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.

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.

Here is the deal breakdown on the financials of a property I’ve just completed on. I will do this with all the properties I purchase.

Property details

The property is a 2-bed terraced house in the Bury, Greater Manchester area.

The property was first put on the market for £145,000 and the seller reduced it to £130,000. I was able to agree a selling price of £125,000.

Capital

Fees:

All in all, the fees were £6,539 made up of:

Solicitors – £1,541

Stamp duty – £3,750

Up front Mortgage fees and valuation – £828

Building survey – £420

Other costs:

Refurbishment costs – £3,500

Deposit for mortgage was – £33,121 (73.5 %LTV)

Total money down – £43,160

Cashflow

Monthly Mortgage @ 4.79% interest only (ongoing fees added)- £377.84

Rent monthly – £900

Management fees 8%+VAT – £86.40

Ground rent – £2.25

Insurances – £30

Pre-tax profits- £403.51 per month

Return on Capital Employed (ROCE) – £403.51 x 12 = £4,842.12 divided by £43,160 X 100 = 11.2%

Yield – £900 x 12 = £10,800 divided by £125,000 x 100 = 8.7%

Conclusions

I’m really pleased with this deal as the rental was more than I expected. In my due diligence I used £650 per month rental. I also stress tested the mortgage rate at 8.49% and everything still stacked up. I ended up getting £900 per month for the rental.

The property is in a great area which is up and coming, so I’m expecting a payback (break-even) within two years plus £8K and £17K inc. rents.

The post Property Deal Breakdown #1 appeared first on Mike Holden Sales.

If you spend any time online reading blogs and forums on investing, you will no doubt read about why investing in property is a bad idea. However, there are many benefits and we should take the emotion out of the decision. If you have concluded that property investing is a good idea but you are still not taking the plunge, it maybe that fear is stopping you from investing in property.

Of course, there are pros and cons to investing in property or real estate and here I go through some of them.

Interest rate hikes

When investing in buy to let property, using a mortgage ,you will have to factor in interest rates into your cash-flow forecast. Yes, interest rates may rise and probably will as they have been at historically low rates for over a decade.

Interest rates will rise for a reason and that is that central banks are trying to dampen inflation. Inflation means that prices are going up and yes that will include the value of your investment. This will also give you an immediate boost in your equity in the property. For instance, if you buy a property worth £100,000 with a 75% loan to value mortgage and therefore £25,000 deposit you will have £25k equity. Let’s say inflation is 10% per annum (as it is at the time of writing). The following year your property is now worth £110,000. Your mortgage is still £75k on an interest only, but you now have £35k equity or a 40% increase.

That’s not all that will rise. Rents will also rise, meaning that you can increase your monthly cashflow over time.

Of course, you should still be mindful of interest rate rises and therefore when you do your due diligence on a property purchase, always stress test your cashflow forecast using a higher rate of interest. For example, let’s say that you can get a mortgage at 5% p.a. then stress test your returns at say 9 or 10%. Will you at least break even if interest rates doubled? Remember though that interest rates will rise for a reason and those reasons are typically good for you.

House price crash

The second fear, that is common around property investing, is what if there is a housing price crash. Have you bought at the peak of the market? That is a legitimate concern if you were trading or flipping property. However, investing in property is for the long term ie. for ever. If you never plan to sell your property, then you don’t need to worry about a reduction in the price of your investment. It’s irrelevant and anyway over any 10-year period the price will always increase. Historically the UK property market rises at 7% per annum on average. Even though some years they will drop, other years they will increase by even more.

The other thing to remember is that you will be buying with at most a 75% LTV and so there would need to be a 25% crash (rare) for you to be in negative equity and that’s if the crash occurred straight after you purchase. In all likelihood the correction will occur some years after you buy, so you will have already locked in additional equity.

Tax – the government hates landlords

I’m quite sure that the UK governments of all hues will come after landlords because we are an easy target. We don’t represent a large constituency, so they are not bothered at losing our vote.

Politicians can score easy points with voters by saying how they are going to come after ‘evil’ landlords. This I’m sure will always be the case but even the most zealous politician will realise there needs to be a buoyant private rental sector.

They will only go so far before it negatively effects the property sector. For instance, section 24 has forced many landlords to sell up. These sold properties are bought by buyers to live in, so there are less properties to rent. People who chose to rent have fewer rental properties to choose from and more competition. Ergo rents go up. The policy which was meant to help tenants has made it worse for them.

Tax is a major factor in your business to consider, so it may be an advantage to consider investing within a ltd company.

Dealing with tenants

Another big fear that can stop the erstwhile landlord is having to deal with difficult tenants. However, this can be mitigated by using a Letting’s Agent/Management company to deal with the day to day running of the property portfolio. If you don’t want to be a hands-on landlord, then factor in for 10% costs for using this service. Read my other post on letting out your property for tips on finding a good company to work with.

Vacant periods

Vacant periods are the bane of the landlord, the longer the period of vacancy, the less profitable you will be. You can however mitigate against this. When you do your due diligence on a project, factor in for vacant periods at the start whilst working out your potential profits You can then see if the figures still stack up.

Factor in for around 10% of your rent to cover for vacant periods and if you have one month of vacancy between tenants, you should be covered.

Legislation

I may be a cynic, but as I said before, I don’t think Uk Governments particularly like private landlords even though they need them. There will always be more legislation to contend with, from changes in the EPC required ratings to requirements for landlords to be registered. If you take this as a fact of life and the price you must pay to own a fantastic asset, then this is the right mindset.

HMRC can be a useful source of information as can for instance the NRLA. If you are using a Lettings Agent, they too should be able to help you.

My philosophy is that new legislation is unavoidable and you may as well welcome it. It will weed out the rogue landlords who give us a bad name and put off the faint of heart landlords, thereby removing some competition for deals.

Remember the benefits

So, there is my list of common fears that stop people from investing in property and I’m sure I’ve allayed those fears. I would also like to remind you of the benefits as well.

Geared investment – capital gains

Historically UK property doubles in value every 10 years. So that is a great reason to invest. Bear in mind that if you get a buy to let mortgage at 75% LTV, these capital gains mean that this LTV will reduce over time. So, if you spend £25,000 of your own money as deposit and the £100,000 property doubles to £200,000 in 10 years, your equity goes to £125,000. That’s a return on investment of 400%.

Cashflow

Of course, your prime motive for investing in property should be immediate monthly cashflow. If you’ve done your due diligence, you should be cashflow positive from the time your first tenant moves in. The rent minus mortgage and costs should leave you with profit every month. If it doesn’t stack up at the start, then don’t proceed with the investment. Never invest with the hope of things moving in your favour in the future – it should make sense now.

That said, let’s say that your first property cashflows £200 per month profit and your living expenses are £2,000 per month. You would only need a portfolio of 10 properties to be financially independent.

What if you run out of savings to invest in deposits? That’s where the next great benefit is.

Get your money back out

As your equity in the property raises in time and the LTV reduces, that means that at a future date you can re-mortgage the property to remove some of this equity which can be used on the next deal. For example, the property has doubled in value to £200,000 and you initially had an LTV of 75%, when the value was £100,000. Well now your LTV is 37.5%. (£75,000/£200,000 x 100).

In this example, we decide to remortgage back to 75% LTV, you could pull out £75,000 of equity. (75% of the uplift of £100,0000). You could in theory purchase 3 more properties. Rinse and repeat.

It may take 10 years to double in value, but what if there was a way of getting your money back out of the property (to re-invest) sooner. Well there is. If you purchased at 25% below the market value (BMV) our example would look like:

Market value – £100,000

Purchase price – £75,000

75% LTV – loan = £56,250, deposit £18,750

Remortgage at market value (£100,000)

New loan amount – &75,000

Equity removed – £75,000 minus £56,250 = £18,750

So there you’ve removed your equity which can be used to purchase your next property.

Property in the UK is a great investment, don’t let fear stop you from taking the plunge.

The post Don’t let fear stop you investing in property appeared first on Mike Holden Sales.

Invite Lettings Agents to survey the property

Once you pick up the keys to the property, from the Estate Agent, make a list of at least 3 Lettings Agents, who could potentially let out your property. Ideally, they will be local to the property and one of which may be the Agent who sold the property.
Ideally the viewings should be all on the same day and in a consecutive block. This way you minimise your travel and time. It also means that the Agents will potentially see the other Agents coming and going. It will give them a sense of competition, which you can use to your advantage.
Whilst the Agents are viewing the property its good for you to have a set of pre-defined questions to ask, such as:

How much much rent will you get in the current condition?

Here you want to know how much rent you will get before you go to the trouble and expense of refurbishing the property.

What refurbishment would they advise if any?

A good lettings agent will know what the ideal refurb should look like, without going over the top.

What would the potential rent be after a refurb?

If you’ve done your due diligence before buying this property you should have an idea of the potential rents and what your yield and return on investment will be. Sometimes it may be only worth a minimal refurb such as new carpets and decorating. A full refurb may not actually get you the optimal return you desire.

What would be the ideal tenant?

Here you need to know what demographic your ideal tenant will be. Families, young professionals, etc. This will also give you a steer on what you need to do to the property and what you can charge for rent.

What would they charge you for managing the property?

Now we get to the nitty gritty. How much will they charge you and what services will they provide? Most lettings agents will have various levels of service from Tenant Find Only through to Full Management.
Will they negotiate on their charges? Will they offer a lower fee for multiple properties? Would it be worth playing several Agents against each other?

Pick the one you think is the best

Who gives the best deal? This is not the only criteria. Who do you get on with? Property, like every other business is a people business, so you want to make sure the relationship will be rewarding.
Check references out. Ask them for the contact details of other landlords and ask these landlords to rate the Agent.
Finally trust your gut instincts. With human interactions often we make valuable assessments subconsciously, which will give us a good or bad feeling.

Once you have made your decision and the necessary refurbishment is done, appoint the Agent and give the Agent your direct debit details for where you want the rent to be paid.
Once they have proved receipt of deposit and you have one month’s advanced rent, then hand over the keys.

Rent Increase

Rather than putting a clause in the Tenancy Agreement for an automatic percentage rent increase, put a clause in that states that rents will be reviewed annually. This way you can ask for a fair (to both sides) rental increase which will be based on the market rates at that time. Get the Letting Agent to write to tenant two months before one year anniversary and inform them of the new rental price. Then request them to change their direct debit payments accordingly.

The post How to get a tenant to rent your property appeared first on Mike Holden Sales.

Why have I set up a Limited Company to buy property in the UK?

I decided to set up a Limited Company to buy property investments. I had two rental properties in my own name and when I worked out my profits after tax, I was horrified to see that I just about broke even.

Both properties were on a Repayment model so at least capital was being paid off and I was better off each month, with increased equity.

From a monthly cashflow point of view I was cash flowing positive, but when I did my annual self-assessment, the tax I had to pay back swallowed up all these profits. This was because of section 24 legislation.

The background – Section 24

Without getting political, Section 24 was unwelcome news for private landlords. Aside from that it would also be unwelcome news for tenants, as either rents would go up or there would be fewer rental properties to find as landlords would be forced to sell up. This has proved to be the case.

This piece of legislation meant that you couldn’t count the interest payment as an allowable expense for tax purposes, albeit it was phased in over 5 years and you do get a 20% allowance.

How I set up a limited company

So, my mind was made up. I sold one of the properties, took a small hit on the capital gains tax and used the profits to buy two more properties but this time within a Limited Company.

The first job was to set up the Limited Company. This was extremely easy to do. I just checked on Companies House to see if the name was available and then went online to an inexpensive provider to set up the Memorandum and Articles of Association and other documents. The whole thing cost about £25 and I could download the documents on the same day.

Next, I found a local accountant who had knowledge and expertise in property investing. Mine also has his own property investments. In hindsight I should have discussed this first with the accountant, but I felt I had enough knowledge.

The hardest part was getting the Bank Account set up. I opted for Starling Bank as the fees are low, it offers an online service and the reviews were excellent. I had to go through a few hoops to finally get approved, so the entire process took a couple of weeks. But then I was good to go.

The Benefits of Setting Up a Limited Company for Property Investments

The obvious benefits are from a tax perspective. As a higher rate taxpayer any profits I would have, would be taxed at 40% in my own name. Also remember I can’t offset interest payments.

Under a Ltd company the tax is much more generous. You pay corporation tax of 19%, which will go up to 26.5% in 23/24 for profits of £50,000 – £250,000 and 25% above £250k. Profits below £50k will stay at 19%. For me, I’m not likely to reach £50k profits per year for a for a few years, unless I choose to sell a property. As you don’t pay Capital Gains Tax in a LTD Co. (Unless you sell the company), you treat any property sale as income and so this would be 19%, 26.5%, 25% or a combination of, depending on the amount of profit. This is still much better than the 28% in CGT.

From a legal standpoint having a LTD company also has its advantages as the company is a separate entity, from the individual.

The Inheritance Tax situation is also a big plus for me. I know that when the time comes my beneficiaries will not be met with a hefty Inheritance Tax bill, as I am setting up a Trust which my beneficiaries will be Trustees of. The Ltd Co will go straight into this trust on my passing.

The Disadvantages

I researched whether to set up the Ltd company and made sure I took account of the disadvantages. These included but were not limited to:

• Additional Admin
• Extra accountancy costs
• Extra legal fees. You will have to appoint a Conveyancer to represent the mortgage lender. This can be the same as the one you choose to represent yourself. You will also have to pay for legal advice (about £250) because you will have to be a guarantor to the Ltd co.
• Mortgage fees and rates are higher.

Should you form a limited company or not?

You should certainly consult an accountant to see what difference the fees for each would be. Also do your homework around what the additional legal costs and mortgage fees would be. Get quotes from your conveyancer and mortgage advisors.

Consider what tax bracket you are in. If you are in a higher bracket, I would suggest that a ltd company could be right. However, do you plan to retire or cut your hours? In which case this could move you into a lower tax bracket and so buying property in your own name would make sense. Remember, though, to not let the tax tail wag the dog.

How many properties do you plan to buy? If it is one or two, then buying in your own name would make sense. The more you buy, the more it would make sense to incorporate.

What is your exit strategy? Do you plan to sell on the properties or pass them on?

If the finances still stack up and your property would still be cashflow positive, then buying your properties in a limited company might make sense.

The post Setting up a Limited Company to buy property in the UK. appeared first on Mike Holden Sales.

In this chapter I show you can become your own boss and financially independent through investing in property. This is something that I am doing right now and something I can attest is the best way, at least for me. First I want to tell you how I came to investing in property.

My Story

When I graduated from University, I didn’t have a clue about what I wanted to do with my life, but I knew I needed money, though. I got a job, I took the very first job I could get, deep in the recession of 1993. Within a few months of working in this job, I knew jobs weren’t for me. I needed to be my own boss. Jobs and employees, I thought were stupid. One problem, though, I didn’t know how to be my own boss (this was eons before Google) and I didn’t know anyone who was there own boss. I did the next best thing in my eyes and that was hunt for another job that paid more money. Wrong.

Deja Vous All Over Again

Once I secured a new job with more money, I repeated the process again and again. Finally ten years later, the penny dropped and I realised that I needed to be my own boss. To own my own company. By this time I was selling for a living and devouring self help books. I came across a book about Life Coaching which really resonated with me. This was it, my path to freedom. I was going to be a Life Coach. So without any experience, never mind any clients lined up, I handed in my notice and set up shop as a Life Coach. What happened next? Well suffice to say it was disaster. One that would take me years to recover from financially and emotionally. I didn’t get one single client. I used up all my savings and got into debt.

Rich Dad Poor Dad

Eventually I found my way back into the security of a well paid Job. Like a swimmer who gets back to shore gasping for breath, having gone out of his depth.
There were several positives to come out of this episode, one of which was that I read a book – Rich Dad, Poor Dad by Robert Kiyosaki. My only regret is that I didn’t find this book earlier. If you haven’t read this book and are striving for financial freedom, you must buy it now. I changed my life and I haven’t looked back. Property is the bedrock of my financial freedom machine. Yes I have pensions and savings, but property is the engine. In this post I share with you what I have learned through my experience and that of my mentors.

Dreams

Have you achieved everything you want to this year? Then why not? Find your reason why and do something now. Don’t let the year slip into next year and another missed opportunity. What is your WHY? What is your reason for doing this?

Financial Freedom

Let’s just recap and define financial freedom again. This is where your passive income exceeds your expenses. Put another way it is when you don’t have to work for money, because the income from your investments and businesses covers all you requirements. Once this is in place, you can define yourself as financially free.
The common model to get financially free is to get a good job, max. out your pension and then draw on this when you’re older. This isn’t for me I want my freedom now.

Your Action Plan

The next thing you need to get clear on is your action plan for financial independence. You need to come up with a figure for what your basic outgoings are and also what you need per month to be comfortable. This is your first freedom number; the amount of passive income you need per month to be financially independent.
Next you need to give this a deadline. When are you going to achieve this – ten years, five years, two?
Once you have your plan written down keep this somewhere where you will see it through the day. This is your motivation to succeed.

Assets and Liabilities

So you want to gain financial freedom and you do this by buying assets and minimizing liabilities. Another thing we need to get straight in our heads is exactly what assets and liabilities are. Basically you want to use the money you earn in your job to buy assets, which pay the passive income, whilst minimizing or even avoiding liabilities. Liabilities suck money from you.
Examples of assets are: property you let out, stocks and shares, businesses you work on (not in) and commodities. I will argue in this that property is the best asset class.
Liabilities are anything that takes money out of your account. These are things like credit card debt, car payments. Some would argue that your house is a liability because it costs you money in repairs, but doesn’t actually pay you anything, unless you rent out rooms.

Property as an Investment

There are many reasons to invest in property:

1. Low volatility: the price of property does go up and down but the pace at which this happens is extremely slow, compared to say the Stock Market. This means you can invest your money and know it won’t be lost over-night. It is also easier to time the market ie buy low sell high.
2. Long term Capital Gains: over the long term the cost of housing will increase as a result of inflation and higher demand.
3. Rental Income: By buying property to then let it out (Buy to Let) you can earn monthly profits.
4. Bank Leverage: The exciting thing about investing in property is that the Banks will lend you money in the form of a Buy to Let mortgage, to buy a property and then let it out for monthly profit (even in a recession – I know – I did it)
5. Flipping: short term capital gains. I did say above that the price of property has low volatility but that is not to say that you couldn’t buy a property and sell it quickly for immediate profits. This process is called flipping and can be lucrative. You buy property that is either distressed (in need of modernising) or from motivated sellers (banks from repossessions) at a low market price. Quickly do the necessary repairs and modernisation at a low cost and then put the property straight on the market to sell for a profit.

Goal

The goal is to get to own ten properties or more as quickly as possible. The tipping point will come at around 7-9 properties, where there is safety in numbers. If some properties are empty, the rents form the others will more than cover the costs.
Write out your five year plan. What is Monday morning like in five years time.?And what is your dream of freedom? What does it look like? What will you be doing?
Then what will it cost in today’s money per month to fund this life?
Then how many properties will you need to fund your dream lifestyle?

The three keys to success

The opportunity – IE the house? Property.
Your knowledge – your know how.
Action – doing something with what you know, when the opportunity arises.

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Here is one step that more than any other can really boost your Job Free Income. That is when you invest in property.

Why Invest In Property?

This is the longest chapter in this book, because I believe that property is the bedrock of real financial independence and wealth. It is the surest way for you to escape the rat race.

The Rat Race – what about you?

What is the rat race? You come out of full time education, blinking into the sunlight of the real world. Then you get a job, because you need to stand on your own two feet. You meet and fall in love with your life partner. Then you get your first house and a mort-gage. (Agreement until death). Then there is the pitter-patter of tiny feet, more expenses and responsibility. You start to think about your future and join the company’s pension scheme, with the dream of retiring happy one day, if you’re lucky.

Meanwhile you get promotions and pay rises. The addiction of more money, which you spend on cars, holidays and luxuries. You earn more, you spend more, so that you need more and more money, just to stand still. You are effectively enslaved to your job, the bank and the credit card companies.
And what about that pension? As I write this the average life expectancy in the UK is 81 and the current state pension is going up to age 67. It will eventually reach 71 and more. Currently the UK state pension is £130 per week or £6,895 per year. I don’t know about you, but this is not enough to live on.

Then there’s the company pensions. Many of the defined benefit/final salary schemes are being closed down or at least to new members. The alternatives are the defined contribution schemes, where you are relying on the stock market, which has it’s associated risks.
Property for me, therefore is the foundation of my future financial freedom.

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Congratulations if you have now bought your first investment property. Now you have to consider the next phase, property letting.

Renovating

If you do buy a distressed property, that needs renovation remember you are doing it up to either let out or sell – not to live in. You don’t need to buy the top of the range of everything – try to keep your costs down as they can spiral. Even though the property belongs to you it will be someone else’s Home. The decor should therefore be neutral and minimal . Let your tenants put their stamp on it.

Letting Out

Letting agents can take the hassle out of letting out and can be a source of help and information. You can also get them to manage the property so you never have to worry about calling a plumber out. They will charge you, normally about 10% of the rent, plus any costs.
DIY – if you are going to do it yourself. Do seek advice first – the government has produced guides for landlords. Check out the Government website.
Legal requirements – your Solicitor should highlight the legal requirements to you, such as Gas Appliance Test certificates, fire smoke detectors. Your local Council should also help here too.

Furnished or unfurnished?

This depends on your target market. Seek advice from the Letting agent if you are going to use one.

Real Life examples of property investing

Let’s take an example of an ordinary two bedroom semi-detached property. You buy it for £90,000. You then will spend a further £20,000 on fees and refurbishment. Your total spend is £110,000. Then you get the house re-valued by a mortgage lender at £135,000. You then sell it for £132,000 in six months, netting you £22,000 for six months work. (£132,000-£110,000 = £22,000). Not too shabby.
Summary #1
2 Bed Semi £90,000
Refurb & fees £20,000
Total spend £110,000
Revalue £135,000
Sold £132,000
Total Profit £22,000

Getting paid to Buy

Here’s another way to invest, without any money. Lets keep the figures modest.
You find a property which fits the bill and purchase for £36k, using the bank of Mum and Dad, friends etc and 0% credit card(s). (Yes as I write this in 2018, banks are offering 0% credit cards for up to seventeen months before you pay them off). There are £6k costs including the refurb. The total cost is £42K.
You get the house valued at £60k. Remember Rightmove.co.uk – you already knew this was the true value. You then secure a buy to let mortgage at 75% loan to value. Your mortgage is therefore £45K. You collect this money and pay off your credit card and your other creditors, leaving you with £3,000 cash out. Perhaps split this with Mum and Dad or whoever.
You then rent this property out for £450 per month. The mortgage is say 4.8% which is £180 per month. And then there are other costs of £45. This leaves you with a cash-flow of £225 per month, passive income.

Summary #2
Purchase price £36,000
Refurb & fees £6,000
Total spend £42,000
Revalue £45,000
Cash Out £3,000
Rent £450/m
Mortgage £180/m
Other costs £45/m
Total Cash flow £225/m

Houses of Multiple Occupancy (HMO)

In the UK, if you have a HMO with less than 7 people, you don’t need to declare this to the Local Authorities. For example, you could find four people, each who pay £250 per month, which will generate revenue of £1,083 per month.
Who would be interested in living in a HMO? Well if you property is in a large City, near to train stations, Universities or a Hospital, you could have Professionals or Students.
In our example number 2 above you would net £500 per month in cash-flow.

Do Not Touch these deals

Off plans – Too many unknowns and uncertainties. Its better sticking to something simple.
New Builds – almost always these properties will be priced above their actual value.
Overseas – there are so many pitfalls to this, in terms of the legals. And you are not present.

Re-Mortgaging

Once you have let the property out you should be getting nice monthly profits. If you’ve done everything properly, the equity in the property will also increase. Why not release this equity and use the capital to fund the next investment? Check with your mortgage provider when you can re-mortgage.

Summary

1. Find the area first.
2. Find motivated sellers – put out adverts, leaflet.
3. Find average houses in average areas.
4. Check the finances – does the deal stack up (mortgage, rent, fees, unoccupied, returns)
5. Put an offer in for 25% below market value.
6. If no – move on.
7. If yes – then get financing.
8. Do the deal.
9. Get an agent to manage it.
10. Repeat.

So now we are coming to the end of this book on becoming financially independent and retiring early from the Rat Race. In the final chapter we will discuss what to do with the profits from your property investment.

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