600: Action Focussed Property Investing - leave the politics behind
Active Investing: Many people buy and property, let it out then call themselves property investors. They are indeed investing in property but they can better be described as armchair investors. They are not very active, sit on the sidelines and watch their investments unfold for the longer term. There is a risk to this strategy since things happen around them – for instance:
· Regulatory changes can make the investment more onerous, higher cost and less profitable
· Tax changes can destroy profits rapidly – e.g. Osborne’s triple tax whammy for buy-ot-let investors
· Rents raise can be low whilst costs rise – again destroying profits
· Capital gains tax changes can destroy returns after the property is sold
Risks: With general inflation, the debt in real terms will drop whilst the value should rise, but every day you are investing money, you risk bad tenants, voids, unemployment rising and property prices crashing. On balance, its been a good business up until now but in future years its going to be far more difficult to eek out a profit particularly if interest rates start to rise.
Action Focussed: Real property investors are “active”. They are constantly on the move, buy, selling, renovating-upgrading, extending and adding value to their property portfolios. The use of capital to then add value – is a way of expanding your wealth and actually reducing your risk in the longer term. But it takes guts, hard work, taking a risk on some cash-capital and investments like building projects can of course go wrong.
Aim for High Returns to Reduce Risk: One of the key things to do is have a high investment threshold. If you have cash in the bank, and are looking to invest in an extension of a property for instance, or renovation – you should only go ahead if you are more or less doubling your money. This means you invest say £50,000 then you new upgrade is worth £100,000 – which means your £50,000 cash has immediately earnt £50,000. If you can keep duplicating this model with cash reserves, even if your cash starts to run low, at least you have added significant asset value – and can at least sell or get a refinancing of your new investment. Never go too low on cash reserves – since you’ll be in fire sale mode – then you could get into real trouble and destroy huge value.
No To Armchair Investing: What we are saying is, to make serious money, you cannot simply sit on the sidelines, observe and do nothing. You have to be actioning, scheming, planning, implementing, investing and doing small, medium or big projects all the time.
If you are a small investor, it could be a new kitchen for £4,000 that then adds £8,000 to the value of the property and increases the rent by £50 a month. If you are a medium investor, it could be converting a loft to a studio flat – costing £50,000 and adding £120,000 to your asset value – hence making a “paper profit” of £70,000 – and having a flat that can then be rented out at £500 a month – a super investment. If you are a larger investor, it could be buying a large 6 bedroom house for £200,000, spending £130,000 to convert into four flats – then selling each one for £150,000 – and hence borrowing say £170,000, investing 160,000 in cash – then selling all the flats for a total of £600,000 – hence making £270,000 profit.
Wasted Time Media and Politics: It’s our view that too many people – property investors included – spend too much valuable time – looking at useless news on the latest political hype or scare stories. Media is a business – they sell adverts and try and entice people in by scaring them – hooking the public on poor quality stories or scare stories. The politicians love it of course – it makes them feel powerful and they play the political bully boy/girl games – having a go at each other all the time to score votes and political points over their opposition. It keeps them in power and subordinates us – meanwhile we can end up “taking our eye off the ball” – leading to deteriorating property investment returns. To give some good examples that take huge amounts of people time-energy-emotions and focus:
· Brexit – spats between the Tories and the EU Government
· Trump – whether he will be impeached or not (who cares?)
· Terrorism – fills the news all the time – as these minorities attack our society and values
· Putin – what Russia is up to – the latest threats
· War – the latest atrocities in places like Syria and Iraq in graphical detail – with disturbing videos etc
· BBC Media Celebrities – the latest media celebrities to die, or have something weird happen to them – news about the new people
· NHS – how the NHS will implode at any moment and everyone will be put at risk
Focus on Using Time to Add Value: As a property investor, you can fill your life with reading the news 24/7 and end up never doing any property investment. Just imagine if you spend 3 hours a week looking after your properties – then 10 hours looking at the news scare stories – so disturbing it’s enough to discourage you from investing any money to try and seize an opportunity. The you switch tactics and ration yourself to an hour a week news – instead read just a little more about property investment to get some ideas – then spend the rest of the 7 hours actually planning your next project, coordinating developments with a trusted builder or handyman – you are surely going to double the rate of value creation overnight – or more.
Get Up and Action: The bottom line is – you can’t just sit on your backside observing from afar and expect to make stellar returns. Do not procrastinate – get a plan then implement it.
Fighting of the Family and Friends: If you are married or have a partner, your biggest hurdle might actually be them. Ever had the old comment “darling we can’t afford that” – or “you can’t do that when I need a new bathroom in our own house”. You might have your father, mother, brother – friends – all shouting “chicken little” that the world is going to cave in and you can’t go putting any money into property because the property price is just around the corner. You need to break away from these negative people – you “just have to do it”. You can’t expect to be fabulously wealthy if you listen to everyone else’s advice – all those people that never made a penny in investment – all telling you how to not do it. You have to be hard nose and just ignore them and get on with it. Sometimes its best to “just do it” then plead forgiveness after the event. Otherwise you will never pick up a head of steam – and that’s actually higher risk than going slow. If you are constantly active – actioning – growing your portfolio through investing in upgrades, extensions and second hand properties to upgrade then let out or sell – you will be in a lower risk, not a higher risk – position because you will be asset rich. If you run low on cash, you have options – sale, refinance – or putting up rents.
Criteria For Good Investment: When you consider buying another property look at the following criteria as a guide:
· Is the area on an improving trend?
· Is employment of higher paid jobs expected to increase?
· Are there new infra-structure development close by – like new stations, faster commuting?
· Are nice cafes, restaurants, shops, cinema etc moving in?
· Are the local schools and universities on an improving trend?
· Is crime reducing – and terrorist threat manageable?
· Are there green spaces-parks close by?
· Is it close to a major city-commercial centre with high paid jobs-investment?
· Does it make a positive cashflow-profit each year?
· Is the capital value increase expected in the area attractive, considering all of the above?
Leafy Areas and Central Areas Best: If the answers are yes, then you are on the right track. The areas that generally do best in the longer run are city areas that have a “village like feel” – lots of trees, green space, water and nice cafes-restaurants-pubs. As a general rule, city areas are likely to outperform rural areas in future years as the UK population expands and land-housing scarcity hits cities with jobs. This is particularly true of cities like London, Bristol, Southampton, Brighton, Cambridge, Oxford and Reading. Nice market towns within an hour’s rail commute to London – like Newbury, St Neots, Kettering, Chelmsford, Gravesend, Fleet, Winchester, Woking, Guildford, Salisbury will all see property price rise sharply in future years we believe. In the north the best bets are probably Manchester, Harrogate, York and Leeds. Derby, Nottingham and Leicester all seem good value as well – and as long as manufacturing does okay with the Sterling weakness post Brexit.
In London, the top picks are probably around the Crossrail developments – in a 10-15 year timeframe:
· Soho-Tottenham Court Road
· Southern Hackney
· Shoreditch - Whitechapel
· Forest Gate
High Tech Hipsters: We thing all these are will see increasing amounts of high-tech hipsters with young families – many international – moving in and setting up successful businesses. London will look a little more like a city silicon valley mega-project in future years as London post-Brexit becomes a magnet for international start-ups. Some of this action will be up in Cambridge – and to a lesser extent Oxford and Reading. Shoreditch will be the centre. Even though Shoreditch Victorian flats might be considered expensive at this time, we think in 15 years time they will be into the stratosphere. As the international rich get richer and poor or low paid workers stand still – all these mega-rich hipsters will be bidding up Shoreditch properties – and in areas around the hub like Hackney. Hence the 5 bedroom Hackney terrace that might be selling for £1 million today – is likely to sell for £2 million in ten years time. Property will get more “peaky” with spikes in global city centres rising even higher compared to rural areas as the super-rich bid up prices – with the proceeds of their IPOs and company sales. Soho is another excellent bet – it is becoming the Visual Effects centre for London and this growth business will sent prices in this small trendy quarter rising sharply in future years.
Creative Hotspots: For lower prices areas that could see a strong ripple effect – Deptford-New Cross and Forest Gate are good options, still low prices but quite central. Anywhere near the Oval is a winner as well – in the slightly cheaper part away from the South Bank – that is extremely centre – and one can go west, north of east into the rest of central London with ease. Kennington – positively by the Nice Elms development is also worth considering. Further afield Peckham is still regenerating fast – and Elephant & Castle is also. A lot of wealth is also being created in North London with the tech boom around Shoredictch, so Leytonstone and possibly the more southern parts of Tottenham are both areas that will come up in the future.
Central-West: In West London, Barons Court or West Kensington – as close as possible to Earls Court – look good, and Earls Court itself on the quiet roads only – with the multi-billion pound redevelopment well on its way – its best to buy second hand Victorian property in the quite streets though if you can afford it. Our view is – don’t buy new property because you give returns to the developer. Its best to buy second hand – say Victorian – property and upgrade-renovate and add value that way. This is also true in the north of England and rural areas. Why pay a premium for new builds – when you can be an older property that can be extended, concerted, upgrades – with possible basement or loft conversions and space in a garden for a back extension.
Having said all the above, it's worth keep in eye on the chance of a Labour victory. As of 27 May, the Tories lead by 43% to 38% - far closer than when the Election was announced in early May when the Tories has 50% with Labour on 32%. We still forecast a Tory significant majority, but its getting far tighter than most people expected in early May. If Labour get into power, expect:
massive new taxes on buy-to-let landlords
new regulation that name and shame landlords publicly humiliating anyone not maintaining a property to the highest of standards
increasing house shortages as building levels drop and investment drops
smaller private rental sector and rising rents - as buy-to-let landlords bail out on a massive scale
property private crash of at least 25%
Chance of a Labour Victory: It looks unlikely but frankly anything can happen with social media, British voters - voting for the underdog because they are sick of politics and voter apathy play a large part. Tory's had better hope the older generation come out to vote and the younger generation show similar levels of voting to the last election - otherwise Corbyn has a small chance of being the next Prime Minister. Then there is no knowing what will happen with Scotland wanting another referendum, Russia on our doorstep, Brexit negotiations and terrorism increasing. Frankly it would be a complete mess with an over taxed population, business confidence evaporating and an anti-business government spending above its means all over again. The chance of a Corbyn victory is probably what people thought about a Trump victory a weak before the election - its not a good idea to be apathetic about casting your vote - regardless of your political persuasion.
We hope this Special Report has given you some interesting insights and ideas for improving your property investment returns. If you have any queries or comments, please contact us on firstname.lastname@example.org