Tag Archives: property investment

Why I like Property Investment So Much

house of money

Why do I like property investment so much? In my eyes Property Investment seems like an easy lazy mans way to make some money and provide passive income. Why do I think this?

I can only speak with my own experience and this is my experience of property investment:

In February of 2002 I bought my first house, this was against advice from my work colleagues and friends who were telling me houseprices which averaged £92,256 (Halifax data) were too expensive and will drop any time soon. Against all the advice I recieved I decided to take the plunge as I needed somewhere to live and I didn’t want to rent forever.

My first house was a 2 year old 3 bed semi-detached property on a fairly new estate. The house had been repossessed by the bank and the estate agent had it on the market for a few months with little interest. The house was on the market for £80k so I put an offer in for £78k It was a price that I could comfortably afford. To my disappointment the agents already had a higher offer and were going to proceed with that one. I was quite dissappointed and carried on my search for a house.

About 3 weeks later the same agents called me back to ask me if I was still interested in the property as their buyer had pulled out. Of course I was still interested, she then proceeeded to ask me if I would like to pay any more for the house? Well of course not! I asked her if I needed to pay any more to secure the house and she said NO. I think she was a little inexperienced as an agent, but a very nice lady. And bingo that was my first purchase.

Boom, Boom, Boom!!

I lived in that house for a couple of years, doing some small home improvements to the garden, bedrooms etc. By mid 2003 the UK had experienced a boom in house prices, the average UK house price then was £132,589 (Halifax data). The house that I bought was now worth about £110k estimated by comparing average sales of similar properties in the area. I was more than delighted with this as I could sell the house and make a cool £30k in profit. The profit was on paper but I’d never made so much money without doing too much before. I was hooked I wanted more, more, more!

I wanted to repeat this sucess and went about looking for books that could teach me, I was hungry for more information and quickly put together a small library of property investment books. Check my recommended book list. After reading these books I put together a plan to buy more houses. I bought my second and third property in 2004. In 2004 I bought four properties. In 2005, 2006 and 2007 I kept buying and buying going on and on.

Today average UK house prices are at £197,039 (Halifax data for December 2007) my first house is now worth about £145k again estimated by comparing to other sales in the area. That is very healthy growth in value and I think we are safe in thinking that this growth is in line with the belief that UK house prices double every seven years. I now have over 40 proprties in my portfolio which is worth nearly £4million on paper. Business is good, except for some problem tenants, but tenant problems are just part of the job of being a landlord.

Oh BTW I’m not too worried about the property prices dipping this year as I’m in it for the long term.

UK property on the brink of meltdown

Current market predictions are varying widely but it seems that industry leaders such as Nationwide, Experian and Intermediary Mortgage Lenders Association are all predicting negative growth in 2008, with the latest report from Capital Economics assuming a 5 percent downturn. House prices in the UK could be falling as fast today as they did during the property crash of the early 1990s, according to the report.

According to the The Royal Institution of Chartered Surveyors (Rics) the number of estate agents reporting falling prices is now at its highest level since 1992, when Britain was in the midst of its worst-ever house price crash. Last months interest rate cut which was intended to ease the strain on mortgage borrowers, but didn’t have much effect. Rics spokesman Ian Perry warned: “The Bank of England may have to cut rates further if the market is to remain stable.”

I’m not too worried about a property crash

If these media headlines are to be believed I need to sell up my portfolio now before its too late. Or maybe its already too late!
I would be silly to sell up my assets that are continually generating passive income, month after month. As long as people will rent my houses at a price that still makes me a profit then I should be more then happy.

Demand for rented accomodation is higher than ever in one of the areas I invest in. One of my houses will become empty at the beginning of February, so I’ve placed an advert in the local paper. On the first day of the advert going in my phone rang 12 times with people wanting to view the house. I would say that is pretty high demand. So as long as people are willing to rent my houses and interest rates do not go up (not likely now) my cashflow and passive income is safe.

Even if house prices DID drop more than 5% it wouldn’t effect me as I’m not selling. But as a keen hunter for bargains knowing that the house prices are falling may tempt me to buy many more houses this year!

house prices set to rise 40% over the next 5 years

House price increase

ok so i usually take newspaper headlines with a pinch of salt. however most of them were reporting that that UK house prices are set to rise 40% over the next 5 years. this is not a figure plucked out of thin air either. figures have been taken from a report from the National Housing Federation. the report features new projections commissioned from Oxford Economics which also show that the average price in London will nearly hit half a million pounds in time for the 2012 London Olympics.

Home Truths

the report is titled Home Truths reveals that a housing market crash is ‘unlikely’ and that home ownership will move even further out of the reach of many first time buyers as the average house price is now nearly 11 times average earning.
housing supply has dropped even further behind housing demand with over 1.6m households (equating to almost 4m people) are on waiting lists for a social home

Federation Chief Executive David Orr said:

“Our report shows that continuing house price rises and the resulting housing crisis are set to stay with us for a long time.

“Each year that we fail to build enough homes to meet newly arising housing need we increase the shortfall, making it harder to catch up.”

“For those key workers and low-income families looking for a decent home, it is critical that ministers invest sufficiently in social housing. This will enable housing associations, and others, to build the desperately needed 70,000 new social homes a year.”

National Housing Federation – who??

i had never actually herd of the national housing federation before this report came out. who are they?

The National Housing Federation represents 1300 independent, not-for-profit housing associations in England and is the voice of affordable housing. Our members provide two million affordable homes for five million people.

i like the idea of a non profit organisation and i think that social housing is very important.

their report can be found here: Home truths report

Making money from BTL property

Making money from Buy To Let property

anybody can purchase a property and rent it out, but there are a lot of things you should consider first. experts will tell you location is most important, but to me the numbers are much more important. i believe that ANY property will rent out so location is not too important. good locations normally command a higher asking price but not necessarily a similar increase in rent prices.

cashflow is more important to me then location in a buy to let property. your property portfolio must be cashflow positive or neutral at least. the income must cover the outgoings and ideally there will be profit too.

in todays market i look to make about £100 per month profit from buy to let property, usually a standard house occupied by a working professional or a family. or about £300 per month can be made when a house is let to multiple occupants such as students or other sharers. this is after all costs such as insurance, mortgage and agents fees. if managed correctly by a good agent this will truly be passive residual income. money you make in your sleep. that could be about £3000 per month if you owned 10 student properties.

lets not forget the capital appreciation that you get in property. the last figures i read were that property values double on average of 7 years and on average that means they increase in value by about £80 per day.. So if you kept a buy to let property for 7 years you would eventually have made £80 per day in your sleep, how is that for passive income!

the drawback of profits made from rent is that it is taxable income, this can however be offset against business expenses, but tax is tax and it always hurts to pay tax. some super savy investors make money without paying tax by releasing equity from the property by remortgaging their buy to let property. for example:

current values:
property value: £170k
mortgage: £100k
rental income: £750pcm
mortgage interest: £450pcm
profit: £300pcm

after remortgage:
property value: £170k
mortgage: £145k
rental income: £750pcm
mortgage interest: £680pcm
profit: £70pcm
equity released: £45k

so by increasing the mortgage ammount to £145k you could actually release £45k to play with. this does however reduce the profits from the rents to £70pcm but at least we are still cashflow positive. in this example the mortgage used was 85% loan to value (LTV) allowing you to borrow up to 85% of the value for the property. there are other products on the market that will allow up to 90% but then the rates may be higher.

in this example i am assuming that the buy to let property was originally bought for £100k and the property is now worth £170k. this would usually be due to buying the property a few years ago and with capital appreciation, but it could be due to the fact that you bought below market value (BMV) at £100k when the true value is infact £170k (a great deal in my book!).

most people will tell you the £45k released this way is tax free and you can do as you please with it as it is not profit but in fact a loan. this is true, but be careful the inland revenue can refuse to let you claim the extra £130pcm mortgage payment as a business expense and may continue to tax you as if you were making £300pcm profit as in the orginal example. so if the £45k is used to reinvest this is ok, but if its used to buy a luxury cruise then i guess not.

Making money from property

Making money from property

making money from property is easy, all you need is lots of houses that you bought 20 years ago for about £5000 each. in todays property market they would probably be worth £100k each. sell them all and retire to the Bahamas. nice and easy…. ha ha well if that is not your reality we can all dream.

You can still make money from property even if you started today. there are quite a few ways that savy investors make money in todays property market. there are two main ways to make money from property

Buy To Let (BTL) where you buy a property and rent it out making money from the rental money and/or the capital appreciation.

Buy To Sell (BTS) where you buy a property to sell (flip) this is usually done in the short term.

as you only make money when you sell a property if doing a BTS this is not passive income. it is a good way to make money from property but it requires a lot more work if you are renovating the property. especially if you are doing the work yourself, that would be very labour intensive.

Commercial Property – shop or not?

Commercial Property investment

one of my friends and fellow investors has been offered a small commercial property down the road from where she lives. i’m not sure why but she always seems to purchase properties that are within tumbling distance to her own home. she and her partner have her home, the house next door and also one across the street. i don’t think it’ll be too long before they own the whole street!

anyway the commercial unit that she has been offered is currently being built with flats above. its part of a new development of 6/7 new apartments with secure parking and also one commercial unit on the ground floor. the commercial unit is about 45sqm and has been valued at £140-150k but is available for £130k ish at this stage. rents wise looking at others in the area i would expect £9-£10k per annum so the yield looks good. if we can buy it at £120k the rental yield would be 7.5%. ROI will not be too great either especially as we would need a commercial mortgage on the property and these typically have rubbish rates and higher (20-25%) deposits required.

i’m not too sure of the calibre of the tenants that would occupy the property would be brilliant. its likely to be a local retailer or hairdresser type of business. i would like to try and obtain permission to sell food at the premises, but chances of getting approval are not great. If we can get a higher calibre tenant in the property then i think that we should easy be able to sell this for profit or refinance to release our capital. otherwise it will be a long term investment that ties up a lot of liquid funds.

i wouldn’t otherwise consider this property but i have decide that i am going to increase my commercial portfolio this year so i am taking a keen interest into commercial properties. oh and i forgot to mention that my friend has asked me to go halves with her as a joint venture (JV).

Anybody else have any Commercial Property for sale?

Property Chains are annoying

Property Chains and Estate Agents are annoying

For the first time for as long as i can remember i am stuck in a property chain. its not an overly long chain, but what would have been a 4-5 week sale has now taken a 6 weeks already with no clear completion date yet. I’m thinking at the rate things are moving at it will probably take 9-10 weeks in total.

i can totally sympathise with some of the motivated sellers that i deal with when they have been in a chain and it falls through. All the stress related to waiting for things to happen and not hearing much from the estate agents or solicitors, then you get a call and they tell you that its all fallen through. joe bloggs at the bottom of the chain has been refused a mortgage or he has decide to buy another property.

my current situation is actually that of my parents, but as i’m managing the sales process for them it all comes down to me. my parents are selling their house and buying another proeprty in Nottingham. they found their ideal property about 6 weeks ago, but had no buyer for there own property yet. rather that risk losing their new found home or have me incur expensive bridging finance fees they decide to drop the price of their home by 10k. 3 days later they had an offer on their property and everything was underway or so i was led to believe from the agents. 10 days later… yes 10 days later they confirm the sale and they inform us that solicitors have been instructed.

10 days to confirm a sale and to inform solicitors is just not good enough for the 1.75% rip off fees they charge. This will amount to £1750 + vat for my parents as they offered them a capped fee. this is still extortionate for the ammount of work and the turnaround time. this together with the kick back from their “recommended” solicitors. yes thats right, most estate agents also recommend a very good local firm of solicitors that will do the conveyancing. “very good” usually translates to “they will pay us the best fee”. these solicitors firms usually do high volume conveyancing and are quite rubbish as they pay peanuts to legal executive to do most of the bulk of the work.

with this fantastic team of overpaid estate agent and under paid / underperforming solicitor at each link of the chain its no wonder these things take ages and sometimes fall apart.

my parents are selling their house to an elderly couple who are selling to a company. they have also sold through agents and will then be constrained by the same usual time delays. fortunately for both of us the bottom of the chain is a company who should know what they are doing. the chain is short but still is taking longgggg…..

its no wonder that people are always seeking alternative ways to sell a house and that a million cash for houses companies have sprung up in the last few years.

Cashflow or Equity in Property Investment?

Cashflow is King

or

Asset Rich But Cash Poor

which do you look for when investing in property?

sometimes i get offered a property which will make me good income on the rent, but have little built in equity or chances of capital gain in the near future. these are normally ex-council houses in bad areas, not to knock ex-council houses just that some areas just haven’t increased in value in the last few years and don;t look like they will either.

other times i will get offered a property which has lots of inbuilt equity (as it is below market value) and good chances of capital appreciation but the cashflow is either poor or negative. negative cashflow is when the rent coming in is not enough to pay for the outgoings, such as mortgage payments and maintainance.

the best properties i get offered are ones that have lots of inbuilt equity and make me a decent ammount of money on the rent every month. these properties i will buy all day and everyday. these are not always available and quite hard to find. i am not talking about off plan/new build apartments with dodgy valuations. i’m talking real houses with real discounts.

my question is if you are offered the first two options which one would you choose? more cashflow, less asset or no cashflow and more asset?

i think that the answer lies in a balanced portfolio. Cashflow obviously is important to a poor man such as me. but for real long term gains its the capital appreciation which will make the difference. i do and will take some low/no cashflow deals that give me plenty of equity and good chances of more capital gain in the future. but most of my portfolio will be built with cashflow producing investments properties.

if any serious investor wants to take some of the properties on that just miss the mark for me then drop me a line. I always have excess deals coming in, much more than i can handle.

Financial whizz or not?

Do you have to be a financial whizz to be a property investor?

I’m not sure if you need to be a total financial whizz to be a good property investor, you definitely need a good grasp of figures and not be shy to work out rough figures in your head. I have a few times looked at a deal and thought “wow thats a good one” only to realise that when put on paper and worked out properly the deal is not so hot.

I have done deals where the return would be minimal and I seem to be buying at market value but i felt that the other party involved, the motivated seller was worth helping out. I don’t and can’t do these all the time, but i feel that every once in a while you should not just look at profit and return on investment. Think karma.

I’m currently doing a refurb where i only stand to make a few thousand on the resale price. But i wanted to test a few legal techniques to see if they would work. It has worked and worked well, so i am using this now on most of my purchases.
I am also using this property to test my new workforce. I have a few Polish guys doing the refurb, even though it is not yet complete they have done a truly amazing job. I may post some pictures of the completed property.

The numbers for this deal are:
Open market value when purchased: 65k
Actual Purchase price: 55k
refurb/legals/holding cost: 10.5k
Open market value after refurb: 75k+
Profit if sold within 8 months at 75k: 9.5k

As you can see the profits on this deal are not that great. But I need to make a ton of money for my upcoming marriage next year and i’ve told Sally that the profits of this will go towards our wedding. Every little helps i suppose…