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Getting Started:
First of all, understand the four most important concepts in property investment:
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Leverage
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Cash-flow
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Mindset
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Other people’s money
Leverage
To use a small amount of money to control a large amount of money/asset.
Cash-flow
The
amounts of cash being received and spent by an investor during a
defined period of time, sometimes tied to a specific project. In
property investment, cash-flow is king, as it will stop you moving
forward if your cash-flow is not managed appropriately. You should
also aim to build up positive cash flow from your first investment
onwards. When your passive income is more than your monthly expenses,
you have achieved financial freedom!
Mindset.
A
fixed mental attitude or disposition that pre-determines a person’s
responses to, and interpretations of, situations. In property
investment, you need to programme your mind for success by thinking
outside the box, acting decisively, and networking with, and learning
from, other like-minded individuals. You also need to recognize
opportunities when they arise, and constantly take action to drive
things forward.
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Other People’s Money
Banks
are some of the wealthiest institutions in the world. They take your
money, lend in out to someone else, and charge them interest. Why not
do the same?! Use the bank’s money (mortgage) to buy an investment
property. Other people’s money. Use tenants’ money (rent) to pay the
mortgage. Other people’s money. The true way to massive wealth is to
use other people’s money to take control of appreciating assets and
make you money! It’s pure genius.
There are a number of ways you can start investing in property - it
just depends on your current financial position, your personal goals,
and your attitude to risk. You see what I recognised is that I had a
secret financial weapon at my disposal - EQUITY. (Equity is the
difference between the value of a property and the amount of the
mortgage secured on it). Let’s think about equity for a second. What
does it do for us? We’re all aware that it’s a security blanket, and
I’m of the same view myself.
The reality is it’s doing
absolutely nothing. It’s a bit like sitting on a gold mine without
mining the gold! Your mortgage is like a shovel to get at this gold,
so all those people who think it’s smart to pay off your mortgage are
not making the most of their own home to use the equity in it to grow
more assets.
You also have access to
another powerful financial tool – LEVERAGE. I was sitting on a property
that I bought 10 years ago for £70,000 and now it’s worth £260,000.
That means I had equity worth £190,000. What I did was leverage money
out of my own home by re-mortgaging and withdrawing tax free cash -
money that went on to fund £3.5 million worth of property.
With property, it only
takes a small amount of money to control a large asset. Let me explain.
I think it’s fair to say that if you buy £100,000 worth of stocks and
shares, it will probably cost you around £100,000. It’s also fair to
say that you could buy a £100,000 property with a £10,000 deposit.
Consider the maths. If
your shares go up by £10,000 in a year you’ve made 10%. However, if
your property goes up by £10,000, you’ve made 100%! It’s not rocket
science.
All I did was take a
small amount of money out of my equity, and that’s now controlling £3.5
million worth of property. That’s the power of leverage!
Those who lack courage
will always find a philosophy to justify it. I’m glad I didn’t listen
to the doom-mongers, and there are plenty of them about! On further
questioning of these people, you invariably find that they do not
actually own any property! There’s been media hype about house prices
leveling off or falling for the last decade. In 1995, The Guardian
announced the housing market was in ‘a deep crisis.’ In 1997 the Daily
Mail shouted ‘It’s official! The London house price boom is over.’
Yet here we are in 2007,
and prices are still rising! Just recently the National Housing
Federation issued a report suggesting that property prices were going
to rise by 40% over the next six years. Research from Halifax Building
Society shows that property prices have doubled, or even tripled, in
the past 10 years. Just consider where your investment could
potentially be in 10 years time!
And the icing on the
cake? With escalating house prices pushing buyers out of the market
and increasing numbers of singles and families looking to rent, the
rental market is expected to grow by 40% by 2012. Who are these people
going to rent from? It could be you!
You can’t buy property in the past, and you can’t buy property in the future. There’s only one time to buy it – NOW!
I’ve never been one to
say that anything is written in stone or guaranteed. However, what I
will say is that if you do intend to go down the route of using
property as an investment vehicle, then the sensible thing to do is
surround yourself with like-minded people and expertise to ensure you
move forward successfully. Get the right information from the right
source, someone who is actually making a success of investing in
property! That’s why we chose to come up with 4wallsandaceiling.com.
We appreciate the value
of education and that investing in property is not about owning a
second home, it’s a state of mind – it’s being successful.
A thousand mile journey starts with a first step. Your first step is to explore this site and find some inspiration..
To re-iterate Albert
Einstein, ‘the only source of knowledge is experience.’ It’s the
experience we’ve gained that we wish to pass onto you through this
website.
I’ll leave you with this thought. This is singularly the best investor tip that I can give you – START!
Nick Tadd
Director – 4wallsandaceiling.com
Factual information gathered from: -
Halifax PLC, HBOS plc, Kate Barker report
What types of properties should I invest in?
4wallsandaceiling.com
believes in building a diverse and balanced portfolio of both
apartments and houses, and U.K. and international property. Before you
decide what property investment strategy is right for you, you need to
determine your own personal goals, as this will determine your own
strategy, and will be based on your own financial situation, and
attitude to risk.
A fantastic way to start safely is to find out where there is a demand, and then create the supply!
And while the old adage
“Location, location, location” is important, in more professional terms
it’s “due diligence, due diligence, due diligence”. In other words,
research your chosen area thoroughly and understand the local market.
Generally speaking, if
you are looking for capital growth you need to locate new, build
complete properties or off-pan opportunities from reputable developers
in areas of sustainable capital growth and high rental demand. This
could be anything from a one bedroom apartment in a city centre to a
four bedroom townhouse in a leafy suburb, if that adds up to a sound
investment. Look for properties in areas of investment, communication,
and infrastructure with a ready supply of tenants. By its very nature,
if investment is going into an area, property prices will rise. If it
has great communication/transport links, and infrastructure (shops,
leisure facilities, etc) tenants will want to live there.
For maximum rental yield,
more experienced investors can utilise a very specific strategy, which
is taught on our recommended property training course.
›› Click here for more information on training
Properties accommodating
five or more people become a House of Multiple Occupation (HMO).
Recently introduced legislation means that a licence from the local
council may be required and you will need to adapt the house to conform
to local regulations. This type of investment may be suited to more
experienced investors.
Bear in mind that flats
over commercial premises and studio apartments are harder to get
finance for and you do not have such a great choice of mortgage
products. Also remember, your flat might be over an estate agent when
you buy it, but then a tattoo artist moves in a year later. That would
de-value your property overnight! Keep away from properties on busy
roads, under airport flight paths, or those close to railway lines or
radio masts as these will not appreciate at such a high rate and
tenants will find these environmental factors off-putting. You also
need to be wary if a property is located near water as it may be
subject to flooding. Also, if a property is located near industrial
premises or sewage works, there may be off-putting smells and noise
which downvalue a property and limit your market for potential
tenants. Properties in areas of high crime rates are also to be wary
of. We avoid the particular types of investments listed above.
Whichever type of
property fits your strategy, we recommend that you visit it yourself
and apply your own personal benchmark. Would you live there yourself?
If the answer is “no”, then why should you expect your tenants to live
there? Ask yourself if you would feel safe walking home at night. If
the answer is “no”, then you are cutting out potential female tenants
which is half of your market
Parking is a very important consideration and will improve the rent-ability and value of your property.
Balconies are always
popular with tenants in city centres, while low maintenance gardens are
good for houses. Tenants always like to have a lot of storage, so make
sure you choose properties where there is built in storage, or plenty
of space to put wardrobes. Try and find properties with equal size
bedrooms and en-suite bathrooms, as these will particularly appeal to
sharers.
In a nutshell, if you buy
the right property, in the right location, at the right price, with the
right mortgage product, you minimise your risks as you will be able to
charge a competitive rent, and so secure a tenant quickly.
It is worth noting that
new build properties come with a ten year NHBC or similar guarantee.
They are therefore also low-maintenance and conform to all building
regulations. As they are new, clean, and have all modern conveniences,
they are a popular choice for tenants, especially in areas where a lot
of the housing stock is older.
Finally, whatever type of property investment you choose, you must ALWAYS
have an exit strategy in place. In layman’s terms - how are you going
to realize your capital out of the property should the necessity arise
in the future? In other words, who are you going to sell it to if you
need to?
If you are serious about
long-term financial freedom, you should really be investing in property
for the medium to long-term, as the goal is to accrue equity from
capital appreciation of the property.
When you have accrued
sufficient equity, and the rental income allows, you can re-mortgage
the property and release cash, which is TAX FREE.
You can then use this money to invest in more property. Therefore, the
business model we advocate is to hold all your stock for the long term,
release equity when circumstances allow, and purchases more property.
In other words, re-cycle your cash. After a while, your portfolio will
become self-funding.
If you do sell a
property, you incur a capital gains tax liability. Therefore, the true
way to wealth creation in property is to hold onto your stock
indefinitely, and just keep taking equity releases to fund further
investment, finance your children’s education, allow you to retire, or
fund your lifetime ambition. It’s up to you! View your properties as
golden geese who lay a golden egg every few years. You can use an
equity release from your investment property to pay back the original
equity release from your own home, which means you only borrowed the
money from yourself for a few years to grow additional assets.
And on a final note,
strangely enough, the more properties you have, the less the risk, and
the easier it seems to get! Treat your properties as a business. Keep
them well maintained to achieve the maximum rent. If you follow our
blueprint, you won’t go far wrong.
Building Blocks of Success
The
key to being a successful property investor is down to being a
successful landlord! After all, if no one wants to rent your property
then you are paying the mortgage!
There are always
acquisition costs with any property and having a budget for these is
vital. A few such costs are mentioned below and they should be
considered or dealt with leading up to, and after, completion. The list
is not exhaustive but should give some ideas.
Start to liaise with
letting agents 6 weeks prior to completion – get ideas from them as to
what the demand is i.e. fully furnished, part furnished etc. They can
start marketing your property, and, with the permission of the Site
Manager, start showing people around.
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Keep in constant touch
with your letting agent and encourage them to be pro-active and
communicate with you regularly. Ask for feedback after viewings, so
that you can establish what prospective tenants think of the property.
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You should already know
what white goods (fridge/freezer, washer/dryer, dishwasher) are
included by the developer – if you need to supply any, consider renting
them. That way there is no capital outlay and the rental money is 100%
tax deductible.
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You should have already
ascertained what flooring covers are included by the developer – if no
flooring is included, get quotes. Consider laminate for the hallway
and living areas, and carpet for the bedrooms. It is worth spending a
bit of extra money on tiling the bathroom and kitchen floors, as this
is harder wearing than vinyl floor coverings, and also looks better.
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Blinds/curtains are
generally not included by the developer. Therefore, get quotes or fit
them yourself - don’t forget that tenants expect these to be done as
standard.
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Bathroom fittings e.g
toilet roll holder, towel rail, shelving should be professionally
fitted to avoid your tenant doing a `bodge` job. The same applies to
light fittings, which must be fitted by a qualified electrician.
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We recommend “dressing”
your property with a few pictures, mirrors, shelves, etc as this will
make it stand out from the crowd. We are of the opinion that if you
present your property in the best possible light, it will attract a
tenant quickly, and hopefully the tenant will want to keep the property
up to the standard you have set.
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If your tenants require
the property to be furnished, that furniture needs to comply with fire
regulations. There are many companies who provide “furniture packs”
specially for Landlords and deliver and fit the furniture, taking away
all the hassle. We can recommend some companies to you, if required.
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Obtain permission to sub let from the management company – usually a fee required.
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Establish what the service charges are – consider monthly standing order
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Make contact with the utility companies and inform them of your correspondence address
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Obtain a set of keys for yourself
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Apply to the local
council tax office for an exemption notice - this is available on a new
build for 6mths providing that it remains unfurnished. Many Council
Tax offices can now be contacted via email so look them up on the
internet.
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Obtain landlord’s
insurance – if you have purchased an apartment, the buildings insurance
is generally covered by your service charge. Otherwise, with a house
purchase, you should arrange buildings and contents insurance. Also
consider accidental damage cover, rent guarantee and legal expenses.
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Consider having an
emergency turnout service in place for your tenants if the letting
agents don’t provide such a service. It can be cheaper to arrange such
a policy at the same time as taking out the insurance.
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Car parking – is it
included in the purchase price? If not, then this is an extra cost that
usually can’t be included in the mortgage. Usual cost for car park
space is around £15-20k. Before buying a space, liaise with lettings
agents to see if it is essential.
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Conform with the new legislation re: the holding of tenant’s deposits
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Get tenants properly
checked out – there are companies out there that will do just that if
the landlord intends to manage the property themselves
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Ensure the property has
the necessary gas and electricity landlord’ safety certificates. If
you have your property fully managed, the letting agent will arrange
this.
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We believe in
protecting our investment by having our properties professionally
snagged to rectify any defects that have arisen through the build -
allow approx £250+VAT for the average 2 bed apartment.
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Keep receipts for everything – you may be surprised at what can be offset against tax!.
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Network – making
contact with other landlords can be just as useful to a first-time
landlord as well as to a more seasoned one! This can done via
discussion forms, property magazines, local property network groups etc
… the list is endless.
The great thing about
property is people with properties love to talk! As a property investor
you never stop learning. It is a fantastic business to be in and done
wisely, the most profitable thing you can do. So if you are not already
involved in property – START !!
Please visit our Lettings and Ready 4 Rent Sections for further information.
If you have any questions and would like to know more about how 4wallsandaceiling.com can help you, please Contact us or Talk To The Wall. | 
