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.
Until next time.....
Thursday, 12 November 2009
Monday, 2 November 2009
Property prices surpass last years values.
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 comfort from 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.
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 comfort from 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.
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