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4 posts from October 2008

October 31, 2008

Welcome to Property 2.0 - Home and Away!

Dear fellow investor,

It's been a couple of weeks since my last broadcast, and things are changing so rapidly in the fast moving world of property investment at the moment, that we have to up-date our website on an almost daily basis!

Petrol prices coming down ... food prices coming down .... interest rates coming down (4.5% at the time of writing and will almost certainly drop further) ... so there are some tiny pinpricks of light at the end of a very long dark tunnel. But we still have a long way to go, here in the U.K., make no mistake. Stay tuned to www.4wallsandaceiling.com for all the latest news.

As you have no doubt realised, the world is entering a new era of property investing which means that those that want to survive these challenging times need to adapt their strategies to reflect the reality of what is happening i.e. prices falling, lack of financial products, lack of creative deal structuring etc. The old ways of investing in property are now defunct. At 4 Walls, we call this "Property 2.0" and it is the subject of today's broadcast.

When it comes to purchasing property, one of the fundamental issues that you need to be clear about is the "intrinsic value" of the property i.e. how much is it really worth? There is much talk in property, particularly in respect of NMD and BMV purchasing, of how to determine Open Market Value in the current market conditions. The reality is that it is almost unquantifiable and things are changing all the time. The latest RICS Housing Market Survey shows both a renewed deterioration in the net price balance and a further drop in the level of transactions.

Click here to read the full RICS Survey story.

So we would like to put forward the idea that the new way of determining market value (from an investor's point of view) is quite simply that the property is only worth whatever level of borrowing the achievable rent will support!

This in turn depends on mortgage product interest rates and rental stresses.

If a property pays its way with some net positive cash flow, then that will tell you if it is a good deal and you have paid a reasonable price. You need massive discounts to get anything to stack with present mortgage products. However, if you are being paid by the property every month, you won't be too concerned about house prices going up, down, or staying stagnant! Following this strategy is a far more business-like approach than hoping for a "get rich quick" pay-out from equity release. We all need to face up to the fact that there is not going to be any capital growth in the U.K. anytime soon and prices are probably going to drop further, before stabilising.

To explain this business model using the metaphor of an employee: if you had an employee on a salary of £30k but they brought in £40K net of new business, would you mind? No.

If you had an employee who was on salary was £100K, but they brought in £140K net in new business per annum, would you mind? No.

It's all just numbers, and thankfully numbers never lie.

Accurate rental comparables are now more important than OMV's in our humble opinion.

When mortgage products become more favourable, you will be sitting even more pretty.

We use a simple calculation to work out what borrowing the achievable rent will support. It goes like this:

Monthly rent x 12 divided by (product interest rate) divided by (product rental stress).

If your property has positive net cash flow from the rent, then it is a valid business proposition! In other words, if it funds its own mortgage and "running" costs, and pays you a few £££££'s above and beyond that, it is a viable deal. It's as simple as that.

You also need to put this in the context that the maximum LTV is now 75%, meaning that you are going to need to put in 25% deposits for the time being. In reality, this makes it easier to stack deals and achieve positive net cash flow.

Coming soon: 4walls TV.


As you know from our blogs, we have been spending a lot of time over in Cyprus of late, as we see far more opportunity over there in property than we do here at present. Cyprus is a wealthy island, the banks there never got involved in sub-prime lending, and lenders are cash rich. The economy and population is growing and it is the No. 1 tax haven in Europe! A very attractive package all round which will fuel business and investment.

According to the London Chambers of Commerce (who contacted us last week), Cyprus is the most popular re-location destination for businesses seeking a haven from the credit crunch! This year they have had 135,000 enquiries from individuals and businesses interested in relocating there! That tells us at 4 Walls that there is going to be a healthy demand for rental property in Cyprus in the future, in particular the Larnaca area, which is the international portal to the island, and its main business hub.

If you cannot make property investing work in the U.K., then it makes sense to look outside the U.K. Entry level deposits start from £6K in the Larnaca area of Cyprus for a one bed apartment which is significantly more affordable than anything you can find here in the U.K. Plus you have positive cash flow from holiday lets and a growing economy that will keep capital growth stable for the future.

While in Cyprus recently, we caught up with millionaire investor and international tax planning expert Jarl Moe to find out why he invests heavily in Cypriot property:

So all of the above is actually good news, but only for those investors who recognise that they need to change their strategy to reflect the current market conditions and limited availability of reasonable mortgage products. In the future, successful property investors will be those who adopt a business-like approach, build their portfolios on positive cash flow, recognise the value of education and networking, diversify their investments to minimise risk, and take a mid to long term view both here and abroad.

Welcome to Property 2.0!

Finally, we were interviewed on Love Property Radio last week. You can listen to our interview at www.loveproperty.org or on iTunes.

We currently have some Property 2.0-style cash-flow positive deals available in Poole, Dorset, Basingstoke, Hants, and in Larnaca, Cyprus. These hand-picked, limited, highly discounted deals are ones that we are investing in ourselves. We focus on quality houses in up-market areas as we believe these to be more recession-proof than cheaper areas of the U.K. If you would like further details, please get in touch.

To your continued success!

Kind regards,
Nick

Remember - you can never learn less!

P.s I have a very trustworthy collegue in ecademy that is running a seminar on how to build relationships with accountants, well worth the consideration - click here -

October 17, 2008

News...

Why don't Estate Agents look out of the window all morning?...


... because they would have nothing to do in the afternoon!

Boom Boom.

October 16, 2008

Mork calling Orsen, come in Orsen...

Greetings from sunny Cyprus… no intention to rub it in!

Image021_2 OK so where do we start, it would seem that whilst I have been here in Cyprus that the world has fallen apart (well that’s what the newspapers would have you believe).

Personally I think it’s a good thing, don’t get me wrong it’s a pain right now but when we get through all the turmoil the world will be a better place.

In my opinion the word recession is an anagram of “I can’t do what I was used to doing, therefore, I will be upset”. Recessions will only affect people that cannot see through them. It’s a bit like being 13 years old and getting “dumped” by your girl/boyfriend, at first your all forlorn and upset, then after a while you re-adjust and get on with life… the problem seems to disappear.

This “globalization” malarkey, lets talk about that. It would appear that it has been a problem. One country (US) causes a problem with sub-prime mortgages (What a farce that was, how can a lender lend money to someone who already admits that they will not pay them back!) and then the rest of the world suffers because they were sold “bad debt” in packages thus leading to the problem we all now face.

Some people and/or companies are having a great time at the moment and are “steaming” through “The Dip”. Take Tupperware for example, their shares are up by 40% this is a direct consequence of the financial mess the world is in… people are taking their lunch to work with them as opposed to “going down the shop”.

Quick announcement: - we have got a small get together this weekend at the Holiday Inn in Guildford. It’s going to be a small affair; I would like to invite you to come along.

Holiday Inn
Egerton rd
Guildford
Surrey

Click here to register.
Click here for the map.

As you know I seem to be spending a lot of time in Cyprus at the moment, there are a number of reasons for this.

Firstly, I have houses and Flats out here, which need attention.

Secondly, Tax… we’ll leave it at that.

Lastly and I think this is a very compelling reason, there is so much more opportunity here (CYP) than there (UK).

I was reading a book the other day and it told me some very powerful stuff. The western world, as we know it, does not need anything (in commercial terms) we have everything we could possibly need… I don’t need a new mobile phone I want one, I don’t need a new pair of shoes I want them, I don’t need a new outfit I want it… the western world does not need anything, it just wants it. Now there is nothing wrong with this, if we did not want for anything then there would be no commerce and commerce as we all know drives the economy.

However, Cyprus is still in the “need” area not the “want” area and for a country that is at the start of it’s growth cycle that is powerful… hence opportunity.

For example: - The internet here (CYP) is still viewed as a toy, much like it was in the UK 10 years ago. We in the UK, whether we like it or not, rely on the Internet, over here they don’t know they need it… it’s still in it’s infancy much like commerce in general.

Remember Cyprus, as a PLC is not in debt, has cash reserves and a rosy future with the oil, double tax treaty with the UK etc (the double tax treaty brings in foreign money and business). It will never be a global power it’s too small for that, however, much like the Tupperware analogy I see opportunity in the global chaos.

So we have a country that is at the start of it's growth cycle, it's got no debt, it has money and it needs stuff.

Can you see where I'm going with this...?

Ok well I could harp on but seeing as though we’re having a get together this weekend I’ll leave my ramblings until then.

Stay positive and keep smiling.

Nick

P.S With ref the water shortage over here in Cyprus. Yes it is a problem, but do you really think they are going to sit around and not do anything?!?!

See below…

Image023_2 Image024_2

October 01, 2008

Breaking news...

Japanese Origami Bank has just folded!

"According to our inside contacts the Japanese banking crisis shows no signs of ameliorating. If anything, it's getting worse.

Following last week's news that Origami Bank had folded, we are hearing that Sumo Bank has gone belly up and Bonsai Bank plans to cut back some of its branches. Karaoke Bank is up for sale and is going for a song.

Meanwhile, shares in Kamikaze Bank have nose-dived and 500 back office staff at Karate Bank got the chop. Analysts report that there is something fishy going on at Sushi Bank and staff there fear they may get a raw deal."

Stay tuned for more breaking news.