? Unless you have specific reasons for considering a niche investment category like fish farms or telecommunication aerials, most investors will choose between either residential property, or more mainstream commercial properties such as offices, shops or industrial or warehouse units. I’m now going to look a bit closer at the pros and cons of: • residential property • commercial property Residential property In “An Insider’s Guide to Successful Property Investing” we looked at different types of tenancy arrangement, the legal requirements of being a landlord, and even some niche residential property investment opportunities such as residential reversions, freehold ground rents, and holiday homes. For most property investors the choice will lie between houses, flats or houses in multiple occupation - an HMO. A house in multiple occupation could be a single dwelling house, in which individual bedrooms are let and amenities like the kitchen and bathroom are shared, or could be a property comprising a number of individual, self-contained flats, accessed off a shared landing. The definition of an HMO is given within the various Housing acts, and this definition is currently under consideration by the government. Of the three principal types of residential property you are most likely to get involved with, HMOs are the least straight- forward. Unfortunately there seems to be a lot of uncertainty surrounding the government’s current review of licensing HMOs, which I understand is now mandatory for all local authorities. Although I have read plenty of articles in the professional property press, have visited the government’s website dedicated to the licensing of HMOs, and have spoken to environmental health officers in local authorities, whose job it is to undertake the licensing, I have to admit that I am still confused as to what the scheme is attempting to achieve, what the requirements are to comply, and which particular properties are affected. As far as I can see, and I am prepared to be corrected on this, it is down to individual local authorities to plan their own programme for licensing. If you own, or want to own, an HMO, the best advice I can give is to ring the environmental health officer at the local authority concerned, and discuss with them what is required. I went through this process a few months ago when I considered buying a property which had been constructed in Victorian times as a single dwelling house but which has 42
  • 41. subsequently been converted to provide four self-contained flats. Although the flats were self-contained, they are all accessed off a shared stairway and landing, which brought them within the definition of an HMO even though for practical purposes they are not. The conversion had only been done about 10 years ago and I rang the local authority Planning Officer and Building Inspector and confirmed for myself that planning consent and building regulation consent had been granted. However, even though it is a relatively recent conversion, I thought I should check that it complies with the current requirements for an HMO licence. One thing I didn’t want to do was to purchase the property and then find that I had not budgeted for several thousand pounds of work to bring it up to standard. The conversion had been to a good standard, and included the provision of a proper fire alarm system with break-glass alarm boxes to the stairwell, and even the provision of an external metal fire escape from the upper flats at the rear of the property. Even so, the Environmental Health Officer informed me that to obtain a licence, strictly, the accommodation within each individual flat would have to be arranged so that each room was accessed off a common lobby rather than having access direct from room to room. The idea is that the lobby can then be fireproofed to ensure a safe exit for the occupant. Also, that all principal doors would have to comply with the required standard for fire resistance, and would have to have intumescent strips. These are fire-resistant strips held in a groove around the edge of the door which melt to provide a firm seal to keep smoke and poisonous gas out. Also that the common landing and staircase would need mains-powered secondary lighting and that the stairs would need suitable fire protection, possibly some kind of enclosure. I could see that the property complied with some of these requirements, but not all. The Environmental Health Officer was more than happy to make an appointment with the Fire Officer from the local Fire Brigade to inspect the property and even to give a rough estimate of the cost of the works, before I signed a contract to purchase. Unfortunately the deal fell through for other reasons before the Environmental Health Officer and the Fire Officer could inspect the property. But I could see they recognised that the situation was confusing, and were very willing to help me. Most of the properties in my portfolio are individual self-contained flats, each with their own front door at street level. This really reflects the area in which I have purchased, and I haven’t deliberately sought out properties of that construction. If the right HMO became available, I certainly would consider purchasing it, subject to making proper enquiries of the local authority. Whether you choose to purchase houses or flats should ultimately be driven by market forces. I talk elsewhere about my own experiences where my preliminary investigations 43
  • 42. into the suitability of buying properties in a particular area revealed that the demand from tenants for houses was stronger than the demand for flats. If you intend to buy properties to refurbish and sell on, it may be that the best option is to specialise in houses. Houses tend to be freehold and although some works may require planning consent or building regulation consent, at least you won’t have to go cap in hand to the freeholder for consent as well. It’s also worth remembering that whether you are buying for refurbishment or to hold as an investment, individual flats held on a long lease usually require the payment of ground rent and a service charge, which can impact the profitability and the cash flow. One way around this is to try to buy the freehold, though this may mean buying individual blocks of flats. There is a school of thought that it is better to buy multiple units i.e. a building divided into flats, or even adjoining houses, than single family homes. Firstly, there is less cost per unit. For example, a small 2-bedroomed family house in your chosen locality may cost you £90,000. A property divided and converted to provide two 2-bedroomed flats may cost £120,000. Although the overall cost is £30,000 more, the actual cost per unit is £30,000 less. As a general rule of thumb you will find that the more units there are in an individual property, the less per unit you will be paying. What makes this exciting is that in many areas the rent paid for a 2-bedroomed flat will be the same, or not much less than, the rent paid for 2-bedroomed house. This means that the net initial yield per unit is also higher. Then there’s the question of financial security. If you have one letting unit, such as a family home, you will usually find there is one family living there. If you have financed the property, you have in effect one family making the repayments for you through the rent received. If, on the other hand, you buy a property with two or more units, you will have two tenants paying the rent. As the amount of mortgage per unit is less, you have more chance of collecting enough rent to cover the mortgage, even if one of the units becomes vacant. Similarly, if you have a single family home and it is vacant, it’s 100 % vacant. However, if you have four flats in a property and one of the units is vacant, you only have a 25% vacancy rate. The more letting units you have in a property, the less impact the void will have on your cash-flow. Owning multiple units also simplifies the management. If you have a number of single family homes scattered around your target area, you or your managing agents can potentially be running around all over the place. If instead, you buy a property divided into flats, you potentially have all of your tenants in one location. If you have enough units located close enough together you could even consider employing your own caretaker and could probably afford to provide his accommodation, instead of putting the management in the hands of a management company. 44
  • 43. Buying multiple units can also save on expenses. For example, if you have to call an electrician or plumber out to deal with the ground floor flat, you may as well get him to look at the problem in the first floor flat at the same time. This makes a lot of sense if you have to pay a call-out charge. One call-out charge will cover two flats. Commercial Property There are distinct advantages and disadvantages to investing in commercial property. Let’s have a look at both. The first main advantage is that the most common form of lease used for commercial property makes the tenant responsible for all repairs, and for reimbursing the landlord the cost of any insurance policy. This can be contrasted with a residential assured short-hold tenancy, which will make the landlord responsible for all repairs and for paying for insurance. Secondly, rent will be paid quarterly in advance, meaning that the landlord has only to invoice the tenant four times a year. As the tenant will be a commercial business, it should be relatively easy to collect the rent by standing order if the tenant is agreeable. Compare this with residential tenancies where the rent is technically due at the beginning of the month, known in the trade as “monthly in advance”. In my experience, managing agents pass on the rent at the end of the month in which they collect it, so it is usually received by the owner “monthly in arrears”. If your tenants are receiving Housing Benefit there can be even more delay. At the moment a Housing Benefit office I deal with is about 11 weeks in arrears, so by the time I am passed payment by my managing agents, I’ll be receiving the rent about four months in arrears. If there is any management required, (in the case of multi unit investments such as an office building let as floors or individual suites, or an industrial estate let as individual buildings where there may be a service charge) the lease will invariably allow the landlord to re-charge the tenant any costs incurred by managing agents and their fees. By contrast, residential managing agents will charge from 12½ to 15% of the rent collected plus VAT, and this cannot be recharged by the landlord to the tenant. In reality most commercial properties are easily managed by the landlord, often all that is required is posting out an invoice for the rent once a quarter. However, the option of appointing a managing agent and recharging their fees to the tenant is usually provided for in the lease. The result of all these advantages is that the landlord should receive the full rent stated in the lease. In other words the rent agreed with the tenant is the net rent because there should be no deductions from it. This can be contrasted with the rent received from a residential property where the landlord will pay say 15% of the rent +VAT for management, and a suitable sum for insurance and repairs. 45