Your motives

What are your motives for getting into the property market? Is it to move some of your existing cash pile into another asset class, to gain better returns? Is it to spread risk? Or if like me, you may wish to set up a base of financial independence by having enough cashflow to cover your living expenses?

It is important to clarify your motive from the outset as this will determine how much cashflow you will need. This in turn will influence the type of property and therefore help you pinpoint the goldmine area you should be looking at. It will also give you focus when it comes to what deals you will put offers into and what deals you will pass on.

How much cashflow do you need?

Once you’ve clarified your motives, you should find it easier to specify how much cashflow you will need. From now on we will express this number as monthly cashflow or more specifically the profits you receive per month before taxes.

Let’s surmise that you want to buy your first property so that you can start a small portfolio, which will pay you a monthly income such that you can retire from paid employment (if you wish). Define your monthly cashflow number now. Write this number down, so that you are reminded of it all the time. I will assume that you have already defined what your monthly expenses are. If not please do this exercise first. I show you exactly how to do this in my book How Do I Retire Early.

Going forward we will use an example of someone who needs a monthly cashflow of £2,000 from their property portfolio. Now we will start to look at the geographical area you will search for properties in.

Yields and financials what you will look out for

Before we establish where your goldmine area is, we need to spend a little time thinking about the key financial indicator – yield.

Yield

Yield is simply the amount of annual income you will achieve on a single property, expressed as a percentage of the price of the property. The formula to work this out is annual rent divided by the price of the property multiplied by 100.

(Rent/price x 100)

For example, if a particular investment property can be purchased for £100,000 and the rent is £900 per month, then the yield will be:

£900×12 / £100,000 x 100 = 10.8%

A yield of 10.8% would be very good, as ideally you want to be looking at properties that yield more than 7%.

Although the yield isn’t what your eventual profits will be, as it doesn’t take into account running costs, void periods and of course mortgage repayments, it is still a valuable indicator as to whether you should be looking at a particular property as an potential investment. If you work out the potential yield on a property and it works out less than 7%, I would pass on it straightaway.

Finding Your Goldmine Area

Now we have established what your target rental yield is, your next task will be to establish your goldmine area, using yield as a guide. Establishing your goldmine area takes some groundwork but it is well worth it. After all that’s why it’s called a goldmine. Your goldmine area is an area in which you’ve already worked out that the average yields are optimal and the other criteria are a fit for you.

Geography should be your first criteria. In what location do you want to own property? Ideally it should be within 30 minutes commute, as you will need to visit the properties before making offers. It is also an area that you can get expert knowledge in quickly. Having that expert knowledge of your local area can help you to find better deals and also to understand where the potential pitfalls are.

You will be doing some analysis on the financials of the properties in your goldmine area and I can recommend setting up a spreadsheet to do the donkey work for you.

Download a free copy my Goldmine Area spreadsheet in the Free Stuff page. You can also see a screen shot below.

First go online to www.rightmove.co.uk and search properties for sale in a small geographical area within your 30-minute catchment area. Rightmove allows you to search in specific locations such as Town, County, Postcode. I would advise searching postcode sub-sections e.g. M25, M45, BL8. These are also called the outward code. Specific postcodes, for example M16 0RA which includes the inward code, will be too small to gain a good sample area.

Filter Your Search Results

Next, filter your search by numbers of bedrooms, separately. I.e. first look at 1 bedroom, then 2, then 3. If you already know you are only looking at 2 or 3 bedrooms, then you only need to search for these. You might also have already decided you don’t want to look at flats or bungalows. If so you can filter these out too.

Sort by price lowest to highest. What you are looking for here is the average price for a property with that specific number of bedrooms. Use the median price for a quick and dirty average. This is the middle price, so if your search comes back with eleven pages of results, for instance, go to page 6 and choose the middle-of-the-page price. Enter this into your spreadsheet. Repeat this for each number of bedrooms.

Repeat with For Rent

Now you want to repeat this exercise for rental prices. Go to the For Rent tab on Rightmove and find the average rental price for each number of bedrooms, using the same method as above. Enter these into the next column on your spreadsheet. Use the following formula to work out the average yield for each number of bedrooms:

Av. Monthly rental x 12/ Av price x 100. Enter this into your spreadsheet. (If you use my spreadsheet, Excel will work this out for you).

Repeat this for every sub-area in your catchment area. Once you have done this you will have a breakdown of yields per no. of bedrooms per sub area.

Go through your spreadsheet and delete any areas/bedroom numbers that come in with an average yield of less than 7%. Now it should be easy to choose the highest yielding sub-area as your Goldmine area.

Yes, I know this will be a laborious task at first, but believe me, once you have found your Goldmine area, you will have struck gold.

How much have you got for a deposit?

Once you have chosen your initial Goldmine Area, we will assess whether this is a viable option for you, in respect of your personal circumstances.

Firstly, we will now start to look at how much liquid cash you have available for your first deposit. Assuming you have this number to hand, you will be able to see how realistic this goldmine area is for you. If you don’t have this number to hand then please go ahead and work this out.

Let’s say that you have a cash deposit of £25,000 which you can get your hands on within the next few months. Now have look at your Goldmine Area prospecting spreadsheet. Look at your chosen Goldmine Area and look across to the row of your chosen number of bedrooms. For instance, in the example screenshot above, you can see the following are yielding above 7%.

• Camberwick Green – 2 beds
• Chigley – 2 beds
• Royston Vasey – 1 bed
• Hobbiton – 2 bed

But as we look down the deposit required columns, we only have enough average deposit for Camberwick Green – 2 bed and Royston Vasey – 1 bed.

You may decide not to consider 1 bedroom properties, therefore 2 bedroom properties in Camberwick Green would be you Goldmine Area.

How many properties will you need to get your target cashflow?

The second sense-check, when choosing your goldmine area, after the amount of deposit required, is how many properties will you need to purchase to reach your Financial Independence target? Again, there is no right or wrong answer to this, your number will be personal to you and is a factor of how long it may take.

Let’s use simple figures to illustrate. Say your financial independence target is £2,000 per month. Look at your goldmine area on the prospecting spreadsheet, in this case Camberwick Green – 2 beds. On average we will need to borrow £75,000. At today’s rates of 4.89% interest on an interest only mortgage your mortgage would be £3,668 or £306 per month.

If the average rent is £800, this will give you an average gross profit of £494.

Remember this is an average and doesn’t include costs such as repairs, insurance and void periods etc.

So, dividing £494 into £2,000 means you will need to purchase around 4 properties of similar profitability. Is four properties acceptable to you? How long will this take, given your circumstances?

To summarise, then, your choice of goldmine area will come from working out how much cashflow you need. You will need to bear in mind what the yield is and what minimum yield you are prepared to look at. Ideally this should be more than 7%. Then figure out how much cash you have available for a deposit. Does it cover the average deposit needed in your proposed goldmine area? Finally, how many of the average properties in your goldmine area will you need to purchase? Is this acceptable to you? Remember also that your motives for investing in property will under-pin all of this. Be clear on your motives.

The post How to Find Your Property Goldmine Area appeared first on Mike Holden Sales.

Investments and redundancy

You may be in a job you don’t particularly like, but you need the money anyway. I had a deep itch to work for myself, but I didn’t quite know what I wanted to do. I thought that if I gained financial freedom, I could choose what I wanted to work on, or even if I was going to work or not.

Around 2010 I started on my journey into financial independence, saving and investing in property. By 2022 I realized that I could finish work and in effect coast until I was age 55 (2025); there is even a name for this: Coasting Financial Independence. I held off though, with the thought of ‘just one more year.’ I remember reading a post by Mr Money Moustache to this effect, but I still held off.

In the summer of 2023, my mind was made up for me. The company I worked for underwent a drastic restructure and my position was redundant. I was given a generous severance package and there I was, with almost 2 years left until I could get my hands on my pension. I had effectively retired.

The experience of retiring

We went on a couple of beach holidays and I decorated the house from top to bottom. Once this was completed, I had nothing to do. I felt bereft. I just sat around the house staring at the walls. Was this it? All those years of striving for FI and I was redundant. Not required. On the scrap heap.
I had achieved my number one goal and I felt empty.

The word retire

If you look up the word retire, its derivation is from the old French military – to withdraw to a place of safety. Later in English, it meant to withdraw to somewhere else as in ‘withdraw to the library after dinner.’ Or a Gentleman might ‘retire to his country house’ once he has amassed his fortune. Alternatively and tellingly, he might no longer be required in the City and will therefore live off his pension. In other words, he has become redundant. To retire then became as it is today, to finish working and live off your pension or investments.

Here therefore are the 5 reasons I won’t retire:

1. Purpose and mortality

The life of leisure and not needing to work for money, seems very appealing, to the worker especially after a difficult day at the office. But people need a purpose. Studies have shown that mortality rates increase when there is a lack of purpose. Even the routine of getting up for work every day keeps you going. It keeps you alive. Also, the lack of personal connection and community you get in the workplace can cause an increase in mortality. Yes, being isolated is bad for your health. A combination of a lack of purpose and a lack of connection is a killer. This is one of the reasons why I won’t retire. It is not the only reason though.

2. I Won’t Retire Because what else would I do

Another reason I won’t stop working is that what else would I do? I don’t play golf, I’m not particularly into gardening. I do like travelling, but I can do this in my sales business, which has taken me the length and breadth of the UK, not to mention, Italy, & Germany. We also get a couple of holidays in a year.

So, I’ve said to myself that unless and until I have something better to do with my time, then I will continue doing what I enjoy.

3. Tax

Working generates income and profits, which are taxed. No one likes paying tax, I’ve written a post about setting up a limited company to buy property in the UK, so I could minimise my tax burden. However we should pat ourselves on the back and say we are doing a good thing, when we do pay tax. We are a net contributor to society when we work and pay tax.
There is also a moral aspect of carrying on working, if you can, and that is that whatever your work is, you are providing a service to your customers or employer. You are helping your fellow man and therefore the world is a better place.

4. Creativity

For me, my work is an expression of my creativity. Whether it is writing this blog or designing a new sales and marketing campaign, in my sales business, I am expressing an innate facet of my being. In those months where I finished working and in effect retired, something inside of me died, or at least lay dormant. It was work that brought it to life again. Now I see that work is a virtue and yes, idleness is a sin.
Working allows me to develop my gifts through my creativity, to help others in some way.

5. Life

Working is an expression of life. When I was young, I worked to earn money so that I could live. Now, I realize that this was backwards. My work is an expression of my life, money is the bi-product. That’s why I won’t retire.

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Where does “You will own nothing” come from?

‘You will own nothing’ was uttered by Klaus Schwab the president of the World Economic Forum. He actually said, “You will own nothing and you will be happy”. What he meant by that is that if the WEF have their way we will all live in a rental society, where only the ‘elites’ will own property.
Here Roth argues, correctly, that property ownership underpins the freedoms we enjoy in our lives. The most fundamental of freedoms is your freedom of where to live. If you own your own home, you decide where you want to live. Ownership of your own vehicle means you are free to travel where you want and when you want.

World Economic Forum (WEF)

This organisation sounds like it is an official pan-government body but is a networking club for the ultra-wealthy, powerful and influential. They meet once a year at Davos in Switzerland (appropriately) to mingle, hobnob and share ideas on how to improve the world (and their bottom lines). Nothing wrong with that, on the face of it. The question is, are the characters who frequent this gathering there for natural self-interest? By that I mean are they doing what most business owners do, when they network with like-minded people? Or, as Roth explains, are some of these individuals there for more nefarious reasons i.e. world domination and the enslavement of humanity? The author does concede that some visitors attend this event out of pure FOMO (Fear Of Mission Out). ‘So and so from such and such organisation is a member, I must see what this is about.’

Social Credit

The author lays out how is this nightmare is being brought about? The first method is social credit. This is where governments will try to shape the behaviour of their citizens with a kind of score. The more you behave the way they want you to, the higher your score. This would be a sensible thing, if you could trust the people who are designing these systems.

If the elites want to silence dissent, then what better way than to mark down the score of people who speak out against the government. It is already underway in China. But how will this work in principle? Well, what’s one of the biggest things that motivates peoples’ behaviour? Money.

Digital currency

The author highlights the trend towards a totally digital financial system, which has accelerated since the pandemic. If we get to a stage where all finance is digital, i.e., there is no cash, then it is just a matter of pressing a button, to be able to prevent us accessing our money. This has already happened with the Truck Drivers in Canada. Also, notably and recently, Nigel Farage had his bank accounts frozen because his bank didn’t like his political views. He successfully fought against this, but you can see how this might play out.

ESG

ESG or Environmental, Social, and Governance is the version of social credit, for corporations. Ostensibly it is a way for investors to be able to decide whether they want to invest in a company who is ethical, in their mind. Again, on the face of it, it would seem a good thing that you want to be able to invest in companies who align with your values. But Roth, shows us how this can be manipulated. If a company doesn’t tow the line of the elites, then they can lose their ESG status. This means that they could be taken off the large Indexes, meaning less investment. The system is also a large time and financial burden on companies as they will have to invest time and resources to make sure they comply. This is to the detriment to their shareholders.

Taxes and Debt

There is a debt crisis both at governmental and at the personal level that is unsustainable. Governments can only raise finance in one of two ways. By borrowing or raising taxes. The borrowed money needs to be paid back and again this can be done with taxation. The other way of reducing the debt burden is through inflation. Inflation erodes the debt relative to the value of your money. This also means that the cash in your bank account is worth less year on year. By stealth your money is being stolen from under your noses. You will own nothing and be happy.
Personal debt is also unsustainably rising. Credit cards, mortgages and loans are the usual culprits, but student loans are becoming more and more pernicious. Young people who rightly want to educate themselves are saddled with debt that they may never pay off. There is also no correlation between the amount of debt borrowed and the payback when the student enters their career. The savvy student should assess whether the likely salary they will receive would be worth the debt that they take on. Not all degrees will offer the same payback.

Upcoming wealth heist

As we come to the close of the book, if we are not already depressed, then the chapter on the upcoming wealth heist may tip us into doom. There is a natural flow of wealth from one generation to the next, as the older generation passes. For instance, the so-called Baby Boomer generation are now entering into retirement and naturally their wealth will eventually pass to Generation X and so on. The Governments and financial elites want a piece of this pie. Inheritance tax already exists, where any wealth over a certain allowance is subject to taxation. That is bad enough in my opinion, but this could be altered so that the beneficiary will have to pay tax on the capital gain.
For instance, at the time of writing in the UK, you will have to pay inheritance tax on estates worth more than £325,000 and you are only liable to pay 40% on the amount above £325k. So, if estate you inherit is worth £425,000 you will pay 40% of the £100k difference i.e., £40k.
However, if these bad actors get their way you will pay IT on the capital gain. Let’s say your parents bought their house in the 1970’s for £10k and its now worth £325k. Under the current system you will pay no IT. Under a new system you could pay 40% of the capital gain i.e., £126,000 (40% of £325k – £10k).

The solution is at the end.

One criticism I have of the book, is it is overly pessimistic. I feel it could be made more optimistic by spreading the solutions throughout the book. However, the author saves these up for the end. I do recommend the book to learn how possible trends might play out, but I would urge you to keep in mind that there is always a solution.

My takeaway actions

The solutions to protect yourself from these trends are suggested and these are the takeaways that I will be continuing to implement or start. The author also suggests other remedies.

1. Be free and clear of all unproductive debt. No credit card debt and don’t use debt to buy liabilities. A home mortgage is fine if it is affordable. In fact, owning your own home is a must. You can read more about this in my blog post how to reduce debts. Here I give you a step by step process to reduce and eliminate debilitating debt.
2. Reduce expenses on liabilities. A liability can be described as something that depreciates in value or costs you money. The flip side of this would be to spend money on assets i.e., those things that do appreciate in value or will pay you an income.
3. Have a well-diversified portfolio of investments including tangible items. The author quite rightly doesn’t offer financial advice here, but a broad portfolio will shelter you from all market cycles.
4. Invest in gold. Following on from point 2 & 3, gold is seen as a hedge against inflation and financial turbulence. It is also something tangible that cannot be taken away with a push of a button. It can be stolen though!
5. Own your own business or equities in other businesses. Again, you should shelter yourself from possible downsizing in your job.

Conclusion

All in all, I would recommend this book if you are new to this subject matter, as there is nothing written about, that is not already in the public domain.

The post You Will Own Nothing by Carol Roth – my takeaways. appeared first on Mike Holden Sales.

What does Dave Ramsey say about debt?

Dave Ramsey takes a biblical stance on debt. He says that all debt is bad and the ‘borrower is slave to the lender’. Baby step 2 in his 7 steps shows his pupils how to eliminate non-mortgage debt, using the snowball method.
I particularly like the snowball method, because you can get some quick psychological wins by attacking the smallest debt first. I’ve written about this elsewhere. There is also a debt avalanche method which is different in that you will attack the debt with the highest interest rate first. Both methods have their merits and the avalanche method may be quicker in the longer run.
However, I agree with Dave Ramsey here, in that some early quick wins, with the snowball method, will be an encouragement to those who maybe feeling under financial strain.

The Seven Baby Steps

As a reminder here are the 7 baby steps as taught by Ramsey. They are geared towards the US audiences but can easily be adapted to the UK reader. The important thing to remember is you must tackle each step, in order and not jump ahead. You can to tackle steps 4-6 at the same time though.

1. $1,000 emergency fund. Save up $1,000 as an emergency fund. Often when people are in dire financial situation, they are hampered in their efforts to pay off debts and start long term savings plans. This is because some emergency will occur, which will eat up those funds. ‘Murphy will come round knocking’. This $1,000 fund, once saved, will act as your buffer against the winds of fate.
2. Pay off non-mortgage debt. As I showed before, the next step is to eliminate all your non-mortgage debt using the snowball method. This will include loans. credit cards, store cards, overdrafts, car payments and student finance for the US. (Here I believe the UK student finance is a lot less onerous, so I wouldn’t include it in the baby steps).
3. Continue your emergency fund. Once you remove all debt, use your increasing leftover income to continue saving for emergencies until you have 3-6 months of living expenses saved.
4. Retirement fund. When you complete steps 1-3, direct at least 15% of your income into a retirement fund. Dave Ramsey talks about the US market here, but in the UK, this would be, for instance, a company pension scheme or personal pension. Make these payments automatic and continue for as long as you work.
5. Save up for your children’s higher education. Alongside your 15% retirement fund, direct a percentage of your income into a separate investment account, which when mature, will be able to pay for you kids’ higher education. Quite rightly they will not have to get themselves into debt to study. Again, I’m not sure this is applicable in the UK. I would take advice on this.
6. Pay off you home mortgage. Alongside steps 4 &5, start overpaying on your home mortgage, so that you can pay this off many years early.
7. Live and give like no-one else. Now you have completed steps 1-6, now it’s time to enjoy your money. At this stage, you have cleared your debts, you have some set aside for emergencies, your retirement and child’s education. Now you can cruise to generational wealth.

When is he right?

I love this system, but I would say that there is maybe a step 0 missing in that the first step should be to get some income in the first place. But that aside, I agree.
Certainly that $1,000 emergency fund is a great way to stop living hand to mouth and if someone has never had this buffer before, it must be a god-send.
It goes without saying that I agree with saving for your retirement, future wealth and helping your offspring.
I also agree that you should remove all consumer debt, as quickly as possible. In fact, I’m in total agreement with Dave, not to have any consumer debt at all.

When is it not right?

Dave Ramsey states that all debt is bad, however he does acknowledge that you can use a mortgage to purchase a home, at around the time you are at step 4. My problem with the maxim that ‘all debt is bad’, is that it doesn’t differentiate between good debt and bad debt.
Bad debt is any debt that is used to purchase items that depreciate in value or consumer debt. Good debt therefore is debt that can be used to purchase items that appreciate in value and provide an income. Examples of good debt could be a mortgage to purchase a home, a mortgage to purchase a rental property or a business bank loan. The latter two forms of borrowing are called leverage and are legitimate forms of finance.

Conclusion

Where I think Dave Ramsey is coming from, by saying all debt is bad, is that his target audience are people who are in a financial mess. They might also be just starting out on their financial journey. I agree that all consumer debt is bad and you should avoid it like the plague.
Good debt in the hands of a novice, or someone who cannot manage their finances, could quickly turn into bad debt. Rather than make this differentiation, Ramsey safely errs on the side of caution.
I would say that for most people on the baby steps journey, they should avoid any further debt apart from the home mortgage. If they have safely navigated their way through the 7 steps, then they have demonstrated that they have learned the financial skills required. They could then take on good debt to accelerate their wealth. If they haven’t learned these skills then, yes, Dave Ramsey is right – all debt is bad.

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There is a rule of 300, which can help you determine how much money you will need to become financially independent. Here I explain what the rule of 300 is and how you can work it out.

Inflation at historical 3%

Firstly, we need to factor in inflation into the equation.This is because your pot of money will need to keep pace with inflation, so that it is not eroded away.

The rate of inflation, or how much the price of goods increases, varies at any given time. Currently, at the time of writing, the rate of inflation in the UK is around 10%. Historically inflation averages out at 3% per year. That is, the cost of goods, will be on average 3% higher next year. This means that the value of the money you have will be worth 3% less next year.

Stock market at historical 7%

Next, we can factor in the rate of increase in your investment portfolio. It’s not in the scope of this post to discuss what vehicles your money should be invested in, but let’s say that you have a pension invested in the stock market, across all sectors.

Historically the stock market in the UK, has risen by 7% per annum. Some years the market will decrease and some years it will increase, but averaged out there is a 7% gain per year.

Difference is 4%

So, if the stock markets rise on average 7% per year and inflation erodes your money at 3% per year, over the long term your net gain in real terms will be 4% per year. 4% is therefore what you can live on without diminishing your Net Worth in real terms.

Your net worth, therefore, divided by 25 is what you can live on a year. (100/4=25).

Divide this number by 12 to get your monthly allocation. Therefore, you can live off your net worth divided by 25 x 12 = 300. This is what you can live on per month.

If you follow this formula, you will have a 95 % probability of your net worth outliving you.

The post The Rule of 300 – how much do you need to be Financially Independent? appeared first on Mike Holden Sales.

Here is my third property deal breakdown.

Property deal breakdown

The property is a terraced house in the Bury area of Greater Manchester. The house was built around the 1880’s.

It was originally on market for £150,000 and the vendor later reduced it to £130,000. I then stepped in at this price, as the numbers stacked up now.

Upfront costs

Stamp duty – £3,900

Solicitor’s fees – £1,841

Upfront mortgage fees – £399

Homebuyer’s survey – £495

Deposit – £32,500

Refurbishment costs – £8,625

Total upfront costs – £47,760

Monthly cashflow

Rental Income – £900

Mortgage – £409

Management fees – £86

Ground Rent – £2 (Paid annually)

Gas safety check – £8 (Paid annually)

Landlords’ insurance – £35 (Paid annually)

Pre-tax profits – £359

Return on Capital Employed – 9.0%

(£359 x 12 = £4,308 – divided by £47,760 x 100)

Yield – 8.3%

(£900 x 12 = £10,800 – divided by £130,000 x100)

Conclusions

Overall, I am pleased with this property deal. Although the refurbishment costs were higher than anticipated, as I had to get a new boiler, I anticipate a payback within one year.

The post Property Deal Breakdown #3 appeared first on Mike Holden Sales.

I use a financial bucket system instead of a budget. I’m not a great fan of budgets, as I find them inflexible and restrictive. Budgets that are too granular, that is, drilled down to specific spending categories, don’t consider the fluctuations in spending patterns and needs.

The financial bucket system is a way to allocate the money you receive in regular incomes, such as salaries.

The bucket system isn’t a budget, per se, although at the very top level you are restricting your spending overall.

What is a financial bucket system?

The financial bucket system is a method to allocate your income into 5 or 6 broad categories, such as living expenses, savings, giving, debt repayment and fun spending. Whereas a traditional budget you would allocate funds to go towards specifics, such as utilities, food, transport etc. I’ve tried traditional budgeting, even Dave Ramsey’s envelope system, but found it unworkable.

If there was, for instance, a spike in the gas bill, you would have to find those funds from another category, thereby robbing Peter to pay Paul. Averaging out the bills over the year, is also not feasible. Where would you keep the additional income you keep, during low months? It just wasn’t workable.

In the financial bucket system, the regular monthly household expenses can be allocated to one large bucket. This bucket is your living expenses. Here’s how the system works.

The 50:10:10:10:10:10 financial bucket system

When you receive your monthly salary, divide it into 6 buckets, most online bank accounts will allow you to set up separate current account for this purpose.

Living expenses

This can usually be your primary current account. You will allocate 50% of your income into this account for living expenses. This is what you will pay all those regular bills with.

Savings

Next remove 10% of your income into a savings account. This account will be used to pay for longer term expenses, such as an annual holiday, Christmas, or car insurance if you pay it off in one. This account should be used for predictable but irregular expenses, those expenses that you know you will need money for.

Emergency fund/Investment

The next 10% will go into your emergency fund/ investment fund. This fund will never be used except for, you guessed it, emergencies or for investing in assets.

If you don’t have an emergency fund already, then aim for 3-6 months living expenses saved up, never to be used except for emergencies. What are emergencies? Not holidays, treats or for when you are running short. No, an emergency would be something like an unexpected car repair, new boiler or medical issue. You could also earmark this money, if you suddenly lost your job, so you could live off this fund for 3-6 months until you found a new job.

It would be even better if you set up a separate savings account, with a separate bank, where it is not as easy to withdraw the money. Set up a monthly standing order to transfer this money on payday, automatically.

Once you’ve reached 3-6 months living expenses, you can use the money you are transferring every month, into an emergency fund, to go into a investments. As you won’t be using this money for a long time, you can let compounding take effect, to grow this nest egg. What investment you purchase will be personal to you and you should take independent financial advice on where to invest. Some examples could be an Index Tracker fund or property.

Debt repayment

The next 10% bucket is your debt repayment plan. Use this 10% to pay off debt over and above your regularly monthly payments. See my post on debt repayment, where I describe the Debt Snowball method.

Giving

There is something almost mystical that happens when you give money away, with no strings attached. I don’t know how it works but the money seems to come back to you in other ways. It’s almost like a reward. Of course, this shouldn’t be your motive for gifting, but if you can set aside a percentage of your income, up to 10% for gifts and worthy causes, that you care about, you will see the benefit as well as doing good in the world.

Often people want to gift money but put it off because they think they can’t afford it. Actually, the reverse is true. If you gift the money anyway, you will soon find you have more than enough.

Fun

The final 10% will go towards fun. This bucket is for treating yourself. In the other buckets you’ve taken care of your living expenses, long-term savings, gifting, investing/emergencies and reducing debts. This last bucket is just for you. People will either splurge on themselves with money they don’t have, or they will go the other way and begrudge spending any money on themselves. The beauty of this bucket is that you can use a finite amount of money, to spend on whatever you want without guilt.

Better – 50:20:10:10:10

Once you’ve paid off your debts, using the 10% debt bucket, you can transfer this 10% to another bucket, because you will never get into Bad Debt again. I would recommend transferring this into your Emergency/Investment bucket, so you can really accelerate your wealth accumulation.

Start small if you can, but build it up

If you’ve never done any budgeting at all, then allocating your income into buckets of 10% may seem a big stretch at first. If that’s the case, then set up the buckets anyway, but then start smaller and build up to 10%. Perhaps start with 1% and add another 1% each month until you reach 10%.

What will happen when you use the Financial Bucket System?

There are several things that will happen once you’ve started and used the Financial Bucket System for some length of time, which at first seem counterintuitive.

You won’t miss it

Firstly after a few months of doing this, you will not miss the diverted money. You will quickly get used to living off 50%.

Capital will grow

If you track your net-worth (as I recommend), you will not notice much of a change at first. However, if you persist, over the years you will be astounded by how much it starts to grow and compound.

Your income will increase

I don’t know how this happens, but it does. All I can say is try it.

You will be more discerning and disciplined.

Your spending habits will change and you will come to respect money. This means you will be less likely to waste it. You will be more discerning about what you buy and when. Rather than buying on impulse, you will wait to purchase something. Often this means that you won’t purchase the item because the impulse goes away.

All in all, I can thoroughly recommend using the Financial Bucket system. It certainly helped me turn my finances around.

The post The Financial Bucket System appeared first on Mike Holden Sales.

How do you 10x your money, for instance to turn £100 into £1000? Maybe you want to buy something that costs £1000, you only have £100 and you don’t want to use a credit card. Very sensible.

Bet on something at 10:1 – not good

Here’s a very quick way, find a betting market with odds of 10:1 and place your bet. I’m being facetious here, by the way. It’s not a clever idea.

Buy shares and wait 25 years – not good

You could buy some shares and wait 25 years. On average the stock market rises 10% in the UK, every year, so your £100 will double every 7 years. Your money will be worth more than £1,000., after 25 years. I’m jesting again. This is a bad idea.

These are examples of the two extremes you hear about – gambling and investing. Neither are going to bring you instant cash. Gambling is stupid and investing is, well, investing.

So here are some sensible ways to turn £100 into £1,000, fairly quickly.

Buy stuff second hand you can sell for double – repeat. It takes work

£100 can be turned into £1,000 in a short space of time by buying something second hand, at a low price and selling it on for a higher price. You can use arbitrage here. Either by buying in once place where items are plentiful and selling where they are rarer.

Arbitrage can be geographical, on platforms or in time. For instance, you can buy things cheaply on eBay and sell at a higher price on Amazon. Or you can buy things out of season (think winter coats in summer), wait and sell them when demand is higher.

Another method is to buy things on eBay cheaply where the seller has written a poor description, with blurred or missing photos. Once you receive the item, you can relist it, making sure you write a great, honest description with clear photos. You are in effect doing a better job of selling the item.

Your profit margin will vary and it’s not uncommon to be able to double the price or even triple. Once you receive your money, recycle it by buying more items and repeating the process.

Buy something you can repair or add value to – it takes work

Are you handy? Do you repair broken things at home, rather than replacing them? Do you upgrade old furniture rather than replacing with the latest fashion? If so, you might be able to turn your £100 into £1,000 by repairing and reselling broken items. The list of items you can repair is endless, especially today in our throwaway culture. It’s also better for the environment. A good idea is to start at home. What have you got in the loft or garage that could be given a new lease of life?

Old Furniture

Old wooden furniture can be made to look fantastic with a repaint, re-varnish or by sanding down to the original surface.

Fabric suites and sofas can be upgraded by putting new fabric on. Often it might just need a good clean.

Electrical Items

If you can rewire a plug, you could repair simple household electrical items such as kettles, lamps, lawnmowers, vacuum cleaners etc. Often people will replace a faulty item, which has the simplest fault, like a loose wire or blown internal fuse. If you are comfortable dismantling the appliance, to look for a fault, you could immediately fix something up for resale.

After you’ve made some cash with your first items found at home, it is now time to scale up. Was there one particular project you enjoyed more or was most profitable? Perhaps you can find more of those broken items.

Where to find broken items

Here are some places you can find items that can be upgraded or fixed.

• Seach on Ebay for your specialist item and filter the search for Used- for parts only.
• Car boot sales
• Charity shops
• Online forums such as Freecycle
• Local municipal recycling centres. Obviously don’t go climbing into the skips, but you could keep your eye out for items, as people are discarding them. Politely ask if they would like to give it you to up-cycle. As they are throwing it away anyway, they should be happy to give the item a new home.

Pay for a course to learn some skill you can sell as a service – it takes work

It’s often said that the best investment you can make is in yourself. Could you spend that £100 on a course which teaches you a valuable skill, which you can offer as a service to someone else? Have a look at Udemy for some ideas.

Turning £100 into £1000 can be easily done, but in most cases will take either time and/or effort. But here’s the golden nugget. If you can turn £100 into £1,000 you can turn £1,000 into whatever you want.

Unfortunately, there are no get rich quick schemes that work as far as I can see. If you do find one, please let me know.

The post How to turn £100 into £1000 appeared first on Mike Holden Sales.

You make your money when you buy a property, so buy below market value. This is a common phrase you hear when talking about property investments and is certainly true when discussing the capital gains. It can also be true when you consider mortgage repayments, as the less you pay for the property, the less your mortgage will be.

Buying the property Below Market Value (BMV) is a sure way to guarantee improved profits and can ensure that if you remortgage, later, you could even take your money back out of the deal. In effect you are buying the property for free or no money down.

If this sounds great, then here are some ways you can buy property below market value, especially if you are just starting out.

Goldmine Area

The first task should be to establish your goldmine area. Establishing your goldmine area takes some groundwork but it is well worth it. After all that’s why it’s called a goldmine. Your goldmine area is an area in which you’ve already worked out that the yields are optimal and the other criteria are a fit for you.

Geography should be your first criteria. In what location do you want to own property?Ideally it should be within 30 minutes commute, as you will need to visit the properties before making offers.

You will be doing some analysis on the financials of the properties in your gold mine area and I can recommend setting up a spreadsheet to do the donkey work for you. Get in contact with me for a free copy of mine.

Rightmove research

Next go on to Rightmove and search properties for sale in a smaller area within your 30-minute catchment area. As a rule of thumb search postcode sub-sections e.g. M25, M45, BL8. Filter your search by numbers of bedrooms, separately. 1,2,3 and 4. if you are planning to let out your property don’t bother with more than 4 bedrooms. If you already know you are only looking at 2 or 3 bedrooms, then you only need to filter for these. You might also have already decided you don’t want to look at flats or bungalows, so you can filter these out too.

Sort by price lowest to highest. What you are looking for here is the average price for a property with that number of bedrooms. Use the median price for a quick and dirty average. This is the middle price, so if your search comes back with 11 pages for instance, go to page 6 and choose the middle-of-the-page price. Enter this into your spreadsheet. Repeat this for each number of bedrooms.

Now you want to repeat this exercise for rental prices. Go to the For Rent tab and find the average rental price for each number of bedrooms. Enter these into the next column on your spreadsheet. Use the following formula to work out the average yield for each number of bedrooms:

Av. Monthly rental x 12/ Av price x 100. (enter this into you spread sheet).

Repeat this for every sub-area in your catchment area. Once you have done this you will have a breakdown of yields per no. Bedrooms per sub area. Simply choose the highest yielding sub-area as your Goldmine area.

Rightmove alerts

Once you’ve established your goldmine area, if you haven’t already done so, create an account with Rightmove. Set up a search for the goldmine area, number of bedrooms and filter out unwanted property types if you have them. Click on Save Search and then choose to receive instant emails for new properties fitting your criteria.

For existing properties for sale within your goldmine area, fitting your criteria, you can start viewing them. Rightmove makes this really easy, within the individual property details you can click to email or call the Estate Agent.

Viewing – put figures into spreadsheet

Once you’ve confirmed a viewing with the Agent, put the details into another spreadsheet. The details should include:

• Address, postcode
• Property type
• No. Bedrooms
• Asking price
• Est refurb costs (always overestimate)
• Your offer price
• Paste a link to the Rightmove listing (this will be important later)
• Comments

Check out my spreadsheet if you want, just get in touch via the contact page. The purpose of this spreadsheet is not just to track your activity and market trends, but also to act as a follow up prompt. (See later).

Put offers in BMV

Once you’ve viewed the property, work out what your Below Market Value offer would be minus refurbishment costs. Aim for 25-10% BMV. For example:

If the property was listed at £100,000 and needs £5,000 work doing, then offer e.g. £85,000. (£100,000 x 0.9 minus £5,000). Add this number to your spreadsheet.

Then wait until the Agent follows up with you and use a script like the following. This will only work when you are starting out. Once you are established, you should have relationships with the Estate Agents and so won’t need this script.

“Apologies I didn’t get back to you, I really liked the property, however the numbers don’t stack up for me as it needs quite a bit of work doing to it. I didn’t want to waste your time with a low-ball offer.”

The Agent will almost certainly ask you what your offer would be. That’s when you state confidently your Below Market Value offer.

The Agent may then ask you if you want to put this offer forward, in which case say yes and wait for feedback. If they say outright that the vendor won’t accept that offer, then politely thank them and end the conversation. Say something like “No problem, thanks anyway. Let me know if anything happens and I can help in any way.”

Expect rejection – number of rejections determines your success

One of 3 things will happen after your offer has been put to the vendor:

It will be rejected outright.

Accept rejection as part of the plan. In the end it’s a numbers game; you are looking for bargains, so don’t worry about knock-backs. Simply put the results in your spreadsheet and move on.

It will be accepted.

If the offer is accepted, great. You’ve either found a bargain or the Vendor and Agent know something you don’t. Either way you will be doing more due diligence with your building survey and searches. Read these thoroughly. If there is anything untoward you can still re-negotiate or pull out. Often your mortgage lender will refuse to offer a mortgage on the property if there is something serious.

They will want to negotiate.

If you’ve gone for 10% BMV I wouldn’t negotiate unless you are in a rising price market. If you’ve gone for 15% BMV then you can move up to 10% BMV. However, don’t offer round numbers, your offers should be less and less rounded. For instance, if you went in at £85,000 and you know you can move to £90,000, then offer an odd number like £88,750, then £89,130. This will signal to the Agent that you’ve done your homework and this is really your Best and Final Offer. It will give you credibility.

Record your offers/viewings into a spreadsheet

Record all your rejections, offers and counter offers in your spreadsheet. Over time you will start to see trends and you will really become an expert in your Goldmine Area. You will also see that some properties will stay on the market for a long time. Some will be sold subject to contract (STC) or be taken off the market, only to reappear later. You should certainly follow up on these.

The follow up.

If a property has been on the market for a while and not sold, then follow up with the Estate Agent. Tell them you are just getting back in touch to see if the seller is willing to come down to your price. Again, they may say yes, no or counteroffer.

Sometimes you don’t need to follow up, as the Agent will contact you back, after your BMV offer is rejected. If you finished the conversation by inviting them to come back to you, if there were problems, then the Agent will almost certainly have made a note of it. If a subsequent sale falls through, they will come back to you and ask you if you are still willing to purchase at your previous offer or would be willing to negotiate. You are then back in play and are in a strong position.

Conclusions.

Buying property below market value takes patience and practice. You won’t get it right at the start, but the more practice you get the better at it you will be.

Property investment is a long-term strategy, so have a long-term outlook.

The post How to get a Below Market Value (BMV) Property in the UK appeared first on Mike Holden Sales.

This was my first property deal and it wasn’t done within a limited company as the others were. There is many a tale to tell about this property, but here are the financial details.

Property details

The property is in the Prestwich, Greater Manchester area. It is a 2-bedroom apartment within a 6-apartment block.

Capital

On market for £73,000

Paid: £73,000 (before I learned you can negotiate).

Solicitor fees – £1200

Broker fees – £300

Stamp duty – £0 not applicable

Deposit – £18,250

Refurb Costs – £10,000

Total money down – £29,750

Cashflow (monthly)

Rent – £725.00

Mortgage – £363.23 (repayment at £3.65%)

Letting agent fees – 8% plus VAT – £69.60

Building Management fees – £85

Insurances – £0 (covered in management fees

Ground rent – £2.08

Pre-tax profits – £205.09

Return on Capital Employed ROCE = 8.3% (£205.09 x 12 / £29,750 x 100)

Yield =11.9% (£725 x 12 / £73,000 x 100)

Conclusions

This has been a great investment, after 12 years, the value of the property is now worth £147,000 and the mortgage value is £47,000 and 13 years remaining. I’ve therefore £100,000 in equity and the LTV is now approximately 32%.

I have the option of remortgaging in less than a year and if I revert to 75% LTV, I could release £63,250 of equity. I could then use this to purchase another two properties.

Alternatively, I could just let the mortgage run and be mortgage free in less than 13 years. I’m in no rush to make any decision, as it cashflows £200 per month.

The post Property Deal Breakdown #2 appeared first on Mike Holden Sales.