I heard a typical story last week of a situation when everything clicks into place regarding a enquiry from am,ember of the public who needs a fast sale.
You see, the trouble with this business of trying to buy properties for way below what they are really worth is that there aren'tqueues of people waiting to sell to you on those terms.
The majority of people who enquire, in response to your advertising, are usually put off by the fact that they either cannot afford your low offer - meaning their mortgage balance is greater than the price you offer them, or they simply aren't keen to accept a low offer - in other words they just don't want the benefit enough - that a fast sale will bring them.
That's fair enough and can only be expected. People who do accept the low offers are actually making a statement. They are effectively saying that the pain of accepting a low offer in order to leave their house and 'move on' (for whatever problem reason - there are hundreds) is less of a pain than what they are currently experiencing.
In other words - 'moving on' is more important to them at this point in their life - than is trying, in a slow market, to sell their house at a retail price on the open market for more money.
I was talking of this last week to a friend who explained a classic situation where he had just agreed a deal with someone who simply was set on moving on - AND could afford the low offer that was made to them.
Essentially the seller in question had a strong desire to go and live elsewhere in the country - quickly. He definitely had to be away fromhis home by Christmas Eve. there was no alternative for him
He said his property was worth 125k (becasue an identical house across the road had just been listed atthat price), but the research and logic applied by the potential buyer showed it clearly to be worth 110k (meaning it couldnt be expected to sell for more than 110k in current market conditions).
The investor who was hoping to buy the house was fortunate because the seller agreed with the logic when it was shared with him (many don't - and that can be a problem to overcome - its not impossible - just a bit awkward!).
He understood that had he been selling in 2007 it would have been worth more - and also that if he could wait another 2 years til 2011 - it would probably be worth more.
But he HAD to leave by Christmas Eve.
He knew he couldn't leave by 24 December if he took the far, far riskier Estate Agent route. He therefore had 2 options left open to him.
Stay put and forget moving elsewhere
Sell it quickly and cheaply to an investor
Only he could decide.....
The other obstacle was if he had a mortgage greater than the investors offer or not.
The good news was - he didn't have a mortgage at all. He wasn't hindered by a loan.
So he accepted an offer of 79k.
So this is a price that is around 71% of what the property should sell for at a 'retail' price in today's market.
The investor was lucky in as much as he found (via his extensive local marketing) a motivated seller who could afford to take his offer - these are 2 vital ingredients that form any bmv deal.
My friend reckons for every oneof those he has to make around 20 offers. He looks at things this way
'If I increase my wealth by an average of 30k on each deal I eventually agree - this means that every time I see someone (regardless of if a deal is agreed or not) I make £1,500'
For me that sums up this business. Lots of mundane drudgery - punctuated by the occasional lucrative deal that makes it all worth while
The sale is 2 weeks down the line now and is set to conclude on Friday 18 December.
Incidentally the rental on the property is around £525 per month. Finance costs are around £380 per month - so a healthy gross margin there.
The property is only 15 years old - in good condition and needs maybe £500 spending to make it tip top.
I had a call yesterday from someone I mentored 2 years ago. the call illustrated a common phenomenon of what quite often happens in this business if you allow patience, and 'nature' to take care of matters for you.
Just over 12 months ago he offered 55k for a 3 bedroom terraced house with a very realistic current market value (then) of 80k. This point in time turned out to be, what now appears, to be the bottom of the market value-wise. The seller wanted to sell and leave the property as he had another property that he was actually living in. He therefore had 2 sets of costs - hence his eagerness to sell it.
This offer of 55k represented an offer of 68% of a very realistic market value. The seller refused to accept the offer feeling that he could sell it for more - either by the retail route - or with another investor. He had every right to do this, but the investor in question pointed out a few obvious facts (reality check) about the state of the market at the time.
I recall that he contacted me about the situation, and, as ever, I told him not to 'push' the prospect at all. In my experience, when people say no - its a sure sign that they aren't motivated enough (at that time) to take your low offer. to push is only going to probably upset them and alienate you from any chance of a future deal with them.
Sometimes you simply have to let time, and circumstance, take care of things for you.....
Fast forward to last week.....
The investor receives a phone call form the same gentleman.....
Not much has happened in a year regarding htis property, He did get a slightly better offer from another investor - but the proposed deal fell through owing to the investor not having the ability to complete. He fell out with his Estate Agent and took the property off the market (not the cleverest thing to do if you want a high offer!)
The owner has therefore had 12 months of uncertainty, stress and worry. ths has been compounded by the expense of maintaining the property for 12months (£250 mortgage per month - 3k p.a./council tax/insurance etc). He's about 4k down onthe year - expense wise.
During this time, the first investor has been consistently leaflet dropping locally - and therefore hitting the potential seller's two properties (and also carrying out other forms of local advertising). This has ensured that he has never been far from the prospect's mind - hence the phone call last week.
Oh, I almost forget - rapport played a part too.You see, the first investor (my student) realised that the seller was a building tradesman - and instead of bearing a grudge at having his offer rejected, he actually used the seller to do a few property repair jobs for him locally in the 12 month period! Apparently by this time they are quite friendly now.
After all - the seller needed the money -he was financing 2 properties!
I liked it whenI heard that one! Very clever!
The result?
The house is now being sold at 55k (the same price as the original offer). the seller has endured around £4000 of unecessary expense (and the mental anguish involved) because he thought, wrongly, that he could do better elsewhere.
The property is easily worth 80k today - based on typical research available.
The investor has a situation where he is now getting the keys to a property at a far better time than he would have if he had bought it last year (even though it would still have been a most welcome deal)
Apparently it needs around £1500 to spend to cosmetically prepare it for rent. Market rent is arounf £450 per month - this will provide £150 per month positive cash flow after mortgage payment s have been made. Rental demand is strong.
This to me is a perfect example that illustrates when to walk away and exercise patience.
You will only ever have your very low offers accepted by people when they are absolutely and totally motivated to move - and not before!
Thats why this busines is simple....
You never sell and 'push'...you just simply tell...and wait.... and hope.
Apparently, average property prices in the UK are now higher than they were 12 months ago to the day!
Amazingly, the fall suffered since October 2008 has more than been wiped out with the rises in the last 6 months or so. There are a few commentators who are fearing that this trend may reverse again soon as more properties come on to the market - as potential sellers take comfortfrom the recent surge. the commentators logic is that this will lead to the market being flooded and prices falling again
Only time will tell, but, for me. we can only judge things on reality - and at the time of writing these words - the market is rising.
Only yesterday I was speaking to a lady whom I mentored around 3 years go. She has now stopped buying properties. She hasn't stopped because she has lost confidence - or for any other fearful reason. Simply , she has enough houses 'collected' and is now at the 'patience' stage of her plan.
She explained that her portfolio is worth £2 million pounds. this doesn't mean she is worth £2 million - she has £1.4 million in loans - meaning that her portfolio currently stands her at around 600k gross wealth (not a bad figure of created wealthin 3 years!).
Her waiting plan makes total sense. As she explained to me.........
'Lets assume property prices increase just 4% per year (around just 0.3% per MONTH) on average each year for the next 5 years. This would mean the portfolio would be worth almost £2.5 million then - just by doing nothing more than maintaining matters. This would mean an equity gain of almost half a million pounds in 5 years.'
This would be on top of the current equity of the portfolio of £600,000!
The portfolio would be worth £2.5 million - loans would still be £1.4 million - giving the total £1.1 million equity figure!
This is based on annual rises of 4% only. Typically in the last 50 years, average annual house price inflation (HPI) is 7%.
This lady is being cautious about matters and only working on a 4% increase.
For the record, if there was 7% average HPI over the next 5 years - then the portfolio would be worth £2.8 million - an extra £300,000 compared to the 4% example - just for being a bit more lucky with house price inflation.
The beauty of this example is that it is a case-study of someone who has not acted particularly remarkable. The lady in question has 15 properties - acquired over 3 years. this is averaging 5 properties annually - or one every 10 weeks or so. This is achiebvable, in my experience, by anyone who is committed to doing the same.
She has achieved, through 'phase one' of her plan, her initial goal - which was to acquire (below market value obviously - rule number one!) £2 million worth of residential property.
She is now in 'phase two'- which is the waiting phase.
I imagine phase three is going to be the fun part for her!
Once more, to reiterate, if you consistently buy your properties significantly below true market value every time - then display patience and wait - you are virtually guarantee your desired success.
I was asked today, by someone who read my blog post recently about the ease at which I found 2 new tenants, how you can be sure that you are going to get good tenants?
The person was asking me from a point of view of assuming that even if conventional references and checks appear fine - what other factors help you to determine if you feel a potential tenant will be a good one - or not.
My answer was that you can never be 100% sure that any tenant will be a good one.
Credit checks, employer references etc all help, but in my experience there are other indicators that often give you clues about the type of people you are dealing with.
In one of the 2 houses we recently let, there was a classic situation of many 'give-away' indicators to me that the potential tenants were probably going to be ok. Their credit checks etc came back fine - but it was the other 'clues' that were just as important to me in deciding to give them the tenancy.
Firstly, they had no quibble about finding all the first months rent and the bond immediately. They both had solid employment histories with very established local companies too.
Explaining that they wanted to stay in the property a long time, they discussed with me their plans for redecoration and landscaping of the garden - all improvements to the house - at their expense.
They also had no problems withthe notion of supplying a family member (mother)as a guarantor for the rent. I took this opportunity to use it as an excuse to visit the mother and it gave me a good insight into the way the house was kept - which was immaculate. I also couldn't help but notice that the potential tenants car was clean and immaculate inside, and their young duaghter was dressed immaculately.
They absolutely loved the house, and I could see that they were psychologically 'moving in' already as we did the viewing. They asked if they could do a second viewing and bring some family members along. This was no problem to me - in fact it indicated that they had strong local family ties. When I met the family, who all loved the house, it turned out that I was acquainted with one of them already - this certainly made the relationship seem even firmer.
Overall, after years of experience vetting potential tenats, I simply used my instinct, experience and common sense to conclude that these people would be as good a tenant as any.
Now, time may prove my instincts to be wrong - but I somehow doubt it.
Experience has taught me that even if formal checks and references are fine, it pays to use instinct and common sense in finalising your decuisions.
Finding myself with 2 void properties to fill recently, I researched my local area to gauge the level of demand for rental houses. Nine months ago it was a tough market - with only the most presentable properties moving relatively quickly. I have always found that by presenting properties well, and not being greedy on the rents asked it is pretty easy to fill empty houses even in 'bad' times.
However, as I say, a few months ago it was harder than normal.
How times appear to have changed - certainly where I live - and I suspect in a lot more places too. Both properties rented out in one week. I could have let them go after just one day. However, when I realsied the extend of the demand currently i realised that I could build up a frenzy amongst potetnial tenants - and cherry pick the best tenants. One property had 19 enquiries (and apparently dozens of 'drive by' viewers - according to next door neighbours), the other property had 14 enquiries.
I managed to get 2 decent families in them - with great references and guarantors for the rent.
Speaking to one established letting agent in particular - she informed me that out of 132 properties on her books - only 6 remained! She explained that if she was given 100 extra properties now - then she could move them all in 3 - 4 weeks time!
Why is this? I asked her this question and she explained its simply because many reluctant landlords who were forced to rent their properties because they couldn't sell 12 months ago have now left the market. Also, many people are choosing to rent because of the fiasco in the loan markets and this has apparently put many people off home owning for the foreseeable future.
There are also apparently, less tenants moving around from house to house as they seek stability in troubled times.
All this is good news for landlords who need to fill a void. However, it shouldn't be a charter for landlords to let their standards slip because its easier to to rent houses out currently. One day this will surely change again - and that's when your marketing and presentation and people skills will allow you to outperform the many landlords who just don't care.
Ive just read a report today saying that the Bank of England are astounded at the property market rebound. The Banks Chief Economist, Spencer Dale, admits to 'being surprised in the strength of property values'.
There are most certainly lots of signs of confidence returning to the market. For example, The Halifax report that the average house price now stands at £161,000 - this is the same level as ten months ago in December 2008 - and its rising now month-on-month - this certainly isn't a 'blip'.
Home loans are increasing month-on-month currently. HSBC today announced that they consider the housing crash to be over - and promptly made half a BILLION pounds available for a new 90% loan product. It's enough finance for about 3,500 typical, average priced, property purchases.
This means that those people who sign up for this product only then have to find a 10% deposit. This for me, is a, massive, sure sign of confidence returning. OK - the bank gets some headlines by making this move - however they wouldn't earmark for lending £500m just so they could get some free headlines - especially after what has happened in the last 12 months!
It's a public announcement that they're 'back in business; and are ready to lend at very generous loan to value ratios.
This is the type of move that will give HSBC a 'slug' of easy market share - market share that has been going begging for over 12 months. The banks have had to stand back and watch the game from the sidelines whilst they got their confidence and funds back in place.
People will be flocking to sign up to this product. The product will steal business from their banking rivals. This type of activity puts pressure on other banks - who also will feed off the confidence that HSBC are openly displaying - to copy them in retaliation. This is nothing more than basic economic theory coming into play, in practice, as we come out of the recession - and the banks (who are very greedy - remember?) want (have) to make money.
Other recent economic indicators show that economic output fell less than had been predicted - meaning that, quite simply, things have not got as bad as was previously feared. This is also a strong indicator that the nation's economy is improving.
Unemployment is still rising - but on the other hand, for every person out of work - there are around another 9 who aren't! Many of these people are paying their lowest mortgages ever as tracker rates and low standard variable rates work very much in their favour.
This means that they have more disposable income. Incidentally, at the end of any recession, historically, unemployment continues to rise for about 18 months from the point of the slump ending - its obvioulsy simply a natural economic phenomenon that just 'happens'.
However, it appears that this windfall money that individuals are gaining each month isn't being spent - yet!
Another report by the Office of National Statistics, (ONS) says that personal savings are increasing rapidly as fearful individuals 'feather their nest' following the recent gloom and doom. The 'savings rate' - the % rate of what people save as a proportion of their disposable income is at its highest rate for nearly 7 years.
Historically, Britain doesn't appear to be a nation of savers - certainly not in the last few years. I think that much of this hoarded cash will soon be spent- when confidence returns totally. People will have the confidence to spend this hoarded money - as they feel a little more confidentand finally decide to treat themselves with some luxury purchase or other.
Whats the point of all of this from a property angle?
Well, to me, in my humble opinion, it simply appears as if a combination of more lending (at better LTVs and rates), increased consumer confidence, along with people realising (because the media is now telling them!) that the property market has fallen as low as it will - make those who have been sitting on their hands, waiting for matters generally to improve - to take the plunge into the market.
In some parts of the country, housebuilders are saying they are being caught out and running short of completed stock to sell as a result of winding up their operations on many sites in the last 18 months. It will take them a while to 'gear up' again. These shortfalls in supply help to fuel property price increases too.
The fact that the population constantly increase by at least 400,000 people each YEAR means that housing stock is going to be under constant pressure - literally for ever. Remember, as a nation, we don't have enough properties now - so imagine the impact of a growing population - compounding over time!
To conclude, from an investment point of view, I am confident, based on external factors, that prices are rising again - and therefore property will be more expensive for collectors (investors)to 'collect' - the longer an individual leaves it to buy now.
OK - if you buy a property in 12 months time - as opposed to buying it at today's price, you're going to more than likely pay considerably more - but - wait ten years and you will still be a winner anyway. However, buy it now at today's price and you'll win even more!
There are very few times in the property price cycle that one can call a peak or trough - but I feel that we are probably in a point in time now where that is possible.
I have recently spoken with a lot of potential newcomers to this business who are confused about how to 'play things'
On one hand they hear that the worst appears to be over, yet they also are reading some reports (that we could face another slump shortly.
I thought it might be worth, therefore, sharing my thoughts on the current situation with you.....
In any industry, the importance of timing for traders or investors is crucial. The UK property market is no different in this respect.
I imagine that anyone who commits to investing in UK property is, by definition, ‘sold’ on the notion that property, over time rises in value. Typically property doubles in value every 10 years.
Some 10 year cycles have shown slightly better returns than this – some 10 year cycles slightly less. Typically though, UK property rises at 7% per year on average– which compounds to 100% over 10 years approximately.
So, as long as you are always acquiring your properties at least 30% below market value, then you are almost certainly going to protect yourself from even the most savage market falls.
Even in a scenario where prices slumped temporarily, the owner of the property would benefit from the rental yields given by their investment. As a welcome ‘balancing tool’ in this industry, typically, when a temporary market slump occurs, rental demand increases.
However, I do have to say that even though we think there is no bad time to buy property – if you always buy well below current market value, there are some times in the price cycle when circumstances just could not be better for potential investors.
I believe that this time is upon us now.
What do I mean by this?
Simply that it is quite evident at the time of writing (September 2009) that the UK housing market has ‘bottomed out’. For the last 3 months, positive reports from unbiased organisations have been finding their way into the news. Basically, house prices have started to rise again. The key suppliers of this critical data are bodies such as…
Nationwide building Society - monthly house price index
Halifax - monthly house price index
Royal Institute of chartered Surveyors (RICS) - monthly surveyors report
Rightmove monthly reports - (activity based)
There are many more suppliers of such unbiased, solid evidence – but these 4 are probably the most high profile reported ones to pay attention to.
I firmly feel that anyone who gets involved in UK property now will benefit more than someone who gets involved at a later date.
The timing currently, for someone looking to invest,in my opinion, could not be better.
There are many fundamentals constantly working away in the economy that make it obvious to any impartial observer that UK property has a lot of positive drivers working in its favour in order to ensure that property will continue to rise in value over time
Let’s look at the main ones
Interest rates are low
Anyone who has any amount of cash on deposit at a bank right now will be well aware that cash at the bank has little or no investment value these days.
This is one of the factors however that are working in the favour of the revival of the housing market.
Whilst we know that base rates are at 0.5% presently – with no indication of them moving further north in the near future, we also know that the banks have not reduced their typical mortgage rates in line with this downward shift
However, they have been, very slowly, offering more and more money for mortgages – also at rates that are slowly creeping downwards, than they were previously doing.
This is one of the factors that ensured that mortgage lending in July 2009 exceeded lending in the same month for 2008. This is a certain sign that the banks are waking up and gaining confidence in the property market.
As that confidence grows, as prices continue to rise, they will be prepared to lend more money (and probably, eventually, raise their loan-to-value (LTV) percentages on monies offered too) . Also, as the inevitable eventual battle for market share between banks ‘hots up’ – the competing banks will have to be prepared to cut their margins (reduce the interest that they charge new customers) in order to gain market share. It’s a classic chicken-and-egg economic scenario in action. It has already started to happen.
Demand
Government figures state that in order to keep pace with the growing population, the UK needs to build 300,000 houses approximately each year for the foreseeable future.
This is not happening. We are building fewer houses now than at any time since the Second World War ended. Prior to the credit crunch, around 160,000 houses were completed each year in the UK. This is just over 50% of the targeted amount of 300,000.
When you take into account, that as a result of the poor economy, with many builders ‘moth-balling’ their sites until things improves – and also laying staff off, in 2008 only around 85,000 completions took place!
I feel that it will be a very long time before the 300,000 figure is reached – if ever. It will also take a long time to return to the levels of completions of around 160,000 that took place prior to the credit crunch. This is still 50% short of Government targets of 300,000 completions per year.
This will have, when the confidence that is already returning to the market – along with the necessary finance available, a massive effect on levels of consumer demand, and therefore on the positive direction of prices.
Once again, this is simple basic economic theory in action.
Population
Going hand-in-hand with the shortage of housing stock – is the fact that the UK population is rising in an extremely dramatic way.
Recent official figures show that the UK population grew by a staggering 434,700 in 2007, an increase equivalent to a city larger than Cardiff.
That is in just one year alone! The rate of growth is projected to rise at around 16% per year more than this figure!
Officially projected to rise by about 0.7% a year to reach 71 million by 2031 - an increase of nearly 10 million on today - population growth in the UK has reached near-record levels, and growth at the current rate of 0.6% a year, if continued, would take our numbers to 100 million before the end of this century. That’s around 40 million extra people on this crowded island by the end of this century.
Those property investors, who are looking to lay down an investment plan to be benefited not only by themselves, but by the future generations of their family, should be more than interested in this remarkable fact!
It’s quite obvious that as around 400,000 extra people begin to live every year on the cramped, tiny island that is the UK – they have to have somewhere to live.
As there is a housing shortage already, AND nowhere near enough new houses being built each year to accommodate the growth in population – then the repercussions to property investors, and their families, (people who ‘collect’ houses for future exploitation) are going to be massively profitable ones.
Demographics
Not only is the population increasing, but just as importantly, there are more households than ever before. There are less and less traditional ‘family’ unit scenarios in housing in the UK than there was years ago. More people are living on their own as a result of divorce and people are waiting longer to get married – if, that is, they ever do get married. If this trend continues, and there is no evidence to suggest that it will not do so – then the demands on the nation’s housing stock will be even harsher than now.
The fact we are an island also means that we tend to have a captive market. In mainland Europe, it is easier, in theory for a house buyer to cross a border to another country in order to buy a property. It is not as simple to do so in the UK. This is the main reason why the UK is projected to have, by far, the highest population growth of all EU member countries in this coming century.
UK culture
It appears to be inbred in UK residents that it is essential to own a property. Property ownership by occupants, as a percentage of all properties built, is constantly rising. Our culture is strongly skewed towards investing in ‘bricks and mortar’.
This orientation can only help those people who find themselves, one day, with properties that have accumulated massively in value – and which they want to sell.
The other side of this coin is that those people who decide that buying a house is not for them – have to live somewhere. They therefore have to rent. This is also a healthy situation for property investors who are holding onto property for future exploitation and who need a tenant in situ during that process.
Hopefully it is clear now that we have established
Bargains abound – even when the market is strong
The property slump appears to have stopped
The market is definitely rising
Interest rates are very low
Demand is high and not being met currently
The population is increasing and will do so by 400,000+ per year
There is a massive shortfall in housing completions in the UK
There are more households being created in the UK
The UK ‘bricks and mortar’ culture supports the notion of property investing long-term.
All-in-all, these facts should give a balanced view of reality to anyone who is puzzled about how to 'read' the property market currently
I thought you might like to hear of a recent situation involving what is often bad news for a landlord - a departing tenant. A departing tenant is basically a lost customer to a landlord. Not only that, but it means that there will usually (if a loan has been taken out to fund the purchase) still be a monthly mortgage to pay - without the rent coming in to cover it.
That's why customer retention is important in this business. Very often though, even with the best customer skills, a tenant leaves. ..things 'happen' This means that the landlord has to act quickly to replace them - for obvious business-like reasons.
This happened to me, as I said. The tenants were in their early 60s and had been my tenants for a good number of years. the house is a 3 bed semi on a good quality Local authority estate - with about 70% of properties now privately owned. They simply wanted to downsize to a 2 bed bungalow nearby. These things happen.
I knew that this estate was well-sought after locally, and I also knew, via my local knowledge, that there is a strong market for such properties currently. so, rather than appoint a letting agent, or advertise in the local paper to find a new tenant, I decided to leaflet drop the houses on the 3 surrounding roads - explaining that a 3 bed property would soon be available.
I find through my experiences, that local authority estates tend to have strong communities - rather like everywhere seemed to have 20 years back and beyond. Many people have lived on them for years and have strong ties. Therefore many people seeking accommodation don't want to be far away from their ties if they need somewhere else to live.
I figured that by 'contaminating' the estate with a few leaflets that word would get around quickly on the grapevine. In 3 days I had 5 phone calls!
I managed to find a great tenant simply by visiting all 5 applicants and vetting them thoroughly. I wasn't desperate to take the first one who came along - I took the best of the bunch. Every potential tenant knew there were 4 others 'in the queue' - because I told them (in order to create a bit of a frenzy) this made them realise that I was the one in control and that they weren't the only potential new tenants in the picture for me.
I have managed to raise the rent £25 per month (£300 per year) above the previous rent, spent nothing on the house as either - it was in acceptable condition already.
The cost of this? £10 - to the grandson of the departing tenants - he posted the leaflets through the letterboxes for me.
I was asked again today, for what seems like the thousandth time, 'How quickly will buying below market value properties make me wealthy?'
As you can imagine, three is no standard answer to that, however I often feel that those people asking it are assuming that the answer from me will be 'very quickly'. Most people assume that because there are big equity gains to be made if you master the art of finding below market value deals (bmv deals), then it follows that you can make yourself into a millionaire very quickly.
Actually, you can.....
If you bought 30 properties at £35,000 below what they are really worth then you will have created yourself wealth of just over £1 million. You would certainly be able to say you are a millionaire. However, if you were going to trade (sell) these houses immediately, without holding them as an investment, then you would probably find yourself paying tax at a rate of 40% of your profits. You would also, very importantly, lose the asset (the house) and would therefore not be able to benefit from its growth in future.
To negate that situation, you could hold the houses over time and become an investor as opposed to a trader. The problem with this is that your profit of just over £1million (and growing over time) is not liquid - it is tied up in property. So it looks good on paper - but you cant get your hands on all that lovely cash - which can be off putting for many people - those who want a Ferrari NOW..
The other matter to be aware of here is that whilst 30 properties at £35,000 below true market value each is nowhere near impossible to source - it wont happen overnight - it all takes time and patience.
I mislead you again somewhat here because it is humanly possible to find 30 houses discounted heavily in a short space of time, lets say 12 months, but the logistics and risks involved are akin to you driving your car constantly at 150mph on the motorway over a long period of time. Basically, you are asking for trouble - you will probably crash, burn and hurt yourself badly!
So, whichever way you look at it, as with many things in life, the middle option is probably the best. This is what I try to educate people about - to be business-like and ALWAYS buy well below market value (this allows you to buy today's house at a price of say 5 years ago - thus saving you time). Also to have patience - patience to make a second profit over time. so if you made £35,000 through good negotiation when you bought the property, AND you are prepared to wait another 5 years minimum to make say another £35,000 capital growth - making £75,000 in total for one house - then how many houses do you really need to achieve your goal?
Many newcomers tell me they are going to buy 20 houses per year for 5 years. I tell them that unless they have incredibly massive financial goals, or a massive ego that needs to be massaged, then they should aim lower. its crazy to put oneself under massive pressure - especially when it isn't required! 100 houses is too many for most people.
Not many people actually need more than 10 houses - as long as they do the right things right. I repeat, they should buy very cheap, and be prepared to sit on their hands and wait for even more profit.
Just 2 houses per year for 5 years on this basis (£35k initial profit/£35k growth profit) would make 70k per house over ten years - or almost three quarters of a million pounds.
Do this for ten years and it doubles (20 houses @70k = £1.4million). If we assume that you don't automatically sell each house after it hits its ten year ownership mark...then the capital growth will, more than likely, increase over time too - giving you even more!
If you are holding these houses as an investor - you will be renting them out too. This example mentioned doesn't even take into account the monthly profits on rents received (especially in say years 3-5 onwards as you increase rents in line with market rises) - that would be a very welcome bonus!
The only real 'catch' to this 5 or 10 year plan is that you have to exercise some patience.
its called delayed gratification. Unless you desperately need to sell a house which you've just bought for £35k bmv - then why not sit on it - and ultimately make more money long-term? Sit on it like a farmer lets a hen sit on an egg - rather than take the egg and sell it. The farmer is rewarded with a chicken that he or she can either sell for meat or use to lay even more eggs if he is patient and waits a bit longer - rather than eat or sell the original egg.
If you are interested in making your wealth via property, but feel a little deflated now knowing that you should really wait 5, ideally 10 years before you think of 'cashing in' - ask yourself this.
If I don't get into the game, in ten years time I will still probably be ploughing the same old furrow in the same old, or similar, line of work. I will have wasrted that time, and, worse still, i will be cursing myself by saying something like 'That house down the road was worth 100k 10 years ago - its worth 150k now. Ive I'd bought one like that at 70k then - I'd have made 80k now! what if i'd bought one per year like that for ten years? that would be almost £1million!' And thats why I hear another thing very regularly these days from people who have sat on the fence 'I wish I'd got into property when it was really cheap - in the nineties'
Doesn't it make sense to have a 10 year (or 520 week - if that's sounds more attractive to you) plan?
Just to illustrate the extremes we read each day about interest rate and general economic predictions, I saw this prediction this week from an extremely well respected personality n the City, Gerald Lyons, who is the Chief Economist at Standard Chartered Bank He firmly believes that, as a result of the Bank of England's intentions to keep on printing more money, and the fact that whichever party wins next years election will have to raise taxes and cut public spending, then rates will stay at today's rate until the end of The Governor of the Bank of England, Mervyn Kings tenure ends in 2013.
It does seemto be widely accepted by economists and commentators that rates will stay low for a long time. Time will tell if this is true but....
What does it mean if you are in property already?
Well, if you are in property already and benefiting from tracker rates on your mortgages and/or standard variable buy-to-let rates at low levels - it couldn't really be better news.
Many investors who have never really generated big profits from their portfolio will now start to do so. However, I am pretty sure that many will have a shock if they don't proceed with caution and prudence.
Firstly, when you show a profit, the tax man wants his slice. Those who are not used to paying the taxman a slice because they have never previously made much (or any) of a profit prior to today's low rates will have to prepare for that consequence. Its the downside of the situation.
The other thing to be awre of is that rates WILL rise one day - and they MAY rise above the benchmark of 5.5% - which was the rate in place when the credit crunch hit us - and is therefore the benchmark we should look to for future rises.
What if rates eventually rose to say 8%?
If those people who were say breaking even at 5.5% rates would then be losing money at 8% rates, then the message is clear. Raising rents consistently is one of the tools you can use to negate this - and is something I am very insistent on - but many landlords are either too scared or too 'lax' on this subject.
They should be using their current windfall money (as a result of low rates) as a cushion against an extreme change in rates. Inother words, money set aside for a rainy day!
Basic common sense really.
However if rates do remain low for the next 4 years or so, then no landlord who is today benefiting from low rates should have any excuse for not having a solid business with both very strong cash flow and good cash balances in their rental account.
Finally...if you are that way inclined, and money tends to burn a hole in your pocket...just dont go ut and order your Ferrari.... just yet!
I thought that you might like to hear a story about a good tenant of mine - she has been my tenant for 3 years now - who had a recent payment difficulty which basically meant she couldn't pay me the months rent.
The lady in question has had a chequered job history and as a result she has very rarely paid me on the due date of the first of each month. However - she has always paid me before the month has ended. She causes me no trouble whatsoever and keeps herself to herself.
A couple of months ago, her cheque for that months rent (which was 2 weeks late as usual) was returned as 'bounced' by the bank. This simply meant that she was in arrears for £570.
How did I handle this?
Firstly, experience has taught me that with good tenants (I don't have any bad tenants by the way - my worst could probably be classed as 'OK') you should value them. I know of many landlords, who, if given an arrears situation, would threaten the tenant with eviction etc....not the smartest way to operate as far as I am concerned. Its best to think your approach through first - to suit that particular person. Antagonising a bad situation is not the wisest move - you need to have a plan in order to minimise potential problems.
I took the view that firstly I should speak to her in a civil and friendly - and hopefully understanding way..
I rang her and she was highly embarrassed and explained that she was temporarily 'in a fix' financially and was really sorry. She explained she could make next months rent - but as for this month she was going to have to downgrade her car and this would put her in a position to then be able to pay me the rent for the month she had drifted into arrears.
However, I made an on the spot decision.
I wasn'tdesperate for her rent monies, and I knew I would get it as soon as she could find it. I also didn't want her stressing herself out more by making a knee-jerk reaction to sell her car in order to find the rent. I therefore offered that she could spread the £570 over 6 months. Don't get me wrong - i would obviously have prefer ed the rent there and then - but by being party to her having to either downgrade, or even give up her car, even though it wasn't my fault - did not seem the right move.
She was delighted at this - but also a little proud to have to accept what she considered charity. However, we left our arrangement at that.
I was paid the following months rent on time, and yesterday morning I received a surprise cheque through the post for £570 - being the arrears in question, and a note to say she had borrowedthe money off a close family member and would repay them over time.
She also mentioned how she was absolutely delighted that I had not turned against her when she was down - and that she would always remember it.
So, I consider that I have come out of this better than before the arrears situation. Fortunately for me, there aren't many landlords who would be so accommodating as I was. All I did was do the common sense thing - be patient and discuss a solution.
I know personally of many landlords who have a 'no messing' policy with arrears - they would have simply commenced proceedings against her without trying to sort out a compromise. this way, in this instance their would have been no winners.
Shouting and threatening the tenant would not have got me my money - so a different more understanding approach was required. I now feel that her estimation of me has increased - which in turn means that a customer of mine is probably more likely to stay renting my house than before.
These situations to crop up from time to time - usually in relation, quantity wise, to how many rental properties you hold as a landlord. It is important that a potential new entrant - who is pondering entering into this business is not only aware of the potential 'hassles' that crop up - but just as importantly - how they can be negated quite easily with some common sense and understanding.
Today I had a call from someone who has decided to purchase my manual. The reason I write about them here is that they have the same dilemma that many people whom I have helped over the years have experienced.
What is this dilemma?
Well, its quite simple really. whilst they realise that by applying themselves long-term to property they can make themselves wealthy (as long as they do the important things correctly that is), they cant work out the way to leap frog from what they are doing now - onto property full time.
My answer to this is very simple. I explain to them that unless they have masses of ready cash to support them already, or have a substantial private income, then they will have to engineer their move over a period of time. Yes, this means probably overloading themselves a little for a while (for me it was 18 months until I could sell my business that was holding me back)
When I do explain that there is no secret answer, then, unless they want to be totally reckless and endanger everything they have by walking away form a steady, albeit frustrating day job, then they must start now...and be patient.
If they don't like the sound of that, then I ask them what the alternative is. the alternative is usually to carry on doing what they are doing anyway - which is something they hate - we've already established that by this stage!
So, why not at least carry on doing it - but with something concrete and real running next to it? something that will offer them eventual financial security some time down the line - and also the knowledge that they don't have all of their eggs in one basket by having to turn up to work every day to keep the boss happy and the bills paid.
When I say 'the boss', the boss could be, and quite often is - themselves. I get many, and today's new student was no exception, people who work for themselves - who simply hate their lot.
'Working for yourself', by definition, means you are a worker.....and a boss too...how's that...2 jobs for just one wage!
Not many employees would do that!I tried it once but soon worked out that it was a bad deal for me.
Hopefully, this may ring true with you as you read this?
Property is certainly not going to be a sure-fire easy ride to fortune. I can vouch for lots of problems and hassles along the way - but I figured that you get problems and hassle even in the most menial underpaid job anyway!
So why not start as early as possible on your get-rich-moderately quickly plan?
If you follow a proven course diligently..and have patience....you will be able to start to take control of your own future probably sooner than you think.
The first thing that people I have coached tend to report back to me is based around confidence. Once they are 'up and running', speaking to potential sellers and maybe even having found their first deal or two - they get that elusive commodity called confidence.
What is clear to see is that, even though they haven't made their fortune yet - far from it, they have the confidence to see that the system works over time. If you speak to someone who has 100 investment properties - they will tell you that there was a time that they had only one!
They (my students) are now in a position to visualise themselves doing well some way down the line. All this is a massive step forward for someone who has been sitting on their hands up to now and telling themselves why they shouldn't get involved!
It is my intention to post on here regularly on issues which I feel may interest my readers. I will, as makes sense to me, be mainly bringing news and my views on the property market, and more importantly how best to exploit current situations, trends and legislation in order to increase your wealth. I will also share my experiences with you of deals completed and situations presented when handling and managing my tenants and properties.
I am also committed to ensuring that I offer to the reader all aspects of this business, and not just the glamourous side (is there a glamourous side? I ask). What I mean by that is that i will not, as some peoplein this industry do, gloss over the more mundane and essential aspects of buying, holding and disposing of investment properties that you have bought at big discounts to market value.
Some of you reading this may well have properties that you haven't bought below market value (BMV). In that case - congratulations on taking the move into this lucrative industry - but on the other hand I strongly suggest that from now on you certainly consider buying properties at much much less than they are really worth - this is how I can help you.
