Good morning folks hope you are well. Just picking up on some questions that have come in property related.
I’ve been property investing since I was 35, I’m 55 next month, so coming up to 20 years. I bought my first one in Oxford and then expanded the portfolio up and down the UK and it’s been an interesting journey.
I have had some ups and downs and I’ve been fortunate to teach this for many years now, both in the United Kingdom and internationally. I continue to do that and we get a lot of questions.
I think the most common question at the moment. What do I think about property investing in the UK at the moment?
There’s a lot of hype around real estate investing and has been for many years there seems to be more and more people cropping up around the UK teaching it, saying that they can teach you how to get into property, et cetera. You’re going to be bombarded with that kind of information. I think that’s just part of how the world has been involved over the last 12, 18, 24 months or five years or more and certainly with social media being so prevalent.
You’re going to hear lots of different stories, different messages. The key thing I want to get across to you is this is a business that takes work. I want to answer questions in reverse. One of them was, is it a rich quick scheme? Is property a good time to get in now? What’s the best strategy in the United Kingdom? What about Covid?
Number one, it is not a get rich quick scheme. If anyone ever tells you that. Sorry, but it’s bullshit. They might not use that language but might tell you you can reach the next 12 months but the reality is, it takes time. It takes time to build a business. It takes effort, takes hours of doing research, picking up the phone and speaking to the right people in your team.
It takes setbacks, it takes some deals that aren’t going to go as well as others, it takes people saying no to you a lot, and that’s part of the business. I’m much, much less hands-on than I was when I started my property business. If you’re watching this and you’re thinking Covid is really tough, I’m not sure about the future, I need to change direction, I’ll trade the stock market that’s also tough. It takes work and if I start an Internet business, good luck with that.
Again, it takes work and effort, and everyone thinks it’s going to happen overnight because a lot of people promote that. It doesn’t take a year to get rich, six months to get rich , two years to get rich it’s not really the phrase I tend to use, we talk about security putting in place an income that provides you with if it doesn’t replace your own salary, at least gives you some choices, some security. It’s not a get rich quick scheme.
Now you compare it to 40 years in a job, then, it’s a hell of a lot quicker. So if you can do it in two, three years to get to a point where maybe you’ve got an income of £2,000, £3,000, £4,000 a month coming in, depending on how much effort you put in, how much money you’re prepared to put it in or raise creatively using angel investors. There are so many different ways you can approach this.
The reality is you’re going to have to be disciplined. Great business but you’ve got to put the work in, but compared to what four years in the job, being answerable to somebody else, having to get up and put a certain number of hours to be paid for by every single year and if you stop that at the end of the year, the income doesn’t come in. Whereas with real estate you can stop the buying process on a property you still look after it but a management company can do that for you, which then comes down to you just keeping an eye on it over a period of time.
Every now and again it produces an income for life, that is the key message for anybody, it’s producing 100, 500, 700 a month. Whatever the property is, that will fluctuate and you’ll have a change of tenants, et cetera but over time you’ve got the consistency of income.
That’s my first message it’s going to take time and effort and no it is not a get rich quick scheme. I wrote down let income, lead your wealth. I’m talking to internationals at the moment and a lot of them have this perception that by buying properties, they’re going to be instantly wealthy. It’s not quite that way.
You can buy a property heavily discounted and potentially add 50, £80, £100,000 depending on the size of the deal and without a doubt can create an element of wealth in there. But that doesn’t mean that you create a level of wealth yet that comes over time and if you allow your portfolio to grow and buy the properties below market value you’re getting what I call a double whammy, getting equity up front and the equity growth and future benefits the equity upfront is the market goes flat for two, three, four years which we may see a situation certainly next year with the recession we might see the market correcting a bit.
It might take a little bit to stabilise and then go back up again. So by buying now at a discount building fat and allowing more fat to add when the property portfolio grows in the future so that’s a longer-term plan. I bought a property for £269,000 back in 2004. We split the title on it a few years ago and it valued at over £500,000 so you’ve got 200,000 plus pay worth of equity growth, almost doubled and that didn’t happen overnight.
That’s, like, 14, 15 years, but the property produced an income and it still does every single month. There is an example of income driven first and then later that equity was built in. If you’re trying to get to a place where you want some level of security and again don’t pursue this as a get rich quick scheme, think of it that each time you buy a property it’s adding an extra pound, £10, £50, £100, £1,000 a month to your passive income.
You might be working over here and this is slowly building up and slowly building up.
That comes to the last question which is, which is the best strategy in the UK now? That’s down to you.
If you said I have a big business already. It’s an online business and actually you don’t really need a passive income, but you don’t have any assets, so you want to put some of your wealth into assets that have long-term capital growth, and support themselves cash neutral. That’s a slightly different situation now, that’s looking at somebody that already has a passive security but no assets and they want to have assets for the kids in the future. That may be a strategy way of buying property more to hold capital growth.
Whereas someone else says I don’t have any income at all I need passive income to have a salary, I want to buy properties that will ultimately each one stack up and add another 1,000, 2,000, 3,000, whatever to my passive income and it will be nice to have that long-term wealth in the future, the portfolio eventually will be worth three or four million worth of equity in there which you can sell. This is where tax planning comes into play at an early stage not at a late stage.
My point is answering that question is not as easy as it sounds. If you said what am I finding that’s working at the moment, then that’s a different question. For me personally, what we’re finding is that HMO with guaranteed rents work very well. Typically, social housing, government schemes, asylum seekers, that type of thing because there’s so much demand for that.
There is also an interesting growth in a couple of towns where we’ve bought and there’s inundation of students wanting to get let out or wanting to secure their property so that seems to work very well as well. Commercial unit split with resi above an commercial underneath gives you some flexibility potentially to convert the whole thing to residential or, you might feel that this is a company that is going to be strong into the next recession, that is the one thing to consider to make sure that if you’ve got something going on downstairs that is a commercial unit. Then make sure that opportunity is right.
Yes it if companies are going bust but you can help them out but do you want to keep that as a commercial or switch that now to one-bedroom flats. Those sort of strategies work as well. And again, if you want to get in before March next year to half a million pounds worth of stamp duty wiped off, anything up to half a million there is no stamp duty being charged.
So, one strategy has been to buy and renovate and sell properties back out to the public and that seems to work very well. If that slides back beyond March next year might be worth looking at that. To get a property now, renovate it and sell it before the end of March next year might be possible, but you’d be pushing it for the winter months Covid, etcetera.
Yes, I think it’s a great time to get into real estate, I don’t think you should be too worried. Covid has had an impact in certain areas and it might flatten prices for properties, but as a long-term property investor we’re focused primarily on cash flow and long-term capital growth. There are also areas that have become very busy as a result of Covid. We were approached recently on one of our properties by a local council offering more and we were getting the property as a standard HMO, because they wanted to place people for social housing.
There’s a shift, that’s the thing to be mindful of now is, what would be the markets that seem to be growing. Of course, when people can’t work, they can’t buy properties. That means they are more likely to rent property. I think we’re going to see the same thing from 2008, 2009, 2010 which was an increasing demand for rental properties until such time, the market starts to increase again and there will be more interesting demand for buying.
That leads to another strategy called lease options, which is where you have the right to buy property in the future. That’s a strategy that is working at the moment.
There are opportunities. You just have to be selective and learn to do it properly and choose who you want to learn to do properly with. Do you want to be with people who are inspiring and giving good quality information versus those that maybe, are just using some contrarian marketing to put others down as well. I don’t think that’s the way to go forward.
So if you’re choosing to get yourself and to diversify learning, broaden your strategies, your finance and your learning, that is the key thing. You’ve really got to have multiple strategies.
Equally, don’t just go and learn social housing as that’s just one strategy, so look to see if you can learn several strategies to allow you to adapt to market conditions and again that helps you grow into the future as we start to see other areas of the country move into different strategies as well as opportunities come to us as property investors.
I shall see you on my next post.
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