The Property Voice http://www.thepropertyvoice.net Property: insights | projects | resources | mentoring Fri, 18 Aug 2017 14:26:20 +0000 en-GB hourly 1 https://wordpress.org/?v=4.8.1 The Property Voice Podcast, found at http://www.thepropertyvoice.net, is new and different. Join us for knowledge, resources, a little bit of light entertainment and have your property voice heard too.<br /> <br /> The podcast is a series-based property resource, building around common themes in property investment. Over time, this will grow into an audio library of insights, knowledge and experience for you to listen to on demand.<br /> <br /> We start in series one with Building on Solid Foundations - the general principles of property investing like strategy, lettings &amp; the financials; with more to follow in the future.<br /> <br /> Punchy at around half an hour, will satisfy your thirst for property investing knowledge on the go, wherever you are.<br /> <br /> Our three main sections are: Property Chatter - the 'meat' of the show covering the main topic discussed; Your Voice - where you can get involved with your stories, questions or a good old moan about YOUR property journey and; Shout Out - where we point you towards more great resources to check out.<br /> <br /> Richard Brown, your host started sharing property news stories with personal insights in March 2013. He is an experienced property investor whose starting position was bleak as a divorcee, renting, in debt, expenses higher than income and a giant hole in his pension! Through property investing over a relatively short time, these challenging issues have fully turned around, such that he could retire today if he wanted to. He will be joined on the show by Casa, who claims to bring a little bit of virtual reality to the show!<br /> <br /> Try us out and get involved too...we look forward to hearing from you.. Richard Brown & Casa from www.thepropertyvoice.net clean Richard Brown & Casa from www.thepropertyvoice.net colin@thepodcasthost.com colin@thepodcasthost.com (Richard Brown & Casa from www.thepropertyvoice.net) Sharing insights for your property passion! The Property Voice http://www.thepropertyvoice.net/wp-content/uploads/powerpress/the-Property-Voice-podcast-cover-art-rgb.jpg http://www.thepropertyvoice.net 103136167 Soundbite: A Rigged System? Why UK house prices remain propped up http://www.thepropertyvoice.net/soundbite-rigged-system-uk-house-prices-remain-propped/ Wed, 26 Jul 2017 04:59:14 +0000 http://www.thepropertyvoice.net/?p=4333 http://www.thepropertyvoice.net/soundbite-rigged-system-uk-house-prices-remain-propped/#respond http://www.thepropertyvoice.net/soundbite-rigged-system-uk-house-prices-remain-propped/feed/ 0 <p>Everyone loves to talk about house prices, don’t they? Whilst for me talking about house prices often leads to a speculative guess of what they will do, there is no doubt in my mind that UK house prices have been and will continue to be propped up over the long-term. Some may say by a […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/soundbite-rigged-system-uk-house-prices-remain-propped/">Soundbite: A Rigged System? Why UK house prices remain propped up</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> Everyone loves to talk about house prices, don’t they? Whilst for me talking about house prices often leads to a speculative guess of what they will do, there is no doubt in my mind that UK house prices have been and will continue to be propped up over the long-term. Some may say by a rigged system that ensures it. So, what are the key factors that give rise to this notion of mine?

Resources mentioned

Link to the Podcast feedback survey

Today’s must do’s

Why not share the love, or if not the love, share The Property Voice Podcast instead? Here are 3 quick ways you can help others to know what you now:

  1. Leave us an iTunes review
  2. Look out for our social media podcast posts and click to share
  3. Join our mailing list and then forward on our email now and again to a friend or business associate

You will feel good in knowing that you will be helping someone to get going or overcome a challenge in their property investing…so it’s good Karma to share really 🙂

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

Before I get into the heart of today’s show, I wanted to share a few numbers and some feedback that I have not made a very big deal about…although probably should have.

Firstly, a month or two back we quietly passed the 100,000 unique downloads marker for the podcast and also had our first 10,000 unique download month too! We also slipped past 100 episodes, including 3 series on: Property Investment Foundations, Property Cycles & Property Finance, along with the various flavours of one-off episodes, where I get to share what’s on my mind, what’s on your mind or what is topical in property at the time of recording.

We have around 45 extremely positive podcast reviews, a 4-digit subscriber mailing list and I regularly receive emails, Facebook & Linked In messages, tweets and the odd telephone call or voice message with comments, questions and queries or just a simple thank you to add into the mix!

So, something tells me, you are getting something out of all this!

OK, so I know this is an acquired taste kind of podcast, with less fluff and gizmo, entertainment value and more straight-talking, knowledge-sharing, deeper-dive insights than some others out there, so that probably means it ain’t gonna get to number one in the charts either! That’s OK with me, as I am more interested in helping a few, serious and committed types to make a success of their property investing journey than topping the popularity charts. Well, if I could have both…

BUT, I would like to do is to make sure that as many people get to know and try the podcast as possible. As you know, I have not gone on about reviews and that kind of thing for a little while now (apart from Dave in the outro that is!), so here’s my request from you before you pack the sun cream, forget about everything and head off on your jollies…please would you consider helping to spread the word? You will, that’s great! Here’s what I would like to suggest:

  1. An iTunes review will help others to find this podcast, so please do consider leaving us a 5-star review and let’s at least get us up the charts or a noteworthy tip. If you don’t think it’s worth 5-stars, no problem…drop me a line to let me know why instead.
  2. Share the podcast episode links that get sent out via social media – just a quick share on your Facebook page, Linked In profile or Twitter feed as and when you see a show being notified is all it takes to generate some organic reach. Just click and share now and again.
  3. Join the mailing list podcast@thepropertyvoice.net to receive show updates and other goodies and then, every now and again consider forwarding on the odd email with the podcast notification included, that would be great. Just a ‘saw this and thought of you’ type of message will probably be better than spamming your entire contact list…there’s no need for that…unless you insist of course lol

So, that’s it really – a call to help spread the word…would that be OK with you? Great, thanks!

Now the promotional bit is over, let’s get back on topic again now…where were we…ah yes…property prices…

Everyone loves to talk about house prices, don’t they? Whilst for me talking about house prices often leads to a speculative guess of what they will do, there is no doubt in my mind that UK house prices have been and will continue to be propped up over the long-term. Some may say by a rigged system that ensures it. So, what are the key factors that give rise to this notion of mine?

Let’s have a little chat and see what unfolds shall we..?

Property Chatter

I have prepared a set of bullet points more than a script for today’s show, so if I fancy, I might dwell on some points more than others. That said, I may just rattle off the list and have you done in next-to-no time this week, as I am feeling ready for a summer break!

Stick with me to the end and I shall let you know what to expect over the rest of the summer.

Personal Financial Factors

  • Dual income borrowing
  • Bank of Mum & Dad deposits
  • Committing more of disposable income to housing costs

Financial Industry & Investment Community Factors

  • Record low mortgage rates making mortgages the most affordable pretty much ever
  • 30-year and soon to be lifetime / inter-generational mortgages
  • Bank leverage ratios
  • Bank profit targets
  • Shareholder demand for higher dividends and share price growth dictates that investment & lending be extended

Global Factors

  • Rich foreign investors, some leaving homes empty
  • Weak pound
  • Safe-haven investment location
  • Strong economy. legal & political system always attracts inward investment

Government Policy

  • Greedy Exchequer tax revenues drug addiction
  • QE free money to lend
  • Inflation eating debt
  • Pension freedoms & Help to Buy ISAs, Help to Buy ‘fake deposits’,

Structural Housing Factors

  • We live on an island, with limited land, capable of being developed in the right places
  • Shortage of new housing supply, overall and social housing in particular
  • Planning restrictions
  • Empty homes policies
  • Reduced transaction levels caused by fewer sales instructions

Socio-economic Change

  • Changes in social structure with more family breakdown, single-parent families
  • Greater mobility to follow career
  • Population changes such as longer life-expectancy and net-migration
  • Urbanisation
  • ‘NIMBY’s

Property as a Broader Asset Class

  • An Englishman’s castle
  • Homes Under The Hammer & Location, Location, Location investor wannabes
  • BTL becoming more mainstream and acceptable…although is more under attack of late
  • ‘Stacation’ holiday rentals & second homes (Airbnb, etc.)

Economic Cycles

  • Economies go in cycles from boom to bust and boom again
  • Property markets also follow these cycles, linked to some extent to economic cycles but in particular to financial cycles
  • Property price growth tends to ripple out from London, so follow the wave…
  • Inflation makes things home ownership and mortgage payments more affordable over time
  • Rising employment drives demand for housing also

All help to prop up house prices…BUT not necessarily over short periods of time!

Many of these factors are propping up prices now, some may dissipate over the coming months and years. However, when they are added together, they do create an insatiable drive for house prices to continue to be driven upwards.

Will we see periods of crazy growth like we did in the 80s or early Noughties…perhaps yes. Will we see periods where prices ease, or even correct after a period of over-extension…definitely yes. But, my view is that property as both a basic need and as an ever-popular asset class, will remain in high demand and will therefore retain it’s upward trajectory over the long-term yes.

We just need to set ourselves up in such a way that we can ride out the occasional lumps and bumps that will crop up from time to time. Overall, property prices will continue to be pushed upwards…because the system is designed for this to happen…we might even think it is rigged to happen.

OK, so that’s me done not only for now but for a few weeks now too! I am going to take a well-earned break and so August is going to be podcast-free for me. I do have a possible bonus episode up my sleeve, but I don’t want to make any promises on that, plus it kind of depends on one or two things that I am waiting to hear about as to whether I record that episode, so I shall have to keep you in suspense on that one.

So, any bonus episodes apart, I shall be back with a brand-new episode on the first Wednesday in September, which is the 6th I believe. That’s a whole month and a 5-week one at that without the podcast, I hope you miss me and come back in September as I aim to refresh and recharge, ready to go again with more property insights and knowledge-sharing…and possibly the hint of a new series too, who knows?

As you may have some time on your hands, why not add iTunes review, social media shares or email forward to your mental or actual to-do list and help to get the word out about The Property Voice Podcast? It would be great if you could. In the meantime, I hope you have a great summer and I hope you get a bit of chill time of your own too.

Finally, you can email me at podcast@thepropertyvoice.net if you want to talk about anything from today’s show or more generally in property investing. As usual, the show notes will be over at the website www.thepropertyvoice.net

But for now, all I want to say is thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ‘boa viagem e ate logo’ as my wife would say, or have a great summer holiday and see you soon if you prefer!

The post Soundbite: A Rigged System? Why UK house prices remain propped up appeared first on The Property Voice.

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Everyone loves to talk about house prices, don’t they? Whilst for me talking about house prices often leads to a speculative guess of what they will do, there is no doubt in my mind that UK house prices have been and will continue to be propped up over... Everyone loves to talk about house prices, don’t they? Whilst for me talking about house prices often leads to a speculative guess of what they will do, there is no doubt in my mind that UK house prices have been and will continue to be propped up over the long-term. Some may say by a […] Richard Brown & Casa from www.thepropertyvoice.net clean 45:08 4333
Soundbite: Truth or myth – we make our money when we buy? http://www.thepropertyvoice.net/soundbite-truth-myth-make-money-buy/ Wed, 19 Jul 2017 04:59:25 +0000 http://www.thepropertyvoice.net/?p=4309 http://www.thepropertyvoice.net/soundbite-truth-myth-make-money-buy/#respond http://www.thepropertyvoice.net/soundbite-truth-myth-make-money-buy/feed/ 0 <p>This is another of those myth-busting episodes for you. This time we will take a look at the widely held investment principle that states ‘we make our money when we buy’. Whilst, it might sound rather obvious and a clear statement of the truth, is there more to it than that? Let’s see what gets […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/soundbite-truth-myth-make-money-buy/">Soundbite: Truth or myth – we make our money when we buy?</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> This is another of those myth-busting episodes for you. This time we will take a look at the widely held investment principle that states ‘we make our money when we buy’. Whilst, it might sound rather obvious and a clear statement of the truth, is there more to it than that? Let’s see what gets my vote in truth or myth this time…

Resources mentioned

Link to the Podcast feedback survey

Today’s must do’s

Reflect on how you view your profitability with your property investments. Are you taking advantage of all of the possible methods to improve you overall returns? Take a look at this list and see if there is room to make improvements:

  1. Profit when you buy, add value & sell
  2. Profit through alternative rental income models
  3. Profit through capital growth & avoiding investment delay, the time value of money & compound growth
  4. Profit through cost, finance & other charges management
  5. Profiting through leverage
  6. Profit from available tax breaks
  7. Profit by changing our view of property to a vehicle to generate money rather than as a static object to own and rent out

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

This is another of those myth-busting episodes for you. This time we will take a look at the widely held investment principle that states ‘we make our money when we buy’. Whilst, it might sound rather obvious and a clear statement of the truth, is there more to it than that?

Let’s dive right in to find out.

Property Chatter

It’s understandable isn’t it…if a property is worth say £100,000 and we can bag it for £90,000, then we have just locked in £10,000 of profit straight away haven’t we?

Yes, that’s true BUT as we shall see, there are a number of issues, considerations and influencing factors that might mean that £10k in profit might not be all it’s cracked up to be! It might not be the only or best way for us to make money in property either…let’s consider some of the arguments now then.

  1. Buy, add value, sell

There are typically 3 ways to profit through a property’s value that we should consider: the purchase price, any return on added value works undertaken, and the selling price or revaluation.

Buying well usually means getting a discount.

The typical and long-term discount from asking price is around 4% to 5%. It varies depending on location and what stage we are in the property cycle, but this is the average we should expect over the long haul.

So, the first thing to consider is: if we get an offer accepted at 5% below the asking price, are we even getting a discount? The answer would be no on the basis that this is the average discount that all buyers are receiving from asking price, so we have not created any real value here at all. Granted, we don’t want to be paying above what a property is worth, so at least we would not have lost any money by securing such a discount, which is a decent start!

However, we investors usually look for bigger discounts and can realistically expect to achieve say 5% to 10% off the asking price of a property to beat the market. We usually achieve this by being more professional in our negotiation, showing a serious buyer status with finances in place, no chain to fall through and an always ‘do what we say we will do’ approach at every stage.

We may also be savvy at spotting issues that might give rise to a discount, like the property condition looking worse than it really is, it being stuck on the market for longer than average or a situation in the seller’s circumstances that might suggest a deal could be done.

Of course, it could also be an absolute lemon with loads of hidden issues that later catches us out…so a discount on a dog of a property could also end up costing us in some other way and so become a false economy too!

Finally, in certain hot markets, is getting any kind of discount even possible? Possibly not, unless we end up picking up one of those dog properties I just mentioned!

Next, there is a whole sub-sector of the property investment community fixated with buying ‘below market value’ or BMV. BMV usually means a distressed property and / or a motivated (or in some unfortunate cases) a distressed seller leading to a discounted selling price.

In the case of a distressed property – how much of the BMV discount is genuine equity realised and how much is in fact related to a provision for the costs of necessary remedial works?

I see lots of so-called BMV deals that show an apparent discount against properties in very good condition, but which require lots of work doing to them to compare favourably. Once the costs of improvement works are accounted for, this often takes a big bite out of that juicy BMV discount, making it not quite as compelling as we thought.

In addition to the costs involved in putting the property right, we might have to pay some fees to the introducer and it will also require time to complete the work as well. I will come back to the concept of the ‘time value of money’ a little later, suffice to say that often BMV does not mean below the price of an equivalent condition property, so watch out for that little sales trick.

In the case of a motivated seller, or even a distressed seller, again time pressures create an opportunity for a discount. Rarely though would this lead to super large discounts, as competition from other investors would prop up the price to some extent. Sure, if somebody absolutely NEEDED to sell within a couple of days, then the one or two genuine cash buyers that could complete that fast without undertaking detailed searches and surveys might just bag a bargain.

All I am saying is, that there aren’t that many situations like this that’s all. Plus, do you have a pot of cash sat waiting for them and the stomach to forgo a detailed survey and searches? I suspect not. Even if you did…what is the opportunity cost of having that cash sat around waiting for the bargain of the year?

Therefore, what we often find with so-called BMV deals is a combination of distressed property discount, combined with a motivated seller discount. I would usually expect the level of discount to be approximately evenly split between the two, if not more weighted towards the distressed property discount in truth.

So that magic 20% BMV deal you might be offered, could in fact only realistically be a maximum of 10% below its equivalent market value in genuine equity terms, of which you might have been able to secure at least half of anyway just by smart property searching and negotiation! You could find some of these more realistically priced properties knocking around quite easily, if you know where to look. I found a property a while back via estate agents, with a 15% discount against local comparables. Two previous sales had fallen through, leading to a motivated seller position and there was a modest amount of work required, along with a slightly adverse position on the street, leading to a modest level of distressed property discount too. I would estimate that in this case around 8% to 10% was due to the property and the rest to the seller’s position.

Adding value or forcing the appreciation.

So, aside from getting a discount when we buy, we can also profit on a property’s value in two other significant ways: when we add genuine value and when we come to sell or have the property revalued.

I have spoken at length on plenty of occasions about adding value to property. We can add value to a property by undertaking improvement or conversion works for example, which I will be discussing in the August issue of Your Property Network magazine, so look out for that.

Equally, we could improve a property’s value through more technical or legal changes, such as extending a lease, title splitting into several units, getting planning permission and so on. I like to use a term that I refer to as ‘return on works’ or ROW when assessing whether I can ‘force the appreciation’ and genuinely add value to a property for a profit.

In short, this looks at the upside equity or profit I might be able to achieve and compare this to the total costs of undertaking the works involved. Naturally, I am looking for a positive result, where my added value  exceeds my costs by my minimum set profit margin. So, it might surprise you to know that I have bought properties for pretty much their full asking price or equivalent market value and still made a profit by applying some kind of added value improvement to them to make my profit!

So, adding value to a property is another potential way to make money through property, without necessarily relying on getting a big discount when we buy.

Dress to impress when it comes to selling a property.

Next, when we come to resell or get a property revalued in the case of keeping it and refinancing it.

If we can achieve a higher sale value than an equivalent local comparison, then we can profit there too. Some people are specialists in achieving this. For example, creating a designer look, a feeling or an experience can sometimes lead to people achieving sales values that ‘breaks the street ceiling price’ for the property.

You just have to look at how developers present their show homes to understand that by dressing a property well, it can achieve a better sales price. Or, look at how many agents undertake viewing days or sealed bidding processes now; that’s to create a buzz or buyer frenzy and so some natural psychological competitive spirit among would-be buyers.

Clever layout and design, dressing a property in a way that tells a story to your target buyer or introducing some clever competitive tactics can all lead to higher sales values than would normally be expected and so increase your profits here too.

  1. Rental income returns

You might have been saying to yourself, what about the income you generate from a property and wondering why I had not mentioned it already. Well, firstly, you’d be right to think of it and second, I wanted to keep the first point related to a property’s value to help simplify the discussion so far.

That said, rental income and, in particular, our net rental income after ALL costs adds to the mix.

So, which of these investments paying with cash, is the best one?

A flat valued at £100k bought for £90k with a net rental income after costs of £394 a month, or a flat valued at £100k bought for £95k with a net rental income after costs of £475 a month?

It’s a tough choice, isn’t it?

In theory, the first flat suggests that it has been negotiated better and so generated an extra £5k in profit to us. However, the net yield on this first flat is 5.25%, whereas the second flat has a net yield of 6.0% based off a slightly higher purchase price.

In cash terms, the second flat generates an extra £972 per year in rental income. If this were a real example, we would be looking at around 5 years before the second flat produced the same additional profit that the first flat produced up front, so we might still feel that the first flat is a better bet.

If the difference gets a bit bigger, or if our main goal is income, perhaps this might alter our views a little? I will add a bit of spice into the mix on this illustration in a minute for you though…so hold that thought.

Yes, I know we all want the higher rental value property at the lower property price, but that isn’t always possible and if it is, it often comes with strings attached like undertaking more in terms of refurbishment works. That’s why I made the choice imbalanced as that’s possibly more realistic on the streets.

The conclusion, however, is that we not only have to consider the returns in terms of property value, but in income too. In fact, more so with a rental property, where we might not be able to access the locked in equity for many years to come. This is a concept known as the ‘total returns from our property investing’, which takes us beyond price alone.

  1. Capital growth & investment delay, the time value of money & compound growth

This is an interesting one that some people can overlook. So, let’s break it down a little.

House prices do tend to trend upwards over the long-term. Sure, there are periods when they flat-line or even go down, but over extended periods of time the trend or regression line is usually upwards. So, it stands to reason then, that the longer we hold a property the more likely we are to see some capital growth.

It should also follow that the longer we delay buying a property that we will end up forgoing some of this capital growth. I grant you that if we time our entry into the market incorrectly, say at the top of the market, that this argument can then be watered down. However, when you also consider that we can achieve rental income whilst we own the property, this also needs to be factored in.

History has shown us that we have averaged around 7% house price growth per year over the past 55 years or so. Just look at the Nationwide House Price Index to prove that point. Equally, in the example above, we saw that our net income from our two flats investment alternatives was around the 5% to 6% mark and that assumes no mortgage is used, which if it were would lead to a higher net rental yield most likely.

But sticking with our 7% average capital growth and say 5% average net yield, that’s obviously a combined 12% per year return on our investment. Now, consider the opportunity cost to us of waiting a year to find this gem of a property project. It would have actually cost us 12% in lost the combined capital growth and net rental income by sitting out this long to find that perfect property!

Not only that, but if we wait long enough to locate that £90k discounted property, it could now cost us over £96k if we had to wait a year to buy it, due to the same average house price inflation. Yes, I know it’s not that simple but you get the idea.

This is a good way of illustrating the time value of money too. Put our £95k to work now and realise a combined growth of around £11,400 over a year, or sit and wait for that £90k apparent gem with nothing to show for it in the meantime, or worse, it turns out that it might then cost us £96k instead!

I was going to show the impact of this ‘good enough’ property versus waiting for the so-called ‘perfect property’ but it might just make your head hurt in an audio podcast, so you’ll just have to trust me on this…the gap gets wider the longer out you compound the growth!

I hope these numbers didn’t fry your brain too much whilst driving, dog walking, gym training, lying in bed or whatever else you might have been doing at the same time as listening!

The long and short take away from this point is: delaying our investment costs us money due to the time value of money!

  1. Cost, finance & other charges management

A few weeks back, we had Amit Ramnani as a guest on the podcast. He was talking to me off air about how asset managers and wealth advisers are now focusing less on new business and more so on portfolio management. In particular, he looks at the costs involved in managing an investment portfolio and how this can erode the net returns we achieve.

This same principle also applies to our property investments.

Imagine the difference to our net investment returns that could be made if we are able to keep our costs down. Yes, we do need to look at quality, not cutting corners and so creating false economies. But, if we can genuinely secure equivalent services but for less money, we will naturally improve our returns significantly in some cases. I usually assume that a standard BTL has annual running costs in the region of 25% of the annual rent, excluding a mortgage and taxation. However, if we can drive this down to say 20% a year, then this additional 5% drops straight into our back pocket as additional profit.

Here are some examples to illustrate. When undertaking works, I have seen fixed price quotes for a recent works project range from £65k to £85k, and as a member of LNPG I have seen the cost of kitchens and bathrooms achieve something like 70% or more discount on refurb projects.

I see some letting agents, especially online ones, who charge as little as 7% letting fees, although I personally still pay a little more than this to ensure quality and a personal local presence.

With financing, I have seen some lender fees be totally removed on a remortgage by renewing directly with the same lender. Equally, by renewing onto longer term fixed rates, I have seen my ‘total cost of finance’ reduce due to avoiding broker and lender fees repeating every couple of years as well.

Perhaps this is an extension of the make money when you buy principle rather than a completely new point – I just mention it to sow the seed that we can improve our returns by adopting a professional or business-like approach to our ‘total cost of ownership’ with our properties.

  1. Leverage

Leverage is another topic that I have covered at length.

You might remember my two flats examples from earlier, where there was perhaps a leaning toward the first lower priced flat.

Let’s revisit those examples, although this time using a mortgage. If we take out a 75% LTV mortgage in each case, we can see the following return on investment or ROI.

Flat one that would cost us £90k with a £22,500 deposit and a revised net rental income after the mortgage of just about £2oo a month. That’s a simple ROI on the deposit of 10.7%, which compares to our ROI using cash of 5.25%.

Flat two that would cost us £95k with a £23,750 deposit and a revised net rental income after the mortgage of around £267 a month. That’s a simple ROI on the deposit of 13.5%, which compares to our ROI using cash of 6%.

Now, we can perhaps see the benefit of flat two more clearly. We only actually need to put in an extra £1,250 of our own cash to buy it, whilst we can achieve a 26% improvement in ROI by doing so!

As Paul Daniels, the magician, used to say…now that’s magic and indeed leverage is like a magic trick in property too! Need I say any more about the benefits of leverage here then?

  1. Tax breaks

I am reluctant to go too deeply into the subject of taxation, quite simply because everyone’s situation is different and unique to them. However, there are some clear potential tax breaks that may work well in certain situations that might also be worth looking at. It could be argued that their potential benefit and impact onto the bottom line could perhaps even surpass that of a modest purchase price discount alone. Here are some examples:

  • Lettings & PPR relief when converting what was our home to a rental property, which could be worth £40,000 plus 18 months of tax-free capital gain, when the property is rented out after moving out.
  • Tax-free rental income on lodger rental income, which could be worth £7,500 a year
  • Capital gains tax annual exemptions when we sell a rental property, which could save us £11k per person in capital gains and not to mention that capital gains tax is at a lower rate to income tax in the first place.
  • Mortgage interest relief on holiday lets and similar, which allows 100% relief at your highest tax rate, compared to what will be an after profit relief capped at the basic rate, which might also push us into a higher tax bracket too!
  • Capital allowances on commercial properties…not going into too much detail on this, but where it applies it can offset a year or two’s rental profits typically.
  • Stamp duty savings by buying a company’s shares that owns a property rather than the property itself and / or buying 6 or more properties in a single transaction. The former reduces stamp duty from the prevailing rate plus the 3% premium to just 0.5% when buying shares instead.
  • Paying corporation tax on flip profits instead of personal income tax could save 20% in the tax take for higher rate taxpayers, which if reinvested could also compound up nicely over time as well.
  • Tax-free cash input into a pension to reduce our effective tax take by 20%, 40% or even more…and in some cases, we could even utilise this tax-free cash to help fund our investing activities.
  • Reduced or even avoided inheritance tax by some careful tax planning…could be worth a small fortune in reality!

As I mention, I don’t wish to go too deeply into these points but there are genuine tax savings to be had that can dramatically improve our property investment returns. Just ping me a note if you want a few pointers on who you could speak to about some of these points.

  1. Property as a vehicle to generate alternative income streams

Again, I don’t wish to go too far here, suffice to say that with a little lateral thinking, we could realise additional profits from properties we encounter, just by changing the nature of the transaction. Here are some examples:

  • Increased rental income from a change of use, such as from a single let to an HMO or holiday rental.
  • Earning fees for work related to a property that we don’t own, but can control or influence, such as sourcing fees, project and lettings management fees, assisted sale profit share or planning gain JVs and such like.
  • Securing additional rental income by breaking the rent down into different sections or offering added value services, such as a pet premium, renting the out garage separately, offering additional cleaning & gardening services, providing high speed broadband and satellite TV in a premium HMO, furnished properties rent premiums and so on.

Right, I had better stop there and draw a line under this discussion!

The principle we are examining is that we make our money when we buy.

I believe that whilst that is partly truth, it is definitely not the whole truth. In actual fact, we can and indeed do make money from property in a variety of different ways and through alternatives methods too.

This could be:

  • By undertaking improvement works or dressing the property to sell.
  • By looking at our total returns, including capital and rental returns.
  • By starting to invest sooner rather than later to capitalise on the time value of money and compound growth.
  • By adopting a cost management approach to all of our fees, charges & expenditure.
  • By maximising our returns and minimising our cash outlay through leverage.
  • By taking all the available tax breaks.
  • By looking at property as a vehicle to generate income in many different ways, rather than just an asset to own and derive rent from.

So, for me at least – making money when you buy is a myth.

We don’t only make money when we buy and in some cases, we don’t make any money at all when we buy either!

We can make money from property in plenty of different ways and so we must learn to be agile, flexible and creative if we are to both spot and capitalise on ALL of the possibilities that are open to us as a result. That’s our role as professional property investors.

As you can probably tell, I aim to stimulate both thought and action with some of these topics. So, please do drop me a line if you want to have a chat, you can email me at podcast@thepropertyvoice.net if you want to talk about anything from today’s show or more generally in property investing. The show notes will be over at the website www.thepropertyvoice.net

But for now, all I want to say is thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Soundbite: Truth or myth – we make our money when we buy? appeared first on The Property Voice.

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This is another of those myth-busting episodes for you. This time we will take a look at the widely held investment principle that states ‘we make our money when we buy’. Whilst, it might sound rather obvious and a clear statement of the truth, This is another of those myth-busting episodes for you. This time we will take a look at the widely held investment principle that states ‘we make our money when we buy’. Whilst, it might sound rather obvious and a clear statement of the truth, is there more to it than that? Let’s see what gets […] Richard Brown & Casa from www.thepropertyvoice.net clean 35:15 4309
Soundbite: Risk, uncertainty & fear…how to handle it http://www.thepropertyvoice.net/soundbite-risk-uncertainty-fearhow-handle/ Wed, 12 Jul 2017 04:59:31 +0000 http://www.thepropertyvoice.net/?p=4292 http://www.thepropertyvoice.net/soundbite-risk-uncertainty-fearhow-handle/#respond http://www.thepropertyvoice.net/soundbite-risk-uncertainty-fearhow-handle/feed/ 0 <p>An advantage of having some out-of-season soundbite episodes is the flexibility to dive into topical issues. This week, the subject of risk has been knocking at my door in various quarters, not for me personally, but for people that I encounter. So, today we shall have a little chat about risk and it’s buddies uncertainty […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/soundbite-risk-uncertainty-fearhow-handle/">Soundbite: Risk, uncertainty & fear…how to handle it</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> An advantage of having some out-of-season soundbite episodes is the flexibility to dive into topical issues. This week, the subject of risk has been knocking at my door in various quarters, not for me personally, but for people that I encounter. So, today we shall have a little chat about risk and it’s buddies uncertainty and fear as we understand a little of what it’s about and then what we can do about them.

Resources mentioned

Link to the Podcast feedback survey

Today’s must do’s

Consider how you react to risk. Are you conscious of your risk profile, do you identify both the likelihood and impact of risks in property, or are you frozen by uncertainty and fear? I would suggest that you adopt the 4-step process outlined in today’s episode:

  1. Identify and understand what risks there are
  2. Try to establish how likely they are to happen
  3. Assess the impact of them on us if they do happen
  4. Take steps to control, manage or just accept them

It will help you to make better investment decisions and should also help to manage your personal stress, reduce uncertainty and overcome fear as well 😊

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

An advantage of having some out-of-series soundbite episodes is the flexibility to dive into topical issues. This week, the subject of risk has been knocking at my door from various quarters, not for me personally, but for people that I encounter. So, today we shall have a little chat about risk and its buddies uncertainty and fear, as we understand a little of what it’s about and then what we can do about them.

Property Chatter

Risk, uncertainty & fear

First, let’s take a look at a couple of classic definition of risk.

From the Oxford Dictionary: “A situation involving exposure to danger.”

From the Cambridge Dictionary: “The possibility of something bad happening.”

Cheerful eh?

As humans, originally coming from cavemen roaming through treacherous landscapes full of wild animals and other dangers, we are hard-wired to respond to danger with a ‘fight or flight’ response. In these days, if we encounter danger, we either start a fight (usually if cornered), or more likely, will run away instead.

This reaction is still with us today, even though we are more civilised, experienced and generally speaking don’t have to fear being eaten by a sabre-toothed tiger!

Just consider a situation when someone cuts you up on the road, or you feel like you are being followed, or if someone starts yelling in your face. We all recognise that feeling where our heart rate rises, our hands get sweaty and we start to get ready to fight or flight.

I looked up Adrenaline and how it affects our bodies, here is what the Hormone Network has to say about it:

Adrenaline triggers the body’s fight-or-flight response. This reaction causes air passages to dilate to provide the muscles with the oxygen they need to either fight danger or run away. Adrenaline also triggers the blood vessels to contract to re-direct blood toward major muscle groups, including the heart and lungs. The body’s ability to feel pain also decreases as a result, which is why we can continue running from or fighting danger even when injured. Adrenaline causes a noticeable increase in strength and performance, as well as heightened awareness, in stressful times. After the stress has subsided, adrenaline’s effect can last for up to an hour.

It goes on to talk about the problems of too much adrenaline:

Adrenaline is an important part of your body’s ability to survive, but sometimes the body will release the hormone when it is under stress, but not facing real danger. This can create feelings of dizziness, light-headedness and vision changes. Also, adrenaline causes a release of glucose, which a fight-or-flight response would use. When no danger is present, that extra energy has no use, and this can leave the person feeling restless and irritable. Excessively high levels of the hormone due to stress without real danger can cause heart damage, insomnia and a jittery, nervous feeling.

OK, so let’s pause for a moment here then and summarise…

  • We are pre-programmed to look out for danger.
  • If we identify danger our bodies react to this stress physically by releasing adrenaline
  • Adrenaline helps us to get ready to fight or flight…or to run away
  • Stress-induced adrenaline can lead to some unpleasant or unwanted physical and medical side effects.

Two things should now be apparent…1) we have different levels of awareness and tolerance to danger or stress, and 2) we almost can’t help ourselves but to follow this process when we sense danger.

The first point is often related to uncertainty and fear in situations other than a real danger of personal harm and injury. In situations of real danger, if say we are being attacked, then our fight or flight response is actually very helpful. However, if we are not in any real physical harm, then our response can be unhelpful. Of course, what some may feel dangerous, others may not and so this gives rise to our different attitudes to risk. That’s why some people are thrill-seekers throwing themselves out of aeroplanes and others check the crime stats before visiting a new country!

So, we have different levels of comfort with risk, a risk-tolerance.

The second point is all about control. If our bodies automatically jump into fight or flight mode, adrenaline is released and quite often we can’t help but experience certain physical responses. However, we can learn to mentally and emotionally control our physical reactions to help bring us out of a stressful state and back to a normal state, where we can think more clearly and maybe not punch someone in the face instead!

So, we have different abilities in how we control how we react to risk too, a kind risk management.

In other words, if we understand our risk tolerance and practice our risk management, then we should be able to better manage our personal risk profile.

Most people do all of this unconsciously and so I like to help make this process a little more conscious or front of mind.

This means, deliberately thinking about what our attitude to risk is – low, medium or high at the basic level and also how we tend to manage or control risk in our lives.

In terms of investing, as with the rest of our lives, risk exists. Let’s not hide from the fact. Here is a definition of risk from an investment point of view, taken from The Investopedia:

Risk involves the chance an investment’s actual return will differ from the expected return. Risk includes the possibility of losing some or all of the original investment.

There is also the risk-reward trade-off to consider. This usually suggests that in order to compensate investors for taking a higher risk, a higher reward needs to be offered. Whilst it is not ALWAYS true that we can judge an investment’s level of risk by the potential reward available, it is a useful indicator.

So, with these consideration in mind – our appetite for risk along with our wish or need for reward, we need to then be able to measure the level of risk involved and then put steps in place to control or manage the risk.

Spoiler alert – there is no such thing as a risk-free investment, so let’s get used to the idea that we will need to practice risk measurement and risk management too!

Before I move on, I do wish to say that there are also some risks that are either not real or are so low that they can stifle us into fear and inaction. This means we need an ability of understanding it and then testing to see how real it is. This leads me on nicely to a 4-step process that we could adopt to better understand and manage our investment risk.

In assessing risk, we need to do four things:

  1. Identify and understand what risks there are
  2. Try to establish how likely they are to happen
  3. Assess the impact of them on us if they do happen
  4. Take steps to control, manage or just accept them

This should be a conscious or thoughtful exercise.

That said, I could argue that there are dozens, if not hundreds of potential risks that we could consider with any investment and property is no exception. Whilst, the likelihood of the sky falling in is a risk…it is not a very high risk based on several thousand years where this planet has not seen the sky falling in so far. So, we have to accept that some risks are just so low or remote that we either need to ignore them, or potentially just insure for them instead. Insurance, incidentally is a form of risk management.

I cannot go into too much detail about all of the potential risks that we might encounter in property investing. However, here are some examples we might need to be aware of, along with my sense of their likelihood, impact and some potential risk management controls we could apply to them.

  1. Interest rates go up

What is could it could mean.

This is mainly relevant when we use a mortgage to fund our property purchase, so if we are paying cash…perhaps we can ignore it? If interest rates rise, so too will our mortgage repayments and so potentially will our BTL rental profits reduce.

Impact

If interest rates rise by a certain level, we could end up in a loss situation and if we cannot fund these losses we face the threat of having the property repossessed.

Likelihood

If we take a look at interest rates over the last 20 years, you will see that they do fluctuate yes, but they are not usually highly volatile and make huge jumps. Rarely have we seen major jumps over a short period of time, but we have seen them trend up and trend down or remain stable for reasonable periods of time.

So, let’s get the facts before we live in fear of them jumping up and catching us out. The Bank of England now requires that mortgage lenders ‘stress test’ our ability to service a mortgage based on 145% rental coverage at a rate of 3% above our fixed rate or the standard variable rate in general terms. This is in fact a form of risk management that has been imposed upon us.

Is it likely that we will see interest rates rise by say 3% in a year? Well, the history of the past 20 years would suggest not. However, if you have a memory or insight into the 1970s you might recall that on a couple of occasions it has happened, so once or twice in around 50 years. I should also point out that inflation and wages have also tended to rise following periods of higher interest rates too, although usually with a slight lag. This means our tenants should then be able to afford rental increases to help offset the rising cost of our mortgage.

Risk management suggestions

Fix our mortgage rate for as long as we can comfortably afford. I usually favour a 5-year fixed rate unless I plan to sell a property before then.

We could also, set aside a contingency fund in case rates go up to fund a short-term gap.

We could probably expect to see some level of rental increase to offset this potential risk, especially over longer periods of time.

  1. We might get ripped off by [insert blank] in a property deal

Firstly, in property we either need or want to deal with several different types of people, from agents to professional advisers to contractors and so on. Someone might deliberately or negligently let us down, resulting in us losing some money or face another type of risk. An example might be a deal sourcer misrepresenting a great property project, or a surveyor getting a property valuation wrong for example.

What it could mean

With the example of a deal sourcer misrepresenting a property deal, we could either discover it and withdraw but be left with certain abortive costs or not discover it and be landed with a lemon of a property instead. With a poor valuation, we may find that we cannot resell the property for what we paid for it.

Impact

Abortive costs and potential loss of any sourcing fee.

Holding a property that does not perform as we were told it would.

The impact could range from the loss of a few thousand pounds in fees to being stuck with a property that we cannot get finance on or sell for what we paid for it for example. We would need to look at the impact in each case to fully understand it and then quantify it.

Likelihood

It largely depends on two things: 1) the character and values of the people involved and 2) the level of regulation and redress that they are controlled by.

In cases where we deal with professionals, such as the surveyor, they should be qualified, registered and insured to undertake their work and so this acts as an external risk management control mechanism that we can take some comfort in. However, that said, leading up to the last housing crash, there were some cases of valuers getting their valuations wrong and even the odd few acting fraudulently or corruptly. These were small numbers even so.

In the case of non-professionals, there is less external control over what they do and so a greater likelihood of them turning out to be rogues and ripping us off.

Risk management suggestions

  • Use people that are members of a professional or industry body with some sort of redress scheme as far as possible. These external bodies do help to reduce our risk but do not absolve us from our personal responsibility to make further checks ourselves.
  • Do background checks on the people that you work with – Google them and seek references or social proof of their capabilities.
  • Work with people with experience and a proven track record as far as possible.
  • Document your expectations, agreement and include provisions or conditions for a refund / return of fees if paying in advance for services offered.

 

  1. Over-paying for a property

If we buy a property, we want to know that it is worth what we are paying for or even less.

What it could mean

If we overpay for a property, we might lose money if we try and resell it or we may reduce our returns if we got the sums wrong. We could also be stuck with a property or even have a reduced valuation for a mortgage.

Impact

  • Loss of some capital or investment performance
  • Reduced lending capability
  • Unable to resell

Likelihood

If we are buying on the open market and have a survey or valuation done, then the chances are low that we will be committed to taking on an over-valued property. Once we remove these external controls, then unless we undertake certain checks, we are more likely to see it happening.

Risk management suggestions

  • Benchmark prices against recent sold comparables for like-for-like properties in the local area.
  • Get a survey or valuation done
  • Enlist a trusted adviser or professional to assess a property’s condition
  • Undertake thorough legal checks using a recognised and suitably qualified solicitor

So, that’s just 3 potential risks that we have covered today. Some of you might be thinking, I wouldn’t do all of what you suggest Richard, whereas others might be saying, blimey Richard I would go way deeper than that! That’s our risk tolerance or risk appetite speaking and as I said, it’s good to be aware of that as we are different.

Then, of course we do need to work out how likely a certain issue is of happening in order to quantify that risk before then trying to evaluate or measure the potential impact it could have on us. Remember, that not everything we worry about will actually happen. Finally, we should put steps in place that helps us to control or manage these risks to our desired risk profile.

However, the most important thing is to do all of this consciously and in a thoughtful manner. If we follow these four steps, we should become more aware of the risks that we are taking and our ability to tolerate them to help reduce uncertainty. We should also factually evaluate how likely they are to happen and so help to reduce our fear as a result. Finally, we then determine what steps we can and will take to control and manage these risks, perhaps trading off our returns in the process.

It may be the case that we either proceed with greater risk management controls, compromise on our returns by building in additional protection or even decide not to proceed with an investment at all. The main thing to keep in mind is to try to eliminate the physiological fight or flight stress response, the thought of not knowing what we are facing and also the emotion of fear that something might go wrong that we may experience during our investment activities.

By adopting this system or process, we can start to both understand and manage our personal risk and make it more conscious and rational, rather than unconscious and perhaps irrational or emotive.

I know this might be more difficult for some people than others, especially if you are more intuitive or emotional as a person generally. However, if you can at least try or even force yourself to adopt the type of approach that I am outlining here, it could help to reduce your personal stress. It will also shift you more toward the approach of a professional investor that can identify, measure and then control their investment decisions. It will be worth the effort both personally and also from an investment performance point of view.

Trust me on this, it is something I have learnt to deal with better over several decades in business and investing too!

I know I could have gone deeper on this topic but of course time is limited and Matthew my producer is waiting for the recording as I speak! However, if you want to discuss it further with me, remember that you can email me podcast@thepropertyvoice.net if you want to talk about anything from today’s show or more generally in property investing. The show notes will be over at the website www.thepropertyvoice.net

But for now, all I want to say is thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Soundbite: Risk, uncertainty & fear…how to handle it appeared first on The Property Voice.

]]>
An advantage of having some out-of-season soundbite episodes is the flexibility to dive into topical issues. This week, the subject of risk has been knocking at my door in various quarters, not for me personally, but for people that I encounter. So, An advantage of having some out-of-season soundbite episodes is the flexibility to dive into topical issues. This week, the subject of risk has been knocking at my door in various quarters, not for me personally, but for people that I encounter. So, today we shall have a little chat about risk and it’s buddies uncertainty […] Richard Brown & Casa from www.thepropertyvoice.net clean 30:12 4292
Investor Questions – Top of Mind Thoughts from a Social Networking Event http://www.thepropertyvoice.net/investor-questions-top-mind-thoughts-social-networking-event/ Wed, 05 Jul 2017 04:59:42 +0000 http://www.thepropertyvoice.net/?p=4272 http://www.thepropertyvoice.net/investor-questions-top-mind-thoughts-social-networking-event/#respond http://www.thepropertyvoice.net/investor-questions-top-mind-thoughts-social-networking-event/feed/ 0 <p>‘I need to go now and write everything down as you guys have blown my mind!’ These were the actual words of one of the attendees from our social meet up last Wednesday in London. So, what blew his mind you might well be asking? Well, I will tell you all in this week’s show […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/investor-questions-top-mind-thoughts-social-networking-event/">Investor Questions – Top of Mind Thoughts from a Social Networking Event</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> ‘I need to go now and write everything down as you guys have blown my mind!’ These were the actual words of one of the attendees from our social meet up last Wednesday in London. So, what blew his mind you might well be asking? Well, I will tell you all in this week’s show as I share some of the questions and answers that came out of our social property networking event.

Where will be the next ‘explosive growth property hotspot?’ How do I go about setting up a JV with my mate? Can I use a residential or Buy-to-Let mortgage to fund a flip project? Is it OK to get my Dad working for free? How do I get started in property?

These are real questions posed by real life budding property investors, so why not hear what a real life property investor like myself has to say in response to them?

Resources mentioned

Link to the Podcast feedback survey

Our foundational, digital property training course is called iKickkstart and you can find out more about that here

Today’s must do’s

Do you have a question you are burning to ask? Then, either drop me a line or why not look out for one of our next socials and come along to ask away in person instead? Save the date: October…sometime in the first couple of weeks probably…can’t be more specific than that right now though!

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

‘I need to go now and write everything down as you guys have blown my mind!’ These were the actual words of one of the attendees from our social meet up last Wednesday in London. So, what blew his mind you might well be asking? Well, I will tell you all in this week’s show as I share some of the questions and answers that came out of our social property networking event.

Where will be the next ‘explosive growth property hotspot?’ How do I go about setting up a JV with my mate? Can I use a residential or Buy-to-Let mortgage to fund a flip project? Is it OK to get my Dad working for free? How do I get started in property?

These are real questions posed by real life budding property investors, so why not hear what a real life property investor like myself has to say in response to them?

Property Chatter

No transcription for now…is that OK? I usually spend several hours scripting the show notes and whilst I do know that one or two of you enjoy reading rather than listening…I am trying to determine whether it’s 2% or 80% that like to read the show notes transcriptions…so, let me know!

Remember that you can email me podcast@thepropertyvoice.net if you want to talk about anything from today’s show or more generally in property investing, the show notes will be over at the website www.thepropertyvoice.net

But for now, all I want to say is thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Investor Questions – Top of Mind Thoughts from a Social Networking Event appeared first on The Property Voice.

]]>
‘I need to go now and write everything down as you guys have blown my mind!’ These were the actual words of one of the attendees from our social meet up last Wednesday in London. So, what blew his mind you might well be asking? Well, ‘I need to go now and write everything down as you guys have blown my mind!’ These were the actual words of one of the attendees from our social meet up last Wednesday in London. So, what blew his mind you might well be asking? Well, I will tell you all in this week’s show […] Richard Brown & Casa from www.thepropertyvoice.net clean 35:42 4272
Soundbite: Truth or Myth – Property profit tax & house prices doubling every ten year http://www.thepropertyvoice.net/soundbite-truth-myth-property-profit-tax-house-prices-doubling-every-ten-year/ Wed, 28 Jun 2017 04:59:39 +0000 http://www.thepropertyvoice.net/?p=4259 http://www.thepropertyvoice.net/soundbite-truth-myth-property-profit-tax-house-prices-doubling-every-ten-year/#respond http://www.thepropertyvoice.net/soundbite-truth-myth-property-profit-tax-house-prices-doubling-every-ten-year/feed/ 0 <p>Today’s show was inspired by a listener who dropped me a line asking to clear up how property profits are taxed. It is a commonly held belief that all property gains or profits on sale are taxed according to capital gains tax. However, is that strictly correct? Another commonly held belief is that of property […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/soundbite-truth-myth-property-profit-tax-house-prices-doubling-every-ten-year/">Soundbite: Truth or Myth – Property profit tax & house prices doubling every ten year</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> Today’s show was inspired by a listener who dropped me a line asking to clear up how property profits are taxed. It is a commonly held belief that all property gains or profits on sale are taxed according to capital gains tax. However, is that strictly correct? Another commonly held belief is that of property prices doubling every ten years – is that true or is it a myth? So, we shall lift the lid on these commonly held ‘truisms’ in today’s show and if you like the idea, we can look at other so-called truisms in future shows too!

Resources mentioned

Link to the Podcast feedback survey

Nationwide House Price Index data download

Today’s must do’s

Did you believe these so-called ‘truisms’ from today’s show? Are there others that you think are true but are not quite sure now? If so, drop me a line and we can do a bit of myth-busting together…let’s help to clear up some of the confusion and set the record straight on a couple of commonly held property beliefs…or hold them up to be true instead!

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

Today’s topic is inspired by a listener who asked me to clarify whether the profit made when selling a property is always subject to capital gains tax.

In addition, I shall also explore the ‘property prices double every ten years’ belief as well.

On with the show then

Property Chatter

Property tax on profits

Your own home – no tax to pay on gains or profits when sold

BTL property – profits on sale are indeed subject to capital gains tax

Traded property – in cases where the property is not (or never was) your own home and / or if the property was never rented out, then it is likely to be classed as a trading activity and therefore subject to income tax on sales profits realised and not capital gains tax. There is the odd exception but in the most part some people might not be aware that property sold at a profit is subject to income tax if it has not been rented out.

House prices doubling every ten years

Looking at the Nationwide House Price Index, since 1952 house prices have on average doubled every ten year in the 55 years to Q1 2017.

However, there are periods of time when this did not happen on average. There are some periods where house prices exploded at 3 or 4 times growth over a ten year period, such as the 80s and noughties. However, there also some periods where house prices have achieved far more modest growth and not doubled every ten years as well. Examples include the 50s, part of the 90s and quite recently since 2013 in particular.

So, the conclusion is that over a long time period, say 20 years or more, house prices have on average doubled every ten years but over shorter time periods of say 5-10 years, it is not always the case and so the rule cannot be relied upon for short-term periods.

Drop me a line if you would like me to investigate any apparent property truths and I will try and feature it in the show for you.

. Remember that you can email me podcast@thepropertyvoice.net if you want to talk about anything from today’s show or more generally in property investing, the show notes will be over at the website www.thepropertyvoice.net

But for now, all I want to say is thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Soundbite: Truth or Myth – Property profit tax & house prices doubling every ten year appeared first on The Property Voice.

]]>
Today’s show was inspired by a listener who dropped me a line asking to clear up how property profits are taxed. It is a commonly held belief that all property gains or profits on sale are taxed according to capital gains tax. However, Today’s show was inspired by a listener who dropped me a line asking to clear up how property profits are taxed. It is a commonly held belief that all property gains or profits on sale are taxed according to capital gains tax. However, is that strictly correct? Another commonly held belief is that of property […] Richard Brown & Casa from www.thepropertyvoice.net clean 19:23 4259
Soundbite: Failure, setback & defeat…how to handle it http://www.thepropertyvoice.net/soundbite-failure-setback-defeathow-handle/ Wed, 21 Jun 2017 04:59:47 +0000 http://www.thepropertyvoice.net/?p=4251 http://www.thepropertyvoice.net/soundbite-failure-setback-defeathow-handle/#respond http://www.thepropertyvoice.net/soundbite-failure-setback-defeathow-handle/feed/ 0 <p>I decided to wear my heart on my sleeve a bit in today’s show after a couple of recent experiences. Some are my own, but a couple of other investors, including a mentee of mine have spoken recently about things going wrong and in particular the fear of things going wrong too. So, I plan […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/soundbite-failure-setback-defeathow-handle/">Soundbite: Failure, setback & defeat…how to handle it</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> I decided to wear my heart on my sleeve a bit in today’s show after a couple of recent experiences. Some are my own, but a couple of other investors, including a mentee of mine have spoken recently about things going wrong and in particular the fear of things going wrong too.

So, I plan to fess-up to a a couple of defeats, setbacks or if you like failures of my own in the hope that you can take something really big away with you: in order to achieve success in property, we may well have to overcome some kind of adversity or a even fear of failure.

Resources mentioned

Link to the Podcast feedback survey

The Property Investor Live Workshop will be held on Saturday 1st July in London – come and join me there!

Today’s must do’s

Do you have an investor mindset that prepares you to handle setback, defeat or even failure, or even to deal with the fear of these things happening? Do you have processes in place to help prevent these things happening? These are two of the essential ingredients required to be successful in property, so make sure that you are ready and prepared but at the same time, push through the fear anyway!

Join me at the Property Investor Toolkit Live event on Saturday 1st July in London, evet details here: https://www.eventbrite.co.uk/e/the-property-voice-live-property-investor-toolkit-workshop-tickets-35383373623

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

Today’s topic is one that you won’t find too much in the way of content from the property community on in truth. It’s all about handling things that go wrong in our property business.

So, if nothing else, you will get a chance to enjoy a healthy dollop of schadenfreude in this week’s show, as I reveal some of my own biggest setbacks and how I dealt with them.

So, let’s not waste any more time and get right on with the show now.

Property Chatter

I decided to wear my heart on my sleeve a bit in today’s show after a couple of recent experiences. One is my own, but a couple of other investors, including a mentee of mine have spoken recently about things going wrong and in particular the fear of things going wrong too.

So, I plan to fess-up to a a couple of defeats, setbacks or if you like failures of my own in the hope that you can take something really big away with you: in order to achieve success in property, we may well have to overcome some kind of adversity or a even fear of failure.

In the interests of making this a more personal share, the case studies I am about to go through will be unscripted and so if I make the odd stumble or such like…please don’t judge will you? I want to keep it as real as possible you see.

First property – sold

First year in property – 3 properties plus the one I don’t like to talk about

Our latest development project – abortive costs but keeping our shirt

Dealing with setback, challenges and even failure

Mindset – have a solution or can-do attitude, be resilient and ready to handle setbacks in a positive way

Process – have processes and systems in place to help to take the emotion out of the situations that you face

Fear – overcome irrational fears by adopting a business-like approach to your investing, but don’t be gung-ho either!

I will also be running an event called The Property Investor Toolkit Live on Saturday 1st July in London. It will pick up the key elements of my book; Property Investor Toolkit, along with a sneak peek into 2 brand new chapters coming with a second edition. However, in addition, I am allocating a segment to look at some strategy reviews of some investors to coach live on the day.

If you want to know more about the event, there will be a link in the show notes, or you can just ping me a quick email podcast@thepropertyvoice.net and we can have a conversation instead.

I hope this dip into a couple pf case studies that demonstrate a few setbacks that I have encountered in property has been insightful today. Remember that you can email me podcast@thepropertyvoice.net if you want to talk about anything from today’s show or more generally in property investing, the show notes will be over at the website www.thepropertyvoice.net

But for now, all I want to say is thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Soundbite: Failure, setback & defeat…how to handle it appeared first on The Property Voice.

]]>
I decided to wear my heart on my sleeve a bit in today’s show after a couple of recent experiences. Some are my own, but a couple of other investors, including a mentee of mine have spoken recently about things going wrong and in particular the fear of... I decided to wear my heart on my sleeve a bit in today’s show after a couple of recent experiences. Some are my own, but a couple of other investors, including a mentee of mine have spoken recently about things going wrong and in particular the fear of things going wrong too. So, I plan […] Richard Brown & Casa from www.thepropertyvoice.net clean 39:26 4251
Soundbite: Mini-Strategy Review: Does it sound like a plan? http://www.thepropertyvoice.net/soundbite-mini-strategy-review-sound-like-plan/ Wed, 14 Jun 2017 04:59:13 +0000 http://www.thepropertyvoice.net/?p=4223 http://www.thepropertyvoice.net/soundbite-mini-strategy-review-sound-like-plan/#comments http://www.thepropertyvoice.net/soundbite-mini-strategy-review-sound-like-plan/feed/ 1 <p>I do like to get involved in the odd property forum and try to offer a bit of advice and support if I can. Today I am going to share with you the essence of a forum exchange that I had with an aspiring investor, adopting something similar to the approach I tend to take […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/soundbite-mini-strategy-review-sound-like-plan/">Soundbite: Mini-Strategy Review: Does it sound like a plan?</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> I do like to get involved in the odd property forum and try to offer a bit of advice and support if I can. Today I am going to share with you the essence of a forum exchange that I had with an aspiring investor, adopting something similar to the approach I tend to take with a Mini-Strategy Review. So, let’s hear from Rafal and try to answer his question: is this a plan; is it even possible?

Resources mentioned

Link to the Podcast feedback survey

Today’s must do’s

Would you like a Mini-Strategy or Deal Review? Take a look at what’s involved and drop me a line if you think you would benefit from that.

Join me at the Property Investor Toolkit Live event on Saturday 1st July in London, event details at this link

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

I do like to get involved in the odd property forum and try to offer a bit of advice and support if I can. You can mostly find me in The Property Hub where I am classed as an ‘Obsessed Member’ with over 700 posts and over 500 post likes so far. This seems to be a good audience to engage with in particular as there are lots of new and early stage investors hanging out there and let’s just say that they have not been sold on the become a property millionaire in 5 minutes pitch that you can find in some quarters!

Needless to say, today I a going to share with you the essence of a forum exchange that I had with an aspiring investor, adopting something similar to the approach I tend to take with a Mini-Strategy Review, which you can find details of on my website www.thepropertyvoice.net on the Mentoring page.

Right, so lets cue up the post and then dive into an adapted version of my response right now…

Property Chatter

First, let’s set the scene with an outline of the original post, which comes from Rafal.

“For some time I have been interested in a property investing, but I do not own any property yet.

I would like to hear your opinions about the strategy that I’m thinking of.

My strategy assumes, that in the next couple of years (+- 5) I will build a portfolio of a properties, that bring at least £1000 net monthly income. Moreover – what is the most important – I want it to be quite hands-off after that time. Ideally if I could spend most of my time outside the UK visiting it only once a month or once every two months.

Here is the description of my financial situation and the basic parameters of that strategy:

– Savings at the moment: £8,5k

– Amount of money saved every month: ~ £1,4k

– for the next couple of years buying properties – 1-2 bedroom houses in the areas located 5-10km distance from Manchester City Center

– I’m aiming properties in a price span from 40-80k

– Using interest-only mortgage with 25% deposit

– Getting a reliable letting team

– Having £200-£350 after-mortgage and after all costs monthly income from each property

– Reinvesting the rental income

Is that possible in your opinion to carry out this plan with the assumptions given above?

I would appreciate every single opinion.

Thank you in advance,

Rafal”

And here is an adapted version of my response:

Hi Rafal

Great that you actually have a plan…not everyone does! So, that’s an encouraging start.

First, I like the fact that you have set a clear goal and also recognise your lifestyle / personal preferences as well…again that is really important to identify.

You talk about the portfolio being hands-off after c5 years but you don’t mention what you are prepared to do as you are building the portfolio…so, I am guessing you intend to be a little more hands on during this phase.

Is it possible? Well, yes in theory it kind of is. However, there are a few ‘buts’ to consider.

First is the type of property you will be getting at that price point – often it will need to have some work doing to it to either make it lettable or keep it lettable; in other words additional costs to start off and the works part to manage too and some maintenance along the way. This might mean tying up a bit more cash than perhaps you were expecting.

I would also say that if you intend to be ‘location-independent’ of the properties in the future, then you also do not necessarily need to restrict the area they are in to start with either. Remember, if your primary goal is income, then you need to be looking in high yield areas or at higher yielding properties.

Finally, remember that older houses will need more money to maintain than say newer flats, although the latter have service charges…it’s swings and roundabouts but both maintenance and service charges will eat into your net cashflow.

I would therefore have a look at the type of properties you could buy and see how much money you would need to spend on them to get them lettable and run the full numbers to get to your net cashflow position based on local comparable rent levels. Allow around 2-6 weeks of voids per year and between 5% to 15% of rental income for maintenance, depending on the property condition. Finally, letting fees, insurance, annual inspections and accounting costs need to be factored in as well. Therefore, an allowance of around 25% of the gross annual rent per year would not be an unreasonable assumption to make in terms of costs for a hands off property investment with an older property, excluding any mortgage costs.

The second point, is the net rental income, which is also linked to the property type just mentioned, but also the tenant type. Have you done some analysis on rents and tenant type to arrive at your target £200 to £350 per month net income? £350 sounds high on a hands-off investment at these sort of price points based on vanilla single-lets.

Let me give you an example from a deal we recently shared on our Deal Tips Service. It is in Liverpool, would cost around £45k to buy but would need around £25k spending on it to get it lettable, plus some other acquisition costs etc.. However, it should be worth £85k or so once done up properly and could potentially be refinanced to extract some of the cash required to get it set up. The local rent around there is c£550 per month and so after all costs and provisions it would net around the £200 per month mark in cashflow.

The alternative to buying it cheap and doing it up would be to buy it ready to go, which would need around £25k or so as a deposit including the usual fees and other buying costs versus around £46k if following a ‘buy-refurb-refinance’ (BRR) model, leaving around £18k cash left in after refinancing, thus saving around £7k or around 28% of the starting funds once refinanced.

The reason for highlighting this example is twofold: first to show the type of net cash position and funds requirement you might need based on a real world example – buying this property done up would need £25k or so in cash, assuming the no works option and would net around the £200 per month in cashflow mark.

The BRR strategy on this one would work best if you could pay cash and would result in a similar net cashflow position based off lower cash left invested, allowing your money to stretch a bit further.

So, you could probably squeeze 3-4 of the these types of properties out of your full 5 year investment pot, assuming reinvesting your rental profits along the way. That’s £600 to £800 in net cashflow…so you would miss your goal.

You may be able to squeeze and extra property or two out of the pot by following a BRR strategy, taking you to £800 to £1200 per month and hopefully reaching your goal…so a bit more work to make your money stretch further with say a BRR strategy is an option and also my second point.

Could you do better than this example? Potentially, yes you can – I certainly have done but I am trying to show you a fairly typical easy-to-find project that most people could locate alone and undertake without too much effort and drama.

That all said, here are some things completely different for you to potentially also think about…

Consider some higher yielding strategies, like certain LHA strategies and say HMOs, although the latter will need more cash going into the deal at the front end…but with a higher potential net cashflow per property too…think 1-2 HMO properties over the 5 years instead of 4-6 single lets.

And…if you don’t fancy a load of hard work for 5 years, try setting aside your money in a high-interest facility and then just go and by yourself a few low-maintenance flats / newish houses or a ready-made HMO or two with the funds when you are ready to invest / have enough set aside to buy one! This is the easy life alternative 😉 But don’t forget to set aside funds for voids and maintenance, especially if this is your only source of income.

Anyway, just a bit of food for thought for you and also to show an insight into the type of thought process and analysis I tend to undertake when working with people on a mini-strategy review exercise to open their thinking to other possibilities and test their logic in a real world setting…I hope that’s been useful for you and I wish you the best in putting your plan into action!

And on that note, I just wanted to say that I do undertake mini-strategy reviews on property investor plans and as it so happens, I will also be running an event called The Property Investor Toolkit Live on Saturday 1st July in London. It will pick up the key elements of my book; Property Investor Toolkit, along with a sneak peek into 2 brand new chapters coming with a second edition. However, in addition, I am allocating a segment to look at some strategy reviews of some investors to coach live on the day.

Every attendee will have the option of receiving a signed copy of my book if they would like one. They will receive the two additional chapters in advance of the release of the second edition and if that’s not enough, will also receive a 100% rebate on my next book to be released later this year.

Premium attendees will also get to have a live coaching session, looking at their planned strategy or alternatively a deal surgery on a property project they are currently looking at. If you want to know more about the event, there will be a link in the show notes, or you can just ping me a quick email podcast@thepropertyvoice.net and we can have a conversation instead.

I hope this snapshot strategy review has been insightful today, I like to dip into the odd property forum and give a little back when I can and this is an example of that. I would also like to meet some of you in person as well, so I hope you can join me in London in a couple of weeks’ time too. Remember that you can email me podcast@thepropertyvoice.net if you want to talk about anything from today’s show or more generally in property investing, the show notes will be over at the website www.thepropertyvoice.net

But for now, all I want to say is thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Soundbite: Mini-Strategy Review: Does it sound like a plan? appeared first on The Property Voice.

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I do like to get involved in the odd property forum and try to offer a bit of advice and support if I can. Today I am going to share with you the essence of a forum exchange that I had with an aspiring investor, I do like to get involved in the odd property forum and try to offer a bit of advice and support if I can. Today I am going to share with you the essence of a forum exchange that I had with an aspiring investor, adopting something similar to the approach I tend to take […] Richard Brown & Casa from www.thepropertyvoice.net clean 32:01 4223
Soundbite: How much capital do I need to start? http://www.thepropertyvoice.net/soundbite-much-capital-i-need-start/ Wed, 07 Jun 2017 04:59:30 +0000 http://www.thepropertyvoice.net/?p=4167 http://www.thepropertyvoice.net/soundbite-much-capital-i-need-start/#respond http://www.thepropertyvoice.net/soundbite-much-capital-i-need-start/feed/ 0 <p>Today, I wanted to answer the question…how much cash do I need to get started in property? When most people say property, they tend to mean BTL, so I shall certainly start by looking at BTL. However, as you will see, we may take a quick look at a couple of other options that require […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/soundbite-much-capital-i-need-start/">Soundbite: How much capital do I need to start?</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> Today, I wanted to answer the question…how much cash do I need to get started in property? When most people say property, they tend to mean BTL, so I shall certainly start by looking at BTL. However, as you will see, we may take a quick look at a couple of other options that require less up-front cash to BTL along the way.

Resources mentioned

Mini-series on what to if I have £x to invest in property:

  • Less than £10,000 available to invest here
  • £10,000 to £50,000 available to invest here
  • £80,000 to £250,000 available to invest here
  • £250,000 or more available to invest here

Alternatively, drop me an email: podcast@thepropertyvoice.net and I will send you the ebook equivalent to the episodes you are interested in instead – state how much you have available to invest and I will make sure I send you the right ebook 🙂

Our Deal Tips Service is you want to find decent ROI property projects in a passive way

Link to the Podcast feedback survey

Today’s must do’s

If you want to get started in property consider one of the following approaches: 1) being committed and creative in saving or generating funds for your deposits and fees; 2) looking at alternative ways of getting going such as lesser capital strategies, giving up some of your privacy or giving up some of your time to overcome inertia, or 3) make your funds work harder for you by adopting a value-adding or recycling approach to your investment plans.

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

Today, I wanted to answer the question…how much cash do I need to get started in property? When most people say property, they tend to mean BTL, so I shall certainly start by looking at BTL. However, as you will see, we may take a quick look at a couple of other options that require less up-front cash to BTL along the way.

Let’s get into the discussion now then.

Property Chatter

OK, so how much cash or capital do I need to get going then?

Well, traditional BTL requires a deposit for a mortgage and some extra funds to cover some of the fees. So, even if we buy a cheap and cheerful property, we will probably will need at least £20k in capital and that’s assuming no refurb work is required. However, that may mean investing in a 2-bed terrace in a grim, former mining village and that might not be the best investment to make either! So, there is an element of trade-off required and that’s why raising more than this could be beneficial if we possibly can.

There are actually two challenges when it comes to traditional property investment through BTL – raising the starting capital and then raising the capital for the next one all over again! BTL is a highly capital-intensive pre-occupation that’s for sure!

However, there are some things that we could do to help us to raise that starting capital, although some may not be possible or even preferable, but here goes:

  • Aggressive saving – and I mean more than the 5% to 10% of earnings…some people have managed to save 50% of earnings!
  • Budget slashing – in harmony with saving, a severe review of our spending habits and potentially going on a spending fast for a time, no holidays, no meals out, no expensive TV subscriptions, no branded products, no second car, no first car, no new clothes…you get the picture – this is called delayed gratification by the way.
  • Additional income streams – consider second jobs and home-based businesses, such as becoming an eBay or Amazon seller or doing car boot sales, that kind of thing
  • Liquidating assets – selling off valuable or semi-valuable items to help raise some cash…old watches, art, antiques, record collections and so on
  • Equity release – accessing equity in our home by refinancing, downsizing or even switching to renting for a time…yes another short-term sacrifice
  • Additional borrowing – raising money by borrowing through unsecured lending, friends & family or other joint venture structures

I didn’t say it was going to be easy did I? I remember Kirsty Allsopp from Location, Location, Location saying saving for a deposit to buy a house has NEVER been easy…it is a discipline and will involve elements of sacrifice and delayed gratification as I mentioned.

Next, there are also some non-traditional property strategies that enable us to get going in property with less capital…but be warned, they are more like a job or a business in their own right, such as:

  • From £1 to get in – lease options
  • From a month’s rent to get in – rent to rent
  • From giving up your spare bedroom, parking space or garage – renting out space at home
  • From giving up your time – deal sourcing or other landlord / investor services like project management, lettings management and so on

Finally, today, another approach is to make what we do have go further once we get started and here are a few ways of doing that:

  • Higher yielding strategies – e.g. HMO, holiday lets, etc.
  • Trading to grow the snowball – buy and sell to make our profit and plough it back into the next deal before we start looking to hold assets
  • Value-adding strategies releasing equity to re-invest – the buy-refurbish-refinance model is a good example of this…buy a property, add some value and then release some of that extra value by refinancing and going again
  • Buddying up – work in partnership with others to make our pot stretch further, but keep in mind the returns also need to be shared too!
  • Joint ventures – a variation on buddying up but only where we borrow the funds from a JV finance partner and repay them a fixed rate or profit share rather than say a longer-term partnership type of arrangement

As I reflect on my own situation, I sat stuck for 4 years wanting to get going again in property but I didn’t have the funds available to do so. Then, I realised that I could work with others and adopt a value-adding strategy to get started sooner.

So, with just £10k of my own money from a bonus at work, combined with £50k from a JV partner, a £50k bridging loan along with a very rare £25k contractor loan to fund some of the works…I was able to get going on a refurb and upgrade project with just my £10k or around 7% of the total funds required, therefore. Then, I was able to refinance at the increased valuation to release the funds to repay everybody and then go again.

This was not easy and in fact I left my £10k invested in that property, so I still had to start with the funding process all over again BUT if I had bought that same property ready-made with a BTL mortgage I would have needed around £50k of my own cash to do that…and I simply didn’t have it at the time. I could have also sold the property and ploughed the proceeds, including what was effectively my equity deposit into my next deal…and in hindsight possibly should have done too!

It was, however, the start of my property journey in earnest and I have made great strides since that deal I am happy to say. So, finding a way to get started sooner rather than later is the key takeaway here. Look for a way to get going sooner rather than later, after all as Warren Buffett says, it is time in the market, not timing the market that counts!

As an aside, if you want to find great ROI / return property projects without leaving home, then check out our Deal Tips Service

Before I go, and as a reminder, I have previously recorded something of a mini-series on this subject if you want to know what your strategy options are based on a given starting capital fund…so make sure you check those out, I will drop a couple of links to these into the show notes.

Ok, so that’s me for this week. Remember that you can email me podcast@thepropertyvoice.net if you want to talk about anything from today’s show or more generally in property investing, the show notes will be over at the website www.thepropertyvoice.net

But for now, all I want to say is thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Soundbite: How much capital do I need to start? appeared first on The Property Voice.

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Today, I wanted to answer the question…how much cash do I need to get started in property? When most people say property, they tend to mean BTL, so I shall certainly start by looking at BTL. However, as you will see, Today, I wanted to answer the question…how much cash do I need to get started in property? When most people say property, they tend to mean BTL, so I shall certainly start by looking at BTL. However, as you will see, we may take a quick look at a couple of other options that require […] Richard Brown & Casa from www.thepropertyvoice.net clean 27:47 4167
Soundbite: Has the Property Ship Sailed? http://www.thepropertyvoice.net/soundbite-property-ship-sailed/ Wed, 31 May 2017 04:59:45 +0000 http://www.thepropertyvoice.net/?p=4164 http://www.thepropertyvoice.net/soundbite-property-ship-sailed/#respond http://www.thepropertyvoice.net/soundbite-property-ship-sailed/feed/ 0 <p>I am active in a couple of property forums and try to give back a little into the wider property community when I can. Here is the essence of a recent forum exchange that I decided to wade in on to offer some thoughts to help the poster, who was probably feeling a little like […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/soundbite-property-ship-sailed/">Soundbite: Has the Property Ship Sailed?</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> I am active in a couple of property forums and try to give back a little into the wider property community when I can. Here is the essence of a recent forum exchange that I decided to wade in on to offer some thoughts to help the poster, who was probably feeling a little like after the lord mayor’s parade when he asked: Has the property ship sailed? Let’s find out if we can make a fist of BTL investing still, or if we need to now be looking at more complex and riskier strategies to make money in property.

Resources mentioned

Link to the Podcast feedback survey

Today’s must do’s

If you are interested in BTL property investing, then I would suggest doing these three things: 1) don’t blindly aim for ‘set and forget’ capital growth; 2) do look more at a mix of capital growth and income returns and in doing so be more choosy on the location and properties you take on, and; 3) do understand that how you set up and structure your affairs these days is perhaps more important than it used to be: so get professional advice if you intend to have more than the odd BTL investment.

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

Today’s show takes as its inspiration an exchange I had on a property forum in answer to the original poster’s question: has the property ship sailed?

Let’s dive right in now and respond to that question, which is probably on a lot of people’s lips at present anyway.

Property Chatter

I am active in a couple of property forums and try to give back a little into the wider property community. Here is the essence of a recent post that I decided to wade in on to offer some thoughts to help the poster, who was probably feeling a little like after the lord mayor’s parade when he asked:

Has the property ship sailed?

He elaborated as follows:

I’m new to property and interested in growing a property portfolio.

I’d be really interested to know what people think about the reality of getting into property right now.

With a rising property market and all the changes in taxes, is it a lot tougher to make a success of property without going into more and more complex and risky property strategies?

Before I share the essence of my response, let’s start off with a few pieces of data.

House Prices

In September 2007 – the average house price was £190,032

In April 2017 – the average house price £217,502

That’s a modest 14% increase over the ten years from the previous market peak, which includes a very significant bust period of 2007 to 2010/11.

In January 2005 – the average house price £150,633

In April 2017 – average house price £217,502

That’s a 44% increase over 12 years or a compound annual growth rate (CAGR) of 3.1%

There is a statistic that gets thrown around a fair bit in property that house prices double every 10 years or thereabouts. This appears to be true over a long-time period, however, we can see that over the past 12 years this has not really be the case.

Doubling house prices every 10 years does imply an annual house price inflation rate of an eye-watering 7% per annum. However, I am not sure that we should be relying on this level of above-inflation growth necessarily being repeated. That said, who knows for sure?

Let’s also take a quick look at different types of housing tenure.

In 1986, social housing, which comprises council housing & housing association provided homes, accounted for 29% of all housing tenures. But by 2014 this had fallen to 17%. Over this same period, privately rented housing has risen from less than 8% to over 16%. Similarly, and again over this same period, mortgage or rent-free housing has risen from 24% to 35%.

What does this data tell us?

Apart from the obvious fact that there is something of a generational divide, with many homeowners now starting to pay off their mortgages and live mortgage or rent-free, it s the mix of rented tenures that catches my eye.

It’s not necessarily about BTL landlords becoming a greedy that many people might like to focus on, it is that the private rented sector has had to fill a void left by a drop in social housing in particular. In other words, people will always need rented homes to live in, it’s just who provides them that has changed. I don’t see a massive reversal to this mix of rented housing providers any time soon, especially with the lack of new house building failing to meet our population needs contributing to a growing annual deficit each and every year.

Home ownership rates

Home ownership rates were around 64% in 1986 and whilst they peaked at around 73% in 2008, it seems clear in retrospect that this peak was based on an unsustainable level of easy-credit based mortgage lending. This level was probably unsustainable and whilst home ownership rates are probably going to increase once again, we need to put this into context. We still don’t have enough homes of every tenures and so we quite simply need more homes of ALL tenures, not just for home owners but for renters too. In short, the rental demand will continue, even with the effects of Brexit.

Rents

In terms of rents, there is less historic data available but it does appear that rents over the past 15 years have broadly tracked RPI inflation, or wage inflation.

Now let’s putting this all together, there is a very strong demand for housing of all tenures and we are not building enough new homes. Historic house prices do look as though they have been operating at hard to sustain levels, but just as the arrival of low interest rates has propped uo affordability levels, in a similar way to dual-income families in the past, I expect further changes to help support house prices in the future too. For example, lifetime or inter-generational mortgages to name but one.

If nothing else, I would expect a more moderate rate of house price growth rather than a dramatic and long-term seismic correction.

Rents should continue to track household expenditure levels and so should see increased returns also.

So, my conclusion is that no, the property ship has not sailed…but it is sailing through some choppier waters!

To elaborate, there are two key aspects of making money through property:

  • Annual Income – via net rental income after all costs and tax
  • Capital Growth – via realising an increase in the property value again after tax…with the key word being realising.

Historically, total pre-tax returns from BTL have been around 10% to 12% including both income returns and capital gains, with an approximate 50/50 split.

What has changed recently is taxation, which has taken a bite of the after tax returns. If we assume that the future returns will largely mirror the historic returns, which is a big assumption but a fair one to make, then all that would really change is the after-tax position.

The two big tax changes are the Stamp Duty Land Tax (SDLT) 3% premium for investment properties, which increases our costs going into the deal and also therefor affects our ROI. Then, there is the Finance Bill Clause 24 mortgage interest tax relief caps and a change into an allowance, which could reduce our after-tax income returns.

Put simply, we can’t avoid the SDLT premium, so that’s going to reduce our returns when compared to the past…although some landlords are looking to try and recover this extra cost by increasing rents. If we assume you can’t pass on the cost as higher rent then clearly this impacts net income returns for the average investor…but it won’t shift the net income ROI from approximately 6% to 3%…it will increase our entry costs only and so 6% ROI might turn into say 5.8% (6 / 100 vs. 6 / 103 is the maths behind that). So, not much different really.

As for Clause 24 – this will affect higher-rate tax payers by a fair bit, or push some basic-rate taxpayers into a higher tax bracket…and so will affect these a fair bit too. I won’t illustrate the maths but this could take a bigger bite out of the income returns than SDLT. However, there are some potential ways around this including investing via a company, invest in higher yielding properties or locations, re-arrange our affairs such that we will be less impacted by these changes (seek professional advice to do this!) or change strategy (e.g. property trading) or investment location (region or even country). Here is the podcast I recorded on location in the USA that discusses higher yield investing there for example.

Finally, capital growth – if all we do is sit and wait, then we should hopefully achieve some capital growth over time (it does depend on location though). But we can’t spend equity unless we release it in some way…so it’s actually of no use to us until and unless we can release this capital growth by either selling or refinancing (careful with over-refinancing but that’s another topic). Capital gains tax is pretty much the same as it used to be, although is now less favourable when compared to other capital assets…so compared to property returns previously, no change, but compared to say capital growth on stocks and shares, it’s now less attractive.

Property does still have the advantage of allowing us to use leverage to grow our returns, which for the everyday investor, is not the case with say stocks and shares. We do get some tax breaks by investing through ISAs and pensions, so if we are looking long-term then we should also consider these at least as a part of our overall investment portfolio mix (I certainly do!).

I guess, we may see some softening to capital gains if house prices fail to match what they have done in the past. On the income side, despite some attempts to take a bigger bite out of our profits in the form of taxation, net rental income can probably hold up well under the right property conditions, including higher yielding locations and / or rental types and with good organisation of our ownership and tax affairs.

So, in conclusion…don’t sell your ticket to the good ship BTL property just yet, but do undertake a little more research on which is the best cabin to book on the ship is what I would say!

There are still some decent opportunities without having to go too far down the complex or riskier property strategies route.

Ok, so that’s me for this week. Remember that you can email me podcast@thepropertyvoice.net if you want to talk about anything from today’s show or more generally in property investing, the show notes will be over at the website www.thepropertyvoice.net

But for now, all I want to say is thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Soundbite: Has the Property Ship Sailed? appeared first on The Property Voice.

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I am active in a couple of property forums and try to give back a little into the wider property community when I can. Here is the essence of a recent forum exchange that I decided to wade in on to offer some thoughts to help the poster, I am active in a couple of property forums and try to give back a little into the wider property community when I can. Here is the essence of a recent forum exchange that I decided to wade in on to offer some thoughts to help the poster, who was probably feeling a little like […] Richard Brown & Casa from www.thepropertyvoice.net clean 30:39 4164
Soundbite: On location in the USA http://www.thepropertyvoice.net/soundbite-location-usa/ Wed, 24 May 2017 04:59:57 +0000 http://www.thepropertyvoice.net/?p=4148 http://www.thepropertyvoice.net/soundbite-location-usa/#respond http://www.thepropertyvoice.net/soundbite-location-usa/feed/ 0 <p>The Property Voice Podcast – Soundbite: On location in the USA Damien and myself are on something of a busman’s holiday in Florida. I have net a number of developers, agents & finance people over a whistle-stop tour, whilst Damien has been shopping and visiting Disney World! We then got our heads together to knock the […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/soundbite-location-usa/">Soundbite: On location in the USA</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> The Property Voice Podcast – Soundbite: On location in the USA

Damien and myself are on something of a busman’s holiday in Florida. I have net a number of developers, agents & finance people over a whistle-stop tour, whilst Damien has been shopping and visiting Disney World! We then got our heads together to knock the idea of investing for cashflow in the USA together…have a listen in as we share some of the headlines as why we think the USA offers a decent investment proposition right now.

Resources mentioned

Link to the Podcast feedback survey

Today’s must do’s

Book a trip to Florida is you fancy a change of scene and injecting some creative thought into your property business! Alternatively, drop me an email if you want to hear more about why we think the USA offers a decent investment proposition right now.

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

We are on location in Orlando, Florida this week. I am joined on the show by my business partner Damien Fogg as we plot a foray into the US property market.

Listen in as Damien decides to become the next Prime Minister and give himself the title of Emperor…well he had a bit of caffeine overdoes before we started recording, so let’s overlook the over-exuberance and instead focus in on the key take ways from our little chat on location shall we?

Property Chatter

Discussion with Damien Fogg on investing in the USA and a brief glimpse at the forthcoming UK election too.

Ok, so that’s me for this week. Remember that you can email me podcast@thepropertyvoice.net if you want to talk about anything from today’s show or more generally in property investing, the show notes will be over at the website www.thepropertyvoice.net

But for now, all I want to say is thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Soundbite: On location in the USA appeared first on The Property Voice.

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The Property Voice Podcast – Soundbite: On location in the USA Damien and myself are on something of a busman’s holiday in Florida. I have net a number of developers, agents & finance people over a whistle-stop tour, The Property Voice Podcast – Soundbite: On location in the USA Damien and myself are on something of a busman’s holiday in Florida. I have net a number of developers, agents & finance people over a whistle-stop tour, whilst Damien has been shopping and visiting Disney World! We then got our heads together to knock the […] Richard Brown & Casa from www.thepropertyvoice.net clean 34:36 4148
Series 3 Raising Finance: Using a Leveraged Investment Portfolio to Fund Property Activities http://www.thepropertyvoice.net/series-3-raising-finance-using-leveraged-investment-portfolio-fund-property-activities/ Wed, 17 May 2017 04:59:24 +0000 http://www.thepropertyvoice.net/?p=4123 http://www.thepropertyvoice.net/series-3-raising-finance-using-leveraged-investment-portfolio-fund-property-activities/#respond http://www.thepropertyvoice.net/series-3-raising-finance-using-leveraged-investment-portfolio-fund-property-activities/feed/ 0 <p>In something of a post script to Series 3 on raising finance in property, I am joined on the show by Amit Ramnani from Fernhill Partners. Amit is a wealth advisor and he explained to me how we can use an existing investment portfolio, consisting of various financial instruments such as stocks and shares, bonds […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/series-3-raising-finance-using-leveraged-investment-portfolio-fund-property-activities/">Series 3 Raising Finance: Using a Leveraged Investment Portfolio to Fund Property Activities</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> In something of a post script to Series 3 on raising finance in property, I am joined on the show by Amit Ramnani from Fernhill Partners. Amit is a wealth advisor and he explained to me how we can use an existing investment portfolio, consisting of various financial instruments such as stocks and shares, bonds and gilts, funds, cash, etc. to act as collateral security for a loan that can be used for our property activities. Lets look at leverage in a different kind of way this week then…

Resources mentioned

Link to the Podcast feedback survey

Today’s must do’s

OK, so not everyone has a £400k+ investment portfolio lying around I grant you that. That said, if you do happen to have been wisely investing for some time and have accumulated such an investment value then you may be able to use it as security for low-cost lending for property activities. Contact Amit to get hold of his case studies and find out more details of how to go about this.

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

In something of a post script to Series 3 on raising finance in property, I am joined on the show by Amit Ramnani from Fernhill Partners. Amit is a wealth advisor and he explained to me how we can use an existing investment portfolio, consisting of various financial instruments such as stocks and shares, bonds and gilts, funds, cash, etc. to act as collateral security for a loan that can be used for our property activities. Let’s look at leverage in a different kind of way this week then…

Firstly, a disclaimer that Amit asked me to mention before the interview.

The information contained in this PODCAST is provided as an information service only and does not constitute financial product advice or tax advice. None of the information provided takes into account your personal objectives, financial situation or needs.

You must determine whether the information is appropriate in terms of your particular circumstances. For financial product advice, you should consider seeking independent financial and tax advice.

Right, with that out of the way, let’s take a listen to my interview with Amit now and I shall pick things up again at the end.

Property Chatter

Interview with Amit Ramnani

OK, so not everyone has a £400k+ investment portfolio lying around I grant you that. That said, if you do happen to have been wisely investing for some time and have accumulated such an investment value then you may be able to use it as security for low-cost lending for property activities.

Here are some potential applications of such a loan for property activities:

  1. As an alternative to cash and short-term bridging finance for short-term flips or buy-refurbish-refinance projects.

Why not use cash? Well, you could keep your cash invested into the fund that provides the security for the loan, which would mean that you would still be able to enjoy capital and income returns on the fund, whilst having access to a low-cost source of finance for your property activities.

Why not using bridging finance? Well, short-term lending in property is often expensive, with rates typically between 10% and up to 24% annualised being sought by short-term lenders. So, at something like 2.5% or so annualised, that’s quite a saving to be made on short-term borrowing and of course, it’s also using other people’s money in terms of the loan for added leverage.

Think of it something like an offset mortgage, only instead of the debt part of the offset costing you money, if invested wisely it could actually make you money on both the fund and also your property activities too.

  1. Medium-term development projects.

Similar to the flips and BRR example above, but perhaps instead using the funds to buy land for development or a property for conversion. The difference being timescales mostly as development projects are often longer than refurbishment projects.

  1. Rental property purchase deposits.

This one is possible taking the idea to an extreme as it could lead to 100% finance on a rental property. For this reason, I would be very wary of using the loan to finance deposits to be added to additional borrowing, as you could end up over-leveraging. However, in exceptional situations I could see it being a useful concept, such as in acquiring a block of flats or a small portfolio say, where the idea is to sell off part of the block purchase to repay some of the deposit debt and be left with probably a discounted rental asset or assets thereafter.

In terms of the type of people this could potentially work for, think asset-rich / cash or income poor, ex-pats, high income or bonused employees, company owners sitting on cash, high net worth individuals with an existing investment portfolio outside of property, trust fund managers and trustees and so on.

OK, enough already…I can here Amit’s disclaimer ringing in my ears again, so better that I stop with the creative thinking for now.

By all means, contact Amit through his website Fernhill Partners to get hold of his case studies and find out more details of how to go about this if it happens to resonate. If this episode was not for you, I am sorry for that…but I am trying to tackle a range of financing techniques that could work across the spectrum. Some may be open to you, whilst others might not be. But if nothing else, I hope it was interesting.

Ok, so that’s me for this week. Remember that you can email me podcast@thepropertyvoice.net if you want to talk about anything from today’s show or more generally in property investing, the show notes will be over at the website www.thepropertyvoice.net

But for now, all I want to say is thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Series 3 Raising Finance: Using a Leveraged Investment Portfolio to Fund Property Activities appeared first on The Property Voice.

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In something of a post script to Series 3 on raising finance in property, I am joined on the show by Amit Ramnani from Fernhill Partners. Amit is a wealth advisor and he explained to me how we can use an existing investment portfolio, In something of a post script to Series 3 on raising finance in property, I am joined on the show by Amit Ramnani from Fernhill Partners. Amit is a wealth advisor and he explained to me how we can use an existing investment portfolio, consisting of various financial instruments such as stocks and shares, bonds […] Richard Brown & Casa from www.thepropertyvoice.net clean 51:32 4123
Soundbite: People cannot change their nature…avoid the scorpions! http://www.thepropertyvoice.net/soundbite-people-cannot-change-natureavoid-scorpions/ Wed, 10 May 2017 04:59:38 +0000 http://www.thepropertyvoice.net/?p=4113 http://www.thepropertyvoice.net/soundbite-people-cannot-change-natureavoid-scorpions/#respond http://www.thepropertyvoice.net/soundbite-people-cannot-change-natureavoid-scorpions/feed/ 0 <p>The Property Voice Podcast – Soundbite: People cannot change their nature…avoid the scorpions! This week is all about scorpions and frogs! Yes, it is about our fundamental human nature and for us to establish what that is with the people we encounter along the way. Listen in as I share a little about the characters […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/soundbite-people-cannot-change-natureavoid-scorpions/">Soundbite: People cannot change their nature…avoid the scorpions!</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> The Property Voice Podcast – Soundbite: People cannot change their nature…avoid the scorpions!

This week is all about scorpions and frogs!

Yes, it is about our fundamental human nature and for us to establish what that is with the people we encounter along the way. Listen in as I share a little about the characters of the brokers Chatty D & Big D, the money men Dodgy D & Everyday Joe and finally the developers with efficient, friendly John and on the edge ‘S’…real life people who revealed some of their real-life nature. Who were the scorpions and who were the frogs?

If nothing else, there is a weird voicemail recording from someone calling himself Ed, who was probably just trying to entertain himself (or dialled the wrong number who knows!) and someone who sounded a little like Jose Mourinho would you believe…

Resources mentioned

Link to the Podcast feedback survey

Today’s must do’s

Look for clues of people’s fundamental nature dig deeper than the glossy presentations and image and identify their core traits and characteristics. Then, decide or judge instinctively whether you can accept their nature in any business relationship.

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

This week is all about scorpions and frogs!

Yes, it is about our fundamental human nature…the full transcription might follow if people contact me and say it would be useful to have…let’s see if anyone does do that then shall we 😊

Ok, so that’s me for this week, I hope that’s been interesting or helpful. Remember that you can email me podcast@thepropertyvoice.net if you want to talk about anything from today’s show or more generally in property investing, the show notes will be over at the website www.thepropertyvoice.net

But for now, all I want to say is thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Soundbite: People cannot change their nature…avoid the scorpions! appeared first on The Property Voice.

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The Property Voice Podcast – Soundbite: People cannot change their nature…avoid the scorpions! This week is all about scorpions and frogs! Yes, it is about our fundamental human nature and for us to establish what that is with the people we encounter a... The Property Voice Podcast – Soundbite: People cannot change their nature…avoid the scorpions! This week is all about scorpions and frogs! Yes, it is about our fundamental human nature and for us to establish what that is with the people we encounter along the way. Listen in as I share a little about the characters […] Richard Brown & Casa from www.thepropertyvoice.net clean 35:02 4113
Soundbite: 10 Ways to Secure a Discounted Property http://www.thepropertyvoice.net/soundbite-10-ways-secure-discounted-property/ Wed, 03 May 2017 04:59:01 +0000 http://www.thepropertyvoice.net/?p=4088 http://www.thepropertyvoice.net/soundbite-10-ways-secure-discounted-property/#respond http://www.thepropertyvoice.net/soundbite-10-ways-secure-discounted-property/feed/ 0 <p>The Property Voice Podcast – Soundbite: 10 Ways to Secure a Discounted Property This week is all about securing discounted property deals. If we are going to be professional property investors, then we need to know how to secure great property deals at the right price. It’s not as easy as getting Phil Spencer to […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/soundbite-10-ways-secure-discounted-property/">Soundbite: 10 Ways to Secure a Discounted Property</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> The Property Voice Podcast – Soundbite: 10 Ways to Secure a Discounted Property

This week is all about securing discounted property deals. If we are going to be professional property investors, then we need to know how to secure great property deals at the right price. It’s not as easy as getting Phil Spencer to put in an offer under the asking price as we shall discuss. Join me as I share 10 ways to secure a great deal…some of which don’t even involve getting a discount from the asking price!

Resources mentioned:

My curated property investment news feed on Scoop.it, check it out and subscribe for free.

Link to the Podcast feedback survey

Today’s must do’s

Always adopt a professional approach to how you make offers on your property deals. Review the top list and make it personal to the way you go about making offers to secure your next great property deal.

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

This week is all about securing discounted property deals. If we are going to be professional property investors, then we need to know how to secure great deals at the right price. It’s not as easy as getting Phil Spencer to put in an offer under the asking price as we shall discuss.

So, without further ado, let’s get straight into the show.

Property Chatter

Today’s sound bite episode was inspired from an article on my curated property investment news feed service: http://sco.lt/8rpQSf, which you can find links to in the show notes. But in case you can’t access these for some reason, then just tap scoop.it into your web browser and when in there do a search for ‘residential property investment’…my page should be one of the top search results you find as a gold level contributor.

The article outlines how asking prices are being discounted in certain parts of the country. It doesn’t tell you much really…between 20% to 43% of properties have had a price reduction of between 5% and 8% from their original listed asking price…wow, big deal right!

If I did read it correctly, it represents by how much some property asking prices have been reduced since their original listing, rather than how much below asking price (either original or final) offers are typically accepted at. Never mind.

However, historically speaking, accepted offers tend to average around the 5% off the asking price mark.  But, it varies depending on location and stage in the property cycle and of course, which asking price in the case of price reductions. However, 5% below asking price is still a useful reference point nonetheless.

So, if we add up the discount from the original listing price of say 5% to 8% as outlined in the article to the additional discount an offer is typically accepted at of 5%, then it would appear that the total average discount from a property’s initial listing price is approximately 10% to 13% right now.

Of course, this is not an exact mathematical equation or rule that we can always rely upon. It will vary across the country and the nature of the local and national market at the time. Still, it’s a useful guide I think when looking at properties on the open market…we should ideally not be paying more than 10% below a property’s original asking price from when it was first listed. After all, smart property investors should really be getting better deals than the average Joe or Jane. In a hot market, this would be too optimistic potentially, but t acts as a guide for now at least. Or, in other words, we should be trying to secure property deals with at least a 10% discount from the original asking price…that would be a reasonable assumption to start off with that will improve our overall portfolio performance when translated into ROI and future capital growth.

The article did however get me thinking. How can we actually secure the best price for our property investment purchases? I came up with a top ten list for you this week. One or two of the results may be quite surprising though, so let’s run through them now.

If you want a discount on a property try one of the following ideas:

  1. Adopt the approach of a professional investor. Ideally offer cash and send proof of funds with the offer. If you can’t do this and instead need to use either bridging finance or a buy-to-let mortgage, accompany your offer with an agreement in principle from the lender if you possibly can. In either scenario, list your solicitor details as it shows you are ready to proceed. This helps to position you as a serious buyer that will move quickly and reliably to completion, it also makes the agent’s job a little easier, so they will appreciate that.

Remember that around a third of all property transactions fall through, so this helps to frame you in a positive light for agents and sellers when compared to people that don’t have their finances in order or are part of a chain that could collapse. Then, act quickly and professionally and do what you say you will do when you say you will to put yourself in the prime buying position. This is especially useful if you plan to return to the same agent again to buy more property later.

  1. Do your research on recent, directly comparable sales values (not asking prices). What this means in practice is:

Compare like-with-like, so a similar types of property, for example, don’t compare a 2-bed terrace with a 2-bed flat and such like.

Look for recently sold properties, ideally within the last 6 months

Make sure the comparable sale prices or comps you find are in a similar condition to the property you are buying. S0, the same level of finish and condition, with or without similar enhancements like an extension or conservatory and so on.

Look close by. You should be looking at properties initially on the same street and then within a ¼ mile radius for the best comps. Look at properties on a map rather than on a list to see if there are any natural barriers to achieving the same valuation, like other side of the railway tracks, a river and so on.

Then, adjust the prices if necessary. For example, older comps may need to be adjusted for recent price trends locally. If you can’t find similar types of property or to a similar standard, then flex the comps values to account for this too lifting or reducing accordingly but be conservative here.

This can turn what starts out as a relatively objective approach into a more of a subjective one, especially where there is a shortage of good comps available, so it will take some practice!

Top tip: if you want some help to validate your valuation based on comps, then pay for a Hometrack or Mouseprice desktop valuation to support your decision. These are not going to give you a perfect valuation…there is rarely such a thing anyway…but at just £20 they are a very useful ‘second opinion’ to support your own research and analysis. Of course, only pay for such a service if you are serious about proceeding too, so do your own analysis and then potentially use such a service to support you on the odd few you wish to proceed with, particularly when there are not so many good comps that fit exactly your property type, age and condition.

  1. Find and then fix problems. What sort of problems could give rise to a potential discount? Here are just a few.

Slow sellers. Check if the property has been on the market for a long time, when compared to the average selling time locally. You can see the average selling times on home.co.uk and then cross-check against the property listing date to see if the target property is failing to meet the local average selling time. Watch out though, as there are sometimes some tricks of the trade to keep an eye out for, such as a new listing with an alternative agent, but that can also be another cue for a discount in itself.

Structural issues can give rise to a discount, so look for reports of issues in the property listings; terms such as structural movement, insurance claims, non-standard construction and such like. But remember that fixing these problems also comes at a cost and in some cases can also still result in a lower resale value when compared to the next door property.

Look for technical / legal issues such as a short unexpired lease term (85 years or less should give rise to a discount), un-adopted roads, non-compliant conversion works e.g. the term ‘additional usable loft space, instead of loft room). Once again, consider the cost of fixing the issue and how much of a difference it is likely to make to it’s resale value…accounting for your ‘developer margin or profit’ in doing so.

Other challenges to some buyers that could give rise to a discount opportunity could include sitting tenants, no new build warranty for a property less than 10 years old, no planning permission on certain works and so on.

Yet other challenges that could put some people off are plain messy or what are termed smelly houses, unattractive features like electric pylons, close to rubbish dumps and so on. Some of these can be fixed to bring the value back up, but some cannot be fixed and so we will have to live with the issue ourselves going forward, so take that into consideration too.

  1. Factor in the local market temperature, hot, cold or lukewarm. There is a big difference between Cambridge and County Durham right now and this is reflective in discount potential. Cambridge has been selling at above asking price, whilst in County Durham there are big discounts to be had in many areas as the article I mentioned earlier outlines.

A cold market means longer average selling times and better discount opportunity, but it might not be the best place to invest in either! Make sure that your pricing strategy reflects your investment strategy as well. If you are buying to sell, then you too would then become a seller in that very same market and could be forced to accept a discounted offer price. If, however, you plan on retaining the property for a couple of decades as a long-term buy and hold, then there needs to be far more emphasis on the rental market characteristics, knowing that in some local markets you will need a bigger net yield or ROI to offset a sluggish and perhaps not so important capital growth potential.

  1. Justify any reduced offer as far as possible. I used to really love to watch Kirsty and Phil on their TV shows but I often had a bit of a laugh when it came to putting in offers. It always seemed strange to me that this part was seen more as a game than a professional buying approach…could they win the game and secure the property on behalf of their best friends for the day? It led to a completely arbitrary let’s offer ‘this’ and be prepared to go up to ‘that’ type of approach based on nothing more than basic bidding. In many cases, it landed at ‘that’ rather than ‘this’ anyway, which if my memory serves me was often not that much below the asking price in the first place.

Professional property investors don’t operate this way, well not entirely this way at least. Yes, there is an element of psychological game playing that often needs to take place…the seller often needs to snatch back something in order to feel as though they have ‘won’ something. However, the professional investor will set out their arguments for a low offer, which will be supported by relevant information such as by local sales values, costs of essential works and so on. They will also put it in writing as well. They may then offer a price below what they think they would like to pay to allow the merry dance of turning ‘this’ into ‘that’ as well. Some will also add an extra 10% to their discount figure, just because. I have heard it said that if you are not embarrassed by your own offer that it isn’t low enough. That’s certainly one strategy and technique you could adopt, but be prepared for a few no’s if you do go down this line.

  1. Get your own survey done, even if paying cash. Then, use any negative results to renegotiate the price later on. I am not advocating an unethical approach of gazundering at the last minute with a vulnerable seller…I don’t agree with that. What I am proposing is enlisting a professional to identify any issues with the property along with an estimated cost of putting them right and then using this to renegotiate a price if we had not already taken it into account in our original bid. This will allow us a second bite at the cherry but at a time when the seller is likely to be more committed and so more receptive to a discount, even if they don’t like what they are hearing. However, it won’t always work and can sometime bring out the caveman or chimp in the seller, who might feel as though they have been hoodwinked and strung along, only to be set up for a price-chipping exercise later on. So, be prepared for that. You may lose a purchase or two at this stage if you try to chip too far and for a now justifiable or a previously known issue, so use it strategically to avoid incurring costs in an abortive transaction too.
  2. Look at the value and don’t be too obsessed with the price. I like this one, as it could mean no discount or even paying a premium for a property in some situations…and that could be OK too! Consider what a property is worth to you as an investor and base your offer around this. This might mean a big discount, low / no discount, or sometimes paying the listing price or above!

As unlikely as it sounds, property could actually be listed below market value in the first place. This could happen when someone has ‘priced to sell’ or if the owner or agent has made a mistake in their value appraisal.

Equally, it’s what you plan to do with the property that determines its value to you. For example, if you plan to convert a property into an HMO and you know that you are likely to obtain a commercial or investment value on the property after you have completed the work. An investment value of an HMO is often calculated at something like 6 to 10 times the gross annual rent on the property, depending on the location and the extent of the conversion away from being a regular single property. This might not bear any resemblance to the sale value achieved for the next-door property, which would be known as the ‘bricks and mortar valuation’ instead. Look at both the investment value and the bricks and mortar value when determining your offer price. This does not mean you have to pass on all of this value creation to the seller, but what it does mean is that you might be able to afford to pay more than the average buyer would for that property, as it is simply worth more to you. The opposite may also apply though, so watch out for that…

  1. Offer terms rather than price increases. Sometimes a seller is motivated by more than the sales price. Some examples might be a fast exchange & completion, say within 28 days. Cash buyers means less time, less hassle and less third-party interference in the deal, so that is appealing to sellers…and agents! No chain can mean greater assurance that the sale will actually proceed. Paying a non-refundable deposit unless the seller withdraws means you are committed and have genuine ‘skin in the game’ in case you pull out. Some people might need a bit of relocation support in case they are selling for financial challenges say. For some sellers, the offer to use search insurance in lieu of actual searches can also help, especially if you both know what the search is likely to flag up and have priced it into your offer anyway, so it works best if you happen to know an area and are proficient at identifying problems in properties, such as structural issues.
  2. Try to meet the vendor if you can. Aim to build rapport and look for both motivation and leverage to lean on later. Also try and look for the win-win and you are more likely to have your offer accepted if it is framed in such a way that meets the seller’s motivations and needs but also leaves them feeling good about themselves.
  3. Go fishing in different waters. I quite like this one as well…not all properties are sold on Rightmove you know! For example, auctions are usually for problem properties but sometimes you find a very decent average property without a problem…many developers are not interested in these, so bid and buy a bargain on a baulk standard ready to rent or sell property that needs no work doing on it. DIY sales agents, low-cost listing-only services and classified ads are another place to go looking, as everyone else is fishing on Rightmove as I mentioned. Some agents can only work with two of the three major portals now, so that’s two out of Rightmove, Zoopla and OnTheMarket. If a property is listed with OnTheMarket, then it will be on either Rightmove or Zoopla but not on both. Equally, there are quite a few DIY property listing sites there are out there and don’t forget Gumtree for direct to vendor advertising by property sellers either. What this means is less competition and less competition reduces the chances of a bidding war developing and improved odds for a discounted offer being accepted.

That’s it then, my top ten suggestions of how to ensure you secure a great and often discounted property deal. Don’t overlook the fact that this list of ten ideas are just some of the approaches that can be adopted to help achieve discounted property purchases. They don’t always work and they can also be used on us by other savvy buyers from time-to-time as well. I had this recently with a flip project, where an investor gave me a list of works they wanted to undertake to help justify a lower offer they were making. In that case, the work they were suggesting was completely optional, personal to them and therefore not necessary, so I was able to knock it out of their bid and help bring their offer back up again.

Equally, don’t forget that we are descendants of cave men and women and that sometimes means that we can all be prone to the odd bit of a fight or flight response at times too. That’s why it’s a good idea to try and take your time before responding, do some objective research and consider the other person’s caveman or chimp-like response being quite possible as well.

The bottom line is that as professional property investors, we can adopt more professional techniques into our daily activities that helps to set us apart from the amateurs and regular house buyers and that leads to better investment results in the long-term too 😊

Ok, so that’s me for this week, I hope that’s been helpful but if YOU have some great techniques that you use to help achieve better property purchasing results, I would love to hear them too. Remember that you can email me podcast@thepropertyvoice.net if you want to talk about anything from today’s show or more generally in property investing, the show notes will be over at the website www.thepropertyvoice.net

But for now, all I want to say is thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Soundbite: 10 Ways to Secure a Discounted Property appeared first on The Property Voice.

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The Property Voice Podcast – Soundbite: 10 Ways to Secure a Discounted Property This week is all about securing discounted property deals. If we are going to be professional property investors, then we need to know how to secure great property deals at... The Property Voice Podcast – Soundbite: 10 Ways to Secure a Discounted Property This week is all about securing discounted property deals. If we are going to be professional property investors, then we need to know how to secure great property deals at the right price. It’s not as easy as getting Phil Spencer to […] Richard Brown & Casa from www.thepropertyvoice.net clean 29:32 4088
Soundbite: How Incentives are Driving My Investing Behaviour http://www.thepropertyvoice.net/musings-incentives-driving-investing-behaviour/ Wed, 26 Apr 2017 04:59:25 +0000 http://www.thepropertyvoice.net/?p=4059 http://www.thepropertyvoice.net/musings-incentives-driving-investing-behaviour/#respond http://www.thepropertyvoice.net/musings-incentives-driving-investing-behaviour/feed/ 0 <p>The Property Voice Podcast – Soundbite: How Incentives are Driving My Investing Behaviour A former business colleague got in touch this week through Linked In and we had a catch-up chat. He asked me ‘so what do you think about all this landlord bashing and what are your thoughts about property investing going forward?’. Today’s […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/musings-incentives-driving-investing-behaviour/">Soundbite: How Incentives are Driving My Investing Behaviour</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> The Property Voice Podcast – Soundbite: How Incentives are Driving My Investing Behaviour

A former business colleague got in touch this week through Linked In and we had a catch-up chat. He asked me ‘so what do you think about all this landlord bashing and what are your thoughts about property investing going forward?’. Today’s show is an elaboration of my response, equally prompted by another headline: ‘50% of landlords could quit sector due to tax changes.’

What are the main incentives and disincentives that are driving these sentiments and indeed some of my own personal investing behaviour? Let’s find out!

Resources mentioned:

Article on 50% landlords changing their investment position referred to in the podcast

Tax and Fiscal Treatment of Landlords in Ireland

Link to the Podcast feedback survey

Today’s must do’s

Think about the long-term and why you want to invest in property, then take a look at the incentives and disincentives that exist. Take your decisions as to your next steps wisely after considering what you wish to achieve with the various ways of getting there…there is more than one way to skin a cat!

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

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Transcription of the show

Hello and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

Thanks to all of you that have been in touch recently in way or another after my recent absence from the podcast…I have felt your warmth that’s for sure. Also, a big thank you to all of you that took up the Birthday special offer to grab a copy of my book Property Investor Toolkit and in the process, send it towards the top of the charts once again!

This week, a former business colleague got in touch through Linked In and so we had a catch-up chat. He asked me ‘so what do you think about all this landlord bashing and what are your thoughts about property investing going forward?’. Today’s show is an elaboration of my response, equally prompted by a recent news headline: ‘50% of landlords could quit sector due to tax changes.’

What are the main incentives and disincentives that are driving these sentiments and indeed some of my own personal investing behaviour? Let’s find out!

Property Chatter

As I mentioned, a former colleague contacted and asked for a call. It’s always good to catch up with former colleagues and business contacts, especially when you have not spoken for a while but where we did have a good working relationship. You never know what’s on people’s mind in advance, but my former colleague made his sentiments quite clear after an initial exchange of pleasantries.

He asked me ‘so what do you think about all this landlord bashing and what are your thoughts about property investing going forward?’. He then went on to share with some of his own sentiments and how what is happening is affecting his property investment plans, mainly with buy-to-let.

I also shared some of my current property activities and to some extent how these have been driven by recent changes in the tax and regulatory landscape.

The main things that I am involved with in property right now are these:

  1. More emphasis on development
  2. More emphasis overseas markets for investment & trading
  3. Less emphasis on new UK single property standard buy-to-lets
  4. More emphasis on alternative commercial structures & property strategies that negate some of the recent tax changes

But why is this and how is Government policy directing my personal property plans?

There is a phrase used in Economics that ‘incentives work’. Economic incentives are offered to encourage people to make certain choices or behave in a certain way. They usually involve money but can also be non-financial. I guess, by definition, that a disincentive is the opposite of this…more like a penalty if you prefer.

In terms of general Government policy, here are some of the big incentives or disincentives or penalties that have been introduced of late:

  1. 3% The Stamp Duty premium for second / investment property ownership – this makes buying new investment properties more expensive when compared to previous purchases and when compared to current non-investment buyers.
  2. The caps and reclassification on mortgage interest tax deduction for individual buy-to-let investors, which makes BTL less profitable for higher rate taxpayers & can push some basic rate taxpayers into a higher tax bracket.
  3. A hotchpotch of statements, polices and incentives aimed at encouraging new house building.

These 3 changes alone highlight the general behaviour that the Government seeks to encourage: less rental investment properties held by individuals and more corporate and institutional investment into rental property and new homes provision.

The incentives and disincentives take the shape of policy statements, changes to planning guidelines, access to funding and grants and tax treatment in the most part. They are deliberately designed to shape our actions and behaviour and in a lot of cases it is working.

Many existing landlords who own buy-to-let property are considering selling some or all of their portfolio, switching into alternative types of investment, be that within property and elsewhere, or are looking for the alternative structures and loopholes to try and avoid the pain instead!

Some potential new landlord / investors are having a rethink about BTL or are simply sitting on the fence for now.

If you are an existing landlord / investor in buy-to-let and, in particular, use mortgages and are or would become a high or highest rate taxpayer due to the changes, then no doubt you will be fairly well tuned in to all of this. You may be put off by the additional stamp duty premium and possibly coughing over your cornflakes when you fully understand how much BTL profit could be eroded if you are an individual investor in BTL.

Personally, I am potentially impacted by some of these two tax changes. I have seen new single unit properties, be they for trading profit or long-term BTL, take a dent in terms of their profitability.

I am to some extent protected from some of the changes to my existing portfolio & trading options for as a result of some tax insulation that I have built over time, so I am in no hurry to incorporate or enter into a range of complex trust arrangements…not just yet at least! But that may change down the line.

However, I am not that keen on exacerbating the problem in the short-term, so I am to some extent sitting it out as far as new single-let BTL rental properties is concerned. I do, however, see some parallels between what is happening in the UK right now and what has happened in Ireland over the past few years or so.

Rather like the UK, Ireland introduced a range of policies and penalties aimed at deterring rental investment among private landlords and favouring homeownership instead. Without going into all of the detail…it failed miserably. The reason why it failed was that there was a rather large false assumption that the Government had made that drove their policy. The assumption was that everyone both wants to and can own their own home.

It’s simply not true though, 100% home ownership is just not possible. Firstly, many people prefer the characteristics & flexibility of renting over the high bar and responsibility of homeownership…secondly, some just don’t have a choice to be perfectly frank!

Lower entry costs, mobility, no ongoing repair and maintenance issues on the one hand, along with lack of ability to prove mortgage payment affordability or lending viability, poor credit and a low ability to save creating a gap in terms of financeable mortgagees on the other, help to disprove that false assumption…certainly above a certain level of homeownership anyway.

Homeownership peaked at around 72% in the UK and currently stands at around 64%. Of course, many commentators are up in arms about the decline in homeownership rates as a result. However, it is safe to say, that even at 72% homeownership, which does seem as though it might be a natural limit, implies that other forms of home occupation are absolutely required. These forms of home ownership are primarily social housing and the private rented sector, which are roughly equal in size.

However, the rate of social housing provision has been in steady decline for a couple of decades now, due to lack of council housing and funding for housing associations. So, the slack has been taken up by the private rented sector, both for those that can’t or don’t want to buy generally but also to plug the gap left as a result of the social housing declines too. Many of these housing providers were of course individual landlords. The vast majority of private landlords have just 1 to 3 rental properties, so they are not property moguls.

So…it’s not such a good idea to punish the private landlord then when they are in fact providing a necessary service that forms an important part of the housing market as a whole is it? If you don’t believe me, then just take a look at what Ireland is now having to do. It is having to reverse it previous decisions and policy aimed at reducing the attractiveness of private investment into housing that followed a similar track to that of the UK now and is in fact now actively incentivising it instead! It’s gone full circle.

The reason is quite simple – it takes huge sums of money to build and provide homes for people and neither the Government, the social housing sector or indeed some of the larger financial institutions getting into the private rental sector have pockets deep enough and a capacity wide enough to meet the demand we have for new homes in the UK in all its required tenures i.e. ownership, social and private rented.

These homes will need to be available to buy and also to rent as I have explained already…all three housing tenures will still be required, not just ownership. I mean think about it…how does the benefits claimant buy a house…they won’t qualify a mortgage? What about students…they will move on after a couple of years so want flexibility? What about young people…they are chasing their careers or a partner and so need to be mobile and flexible too? These are just some of the realities that mean we absolutely NEED rental properties in the order of 30% or so of the housing sector to provide for these types of household. I do agree that a level of home ownership is desirable for society in general, it does provide a natural place to hold money, which can be used as a pension, health care provision or leg up to the next generation as well. It can over the long-term help to reduce housing costs to people provided they stop climbing the ladder, settle down into a house and pay off the mortgage off.

In other words, I think the policies will go full circle…eventually!

Personally speaking, this means I am faced with a couple of options right now…

Defend my current portfolio position – which I am doing through a regular portfolio review, targeting properties that can sustain a gradual and modest rental increase, and strategic sales and refinancing, so that debt levels are manageable. However, I am not actively growing my standard single-let UK BTL portfolio right now.

Look for richer pickings – the fundamentals of the UK property remain strong. Low supply and high demand is not going away anytime soon, even with Brexit. However, there is a greater short-term emphasis on housing supply these days and that means property development and / or conversion from other uses into residential use is desirable. Schemes such as Build to Rent, loosening of planning restrictions such as permitted development rights and more funding / less regulation for housebuilders are all examples of incentives to support this. That makes development and conversion potentially more appealing, or a little easier than it was in recent times. So, I am doing more in this category too.

Diversify into more investor-friendly markets – there are some examples of more favourable property segments from an incentive point of view in the UK, such as through commercial property or more likely for existing BTL investors mixed-use property. However, right now and for me at least, it is easier to look at alternative international residential markets where the landscape is more receptive. An example is the USA, which offers higher yields for single family homes and more favourable tax treatment, especially in terms of financing. Yep, as mentioned last week, I have some US properties and am actively looking to take on more.

Mix the commercial model up a little to improve net returns – higher yielding property strategies, such as HMOs and short-term letting, offer the potential for higher income to offset the higher after tax costs. Similarly, alternative structures & commercial models, such as limited company ownership or lease, rental & owner financed property allow immediate control of a property with deferred ownership models that allow more favourable after tax profit positions to be adopted, so I am actively investigating and implementing some of these structures therefore.

The net result of all this, for me at least, is a watchful eye on what will happen with Government policy and regulation over the coming 5 years or so. I do think it will take some time for the oil tanker of Government to see the iceberg and change course before hitting it though, just as was the case with Ireland. So, from a personal point of view, I am not going to hang around and wait for that ship to come back into port anytime soon.

Instead, development, conversion, overseas markets and alternative ownership and rental investment models are attracting my attention and keeping me very busy in the right now. Standard single-property BTL in the UK will probably come back up on the radar…one day! Don’t worry, I will keep you posted as this unfolds.

But here’s my conclusion…it will be OK in the end…

If you have modest property ambitions, then stick with buy-to-let but perhaps take a close look at alternative ownership models going forward. It doesn’t need to be overly complex to offset some of the changes if you have say 1-3 rental properties.

However, if you intend to derive a reasonable retained income or asset base from your property activities, then think more like a professional investor and adopt a flexible approach to your investing. Water the plants for growth by growing rental income and removing the leakage of costs and taxation to keep the ground fertile, and so retaining higher net profits as you do. Don’t forget that you can always store your cash in property later, once you have grown the snowball large enough 😉

There is no escaping the idea in my mind that property will remain a very attractive asset class to store wealth over the long-term, even if net property incomes get squeezed along the way…so I fully intend to retain most of my existing properties, acquire new higher income ones in due course and use other property as a means in one way or another to grow the snowball along the way. I may just take a meandering path through different property strategies in getting there that’s all. I am more experienced and in a different position to many, so whilst I have multiple interests and strategies that I am working on, I appreciate that this is not always possible for new and early stage investors. However, some strategies are more favourable than others, so after a couple of standard BTLs you too might be thinking…what now…just as I have. Then, you will start to look at market trends and strategies but also at the incentives that are out there for us to take up or avoid as appropriate. Let me know if you need any help in figuring this out by emailing in.

Finally, and as a parting thought, whilst I have kind of said that invectives work and to some extent illustrated the point here with my own personal actions and behaviour, don’t let the tax tail wag the investment dog…it is a consideration for sure, but one among many others as I hinted at just now.

BTL might be wounded, but property investment and other property income-generating and asset accumulation opportunities still exist for the smart investor.

Remember that you can email me podcast@thepropertyvoice.net if you want to talk about anything from today’s show or more generally in property investing, the show notes will be over at the website www.thepropertyvoice.net

But for now, all I want to say is thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Soundbite: How Incentives are Driving My Investing Behaviour appeared first on The Property Voice.

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The Property Voice Podcast – Soundbite: How Incentives are Driving My Investing Behaviour A former business colleague got in touch this week through Linked In and we had a catch-up chat. He asked me ‘so what do you think about all this landlord bashing... The Property Voice Podcast – Soundbite: How Incentives are Driving My Investing Behaviour A former business colleague got in touch this week through Linked In and we had a catch-up chat. He asked me ‘so what do you think about all this landlord bashing and what are your thoughts about property investing going forward?’. Today’s […] Richard Brown & Casa from www.thepropertyvoice.net clean 22:41 4059
Birthday Special & Diary of a Property Investor Part 3 http://www.thepropertyvoice.net/birthday-special-diary-property-investor-part-3/ Wed, 19 Apr 2017 04:59:54 +0000 http://www.thepropertyvoice.net/?p=4040 http://www.thepropertyvoice.net/birthday-special-diary-property-investor-part-3/#respond http://www.thepropertyvoice.net/birthday-special-diary-property-investor-part-3/feed/ 0 <p>Happy Birthday to us…we are two-years old! Yes, another year of the podcast to celebrate this week…but I will also give you an update on some of my own activities as it’s been a while since I last did that too. Spoiler alert…I have been applying some of the financing options discussed in the last […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/birthday-special-diary-property-investor-part-3/">Birthday Special & Diary of a Property Investor Part 3</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> Happy Birthday to us…we are two-years old! Yes, another year of the podcast to celebrate this week…but I will also give you an update on some of my own activities as it’s been a while since I last did that too. Spoiler alert…I have been applying some of the financing options discussed in the last series.

Resources mentioned:

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com

Link to the Podcast feedback survey

Today’s must do’s

Help us to celebrate The Property Voice Birthday…grab the Property Investor Toolkit for £1, leave an iTunes review of drop me a line if you just want to chat about your property plans. Please note that the book promotion runs between 7am on Friday 21st April and midday on Monday 24th April at either the .co.uk or .com Amazon Kindle store (times are GMT or PST as appropriate). Psst: Sunday also happens to be World Book Day, so why not gift the book to someone you think would appreciate it?

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Yes, it’s that time of year again…Birthdays at The Property Voice! The podcast is two years old this month, as is The Property Investor Toolkit book and The Property Voice itself is now 4 years old this month too! There does seem to be something about the springtime in my world that promotes creativity and innovation…just making a mental note of that right now.

So, no elaborate Birthday ramblings just a short summary and then I wanted to share a bit of an update on some of my own activities over the past few months in the main segment of the show.

As for the podcast, we have now clocked up 93 episodes and with over 94,000 downloads, another couple of milestones are now clearly within sight too! Before the recent self-imposed hiatus, we were hitting 6,000 downloads a month, so you can see the organic growth that had been achieved with the podcast. I hope that I can bring many of those listeners back again. I do know this podcast is a little meatier and with less fluff than some others out there, but that’s by design…niche is good in my world, so thank you for being niche with me dear listener.

Before I shut up with the Birthday stuff, here’s a quick present for you…my book The Property Investor Toolkit will be available in the Kindle format for £1 for 3 days immediately after this podcast airs…so grab yourself a copy at an unbelievable price…or share the love and let someone else know about it won’t you. Also, since last year I can now say that The Property Investor Toolkit is officially an Amazon Best Seller in the Real Estate category…that’s as a paid for book not just a free one as it was in the past!

OK, that’s it, I am not going to indulge in the Birthday celebrations quite as much as last year…let’s get on with the show and share some real world property updates from a real world property investor then shall we…

Property Chatter

It’s been a while since I shared some of my own activities and so I thought I would give you a snapshot of some of what I have been involved with myself of late. Many of you know that I am involved in both projects and knowledge-sharing in property. So, let’s start with just some of the projects that I have been involved with of late.

I have to confess that I am particularly attracted to projects that allow me to leverage my own capital and / or to recycle my funds as much as possible. This allows me to scale and so do more with less. I do like to make my money work hard for me.

So, it will come as no surprise that some of my most recent projects have this theme also.

For example, I have undertaken several long-term projects in the United States now. This is partly to diversify my long-term interests by country and currency but also because the USA is more advanced than the UK with some of the more creative financing structures available.

I have acquired several units in the US via lease purchase or instalment contract types of structure, with the funding effectively provided by the owner / developer. To be honest, the ones that I have taken on will be slow burners as far as monthly income or cashflow is concerned. They will wash their face along the way that’s for sure, but they are part of my long-term asset accumulation or wealth goals rather than my short-term income goals. More on this distinction later…

The idea is that I will buy these properties gradually over a 15-year period and pay off a little each month in a similar way that a repayment mortgage would work. Rents at least cover the costs over the term, but the main attraction is that I will own these properties free and clear in 15 years with me then retaining all of the rental income.

So, to me they are like a long-term savings plan…where the tenants pay into the savings plan rather than me. As the owner or developer is effectively providing the financing, it also means no complex bank finance applications, which can be tricky, complex and time-consuming when investing from overseas. The managing agent takes care of everything for me on the ground, so I can invest from a distance and I just have to take care of the financial aspects myself.

I know that for many people this could seem crazy, but for a sophisticated, or just plain busy investor like me, they represent an interesting aspect of my property portfolio. These properties would fit in for anyone that is thinking things like long-term asset accumulation, pension planning, children savings plan or just a simple way to add self-financing units to the portfolio with less than £5k down. The properties that I have taken on so far are in Chicago and Florida.

I rather like these I have to say…

In fact, I like them so much that I have started to look at variations on this theme and have set myself a pet-project to locate other types of owner / vendor financing structures in the US market. I am planning a trip over there next month to meet some of the contacts I have made and will hopefully bring back a few tasty opportunities, some with a short time frame and / or greater cashflow play than the units I have taken on to date. Let me know if you would like to be among the first to hear about the results of this project and I will keep you posted.

What else can I tell you then…oh yes, an experiment of mine into the field of serviced accommodation. This term has become something of a hot topic in property over the past couple of years…no doubt you will have seen the courses on it from large and small property training providers alike. Serviced accommodation is another description for short-term lettings. Short-term lettings means renting property by the night or by the week, usually to lots of different people rather than say an AST, which is let longer-term to the same tenant. It is for all intents and purposes more like a hotel model than a standard BTL rental model.

So, I wanted to get some real-world experience of this type of model…after all, the sales messaging claim is that you can produce returns of up to four or five times that of single lets! Whilst it is possible, it is by no means guaranteed I can tell you. It is also a completely different business model and one that requires quite a lot of regular work and activity, that you either need to do yourself or pay someone else to do for you instead.

In truth, I have been operating a ‘serviced accommodation’ model for quite a few years now anyway, as I have holiday rentals in both Portugal and Brazil. Holiday lets are a form of serviced accommodation or short-term letting and if you have ever stayed in such a place, then you can start to understand how it works.

Short-term letting allows a premium to be charged by renting a property by the night instead of by the half year or so. It’s a little like car renting…you can take a car on a long-term lease at a much lower cost than if you just need one for a weekend getaway. The same principle applies to property rented this way.

Aside from holiday lets, serviced accommodation can be applied to city & leisure breaks and other variations on this theme, such as business & other worker short stays, mid-term lets, corporate lets and so on.

I wanted to give the short-term lets idea a bit more of a road test in the UK, to compliment my overseas rental models. So, I trialled it in two properties. One was a room rental and the other a property with a mixed appeal of holiday & business guests. One worked, whilst the other has not worked so well to be perfectly transparent with you.

The room rental idea didn’t really work, not for me that is. The main reasons for this were that I selected just one room in a shared house to run on short-term lets, so that created a mixed tenant type in the property and the room rental rate available in the local area was so low that after all costs were taken into account at the occupancy rate achieved, it was a lot of work for limited return. I would recommend all or nothing here for anyone else considering such a venture with room rental and the location / room rent / occupancy rate balance is the one to perfect with this model. Overall, I guess I made a modest profit on the venture, however, when I factor in the sheer workload involved, it simply was not worth it with this particular room / property.

The single property rental did work, well sort of! It has been a white-knuckle ride at times that saw very low bookings in a couple of months to being completely booked out for months at a time at other times of the year. It has been a rollercoaster ride that’s for sure!

There is so much to take into consideration with a short-term lettings business, from channel marketing to management of frequent bookings, to furnishings & fittings, to cleaning & laundry turnarounds, to occupancy rates, to high running costs, to out of hours call outs, to tax and accounting issues, to permissions and compliance, and even to the risk of the property becoming a pop up brothel!

I have learnt much during this experiment I can tell you…but that’s why I did it really…it was to teach myself more about this emerging property trend. What I can tell you is that it has the potential to be a game-changer, but it also has the potential to ruin you…or at least your social life 😉

Seriously, I like the idea of short-term rentals a lot but it is not for everyone and it also requires a very different skill set and management approach to more conventional single let property. I am happy with my holiday lets in the most part, but remain less than convinced about some other flavours of the model, especially with the regulatory landscape changing a lot and likely to change again as well.

So, what else have I been up to then…oh yes, I bought another property in Brazil!

You may recall that my wife is Brazilian and so we have a special interest in the country as a result. This latest one is quite interesting coming off the back of the last series on property financing, as we bought it with a 10% deposit but own it outright and without a mortgage! Yes, 10% down and then owned outright. How did you do that, I hear you ask? Well, it’s not exactly a repeatable model, but in Brazil you are actually allowed to take the equivalent to the state pension and use it to buy a property instead. In Brazil, the pension part of the equivalent to National Insurance is invested personally for you…and that’s a very good idea to be honest but let’s not go there right now.

There are a few situations when you can access this fund for something other than your pension…which is probably not a good idea in some situations as you might imagine. Those special situations are either health-related, say if you need money for large medical expenses, or to buy a house. In these situations, you can obtain your pension fund, so we did!

My wife had an accumulated fund from previous employment and so we were able to use it to fund the other 90% of the property that we just bought. It could have funded the full property value, but we wanted a property at a higher value than the fund value, hence the 10% personal contribution.

Our plan is to renovate the property, converting it from a large one-bed into a chic two-bed property and rent it out to visitors…it is in Copacabana and so has a year-round appeal to holidaymakers. So, having talked about my short-term lets in the UK being something of a learning exercise, we are building on and extending the model internationally, but in a far more time-tested way…via holiday rentals in a high demand, sought-after location.

What else? How about rent-to-rent then?

When I discussed my rationale for the US properties earlier, I mentioned that they fitted more with a long-term asset accumulation goal than a short-term income one. Rent-to-rent is the exact opposite!

As with serviced accommodation, rent-to-rent has been something of a hot topic on the property circuit for a while now. I have been sceptical about it and as with serviced accommodation, it is not as straightforward and easy as some would have you believe.

From a personal point of view, the last thing I need is a job! I don’t want to become a property manager that earns my money from time-based activities all day…no, that’s not for me at all. Some may say I am lazy, but I prefer to say I am just smart! I use leverage in my property investing in many different ways, not just financial via mortgages and the like. So, for any project to work for me, it must not rely on me working for it…not too much at least.

Rent-to-rent then for me has to come in a more or less readymade way and then be managed in an outsourced way as too. Other people have a more hands-on approach and make it work for them more like a job or a business, but that’s not what works for me personally as a professional investor.

Needless to say, I have looked at literally dozens of rent-to-rent opportunities over the past six months or so and I have rejected nearly all of them! I often reject deals that allegedly promise to bring me around £800 to £1,000 per month in cashflow. Sounds crazy, right? Well, the problem is…when someone tells you that a property will return you £800+ in cashflow they don’t always tell you the full picture!

OK, so in my case, I do prefer to have someone manage the property for me, so that’s a cost I choose to add in myself and it can range from 8% to 18% of the gross rental income, including VAT if applicable.

Then, there are voids, repairs & maintenance, insurance, compliance costs and so on. Many of the projects that I am offered assume 100% occupancy, with no wear and tear and no additional costs for the duration of the project. That’s simply not realistic, it does not reflect reality, so don’t buy into that story will you.

Then, in other cases, there are costs to get a property ready to rent, such as furnishing, licensing, decoration and even some kind of improvement works. That’s a largely unrecoverable expense, so you have to write it off over the term.

That brings me onto the rental term…

When I looked at some of these ‘opportunities’, many were for 1-3 years and that simply doesn’t cut it. As I have refined my analysis of rent-to-rent projects, I have found that they usually need to run for at least 5 years to make it worth the effort and offset some of the risks, cost leakage and upfront expenditure that is required.

However, having said no a lot, I finally said yes…not to one but to 3 projects at the same time!

Before getting too carried away, two fell over after agreeing to do them. One was due the owner selling the property via another agent instead and another was where the owner subsequently moved the goalposts on their required rent, but after we had agreed to it. Not every yes turns into a deal you see.

The final one is edging closer to being signed, so let’s hope it goes the course and then I will have a 10-year rent-to-rent deal with first option to purchase at any time over this period. Oh, and it should make money along the way as well…at a fraction of the cost of getting into a standard BTL project.

So, once again I am extending my personal experience and plugging in an effective strategy to meet a specific goal…but as you can see…I am very choosy and particular and won’t be taken in to any old rubbish pedalled around the property community.

Anything else…? Oh, yes and finally, joint venture projects that’s right.

Along with my business partner, Damien Fogg, we have undertaken a number of joint venture single property projects where we partner with an investor who brings funding and we provide the time and knowhow to make the venture work for all parties. All of these projects made a profit or are expected to once sold on, so that’s always a good thing 😊

However, we are moving away from smaller, single property joint ventures and more towards larger conversions and developments instead. We currently have such a project underway in Cambridge, where we are converting a listed building used as office space into residential units. We can achieve much better returns with this type of project and to be frank, the extra work involved is not that much more than a single property refurb in reality. Yes, it is more work but it’s not a linear equation of effort / reward…it’s an exponential one…or more bang for your buck as I used to hear spoken in the IT & financial services world that I used to frequent lol. If you want to look over our shoulder and learn whilst you earn on this project and you can move quickly, get in touch…

In terms of knowledge sharing, in addition to The Property Voice, I have worked in partnership with Damien Fogg in a business called Real World Property Training. Our main focus these days is on a foundational property training, a subscriber service that shares genuine added-value deal tips for other property investors, live events around property business planning, a limited amount of mentoring for property investors and a select membership community in what we call The Club. That’s it in a nutshell in terms of the educational side of what I have been involved with of late. If you want to know more about that, most of it is on the RWPT website, which is www.realworldpropertytraining.com but you also email me and I would be happy to have a chat with you about any aspect of that.

Phew! As, I mentioned, I am a property knowledge sharer and educator that is not just talking about it and relying on something I did years before, I am active today and applying some of the more innovative current strategies, as well as some of the more tried and tested ones too.

We have covered a lot of ground in today’s show, I hope that’s been useful and interesting for you to hear a little about what I have been up to personally. I will return with another Diary of a Property Investor update sometime in the future, but let’s leave it there for now.

OK and finally, do remember that you can email me podcast@thepropertyvoice.net if you want to talk about anything from today’s show or more generally in property investing, the show notes will be over at the website www.thepropertyvoice.net

But for now, all I want to say is thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Birthday Special & Diary of a Property Investor Part 3 appeared first on The Property Voice.

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Happy Birthday to us…we are two-years old! Yes, another year of the podcast to celebrate this week…but I will also give you an update on some of my own activities as it’s been a while since I last did that too. Happy Birthday to us…we are two-years old! Yes, another year of the podcast to celebrate this week…but I will also give you an update on some of my own activities as it’s been a while since I last did that too. Spoiler alert…I have been applying some of the financing options discussed in the last […] Richard Brown & Casa from www.thepropertyvoice.net clean 23:26 4040
Property Financing: Summary & Wrap Up | S3E18 http://www.thepropertyvoice.net/property-financing-summary-wrap/ Wed, 12 Apr 2017 04:59:30 +0000 http://www.thepropertyvoice.net/?p=4018 http://www.thepropertyvoice.net/property-financing-summary-wrap/#respond http://www.thepropertyvoice.net/property-financing-summary-wrap/feed/ 0 <p>Putting it all together; are the common themes, benefits, pitfalls & lessons in terms of property financing. This is a long overdue wrap up to this latest series of the podcast, so please tune in and help us all to get back into The Property Voice Podcast groove! Resources mentioned: Link to the free 3-Step […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/property-financing-summary-wrap/">Property Financing: Summary & Wrap Up | S3E18</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p>

Putting it all together; are the common themes, benefits, pitfalls & lessons in terms of property financing. This is a long overdue wrap up to this latest series of the podcast, so please tune in and help us all to get back into The Property Voice Podcast groove!

Resources mentioned:

Link to the free 3-Step Property Sourcing Training

Link to the new Deal Tips Service

Link to the Podcast feedback survey

Today’s must do’s

Review all of the episodes in this series on property financing and determine which one(s) best suit you.

Check out our free property sourcing training as per the links in the resources section above.

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com in case you would like to get yourself a copy to accompany this series

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

I’m back! Did you miss me?

Hello, and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

I know, I know…it’s been a while and I have not exactly stuck to my ‘be right back’ statement either! A short explanation is therefore in order, but not one I want any of us all to dwell on too much…

The long and short of it is that my father sadly passed away, you can probably peg the date back to the gap in recording. As a result, I simply wanted to take a little time out as you might expect.

To be honest with you, I have wanted to get back in the saddle for about a month now, but isn’t it amazing how habits and routine can work both with you and also against you? Man, it’s been a challenge to get back into the groove…but here I am as imperfect as this rusty podcast host might be…I am starting a new rhythm…with this first step to draw a line under Series 3 of the podcast on the various methods of financing a property.

Right, enough of that…let’s get into the show and keep moving forward then shall we?

Property Chatter

Newsflash: property financing is not only about cash and BTL mortgages! But, by now I guess you know that pretty well right?

So, what are the variations of property financing we have covered off during the course of this series? Here you go in a summary list…and if my memory has not deserted me:

Cash (1)

Institutional finance (6) – including both residential & buy-to-let mortgages, bridging finance, commercial loans, second charge loans & equity release.

Alternative finance (5) – including equity crowdfunding, peer-to-peer lending, development finance, angel finance and developer joint ventures.

Creative finance (18) – including options, lease and rent-to-rent structures, pension finance, sweat equity, HMRC tax credit, intercompany loans and a Hybrid ownership model, 100% vendor, developer, & bank finance, assisted sale, instalment contracts and exchange with delayed completion, adverse possession, credit cards & personal loans, assignable off-plan contracts and finally…friends and family and joint ventures.

Now, if I am not mistaken, that adds up to 30 different forms of property financing! Wow, yes…we have at least 30 different ways to fund our property interests! I often say that there are 3 main trade-offs in property: time, know-how and money. Well, after this series…if you can’t see a fix to a money-challenge, then you really better have plenty of time or knowhow that’s for sure lol.

In fact, that wasn’t just a cheeky way to bring in that reference to trade-offs again. You see, in my humble opinion, the biggest single factor that can help us all to scale our property interests is knowhow, or knowledge, skills and contacts to give it a fuller definition.

You see, in the area of property financing there is so much that we can learn and this series really has only just scratched the surface when you think about it. Just think about some of my guests during the series, many of them are specialists in just one aspect of property financing. Some may have a deep understanding in one or two areas, but not many will know all 30 property financing strategies inside out…including me obviously.

That’s the first observation really…that we need to deepen our own knowledge and understanding of the art of the possible. Of course, that doesn’t mean that we then have to embark on an intense study programme to cover 30 or more property financing strategies. Nor does it mean that we have to try each and every single one!

You see, to me awareness is part of the knowhow resource element. Let’s not forget another really important element either…contacts. If we are aware of what is possible AND who we can to find the expertise and the solutions, then we have great power to call upon. We can become problem solvers, connectors and trouble-shooters if we want to be. If someone expresses a financial challenge, or if we have one of our own, then we now have an array of different approaches we can take to address it. I know this, as during the course of this series, several people have contacted me personally and a number of my subject matter expert guests to discuss their personal challenges. Many have found a solution as a result.

So, let’s turn our attention to the benefits for a moment then…

OK, here’s an easy one…with at least 30 different ways to help fund our property activities, we really should have few excuses as to the choice of options open to us. OK, so you may not want to sit in the lounge with a homeowner in negative equity discussing a lease option, or a tired landlord at an NLA meeting one evening exploring a rent-to-rent deal but that’s not the point…you can if you want to, or if you need to. Don’t forget that if you want to replace the average salary in the UK, you will probably need around half a million in cash to fund enough deposits and entry fees using a traditional buy-to-let model…yes half a million quid…possibly more if you are a high rate taxpayer and invest in lower yield locations. That’s a sobering thought I know, sorry about that…

Fitting to you own style, personality, lifestyle and preferences is another benefit…there really should be something in here for everyone. Young or old, extrovert or introvert, working or unemployed, rich or poor, hands on or hands off and so on…there is something for YOU in this list dear listener trust me.

Money, money, money…what I mean is…there is money out there available to fund our property aspirations…we just need to figure out the best one for us, make sure we are well-suited to attracting it and then adopt a professional approach to go out and get it. I call this becoming bankable…we need to become bankable or investable if we are to attract the financing that we require. Quite a few people overlook that fact though.

That’s all I really want to say about the benefits.

OK, so there are some potential pitfalls or downsides to watch out for as well…and if you know me at all, you will know that I like to give a balanced opinion on pretty much everything I share, so here goes…

Number 1 – has to be don’t become shark bait! Honestly, some of these financing options are like a magic spell from a master magician that can draw us in with all the shiny golden objects and before we know it…boom, we are poorer and no further forward than we were before we started. I may be contributing to this situation by the very fact of making you aware of what is out there, sorry for that. But, if you do one thing do this…think! Think long and hard before you do anything…to be honest, not just with regard to financing but with everything in property. I hear of so many stories where people have been eaten by the sharks. I mean, I have had a few close shaves myself at times and I consider myself to be pretty savvy and sophisticated, so take care out there.

Next, has to be: act commercially – many of these financing techniques are non-standard and have various commercial risks that we may not have thought of. For example, with rent-to-rent there are loads of lender, insurance and potentially planning risks to consider, bridging lenders can move very quickly not only to lend you the money to buy that dreamy auction lot you paid over the odds for but also to take it back again when you don’t flip it on in the 3 months your promised you would and with commercial loans you are usually exposed to both interest rate risk and a small print clause that allows the lender to call in their debt under seemingly unfair reasons with next to no notice. These are just some of the potential commercial realities that you need to navigate. I could add research and due diligence in here, being commercial also means understanding what exactly we are getting into and that’s why we need to always be asking questions…especially: ‘what’s in it for them?’. Ask and answer that question in all your property dealings and you won’t go too far wrong.

Finally, the shiny penny syndrome, which is the opposite to the benefit of having at least 30 different options to choose from. You can become paralysed by over-analysing everything, you can also become overwhelmed by the sheer range of choice and you can become like a butterfly flitting from financing strategy to financing strategy, novice of all and master of none. All of these things can stunt your growth, clip your wings or cause you more trouble than it’s worth. So, sometimes a simple singular option followed through diligently and repeatedly is the best one to ensure enduring success. Focus, secure yourself and only then consider pivoting into a new area once you have mastered the first one is my best advice here.

That’s all I wanted to say really, I rather suspect that I have left something on the table today if I’m honest. However, the slight distraction of the glass of Malbec in my hand and the experimental jazz in the background may have allured me too much for now…hoping that’s good enough for you to feel a closure to this series at least.

The Shout Out

I have not exactly been a sofa-bound wreck over these past couple of months and have lots to update you on, so I shall return next week with a soundbite episode to give you an insight into some of that…including how I am applying what I am learning about alternative property financing techniques myself!

However, one resource I do want to share with you is a fantastic new training & service if you want some help in finding profitable property projects. We have put on a training webinar that walks you through our 3-Step property sourcer process. This is totally free and if you want to see it, just visit the show notes or ping me a quick email and I will share the link with you personally.

We also have a property sourcing subscription service, which we are imaginatively calling a Deal Tips Service, where we share genuine property projects with the capability of delivering returns of up to 15% or even more Return on Investment (ROI)…in the real world.

I can’t promise you what we experienced just today every day but I have literally signed of and shared 3 deals with ROIs of 15%, 19% and a whopping 24% to the subscribers to the service. Honestly, I think we may have made a mistake in doing that when a deal sourcer may be looking to charge something like £3k, £5k or sometimes even more for these exact deals.

However, we have decided to change our model a little bit and so that means simplifying some of our offerings and also working only with a limited number of people in the process. It’s not a sales message, neither Damien nor I ‘need’ to work or run a business at breakneck speed and so we have decided to do more of what we like and want to do with people we know, like and trust and frankly less of what we don’t. I shall give a more complete update on that soon, so stay tuned.

Anyway, the links to the Deal Tips Service will also be in the show notes or if you email me podcast@thepropertyvoice.net I will reply to you personally with all you need to know.

Finally and as always, do email me if you want to talk about anything from today’s show or more generally in property investing, the show notes will be over at the website www.thepropertyvoice.net

But for now, all I want to say is thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Property Financing: Summary & Wrap Up | S3E18 appeared first on The Property Voice.

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Putting it all together; are the common themes, benefits, pitfalls & lessons in terms of property financing. This is a long overdue wrap up to this latest series of the podcast, so please tune in and help us all to get back into The Property Voice Podc... Putting it all together; are the common themes, benefits, pitfalls & lessons in terms of property financing. This is a long overdue wrap up to this latest series of the podcast, so please tune in and help us all to get back into The Property Voice Podcast groove! Resources mentioned: Link to the free 3-Step […] Richard Brown & Casa from www.thepropertyvoice.net clean 16:47 4018
Be Right Back http://www.thepropertyvoice.net/be-right-back/ Wed, 25 Jan 2017 05:59:10 +0000 http://www.thepropertyvoice.net/?p=3748 http://www.thepropertyvoice.net/be-right-back/#respond http://www.thepropertyvoice.net/be-right-back/feed/ 0 <p>The full podcast episode is slightly delayed this week…I will be right be right back with the full episode soon. Meanwhile, have a listen to the temporary short clip for details of a secret page that will give you a bit of a bonus whilst you are waiting 🙂 Passive Investment Link Ciao ciao</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/be-right-back/">Be Right Back</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> The full podcast episode is slightly delayed this week…I will be right be right back with the full episode soon. Meanwhile, have a listen to the temporary short clip for details of a secret page that will give you a bit of a bonus whilst you are waiting 🙂

Passive Investment Link

Ciao ciao

The post Be Right Back appeared first on The Property Voice.

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The full podcast episode is slightly delayed this week…I will be right be right back with the full episode soon. Meanwhile, have a listen to the temporary short clip for details of a secret page that will give you a bit of a bonus whilst you are waitin... The full podcast episode is slightly delayed this week…I will be right be right back with the full episode soon. Meanwhile, have a listen to the temporary short clip for details of a secret page that will give you a bit of a bonus whilst you are waiting 🙂 Passive Investment Link Ciao ciao Richard Brown & Casa from www.thepropertyvoice.net clean 2:59 3748
Property Financing: 10x additional Creative Financing Strategies from our personal experience Part 2 | S3E17 http://www.thepropertyvoice.net/property-financing-10x-additional-creative-financing-strategies-personal-experience-part-2-s3e17/ Wed, 18 Jan 2017 05:59:19 +0000 http://www.thepropertyvoice.net/?p=3703 http://www.thepropertyvoice.net/property-financing-10x-additional-creative-financing-strategies-personal-experience-part-2-s3e17/#respond http://www.thepropertyvoice.net/property-financing-10x-additional-creative-financing-strategies-personal-experience-part-2-s3e17/feed/ 0 <p>Join Damien Fogg and I as we share some more of these creative financing strategies based on our own personal experience. Today we cover adverse possession, credit cards & personal loans, assignable off-plan contracts, friends and family and joint ventures Resources mentioned: Our forthcoming business planning workshop in London & Manchester, see the event page […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/property-financing-10x-additional-creative-financing-strategies-personal-experience-part-2-s3e17/">Property Financing: 10x additional Creative Financing Strategies from our personal experience Part 2 | S3E17</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> PART2Join Damien Fogg and I as we share some more of these creative financing strategies based on our own personal experience.

Today we cover adverse possession, credit cards & personal loans, assignable off-plan contracts, friends and family and joint ventures

Resources mentioned:

Our forthcoming business planning workshop in London & Manchester, see the event page for more details.

Link to the Podcast feedback survey

Today’s must do’s

Join us at one of our business planning workshops to get the year off to a fast start.

Establish whether one or more of the 10 additional creative financing strategies mentioned over the past two weeks are worthy of closer examination for you.

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com in case you would like to get yourself a copy to accompany this series

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello, and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

Let’s pick up the conversation I had with Damien from last time, where we discuss another 5 of the 10 additional creative financing strategies we are outlining to bring this series to an end. Today, we will cover adverse possession, credit cards & personal loans, assignable off-plan contracts, friends and family and joint ventures

Speaking of joint ventures, just a quick heads up for you that that is one of the central themes we cover in our upcoming 360° Business Planning Workshops this month. London on Sunday 22nd and Manchester on 28th. We have three core streams, buy-to-let, buy-to-sell and joint ventures.

Check out the show notes for the link to the workshop sign-up page or just drop me an email podcast@thepropertyvoice.net instead.

OK, so let’s get back into the conversation where we left it last time; something to do with squatting is where we left it if you remember. What’s that all about then…we are about to find out!

Damien: People actually live in houses then…

Richard: Ah, now there’s a nice Segway to my next one…People actually living in houses, can I pick up my next one?

Damien: I mean, I’m curious to see how the Segway works, but yeah…go for it.

Richard: How about squatting?

Damien: Oh, I see what you did there…

Richard: Yeah, creative strategy, the next one on my list is called Adverse Possession. Otherwise known as Squatting…And essentially what we have got here is, claiming legal title to a property using the law as the way to do that. And I have never done this one. So, I can only really talk from a knowledge and theoretical point of view. So, there is my big caveat.

Damien: You have never squatted in somewhere before?

Richard: Perhaps, I have actually, but I don’t want to admit it! When I say squat, to get legal ownership, it has to be at least 10 years, so, that’s one of the reasons why I haven’t done it, because I probably don’t want to stay anywhere for 10 years for a start. But, what can happen here is two types of land. There is either registered land or unregistered land. In terms of title. Because believe it or not, there wasn’t a Land Registry forever and a day. So, not all land in the UK, because, we are going to talk about the UK, not all land is actually registered with the Land Registry. So, what the, lawmakers decided to do was make sure that people had, clear legal title when they are selling property. And they came up with a system which basically says if you have occupied a property or a piece of land for a significant period of time; 10 years, this came in in 2003, you could claim legal title to that piece of land and then it would be yours, then you could sell that piece of land or that property on with clean legal title. So, it gives certainty of title and that’s how of the UK title law is predicated effectively. But, if you, so, if the property was unregistered, say it was a field, you can check at Land Registry if it is registered and if not, you can put a fence around the field, you can lock it, you can maintain it, you can put cattle on to graze if you so wish and basically, use it as your own. And if you do that for a period of 10 years, you can apply to Land Registry to have it registered in your name. And after a two period I think it is, if there is no objection, it will be transferred and registered in your name. and there are people who have this as their primary property strategy. Bit of a long-term gain, but as you can probably imagine, it doesn’t have to be land, it can actually be literally houses or offices or things like that. Occupy it for 10 years as if it’s your own, look after it. Obviously, you need evidence all of this, so that’s going to be something to think about. But then in 10 years or 12 years or so, you can then own that property legally. And the reason I’m calling it a creative financing strategy is obviously, you don’t have to spend any money to acquire it. It’s a very niche strategy, it’s one I don’t have direct experience on, so don’t ask me too many detailed questions Damien, but I think for some people if you are wondering around and you see that empty property on the street corner that looks a little bit, tired, and has been for many years, maybe it’s one to think about. Getting access to try and find, you have to try and trace the legal owner if they are registered, do all that good stuff, but otherwise, start making use of it and then in 10 years, it could be yours.

Damien: I mean, it’s an interesting one certainly, the bits I would want to be checking is, at what point is it adverse possession versus just breaking and entering? So, I don’t know where the legal stand point is there, but, I actually do have a bit of experience with this.

Richard: Oh, you have squatted?

Damien: Yeah, I’m basically squatting where I live right now, no—I’m not before anyone comes looking for me. When I used to work with the government quite a lot, the government has random bits of land that most of the time, they don’t even know that they own. And, I sold a piece of land that when we turned up on site, to do the assessment of it, it had one of these fences around it, with a big sign on it saying…John’s Fencing call this number…so I gave the guy a ring. And I was like, why have you put a fence round our land, he was like…oh that’s what I do, I go around fencing off pieces of land that are unregistered, I put my number on it, take all the documentation to say when I have done it, so how long it’s been in possession, and that’s just what I do, effectively that’s his strategy for acquiring land. He owned a fencing company so he used to do this any way. Obviously, we got there, we were like, alright mate, nice try, do you want to clear off now. So, we started the process to get rid of him. As an interesting business angle, though, he did then turn around and say, what you should do is put a fence round it so nobody else can do it. Do you want to pay me for the fence I have put up? You have got to admire his entrepreneurial spirit, but, probably not something I will be getting involved in anytime soon.

Richard: No, I think you probably have to fence quite a lot of areas before you get the winner but, funnily enough, you just jogged my memory. I do know somebody, a friend of mine, who had a piece of land and they had that same experience that you just described. Somebody put a fence on it, put a lock on it, put a sign on it, and fortunately, and this is one of the things, if you have got a piece of land or a property lying around somewhere which is kind of empty or you are not doing anything with. I suggest you go around now and again and just check. Well, certainly within every 10 years which shouldn’t be that onerous.

Damien: We are taking the extremes here, aren’t we? Of someone just fencing off a piece of land. The way this actually plays out under more common circumstances is, someone, you know, when someone moves a fence boundary over a neighbour’s land, or extends it out the back if it’s a row of terraces, they extend their back fence to cover another part. If you can then show that you have done that for 10+ years, then you can say well actually, even though it’s not on my title registry, I have now adversely possessed this for the past 10 years, I want to include that on my Land Registry. So, that’s how it works in a more actual way, rather than people just randomly fencing off bits of land. So, that’s something to bear in mind, yeah you don’t have to inspect a piece of land in a field every 10 years, but keep an eye on your boundaries, if a neighbour says, any chance I can just redo this fence, make sure they do stick to the actual boundaries and don’t encroach on your land bit and then after 10 years so no, that’s mine.

Richard: Yeah, totally agree and we won’t get too much into neighbourly disputes but that is a big cause of neighbourly disputes. But as a creative financing strategy for acquiring property, it’s probably the first part of the conversation, albeit it’s going to be difficult, it’s going to be a slow burn, it’s going to be possibly a low conversion rate. Ok, so we have probably done that one now, so, have you got another one to talk about?

Damien: Yeah, I have got a couple left still. So, Assignable Off-Plan Contracts, this is something you know, before this closure, I’ve not done personally myself, I came pretty close to doing it but then decided to keep it. But effectively what this means is you agree to purchase a property off-plan, usually from a developer, and if you are buying off-plan you usually purchase quite far in advance of the actual property being completed, and the contract is fairly standard and straight forward. You will have things like reservation fee, and then, the rest of the fees will be payable over a period that you agree, and they are all different so there is no point trying to guess what they are. But most contracts will say, once you have reserved, once you have put x amount of money in, that then becomes yours. You have legally agreed to buy that property, it turns into a normal sort of exchange with a completion late down the line, fairly straight forward. When you stick a clause in that says I want this contract to be assignable, what that means is that you can sell your right to purchase this property onto somebody else for the price that you have agreed. So, if it’s a long build out period, let’s say you buy it off plan, it’s not going to be built for 2 years, if capital appreciation kicks in, and you agreed to buy at £200000 and somebody else is now willing to pay £300000 for it, you can assign your contract at £200 to somebody else. So, you can effectively make a profit before the building has been completed. So, I didn’t do that because there weren’t huge capital appreciations, I ended up just buying it and completing it anyway. But, I did fight with the developer to make sure that I had…the contract was assignable within it.

Richard: Yeah and I think therein lies part of the risk as well, if people want to pursue this as a strategy, I think there was a lot of this going on roundabout 2007 time, for example.

Damien: 2006-ish, yeah, I almost certainly should have assigned the contract and moved on but didn’t…

Richard: And then what happened in 2008-09?

Damien: We all had a cry!

Richard: We all had a cry. So, yeah, this is one that will probably get pedalled around the sort of guru property, the communities in hot markets, when the market cycle is at a peak. You know, do assignment contracts, markets going up, you get gazumping, gazundering; all that sort of thing going on, well not gazundering obviously, but certainly gazumping. And then you will find things like off plan, with assignable contracts, people flipping them on once or even twice in the build period, but you don’t want to be the last person holding the baby when the market turns.

Damien: Or, and the risk is that you can’t assign the contract and you have got to buy this property. You need to make sure you have got the funds in place to actually do that, or you could find yourself in a bit of a sticky wicket.

Richard: Exactly, so, you didn’t actually do that one then, but you came close.

Damien: Came pretty close, I did all the way up to the actual assigning of that contract, but I didn’t press the button.

Richard: Fair enough. Ok, I’ve got another one. So, don’t react when I tell you what it is…actually you can…credit cards and personal loans…

Damien: Oh, behave yourself…

Richard: There you go! I’m going to say credit cards and personal loans. Right, so, I’m not necessarily saying—although I am aware of, people who have literally done this. Buy a house using credit cards and personal loans, I’m talking about unsecured personal loans in particular, people have actually done this. And you know, for obvious reasons, its consumer debt, it should be used for consumer purchases. It probably shouldn’t be used at all, but that’s a different conversation. But, you know, there are finance products for specific purposes, credit cards and personal loans shouldn’t really be used to buy a house, although people have done it. My personal confession Damien, is that I have actually done this…but not to buy house, but I have actually done to fund works costs. So, I think this is where it perhaps plays a more relevant and more realistic part of our armoury although one with some risks. And that’s, so if you have got a limited amount of funding, you need to usually to either buy the whole property in cash or at least put a deposit in and then pay for all your fees but then you have got some works to undertake. And those works, depending on what they are can be quite expensive. So, in a couple of cases what I’ve done is, I have used credit cards to pay for materials or I have even used a personal loan to pay for some chunky, more structural works on a couple of projects that I have done. And the idea being is, you settle off the consumer debt once you either refinance or sell that property on. So therein lies the risk, of course if you don’t manage to sell or sell at the right value or refinance at the right value then you end up with a bunch of consumer debt which is costing you a fortune, has high monthly repayments and that sort of thing. So, I’m not necessarily advocating it as a strategy, it’s one that is there, and there are perhaps some variations on this that you could potentially consider, things like offset mortgages, and sort of, even secured loans, could sort of fall into this category and I would recommend it to buy a house. And, in fact, a mortgage lender might have something to say about that if you did, especially if you didn’t declare it. Because I think that would be mortgage fraud.

Damien: That would be mortgage fraud.

Richard: It would be. But if you declared it and they were happy with it, then so be it. But often, they will allow you to have borrowings for funding of works, and that’s how I used it. And I think I’m clean, and you are a qualified mortgage broker so you can tell me if that’s true.

Damien: Well, if this was a video interview you could see my FCA and RICS approved sad face when you talk about all this sort of stuff. We don’t approve any of these such things. But, no, as you say, the reality is, if you are doing—using a credit card to fund works, I mean using a credit card, this is not financial advice people, but, can make sense even if you pay it off in full just because you get an interest free period when you are doing it, so, credit cards, yeah, personal loans, when you do the whole balance transfer, write a cheque from your credit card thing, it’s a bit daft to rely on that, but equally, I know people who have done it, who have taken advantage of the 0%, when everyone was doing 0% balance transfers and things like that. People were effectively using it as a free dip in and out of, they didn’t even have to, they had the cash available to do it, but they thought well, why either take a loan out—not a loan; a mortgage out on it, or pay over and above, take their money out of an investment vehicle when they can pay 0% on somebody else’s money. So, I can see why people do it, but there is all of the caveats you just said, all the big risks involved in consumer finance, and the 17-18% that’s sort of standard once you get outside of any of these deals, that you end up paying off. So, I probably wouldn’t recommend it, but I can see, if used properly its very high risk, but it can work out for you.

Richard: And, we know someone who has made it work particularly well. Mentioning no names, purchasing property part cash part personal loan at round about 4% and part 0% credit card, so, their effective ROI on their personal cash investment was enhanced as a result.

Damien: But, I think as a caveat to that one, the person who did it, is fairly financially astute and sophisticated in fact. But, I think probably over and above that as well, given their knowledge and their background, if anyone was going to do, I would be confident they had looked at all the risks and were able to take a calculated risk on that one.

Richard: Yeah, that’s true. We won’t give the game away too much on who that is. Proceed with caution was definitely the end on that one. Have you got any more on your list?

Damien: I do, how we doing for time?

Richard: We are ok…

Damien: Ok. Then I will crack on. The next one I have got on. Originally you had put these down as two but I’m going to merge them into one anyway. So, it’s working with friends and family. Now I have done that before. And we both sort of threw money into the pot, I put a bit more in than they did, and then I handled all of the desktop due diligence, athe surveying side of things and the finance side of things, which will not surprise most people. Whereas they were more hands on, they actually did the plastering, the works in the property, all that stuff. So I leveraged the fact I had a family member, he was my cousin, who was very good at the practical side of things, didn’t like any of the other stuff to do with property but wanted to get involved in property. So, from a creative financing perspective, it minimised the amount of money I had to put into it, purely from a purchasing point of view of the property, because he put some of his money in, but also, from the work side of things, it saves me having to pay a contractor, because he was the one that did most of the work, he paid for the materials, materials weren’t all that much on the project, it was mostly labour. It again, minimised the cost upfront for me, and then when we sold it we split the profit 50/50, so my return on investment was much higher, than if I had just done it normally. Now, there’s probably a few things to say to about JVs in general, but I think we will go onto that, but specifically, about family, this particular relationship, partnership that we had, it started off very much, let’s get drunk in a pub and discuss this and come up with a good business plan, which is what we did. And we started, we did a couple of properties, then it kind of, because of the family relationship, there were some questions that, if this was purely commercial, would probably…it wouldn’t have been an issue, because we could have just said, well no, we agreed this so that’s what going to happen. Because it was family, it was a bit more negotiated and trying to keep everyone friendly, so at that point I brought in a partnership agreement to lay out exactly what it was we were doing, and then after the next project we did, we just decided actually this isn’t worth falling out over and it didn’t get that way. But I could see… think we could both see it was potentially going that way. So, we just sort of walked away at that point. So, I think the biggest warning I suppose to give on that, is family and money tend not to mix.

Richard: Yeah…I had a similar experience, I think, you know, one the one hand, easier to find, because you know who your friends and family are, you can have a conversation, perhaps there is a degree of trust already, maybe you can work together, maybe there is complementary skillsets like you have identified. So, that’s the plus side, the down side is we often don’t do things properly and that’s probably what you are going to go on to talk about, I guess? I think the down side is, you tend to leave yourself a little bit exposed and, it can get a bit ugly, particularly if there is a personal relationship involved, and some sort of expectation if it’s not fully documented.

Damien: Yeah, so I think it’s very much, a joint venture, it’s just the parties are different from a purely hands off commercial side of things. So, I mean joint ventures are very good creative finance side of things, and it is a win/win, well for all parties if you do it right. But I suppose that’s the big part of it, making sure you do it right. So, there’s a lot of documentation that needs to go into it to make sure everybody…the whole spirit of it is basically what is each individual putting into the deal, whether its finance, time, knowledge, whatever, but what is the expectation of that person, what are they bringing to the table. Similarly, what’s the expectation of the other person and what are they bringing to the table, so you are all 100% clear on, ok you are responsible for this, you are responsible for that, so there is clear differentiation there and then also, play out all the different scenarios and say, if everything goes according to plan, this is what will happen. You will be responsible for this, you will be responsible for that, we will then do this with whatever happens. Don’t just be hopeful and wish everything works out fine, always think, what is it…plan for the worst, hope for the best, so actually plan out, what happens if this goes wrong, what happens if it doesn’t sell within the time frame, what happens if it doesn’t sell for as much, what happens if costs overrun, what happens if I can no longer fulfil my side of that bargain, what happens if they can’t, these are all the things that need to be documented in the JV agreement. There are a lot of people out there at the moment going down the friends and family joint venture route, and even complete hands off strangers, looking for money to do this creative financing thing on the back of, quite often, a course they have been on telling them it’s a great idea. If you don’t document this properly its potentially going to turn around and bite you at some point sown the line and it can get very nasty, it can get very legal, it can get very expensive, and you can lose friends, family members over it or your reputation and a lot of money. So, I think from my side of things, they are probably the bits I’d focus on, I don’t know if, there is anything in particular you would focus on over that?

Richard: Well I think that is a pretty good summary, I mean of course, we ourselves get involved with joint ventures, don’t we? So, we can talk, quite a lot of experience here. Let’s just drill into it a little bit, let’s just talk about some of the things you should document and watch out for. I can do it, or you can do it, whichever one, but when we talk about…

Damien: Go on then, you start and then I know what you are talking about…

Richard: Ok, so, effectively I think you need a joint venture agreement, if it’s a profit sharing joint venture, there is two types. There is just you know, some sort of loan arrangement or there is some sort of profit share arrangement. In either scenario, you need to have a specific contract, so it would either be literally a loan agreement, if that’s the type of arrangement you have, where you are borrowing money, you pay a fixed interest rate, and you set out the terms of that loan, how its repaid, when its repaid all those sorts of thing. If it’s a joint venture agreement, when you are literally profit sharing, you have a joint venture agreement, normally speaking and that’s all the stuff you talked about, defining the roles, the contributions, what is classified as an acceptable cost to the project, what is the exit strategy, what are the contingency plans if it doesn’t go according to plan, how are decisions made, all these sorts of things are in our joint venture agreement. Which I’m looking at right now! And its 7 pages, I’ve seen longer, I’ve seen shorter, but it considers all of the permutations that can happen. And trust me, I’ve seen a few alternatives that people are pushing out there, which have got holes all over them, and I certainly wouldn’t sign as presented, I’d wish to negotiate extra provisions in, which could leave you open ended. For example, not having a pre-defined sales period if you are doing a flip—when is it going to be sold then, how do you decide it’s going to be sold, who decides it’s going to be sold, we cover that often in our joint venture agreement, don’t we Damien?

Damien: When everybody goes into these agreements, everybody’s friendly, everybody’s happy, it’s going to be the greatest thing in the world, and we will make all of the money ever. That’s fine when you start off, as soon as you hit any hurdle in the road, you don’t want to then be negotiating and saying well what do we do now, I think we should do this. Inevitably, you will think you should do something that will benefit you, they will think the opposite, and you could end up at loggerheads. If you then end up going back to the contract and it doesn’t cover that off, you don’t really have a leg to stand on, it is a pure fight over I think this you think that, where do you go from there? As Richard said, we cover all of these things in our JV agreements but we also have a caveat that says, if whatever reason there is something outside of this, or something unusual happens, there is a procedure in place to still get it agreed, get it signed off to everyone’s satisfaction and there is a process in place for that, that, at least, we can move forward and we are not just…well I’m not moving from my position, you are not moving from your position, we are not at a deadlock, nothing happens. So, we have planned for every possible, that we can think of, scenario, but we know there is stuff we don’t even know might know, so we have got something in there that covers that off as well. That is something very rare in contracts that I have seen that people have put out lately.

Richard: Yeah, because the hidden thing is, what if it isn’t covered and then basically no one gets to do anything. But if you can refer to a third party to arbitrate or meditate then, you know, it will get resolved one way or another.

Damien: Isn’t ours the President of the RICS?

Richard: I think it might be, I will look, but whilst I look, I tell you what, the thing we didn’t speak about and I think is relevant in this scenario of joint ventures, is security. So, do you want to pick that up and I will see who we refer to.

Damien: Ok, so, security for joint ventures, if you are sort of the financing person, as Richard said, depending on if it’s a profit split or as a direct fixed interest, what you need to make sure is, you are secure, and if you are the person taking money from someone else, you need to make sure you give them security. So, if it’s an individual purchase, it’s quite easy, quite straightforward to do the first charge on that property, it’s the equivalent of a mortgage then, if everything goes wrong, the house gets repossessed, all the monies would go to the first person who has that first charge. Now, if you are using JV finance with a mortgage in place, that mortgage will always take first charge, and so, the best you can hope for as a JV financer, is then a second charge on the property. Again, this is all if it’s an individual thing. If you start buying into a company name, then you can look at securing your interests against that company. Now, that that opens up a whole series of other questions about company agreements, debentures and how we are going to get that asset backed security. So, we are not going to go into that, because I am not an accountant, but, it’s just…I suppose the biggest thing to highlight is, you need to provide security to anyone lending you money, and if you are lending money, you need to make sure you have security in whatever, way, shape or form that is. Now, a lot of people will do the whole—well just give it us because we are great. That’s fine, but you really have to, you do have to trust them implicitly, again, because if everything goes wrong, where do you stand. So are you going to be able to take that person to bankruptcy courts to try and make them sell their personal home if that’s the only route you have got left versus, well ok, the projects gone massively wrong but at least I effectively own this property. So, when we are doing joint ventures with people, we always make sure anyone who has given us any form of money, is always ahead of us in the queue, waiting for their money. So, whether they get first charge over the property, or anything like that, we always put the client first and work back from that. And that’s kind of that, more of an ethos and values that we have as a company, but that’s something, you, if you are going to go this route, you should make sure you are getting that protected. And if you are the one who is going to do it then, I mean as I say, from our values point of view, we think you should be doing that as well, because someone is putting a lot of effort and time and money, well effort and time, into making the money they have got. If they then give it to you, you do have that responsibility, a moral, ethical, fiduciary responsibility to be sensible with their money, and make them money if that’s what they want to do, protect their money if that’s what they want to do, provide them with an asset that’s going to give them long term security, all that stuff. Ok, so, tried not go into too much of a moral rant there, but there are a lot of people out there, that are slightly dubious of that side of things. I’d like to think that’s how we stand out anyway.

Richard: Of course, I agree with you, that’s how we work. But I think the key there is that sometimes people will go into joint ventures or loans, on an unsecured basis. That’s fine as long as you know what you are doing and you know what your risks are. And, by the way, you better have a decent reward if that’s what you are doing. But, even if you are promised 100% return, if you have no actual, tangible security to go after, how sure are you of being able to recover your money. So, that’s why we tend to shy away from that type of arrangement, and offer some kind of security. There are all sorts of things you could do.  You mentioned, deeds and declarations of trust, and this sort of thing earlier. That’s a variation of course you can put in place, you can have restrictions on title and this sort of things as well, which provides a level of security. We have done the security thing to death. By the way, the arbitration thing in our contract, we refer to the Chartered Institute of Arbitrators. There we go, we thought it was RICS but actually, we defer to the rules of the Chartered Institute of Arbitrators and we submit that into court as being final judgement. So, if we don’t agree, if it’s not agreement and we don’t agree, that’s where we go and that’s who decides on our behalf.

Damien: I feel like you chose that one rather than the RICS, for some reason, I imagine I would have just said yes, use the RICS.

Richard: Well maybe we should in future, who knows. I’m relaxed as long as we have got… someone we can refer to, talks sensible and is independent, that’s what you need. Not your mum, she is always going to side with you. That’s been brilliant. I think, just in interests of time, we probably ought to think about wrapping it, I don’t know if there is anything else you wanted to say, more general thing, or anything that’s been missed Damien?

Damien: Not particularly no. Nothing I can think of anyway.

Richard: Some other things came out didn’t they, as we went along? There are risks, perhaps with some of these strategies, there are commercial aspects you need to think about, how you find these people to offer these creative financing techniques. And then ultimately how you contract and how you rely on security. Some of the big takeaways, perhaps one or two more that I can’t think of right now. But, we have mopped up 10 more creative financing strategies, that you maybe have in your armoury. By all means, reach out to us if you want to talk about any of those we spoke about. Particularly the ones we have got some experience in! Yeah, we can probably help you more with those. Damien, I just want to say thanks a lot, as ever it’s great to have you on and get your insights and your views, in the colourful way that you share things.

Damien: I mean, this was me very monotone, or monochrome even, its gets more colourful. Always a pleasure joining you Richard, and hopefully your audience found that useful.

Richard: Yeah and thanks a lot. And we avoided the swear words, don’t get one in now…thanks Damien, I will talk to you soon. Bye for now.

Property Chatter

Interview with Subject Matter Expert: Damien Fogg.

So, there we have the big news…Damien managed to avoid swearing for an entire hour talking property bless him!

On a serious note, that’s another 10 creative financing strategies covered off over the past couple of episodes, 8 of which we have actually done ourselves, one was a near-miss and another…we have had some personal experience of, whilst not actually deploying it.

So, you might be happy to note that we don’t go around squatting in people’s houses for a living then I imagine!

Next time, I shall do a bit of a series wrap up, which will attempt to pick up some of the salient and potentially common or less well known themes that have been shared by my guests over the past couple of months. A few popped up at the end of the discussion with Damien, such as risks, commercial factors, how to find the opportunities, how best to contract and finally what level of security is available. I imagine there will be others though, so do make sure you join me in the series finale to find out more.

Don’t forget our 360° Property Business Workshops later this month that I mentioned earlier. But, as always, email me personally if you want to talk about anything from today’s show or more generally in property investing, the show notes will be over at the website www.thepropertyvoice.net

Thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Property Financing: 10x additional Creative Financing Strategies from our personal experience Part 2 | S3E17 appeared first on The Property Voice.

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Join Damien Fogg and I as we share some more of these creative financing strategies based on our own personal experience. Today we cover adverse possession, credit cards & personal loans, assignable off-plan contracts, Join Damien Fogg and I as we share some more of these creative financing strategies based on our own personal experience. Today we cover adverse possession, credit cards & personal loans, assignable off-plan contracts, friends and family and joint ventures Resources mentioned: Our forthcoming business planning workshop in London & Manchester, see the event page […] Richard Brown & Casa from www.thepropertyvoice.net clean 34:01 3703
Property Financing: 10x Additional Creative Financing Strategies from our Personal Experience | S3E16 http://www.thepropertyvoice.net/property-financing-10x-additional-creative-financing-strategies-personal-experience-s3e16/ Wed, 11 Jan 2017 05:59:28 +0000 http://www.thepropertyvoice.net/?p=3687 http://www.thepropertyvoice.net/property-financing-10x-additional-creative-financing-strategies-personal-experience-s3e16/#respond http://www.thepropertyvoice.net/property-financing-10x-additional-creative-financing-strategies-personal-experience-s3e16/feed/ 0 <p>We have no less than 10 more property financing strategies at the more creative end of the spectrum to get through. So, buckle up and have a listen as I am joined once again by Damien Fogg as we share some of these based on our own personal experience. Given that neither Damien nor I […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/property-financing-10x-additional-creative-financing-strategies-personal-experience-s3e16/">Property Financing: 10x Additional Creative Financing Strategies from our Personal Experience | S3E16</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> 10x Creative Property Financing Strategies

We have no less than 10 more property financing strategies at the more creative end of the spectrum to get through. So, buckle up and have a listen as I am joined once again by Damien Fogg as we share some of these based on our own personal experience.

Given that neither Damien nor I have any time discipline whatsoever, we managed to overrun on the allotted time we planned for this episode, so that’s why it is broken down into two parts. Today we cover 100% vendor, developer, & bank finance as well as assisted sale and exchange with delayed completion.

Resources mentioned

Our January Business Planning Workshops are being run on Sunday 22nd January 2017 in London and Saturday 28th January 2017 in Manchester…full details here.

Link to the Podcast feedback survey

Today’s must do’s

Make sure you get your year off to a fast start…to help with this why not come and join us at our Business Planning Workshop with an accompanying 100-Day Fast Start Programme.

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try to feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com if you would like to get yourself a copy to go with this series

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello, and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

First of all…Happy New Year! I hope that you had a great festive break and feel recharged and ready to roll for the year ahead. In fact, if you want to really make sure your property business planning gets off to a fast start, then why not join us at one of our forthcoming 360° Business Planning Workshops this month.

We ran the inaugural one in November and that went very well. So, we have beefed it up a bit and will be running another in London on Sunday 22nd January and one in Manchester on Saturday 29th January. Our aim is to help as many of you as possible have your best year yet in property. Check out the show notes for the link to the sign-up page or just drop me an email podcast@thepropertyvoice.net instead.

Right, on with today’s show and what a show it is!

We have no less than 10 more property financing strategies at the more creative end of the spectrum to get through. So, buckle up and have a listen as I am joined once again by Damien Fogg as we share some of these based on our own personal experience.

Given that neither Damien nor I have any time discipline whatsoever, we managed to overrun on the allotted time we planned for this episode, so that’s why it is broken down into two parts. In part two we will cover adverse possession, credit cards & personal loans, assignable off-plan contracts, friends and family and joint ventures.
However, today is also content-rich as we cover 100% vendor, developer, & bank finance as well as assisted sale and exchange with delayed completion.

Let’s have a listen into that now then.

Richard: Hi everybody, thanks for joining me again on The Property Voice podcast, I’m very pleased to say, it’s a bit of a wrap up and a whistle stop tour of sweeping up some of the remaining creative financing strategies, and I’m very pleased to say I’ve got with me today, Damien Fogg my good friend and business partner. First of all, Damien, how are you?

Damien: I’m not too bad, thanks for having me on Richard. Hello everyone listening.

Richard: It’s great to have you on, again it’s not the first time, but we are always happy to have you on the show, thanks Damien. We are going to have a little bit of a tete a tete I think with some of these remaining creative financing strategies, and rather than break them down into individual episodes. It’s a bit of a signposting exercise to go through, so I’m going to go through quite quickly but I tell you what Damien, just as I normally do with my Subject Matter Experts guests is just, I ask them to introduce themselves and their expertise as it where, so why don’t you just go ahead and do that to set the scene a little bit…

Damien: Hopefully people know who I am by now but…I am a chartered building surveyor and a qualified mortgage broker. So, I’ve got quite a lot of experience in property in general, I’ve worked with Richard now…for what, two or three years now…so we know each other quite well, we have got the same values so hopefully everything I say should fit in with what you have said so far. But been working in property for 10+ years, hundreds, thousands of property developments, managements blah blah blah, so quite a lot of property experience.

Richard: Yeah, and I think also, some finance, mortgage experience as well, is that right?

Damien: Yeah…I’m a qualified mortgage broker as well now so…probably all the stuff we are going to talk about, because I’m authorised and regulated by the Financial Conduct Authority and the Royal Institution of Chartered Surveyors, this is all generic advice that as Richard said is signposting you for things but don’t take any of it as purely personal financial advice, and do make sure you speak to relevant qualified people to look at your individual circumstances. So, that’s the caveats done…

Richard: Yeah indeed, that’s our ‘get out of jail free card’ out the way, well done. So, don’t please sue any of us, thank you very much! Ok, fabulous. So, we have got 10 strategies, creative financing strategies. We’ve got experience in nearly all of them I’m glad to say, so how do you want to play it Damien, what’s the best way?

Damien: Well, we have got the 10, but I’m not 100% sure who’s going to do which one, so why don’t you get started and then I’ll figure out which one we are going to talk about next?

Richard: Ok, fair enough. In our usual, laissez faire style, play it by ear. So, I’m going to start us off then, thanks very much. I’ll need to think about what I’m going to say! The first one we are going to talk about is…it’s a kind of form of Vendor Finance, and its Instalment Contracts and so, this is essentially where you end up buying a property in instalments, funnily enough. So, it’s over time, that you actually make the repayments, so there’s a number of legal structures that you can adopt to do this. I’ve done this quite recently, in particular with some of the properties I’ve been acquiring in the US over the last 12 months or so…They seem, like everything in property, seems to be bigger and you know, existing longer in the US market than in the UK market. And so, I’ve bought a couple of properties in Orlando and Chicago over the last 12 months, and I’ve bought them on Instalment Contracts. Now, what that essentially means is, the owner of the property agrees to sell that property to me over time. And in both of these cases, it happens to be 15 years. So, I don’t need a mortgage, I don’t need a deposit, I just basically pay them a monthly fee and which, each month goes by I get an extra percentage of the property. Technically, and legally, it doesn’t work that way, I only get ownership once all of the instalments have been paid, and that gives a little bit of clue to one of the downside risks; which is if I don’t make all of the payments I never own that property. But, it’s been quite useful for me, you do need to do your sums, cause its sometimes pitched as no mortgage required, no interest to pay, all those sorts of sales messages. But the reality is, if someone is going to sell you a property over in this case, it happens to be 15 years. They need to get a return on their money as well and that’s built into the repayments. But the upside is, the properties are rented out, they are rented out for more than the instalments, and so therefore I…once all the costs are taken into account, pretty much break even in terms of a cash flow point of view, but I, essentially after 15 years, I own the property, home and clear. So, I look at this as a wealth build, a long-term wealth building strategy rather than a short-term cash flow strategy. And that’s why I’m doing it, so it’s just an extra dimension to my portfolio, Instalment Contracts, where the vendor is effectively funding me. That, in a nutshell, is it. I don’t know if I explained it full enough Damien? Maybe you can fill any gaps or ask me any questions on it if I haven’t covered it?

Damien: Yeah, no, I think it explains it clearly but I suppose my question would be, how does that relate to the UK market? I know, obviously as you say America is usually ahead of us and these things are bigger over there, but is it something that is available in the UK market? If, for example, a house is valued at £100000 and you agree to pay it off over 15 years, do you agree a higher purchase price, is that how they get their money back, or, talk us through how it would work or if it would work in the UK, I think would be my kind of leaning?

Richard: Well, yeah, I haven’t done one in the UK so I can’t tell you from experience, but what I can tell you from my understanding is, yes it can work in the UK. The difference in the UK market, it that essentially you still have a legal agreement and I suggest you go to a conveyancing solicitor who has specific experience in this and you can probably suggest a few, or at least one, who has experience. But then you do actually get the issues like stamp duty needs to be payable up front and that sort of thing, but in terms of commercially how you spread the payments, that’s up to the parties to work out really. If somebody wants to sell you a £100000 property over 10 years, at £10000 a year, breaking that down to the monthly repayments, they can do that. But, if they decide that actually, they want to collect some interest equivalent, for the fact that they won’t be fully repaid until after 10 years, of course the vendor can then decide to say well, the total instalments will add up to more than £100000 because I actually want an interest return as well. Its commercial, in other words, to agree what the instalments would be. But, obviously, anybody buying, would need to do their own sums. Just to flip back to my US model, what I did, is I did a discounted cash flow, using an assumed mortgage rate to arrive at today’s value, if I were to buy it cash. And I tested that against the market value, you can do exactly that in the UK market as well.

Damien: So, just flipping it round then, you have just that in the US version it’s kind of breakeven cash flow. The Vendor is getting their property purchased over 15 years, what’s the benefit to the vendor to do this, so, how available are these deals, how likely is it that people will come across them and find them because it’s, why would the vendor not just rent the property out and be no worse off, and still own the assets at the end of it?

Richard: Well, different reasons, they still technically have it as an asset so that might suit them for some purposes, if they want to show an asset statement or something like that. It could well be that the property…it’s not going to be Central Park New York, where you can buy this type of property, let’s be honest about that. So, it’s sort of, not going to be prime central locations, so maybe not that attractive, there may be a slight lull in the marketplace in that area and they can’t necessarily immediately, so they are happy to take a deferred sort of sale as it were. You know, from a buyers’ point of view, I go in with my eyes open and know that well, fair enough, maybe the market is a little bit flat at the moment, but in 15 years, what’s it going to look like, so you know it kind of works for me, it works for them. The other thing is, and this is something to perhaps be a little bit careful of, the vendor can still use that property for fundraising purposes if they wanted to. Now, what I have done in my case, is I have limited the contract provisions in that respect so that the vendor doesn’t just load up more and more debt, get into trouble, get it repossessed and then I never taken ownership. So, there’s a couple of risks, commercial risks to take account of there. I think essentially, probably the most realistic reason is they can’t sell it for what they want to sell it for in a realistic time, which is what would lead them to thinking about some sort of deferred Instalment Contract Agreement.

Damien: And, am I right in thinking this is mostly with existing house and not homeowners, but individuals, companies that own the property outright, it’s not new build stuff?

Richard: Yes, I think so. The ones I particularly bought were bought from a developer actually. And what he did is, he bought a property, he refurbished them and then he sold them using this model. And he bought them and they are pre-tenanted, so it’s a turnkey operation, as far as I am concerned, and that’s his business model. His business model is to buy rundown properties, do them up, tenant them and then sell them on as a package solution. The one in Chicago, its Section 8, or LHA tenants, so, again you know, it might not suit everybody to have that kind of tenant, but that was sort of the package that they are offering effectively. And, from their point of view, they get around about 150% of today’s value over the term of the contract and I still think that is a good deal because it works out at less than 5% mortgage equivalent rate.

Damien: This was a slight way for me to help you Segway into the next one…I was trying to be smooth in our links but…

Richard: Are you trying to get me to talk about the next one on my list where you?

Damien: I was going to…

Richard: But not so subtly, I didn’t pick it up. So, moving onto to Developer Finance, which is slightly different so, Vendor Finance is where it could be a homeowner as you rightly say, it happened to be a developer in this case but they did own the property. Developer Finance is often, and I didn’t pick up your link! It is probably a new build or a conversion, the developer has built the property, I can talk about a specific example I had there. I bought a flat that was new build, it was already tenanted actually in my particular case, from a developer in Sheffield, and the developer basically wanted to get off site, sell the last remaining units and get off site and move on to another project. So, they were offering all sorts of incentives to do that, normally they would offer a price incentive but in this case, they also offered finance incentive, so the developer provided they effective bridging finance to acquire that property. So, just to clarify, the developer, essentially lent the money for me to buy the property. And in this example, they lent the full purchase price, albeit it was a discounted purchase price, and I know your views on this Damien, so don’t start going down that route, right? But, in very round figure terms, I bought it for roundabout £95000 and ended up selling it 8 months later for £125000, I think it was £130000 but there were some extra costs in there and the developer funded the £95000, £975000 purchase price. So, it’s very specific circumstance that allowed that to happen, but if you knock on doors of developers, towards the end of projects, you often find either discounts, or sometimes, in this rare case, Developer Finance opportunities as well. The downside to the developer is I’m not sure if they can record a sale if they are also financing the property but I will leave that to them to worry about, rather than me. Obviously, the upside for me, is that I didn’t need to go through a formal finance application with the bank, and I just used the developers funding, and in fact, it was 100% funding so I didn’t have to put any money in, any of my own money in.

Damien: Sounds good. I think from my experience with the larger national house builders, I think they probably would count that as a housing completion, for their numbers and their financial accounting, because they have effectively sold something but they now have an asset against it. Because as you say, they just become a normal mortgage lender, don’t they? You owe them a lot of money but you have purchased the property off them, so I think they would stick that on the balance sheet as a housing completion for their numbers.

Richard: Yeah, I think you are probably right, they may actually go as far as having separate legal entities, one doing the sale, one doing the finance and maybe that’s how they do it. Who am I to question? All I’m saying is though, how to find the opportunity, particularly in slower markets or particularly when a developer is just looking to get off site, and they just want to clear the last couple of units.

Damien: End of financial year for developers is always a good one to find, most of them are either going to be tax year or calendar year but there are a couple out there that have random ones. There is one that ends at the end of July, no idea why. But if you approach developers on a bigger project, as Richard said, is coming to the end of it, sometimes you will get good deals that you can negotiate with them at that point.

Richard: I agree. So, I think people are probably aware that maybe it’s a source of potential discounted deals, albeit off developer list price, don’t comment Damien…

Damien: I’m not saying a thing…

Richard: Great! So, they could be a source of discounted deals, on occasion it could also be a source of finance deals from the developer as well using Developer Finance. But, lets maybe leave that one there. But, I think it’s about time you had a go Damien…

Damien: Yes, I agree! So, the one I have got on my list here then, Assisted Sale, so that’s quite similar in as much as the current Vendor is the one that kind of helps you along with the financing side of things. What this effectively means is, if you find a property that is in need of work and you think I could buy that, do the work and sell it and make a profit, if only I had enough money to buy the property in the first place, if you approach the vendor and actually say to them, you, for whatever reason, don’t want to/can’t/haven’t got the money to do the work to this property, and then make a profit, that’s why you are selling it with work needed. I have a small amount but enough to do the work but I can’t afford the property in the first place, how about we go together and I will pay for all of the work to be done, we will then advertise the property for sale at a much higher price, and then we’ll split the profit 50/50. So, from a vendors’ perspective, if, just using numbers, if they can sell the property for say £80000, you agree to pay, you agree to buy the property at £80000, but you are going to spend say, £20000 on the works, and then you will look to sell the property for, let’s just say £120000. The vendor still gets their £80000 but they now get a 50/50 split of the profit which in this case would be £10000 so they are getting £10000 more than they would have done and you are getting £10000 from having only put £20000 in, so you are getting a 50% return on investment. So, that’s, in broad terms, how Assisted Sale works. I’ve done it myself and those numbers weren’t that far off, I think we agreed it was the high 70s, I spent about £16-17000 on it and we sold it for £125000, so, the return for me was about the 60%ish, but the vendor instead of getting the high 70s could of bullied them a little bit more on the price if I wanted to buy it off them so I probably could have got them down to say 70, they ended up walking away with whatever it was, best part of £90000, so, they were happy, I was happy and it didn’t tie up much money from my point of view.

Richard: Yeah, I think that’s key isn’t it, we often talk about trade-offs between time, money and knowledge, and in that case, you didn’t use any of your own money, may be for the works, I don’t know if you funded the works, did you?

Damien: Yeah, I funded the works on that one.

Richard: Ok, fine, so you just used a little bit of money to fund the works, but mainly it was your time and your knowledge that you’re applying to make the return for you.

Damien: Exactly yeah, so instead of it costing me £95000, it actually only cost me £16000, so from a return on investment point of view, its effectively buying a refurb project with a 100% purchase price finance doing it this way. But then you get 50% profit at the end, rather than the full 100% so it’s you know, ideal world you would buy them all cash yourself, do all the works and move on from an even transaction point of view. For return on investment, something like this can massively, well my return on investment was 70% or something ridiculous, in about 4 months I think. So, because we didn’t have to do the 6 months’ rule as well because they never technically sold the property to me, they had already owned it for several years, so once the works had been done they could instantly put it back on the market. So, the works took about 7 weeks I think from memory and then it took about the same again to sell it on and then a bit of delay with legals, as ever but yeah it was about 4 months, start to finish. The Vendor got a win out of it, they got more money, I got a win out of it, I got a profit on a relatively small input of cash so, how you go about finding these deals…

Richard: Ah! That was the question burning in my head…

Damien: I knew it was! It could almost sense it. The way I…and I haven’t done these a lot, I’ve done 2 of them I think in the years I’ve been doing it, partially because I’ve not had to, I’ve not needed to be that creative from a financial point of view, fortunately. So, but the way I’ve done it is—I’ve basically approached people who are selling dilapidated properties that I would usually just and try and buy as a refurb project and just, I think at the time I just bought over 3 houses at the same time, so I didn’t have the cash available to buy it, but I’d looked at 4 of them and this was one I still wanted. And so, I just proposed it to, to the agents who stared at me blankly for quite a while, so just well said…any chance you can either get me in touch with the Vendor or we can all sit down and have this conversation and because I knew the agents quiet well, they were like well, yeah, fine, we will do that. The way I explained it to the agent is basically you could get a percentage of the sale price now, at £80000, or you can wait 3-4 months and you can get a percentage sale of the property at £125000, so again they win from it, so they were happy to let me at least, have the conversation with the vendor and then once I explained it to the vendor that basically, I will be doing work to your property but it’s for your benefit. If we can’t sell and the whole thing goes…wrong…I was going to say a naughty word then…then they effectively still have an improved property. But, we did put an agreement in place, that they would repay me from the sale proceeds, any of my just costs, so that we were going to split a profit but if it all went wrong, if everyone walked away, I’d at least get my money back. So, that was probably, not the tightest legal agreement I’ve ever put in place, so that would probably be the bit I’d highlight to people—is keep an eye on.

Richard: Yeah, that was the other question I had really, how would you contract such a thing? What kind of contract is it for example?

Damien: So, its effectively, it’s a deed of trust, so, you’re taking over, you have a beneficial interest in that property now, to the extent of the amount of money that you put in for the work side of things. So, in this case, I have effectively a deed of trust that is worth £16000, I think it was about £16500 from memory. So, when they come to sell it, they have agreed to pay me £16500, and that was kind of done with negotiation, well we think it’s going to cost this, and they kind of agreed and they didn’t really know what they were doing and that’s why they hadn’t done the works themselves. And they agreed that seemed like a fair and reasonable amount, so, but we then put, we set a line in the sand and said your property at this day, worth £77000, I’m going to spend £16500, so anything over and above that that we can sell it for, is a 50/50 split. So, basically, they get, they get their £77000, I defiantly get my £16500, anything over we split 50/50. And that’s kind of how the deed of trust worked.

Richard: Did you also have an agency agreement or did you cover the terms of agency in the deed of trust? In other words, you would have to get them to sell at a certain price? Would you do the marketing or would you leave that to the estate agent?

Damien: Yeah…No we didn’t do any of that, possibly I should have done, we knew we were going to go with the existing agents who were going to put us in touch with each other, there was a bit of an ethical—I wanted to use them as they helped me get this deal in the first place, so we kind of knew we were going to do that. I’d already run all the numbers and shown them my desktop due diligence to say look…when this property is in this condition, it should be valued at this price. So, we had an idea of what we’d be trying to market it for, and sell it for, but I guess in theory, they could have changed their mind and said, well no, I’m going to put it on the market for £70000 now. I don’t know why they would have done but, yeah in theory, they could have, maybe that is something that I should have put in there.

Richard: What I was going to say was, there is probably a few notes about risks. Generally, contract is definitely one of those, isn’t it, from many of these things, we are going to talk about or have already talked about, so, ok. Great, Assisted Sale…back to me is it. Fair enough. So, maybe continuing the theme, we have gone Vendor, Developer, how about Bank finance? So, it is very much a variation on a theme and this can happen sometimes with repossessions, or calling in a facility, so the bank ends up owning the asset, or they technically already do because they had a charge on it. This specific example—it’s probably best to illustrate with a specific example, so, the specific example I’ve personally done…you are going to like this…I’m always talking about International Properties, and you are going to tell me to focus on the UK, but I’m going to do it again…because I did it in Portugal. I bought a property in Portugal, it was roundabout the housing crash, and that’s significant I think, you know, roundabout 2010 I think it was, something like that. So, you know Portugal wasn’t going through great times, had a bit of a crash and the developer had a very good reputation, in fact wasn’t particularly themselves in financial difficulty, but the bank felt exposed, because of the amount of debt they had outstanding and they could probably see what was going to happen in the market, so they told the developer we want you to shift a lot of your property. And in order to help you, we are happy to offer finance facilities to any individual customers, so in other words, they ended up shifting their debt from the developer, on individual units to individual purchases. So, I ended up buying an apartment in the Algarve, I got 100% finance from the bank, as a result of that. And the bank in return got, effectively transferred, or reduced their exposure to the developer, the developer got a sale, albeit they probably weren’t very happy with the value, because they were pushed into some sort of forced sale scenario. I bought the property, and the lender concerned gave me 100% for intents and purposes. So, that was it, I bought a property, I put nothing into it of my own money, it was a very good property. When I looked at it, did some due diligence, it was a good developer, I don’t think all of the ones available at the time were necessarily as good, which is a warning and one of the clues that the stage in the market cycle lent itself to that opportunity arising, might not be as readily available today in other words.

Damien: Yeah, I think that’s probably why I’m not going to ask many questions on it. I think it was a good…tactic at the time. But I think realistically you are going to struggle to find any of them, so, maybe re-listen to this episode in a few years’ time if it happens again?

Richard: I think, what we are trying to do here is talk about having a range of tools in your armoury, but some of those tools are going to be more relevant at certain times in the market cycle. And in fact, what you probably don’t know Damien, is that I’ve been speaking quite a lot about alternative creative strategies, over the series and some of them—so Lease Options work very well when there is a lot of negative equity, for example. And we have already had that conversation in a different episode, but then you know, there are still reasons why lease options work today, but they work particularly well when there is negative equity, you know, after a housing crash. Same is true with the 100% bank finance, it’s probably after a housing crash. It’s going to be more relevant. Anyway, labouring that point, that’s probably me done on my one, how about you, do you want to get back in the chair and talk about another one?

Damien: Yeah, so similar to the last Assisted Sale one, is something called Exchange with the Delayed Completion, where you, kind of, it does what it says on the tin, you exchange to buy a property but before you actually complete on it, you then carry out the works, so you can get it valued at a higher price and you complete on it at that higher level. It worked quite well a few years ago, where you would, I mean there is not a great deal more to say on it, is there? You exchange on the property at a certain price, you then get to do all the work on it and hopefully get it up valued. There is, just thinking about it, there is actually a way you could exchange at higher price, do the works on it, so that it then gets valued up at that price, again to reduce the amount of equity deposit that you have to put down into it, because it is a genuine…you have not sort of bought the property, done the work then refinanced it, this is the initial purchase price, and it would be valued up at what it looks like in the state you try and buy it in. So, a couple of creative ways you could use that just thinking about it loud!

Richard: Well, glad to see you put so much thought into it, you have done, you have actually done this, haven’t you?

Damien: I have, yes. So, I was doing this about a similar sort of time I done the Assisted Sale one, so it was sort of 2006, through to about 2013, I was doing stuff like this, so yeah, I have good experience of this. It’s quite a legal thing, so again, we can put you in touch with some people who might have some experience of this, but it was something that whereas the Assisted Sale was kind of me writing it down, saying this sounds reasonable, because you are exchanging contracts, you need to go through a conveyancing solicitor and make sure it is all above board and legit and you are signing up to purchase a property. So, it is more of a legal commitment this way. And you are definitely buying this property, it’s just that you are delaying the date that you actually complete on. I think I had 6 months between exchange and completion and that allowed me to do a bunch of works, get a tenant in there. So, from day one of actually owning the property, I had an increased property value with a sitting tenant. So, it worked very well from my perspective before I started incurring mortgage fees and all that sort of stuff.

Richard: Yeah, I think, you know, just to clarify, you are going to need things, practical things, like they call it Key Access, don’t they? But, for all intents and purposes you need to go into that property and do stuff to it….

Damien: And that again something signed between the two solicitors, to say, yeah, you now have authority to have the key and access it and do works.

Richard: And presumably, you would need insurance?

Damien: Well again, once you exchange because you are then the legal buyer it’s up to you to have buildings insurance on there. But any work you do, well yourself or whoever is doing the work, have some kind of public liability insurance to make sure you are protected.

Richard: And I guess the delayed completion bid, as you rightly say, you are buying this property so you probably have a forward completion date, you are going to have to have your funding in place, and perhaps a backup plan if it doesn’t work out quite as you plan?

Damien: Exactly, the Assisted Sale one is kind of a wing and a prayer, hopefully this will work out, if it doesn’t, it’s not the end of the world, with this one because you have legally exchanged contracts, if you walk away you are losing your deposit and you are in breach of contract because you have signed on the dotted line to say I will buy this property. So, it is slightly more onerous, so the risk is possibly a little bit greater with this one, whereas with the Assisted Sale. On the counter of that though, the other side is tied into the sale of it, whereas the Assisted Sale, possibly less so…swings and roundabouts.

Richard: When you did this one, the exchange or when you have done it, have you intended to—well I suppose you haven’t, you have just had deposit monies, a small deposit money when you exchange yeah?

Damien: Yeah, I have exchanged with about 5% usually, and then I’ve done the works, started advertising it for a tenant, and then completed after that. So usually, I will put a 6onth completion, between delay in the completion but once I’ve done the works and got someone in, I usually just ok, I’m ready to complete now.

Richard: So, from a financing point of view, financing commitment point of view you have put in the cost of the works and a notional deposit, a nominal deposit.

Damien: Yip, hence why it’s a creative financing strategy.

Richard: Fantastic. Is there anything that happened on that particular one, or that you are aware of generally, people should be aware of?

Damien: I think again, this one, it’s the hen’s teeth element of how many people are willing to do this. Most people who are looking to sell their property, are looking to do it for a reason so, if they are an owner occupier, if they have got another property lined up, so, if you say any chance you can leave now so I can do loads of work, that isn’t necessarily going to fit in with a lot of people. So, it tends to work a bit better with investors who are tenanting the property and just a bit bored of it, the property now needs work so it’s not worth their while to do the works themselves but it doesn’t make any impact to them if they exchange and complete in a few months’ time. If you can swing it in a highly appreciating market, happy days, because you get an extra 6 months of capital appreciation. Equally, the opposite to that, if the markets dropping, then you might find yourself, you exchanged at a price that the property is now worth less than. Which could be bad times. So, again it’s just a case of how you find these things in the first place and again for me, because I buy most of my stuff via an estate agents, it came with a conversation with the vendor.

Richard: Yeah and I think, getting access to the vendor is important, isn’t it in some of these?

Damien: Yeah, I mean a lot of people are now trying to do direct to vendor, yeah if you can do it great but that’s kind of a full-time job to get access to vendors directly.

Richard: Yeah. Ok, so, I guess it would probably be empty properties, run down properties, stuck on the market properties…

Damien: I mean, I assume that’s all that exists because that’s all I ever look for.

Richard: It’s not all that’s out there…just to be clear. Ah, now there’s a nice Segway to my next one. People actually living in houses. Can I pick up my next one?

Damien: I mean I’m curious to see how the Segway works but yeah, go for it.

Richard: So, how about squatting?

Damien: Oh, I see what you did there…

Richard: Yeah, creative strategy, the next one on my list is called Adverse Possession. Otherwise known as Squatting…

Property Chatter

Interview with Subject Matter Expert: Damien Fogg.

And on that cliff-hanger, we must leave it for this week. Don’t worry, we shall explain all about squatting as a creative financing strategy without risking arrest next time out!

I do plan to do a wrap-up episode in a couple of weeks, so will pick up on the common or not-so-common themes when I do that.

Don’t forget our 360° Property Business Workshops later this month.

Sunday 22nd January in London and Saturday 28th January in Manchester. The link to the workshop sign-up page is in the show notes but I will send it to you if you email me as well podcast@thepropertyvoice.net  just drop 360 Workshop in the title if you do that. We genuinely have limited spaces at these workshops, as we like to be able to speak to everyone individually, so don’t delay J

I really do hope that 2017 turns out to be your best year in property yet, we are very excited about the coming year…so, let’s commit together now to making it happen, shall we?

As always, email me personally if you want to talk about anything from today’s show or more generally in property investing, the show notes will be over at the website www.thepropertyvoice.net

Thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Property Financing: 10x Additional Creative Financing Strategies from our Personal Experience | S3E16 appeared first on The Property Voice.

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We have no less than 10 more property financing strategies at the more creative end of the spectrum to get through. So, buckle up and have a listen as I am joined once again by Damien Fogg as we share some of these based on our own personal experience.... We have no less than 10 more property financing strategies at the more creative end of the spectrum to get through. So, buckle up and have a listen as I am joined once again by Damien Fogg as we share some of these based on our own personal experience. Given that neither Damien nor I […] Richard Brown & Casa from www.thepropertyvoice.net clean 36:37 3687
Property Financing: Raising or Saving Money through Tax-efficient Business Structures | S3E15 http://www.thepropertyvoice.net/property-financing-raising-saving-money-tax-efficient-business-structures-s3e15/ Wed, 21 Dec 2016 05:59:00 +0000 http://www.thepropertyvoice.net/?p=3641 http://www.thepropertyvoice.net/property-financing-raising-saving-money-tax-efficient-business-structures-s3e15/#respond http://www.thepropertyvoice.net/property-financing-raising-saving-money-tax-efficient-business-structures-s3e15/feed/ 0 <p>Today we are taking the idea of financing to another and less obvious level. I am joined by Tony Gimple, who shares a few examples of how we can either raise or save money just by the way we structure our affairs. He talks about knowing where the bodies are buried, a perpetual tax-efficient wash […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/property-financing-raising-saving-money-tax-efficient-business-structures-s3e15/">Property Financing: Raising or Saving Money through Tax-efficient Business Structures | S3E15</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> tax1

Today we are taking the idea of financing to another and less obvious level. I am joined by Tony Gimple, who shares a few examples of how we can either raise or save money just by the way we structure our affairs. He talks about knowing where the bodies are buried, a perpetual tax-efficient wash cycle and hybridisation…so you can be sure that it will be a colourful image that he paints!

Seriously, the subject of incorporation into limited company structures is a very hot topic of late, however, do have a listen to this discussion as according to Tony it could be the worst decision we ever take!

Resources mentioned

 

Tony Gimple’s contacts: Less Tax for Landlords website & info@lesstaxforlandlords.co.uk

Link to the Podcast feedback survey

Today’s must do’s

Just by structuring our affairs in a certain way, we can either raise or save money for investment purposes…make sure you check out the options afforded by ‘hybridisation’ as outlined in today’s show.

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try to feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com if you would like to get yourself a copy to accompany this series

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello, and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

Today we are taking the idea of financing to another and less obvious level. I am joined by Tony Gimple, who shares a few examples of how we can either raise or save money just by the way we structure our affairs.

He talks about knowing where the bodies are buried, a perpetual tax-efficient wash cycle and ‘hybridisation’…so you can be sure that it will be a colourful image that he paints!

Seriously, the subject of incorporation into limited company structures is a very hot topic of late, however, do have a listen to this discussion as according to Tony it could be the worst decision we ever take! So, a couple of good reasons to have a listen in today then…

Richard: Hi again, everyone and another week on The Property Voice podcast and another week about financing and another fantastic guest, joining me again today. And in fact, I say again because Tony Gimple has already been on the show, and had a fantastic response when we talked about Limited Companies in the past so, first of all, Tony, hello and welcome to the show once again.

Tony: Hi Richard, it’s really great to be here, it’s always good fun.

Richard: Indeed, it is. Really glad to have you back, so, we had a bit of a natter, obviously, before we came on air, and I enjoyed that and we won’t necessarily share all of that, but it’s always good to talk to you. With our professional head on, we were chatting recently, and of course we were talking about the whole theme of this series is about financing in property and some of the conversations that we had, there were a few things relating to that, that really struck a chord with me…that you were talking about. Of course, we had a chat and I thought, there’s not one central idea, there’s a number that can maybe fallout of 1 or 2 concepts. And I wanted to get you on, so, I think maybe you have helped me refine this; is raising finance through, and tax efficient property business structures, would you agree that’s kind of where we settled?

Tony: I think that’s right, the former becomes just so much easier.

Richard: And some of these ideas, some of them have been kicking around in professional land and forum land and some of them are very confusing, some are conflicting but I just wanted to get your take on it. And, in particular this whole idea is maybe we were start, because we have got 2 or 3 things, we could talk about but the one I’d really like to start is, the whole idea of incorporation, so let me just set the scene, people are talking about going limited, becoming a Limited Company, and in particular if you have got an existing property portfolio, in a personal, or partnership type of name rather than an existing Limited Company. So, I’m going to just let you crack on really, you are going to talk about hybrids, probably, are you? But…

Tony: Yeah, well…what I’d say now, at the moment, landlords have been getting it in the neck, rightly, wrongly, whatever that’s just a fact of life, particularly from a tax perspective, and its crystallised the situation where landlords only have 4 choices…forced choices. Option 1—stop being a landlord, had enough of tenants, toilets and taxes, I’m going to sell up, minimise my capital gains, spend some of it, live on a beach or invest it elsewhere. For some people, actually that’s the best thing to do for them. Option 2—make a positive decision to do nothing. Don’t just stick you head in the sand. Decide to stick your head in the sand. And again, for some people that’s all they can do, this, they don’t know how to move on. But for most people there are two options. One is incorporation, and the other is hybridisation. But let’s talk about incorporation first, flavour of the month. Well, for almost everybody I’ve seen, let me re-phrase that, for everybody I’ve seen, putting their existing or new buy to lets into a limited company will be the worst thing they ever do, by a margin. So, let me go through the reasons why. Let’s assume for one minute that they can, either immediately after 2 years, claim Section 162 Incorporation Relief, i.e., they are working 19 hours a week or more in the business, tenants and toilets and thus, when they change the title for their name for that of a Limited Company, they will not have to pay Corporation Tax or Stamp Duty. So, let’s just put that to one side for a sec. What are the real disadvantages? 1—you are going to have to re-mortgage, so, you have got legal fees, brokers fees, lenders fees, perhaps early redemption penalties, higher rate, because it’s now a commercial loan, less choice of lender. The lender will want a personal guarantee and they will likely put a debenture of charge on your balance sheet, so, you will find it very difficult to use your Directors Loan Account without their consent. Which may or may not, be forthcoming. So, re-mortgaging, problematical. Secondly, it’s a Limited Company so its 100% visible to HMRC. They see every penny in, every penny out, and how it got there, and they will try and tax you at every stage. The first thing will be Corporation Tax, currently 20% but it’s falling to 17% over the next 2 years. However, the Chancellor already introduced differential Capital Gains Tax for property owners, what’s to stop him doing the same thing for Investment Companies and Trading Companies?

Richard: Yeah, once he has got us all there…

Tony: Correct, there is a massive in power madness, ok. So, Corporation Tax regardless, Dividend Tax, yes you can overdraw your Directors Loan Account tax there, Income Tax, National Insurance and worst of all, because all this now is, is an Investment Company, ie, buy to let 12 months or more so, the circumstance of collecting went it’s an investment company and its totally subject to Inheritance Tax. And no amount of nasty shareholdings, opinion based trust work, will properly solve that problem. And it is what it is, it’s a tax shelter, nothing else is owning an amount of tax, trouble is, it only really works if you don’t take out income. Otherwise you get taxed at the highest rates.

Richard: You are in a cheerful mood today Tony, this is…

Tony: Sorry, you know I like the truth, well you get it out whether you want it or not… I know too many people pulling their punches and not telling potential clients, the whole truth about this. So, becoming a Limited Company, ether immediately or via a temporary partnership, which you wind up after 2 years…don’t do it. So, that really only leaves you with one choice.

Richard: Just pause there for one second, because when you said on incorporation, I think you said you can avoid, I think what you probably meant was avoid Capital Gains Tax and Stamp Duty…

Tony: You would avoid Capital Gains and Stamp Duty. But, you have got to be able to prove you qualify for it, not something you should try and do yourself, but if you can’t, you will be fully subject to CGT and SDLT and then you have moved it over into the company…

Richard: And, just to clarify…as well, you have to be active for 20 hours in that business, and as you say, if you are outsourcing a lot of work to letting agents and that sort of things, it’s very unlikely you are going to be able to prove that.

Tony: Yeah, or if you are full time or part time doing something else you are not going to be able to prove that.

Richard: That’s true…ok. So, I just thought I’d add to the cheeriness really…

Tony: That’s ok, that’s alright, trust me, this is good news…

Richard: I’m waiting for it…

Tony: When we get to the end of the story we will all be sleeping comfortably in your beds. So, I’m not going to sing you to sleep of course, right, so, let’s have a look at the hybrid. Here, what we are doing is, working in both the letter and the sprint of the law, by using existing, proven business and management structures which is a happy by-product of a tax efficient or as you choose to make them. Something we will come on to when we talk about finance later. So, what would happen, we are taking advantage of 2 particular legal conceits, 1—separate legal personality, so, you and I as human beings, are what is called natural personalities, the ability to sue and be sued. But, there are also artificial personalities, Limited Partnership, Limited Companies, trust and the like. Each has their own tax regimes, and the law allows you to arrange your affairs across these separate legal personalities to minimise the tax. Perfectly normal practice. The other conceit is the ability to separate ownership from enjoyment from control, so example—I own a pen, I give you my partnership say, the enjoyment of using the pen, but I have given my company the control over the ink, but it’s still one pen, but you have got 3 separate facets to it. It will change from being owned by one of the…either you, the partnership or the company. So, let’s say for arguments sake, Richard has a relatively modest property portfolio worth £1000000, not what the equity is but what its actually worth on the open market. £1000000 and producing for arguments sake, £100000 worth of income. What you will now do, is retain ownership of that, but you will give the enjoyment of it to you Limited Liability Partnership, which you, your spouse and your limited company which you own, are all partners. It’s called a mixed partnership. HMRC recognise this as a business structure. You have now got a £1000000 odd, sitting on the balance sheet of the LLP, from which you are allowed to withdraw money, as income, but because it’s a withdrawal of capital it’s not taxed.

Richard: So, you better say that again, I think this is the nobody issue isn’t it.

Tony: This is, this is. Ok, alright, so, you exist, the Limited Partnership exists and the Limited Company exists, which is itself a partner in the LLP. All at the same time, all in perpetuity. You give, not the ownership, the value of your £1000000 of your property portfolio to the LLP to enjoy.

Richard: To enjoy, right…

Tony: To enjoy. Now, partnerships don’t pay tax on income, only on distributed profits. But, you have this £1000000 sitting on the balance sheets. So, instead of taking your £100000 a year in income, HMRC allow you to treat that as a return of capital. As a direct result of that, it is not subject to Income Tax. You may choose some as income in order to pay tax, I choose to be a basic rate taxpayer. It’s a nice place to live here, you have got to grease the wheels to keep it that way…but that’s the choice.

Richard: So… you may be about to illustrate it, so sorry if you are, but what’s going through my head, is just playing with the numbers that you just illustrated. So, if you have got £1000000 portfolio, which you have given the enjoyment of to the LLP, and that’s generating £100000 a year in income, rental income. If I understood you correctly, you could distribute, if that’s net income, which it probably isn’t, but let’s keep it simple, if it was net income of 100k, could you distribute that 100k back to yourself as a return of capital up to the value of the £1000000?

Tony: Or whatever the value has risen to over time…

Richard: Whatever it’s risen to over time…

Tony: Yeah…

Richard: That’s what I thought you were saying, that’s what I thought you said when we first spoke about this and I was just checking…

Tony: It’s a divided…

Richard: So, that million becomes the equivalent of 100k tax free income…

Tony: Yeah…

Richard: Ok, I did understand it, well done…

Tony: Excellent, you are clever than I thought you are. Which is better than looking cleverer than you are…So, you must make a profit clearly, and some of this profit you will pay to the limited company, it is after all a partner. Where you will pay corporation tax, 20% but we know, is falling. So, let me give you an example, let’s say for arguments sake there are 4 shareholders, you, your wife, 2 adult kids, whatever. Albeit they haven’t got much power. You pay £25000 to the company, it pays Corporation Tax, leaving £20000 which you then distribute to each of the shareholders, £5000 each, as dividends, no tax. Now, after 2 years, all of the value of that £1000000, is zero in your hands, albeit you have still got ownership, and £1000000 or whatever the number is, in the value of the shares of the company. But because HMRC recognise this as a trading relationship between you all, and that you have got a written business plan and that you are managing it and that your sole purpose is not to avoid tax, but to maximise your wealth of tax efficiently as possible, the whole thing becomes Inheritance Tax free.

Richard: That’s a nice spin off benefit.

Tony: Yeah. And for some our clients, who actually aren’t going to make any savings whatsoever by doing it, because you know, they are already basic rate taxpayers, and changes to interest relief won’t affect them, but capital values as such that they have an Inheritance Tax problem, it still works.

Richard: Yeah. But in the context of financing, that’s where I was kind of going…ah you have a piece de resistance do you?

Tony: Absolutely, absolutely. So, let’s have a look at financing now. Doing it this way, you can still raise finance in your own name. Much easier to do, much more flexibility however you have got to show income at some point, otherwise you will have a real trouble raising the money. £25000 minimal household income I believe it is these days. So, let’s give you a worked example. Last year, let’s say you should have been an advanced rate taxpayer, but because of the hybrid and running it as a business, you chose to pay zero tax. Let’s say next year, you should also be an advanced rate taxpayer, but once again, because of running it as a business, a tax efficient one, you chose to pay zero tax to grow the business. This year however, you personally want to borrow £1.5 million, you are building you own home say…or extending the existing one in your case Richard! The lender is going to want to say, can you afford to service this whopping great debt. And you say, yes sir, here is my SA302 or whatever they call the damn thing, saying I have got income of…they give you the money, probably means the average of the last three years of being a basic rate taxpayer. So, you have got the flexibility to raise finance personally, to suit what you are trying to achieve. Ok, another advantage. If let’s say in the limited company, you decide, I’m going to take an earned income from this. Earned income is pensionable, and that opens the whole door to, self-administered self-invested pension schemes. Wonderful beast. Highly tax efficient in their own right and they have the added advantage that they can make their own investment decision which can be to buy property. Now, it has to be a commercial property, I’m afraid, they cannot buy resi, I know there is maybe some options around the edges. But let’s just stick to the core for a second. But you can buy commercial. Now, a little-known fact is that, a block of 5 flats say, under one title is considered residential, but a block of 6 flats say, under 1 title is commercial…

Richard: And that’s even if the flats are residential properties, people live in them under ASTs etc.…

Tony: As long as it’s all under 1 title, 1 title you can do what you like thereafter. The pension can now buy it. And, the money, any money its buy, borrowed from itself gets paid back into the pension scheme. So, its continually on this tax efficient wash cycle. But, you got to have earned income, to get earned income, you have to pay tax to start with. With all of these things, the devil is in the detail. You know, the…with any kind of investment decision it comes down to 2 things, 1—should I be doing this, is it what I want to do, is it going to help me achieve my goals? And secondly now do the numbers work.

Richard: Yeah, I think, you need to start with the end in mind, rather than you know…you certainly don’t start from how do I avoid tax. You start with… what are you trying to achieve in life, when are you trying to achieve it, then you look at the avenues to get there.

Tony: Correct, you know…meaning to or not, you really hit the nail on the head. And this is why so many tax schemes fail. Take the Alan Carrs of this world, actually what he was doing was perfectly legal, his advisors were gaming the system. Rather than taking advantage of the legitimate tax break, because they had a legitimate business which deserved it. Which was set up for, they were deliberately setting up businesses to take advantage of the tax break. That weren’t there in the first place. So, with all of this, you have to work within the spirit not just within the letter. So, do it because it’s good to help you grow your money, in a proper business structure which happens to be tax efficient and the government will say to you very well done.

Richard: So, just to clarify, so far, what we have got from a financing angle. Just trying to make sure I keep it on topic for our listeners in this series. From a financing point of view, we have got potential return of capital as a source of finance, if we use this hybrid structure that you have outlined.

Tony: Yeah, self-financing in that sense or choosing to take some of it as income, to prove that in that particular tax year you can afford to service the debt.

Richard: So, then we come on to the whole earned income route as well. So, you could take earned income to unproven income as you say, for fundraising purposes or something like that. But equally you can take, choose to take an earned income so you can make pension contributions, and those pension contributions can go into some form of self-administered scheme, whether it’s a SASS or a SIPP and you can therefore control how you invest that money in property. I take what you said it’s got to be commercial. By the way there’s two types of investment here, isn’t there? Isn’t there…you know, buy to hold type of assets equalling buy to sell type of assets?

Tony: Ah, look if you are into buy to sell, effectively you are running a property business, a development business and whilst the same overall, hybrid structure potentially works for getting money out. You know, it’s no different from a corner shop in that respect. If you buy a development, is…you know, quite a speciality in itself. But yeah, you could do that via the pension fund and put more money back into it as long its commercial. Not commercial property, it could be a commercial business that specialises in buying and selling what are going to be residential properties.

Richard: That’s right, that’s what I was getting at.

Tony: If you are trading in property at that point.

Richard: And of course, you constantly, if you are taking money in and out of the pension, you are just topping up your own future wealth and earnings in your pension as well, of course.

Tony: Absolutely. If you are paying yourself to the point where you are truly set up with tenants and toilets and you sell the whole damn thing and live off the pension.

Richard: There we go. And there’s a lot of flexibility now with how when you can take pensions, how you draw the money out. People are probably aware of some of that, I’m sure you can enlighten…

Tony: And you can make the Inheritance Tax free as well…

Richard: Oh, there you go again…so, yeah, and just as a quick point, a lot of people will struggle, a lot of young people struggle with the idea of pensions, because they just see it as so far off, but you know, should you be in your 20s or 30s thinking about pensions?

Tony: I was selling financial services in my 20s and I wish I had taken more of my own advice. Even £20 quid a month, you start doing the numbers, its exponential growth. Used to say, after the first 5 years, the value doubles every 5 or something, look, forget it as being called a pension, what you are doing is creating an income producing asset.

Richard: Or a wealth fund…

Tony: Yeah, the difference between a, you know, a pension and taking rental income off a property portfolio, is what? I can’t find one, it’s the same damn thing.

Richard: I thought it was a trick question and I was trying to work out what the answer was.

Tony: No, it’s not, well it was a trick question in that, there isn’t a difference. It’s just what they are called. But they do the same job, and broadly speaking, the same way, one buys equities one buys realty.

Richard: And, sticking with the theme of financing, we kind of got 2 of the big ones out there, but do you have another one…

Tony: Well, yeah, actually there is. We have covered it inadvertently. When we talked about trading companies. You can use company loans. So, if the business has got a trading profit. Let’s say you have got a trading business and its sitting with a lot of business on the balance sheet…

Richard: Just to clarify, what is a trading business, it doesn’t have to be just property does it?

Tony: No, the corner shop…

Richard: Buying and selling type of business,

Tony: Buying and selling if it’s a good property or intellectual property, the professions. You have got this trading business, doing very well for itself, building up cash on its balance sheet, it’s really possible and there is no exact formula for it. So, that trading to be deemed an investment business. So, you lose entrepreneurs relief and you lose business relief for inheritance tax. And that can be a thorny problem, there is one that a lot of businesses have got no idea about and haven’t been told about by any advisors. So, that trading business can now use that cash for investment purposes, nothing to stop it loaning it to another business. To create other assets, even income producing ones. As we are going on commercial terms clearly…

Richard: Right, yeah, commercial terms, would be what? Carry some sort of interest rates or something?

Tony: Yeah, an interest rate can be zero…

Richard: The interest rate can be zero did you say?

Tony: Yes, but you make a conscious decision to only charge the zero-interest rate. If you do it interest free, it’s not classed as commercial. Because biscuits and Jaffa Cakes time ok, the difference between the 2 is what, 1 pays VAT and one doesn’t. It’s an old argument on VAT side but it’s the same principal. You have a proper commercial agreement between 2 businesses, albeit, you say no, we are not going to charge, we are only going to charge you 0%, the peppercorn if you like. But it has to be repaid and so on and so forth, and then you can take the curse off losing your trading business status, make a turn on your money and if that money happens to be coming from property so be it.

Richard: Well, that’s obviously what our audience will probably be most interested in. I think actually, to pay a rate of interest back to the trading business is probably good business practice. Although you will end up increasing the profits which will then be subject to tax, I realise that.

Tony: So, what? You have made a profit.

Richard: Yeah, I know but people forget that. That you have actually made a profit. So, I was going to say, and just to clarify, and a lot of people are aware of directors’ loans so the distinction between a limited company loan or the advantage of an intercompany loan or a director’s loan. And when I’m talking directors loan, I’m directors loan from the company to the director…

Tony: Yeah, there are limits on that, and all sorts of horrible tax issues surrounding it. Not somewhere I’d suggest you go, in some circumstances it has to be that way, occasionally it warrants doing it that way, but not good. However, one company lending to another company, you got separate legal personalities here. You know, within the law, they can do what they want.

Richard: Yeah, this is kind of playing into my hands quite well, with this split personality idea to be honest.

Tony: Keep taking the tablets…

Richard: So, you have got…I can see how this…you used the phrase earlier, I’m not sure if you want to repeat it, about the washing machine…wash cycle…

Tony: It’s a perpetual tax efficient wash cycle.

Richard: So, you can set up some structures which, you know have a by-product of being tax efficient, let’s say, but they reflect your business operations and you can take returns of capital, you can take earned income and transfer it into pension assets, you can loan profits from one trading business into another business form investment purposes. I thought you had said that when we first spoke. I knew it would be a good idea to get you on the show again just to run through that, because a lot of that was new to me, especially this hybrid model, some of the other things, you know I’m more aware of but the hybrid model I think is very pertinent, very relevant at this point in time. I think you started with that bad news story about…incorporate at your peril, type of thing. This sounds like a legitimate alternative if I understood it correctly.

Tony: That’s because it is. And the truth of the matter is, it…it’s the only choice you have really got.

Richard: And, I think, you know, there is so much debate, I’m sure you follow the forums and the news and everything else, people going crazy with shall I incorporate, should I sell up, all those things you talked about in the beginning. And, of course, what’s in my mind, is the you know, the Treasury, the Chancellor, they are not daft and, you know, they are probably going to herd us all into the pen, we all leap into this pen and then we are targets, aren’t we?

Tony: Although, this what is why they want to do it, and this is nothing new. So, some 20 odd years ago, HMRC made a decision that it wants everybody, everyone who is self-employed and the professions in particular, all to be limited companies, for obvious reasons, because they see everything that goes on and they can tax it easily.

Richard: Yeah, because they have to be formally registered and this sort of thing and submit accounts…

Tony: Correct, all in the public domain. Ok, well, the professions, lawyers and accountants in particular, were up in arms about it, for obvious reasons, you know. And, they basically, 50-60% of the House of Commons is made up of lawyers of one size or shape. And that particular breed of turkey you don’t want for Christmas. So, they brought in what was an American model, this Limited Liability Partnership concept, and basically told HMRC to toddle off. So, whilst the government can do what it likes, its legally allowed to put its hand in your pocket as far as it can reach, you know, due to (inaudible) vs IRC1936, you are also entitled to stop them doing it within the law. So, you have this wonderful arrangement where you can have legitimate hybrid structures, which, nothing is safe at the end of the day, the government has got a big enough majority, it will trample over everybody’s rights, but for the time being at least, it works today. And we will all sit in a dark room with a cold towel wrapped around our heads trying to work out what the next way to work within the system, but more efficiently is.

Richard: Well, it sort of brings me on a little bit to…you kind of, hit us hard with some bad news, then you told us the answer, but is there some risks or downsides here? I mean, one of them surely, there is some costs involved in setting up such structures I guess?

Tony: Ok, well, downsides and risks. Downside, you are going to have run the damn thing as a business now, there is no hiding from the fact. But, there is business advisors and you need to do this properly, which is actually what the government wants you to do, to be honest with you. Accidents and landlords are a pain, they suck up housing stock, they are inflate prices, and most aren’t exactly making any money out of it either. You would be surprised how many landlords, are running losses.

Richard: Yeah, maybe just waiting for the Capital growth.

Tony: It is really difficult to say what it costs to set this up. Because everybody is slightly different, and you don’t know where the bodies are buried metaphorically. So, it’s hard to give numbers.

Richard: You don’t know where the bodies are buried…

Tony: People get that…

Richard: But it’s going to cost some money to get it set up basically…so that’s one of them. I think you alluded to one earlier, if there is a big enough majority then they could potentially could change the law. I don’t know if some of these things are out of reach or you know, could be subject to change later. You know, it might be, make hay while the sun shines type of thing…

Tony: But that’s the same with everything, you know, every budget, every statement something subtly changes, so you make the most of what you have got when you have got it. And English law is beautiful in this respect, if it was legal when you done it, they can’t backtrack it. They can stop it from a given point onwards, but if it was legal during its currency, that was it, it was legal. End of. You used to have to do something different, now…

Richard: Yeah, I mean the clause 24 thing, was all, you know, I’m not saying it was a legality thing but people were following the rules and regulations at the time and it does seem to be a sort of retrospective hit even though…

Tony: No, no, no, it is retrospective hit, it’s from a point forward…

Richard: Yeah, ok…

Tony: It’s from the 6th April 2017…

Richard: But it applies to all existing loans and structures in place, so that’s what I mean…

Tony: Yeah, ok, yeah. A lot of these times you just have to suck it up, it’s the cost of doing business. It’s another form of business regulation if you like dressed up as tax. It’s just the way it is, man.

Richard: So, we…this whole idea of incorporation and a hybrid model, it falls out of whether you have some existing properties that you could set up this…

Tony: No, no, no, just starting up.

Richard: Yeah, I was going to say, what about other categories of people?

Tony: Ok, if you are a start-up, the minute you look like you are going to get above basic rate tax or above the inheritance tax thresholds, the hybrid solution is perfect for you. You may not necessarily see a return on investment, in the first year, but you are doing it for a bigger purpose.

Richard: Because it is a snowball, isn’t it? I think you start the snowball off, it rolls down the hill, it gathers momentum, and gathers, in 20 years’ time that’s a big old snowball.

Tony: I had 2 clients yesterday, one only started 8 years ago, he had a lfie changing experience, went from living in a council flat, to being worth well over £10000000, another chap, he has been doing it 25 years, almost a lifetime work and its worth a couple. Both are very happy with what they have got, its relative. But yeah, there is a snowball there, if you start, you do the right thing, do it consistently enough. It’s a bit like the pensions we talked about earlier. £20 a month, over 50 years is a lot of money. A property a year over 50 years, that’s a lot of property.

Richard: Yeah, so, I think my takeaway from this, if you have an existing portfolio, of whatever size, it can grow, following the snowball idea, or if you have got sort of an idea to, work in property over a period of time, it can develop into a snowball. And if you have got a sort of professional attitude towards it, it’s a good idea to seek out advice from the outset, and get thing set up as you wish. Because it’s a lot harder to back into it later on, that could be, I don’t want to get into it but it could be more harder, could be more costs. How did you say it, the bodies thing?

Tony: It depends on the bodies and where they are buried.

Richard: Yeah, exactly, so I better go and check where I have buried mine now. Anyway, I kind of just wanted to get that out there. What do people need to do to get themselves ready for this type of thing? What are the next steps really?

Tony: Oh, look I think there are two things they have to do. 1—and this is a good time of the year to do it, sit down and work out why the hell am I doing it? What am I trying to achieve? Because being a landlord is a tough gig, so why am I putting myself through it, and put some numbers on it. If you were going to retire tomorrow, unless you fell off your perch tomorrow, how much in today’s terms would you want to have? That’s the real big thing…

Richard: I call it the Someday Goal, that’s just a phrase I use, what is your Someday Goal?

Tony: Well, you got to change it from someday to a date in your diary actually…

Richard: Well, yeah, the someday goal is just a summary, always has a date, always has a number…

Tony: Absolutely, now whether you ever do what plan to do is another matter, but at least you have got the option. Second, and this is the hard part really, you got to sit down and say look, I don’t know what I don’t know. Let me talk to somebody who knows what I don’t know. And be prepared to pay for it. And they can always call us…

Richard: Yeah, well, you know, that probably starts to take us, unless there is other things you wanted to cover off and I’ve not asked you about. It’s kind of what are the next steps, should people contact you Tony?

Tony: Ok, they can contact me by email, is the best please, and if they send an email to info@lesstaxforlandlords.co.uk marked for my attention, saying they heard me on The Property Voice, will get back to them.

Richard: Yeah, and I know that’s something you done previously and you had a reasonable response so there may be some people contacting you again, who knows?

Tony: I hope so…

Richard: Yeah and maybe some for the first time. So, Tony Gimple and its info@lesstaxforlandlords.co.uk is that right?

Tony: You got it in one…

Richard: Ok, good, so, maybe you should quote The Property Voice so he knows where you came from, and I’ll say he, like he isn’t on the call. That would be great. I think that’s probably the best starting point, and to your point where you just said, about the hard part, I myself have faced this and sometimes it’s hard to accept that maybe you don’t know everything and it is definitely true and it’s also true that sometimes, free advice can be the most costly. It’s wise sometimes bite the bullet, pay a few quid, get someone in who knows what they are talking about, and take their advice. So, it’s not a particular big up for you, although, you know, let it be as well, I just think people should get proper advice, and I see so many questions go around the forums about, you know, should I set up this way, should I set up that way, and maybe it’s just a quick meeting with someone who knows what they are talking about, it could save them a lot of time and trouble and they can get it set up correctly.

Tony: Correct, I mean, that’s the answer, just stay as you are, it’s not worth doing anything. That in itself is worth something to them.

Richard: Yeah, exactly, so you can make as you said, a conscious or a positive decision to do nothing. At least you are well informed. Well fantastic, I’ve enjoyed it again, Tony, as ever, and I have got a film reference as well as a whole load of structural or financial input, it’s a twist on the whole financing angle. I don’t know if you have, I’m sure you haven’t been tuning in, I know you have been very busy, but we have gone from basic, you know, level financing to some quite complex, creative alternative types of structures. And, so, this is one that people wouldn’t have naturally thought, I’m talking about helping to either save or raise money through the way that you structure your affairs, and you have outlined it pretty well. So, thanks for doing that, it’s good to have you on the show. And I know you are planning to do a bit of a write up aren’t you? On the whole hybrid thing, that we can share on our blog as well.

Tony: Absolutely, yeah. No clause, it’s yours to use and enjoy.

Richard: Fantastic, I will look forward to sharing that with people who prefer the written format as well as the audio format. Tony, I know you are busy, thanks a lot for your time, have a great end to the year, enjoy that holiday that’s coming up. And look forward to connecting with you further, I’m sure you will hear a bit from our listeners as well.

Tony: Wonderful. Richard, thank you very much, see you in the New Year.

Richard: You are welcome, take care, cheers.

Tony: Bye

Richard: Bye.

Property Chatter

Interview with Subject Matter Expert: Tony Gimple.

Resources mentioned:

Tony Gimple’s contacts: Less Tax for Landlords website & info@lesstaxforlandlords.co.uk

Wasn’t that interesting? I thought so, as Tony has a way of illustrating his points in a very entertaining way.

Let’s not forget that the main idea of this series is to discuss financing in property, so aside from potentially saving tax…I noted the following key areas that related to the finance in property theme from what Tony outlined:

  1. A return of capital tax-free instead of taxed income once the hybrid structure he mentioned is set up.
  2. The use of leverage of HMRC tax credits and external borrowing to add to a pension fund created from earned income…or in other words matching our own money through pension structures with other people’s money to use for investment or development purposes.
  3. The use of intercompany loans to divert profits from a trading business into an investment company, simply by setting up separate trading and investment structures.

Of course, these structures may not always work for everyone in every situation, which is why it is a good idea to seek professional advice before ploughing ahead.

One extra point I forgot to ask Tony on air, which I followed up with afterwards was the Clause 24 mortgage interest relief issue. Tony mentioned to me that his hybrid structure can take care of that as well, however, please speak to him directly to understand how that fits into the overall landscape.

OK, so that’s what I wanted to cover off today. In fact, that will be all I plan to cover off for the rest of this year as well, as I am going to take a 2-week break from recording over Christmas and New Year and spend some quality time with my family. The next podcast will be released on Wednesday 11th January, where I have a couple more episodes to share in this current series, so do make sure you come back for those.

Don’t forget our 360° Property Business Workshop in Q1 of 2017, probably in the north of England, just drop me an email podcast@thepropertyvoice.net with 360 Workshop in the title to get advance notice of that.

As always, email me personally if you want to talk about anything from today’s show or more generally in property investing, the show notes will be over at the website www.thepropertyvoice.net

Right now, I would just like to wish each and every one of you a very pleasant Christmas and a happy New Year. I hope you get to spend some quality time with the people you most love and care for and perhaps the odd look at the goals list in between!

I hope you can join me again on 11th January, so until then, thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Property Financing: Raising or Saving Money through Tax-efficient Business Structures | S3E15 appeared first on The Property Voice.

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Today we are taking the idea of financing to another and less obvious level. I am joined by Tony Gimple, who shares a few examples of how we can either raise or save money just by the way we structure our affairs. Today we are taking the idea of financing to another and less obvious level. I am joined by Tony Gimple, who shares a few examples of how we can either raise or save money just by the way we structure our affairs. He talks about knowing where the bodies are buried, a perpetual tax-efficient wash […] Richard Brown & Casa from www.thepropertyvoice.net clean 48:01 3641
Property Financing: Rent-to-SA with Serviced Accommodation, or – A true win-win-win for all involved! | S3E14 http://www.thepropertyvoice.net/property-financing-rent-sa-serviced-accommodation-true-win-win-win-involved-s3e14/ Wed, 14 Dec 2016 05:59:37 +0000 http://www.thepropertyvoice.net/?p=3623 http://www.thepropertyvoice.net/property-financing-rent-sa-serviced-accommodation-true-win-win-win-involved-s3e14/#respond http://www.thepropertyvoice.net/property-financing-rent-sa-serviced-accommodation-true-win-win-win-involved-s3e14/feed/ 0 <p>Today we hone into a specific niche strategy, where rent-to-rent can be combined with one of the emerging strategies of the moment: serviced accommodation. I have labelled this as rent-to-sa to distinguish it a little. My guest today is Rob Stewart, who is a property investor and businessman, as well as being an educator. He […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/property-financing-rent-sa-serviced-accommodation-true-win-win-win-involved-s3e14/">Property Financing: Rent-to-SA with Serviced Accommodation, or – A true win-win-win for all involved! | S3E14</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> win

Today we hone into a specific niche strategy, where rent-to-rent can be combined with one of the emerging strategies of the moment: serviced accommodation. I have labelled this as rent-to-sa to distinguish it a little. My guest today is Rob Stewart, who is a property investor and businessman, as well as being an educator. He has a strong reputation for systemising a property business to achieve growth and scale and as you will hear, will share some of those tips in our discussion too. Serviced accommodation or serviced apartments & rooms are an application of the second ‘rent’ in the rent-to-rent strategy that can realise very attractive cashflow with little or even no finance required.

Resources mentioned

 

CRM & Database: Less Annoying CRM

Channel Management System: VReasy + My Booking Pal

Merchant Account: Stripe

Rob Stewart’s contacts: The Property Education Group & Facebook

Link to the Podcast feedback survey

Today’s must do’s

Serviced accommodation (or apartments or rooms) is an emerging property strategy BUT please make sure that you get educated and comply with the regulations to avoid having an unsustainable business model. If you do all that, then you can look forward to a high cashflow property strategy with a very low starting financial capital base.

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com in case you would like to get yourself a copy to accompany this series

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello, and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

We went into a fair bit of detail about Rent-to-Rent in my discussion with Kemi Egan last week, and now we will hone into a specific niche strategy, where rent-to-rent can be combined with one of the emerging strategies of the moment: serviced accommodation. I have labelled this as rent-to-sa to distinguish it a little.

My guest today is Rob Stewart, who is a property investor and businessman, as well as being an educator. He has a strong reputation for systemising a property business to achieve growth and scale and as you will hear, will share some of those tips in our discussion too.

Serviced accommodation or serviced apartments & rooms are an application of the second ‘rent’ in the rent-to-rent strategy that can realise very attractive cashflow with little or even no finance required, which is why we are featuring it in this series on property finance as a standalone approach. As Rob explains, it is good to have strategies that address both wealth creation through asset accumulation and also income through high cashflow.

Let’s have a listen to our discussion now…

Richard: Hello and welcome to another edition of The Property Voice podcast, my name is Richard Brown and as always, it’s a pleasure to have you join me again on the show today. We went into a fair bit of detail about Rent to Rent in my discussion with Kemi Egan last week, and now we will hone in on a very specific niche strategy where Rent to Rent can be combined with one of the emerging property strategies of the moment, namely Serviced Accommodation. And I’ve labelled this as Rent to SA to distinguish it a little bit. But it’s a variation on a theme. My guest today is Rob Stewart who is a successful property investor and businessman as well as being an educator like myself. He has a strong reputation for systemising a property business to achieve growth and scale. And as you will hear, we will share some of those tips in our discussion as well. Serviced Accommodation or Serviced Apartments and rooms are an application of the second rent in the Rent to Rent strategy. They can realise very attractive cash flow with little or even no finance required. Which is why we are featuring it in this series on Property Finance as a stand-alone approach. As Rob explains, it’s good to have strategies that address both wealth creation through asset accumulation and also income through high cash flowing strategies, at the same time. So, let’s have a listen to our discussion with Rob now.

Richard: Well I’m delighted to say that on The Property Voice Podcast today we have got a good friend of mine, Rob Stewart, and he is doing an awful lot which is making waves I would say in the property industry and a lot of different fronts. We talked to you about a lot of different things, but thanks for joining me today. You are here to talk specifically, in my series regarding creative financing and I know you could talk about a lot of different things in that respect, but specifically about Rent to Rent and Serviced Accommodation but why don’t you say hello to our listeners and introduce yourself, that would be great…

Rob: So, Hello everybody, Hello Richard! Thanks very much for inviting me to come on to The Property Voice and hello everybody who is listening, it’s an absolute pleasure to be on. Thank you for the introduction as well, as you say, got quite a few models going on but if I can summarise it in a nutshell, after going through the, I guess the standard building blocks of property, starting with single layer, then progressing to HMOs—Houses of Multiple Occupation and then on to larger developments, I really focused on systemising our property business which has enabled us to branch out and develop that sort of true multiple streams of property income. One of which is the Serviced Apartment model, and as you said I’m going to be talking to you today about the Rent to Rent side of it.

Richard: Fantastic. Brilliant. So, as I say, I could talk to you about many different things, and you never know, we might to do that again in the future. But, in terms of Rent to Rent itself, I suppose we can break down Rent to Rent and Serviced Accommodation into two separate parts—but if we start with Rent to Rent, how would you define that in general terms, assuming a zero base of understanding the concept?

Rob: You are right, they are two separate strategies really. Now for me, Rent to Rent is where you find a landlord and you would rent, and I would also say lease as well…I know a lot of people don’t talk about leasing, there is different ways we can take control of a landlords existing property, but for today let’s talk about renting it from him and then effectively rent it to somebody else. Now, I know a lot of people, when you say Rent to Rent immediately think, HMOs, houses in multiple occupation, where you would rent the property off the landlord and then sub-rent to multiple tenants by the room, take a three, four bed house and you can rent it out to five or six tenants. So, that’s one end of the Rent to Rent, but really there’s lots of different, sub-elements to the Rent to Rent market. You could do it with commercial property for example, you could take a commercial unit and then split it up into different areas and sub-lease those to different companies. Or in this case Serviced Apartments. So, what we are doing is taking probably smaller accommodation units. So, one-bed flats, two-bed flats, maybe even some houses, and rather than renting out by the room, what we are then doing is renting it on a short-term basis, to, I guess one identifiable group of people.

Richard: Ok, so, drilling down into the Serviced Apartments or the Serviced Accommodation type of route as you quite rightly say, we are renting off somebody who owns that property, be it a private owner or it could be a landlord I expect. Then we are going to rent that accommodation out, let’s talk about Serviced Apartments, what makes that distinct from HMOs and other kinds of sub-letting models.

Rob: So, I guess the two main elements that differentiate are the serviced element, so what we are providing is a full walk in unit, so its fully furnished, the kitchen is fully furnished, there is bedlinen on, there are towels, almost like a hotel room I guess. But as a whole apartment and its self-catering accommodation. So, a lot of people know this concept from the holiday let type model, although there’s lot of different sub-sectors within Serviced Accommodation. So, we specialise in city breaks, we are based in Chester and the North West of the UK, and also the blue-collar contractor market. There is a lot of companies, like contractors who move around the country, work around the country and they will come up on a Sunday night and they need somewhere for Sunday night to Friday morning and then they will go home for the weekend. But, they are in on a short-term let basis, so, they don’t come in under an AST, a short-hold tenancy, and we will I’m sure, talk about it in a bit, but we source the people who take the units in very different ways to a normal residential AST. So, those are the two main differentiators, we service the units, we clean them and the laundry and also, it’s on a short-term basis, by short-term I mean less than six months, because if it’s above six months, we would be looking in the AST territory.

Richard: Yeah. Would I also be right in saying that from, probably getting a little bit too deep too quickly, but you mentioned furnished holiday lets, in your description there, from a tax point of view would they potential be classified as furnished holiday lets?

Rob: Yes, they are actually. We are getting quite deep into the detail straight away but when you start to look at things like VAT, for example, it’s going to have VAT implications, as you say with tax, how you can then run through direct expenses of running it, furnishing allowances…with all of this stuff, without going too deep into the detail, what you need is a good accountant who understands the model and can really identify exactly what model you are operating within the Serviced Accommodation model if you like.

Richard: Ok, let me correct myself and come back a little bit before we get too much into the detail. So, in terms of a strategy for property investors then, would you say that right now, it represents a good opportunity? Right at this moment and perhaps looking a little bit further down the horizon as well?

Rob: I would say from what I have seen, we have got quite a lot of different property models going concurrently, I would say in terms of a cash flow strategy, this is the best that we have ever operated, in terms of the cash flow per unit that we get out of a Serviced Apartment. Now, whenever I talk and work with clients talking about property, I always recommend having two strategies going concurrently—one being a wealth building strategy i.e. physically buying assets that you can then rent out and get a return on, and the other is a cash flow. And the reason I like to have both of those is that the wealth building strategy is actually very capital hungry, and I’m sure you have experience of this yourself, Richard, and many people who are listening today will know that going to buy a property, you need a load of cash to do it. And then, when you buy it, you have got all your fees, you are probably going to have to renovate it, and when you look at your cash flow, it’s quite a long cycle from putting money in to potentially getting money out, if you do get any money out at the other end.

Richard: Yeah, I totally agree, I think from the dual strategy approach, wealth building, which you say, is capital intensive, we all know about that and a cash flow strategy, which I guess you can take out and top up or even spend the cash along the way. Good sensible advice, I can see the merit in having a Serviced Apartments, or Serviced Accommodation strategy running alongside maybe longer term asset building. I guess I wanted to pick your brains about the potential benefits, and when I say benefits, there is a number of different stakeholders or parties involved with this kind of Rent to Rent, Serviced Accommodation model, or Serviced Apartment model. So, what would you say are the respected benefits for those particular stakeholders, Rob?

Richard: I think this is the really cool bit about the model, we love to talk about win/win don’t we, in property and getting win/win deals. And I really think with this model we have got that genuine win/win/win with the three parties. So, for the property owner, what they are achieving is a guaranteed income for themselves, they know what they are getting month in month out, they are not going to have to worry about voids, we cover a certain amount of maintenance up to a certain level, sort of £100-£150, we will cover that ourselves, and they know they have got that guaranteed income. For the guests, I will talk about the guests before we get to what’s in it for the investor, what we are actually providing is a really high quality product, a really high quality place for them to live actually at a price that probably rivals most of the hotels, again depending on the model you are operating, we have got a unit for example, that will be cheaper than the local Premier Inn, or Travelodge, but it’s a fully kitted out flat, kitchen, self-catering facilities, very comfortable place for a contractor to live. And in Chester we have got some very high quality units which are on the same road as, anybody who knows Chester will know the Grosvenor Hotel, it cost about £500 per night, well for the same sort of quality, you can get a two bed Serviced Apartment through us for £100-£150 per night which can get 4 people in. So, as a guest, you are getting hugely high quality stuff for £40, £50, £60 per night per person, depending on how many there are in the group, which is excellent. So, really serving the needs of both the property owner and the guests. And of course, as the investor, what we are doing is we are tying that together, and our margin is really made from creating this synergy, creating this joint venture. And I think when you are generating no money down strategy to creative finance strategies, almost, as the investor you are acting as a joint venture broker, you are putting parties together and you are solving a problem. By solving that problem, you are able to take your margin. Now, one of the great things about Rent to Rent Serviced Apartments over Rent to Rent HMOs is, it’s a much cleaner model. And I say that, I don’t particularly operate in the Rent to Rent HMO market, I do actually Rent to Rent some of my own HMOs, for ease, as a landlord, it suits my purposes, but a couple of things with the HMO model is the exit at the end—so, if you have got a house full of five tenants and you have got to give them all notice under Section 21, you have to manage that process quite carefully. And you have also got the issue of framing it so the landlord in the first place is going to be sub-letting rooms on an individual basis. So, with the Serviced Apartment model, it’s much cleaner, you only have short term tenants and we have definitely found it’s an easier sell to the landlords or to the investor who owns it. It’s an easier sell to frame it to them, to allow us to take control of it.

Richard: Got you. So, I think, is it the next wave? You talked about HMOs there and a lot of people are talking about high cash flow strategies with HMO but would you say Serviced Accommodation, Serviced Apartments is the next wave of that type of model?

Rob: Yeah, without a doubt, and I think as with any strategy, with any model, there’s going to be a natural evolution of it, in that it will start, somebody will think of this idea or reinvent it, repackage it, so, Rent to Rent is probably nothing new, it’s been going on in commercial property for many decades. And then, you will get the earlier doctors, they will get it in very early and have huge returns from it, and then it will become more mainstream, then eventually, the market will become more saturated or the competition drives the price down and the margins and the returns to climb. And I think that’s natural in any market, not just property, but any business really. So, certainly in our areas, and again every area is going to be different, we probably here, saturation in the HMO markets, a couple of years ago, really. And we almost seen it drop of a cliff overnight. And that’s one of the reason we started looking at other cash flowing strategies. Now I would say, we are still at an earlier doctor level for Serviced Accommodation and as our nation, as our culture becomes more transitory, I think information revolution, more people can operate with a laptop and a phone from anywhere and people are working in a more transitory capacity, rather than just sitting in an office 9-5. That is actually really helping fuel the fire of the Serviced Accommodation model. So, you have got two things, in earlier doctor phase and we have got this change in how we work as a culture, and a nation and that’s giving that great opportunity to get in at this point in time.

Richard: Excellent. And, talking about getting in at this point in time, I guess we have to try find some of these properties, don’t we? We are talking about Rent to Rent here, so it’s not a case of going to buy a property and turning it into a Serviced Apartment. The whole idea of it being creative financing is we are leveraging an asset that somebody else owns. So, how do we find them Rob?

Rob: Oooh, do you know what, this is the question we always get asked for every strategy! And, there is actually a really simple answer to this, which is hopefully good for people, in that anytime you are trying to find property for any strategy there is only three things you need to know—you need to know the circumstances of the vendor or the landlord, you need to make sure the timing of the deal is right for all parties, and you need some leverage to go in with. So, whatever we are doing in property, we look for those three things in every deal. Let’s say we are looking for Serviced Apartments and we are on the Rent to Rent strategy, the real easy quick wins here, are to find units that are sticking on the rental market, and work out why they sticking on the rental market and offer a solution to the landlord that will fix that. So, you know, if you are looking in a rental market that’s really buoyant and properties are coming on and renting out in a couple of days and there is not a lot of stock on, then it’s probably going to be more difficult to find a landlord that’s going to have the motivation to take your deal. Whereas if you look at different sectors, and I don’t want to—well I will give away all our secrets actually, and that our gift to you. What we look at in Chester is we look at larger units, so we look for flats which are two or more bedrooms, so three seems to be a bit of a sweet spot, with no parking and no garden. So, if you are in a city centre apartment, you have got a big flat, which, three plus bedrooms, is probably going to appeal generally to a family market, however, no parking, no garden, that’s going to put a family market off. So, with those set of circumstances you will identify there is an opportunity there, especially if the property has been on the rental market for a bit. We have a couple that were sitting on the rental market for, one of them for at least 3 months and one of them for 6 months, when we picked them up and the landlord had a bit of interest but nothing much and he put, I think he had put a company in for a week or something like that and they had left. So, there’s huge motivation there, for him to take it. So, when we come along and offer him a guaranteed rent for 3 years, they jump at it and for a good price as well. So, that’s a really good thing, to identify your niche, identify your market, and see what’s sticking and go for that.

Richard: Sounds good! Very good, I see I have got a few notes after that, thanks Rob! So, there is a purpose really. I guess just more generally then, just to get back to headlines, generic principles. What kind of general tips and pointers have you got for people who may be starting out? So, whether they are starting out in property generally, or particularly with this type of model?

Rob: This is probably going to sound slightly clichéd, but I would always say the place to start, is work out what you are trying to achieve and then work out a roadmap to get there. So, I will go into specifics in Serviced Apartments, but I just want to start with this, overarching point—a lot of people think they are going into property or into anything for a reason, but don’t really have that strong enough reason, it kind sounds like a good thing to do. But, what you need to do is, define exactly what you are doing, what you are trying to achieve out of it and a roadmap of goals and steps to do it. And then really, when you have outlined that roadmap and you have got your stepping stones, you then just do everything you can to hit those milestones that you have set yourself. So, I know a lot people do, they will come onto the market, there will be 3 or 4 properties and they won’t get…they will put a few offers in and they won’t get accepted and they will kind of lose heart and give up at that point. Whereas if you know where you are going and what you are trying to do, then it’s much easier to push through the hard times and eventually you will get those deals, and I can show you that out of experience with a lot of the people we work with, sometimes it might take a week, sometimes it might take 6 months. But everything is putting you towards that certain goal and direction. Now, with the Serviced Apartments, I would say this is a great model, because anybody can really start today with this model. The biggest thing is identifying them, but I would say have self-belief. So, when you identify a suitable property, you speak to the agent or the landlord, we do both, we have relationship with the letting agents and we also go direct to landlords. You need to have that self-confidence in the value that you add to this equation when you are speaking to them, because if you don’t believe in yourself, that will come across in your negotiation and the letting agency or the landlord, they won’t want to work with you. They won’t believe what you are talking about, congruency with you and what you can offer is a major, major thing when you start out in this. So, self-belief, I would say, is the biggest step.

Richard: I agree with that, and you know, when you haven’t got one, it’s very hard to position yourself. It’s the kind of, fake it till you make it type of principal, isn’t it? So, maybe not the best term to use, but it is a case of demonstrating the benefits, being a professional and just being as you say, confident and having that self-belief then you will get that first one. Once you have got that first one, the second one gets easier.

Rob: I would say perception is a huge thing without a doubt and I think from that, I would go in with a back story, with a brand. I don’t mean go and spend thousands of pounds on branding agencies to give you a brand. I just mean you can talk about yourself, talk about what you do and why you do it. Now it could be, for example, I’m just plucking stuff out the air here, you could be living in Manchester and you look at properties within two miles of Manchester Airport, and your brand is, you are working on behalf of a client who puts in contractors that work at Manchester Airport and they have got a demand for two or three properties over the next three months, anything you can do to help me? And then, it’s not just somebody calling up and saying you got anything I can rent out from you and put some other people in. You have actually got that backstory and the ability to communicate on a level with the letting agents or the landlords.

Richard: So, it goes back to good old marketing really. Very good.

Rob: Not always. As you know the marketing world.

Richard: Exactly, exactly. So, I guess, we talked about some of the benefits, some of the upsides and you know, maybe how to get going. I can’t really leave it without actually saying, and I know you are very transparent Rob, in the way you work, that’s one of reasons that we have invited you on.  What about the downsides/risks or the ‘gotchas’, things to watch out for if you like, with this type of model?

Rob: As with everything, there is always a long list, but as long as you are aware of them, and you know how to combat these things, nothing is going to ruin this model for you. I think we have mentioned one of them already, actually, that’s the finances. So, when you are looking at finances with Serviced Apartments it is a VAT-able income streak. So, therefore when you reach the VAT threshold, which actually you can do very quickly with the Serviced Accommodation model, you know if you think you are renting a room for £100-£200 per night, you have a few units on and you are hitting the VAT threshold, I would say when we stated we were probably working on about 20% net profit margin in the business. And of course, you hit the VAT threshold, suddenly, you have got 20% VAT, so your margin gets wiped out. So, you need to make sure your pricing strategy is right otherwise you are doing this work and not making any money. So, that’s one thing to consider. So, as an example, one of the things we are doing with that is we are going on the flat 10% VAT rate, because you haven’t got that many expenses coming out. Definitely, the income exceeds expenses, the rent you pay to the landlord, you can’t claim any VAT back on, so that’s one thing. You need to make sure that you are working totally above board with the landlords. So, you need to make sure the properties you are taking on, you have the ability to actually take them on and put short term tenants in. So, if a landlord has got a property with a buy to let mortgage for example, the chances are, a mortgage lender being happy with you running it as a short term let, I think are pretty much zero. I don’t know of any off the top of my head, so we only work with landlords who have either un-incumbent properties or are on commercial products, where the lender has said they are happy for short term lets i.e. less than six months. Again, insurance, make sure you get the right insurance product on. And these are all things you are going to have to guide the landlord through, and are all, might be hurdles, they might suddenly think, I’ve got to do all these extra things to do this, is it worth it? So, just make sure it’s worth it for the landlord. We do the whole process. If it’s going to cost them anymore, things like insurance products, we will pay the difference. We will pay for any, small bit of maintenance. And then, you need to systemise it as much as possible. So, here is probably the key difference between running, let’s say an HMO model versus the Serviced Apartment model. You have people checking in at 10pm on Friday night or a Saturday night, you will have people at 7am on a Sunday morning phoning you with questions, like why the TV isn’t working for example, and these are all things we have experienced and therefore put systems in place to combat all of these things. And actually, we have had discussion off air once before Richard, that really, with this model it’s impossible to take human totally out of the loop? Just because there are so many variables that can happen with running short term lets and having a high turnover of occupants. So, really, you have to start building your team, be it Virtual Assistants, Personal Assistant, physical person sitting in an office, you need to start building your team as soon as possible, so that you aren’t dragged into the day to day running of your apartments.

Richard: Yeah, it is a business isn’t it, at the end of the day. And as you said right at the beginning of the call, it’s like a hotel model, so, if you think about a hotel, what do they have? They have a reception desk, they have maintenance people, they have cleaners, they have a whole range of different people performing different duties and it’s not too dissimilar to that. So, you definitely need the systems and the people. We did have that conversation about you can’t get rid of the human in the loop. It has to be there. There was one, I don’t know if you mentioned and I missed. Is there any planning issue that people need to be aware of?

Rob: Yeah, this is something I would recommend everybody touches base with their planning department. There will be slight variations council to council. I would say still, there are some grey areas, in this model with planning for sure. I mean, definitely if you are going to buying a big building converting into 8 bespoke Serviced Apartments with a concierge, without a doubt that’s going to go under a different planning use class. Also, you will be able to operate it for a certain number nights per year, on short term lets, before they will class it as hotel/B&B. So, definitely liaise with your local Council, make sure everything you are doing is above board. If you operating without that, or against those regulations, that can put you into hot water with the Council.

Richard: Good advice. I’m going to ask you in a minute if you have got anything in particular you could share with our listeners perhaps before that, are there any particular tools, resources or applications, I know you love all this sort of stuff, anything in particular that you found very helpful in this space, in terms of Rent to Rent Serviced Accommodation, that potentially you could recommend for our listeners?

Rob: Yeah, so, the big thing that we use to find property, we pipeline all of our property, so, we have, this is a real marketing term so don’t worry too much about the term, we have funnels of property, and we use a database, Customer Relationship Management database to find property and put them through the various stages of the process and keep up to date with that. So, we actually use something called Less Annoying CRM, and I’m going to give a link in a little bit to a free training video that we have put together on how to use that and start pipelining properties. That’s finding them, when you have actually got them, we talked about systems, getting the systemised as soon as possible you need a channel management system. Now, a Channel Manager is effectively, you will list your properties on one side and they will ripple them across all the big booking portals, like Airbnb, Booking.com, Expedia, because what you don’t want to have to do is, let’s say somebody books on Booking.com, and therefore you have then got to go to Airbnb and update your diary there and the Expedia and update your diary there, so I know one of the big channel managers that people use is Kygo. We have not actually gone down that route, we have gone down a slightly different route, because we want to get the automation in even more early. So, we use a combined system called Breasy, which is actually a property management system rather than a channel manager, but it puts a lot of automation in the process. So, if somebody books, they will then get a series of emails that get sent to them, they will get an email sent to them when they are in property saying when you check out you need to do x y and z. It will automatically allocate cleaners for the check ins and check outs, all that cool stuff which I get a bit geeky and involved with in systemising the business. But I like it and that links through a channel manager called MyBookingPal.com and then MyBookingPal ripples it across all those big portals I talked about. So, you definitely need something like that, and then the last thing which you will need is a merchant account, to actually take payments. So, we use Stripe.com, very easy to set up, you will be able to set it up in 30 seconds or so, and then you log in, have a dashboard, and either take payments over the phone or you can send them a link and they can click on the link and pay for it as well. So, there is three big things, Less Annoying CRM, Breasy in combination with MyBookingPal and Stripe.

Richard: Brilliant, I wasn’t expecting so many, that’s fantastic. You did mention Airbnb, booking.com, you have got all sorts of things now, you have got Trip Advisor, HolidayRentals.com.

Rob: This is just a little anecdote on the side. We were going through the Channels Manager to see what there was and we obviously, work in Chester, one of the portals that Channel Manager links it to is the Cheshire West Tourist Board. And you think, how could that be any more perfect, it actually puts your properties up on the Tourist Board, which then links to all the attractions in Cheshire, Roman Walls and Beaver Experience and all this sort of stuff. So, there’s is lots of cool resources you can hook up to. And, of course, you don’t have to use, the booking portals, they are not cheap. One of the big expenses you are going to have is the booking fees, you can market them yourself, Facebook, Google, but of course, we are back to marketing again, and it is a business so you are going to need to do some marketing of it at some point.

Richard: Excellent, so you did touch on just now, maybe something that you could offer our listeners, I’m going to pick your pocket there, what have you got in mind that you could share especially for our listeners on The Property Voice podcast Rob?

Rob: So, we have got a series of training videos, we call them our MAPs, or our Management Automation Procedures. It’s all the things we do in our business, we put computer training videos together to help people. Now, what we are doing is, we are making one available for listeners of The Property Voice, for free. To get into it, it’s a bit.ly link. Its bit.ly/PEGMAP1 and what this does is, it’s about 10-15mins, it tells you how to set up your CRM on Less Annoying CRM, how to identify properties, put them in the system, set up your funnels, it’s got a basic funnel you can use to start from scratch, and start finding the properties. And of course, you can actually re-purpose this and use it for any strategy, it will work for your Serviced Apartments, for your HMOs, finding commercial developments, whatever you want to do. It will work for that. It’s a really good resource. It’s something I actually get my Virtual Assistants to do now, they do all the data scraping and put everything on the database for me, and then it’s easy, you just drop into the database, see what they have found and decide if you want to take it any further. So, that’s bit.ly/PEGMAP1

Richard: Fantastic, I will put the link in the show notes, obviously so people don’t have to scribble all that down, they can just visit the show notes and find that link. But I think more generally Rob, how can people find you, where should we point them to? Whether that’s specifically to one of your business interests or to Serviced Accommodation, where should they go?

Rob: Probably the best way to find me is at The Property Education Group website which is, www.thepropertyeducationgroup.com we have quite a lot of resources on that site, all free resources, and next steps as well. Now, as I alluded to earlier, we have quite a few strategies going on and different business interests as well, but we really focus, myself and my business partner John Paul, who some listeners might know, he once casted in group in the North East of the country, we are all about helping investors systemise their businesses. Really creating a sustainable, scalable business model in property. So, if you go over to that website and see what’s there and it would be great to see you at one of our events in the future.

Richard: Yeah and I can highly recommend it, I have been on one of your events…The Systemising Summit I think it was called, something like that, The System Summit, wasn’t it?

Rob: (inaudible)

Richard: Thank you! You would know the name better than me, yeah, I have been on that, it was very worthwhile. The whole idea of 80/20 thinking has certainly stuck with me. And, I think if you are still sharing that. I think on that vein actually, maybe, I will be a bit cheeky to be honest with you, Rob, your systems, 80/20 thinking, property technology is definitely where I got to know about you and I know you are more than that. But, would you be interested in coming on maybe another time and talking more generally about systemising and leverage and that kind of thing?

Rob: I couldn’t think of anything better, than spending another 30 minutes talking about systems and leverage, so that would be an absolute pleasure.

Richard: Maybe we should both get out more…that sounds fantastic. Absolutely brilliant Rob, thanks so much for sharing that. That’s scratched the surface a bit, but hopefully it’s given a lot of our listeners some insights into this new strategy, this new model. And in particular, in the context of creative financing, how maybe you can get involved in a property strategy, a high cash flowing property strategy with minimal, or fairly low levels of capital. That’s been invaluable. I really appreciate your time and experience and knowledge here, Rob, it’s been great.

Rob: Pleasure, thank you.

Richard: No problem at all, you take care and I will catch up with you soon…so I hope that was interesting to hear, how the principal of a low cash investment strategy such as Rent to Rent can be applied, along with a property marketing strategy like Serviced Accommodation for maximum leverage. This combination of a legal structure in the form of sub-letting or sub-leasing along with an alternative route to market, through holiday rentals or short term lets, can be used to generate high income, from a very low capital base. And this is very much like a hotel model, so as such it requires some different skills, management and regulatory requirements when compared to other more mainstream property strategies. I often talk about the trade-off between time, money and know-how, in this case, the level of money to get into a deal can be low, but the level of time and know-how required is a lot higher. However, the time factor can be reduced, as Rob said, by systemising, delegating or out-sourcing some of the workload. Rob is pretty good at the systemisation side of things actually, so do make sure you go and have a look at some of the tools and apps that he mentioned in our discussion and his website as well.

As for the know-how side, this is a specialist area of property investing and this means its subject to different rules and regulations to other aspects of property. For example, in London, it’s illegal to let out a property as a short-term rental for more than 90 days in a year without having planning permission. Some people having been flirting the rules, and they may actually have got away with it as well. But things are now starting to tighten up, as shown in fact by Airbnb’s recent policy change to ban people who are in breach of these planning rules. Insurance and lender approval are also, areas that we need to get familiar with. So, do make sure that you do research thoroughly, before ploughing ahead with this type of strategy. That’s all said, as Rob also mentioned and highlighted, Serviced Apartments and similar variations can offer a real productive win/win/win between property owner, guest and investor. And often, with a very low starting fund as well. Ok, so that is the discussion part of things over.

I just wanted to conclude with a couple of final things from me today before I finish…the first is that many of you have contacted me to say that you would have like to have joined us at our 360-degree property business workshop that we held in London in November, well the good news is, that we are planning to run another one. Early in Q1 of 2017 in fact, probably a bit further North of England, so watch out for more details of that through our various channels. Numbers will be limited, you can also get on the waiting list, to get an early bird invitation before most other people get to know about it. All you need to do is just email me, podcast@thepropertyvoice.net with 360-degree workshop in the title, or words to that effect, and I will know what you are talking about. Finally, a big shout out to my dad, he is not very well at the moment actually, and unfortunately he is in hospital, and I have travelled to see him and be with him or be near to him at a tough time. I mention this for a couple of reasons really, one is that I am hoping to get some collective positive energy going his way, his name is Bill Brown, so if you could spare a thought for him right now, I’d be very grateful, and I’m sure he would be as well. The second really, is just to highlight that my content might be a little more infrequent, or as one rather unkind person highlighted, a little bit more error strewn than usual. Well, I don’t claim to be perfect, but I do claim to deliver valuable property content, so if you can live with the odd typo or grammatical error, that’s fine, but otherwise you are happy with the value I share freely on the topic, then feel free to stick round. If not, well, hasta la vista baby I suppose!

As always, email me personally if you want to talk about anything from today’s show, or more generally in property investing in fact. The show notes will be over on the website, thepropertyvoice.net but right now though, I just want to say thank you very much for listening, once again this week.

And until next time on The Property Voice podcast, its ciao ciao….

Property Chatter

Interview with Subject Matter Expert: Rob Stewart.

Resources mentioned:

CRM & Database: Less Annoying CRM

Channel Management System: VReasy + My Booking Pal

Merchant Account: Stripe

Rob Stewart’s contacts: The Property Education Group & Facebook

I hope that was interesting to hear how the principle of a low-cash investment strategy, such as rent-to-rent, can be applied along with a property marketing strategy like serviced accommodation for maximum leverage. This combination of a legal structure in the form of subletting or subleasing, along with an alternative route to market, through holiday rentals and short-term lets, can be used to generate high income from a low capital base.

This is very much like a hotel model though, and as such requires different skills, management and regulatory requirements when compared to other more mainstream property strategies.

I often talk about the trade-off between time, money and knowhow. In this case, the level of money to get into the deal is low, but the level of time and knowhow required is higher. However, the time factor can be reduced, as Rob said, by systemising, delegating or outsourcing some of the workload. Rob is pretty good at the systemisation side of things actually, so do make sure you take a look at some of the tools and apps that he mentioned in our discussion.

As for the knowhow side…this is a specialised area of property investing. This means it is subject to different rules and regulations to other aspects of property. For example, in London it is illegal to let out a property as a short-term rental for more than 90 days a year without having planning permission. Some people have been flirting the rules and may have got away with it, but things are now starting to tighten up, as shown by Airbnb’s policy to ban people in breach of the planning rules.

Insurance and lender approval are other areas to get familiar with too, so do make sure you do your research thoroughly before ploughing ahead.

That all said, as Rob also mentioned, serviced apartments and similar variations can offer a produce real ‘win-win-win’ between property owner, guest and investor…and often with a very low starting fund basis as well!

OK, so two final things to mention before I finish today.

The first is that many of you have contacted me to say they would have liked to have come to our 360° Property Business Workshop that we held in London in November. Well, the good news is that we are planning to run another one early in Q1 of 2017, probably in the north of England, so watch out for more details of that through our various channels. As numbers will be limited, you can also get on the wait list as an early bird to receive the event details before anyone else, simply by emailing me: podcast@thepropertyvoice.net with 360 Workshop in the title.

Finally, a big shout out to my Dad. He is not very well at the moment and is in hospital. I have travelled to see him and be near at a tough time. I mention this for a couple of reasons. One, hoping to get some collective, positive energy going his way…his name is Bill Brown, so if you could spare a thought for him right now I would be very grateful. The second is that my content might be a bit more infrequent, or as one rather unkind person highlighted, a little more error-strewn than usual. Well, I don’t claim to be perfect, but I do claim to deliver valuable property content…so if you can live with the odd typo, or grammatical error but otherwise happy with the value I freely share, then feel free to stick around. If not, well…hasta la vista baby 😉

As always, email me personally if you want to talk about anything from today’s show or more generally in property investing, the show notes will be over at the website www.thepropertyvoice.net

Thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Property Financing: Rent-to-SA with Serviced Accommodation, or – A true win-win-win for all involved! | S3E14 appeared first on The Property Voice.

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Today we hone into a specific niche strategy, where rent-to-rent can be combined with one of the emerging strategies of the moment: serviced accommodation. I have labelled this as rent-to-sa to distinguish it a little. My guest today is Rob Stewart, Today we hone into a specific niche strategy, where rent-to-rent can be combined with one of the emerging strategies of the moment: serviced accommodation. I have labelled this as rent-to-sa to distinguish it a little. My guest today is Rob Stewart, who is a property investor and businessman, as well as being an educator. He […] Richard Brown & Casa from www.thepropertyvoice.net clean 38:43 3623
Property Financing: Rent-to-Rent – A real life Pursuit of Happyness story…homeless to property millionaire! | S3E13 http://www.thepropertyvoice.net/property-financing-rent-to-rent-a-real-life-pursuit-of-happyness-story-homeless-to-property-millionaire-s3e13/ Wed, 07 Dec 2016 05:59:34 +0000 http://www.thepropertyvoice.net/?p=3611 http://www.thepropertyvoice.net/property-financing-rent-to-rent-a-real-life-pursuit-of-happyness-story-homeless-to-property-millionaire-s3e13/#respond http://www.thepropertyvoice.net/property-financing-rent-to-rent-a-real-life-pursuit-of-happyness-story-homeless-to-property-millionaire-s3e13/feed/ 0 <p>Rent-to-rent is considered to be a creative property strategy, as similarly to lease options, we can get to control and asset we do not and make a profit it from it. This is because we do not have to take and finance the purchase of the property. My guest this week is a lovely lady, […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/property-financing-rent-to-rent-a-real-life-pursuit-of-happyness-story-homeless-to-property-millionaire-s3e13/">Property Financing: Rent-to-Rent – A real life Pursuit of Happyness story…homeless to property millionaire! | S3E13</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> life

Rent-to-rent is considered to be a creative property strategy, as similarly to lease options, we can get to control and asset we do not and make a profit it from it. This is because we do not have to take and finance the purchase of the property. My guest this week is a lovely lady, by the name of Kemi Egan. She has a remarkable story of how she got involved in property from a pretty dire situation. She was too poor to declare herself bankrupt after a business failure and had even become homeless as you will hear. However, by adopting the rent-to-rent strategy she started to turn her fortunes around. She is now a successful property businessperson and a millionaire to boot. So it is very much a Pursuit of Happyness story in real life…just as Chris Gardner from the book and film of the same name.

Resources mentioned

 

To receive a free copy of Kemi Egan’s book The Power of Real Estate Investing referencing The Property Voice to by visiting this link: www.kemi.gift

Kemi Egan’s contacts:

Education: http://freedomacademies.com/

Investment: http://freedominvestment.co.uk/

Social media: Twitter @KemiEgan & Kemi J Egan on Facebook

Link to the Podcast feedback survey

Today’s must do’s

Connect with Kemi and grab a free copy of her book!

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com in case you would like to get yourself a copy to accompany this series

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

We are making giant strides forward in this series now and these next two weeks we will be looking at one of the current buzzword property strategies…rent-to-rent.

Rent-to-rent is considered to be a creative property strategy, as similarly to lease options, we can get to control and asset we do not and make a profit it from it. This is because we do not have to take and finance the purchase of the property.

My guest this week is a lovely lady, by the name of Kemi Egan. She has a remarkable story of how she got involved in property from a pretty dire situation. She was too poor to declare herself bankrupt after a business failure and had even become homeless as you will hear. However, by adopting the rent-to-rent strategy she started to turn her fortunes around. She is now a successful property businessperson and a millionaire to boot. So it is very much a Pursuit of Happyness story in real life…just as Chris Gardner from the book and film of the same name.

As you will also hear, Kemi is very much a real person, who is herself and solves problems for homeowners in an ethical way. Let’s have a listen to our discussion  now.

Richard: Well I’m very pleased to say I’m joined by the delightful Kemi Egan today on the show and Kemi, we go back a while now it seems, and you reciprocated in inviting me on to your podcast a little while ago, so thank you for that, first of all. Hello and welcome to the show, the Property Voice podcast.

Kemi: Hey, thanks for having me, it’s always great to catch up and we had a lot of fun last time, so I’m a bit excited for this one.

Richard: We did have a lot of fun, I think we digressed quite a lot so it might be par for the course with this, but, you probably know, but just to set the scene a bit for everyone. We are in the middle of a series at the moment looking at financing property, but especially creative financing techniques. I’ve always been impressed with how you started, and we will get into that in a second, and you have gone on in property and particularly on your focus and using creative financing techniques. If I’m just broadly describing…it’s using other people’s money, or not using so much of your own, and not using traditional mainstream lenders like buy to let mortgage providers, that sort of thing. So, that’s a context if you like, where we are at and we are talking to a number of people, who are what I call Subject Matter Experts, in their field, and you are certainly one of them. If I can label you as Rent to Rent, I know you have got a much broader remit than Rent to Rent, perhaps you can share a little about that as well. Wouldn’t it be great to start off by just telling us a little bit about you, give us an intro, bit of background, in particular Rent to Rent…I’m really keen to hear about your story as well, if that’s ok?

Kemi: Of course! Thank you for that warm intro, it does really good for my ego so thanks for that! But yeah, if anyone hasn’t heard about me before, that’s quite likely, I’m Kemi and I started investing, must have been about 8 years ago, or so now. And essentially, I did the right thing, I say in air quotations, and went to uni, got my degree, got my Masters degree, and everything was seemingly great. I opened a healthcare clinic, because that’s what I wanted to do, help people, and basically the only thing I had ever been any good at. So, I opened this healthcare clinic, and if anyone has ever opened a brick and mortar type of business, you will know that they just sap cash out of you. And I spent thousands and thousands of pounds on directors’ loans, credit cards and guarantees and all sort of things setting up this practice that I was hugely proud of. It was the best thing I had ever done. I was just ecstatic. And it went really well to be honest, really quickly I was earning 6 figures, we had a great business, and everything was going fantastically. But the flip side to me being great at what I did—I was a physio, was that I knew nothing about business. And about 85-95% roughly came from insurance referrals. So, if you had an accident at work, or if you had a car accident, you were sent to me to make you better and I billed the insurance company. Which is fine, until insurance companies don’t pay you for between 3 and 9 months. So, you do all of this work for 3, 6 or 9 months and then finally they pay you. Once you have got over the first hump and you have cashflow to start with, these obviously become regular, so it’s less difficult, but what happened is, you may have noticed a small thing, called the worldwide economic crash happened. A lot of these insurance companies went bankrupt, overnight they went into administration and they disappeared, so all of the money that they owed me for the last 9 months’ work, vanished and 90% of my clients and my caseload went overnight as well.

Richard: Wow…

Kemi: Yeah, that’s the word for it! In hindsight, I would have done better in my business and the fact that I had 90% of my income coming from the one place, would have concerned me, but hindsight is a wonderful thing. So, very quickly things got ugly, as you can imagine. I still had all of these set up loans to pay back, I still had all of these bills going out and I had just nothing coming in. So, I started off doing what we all do, selling off everything I had, my car, books, cd’s, clothes, shoes, carpets, just anything and everything, but it wasn’t touching the debt. It was enough at all, it wasn’t even enough for me to live on, never mind keep on top of all the extra bills. So, I was faced with a decision. And, the crazy thing I then learned is you actually have to pay to go bankrupt. So, I was losing money, hand over fist, it was just pouring from me everywhere. My first gut was to go bankrupt, but I didn’t even have enough of the cash to go bankrupt, so I gave up my home and moved into the practice. I was sleeping on a blow-up bed in the back room of this office, like a 60-70 square foot room, there were no windows. And I had to sneak across the road to the Community Centre to shower and the only thing I could cook, was things I could make in the microwave in the office. So, it all got a bit ugly. The great thing about that was, that it was a turning point in my life. And you often find, I’m sure you do Richard, when you are working with your clients and talking to people in general, something happens to make them look at different incomes streams or look at property. And after a few months of crying into my wine and deciding that the world was unfair and why me? It occurred to me that people were still making money in this time. There was the recession and yes, things felt like they were out of my control, but there had to be a way, there had to be something. So, I started googling, and I’m really fortunate, that the things that came up when I googled how to make money fast, were in and around property. And, the stats that we all know about people in the Sunday Times Rich List, are either making the wealth or holding their wealth in property, how you could use different strategies to make money when you didn’t have any, which obviously for me was crucial at the time. And all different things that I’d never even heard of, came up. And that was the first time my eyes were really opened to property. I started googling and I found all of these things out, and I did what I tend to do, I’m a bit of a nerd, I love reading and I love studying. So, I read everything I could get my hands on, there was a library not far away and I started reading books on wealth creation, on self-development, on property investing, read autobiographies on successful people. And I started absorbing all of these things that, for some reason, we don’t feel is important to teach in schools. And then I made kind of the decision, right there, that my life was going to change and I wasn’t going to stand for this anymore. And actually, within 12 months of making that decision, everything was different. I was making more money than I made in my actual business. I had a multi-million pound property portfolio, I had raised other peoples’ money to do a million pounds to buy it. And, my life was transformed, and I am really fortunate now, that we fast forward. I am founder of a couple of companies, we have got Freedom Investment which is our hands-free investing side, property side if you will. Freedom Academies, which is the training side where I can get to share everything that I am so passionate about, as you can probably tell. And I have a lot of fun!

Richard: You do! And, we swap notes and stay in touch, which won’t be necessarily apparent to everyone listening to this now. We are normally a lot chattier, but with your story, I just wanted you to bare that out, sorry to make you bare your soul and take you back to that place. I think what’s really significant—I don’t know if people realise what you said but you were effectively homeless weren’t you? You moved into your office and lived there and had to go and shower across the road. It’s such a powerful turnaround. You mentioned a turning point in life and yours it’s such a powerful story in its own right and so I wanted people to understand that. But, people don’t necessarily have to literally to be homeless to have a turning point in life, do they, there could be other circumstances which make them think, it could be just quite simple, they have just run out of money from investing, traditional investing that is, to have a turning point in life. And that’s what I wanted to get onto to now, is that, when you started out, you didn’t have a lot of money to invest yourself did you?

Kemi: No, I barely had enough money to pay the rent on the office.

Richard: So, I guess, I have framed you as being a specialist if you like, in Rent to Rent as a strategy. Was that one of the first strategies that you employed at that time?

Kemi: It was, yeah. I didn’t know to about Rent to Rent at the time, I didn’t know about these fancy terms like creative finance and things. But, what I knew was, I do what other people tell me to do, I’m a very A-Z person, if you show me six steps and tell me this is how you will get there, I will do it. I have got no interest in reinventing the wheel. And, what I was reading, was essentially about entrepreneurship, and it was taking things of low value to high value. And it was helping people that are struggling with something and making it better. And I remember meeting property owners, meeting landlords that were tired and frustrated and the monthly rent was barely making them any money. Just thinking, hang on a second, this would be great for buy-to-let, or this would be great short term accommodation. But I didn’t have the raise to cash to buy it and although we had raised some joint venture finance and I had some cash, still it was very limited. And obviously, I was being tested, I was new to this industry so people weren’t as confident in my abilities to deliver as they are now. So, I wanted to take advantage of these opportunities whilst creating a win/win situation for people, while I didn’t have any cash. What it made sense to do was actually to pitch this to owners. And say listen, I think you are missing a trick…you can do this and you can do that, you can convert this, from very little cash, I’m prepared to do all the work and how about we both benefit from this? And the thing I think that is really special about Rent to Rent and creative stuff, is you get to be entirely creative, there are no boundaries, there are no walls, no one can tell you what you can and can’t do. You have to go into it with a view of how can I help the homeowner, how can I create something that is appropriate, affordable and great for the tenant and then how do I benefit from that?

Richard: That’s something I want to pick up on later, the benefits to all the parties, but let’s just go back to the fundamentals if you like. Rent to Rent; how would you define it, what is it, as far as you are concerned at least?

Kemi: Ok, so I think it’s one of the best strategies for adding value to the market. I mentioned quickly, you get to help everyone, but if we come back to that, it’s essentially taking an asset that is pretty under-utilised at the moment and maximising the value you can get from it. So, traditionally, if you have a look around at Rent to Rent and if you do it, people will talk about taking, maybe a 3-bed house, and changing that to a 5 bedroom multi-let. So, you will have 5 individuals, rent their bedrooms and sharing the communal space. Which is certainly one aspect. But you are essentially taking a rent or a lease from the property owner and then doing something creative with that property to increase the value it brings in, so you can pay the property owner and you make some money in the middle. So, the multi-let strategy is one, another strategy is to take a property in a fairly popular area, maybe near a town or a tourist attraction, different things like that, a big factory and take the lease from the property owner and then list it on short term accommodation, so, booking.com, Airbnb, using these sites that are now out there to maximise the income to you and far more as for a short-term accommodation, than you would for a long-term rental. And the great thing is, we are now entering this sharing of economy. A few years ago, all of this was a bit odd, no one had really heard of it, it didn’t make sense and everyone was a bit kind of cagey. But now, with Zipcar and Uber and Airbnb, kind of the hard work has been done for us. But, marketing for it as an idea, is done for us. What we have to do is go out there and show our professionalism and our ability to deliver. And how we can actually add value to the homeowner. It’s not a hard sell, like it used to be.

Richard: Yeah, I think you make the key point about adding value, and also, you doing the hard work as it were. So, a lot of homeowners, whether that’s landlords, or private homeowners, they don’t want another job, so what you are bringing is, you will effectively take that work from them to create this value, and your margin in the middle is comparing, let’s say a mortgage, payment or a standard rental payment compared to a higher level of income as a result of it being a multi-let or a short-term let, or something like that. But, there is work to be one to make that margin, isn’t there?

Kemi: Absolutely, and sometimes we will have a landlord that will say to us, well wouldn’t I just do this myself? And, my kind of, go-to answer is, well you are doing it yourself, are you having a good time? Invariably, it’s a no or we wouldn’t have got in touch so, if then I make that you have got 3 tenants to manage and not 1, do you think you are going to have 3 times as much fun and you will have to be really clear about the value you will add. And, often it’s not just the income and that there are no fees etc. But it’s that you are taking the stress and that’s what they really value. Like you said Richard, they don’t really want another job. For us, for me, I really love property. So, show them what you do to help them and help them see it from their side of things as opposed to just, well hang on, why are you making money from my house when you shouldn’t be.

Richard: Yeah, and I guess there will be some that will say, I can do this myself and they will just go and do it. But there will be others, and there is some pain or hassle or some other inconvenience that they want to get rid of, maybe there is lots of voids, maybe they need to do a refurb, who knows. But, you take away all that hassle because often people make a decision emotionally and then justify it rationally, don’t they? So, you can’t say well actually, I’m just so fed up with this, will you just take away this problem and I will be very happy. But they usually say, I know, it’s all about making money, they will justify it rationally, let’s put it that way. Getting into the nuts and bolts a bit more, a Rent to Rent deal; how would it work in practice? What are the sorts of parameters that you would tend to get involved in? and, I know you are going to say, well it depends, but typically, what are the sort of things that you do, how do you construct a Rent to Rent deal, generally speaking?

Kemi: Ok, so, the first thing I am going to look at, if I take a traditional Rent to Rent deal, so, I’m going to lease a house that a property owner has been renting as a single family let and I’m going to let it as a multi-let. The first thing I’m going to look at it, is where my profit comes from, because I don’t do the property owner or the tenants any service or any value if I come up with a deal and it all gets agreed and three months down the line, I figure out that it makes no money and I can’t pay it. So, when I’m figuring it out, I will agree to pay the property owner an amount of money, there will be no maintenance, no management fees and essentially, they have no responsibility for that property. So, I have to build those fees into a figure. So, let’s say, I don’t know, the rent is £700 per month as a single let, that’s what they have been achieving at the moment, we add in 10% maintenance and let’s say 10% voids, it shouldn’t be anywhere near that but, worst case scenario, so you are about £840. You are then going to have, say you will have that as 5 tenants, you got to add in some Council Tax, some bills, some Wi-Fi, no-one can live without Wi-Fi anymore. And let’s say that £840, plus all of that, gets us up to…£1500, I’m pulling these figures from the top of my head. The difference between that £1500 and the gross rent that the 5-room rental should bring in, needs to be a minimum of one and a half to two rooms clear profit. So, put it another way, each of those rooms has to rent for £500, to get sort of, £2500. So, yeah, one and a half rooms gets us to about £750, which would give us, £1750, is what we can afford to spend, does that make sense?

Richard: Yeah, it makes sense. What I actually like about that is, you are converting it into how many rooms give you a profit as well.

Kemi: Yeah and that’s a really clear way to do it. So, one and a half should be your minimum and two plus is fantastic. But, the point with Rent to Rent is you are putting in a little amount of money, if any at all. And you are meant to make money from it quite quickly. So, I always get really stressed when I hear about people who will put in £10000 plus, especially in London its quite easy to do, and then they are only making a £100 a month. You have lost the point and the value of the strategy. So, you want to make any investment back in, ideally, 9ish months.

Richard: Certainly, within a year.

Kemi: Absolutely, yeah.

Richard: Yeah, and what about cost of getting involved in the deal? What sort of things might people have to think about? Will they have to pay a deposit to the landlord or owner? For example;

Kemi: Occasionally they might do, I think that often depends on how well you position yourself as an expert and knowledge. We rarely, rarely pay a deposit, unless there is a really good reason for us wanting that. You can take insurances out, and they are really great for negating those costs. The landlord might say, well I want a deposit, well actually, what if I take out a rent guarantee insurance for you? You know, that might cost me £30 or £40 quid a month, but that’s essentially, your deposit covered. Are you happy with that? Generally, they are, all they want to know is that they have got some kind of buffer, some kind of guarantee there. So, you have taken down a deposit, that might be 1 month, 1 and a half months, so, £700-£1000 using our previous example, down to £40 a month or something. Which dramatically lowers your entry costs.

Richard: That’s a good idea.

Kemi: It’s brilliant. Oh, I love insurances, we have insurances for boiler repairs as well, and often in cases we get the landlord to pay for that, and it’s like £15 a month and that covers the boilers and the plumbing, and all of that. So, you don’t get any horrible surprises. The other thing I should say, is when I say we will cover the maintenance, we will cover usually, anything that is not structural. So, windows, walls, roofs, is there problem. And, things like general wear and tear type things, so if the shower needs replacing, that still belongs to the landlord. But, you know, the door handle comes off, we will cover, the tap leaks, we will cover that. So, all the day to day things, they don’t have to worry about but if something breaks that would generally add value to the house or forms the structure of that house, they still take care of. And they are entirely happy with that, that is standard anyway.

Richard: Yes. And what about when you get rid of the front end, what about conversion costs or refurbs if the property is not quite up to scratch of what you are intending to use it for?

Kemi: Yeah, so generally now, I’m quite happy to pay for a light refurb, it kind of seals the deal in a lot of cases if you say to the landlord, not only am I going to do this but I am going to paint the house from top to bottom and maybe replace some of the flooring. Well at first I didn’t have the cash to do that. So, they had to cover that cost and that probably lost us some deals, so you have to look at that from your own financial perspective and what you can do. But, sometimes what we will do is say, listen, you need some walls, you some fire doors, that does add value to your house. In reality, if you wanted to, you could go for a commercial mortgage or you could have your house revalued, based on what we are doing, so really that should be your cost. And if they say I can’t afford and you feel that’s genuine and you are able to and happy to, you might pay that up front but take it out of their monthly payments over the next 12-18 months. And again, they are quite happy with that, they just don’t want to pay anything up front, no one likes putting their hand in their pocket, they are no different. If actually they don’t have to but they are getting the security of a job well done but they are getting a slightly lower income for a while, they are fine with that.

Richard: That sounds like a good plan. I don’t know about things like, if you are doing a short-term let in particular, HMOs similarly, you are going to have some costs to kit out the place as well, aren’t you?

Kemi: Yeah, for sure. So, staging is crucial and that will enormously effect the amount of value you can charge per night for the accommodation. And there are lots of ways that you can help them in that. Again, talk to the landlord, ask them if they are prepared to put in. If it doesn’t have white goods in, are they happy to do that. And perhaps, you in turn, the rent will pay them slightly. If they put in a nice fridge, a washing machine, a tumble dryer and whatever the big bits are. Well, maybe we will pay them an extra £30 a month over the next 5 years that you have the contract. So, naturally, they quickly do the sums in their head, that’s made them an extra £3000, they are happy.

Richard: Yeah. You mentioned contract loan, I meant to ask you that. So, if you are talking about things like; looking to break even in around 9 months’ type of thing, how long, typically how long would you want you want to enter into an agreement with the owner for?

Kemi: Ideally, we go for about 7 years. Think the minimum we will do is usually between 4-5, you have got to make it—you have a couple of things to bear in mind. Firstly, security of the tenure for the tenant, so you can’t have a really short-term contract, and take an AST for a tenant, knowing that actually you might not have the house in 18 months. It’s fairly disingenuous and unethical. So, you need to make sure you have got it for a set period of time. If you are getting your costs back in 9 months, in reality, you want to make 4-5 times what you have put in. so, you want 3-4 years, to make some money back and actually make that a worthwhile investment of your time. And, in my experience, the landlords, they get a little bit twitchy at 7. It’s really funny, I’m not quite sure why, and at 4-5 they are quite happy. So, you might do a 5-year lease with a 3-year extension, assuming everyone has fulfilled their obligations. And, I think when you know what the difference is between 5 and 7 years, there is obviously something logical in that, they feel it’s too long.

Richard: It’s the 7-year itch, Kemi, I think probably. Could be! I just made that up, no idea.

Kemi: But, yeah, whatever that is and you know, a great way to get around any question they have, is ask them the magic question…what would you like to happen? They will come up with all kinds of objections, that hadn’t even crossed your mind to start with. And you are like, is that even a thing? My answer is always, well what would you like to happen? You know, they say well, what if you disappear off the face of the earth? Ok, valid point, what would you like to happen? And as long as it’s reasonable and it makes sense, put it into the contract. Someone saying, what if your company goes under, ok, what would you like to happen? And it was something along the lines of at the first, they wanted to put in the contract that, at the first awareness you have that your no longer liquid, you hand the property back and you have to give notice. Ok, fine, put that in, that’s reasonable. But just ask these landlords what they would like to happen, sometimes they don’t even know, they are just throwing it out there to see what you would say, and you can go back with a constructive answer, they are happy. Sometimes they do have something in mind, and like I said, as long as it makes sense it actually solves the problem that they think they have raised. And if you don’t think it’s unreasonable, put it in.

Richard: Some really valuable things that you mentioned there. Such a powerful point to say in a conversation isn’t it, what would you like to happen? What you are doing and the whole point of creative financing strategies, is you are providing solutions. Well, you can’t solve what you don’t know is a problem, can you? And equally you might suggest something, which just misses the mark, as far as the other person is concerned so. I think that’s such a powerful, it’s one of the sentences I have just written down. Definitely will use much more. What would you like to see happen? Very good.

Kemi: And the really incredible thing with it is, that we have secured deals, paying less than other people have offered because we are prepared to do that. To have the conversation, to ask what would you like to happen? How can we make this work for you? To actually solve the problem, you know the fantastic thing about creative financing strategies and the thing that I think is a challenge with them is, that you can get into it with no money. So, occasionally, you will see people out there that just want to make some cash, they want to make a quick buck and they are not interested in providing value. Which does the whole industry a disservice. But, if you are the person that goes in and you are educated and you know what you want to do, and more importantly you actually want to help and you want to solve the problem. You will stand out a mile.

Richard: Yeah, and I think conversely the other thing I have heard a lot of people doing is, signing up to say a one year contract, and then really speculating that if all goes well it will be extended, that kind of thing. And I just keep thinking to myself, that’s not a sustainable business model. So, I’m glad you said you aim for a good chunk of time really. You need that and also as you say its an unethical position to adopt for the tenants who are going to live there.

Kemi: Yeah, and I’m glad you mentioned that as well, you know, for everyone listening, please don’t speculate. If it doesn’t make sense on paper it will not make sense in real life. Don’t try and go, well if I can just kick £10 here and shave off £10 there, if a deal is that tight, it doesn’t work. Don’t do yourself the stress and the pressure of having something that just doesn’t do the job. It’s there to make you money. So, if it doesn’t work, then either offer them the best you can, try and be a bit creative, instead of doing a multi-let, would a short-term let work? Would that get you where you need to be? Or walk away. But, just don’t, for your own sake as well as the landlords and the tenants, don’t agree to something you can see on paper isn’t working. Don’t get on board, don’t speculate. It will burn you in the end.

Richard: Totally agree, very sound advice. Just while we are talking about creative financing generally, and I don’t want to pigeon-hole you totally, as just solely Rent to Rent. What other creative financing strategies or themes do you get involved with? And do any of them spring out in your conversations around Rent to Rent, for example?

Kemi: Yeah, absolutely and I think the thing that we do, that I think you do as well Richard. When we are sourcing for leads, when we going out and we are doing our marketing and we are trying to attract deals, I’m rarely specific about the type of thing that I will offer. So, we might send out a mailing, you know, we are looking for properties in your area, do you have anything available? We might put out that we want to rent something in the area, all different types of marketing strategies, and actually when the lead comes in, the first thing I will say is, what would you like? What’s your ideal goal? I’m here at here end of the phone, you are sat there, you have got this house that’s empty, what do you want to happen to it? And then we will fit the strategy to, as close as we can, to what they want. A lot of the times they do want shot of it, but you know, there is still a business for us, so we will pay a bit less than the market value, maybe they are not ready to do that. So, we will tie in a Rent to Rent with a Purchase Option. So, they have guaranteed rent in the meantime, they don’t have the stress, but in a couple of years we will buy it from them at a price they want. And they are really happy. Sometimes, someone is half way through a refurb, and actually they have over spent, or they thought they would get a mortgage and they won’t. So, we will come in and we will slightly tweak the refurb to make it a multi-let, when we think it is at the value that it needs to be to get that money, we will do an Assisted Sale with them, or that will be the contract that we set up in the first place. So, you know, we are going to multi-let this for 18 months, when we think the market has done what we needed it to do, or whatever has happened then we can sell it and we will give you the investment back that you made into refurbing that house. Bu, it comes back to the things we were talking about before, actually adding value and solving problems, and looking at everything as a stand-alone. You know, to start with you might not want to have all these strategies, because it’s a lot to have in your head, and you want to know your theme really well before you add 3, 4 or 5 more strategies to it. But, if you can have an overall knowledge of them, or an awareness at least, you can at least sell back… say listen, we have got someone here who wants an Assisted Sale, or his house needs 10k spent on it and actually there is a good chunk of change in this. Sell that deal on, make yourself some money, put it back into marketing to find the deals that you want.

Richard: Very good. It’s all about solving problems. It’s interesting what you say about general marketing, not necessarily highly targeted, you are just looking for people to reach out and say I might have a problem with my property, can you fix it for me, or words to that effect. So, that was really interesting. Specifically, with Rent to Rent though, when you started out, a few years ago, you talked about there being a recession at the time. Rent to Rent resonated for perhaps for a number of different reasons back then. Do you think it’s still relevant today? Is it a viable, sustainable strategy going forward?

Kemi: I really do, and I think, especially at the moment with the tax changes and the uncertainty we have got in the market, it provides and even greater opportunity for it, because we, as humans, we love certainty, we knowing what’s coming in, we like knowing what’s going out, we like knowing what’s happening and definitely don’t like when things are up in the air. So, at the moment when you have got amateur landlords, people who maybe own, 1 or 2, or bought one, moved out of it and now they are left with this house. They are reading the headlines that say property prices are going to plummet, rents are going up or down, taxes are coming in. What they want is someone to say to them, listen, for the next 4 years we will give you this each and every month, you don’t have to think about it, you don’t have to worry about it and that just gives them that level of certainty so that they can plan, manage their life and do whatever they need to do. Now, that said, in no way…there was a recession and prices were lower so it was a lot easier to tie in options. Now, unless you are doing marketing in certain parts of the country, obviously, the South East, London, the prices are flying up at the moment, most people don’t want to do that because they don’t need to. So, look at your area, consider what value you can add, so in the South East, short-term rentals are huge. People are renting out their homes, their flats, their whatever, for short-term an that’s where you get to add value. So, again it comes back to looking at the market place and seeing what problems you can solve. At the moment, the big problems we are solving are; certainty, we are giving people certainty. In some cases, we are seeing landlords that have read about this Airbnb thing and they are interested but they don’t want to be ripped off, and they have had all of these kinds of things going on, so we are actually dealing with them, and one having a fixed rent, will say listen, we will do this, we will fit it into our business and then we will take a cut of the profits. They love it, because we have got a vested interest in maximising how much money comes out of that property, they love it because they are getting more money than they were before. So, you get to, again, look at the market, look at the individual, figure out what they want and then give it to them.

Richard: Yeah, what I was going to say there was, you have kind of got a couple of flavours, just to the owner, certainly with Rent to Rent, it was pushed out on the circuit, was you pay a fixed rental to the owner of the property, whether that’s a landlord or a private owner, so they get that certainty with that fixed rent payment. That’s the win for them. As you just added, this sort of JV model, so, you are allowing them maybe to participate in some of the upside of your value creation. It’s not just a fixed potentially lower, guaranteed rent model, that you are offering in that situation. It could be more of a variation, let’s be in this together. You can participate in the profits of my hard work almost you know.

Kemi: Exactly. And you will see them, kind of physically taking, almost a step back, and they are like, oh, ok so you are not just trying to rip me off for everything I have got, you are genuinely in this to make this work. And you can stand there, hand on heart, look them in the eye and say yeah. Let’s do this together. Like you say, you can benefit on the upside and see the benefit as we create it. The same as you were saying before, when the market changes there are a few things that don’t change and…landlords. when they are fed up, they are sick of it, they didn’t get into this in first place, it wasn’t what they wanted someone gave them the house, or whatever happened, the market doesn’t change that. The market doesn’t change whether or not, a lot of…we have actually just done an audit and actually a lot of our leads come from women that have been widowed, and statistically we know, women outlive men. And their husbands or their partners have invested in property, and now there are left with this house that is probably a bit unloved. It needs a bit of love and bit of paint and tidying up, they don’t have the confidence to go out there and work with trades, they don’t really want to and they feel a bit bad selling this thing that they have been left, so it works really well for them. So, while the market changes, people and human nature doesn’t.

Richard: So, I was going to ask you actually, where do you find these types of property, you kind of hit on a couple of potential avenues there already. So, as you mentioned, widows and tired landlords could be some rich pickings I suppose. That’s a light phrase for it. But, what about other areas, how do you go about finding deals?

Kemi: Yeah, so another one, is properties that are already multi-lets, that coming up to the summer holidays when they should all have been re-let for the next season or next semester are still on the market. Because that tells you it’s probably not in great condition, or the landlord isn’t being flexible in something, there is something up with that property if it’s not let and it should be let to students by now. So, that’s where we find a lot. We find a lot from properties on the HM Register. They have been converted, they are fully licensed but the license has come in as have other regulations and the landlord is just a bit… we find them in free newspapers, you can still turn to the back of a page and see that there are houses for rent, which I think is hilarious and brilliant. But they are people that are trying to avoid fees, whether that’s because they are tied into an ugly mortgage and they have got really high interest rates, they need to maximise as much as they can. Or actually, they are just really acutely aware of the value but they are trying to avoid letting agents’ fees, so they will market themselves individually there. Gumtree is obviously a huge, but please I beg of you, for anyone that’s listening who is going to go on Gumtree, do not send the message with something like, ‘Hi I am whoever’, and there are two messages. ‘If I offered you cash, what is the lowest you could take’ and the second one is ‘Would you be interested in re-letting for say 3-5 years with an option to buy it at the end, let me know’. Because I’m not quite sure where these messages are coming from, I think maybe someone is telling people to do it, but anyone who puts their house up is getting 30-40 of these, automated not personalised, they are not getting any attention. Pick up the phone and say hi, I have just seen your property is for rent, is now a good time to have a chat, be a real person and you will really stand out. Secondly, if there is no number on there, send them a message, ‘Hey it’s Kemi, just seen your property for rent, is there a good time for me to give you a call’ and start the conversation. Not these pigeon-holed messages that don’t really say anything other than I have got a plan I’m not going to tell you about.

Richard: Yeah, so, be a human being, even. Start to build a relationship. This is a theme that’s running through your answers Kemi, I’m kind of noticing that, you are putting the other person at the centre, you are finding a solution to their problems, you are treating them as an individual, you are bespoke and tailoring. You are building a relationship to build trust. If I am right in picking those elements out it sounds to me like that your approach and there is a lot of valuable information that’s coming out, so thank you.

Kemi: The first reason is because I was once told, by a marketing guy, that something like 60% of deals are done after the 4th touchpoint and I went back and had a look and that was true in my business. But the only way you get to have 4,5 or 6 touchpoints, conversation whatever with someone is when they like you and you are going to have a conversation. So, if you are turning people off or they are immediately not liking you because you are straight to the figures, then you are doing yourself out of potentially 60% of profit in your business. And the second thing, is that, as humans, we are all pretty selfish, we all think the world revolves around us, and ours are the only problems out there. So, when you are talking to the homeowner, they are thinking the only thing that matters right now, are me, my money and me. If you go, turn up and you are thinking the only thing that matters is me, my money and me, you are going to butt heads and it’s not going to work. If you turn up and agree with them, you are absolutely right, this is what we are going to talk about, you are the concern. Suddenly, they will think, “Oh, she cares, he cares, this is interesting.” and they want to work with you. And it’s a really cheap way, it doesn’t cost you anything, of getting a whole tonne of more deals across the line.

Richard: Yeah, I think you are making such relevant points. I got a Facebook invitation the other day to connect with somebody on Facebook, I would normally try and see if they were in a similar field to me before I just accept people as connections that I don’t really know. So, I could see there was a property interest, so I thought, yes let’s connect, you know. And then within a minute I had an email in my inbox, pitching me for some super-duper type of opportunity. To be honest, I normally just ‘unfriend’ immediately, but in this case I thought, I am just going to write back and say, do you normally find this approach works for you as a marketing angle?! Connect to someone on Facebook, a few minutes later hit them up with some sort of investment proposition, and they just came back and said ‘No, not really’, I was like…! To be honest, we are still friends now, because I appreciated their honesty, but I am not sure I will be rushing out to engage with them. I just have a couple of questions that I want to combine for you that I had in mind, and one is, because we do digress, the two of us, I know that, but…an two; I wanted to ask you; advice for people that might be starting out with considering Rent to Rent as a strategy and also things to watch out for, downside risks, ‘gotchas’ that sort of thing…I don’t know if it’s fair to lump those two together but see if you can just give us a top line view on that, it would be great.

Kemi: Ok, so, I will do the risks and stuff first of all, because there are risks. And, a lot of the time people might think that they don’t have any kind of liability, that nothing can come back on them because they don’t own the house or whatever else. And that entirely incorrect. So, make sure that you are legally covered, make sure you have got a legal agreement that covers the points and the only thing really that causes discord in relationships is ambiguity and grey areas. So, just bullet point everything, make sure it is out in the clear, if it’s the first time you are having a lawyer draft an agreement for the first time, a top tip is having the terms agreed already, and use a property experienced lawyer. So, send them a note saying, this is what we have agreed already, please create that. And don’t let them cause problems, by going back and forth and interfering like some lawyers do. Make sure you are covered legally, make sure you have got your appropriate insurances and you are registered with the Property Ombudsman and those kinds of things. They don’t cost a lot, and actually they making their money back, by making you stand out from the crowd, from all the jokers that rock up with dirty shoes, trying to just do a deal. You turn up, appropriately covered, being able to demonstrate that you stand out from the crowd, right away. The biggest thing and I see it time and time again is, don’t be optimistic, do your numbers, if it doesn’t work on paper just don’t do it. They are probably my top 2 or 3 kind of risks to prepare yourself. And the second thing was for people starting out, wasn’t it?

Richard: Yeah…sorry. I threw two at you at once, sorry.

Kemi: That’s ok. So, the first thing is, have a portfolio, even if you haven’t done a deal yet, even if you haven’t done anything yet, you can still have a small leather-bound or whatever, folder essentially and you can put in there a friends’ case study, JV partners case studies, if you don’t have any of those, maybe somebody you are friendly with has some, or create some assessments. So, you can go into the property owner or the letting agents and say, listen we have carried out some case study research in your area and this is what we can achieve in your area. So, you are really showing how professional that you are, you are showing that you have done you research, you are showing them what’s happening as opposed to just wandering in off the street with an idea. As soon as it’s in a folder, you really have a sense of authority and people listen to you. Second thing is, have an online presence, I use and I love ClickFunnels because you can systemise so much from it and you can have a really professional website for peanuts. But the thing about websites and website presence is that you have a decent email address. I genuinely received an email from someone not that long ago, not to digress, but it was something like…gonnabeabillionaire@something.com I was just…I struggled to take that one seriously as well. Pitching me something as well, I think it was an investment opportunity. So, a genuine professional email address. Be professional in your approach, is another top tip, you know, you can be authentic and you can be real, I hopefully I sound real, because I am, but that doesn’t mean you get to be lazy and unprofessional, it doesn’t mean you get to turn up looking scruffy and unprepared. You don’t have to be necessarily, top to bottom in suit, but you do have to look appropriate and professional. You know, property is someone’s biggest asset, if they are going to trust you with it, you have got to look the part to a degree. Don’t lie, people are going to see right through and just be ethical and honest in everything you do, it might cost you a couple of deals, it might take you a couple of months longer to get to where you want to go. But the reality is when you get there, you will speed past the people that created their business on sand and it has now come down crumbling around their ears. And I know when I started, I remember looking at some people and thinking, how are they there already, and one by one they have gone out of business, and while I am not particularly happy for them, that I don’t like to see, it reaffirms the importance of building a real business that has got a foundation that is going to see you through the next few years and however far you want to take it.

Richard: Well, that’s so powerful and I totally resonate with everything you said in that last summary about being real, authentic but being professional and equally having strong values, being ethical and honest and perhaps it might cost you short-term but it’s going to pay off long-term. It’s all about sustainable investing so it’s great to hear you say that. I could carry on talking to you for ages, for hours in fact, but we need to keep the listeners in mind and draw a line there. Perhaps as a slight conclusion, is there anything that potentially you would like to make available to listeners of The Property Voice that you think Kemi, that they could value and appreciate in this context.

Kemi: Of course, and thank you for inviting me on again Rich, I have had a huge amount of fun, thank you to all the listeners, I hope this has been valuable for you and there’s something in there that you can take away and implement. And just as a thank you to everyone really. I have got a copy of my book, The Power of Real Estate Investing, I released it last year, went to Number 1, we have had something like 20000 copies worldwide which has been a little bit incredible. But, you can grab a free copy of that at www.kemi.gift grab a completely free copy of that just as a huge thank you for your time.

Richard: Well that’s great and I have read your book and it’s a very good read, very compelling, very powerful read. Your story and what you have gone through there and some tips of how to grow a property business as well. The link is going to be in the show notes. Is there a good way to get hold of you as well, I know you were kind of saying goodbye there, but before we wrap it is there anywhere we can point people to if they want to find out a bit more about you and reach out?

Kemi: Yeah so I am quite fortunate, I have got an unusual name, so I am all over social media, Kemi Egan on Facebook, Kemi Egan on Twitter, sensing a them there…drop me an email as well, kemi@freedomacademies.com comes straight to me. So, no one else will see that, comes to my email address and then my two sites if you want to have a nose around what we are up to we have got freedominvestment.co.uk and freedomacademies.com so, come over, say hi, I would love to hear from you.

Richard: And I am sure people will get a lot of value talking to you Kemi, we certainly have on this episode and other courses as well, so I am expecting a lot of people to reach out to you for that. But, I just want to say thank you very much for all the valuable insights you have given on the show today and I think if I could just take away one overriding theme, I think a couple actually, one is to be authentic and be yourself but equally, put the other person at the centre. That seems to be your approach, conscious or otherwise I think. But, finding solutions and putting the other persons’ interests at the heart of everything you do, you probably won’t go too far wrong if you do that. Thanks Kemi. I really appreciate you being on the show again today. You never know, we might try and get you back another time maybe, but thanks again, really enjoyed talking to you.

Kemi: Awesome, thank you!

Richard: Bye-bye

Property Chatter

Interview with Subject Matter Expert: Kemi Egan.

Resources mentioned:

To receive a free copy of Kemi Egan’s book The Power of Real Estate Investing referencing The Property Voice to by visiting this link: www.kemi.gift

Kemi Egan’s contacts:

Education: http://freedomacademies.com/

Investment: http://freedominvestment.co.uk/

Social media: Twitter @KemiEgan & Facebook

There was so much I could take away from this discussion with Kemi. The two big take aways were about approach: be a real human being and be an ethical problem-solver. This is all about relationships and values and so that resonates with me a lot.

Aside from that, there were plenty of nuggets dotted throughout the discussion that I would even suggest you listen to it again to capture them.

Rent-to-rent as a property strategy is where we can get to control a property without owning it by changing its use to create additional value and profit, such as by turning it into a multi-let or short-term let.

In addition, some additional tools in Kemi’s problem-solving toolbox that she brings out depending on the answer to het key question ‘what would you like to happen?’ include: rent-to-rent with a purchase option, an assisted sale, a delayed completion or even a JV with the property owner. This is why having a solution-oriented approach is so essential, as different outcomes may result from an owner’s stated wishes, which might be rent-to-rent but might be something different too. That’s the trick with creative property strategies…being creative and matching the right problem to the right solution. Of course, rent-to-rent is an active property strategy, where we are being rewarded for our time and knowhow, even if we no or little money to put into a deal. This of course is why it has become a popular strategy for investors with no or little funds of their own.

Don’t forget that Kemi mentioned that you can get a free copy of her best-selling book The Power of Real Estate Investing, the link is in the show notes, along with the other resources mentioned.

This is a part one of my discussion about rent-to-rent. Next week, we drill further into the discussion and see how we can combine strategies for maximum profit using a creative financing technique as we explore rent-to-rent using serviced accommodation.

For now though, let’s leave the discussion there until next time.

As always, email me personally if you want to talk about anything from today’s show or more generally in property investing to podcast@thepropertyvoice.net, the show notes will be over at the website www.thepropertyvoice.net

Other than that, I would just like to say thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Property Financing: Rent-to-Rent – A real life Pursuit of Happyness story…homeless to property millionaire! | S3E13 appeared first on The Property Voice.

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Rent-to-rent is considered to be a creative property strategy, as similarly to lease options, we can get to control and asset we do not and make a profit it from it. This is because we do not have to take and finance the purchase of the property. Rent-to-rent is considered to be a creative property strategy, as similarly to lease options, we can get to control and asset we do not and make a profit it from it. This is because we do not have to take and finance the purchase of the property. My guest this week is a lovely lady, […] Richard Brown & Casa from www.thepropertyvoice.net clean 56:08 3611
Property Financing: Lease Options – Control an asset you don’t own for profit…self-source or outsource as you prefer | S3E12 http://www.thepropertyvoice.net/property-financing-lease-options-control-asset-dont-profitself-source-outsource-prefer-s3e12/ Wed, 30 Nov 2016 05:59:22 +0000 http://www.thepropertyvoice.net/?p=3581 http://www.thepropertyvoice.net/property-financing-lease-options-control-asset-dont-profitself-source-outsource-prefer-s3e12/#respond http://www.thepropertyvoice.net/property-financing-lease-options-control-asset-dont-profitself-source-outsource-prefer-s3e12/feed/ 0 <p>This week, we can look at lease options as a vehicle for our own property investing purposes and from the perspective of developing an additional income stream by packaging them up for other people. Control a property for profit from as little as a pound or sell it on for several thousands of pounds instead. […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/property-financing-lease-options-control-asset-dont-profitself-source-outsource-prefer-s3e12/">Property Financing: Lease Options – Control an asset you don’t own for profit…self-source or outsource as you prefer | S3E12</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> source-1

This week, we can look at lease options as a vehicle for our own property investing purposes and from the perspective of developing an additional income stream by packaging them up for other people. Control a property for profit from as little as a pound or sell it on for several thousands of pounds instead. Hear about the ‘sophisticated property investor’ who is receiving constant and specific education to open up opportunities on so many different levels.

Resources mentioned:

Enter the term ‘lease options’ into YouTube and then watch some of the video training that appears there.

To receive David France’s Lease Options Manual, just send him an email quoting the word manual and referencing The Property Voice to: sales@fastcompletion.com  or Facebook: https://www.facebook.com/david.france.16144

Link to the Podcast feedback survey

Today’s must do’s

If you like the idea of lease options for yourself or as an additional income stream, then I would suggest you connect with David and ask him about his experience and a copy of his lease options manual whilst you are at it.

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com in case you would like to get yourself a copy to accompany this series

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

Last week we heard from Tom Appleton, an investor that built a property portfolio using lease options as the main commercial strategy. This week we hear from David France, who in addition to being an investor himself has gone on to develop a significant business in sourcing creative packaged deals for other investors.

So, this week, we can look at lease options as a vehicle for our own property investing purposes and from the perspective of developing an additional income stream by packaging them up for other people.

As you will hear in a minute, David shares an awful lot very valuable information on the marketing and structuring side of this creative strategy, so let’s have a listen to that right now.

Richard: So, welcome back to The Property Voice and our series on creative financing in property and I’m glad to be joined by David France today. David, hi, how are you?

David: Hi Richard, yes, I am very well thank you. How are you?

Richard: Very well, thank you. So, just to set the scene a bit for everyone, we are in the middle of a series, we are talking about creative financing in property and there are a number of ways of achieving this sort of leverage of other peoples’ money, creative financing. And, one of those ways is lease options, to be fair today, we have had a chat off air, we have already had someone on the show who is involved in lease options, who is sourcing their own deals primarily and has built up a modest portfolio for doing that but, David, I’m going to ask you to give us a bit of background about yourself, you kind of straddle the investor side and also the deal source or packaging side as well. It would be great to get your insights from both sides of that fence. Why don’t you maybe kick us off, and give us a brief introduction into yourself and your background and your specialist knowledge in this area? That would be useful.

David: Yeah, sure thing. Thanks for that Richard. So, yeah, basically, I have become a creative property broker, packaging deals and selling them on to property investors, I started off as a Joiner when I left school and started my own business after a few years of employment, then as Richard just pointed out, I started off on the other side of the fence as an investor, then I realised—I had this misconception you needed lots of money to get into property, and obviously it’s just not the case. I actually went about it all the wrong way, buying properties unseen, I actually bought a property in America, bought a property on a lease option in the UK. And then by the time I had done that I had two properties, I had pretty much run out of money. So, I thought to myself, there must be, ways to get extra cash, and the cash flow just wasn’t good enough to enable me to leave work. So, then I looked at the person I had bought some of these deals from, and they had made £5 or £6000, I think I paid for one of these lease options for example, and realised that was, the key really. Becoming a property broker, the work they had put into it was literally a few hours work into that one deal. So, then I started looking into that, it peaked my interest and then I started getting involved brokering these property deals. Since then, between then and when I just mentioned, what I do now; creative property broker, I have successfully completed on over 100 property transactions to date, most of those, I’d say 90% of them have all been creative in a sense of them being Lease Options or Instalment Contracts or Seller Finance type deals. So, that’s kind of a little bit of background on me and also, it’s worth mentioning as well, all of these deals I have done, I have probably only met…out of all the deals, 5% of the sellers or buyers in this case. A lot of the time it’s just done remotely from where I live. Obviously, we set up meetings now and again, get our days out of the office, meet investors and things. But, most of the time, it’s all done just over the phone or on the internet, so I can literally do this from anywhere. So, that’s a little bit about myself Richard…

Richard: Yeah, thanks for that. And there is lots of interesting things there, that we could pick out. Obviously, I have framed this particular conversation around Lease Options. But you are quite right in talking about creative financing strategies generally. Probably later on I want to get into, there might be alternatives, but, if we just start with Lease Options for a minute. By the way, I really like your mobile lifestyle, you know, opportunity there, we will maybe talk a little bit about that as well. But, if we just talk about Lease Options in general, because that was the main thrust for this. I might take it in a different direction later. How would you explain what Lease Options are in general terms simplistically?

David: Simplistically, I would just say, you are controlling an asset you don’t own and creating a profit from it. So, you are controlling property just with some bits of paper and able to profit from those assets, without having to put in the usual 25% deposit for Buy to Let mortgages. And also, taking on a massive debt load. So, you are simply just controlling assets and usually the term, that we have all heard is ‘Buy a house for a £1’ obviously, it’s not quite correct, you are not actually buying it for a pound, £1 has to go down as an Option Consideration, which makes the makes the Option Contracts live. So, you can literally, have anything from a £1 upwards on that contract to make them live. Just a quick example, some of the Lease Options that we do, we are doing a few at the moment, constantly got deals in the pipeline. The Vendor has agreed he wants a chunk of money for a business he is starting, and we have decided to pay him £5000 Option Considerations, £5000 per property. So, we are taking a few properties from him, and obviously, we work it up from a…we sit down with the numbers and work out our break-even point. So, we look to get our money back within one year of the actual cash flow. And obviously, I can give you some examples of how we make the cash flow from those assets. Would you like me to do that now Richard?

Richard: Yeah, that would be great. I was going to ask you; how do you structure deals generally? I guess there is a bit of flexibility but, I’d be really keen to understand how they work, for some real examples of what you are doing right now, how they work and how the numbers flow, that would be great.

David: Yeah, well I would love to stand here and just say to you that there was just one bit of paper that says…do this for the Lease Options, it’s just not the case. Unfortunately, it’s a mix of negotiation, but ultimately it comes down to the seller that we are actually dealing with. I used to think it was about the properties but it really is a people business and if you take the property out the equation, for a second, and you imagine virtually we are sat around a coffee table with the owner and asking them a few key questions, and usually our marketing, we can come on to this later, some of the marketing but our marketing is geared around finding property, so we are in negative equity situations. So, when we are getting these deals, we look at all the numbers, how much somebody owes on the properties, versus how much the mortgage payment is every month. And usually, we are looking for favourable mortgage conditions, so, we are looking for low interest rates ideally. I mean, obviously, in an ideal world we want loads of cash flow, loads of equity, and all that kind of stuff. The reality is we don’t always get all of that, and it’s a bit of a balancing act, and it’s about finding something that is fair for the owner and works for either us as the investors, because I am investor as well, I have a portfolio of these Lease Options, I do practice what I preach and I do have some mortgages on properties and things like that. So, it’s important when you are putting these transactions together, and we are looking at who our ultimate buyer is for these transactions, we are standing in the middle. A lot of these deals, we will trade them on because they are not in our target areas, not areas we particularly invest in. So, we just trade them on, stand in the middle and take a fee for doing that. So, regarding the structures, we really are kind of, completely different on each scale but to give a rough example of a deal…that is a deal, they need to be net cash flow and at least around about £200 a month for them to be a deal. Plus, I just mentioned these one that were taken on personally for our portfolio, they are actually net cash flow, £300 per month per property. And, we are putting £5000 into these properties and you have already got tenants in, and the owner, like I say, we always find out what the owner is trying to achieve by asking a few key questions, because they all say we need the money right now, they want to sell the properties but everyone cash bit, everyone has got a debt bit. And you usually find out what that cash bit is. Sometimes, there isn’t even a cash bit because, they are in negative equity, but they usually have got a problem that needs solving. And that problem can be something like relocation for example, we get a lot of people looking to relocate overseas, or down South, and they are always looking to buy right away. So, if they are going to rent somewhere, you can offer simply on the Option Agreement, rather than putting a £1 you may agree with them to cover the first months’ rent in advance, the first month is deposit and that goes down as the Option Consideration. So, you have paid them something. Plus, as well, when we are putting these deals together, you have got to be ethical and fair and you have got to make sure that whilst it sounds brilliant that you are buying properties for a £1, if any of these Lease Options get contested in the court in the future, you can actually say to the court, well actually, when we sat down virtually, over the coffee table negotiating these deals, or these transactions, we found out what their needs where. They were relocating at the time, we offered to pay their rent in advance, we got them what they wanted. We feel we didn’t take advantage of them, and they were represented by a solicitor, which is an absolute must, the sellers must always be represented by a solicitor. With all that in mind, makes a combination of a really good deal, and as I said, a minimum of £200 a month cash flow, and obviously, we are looking for these deals as creative deals and how we can get the maximum return out of them for investors. Obviously, there is a lot of strategies that just come about, more mainstream recently, such as, you know Rent to Rent and even though they have been around hundreds of years, they have obviously become more mainstream and public because of the courses that are coming out and obviously Serviced Accommodation. So, if we come across some Lease Options, say for instance some them we have come across that maybe only break even, in cash flow, most people think, you can walk away, you can’t help the seller. But we have got things like the tenant buyer model, so we can put a tenant buyer in the property and make a cash flow on it. Or, we can turn that property into Serviced Accommodation and charge by the night and get a nightly rate on that property. Obviously, we haven’t got a lot of time to go into detail into these strategies at gas. But it’s just looking at maximum ways of…and also the HMO strategy as well, renting by the rooms etc.

Richard: Yeah I mean think, we have got two sides of the equation, we have got the deal structure with the owner of the property, then if you are talking from the investor point of view, what are we as, an investor, going to do with that property, once we have taken control of it, to use your words…so, on the owner side, you have got things like…ok, you are going to pay them a Lease Payment, which is effectively a Rental Payment over time of the agreement. You are going to pay them an Option fee upfront which is giving them a right to buy that property in the future. And then you are going to agree a purchase price at some stage in the future but you are going to write it down today. So, they are the three main components I guess, aren’t they?

David: They are so flexible Richard, and one very key point I must get across to people that don’t understand Lease Options is, right to buy but not the obligation, you are not obligated to buy the property. Now, obviously, you can turn a Lease Option to exchange of delay on completion, formerly known as an NEDC, and our business. And you can do that, but you become committed to buying a property, contract exchange from day 1 and Stamp Duty is payable and all the nasty little charges that come on top and unnecessary searches etc. a Lease Option is extremely flexible and can be applied to anything from land to commercial units, to residential. They are very common in the commercial sector anyway and that’s where they have deferred from anyway.

Richard: Yeah, the sort of Land Option idea, make an offer, try and get planning permission, if you get the planning permission you go ahead and buy the property. Yeah, that kind of thing. Similar principal. But, you have got the relationship with the Vendor, I think it’s really important what you said as well, it’s not a property type of emphasis, it’s a seller requirement emphasis…I think a lot of people miss that. You said you are solving problems, finding solutions, there might be a property problem at the heart of it, I think I seen one just recently, about fire damage to a property or something like that. But I guess the Vendor didn’t have the money for whatever reason to put right the repair work that was required. Probably didn’t have insurance I expect, but the problem was they didn’t have the money. So, you also mentioned, you talked about exchange with delay completion, but I’m really interested in what the variations of a Lease Option might be? I don’t know want to get over complicated but you mention exchange and delay completion which is distinct on Lease Option but there is a lot of common principals, what are those variations? I guess you have got to talk it, haven’t you, when you go and talk to a Vendor? Talk us through that, talk it a little bit…

David: Yeah, well the talk it comprises of all these little creative strategies that we have, like you say, I’m not that clever I haven’t made these up, these are all that have been implemented and what I have learned from going on multiple courses and just constantly educating myself, we are talking books and audio books, YouTube, everything like that. So, all this has added to my knowledge and my toolbox that I can use and implemented into these transactions and to help people with their property and that’s all it literally is. It’s just helping people with their properties. So, some of the tools in the tool box, we would only implement based on a certain strategy. Now, the first things we look for is the numbers, so is there an equity, sort of spread in the property, the difference between if there is a mortgage on it and the market value. If there is, that’s one little box that we…we don’t pigeon hole anything, I mean just quickly on that point, a lot of people say, I want to do Lease Options, that’s all I want to do. Just Lease Options, well that’s the wrong way of looking at it. The leads that we get in determine whether it’s a Lease Option. Or whether it’s an exchange and delay on completion or whether its…as well just on that point, if we come across a lead from Scotland for example, you can actually legally do Lease Options in Scotland, because The Law Society don’t recognise the agreement and whatnot and you can’t put the restrictions on the title, the same as you can in the England. So, you have to do an exchange and delay in completion. Then it becomes a buy in sale, so in that case if you get a lead, you know straight away you can’t do a Lease Option there, that is an EDC and exchange and delay in completion. So, that’s how you differentiate and you pull out the tool box, the right tool for that job. So, we are constantly ratcheting through our toolbox, pulling out all the spanners and seeing what fits, really. And usually, a lot of the deals we come across is because of our marketing, have got no equity, and if they haven’t got equity, there is very little choice of what we can do, manoeuvrability. So, we can position ourselves and say look, you have got a mortgage on the property, how about if we or one of our partners, because again we never tell people, we are going to sell you property on for £3-5000 and we make a big chunky broker fee or anything like that, obviously. So, we always say to them, having a conversation with them, keeping it light hearted, and just asking certain questions to get certain answers from them. So, we can decide which kind of offer to put forward to them, and they don’t always agree to it but if they have got motivation, and they have to be motivated sellers or it’s not going to work with us. We can put a solution together to solve their problem, so usually its babysitting their mortgage until they are ready to buy it, we use that type of terminology, your Mrs Jones down the street, but if you are speaking to someone in our type of business, we come across a lot of landlords, and they already know what Lease Options are, so you can talk on the same level as them. And you can actually go into the complexities if you need to. Just to give them confidence that we know what we are talking about.

Richard: Ok. So, we have got exchange and delay on completion and clearly that has to work in Scotland, from what you have said. You got the Lease Option, I guess you could have some sort of Instalment Contract, type of idea as well, where you pay for it over time, so the variations would be subtle, but distinct. You know, variations of the same theme, you take control of the property today, but to some extent you are deferring when you are actually buying it. Whether it’s a lump sum with exchange and delay on completion, whether its and, indeed a Lease Option or whether its payment over time with some sort of Instalment Contract. These are some of the tools and techniques you could use, I am faming it Lease Options but you could end up re-structuring it as one of the other types, depending on circumstances. That fair enough?

David: Yeah absolutely. I mean, a quick point on that, we do a lot of deals overseas on creative terms as well. The ones in Spain for example, the owners are literally ready just to give the keys to somebody, they usually want to give them to the bank, but we say, rather than giving them to the bank, give them to us or one of our partners to take control of it and then we structure a deal and usually they end up being Instalment Contracts. And the reason why, just very briefly, a lot of them are incombered, so we do come across some with mortgages but a lot of them have been bought with cash and the owners have come back to the UK, decided they don’t want them anymore and we can usually agree favourable terms for somebody, just to spread the balance over a set period of time and then they own it at the end. So usually it’s just a broker fee payable which is my £5000, that’s a usual typical deal fee, and then legal fees and to cover the legal fees, the buyer does, they take control of the asset, pay the monthly instalment, usually for 120-180 months’ and they at the end of that term, they would just apply for the title to be transferred into their name. Obviously, there’s various, depending on what country you are dealing with, there is various protection levels you can put in place to ensure you have got the protection over the properties and the security that you need. Because you are paying the Vendor the instalment every month. So, that’s how we get creative, and we look at different ways of helping people. And again, we have got specialist solicitors that we refer to, we have got one in Spain that’s very good, we have got one in America, we have got one in Canada, you know, globally really.

Richard: Yeah, I mean, you touch on a point there, I will probably drill down into what are the sort of, best practices and things to watch out over but, having a solicitor involved is definitely one of the keys I think. Thanks for that explanation, I talk about Lease Options but actually you may be end up structuring a different lead depending on circumstances. In terms of Lease Options themselves, I think it’s still a big opportunity at the moment, when you talk about things like negative equity, as the market improves, maybe peoples’ equity position improves as well. Is it still as good an opportunity as an investor right now, then perhaps it was 4 years ago?

David: Yeah, that’s a really good question, Richard. Only time will tell, but all the time, if you look in the press, there is negativity everywhere. We have just gone through Brexit, and there is still turmoil and people in chaos about it all. There is lots of opportunity about right now, right now for example, I don’t know where we are going to be in a few years’ time, even if the market does improve there is still a lot of people in quite deep negative equity. Places like Liverpool and also the North East, where people are in massive negative equity, so even when prices do rise, they are just breaking even. Even on that point, that’s getting very deep into economics and all that kind of stuff, so, the real point I think it’s there is always going to be motivated sellers out there. There is always going to be a reason why someone wants to get rid of a property but can’t sell it in the conventional way. So, if you imagine a property that’s got no bathroom and kitchen, obviously not mortgageable by a mortgage company, you can step in, take control of that asset, with your £1 Option Agreement if you would, and depending on the sellers’ situation, you could agree to do that property up, and then get a mortgage, x it out, exercise your Option, and buy that property with a mortgage and you have created some value. This is how you can get creative with these types of deals. But to answer your question, I don’t know where we are going to be in 5-10 years’ time, right now, Options work very well, but there is always going to be, I just personally feel, there is always going to be a need for this type of transaction, it’s always going to be very handy. But this is just one strategy we are using anyway, we deal in other markets as well.so, if it dried up in the UK, we would shift our focus to a different market, where there are more motivated sellers. But, even then there are still strategies that we are implementing like, Serviced Accommodation, Rent to Rent, that type of thing really. There is always an opportunity. And because we are just a small organisation, we can move with the times, if there are drastic market changes, we can adapt ourselves, re-educated ourselves and re-position ourselves. But, if we are too big and rigid, I know some of the big B&B companies, when all they were doing was B&B back in the rising market, and then went out of business because they just didn’t how to adapt. Whereas if you can, just find out what the seller is trying to achieve and get them that the best way possible, then take a fee for doing that, we just quite quickly, carved a bit of a niche for ourselves. And again, it’s not something I have developed, it’s something that has been around for a long time, and I have just got educated on, and it’s important that you get educated on these systems and the way they are structured. There is obviously, some pitfalls to these types of things, and you are probably going to be asking me about that shortly…

Richard: You are reading my mind…thanks for explaining that. I think that being flexible as property investors, is a big takeaway there and I think it’s good to focus when you are starting out. But, have a degree of flexibility and be prepared to change direction as circumstances present themselves. Which you alluded to quite a bit. I agree with you totally. Let’s just talk a little bit about marketing, I’m curious to know, how do you find these sellers, that’s what we are talking about really, you finding the sellers. How do you go about finding these sellers that, particularly for Lease Options? I do take the point that its prescriptive, it could end up being Instalment Contract, it could end up being exchange and delay on completion.

David: Yeah, ok, just a quick point on that, as you know, I’m doing UK and overseas property transactions now. I obviously can’t market to the world, I would go broke, it would cost too much to do. So, because we have got such a niche, we are able to find people through very niche type strategies. So, a lot of the time, we are using your Gumtrees, they are very popular, but, interestingly enough, if we are using Gumtree for the overseas side of things, no one is doing it because no one knows how to put these deals together, people are limited in belief, they just think well, you can’t help overseas seller, we are working in the UK, I don’t know how that would work legally and all that kind of stuff. The build it all up and they just never do it. So, that’s really good for us, because we are able to capitalise on these type of opportunities, lots of people looking to offload their property overseas. And again, the UK ones, again we are still hitting classifieds because you see lots of people giving it a go in this business and I say that in inverted commas, because all they do is come in, give it a go, they maybe give it a go for a month or two, and contact sellers and say it didn’t work, I didn’t get a deal or whatever, but you have constantly got to be taking appropriate action and constantly speaking to sellers but also making offers as well. We have got a process with making the offers, we make them verbally, in an email and if we have got a correspondence address, we usually send them a letter in the post as well. So, it’s a bit of a system to it now, and a lot more focused. So, going back to the marketing side, we use online, offline. When we have got a patch and we have got a patch to work on, we currently hit Liverpool, North Liverpool, a certain area within an area, because if you pick out an area, say Birmingham for example, your current market in Birmingham, you would have to pick certain demographics and obviously we have got a certain criteria to hit, that makes a patch a patch for us, because we know based on property value, that is a yield, rental yield. What we will stack and type of equity level are in those properties because, you can check my registry for the peak of the market and what kind of values people are paying. So, able to determine what areas to focus on, to market to, and then we are doing the boards that everyone has seen, they work, we do handwritten letters to properties that are up for sale, we scrape data lists that we get, we have got some software that produces scraped data lists and we are able to send handwritten letters to those addresses, that gets a really good response rate. We also do something called a three-letter campaign, I learned this from a YouTube video, that one of my friends had done. I implemented it into my business and that’s been working really well. Property is up for sale, and you send them a series of three letters, and the theory behind it is they are receiving contact form you three times, and you are giving each time as well. I mean, you are giving them value by, I won’t go proper into the detail of the letters but, its designed just to keep it short and to the point and let them know that we are property buyers and that we are looking to buy in that area. And you would be surprised how many leads we get form that type of strategy as well. And there are things like leaflets, people say leaflets don’t work, that’s rubbish, they do work, you have got to be very targeted with your leaflets though. If people do the scattergun approach, 10000 leaflets to 10000 homes, you will go bust very quickly. If you concentrate on a few thousand properties and hit those properties consistently. And I think the marketing approach behind it is they have to receive a leaflet 5 or 6 times before they start responding. So, we are just doing everything, very targeted fashion, and certainly not diluted, it has to be very concentrated in a specific area, and we are implementing the on-patch kind of marketing. But, obviously, we are doing a lot of stuff remotely as well. So, we have got a website that brings in leads, we have got some good connections with some of the big, property company, like B&B companies and they supply us with leads, with JV and if we can turn them into deals. And all types of things like that, so we are not just relying on one marketing channel, you have got to have multiple marketing channel to bring leads in. Paper adverts work as well, if they are done in the right papers. So, that works well. We have got some certain magazines, I’m not going to tell you which they are because, they are working really well for us. So, we have got some magazines we advertise in, the pull in some pretty, we call them, high value leads, because we work on a lot of portfolios, and quite comfortable dealing with the big portfolios now, and you can obviously generate very good income from trading portfolios. Just quickly on that point. You have just got one seller, and say 50 properties, you haven’t got to convince 50 lots of people to sell their property in this particular way, so if you get a portfolio, its economy to scale, and everything is just basically amplified, and so are our fees, which is important as well.

Richard: You know David, normally I would be saying we probably need to keep a little bit of focus on time, but I was just so happy to let you carry on and explain all those different marketing routes and channels, that you have just outlined. I think it’s really valuable, helpful information. And that’s why I was just quiet in the background, and like, yeah that’s a good point. So, we might end up with a longer recording than probably anticipated, but I’m thinking the value is great. So, I really do appreciate it. But I do have to keep an eye on it, I’m sure people will reach out to you to talk a bit more about it. You straddle both sides of the fence as we talked about earlier, one as an investor yourself and one as a deal broker. If I try and think about it, put myself in your shoes, because I am not totally in your shoes, but the elements that you have got, not necessarily you, but people who can find their own deals, they could use an outsourced packager, like yourself, who find deals for you. Alternatively you could be you, just find deals, keep some and sell some on. So, you have a few different angles that you can get involved with the Lease Option and similar types of strategy. How would you suggest people go about considering what’s going to work for them, what the drivers are, what the considerations are?

David: Yeah, well there is going to be a few factors that come into play there, depends how much people have got to invest in a business to start with, because, even though it’s a very low cost business and it’s one of the quickest ways to get revenue in very quickly, large amounts of cash. But, you still need to put money into marketing and things like that. So, I think some of the key points to people deciding whether to keep them or trade them is; again, it depends where you are based, I’m up in the North West, a lot of properties up in this particular area, do tend to work very well, for Lease Options. If you are in the South of England or London, yeah, you know people ask me can you still do deals in London? Yes, you can still motivated sellers in London. But it depends what you are trying to achieve. If you are trying to get £10000 a month trading deals, you would need to be focusing on some of the negative equity locations, to trade some of these types of deals. If you are looking to build a portfolio, with some capital appreciation, potentially in the future—just a quick point on that as well. We have seen a massive value in the Lease Option in the longevity of the Option. So, you can obviously agree a Lease Option for a week or something, but some of my Lease Options are like 23 years left on the mortgage, so we try and get them for as long as possible, because there is real longevity in the Option. If house prices rise in that period, we get the benefit, we can exercise our Option, or we can trade that Option Agreement on for a fee. So, we are just trading a bit of paper for a very chunky fee. There are different ways you can do it, we have seen the value of the length of the Option. So, just going back to your question, trying to differentiate why you would be a trader, or an investor or both. It’s down to the individual, do they want to be a landlord? I leverage with letting agents, I definitely don’t like dealing with tenants, I definitely don’t like doing jobs on properties. Even though I done it all when I started doing them. Even my one in America, me and my wife, we hired a car, did a road trip from New York to LA, and on the way across we stopped at the property, I’d never actually seen it, we went to the home depot that was here, we bought some tiles and started fixing it all up. It was a bit crazy really. The tenants had left a right mess to it. So, I thought well I’m here, we have got a few days to spare, let’s just get on and get it done. I’m a joiner by trade, by background, so I’m quite used to getting stuck in and doing jobs anyway. So, we actually did some jobs while we were there. So, you have just got to decide, what do you really want to do? And nowadays, I don’t touch any of the properties, I try and do everything hands off if I can. In the marketing for tenant buyers, I know we haven’t really covered that strategy, but just a bit of an extension to Lease Options, if we are doing things like that, we have got companies that we use. A good friend of mine is a letting agent, and he puts it up on Rightmove, they deal with the enquiries and they put these tenant buyers in the property and wait for the completion and collect for the fee at the end. So, there is different ways, you just have to think about what you are trying to achieve, are you trying to achieve short-term cash so you can leave your job now? Which I would recommend packaging deals. If you are trying to build up a long term residual passive income and everyone wants passive, everyone talks about passive but you just got to think, do you really want this passive income, because; just a quick point on that, everyone in this industry that I’ve come across, I’ve said why you getting into this, oh I just want to leave my job, I want live on the beach, I want to travel the world, but I think people are missing a big point. You have got to be passionate about whatever you do. I’m very passionate about property, I’m passionate about helping people succeed, and you usually find I work more hours now than I ever did when I was a joiner and it’s because I actually love it and helping people. And whilst I have got a good passive income from my properties I just keep adding to the portfolio, and just let the passive income roll over really and just keep re-investing it. But, I wouldn’t really think about just giving up what I do, I could probably do that and just live off some of the income, but I don’t really think about doing that, because I enjoy what I do. And if I stop enjoying what I do, then I need to find what I am passionate about and start following my passion. I know I went slightly off on a bit of a tangent there, but I just wanted to explain that. I think people don’t really know what they want.

Richard: I have come across this sort of thing, it’s really just working out what you want, what your end game is, I call it Some Day Goal, but if that’s a short-term income replacement then things like buy a deal packaging can work quite well. To be clear, it is kind of a job, or a business, it’s very active in other words. Even if you outsource a lot of the work, you have still got to manage that and talk to people. You also talked about passive income, which you probably get over the period of a Lease Option. I think the other ingredient that’s probably appealing, is wealth creation, or asset building. It’s a low-cost way of building assets, because you don’t have to pay for them until some point in the future. So, I think that the other dimension, you can still use it for a long-term wealth creation strategy, particularly if you haven’t got that much money to start with. If you don’t really need the money until it could be quite a good idea then, as well I think, to build a portfolio or have elements of your portfolio which are Lease Options, let’s put it that way.

David: Just a quick point on that Richard, most people, the traditional investors of this world, obviously old way of doing things, whereas people putting a 25% deposit, and then leverage bank finance at 75%, and then make maybe £200 a month and then you have got a £100k property, everyone uses that example, you have got £25000 in that property and money has ran out now, you had that £25 grand, it’s gone, it’s in that property , you are only getting £200 a month, if you leverage that £25 grand and put it into a sourcing business like I’m doing, you could actually buy a portfolio, for £25 grand and it would probably produce, you could probably buy 5 or 6 properties, from a source like myself, pay me my full fee and get in £6,7 or 800 pounds a month, the end the result is the same but you are actually getting more from that asset. And, ok, you don’t own it, but you don’t own them anyway, the banks own them. So, it’s controlling your assets anyway. so, its huge leverage is Lease Option. Massive leverage and you can just consistently keep building upon that. But, the new wave of investors, sophisticated investors, are constantly educating ourselves, new strategies coming out all the time. You have got to be careful not to implement too much, because each one if a different kind of marketing strategy.

Richard: We are talking a lot about the sort of upsides and the wins, but I have got to ask you, hand on heart, what are the potential risks, or things to watch out for with this type of strategy? What should people be aware of there?

David: I’m glad you mentioned that because it’s not all, as good as everyone makes out. What can happen is if you take a property under control and a sellers about to go bankrupt or something like that, they may well have creditors that try and come after some of their assets in the future, whereas if you have got good solid paperwork, done by a solicitor, that’s lodged at Land Registry with a (inaudible) restriction, that basically means that you have got a claim, hopefully, if there is any equity, then it draws out any equity, if you have got the right paperwork, but you need to make sure that you paperwork is done properly. Because there is a potential, it could happen that if somebody did go bankrupt, and people came after their assets, the banks have obviously got first charge on the properties, they could just snatch those properties back, put them through an auction and you have just…but this is the thing you have got to think about, if we are looking at our rate on return, or our ROI, we are looking to get, me personally, I’m looking to get my money back after the first year. A lot of my investors will look to get their money back after 2 years, obviously, I have got my broker fee to cover, yes, they have got to pay me. They can take me out the equation but they have got to do all the work themselves, so they can decide what they want to do, everything has a cost, either time or money. And some people prefer to, the clever people realise that paying with money is better paying with time, because you actually buy more time then. But anyway, so yeah, that’s a really good point. On the risk side, if someone goes bankrupt, potentially it could jeopardise your Option on the property, but you have got to decide how much you have got in that property, is that property going to get repossessed straight away, as soon as you take it on, you know possibly not. Obviously, it depends on that particular sellers’ situation, there will be a process it all goes through, and you might even be able to…we use letters of authority which allow us to deal with the lender on the owners’ behalf. So, we are fully aware before we take a property on, the financial state it is in, are the over leveraged, are they being truthful with us regarding all the figures, we confirm the mortgage product, the redemption figure, everything like that. So, we put a lot of safeguards in place prior to taking them on, but there is still that element of risk, like anything, there is always a risk, but I’d rather this kind of risk than having massive amounts of debt in my own name and then something going wrong where the lender calls the loan in because you have breech their mortgage terms and conditions by running it as a Serviced Accommodation and you shouldn’t have, or something like that. Then potentially, I don’t want to open a can of worms, when I say that, I know Serviced Accommodation is waivered along for the moment, but we won’t go into that. But, I will say they are the kind of risks that could jeopardise these properties, so with Lease Options, I personally think they are very low-risk compared to every other type of strategy.

Richard: Yeah, I am glad you pointed out some of these things, because we are talking about creative financing and we are talking about all the upsides and low cash in, leverage, deferred payment, they are very, very appealing. But, bottom line is, with it being a creative strategy, it’s also to some extent, an advanced property strategy. And, you need to have an awareness of all the potential risks and be able to have systems in place that help manage this. You talk about bankruptcy, the reality is, not that many people actually go bankrupt, more likely, is they might fall into arrears on a mortgage and have that property repossessed. So, repossessions probably happen more than bankruptcy. But, you can take steps to protect yourself from repossession, more than bankruptcy. For example, if you are making payments directly to the lender, or you confirm that they have been made, that lender is not likely to step in for non-payment issues. And, manage that risk there, but for bankruptcy, if they go off and do whatever they want and become bankrupt then it’s very hard to actually control that. But, it’s equally not super common. Bankruptcy is a kind of last resort for a lot of people.

David: Yeah absolutely. I think you have mentioned a really good point there. We always recommend people pay the lender direct. Obviously minimises anyone mis-spending any money, especially if you have got a vendor who is clearly not able to handle money properly. You have got to be able to take a proper view on it, the common practice for it, is to pay a lender direct, you just get the account numbers and send the funds over every month to pay that mortgage. So, you are actually protecting yourself that way by doing that. And, like you say, if the mortgage is getting paid, why would the lender repossess that property? Its only if the payments fall into arrears, then they are going to start looking at the property.

Richard: Thanks for your frankness. I guess I have just got a mind now on drawing us to a close, there’s a couple of things I just wanted to ask. First of all, you have talked about education books and other resources, any particular resource that you might recommend that our listeners go and find, that’s helped you, particularly in the area of Lease Options, and similar types?

David: Yeah, well, Lease Options in particular, there is obviously quite a few, I have got a manual that I can give away as a resource, I’m happy to give that away which goes into the nuts and bolts of Lease Options. But, a lot of the time, there is just so much information out there, sometimes you are a little overwhelmed because of the information. There are webinars every other week on all these strategies. If you are into really Lease Options, people wanting to do it, then YouTube, just put in Lease Options, and just start educating yourself. There are lots of webinars and things that will really help you do some deals. Books wise, I mean I have read the Rich Dad, Poor Dad, the 4 Hour Work Weeks, and if you just take little bits out of these books yourself, obviously taking some of it with a pinch of salt, because some of it is airy fairy kind of stuff, but just drawing some of this stuff out of books. But, some other things actually, at helping me actually, I’m working with a Business Coach, my mindset is, I didn’t realise how important that is in business, and I have been working on mindsets, watching a lot of Grant Cardone videos, Brendon Burchard, he is very good, on productivity and just managing your time, and planning things. So, there is lots of resources out there, I’m just constantly educating myself, on these, on everything really. Just constantly improving my mindset and everything like that.

Richard: Well, I think that is a takeaway, I think you used the phrase very early on in the conversation, constant education. I would say, for anyone involved in property, I would definitely recommend constant education. And this podcast is an example of that. Equally, I think specific education, so you just talked about, go to YouTube, put in Lease Options and watch a bunch of videos around subject Lease Options. So, a great takeaway. You mentioned the manual, is that something that you can make available to listeners of The Property Voice?

David: Yeah, absolutely yeah. The manual, it doesn’t cover any of my overseas stuff currently, that’s kind of, a little bit separately. But the Lease Option one incorporates marketing techniques, negotiating techniques, direct to vendor techniques, all these different types of things. Everything from packaging it, finding the deals to selling them to an end user, to an investor, how to put property brochures together and present them to investors. So, the whole thing is kind of there, loads of people can go out there and get the information, but people have trouble implementing it, because they need somebody there, usually to hold their hand through transactions. You are going to come up against the stumbling blocks from time to time but, be happy to make that available to all your listeners.

Richard: What’s it called?

David: Just kept it simple, it’s The Lease Options and Deal Packaging Manual.

Richard: I think we will just say Manual and if people can reference The Property Voice, and then how do they get hold of you to get hold of the manual, David?

David: Well I can obviously send it by email, sometimes I send attachments via Facebook, so if people are adding me on Facebook, I can just ping them one over by Facebook. In fact, that seems to be a lot quicker than email these days, just sending files digitally via Facebook and things like that. So, yeah happy to do that via email, Facebook, Skype, whatever.

Richard: What’s your email David?

David: You can send emails to sales@fastcompletion.com

Richard: I just wanted you to say, because some people just listen to this in a place where they can’t write things down but they can remember it. But we have show notes, so I will make sure all these links are in the show notes so people can get a hold of you. But just to clarify, if you want David France manual on Lease Options, just either Facebook him which he quite likes by the sound of it, or we have got the email, sales@fastcompletion.com and I’m sure that it will go from there. But, I just want to wrap up really and say thanks so much, I have deliberately let the conversation flow, because you just letting out so many nuggets of information and I think that’s really, really helpful to our audience, I really appreciate it David, thanks so much.

David: No problem at all, that’s fine and thanks for taking the time out to record the call.

Richard: No worries at all, I’m sure we will be speaking to you and I might even grab a copy of that manual myself!

David: Haha! Ok, brilliant, cheers Richard

Richard: You take care, bye-bye

Property Chatter

Interview with Subject Matter Expert: David France.

Resources mentioned:

Enter the term ‘lease options’ into YouTube and then watch some of the video training that appears there.

To receive David France’s Lease Options Manual, just send him an email quoting the word manual and referencing The Property Voice to: sales@fastcompletion.com

In addition to potentially controlling a property for as little as a pound, David also talked about the potential to develop a business or additional income stream by finding and packaging deals up for other investors. Under our R-I-G-H-T property strategy model these would be H – handling other people’s property and I – investor services to earn fees from a related property activity. It is clear these two strategies and revenue streams could be run side-by-side as well, just as he does.

David stressed the point of constant education as Tom did last week and we also discussed the idea of specific education as well. This was very well illustrated when he talked about lease options not being recognised and so enforceable in Scotland for example.

David did highlight some of the potential pitfalls with the strategy and that’s fair enough as we should all be aware of the risks and drawbacks as well as the potential upsides in any property strategy.

Lease options may suit people in negative equity, however, as we discussed it is not the only situation where it could be a tool in the toolbox that we could use. Quite rightly, David mentioned finding solutions to the problems a property owner has rather than being prescriptive in that solution. That could lead to the right solution being an exchange with delayed completion or an instalment contract as just two potential creative financing solutions that we could deploy in substitution to a lease option. So, becoming effective at understanding a property owner’s problem and motivation is at the heart of this type of strategy, which may involve a lease option one day and another solution the next.

Finally, David raised the point of the sophisticated property investor. That’s people like you who listen to podcasts and other educational material like this. You see, labelling us as landlords really can be a bit misleading at times, when you consider all of the different permutations and structures that we could become involved with. The last time I counted up the number of different property strategies, it was a number in the forties. Some claim it could be as high as a hundred…that’s an awful lot of sophistication!  Many of the advanced property people, myself included, have added multiple strategies to the armoury over time for a balanced portfolio, not only in terms of asset and tenant type, but also in terms of commercial and financial structure too.

Let’s walk before we start to run though and leave this point there for now…although I rather suspect it may recur when we do a wrap up at the end of this series…

I am sure you will have found David’s knowledge on the subject of lease options to be sound and helpful. Don’t forget to get in touch with him if you want a copy of the lease options manual that he mentioned either. His contacts are in the show notes, or just drop me a line and I will put you in touch. Just mention The Property Voice when you do as it always helps our guests know where you heard them.

Right, that’s enough from me this week. We take the creative financing discussion onto another level next week when we talk about one of the current buzzword strategies…rent-to-rent, so let’s look forward to lifting the lid on that then shall we?

As always, email me personally if you want to talk about anything from today’s show or more generally in property investing to podcast@thepropertyvoice.net, the show notes will be over at the website www.thepropertyvoice.net

Other than that, I would just like to say thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Property Financing: Lease Options – Control an asset you don’t own for profit…self-source or outsource as you prefer | S3E12 appeared first on The Property Voice.

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This week, we can look at lease options as a vehicle for our own property investing purposes and from the perspective of developing an additional income stream by packaging them up for other people. Control a property for profit from as little as a pou... This week, we can look at lease options as a vehicle for our own property investing purposes and from the perspective of developing an additional income stream by packaging them up for other people. Control a property for profit from as little as a pound or sell it on for several thousands of pounds instead. […] Richard Brown & Casa from www.thepropertyvoice.net clean 56:40 3581
Property Financing: Lease Options – A retired footballer returns from the USA to build a portfolio using lease options | S3E11 http://www.thepropertyvoice.net/property-financing-lease-options-retired-footballer-returns-usa-build-portfolio-using-lease-options/ Wed, 23 Nov 2016 05:59:31 +0000 http://www.thepropertyvoice.net/?p=3561 http://www.thepropertyvoice.net/property-financing-lease-options-retired-footballer-returns-usa-build-portfolio-using-lease-options/#respond http://www.thepropertyvoice.net/property-financing-lease-options-retired-footballer-returns-usa-build-portfolio-using-lease-options/feed/ 0 <p>    Over the next few weeks, we shall look at how we may not actually require any financing at all, at least to begin with. We will consider how we can leverage an existing property owner’s asset and potentially their existing finance to fund our property investments. Today, we start with my discussion with […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/property-financing-lease-options-retired-footballer-returns-usa-build-portfolio-using-lease-options/">Property Financing: Lease Options – A retired footballer returns from the USA to build a portfolio using lease options | S3E11</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p>  

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Over the next few weeks, we shall look at how we may not actually require any financing at all, at least to begin with. We will consider how we can leverage an existing property owner’s asset and potentially their existing finance to fund our property investments. Today, we start with my discussion with Tom Appleton, a former professional footballer that ended his playing career in the USA before returning to the UK to build a property portfolio using lease options in the most part.

Resources mentioned

Book reference: Escape The Rat Race – Barry Davies

Contact Tom: tom.appleton01@gmail.com

Richard & Damien’s 360° Property Business Workshop or drop me an email to be added to the wait list for our next event instead, podcast@thepropertyvoice.net

Link to the Podcast feedback survey

Today’s must do’s

If you like the idea of lease options, then I would suggest doing two things:

  1. Reach out to Tom and ask him about his experience at the coal face
  2. Get yourself fully educated and represented by a solicitor that has experience in such structure (I can point you in the right direction here)

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com in case you would like to get yourself a copy to accompany this series

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

As I mentioned a couple of weeks ago, we are starting to get more alternative and more creative too when it comes to property financing methods. Over the next few weeks, we shall look at how we may not actually require any financing at all, at least to begin with. We will consider how we can leverage an existing property owner’s asset and potentially their existing finance to fund our property investments.

The next two weeks are all about lease options, as we speak to both an investor and a deal sourcer that specialise in them. Today, we start with my discussion with Tom Appleton, a former professional footballer that ended his playing career in the USA before returning to the UK to build a property portfolio using lease options in the most part.

Let’s have a listen as Tom’s shares with us his experience in applying lease options as a creative financing method for property investment.

Richard: So, here we are again on The Property Voice, part of the third series, where as you know, we are looking at financing in particular, creative financing techniques in property. And I’m very pleased to say that I am joined on today’s show by Tom Appleton. I will let Tom introduce himself, but I am particularly interested in his background, and his sort of relative normality if you like, he is going to talk particularly I think, about Lease Options, how he got into it in the first place, but Tom, are you there?

Tom: I’m here Richard, how are you?

Richard: Yeah I’m absolutely fine, thanks very much. It’s really good to get you on the show, thanks for joining us today.

Tom: No worries at all.

Richard: Great, well, let’s just get straight into it then, I like to move through these questions quite quickly, give the listeners something to chew over. But, could you just give us a brief outline and an introduction to yourself, and your background, and in particular, your specialist knowledge and or experience in the area of creative finance in general, but Lease Options in particular?

Tom: Of course, yeah. So, I probably came back from my footballing background. So, I played football in my youth, then I played for professional teams till I was 18. I went to university, did three years at university, then after that I thought, I’m going to get back into doing something with this football. So, I went to America and played football in Los Angeles, very fortunately. Sadly, I got a very serious injury, after a year a or so, so I was looking for other things to do from that point. Although I was very interested in property when I was at university, I came across a lot of property investors, obviously, your landlords, all that sort of stuff. So, when I was in Los Angeles and got this football injury, I came across a few people who were fairly big property developers over there. They had a few businesses in property and various different things. And, obviously, that got me very intrigued. So, I met with them more and more as the year went on, and I’m not sure if you know or not, but Purchase Lease Options are actually fairly common in America. So, although in England they aren’t, they are not that common, in America they are. I know a lot about Purchase Lease Options in America, how they are done, and various different things around that area. So, that’s initially how I got introduced to Purchase Lease Options. I was in America for another 2 years’ after that, I didn’t do anything myself in property but I had learned a lot from these, now friends, that I had met over there. I set up my own coaching academy, my injury got too bad, so I ended up coming back to England. I thought well, I really enjoy property, it’s something I really want to get into. So, I started plotting my property journey when I came back to England. And obviously, I like the strategy of Purchase Lease Options. They weren’t that common in England so, I thought it was something I could take advantage of.

Richard: Yeah, and when was that, when you came back to the UK, Tom?

Tom: I came back at the start of 2012.

Richard: So, just four years ago, still quite a young man then I guess?

Tom: Yeah, I have just turned 30.

Richard: Congratulations!

Tom: Not too young anymore.

Richard: Yeah, I suppose that’s one way of looking at it. I tell you what, someone who likes football and property is definitely a man after my own heart anyway. So, it’s easy to talk to you that’s for sure and fascinating that at uni you got into property, presumably looking from the tenant point of view at the landlords, at that moment?

Tom: Yeah, I mean, probably my second year of university, I was going on a viewing to view a few properties, and I got picked up in a Range Rover, and I was thinking…this guy seems to have done ok, I have got to get speaking to him. It turned out he wasn’t the letting agent, he was the owner of the properties. So, that sort of got me intrigued, as a young 19-year-old, how this guy…that’s what really got my attention around property from that early age, while I was at university.

Richard: So, well done. And I agree with you actually, that in terms of Lease Options, or Purchase Lease Options as you like to call them, they are more popular in other places, particularly the US, I think Australia as well actually. They are growing in popularity here but, we often tend to get what The States gets about 10 years later, so you are ahead of the game in that respect. Why don’t you just tell us a little bit about Lease Options, or Purchase Lease Options, as you like to call them, what are they exactly?

Tom: So, the Purchase Lease Option, basically is a delayed purchase. So, obviously, you will set a certain timeframe you will lease the property for. So, you will lease the property from the landlord, and then the Option side of it is a set Purchase Price, you will agree with the vendor, then you can exercise that Option, any time in the period you agree with the vendor. So, say 5 years, you can agree with the vendor, that you are going to purchase this property anytime within the next 5 years. You will then lease the property in the meantime so you can use it for the cash flow, which of course we will talk about a bit more later. And then the Option side of it is the actual purchase of the property which is a set price.

Richard: Ok, so, basically…did you say a deferred purchase?

Tom: A delayed purchase.

Richard: Delayed purchase, yes. So, that would be different to say a deferred completion type of contract. It’s just an Option, to buy it at a future date. So, just drilling into the detail a little bit, in terms of how it might work in practice, just talk us through the things you kind of look out for in a typical Purchase Lease Option transaction. Things like, how long a contract it might be, lease or rent payment levels, the option, just talk us through some of the mechanics or the components, if you like…

Tom: Of course, yeah. So, I primarily invest in HMOs, I have got a fairly large portfolio of HMO properties, and the normal sort of thing you will find with HMO properties is, they are owned by landlords. So, it would depend on what sort of issues or problems they have got with that property. A lot of the time, it will be that they can’t rent the property out. The property is very tired, it’s not attractive to tenants anymore, there might be an occasion where they have got negative equity on the property, things like that. So, that it’s the motivation from the Vendors side, of how it might work. So, when you are then negotiating with the Vendor—I mean a Purchase Lease Option can be sort of any, it’s a contract you can do anything with really. So, you can give it any sort of length you want on the time you are going to lease the property for, and you can agree any sort of Purchase Price. So, a typical length I like to do, is anything between 5-7 years and that’s basically because it’s a long enough period for some capital growth on the property, but it’s obviously not too long where, I don’t know, 10, 12, 15 years down the line, where the vendor might not be too happy with leaving it that long, or I mean, even yourself, you want to eventually own the property outright. So, I like to do between 5-7 years, it’s a good time for capital growth, also, not too long where you can make the purchase and own the property then.

Richard: So, typical length, obviously, that’s flexible, but you like to aim at 5-7 years, it gives an opportunity for a little bit of capital growth to kick in. So, that looks at the Purchase Price bit. Now, you are agreeing to buy that property today, but, you won’t actually pay for it till 5-7 years’ time. What, typically, would you set the Purchase Price at? What are the drivers that would determine what that Purchase Price in 5-7 years’ time might be?

Tom: So, again that comes down to negotiation with the Vendor, but primarily you want to get what the market value is of that property today. For example, in my area in Leeds, where I invest, you might get a 5-bedroom HMO at the market value of £200000 today. So, you will get an Option price of £200000, then obviously, you can purchase it at that price at any time during the Option period you have. Obviously, I normally do 5-7 years. So, I can purchase that property for £200000 any time within 5-7 years. Obviously, that then gives you the advantage of hopefully, getting some capital growth within that time.

Richard: Ok, so you would normally try and set the Option Price in the future, at todays’ market value? And I guess, that’s probably because you are using the HMO strategy as well and you can…we will come on to it, but I daresay you are making some decent cash flow out of the property as well, is that right, yeah? Could be a scenario though, and I know what you have said is basically you can do anything you want with it, you need to understand what the Vendors position is and what their motivation is. But, for arguments sake, if the market value today, was let’s say below their mortgage, I presume that might have an influence on what the Purchase Price might be as well?

Tom: Definitely yes, I will give you an example of one of mine I did last year. This was a 6 bedroom HMO, the landlord was still wanting to rent it out but, he had obviously all the regulations, he had a HMO licence and everything, but he couldn’t rent it out, it was looking very tired. So, this landlord bought at the height of the market, back in 2007, which was a very inflated price, so, he actually had a mortgage on there for £220000, and the actual value of the property today is about £190000, £195000, so, basically when we were negotiating the Option, obviously, you want to be as fair as possible with the Vendor also. Sort of come to a win/win agreement with them. So, basically, we set the Option price at £220000, which was his outstanding mortgage. I’ve actually got a slightly longer one on that, its 8 years on that one, which is probably the longest one I have done, but because that was the top length of his mortgage as well. And, obviously, because of there being a bit of negative equity there, you need a bit more time to come up in value, so when I come to exercise the option, hopefully it will have gone over the mortgage amount and also a bit of capital growth for myself as well.

Richard: Yeah, well. I want to kind get into the motivation and drivers from the owners point of view in a second but, just to sort of pick at the bones of what are the typical components. I guess there are two other bits we haven’t talked about too much. One, is the lease bit or the rent payment and the other bit is the Option fee. So, what’s typical for those types of things?

Tom: So, the Option fee, typically is £1, and that is what it takes to exchange on an Option. it’s also why it’s very attractive to investors and things as well. So, that is a typical amount you would pay to get the Option.

Richard: Sorry Tom, so you pay that beginning that £1?

Tom: Yeah, so, through your solicitor, you want both sides to be represented by solicitor, and I have my own solicitor that I use for all my Purchase Lease Options, and everything. And then, I can recommend a few to the Vendor, if they are not too sure of any that specialise in that area. And then, through the solicitors, you would then exchange on that Purchase Lease Option contract for £1, typically what you would pay. Obviously, you have got solicitors fees and all that sort of stuff on top of that. Regarding the lease thing, that obviously again is negotiable. The great thing about the Options is, for me anyway, I’m quite entrepreneurial, I like that side of it, the creative side of things. You can be very creative with these things. And obviously, the solicitors are drawing up the contract, you can put forward how it’s going to work. It’s a great thing for investors, if you like that sort of thing. So, again, you are looking for, does the Vendor have a mortgage on the property, how much the mortgage is, what their interest rates are, is it variable, is it fixed, how long is it fixed for? So, you want to get all that information, because obviously, you can’t help the Vendor out if you are not aware of that in the top negotiator or the top Purchase Lease Option on there. So, for example, if the Vendor has got a mortgage of £600 per month, make the numbers easy, then they are paying that every single month, you can sort of negotiate a good price, with the Vendor on lease per month. So, again, if their mortgage is £600, you can sort of…I personally like to make it a bit more attractive for the vendors, so I might start my negotiating slightly higher than £600. So, if they are making a bit of cash flow during that time as well, it’s more attractive to them as well, they are getting something out of it. And obviously, that determined by what you can rent it out for as well. There are occasions where you might only be able to cover the mortgage, so that’s would make it work for you, cash flow wise for yourself. So, yeah, basically they might have a mortgage for £600, and you may pay a lease fee of £700-800, so it makes it very attractive to the Vendor also. That’s a set amount, so obviously, once the contracts are drawn up, you are legally obliged to pay that lease fee every single month. Just like you would with a mortgage payment. Obviously, that paid to the Vendor once a month, during the length of the Option Period.

Richard: So, its guaranteed payment to them effectively then, isn’t it?

Tom: Yeah, definitely, guaranteed payment to them. I treat all of my, any Option I go into, I treat it as if I am definitely going to buy the property, and you will be doing the right thing, the Lease Fee is basically a mortgage payment to me. I see it that way, you are legally obliged to pay the amount.

Richard: It’s interesting, because you have kind of pegged your Lease Fee, I appreciate what you said though, it’s flexible and you can just discuss and negotiate. It sounds like, you try and peg your payment to the owners’ mortgage payments. You didn’t mention market rent there and I am just curious about that. I guess, that could be something else you could peg it to, is that, would that be fair?

Tom: Yeah, the thing you have got to look for, is what is the average amount each month for the Vendor. Obviously, it varies on which strategy you use, so, again say the mortgage amount is £600, but the rental amount for that area is only £550, obviously, it wouldn’t work. So, you have got to, sort of, look at those things. With HMOs, obviously, you can get much more rental income. So, you might have a mortgage payment of £600, but the rental now that you can get in that area might be say £1500-£1600 per month. So, then it works a lot more in your favour as well. And also, also the Vendor is happy because you might be paying the £700-£800 on the Lease Fee.

Richard: So, I think that’s great that you start from the position of the issues that the Owner or Vendor might have, because sounds to me like, you are trying to, almost, tailor make, a proposal, which fits their needs. Is that fair?

Tom: Definitely and I think that is definitely key for creative finance and deals like this. If you were going there and throwing a proposal at a Vendor, it might not suit them all. You see, if you don’t know what their mortgage payments are, maybe it’s £600 per month and you say, well, I will lease it from you for £400, if they if they do agree to that…sadly some people get into bad situations, and they might be that desperate that they agree to your Lease Fee of £400, their mortgage is £600, and then 2-3 years down the line, because they agreed to this bad deal, they start getting into trouble, any problems, that’s going to have an effect on you as well. If that Vendor can’t make the mortgage payments, because you are not even covering them, if they went bankrupt or something, then obviously, that’s going to affect you as well. That could affect your Option.

Richard: Yeah, exactly. So, we will come onto that, maybe some of the potential downsides later I think, if that’s ok. Just to finish off on this section though, you personally like HMOs you mentioned. When we first spoke, I know that you mentioned other things, but do you think you can tie other types of rental strategy to a Lease Option? Or indeed, not necessarily rental strategies, but what else can you do once you have got the property, what other property strategies would you consider, in other words?

Tom: Yeah, again, a different thing…I have got a couple of single lets that I have done Purchase Lease options on. So, again you can do it on single lets, obviously, the mortgage payments might be £100-£200, you can cover that, you can maybe rent it out for £400-$500. You can LHA strategy as well, I don’t personally do that, but you could get a Purchase Lease option on a single let and you can use the LHA strategy and you can get much better income from. There is also flipping properties on this, so, you could do an Option, lease the property short-term, you could give the property a refurbishment, add some value, do some small development, maybe add a conservatory or something. So, it might be more of a short-term Option, maybe 6 months’, 12 months’. If you do the property up, or you can sell it and sort of make the equity growth, that you gained on the development side of it.

Richard: Yeah, and I guess you could also do tenant buyers or things like that, couldn’t you? Or, more long term…I guess what we are driving at is, it’s quite flexible.

Tom: Yeah, definitely. So, again. Like I said, it’s a strategy I really like, you can be very creative with it. Its tailor made to suit the Vendors needs and also your own needs, which makes it a very win/win sort of situation. And, why for me, it works a lot with Vendors, and people in situations like that.

Richard: It’s interesting you say, it works a lot with Vendors. I guess, in the downturn we had roundabout, you know 2008-2010, in particular, one of the most obvious drivers, that people might have had at that point in time is, negative equity. And you mentioned that earlier, but is that the only trigger or motivation, why an Owner or Vendor might consider to do a Lease Option? you touched on a few, I’m just curious to know if, in other words, is Lease Options only suitable in a down market, or is it suitable in other situations and other market cycle positions as well?

Tom: Yeah, I’m of the opinion where there is always Purchase Lease Options out there. The market does sort of dictate sometimes, obviously in a down market, where people are, as you said, in negative equity, things like that, there are going to be a lot more opportunities to do Purchase Lease Options. Because the market has picked up a bit now, I’m finding they are not as many Purchase Lease Options, but they are definitely still out there. And, so I personally think they can work in any sort of market. Again, because they are creative, they are flexible, you can come to a good agreement with both parties. I think they are really good. I mean, there are all different sorts of situations, I have got a few of HMO properties, where the Vendor was in negative equity, but I have got a lot them where, sometimes they might be an un-incumbent property. So, they have got no mortgage on the property, I have got one occasion where, the Vendor doesn’t live locally, they actually live down South, but the property was looking a bit tired, but they had no mortgage on the property. So, when I spoke to the Vendor, I said well if you sell the property, what are you going to do with the money? They said probably leave it in the bank, so, again can be a lot more creative and this is where that sort of, creative side, comes out. So, I said well if you put the money in the bank, you are going to get 1 or 2% in the bank, this is an opportunity I could offer them a Purchase Lease Option, I said well, if pay you say £800 per month Lease Fee, guaranteed rent every single month for 5 years, that’s going to be 6% a month rather than what the bank would, 2%. So, again, that a situation where the Vendor was well-off, they had a great job, no problems, un-incumbent property, but I sort of tailor made a solution. Our probably made much more sense to the Vendor, to make more money during that time as well, they got the Purchase Price they wanted, during the Option Period, they obviously made a much better interest rate, than putting the money in the bank.

Richard: I guess, you are really going to drill into this in a second, in terms of how do you find these people. But, you are touching onto the potential benefits, and I wanted to just ask you about that. You know, what’s in it for the various stakeholders, you have got the property owner, you, as the property investor and you have got tenants, broadly as the stakeholders. What are the typical benefits that each party might look to with a Purchase Lease Option?

Tom: So, basically, from the Investors point of view, my strategy, so I will give you the example there, which I just used. I did this deal in I think, it was about a year and a half ago now. So, we agreed on a £800 Lease Fee, every single month. We agreed on a 5-year Option period, at a Purchase Price of todays’ market value. So, the Lease Fee is £800, I personally rent to professionals, so, I do an all bills included package, for the tenants as well, so all bills included, so normally about £350-£400 a month. I do, obviously, a TV package, Wi-Fi, all that sort of stuff, which from a tenant point of view is very good. And then I can rent that property out for £2300. So, I make like £1000 per month on that property, cash flow net. From the Investors point of view, you are obviously making great cash flow there, I have got an Option price now, so in the next 5 year, it’s very likely I will get some good capital growth there as well. From the Investors point of view it’s great at getting both cash flow and capital growth. From the Vendors point of view, in this situation, again, they didn’t live locally, so it was a bit of a hassle for them, they couldn’t get it rented out, it was tired, they had to spend a bit of money on the property, it was un-incumbent, they had no mortgage on there. So, from their point of view, they are going to make more money than they would selling it now. Plus, they were just going to leave the money in the bank. So, I’m giving them a higher lease fee, guaranteed every single month. They are making…I think it worked at something around 6.2% a month, rather than the 1-2% sitting in the bank. So, from the Vendors point of view, they are making much more money, it’s no hassle for them, guaranteed. Not have to find tenants, not have to find money for maintenance, all that sort of stuff. It’s completely passive for them. So, from their point it looks great as well. And from the tenants point of view, so, during this period I have creative a management company around my HMOs, privately managed, I have my own property managers, all that sort of thing there, which privately manage my properties. And we try and do it all to high standard. We want the service to be good, all the all-inclusive package, we have cleaners twice a month who come around and clean all the properties and make sure the standards are kept high. So, form tenants point of view, from that sort of angle of it as well, the tenants are getting a great house to live in, in a great location. So, that’s sort of in my opinion, why it works so well for each party.

Richard: Yeah, I can see that, there is definitely triggers of interest for all parties with this strategy. So, I have got to ask you then, how do you find these people then, that will agree to Lease option their property to you? Because they are not advertising on Rightmove, are they?

Tom: No, they are not! So, basically, I go straight to the Vendors, try and market straight to the Vendors. Obviously, because my strategy is HMO properties, I look for a certain size of property in a certain area. So, in Leeds, big university city, there is a lot big properties like that where they sort of, live and everything. So, I target those specific areas. So, I will do letters straight to Vendors, if we see a certain amount of properties that we think are very suitable to HMO. You can go on the Land Registry, pull off the details or send a letter straight to them. Agents, as well. A lot of the time, agents can be very receptive to Purchase Lease Options as well, Letting Agents in these sorts of areas. From a Letting Agents point of view, they are looking at the properties, they are a complete wreck, the landlord doesn’t want to spend any money. It’s very difficult for them to get it rent it out. If you are going to speak to the Letting Agent and saying, look, I’m going to spend a bit of money on this property, doing it up, making it look nice, it’s going to make it much more easy to rent out. You can sort of give them a finders’ fee, or something so it’s a win situation for the Letting Agent. Obviously, you can get contact with the landlord that way. Which is a strategy that works very well also.

Richard: So, direct to Vendor as you say. I like the personalised approach. So, basically you find the property, then track down the owner and then write to them individually, yeah, I guess?

Tom: Yeah definitely. Things like the HMO register and all that sort of stuff as well. There’s the owners, property that they own, their address so you can send letters to their address, do that as well. And a sort of personal approach. Approaching them personally and seeing if they have got, you can sort a solution for any problems they might have with the property.

Richard: Great, and I guess from the Agents point of view, you are talking Letting Agents point of view. If you can, reduce their hassle, make their life easier, but also potentially, they still get some sort of financial reward; a finders’ fee or ongoing Letting Agents fee, I suppose, could happen as well, couldn’t it?

Tom: No, definitely. From the Letting Agents point of view, they have got a property that is pretty much impossible to rent out, they are not going to make any money on it, it’s becoming a hassle to them. You can say to them, look I will pay you a finders’ fee, come to an agreement with them, then you can give them a financial reward also, so that it benefits everybody.

Richard: Ok, brilliant. If someone is looking to get into Purchase Lease Options now, what sort of advice, or general tips and pointers would maybe give to them if they are starting out today?

Tom: Definitely educate yourself. So, I mean, I met a few people in America where it is a bit common. I sort of, sought them out afterwards, found out a bit about them and what they did, and I sort of tried to spend as much time with them as I possibly could. Sort of, like a mentor, if you like, where you learn as much as you can about a certain thing. And it was the same when I came back to England. I found, I tried to find people doing these sort of strategies, how were they finding them, what are they using? So, you can really educate yourself on it. Education is really key in this sort of thing, you don’t want to go in there and do something wrong. You want to be able to speak to them the right way, the language you want to use when you are talking to them, things like that. Which I think is really important. So, I’d definitely say, that educating yourself in that area. It isn’t that common anymore. A lot of people won’t have heard of it. So, if you do educate yourself you can come about it in the right way.

Richard: Yeah, I mean, it’s a good point, because if you walk into a Vendor, pretty much first meeting and say ’How do you fancy a Lease Purchasing this to me, and I will buy it from you in 7 years’ type of thing… they are just going to look at you as if you are bonkers. I’m pretty sure, you don’t actually put it to them that way, even though that’s the structure we have been talking about…

Tom: No, definitely. You can get into the language you want to use. So, you go into a Vendor, and I’m sure if any of your listeners are listening now, they have never heard of a Purchase Lease Option, so if someone came up to you and said ‘Can I buy your house on a Purchase Lease Option?’ you would be like, what do you mean, what’s that? You would probably be frightened from it. So, you want to approach it in the right manner, again, using the correct language. So, it might be, I am interested in your property, but it doesn’t make sense to me now financially, whatever the situation might be, but I could do it over a delayed period of time, and that when you can start negotiating on the length of the Option, obviously you would find out things like mortgage payments, if they have got them, things like that. Then you can negotiate on that. And then maybe a bit further down the line, you can start using language like, this is a Purchase Lease Option. But definitely initially, you want to be using, basic language, things like a delayed period of time, a delayed completion. I want to purchase your property, but in the future, things like that, to make it much accessible and easy for people to understand.

Richard: Yeah, and I guess, you have to be prepared that not everybody is going to get it. And you have go and talk to quite a lot of people, before you get that yes.

Tom: Definitely, again with these, you have got to speak to a lot of Vendors, because it might not suit that persons’ needs. You can’t force something that’s not going to work. So, you have got to find people where it is a good solution for them. There is no point in trying to make something fit that doesn’t.

Richard: Yeah. So, we talked about some of the upside, we talked about how to approach people or find the deals in general terms. But, what about the kind of ’gotchas’, things to watch out for, the downsides of Lease options, what should people be aware of to protect themselves?

Tom: Definitely the main one, is make sure you use solicitor, because obviously, these are contracts, you hear of some horror stories. People just doing these on one piece of paper and saying, just sign here, this is our option Agreement. If something did happen in the future, there was any problems or arguments with the Vendor, which obviously, you hope would never happen, then, whether that would stand up in court, this Option Agreement that you have drawn up yourself, is very, very unlikely. So, you want to make sure you are both represented legally by solicitors. Like I said previously I have got my own solicitor that I use for all mine now. But, they are absolutely brilliant, specialise in this sort of area. I know a few other ones that I can recommend to Vendors if they are looking for them as well.

Richard: The key there was for both sides to use a solicitor, wasn’t it?

Tom: Yeah, definitely. So, you want to make sure the Vendor is getting represented legally also. So, that they can get the correct advice, all that sort of stuff. To make sure they are aware of everything, how it works, all that sort of stuff.

Richard: So, the legal representation is one. Just on that subject, do you have to register anything at Land Registry?

Tom: So, basically, the solicitors will do it. So, they will probably put a legal note on Land Registry. The option will go on Land Registry basically. Once the contract has been signed and everything, it is like a lock out agreement, so, the Vendor can’t sell the property without notifying you. At the end of the day, if the Vendor did try to sell the property, and you have got the Option on there, it would be flagged up straight away, at Land Registry, that you have got this Option. you would have to be notified before that could happen. Which obviously means that, if you have got this Option, you are not going to go on and sell it so, a good thing to know from the Investors point of view.

Richard: And, just to be clear, you mentioned earlier, if the Vendor has a mortgage and maybe doesn’t maintain payments, that there is a potential risk there, isn’t there? If, for whatever reason, payments weren’t kept up to date, the Lender could step in and take their property back, couldn’t they?

Tom: Definitely. Something I do, if they do have a mortgage on a property, I will pay the mortgage direct. So, you can speak to the mortgage company before the contracts sorted and say to them, I will be making the payments. And then you can make the payments direct to there. It does depend on the Vendor also, if you have a great relationship with this Vendor. I have done, for example, Purchase Lease on a single let property with a family friend. But, this is probably a few years ago. And what they do, instead of me sending straight to the mortgage company, they send me proof of payment every 3 months, of the mortgage. There are different ways of doing it, but I would definitely recommend pay ing straight to the mortgage lender. But, if that’s not possible, things like getting proof of payment, every 2 or 3 months would definitely be recommended.

Richard: Ok. You said talk to the mortgage company, do you need permission from anyone to do this?

Tom: Yeah. On HMOs and things, they are always Buy to Let mortgages so, you have got permission anyway. On Single Lets, if it’s a Single Let where it’s a residential mortgage, you are going to have to get permission to let. So, you will have to speak to the Vendor and make sure they sort of get that before you would look at doing the Option. And also, if we are renting it out.

Richard: And what about things like, your maintenance and repairs on the property during the course of the Lease Period?

Tom: Yeah, so for maintenance and things, it’s the responsibility of the Investor. So, all my HMOs things like that, when I put the proposal forward, it’s the one thing again, that’s attractive with the Vendors. You are taking over all maintenance and all that sort of stuff form them as well. And, I like to do it that way as well. Like I said to you previously, I go into every Lease Option with the view that I am going to purchase the property, this is my property. So, you want to make sure the maintenance is done, you want to make sure that its done to a good standard that you want it doing. So, that’s how I like doing it from that angle as well, so it’s all covered.

Richard: I guess you could negotiate that, couldn’t you? You could say things like, anything that happens inside the property, you will be responsible for. Anything happens to the front brick, like the roof or you know, the external walls, would be down to the Owner. I guess you could negotiate that, couldn’t you?

Tom: Yeah definitely. Things like structural damage, so, most Options will be you are covering maintenance and that sort of stuff, but anything structurally, like with the walls, roof, things like that, it would have to be covered by the Vendor.

Richard: Yeah. So, you hinted a little bit about education, and getting up to speed. It’s quite a simple concept to, get your head around, once you do. It’s quite flexible as we have talked about. But, there is also a degree of complexity, you talked about having to get solicitors involved, various permissions, this sort of thing. I was just kind of driving at, what sort of resources did you find helpful and could you direct other people to, to start that process off of getting an understanding of Lease Purchase Options?

Tom: Definitely, yeah. So, again like is said, I learned from a few mentors, early on. Along that time as well, I also read a lot, and various things like that. So, Rick Otton, I’m sure people will probably have heard of Rick Otton, he is very big in Australia. He is the person who started really, Purchase Options, Lease Options, on properties. He has got a few great books, you get on things like Audible, a lot of audio books on there, things like that. I read book which was very good as well by a guy called Barry Davies, he is based down in Bristol, got a book called Escape the Rat Race. Again, that’s a very good book, you can learn things. And various different educational programmes as well, who sort of cover these options. I know Property Investors Network, they do a few things on Purchase Lease Options as well. So, very different resources like that where you can properly educate yourself to understand all these sorts of things.

Richard: Fantastic. Some good pointers there as well. What I will do is, I will put the links to those books you have mentioned in the show notes, so people can find them there. I think, you know, to be honest with you, this is the second time we have spoken in this way. I really enjoyed the conversation, I’m pretty convinced there is going to be a lot of listeners who are interested, because you know, you have actually been doing it. You are not on the circuit, selling things, I know this is the first time you have done anything like this. Is there a way that people could potentially reach out and get in contact with you?

Tom: Yeah, of course, if anyone has got any questions, or would like to know how to do these sort of things, or would be interested in coming to have a look; my email address is tom.appleton01@gmail.com I am more than happy to help anyone out, or any questions people might have. Actually, it is a bit more of a complicated strategy so, initially anyway. so, if I can help anyone out, that would be great.

Richard: That’s very generous of you, Tom. Thanks for that. I guess, probably just before we wrap up properly, is there anything I should have asked you that I haven’t?

Tom: No, we have pretty much covered everything, as I said, it is more of a creative strategy, you can tailor make it to the strategy you are doing. So, if someone is doing Single Lets, at the moment and like that strategy, and they might be coming across Vendors where they are in a bit of negative equity or they have got no mortgage on the property but they don’t want to sell it below market value, it’s another tool in the toolbox if you like. I have done all sorts of different property deals, I have done Joint Ventures, I have done Lease Options, Exchange and Delay on Completion, I have purchased my own, and I think sort of, having that in your toolbox. If you come across a Vendor where…B&B isn’t going to work, and they are wanting the market value of it today, something like a Lease Option would really help them. I have found it to be one of the best sort of solutions really, it works good for all parties.

Richard: And, just to clarify, what we are talking about here, quite clearly, is that you are doing this yourself. You are finding the opportunities, you are talking to the Vendors, then you are packaging up the deals for your own personal benefit. Probably what I did mean to ask you is that there is another…that investors could get them directly through some sort of introducer, or agent, or source. I guess, similar rules apply but somebody else is doing the legwork…but I guess, from the investor point of view, who is maybe acquiring a deal like that, they have to spend a bit more time and attention on the due diligence, make sure it all stacks up, would that be fair?

Tom: Yeah, definitely. I have sold a few properties on, Purchase Lease Options, things that weren’t quite what I was looking for, quite my strategy. So, there are people out there that are doing them and they are doing the right due diligence and that sort of stuff. If someone does present a Purchase Lease Option, make sure you are doing your due diligence on it yourself as well. Make sure you are looking at everything, rental income, the market value of the property. All that sort of stuff. Do your own due diligence on it as well.

Richard: Wise words, actually Tom, very wise words. I was recommending people do their own due diligence and not just believing what other people are telling them. Which I am sure people are saying the right thing, but trusting your own knowledge and your own fact find is what I say. So, it’s probably a good way to draw a line on it. I really appreciated talking to you, both times, it’s been great. Hopefully, we will carry on the conversation. But I am going to put the links to the books in the show notes and I’m going to put a link to your email in the show notes. Thanks very much for sharing, that’s very kind of you. Really appreciate your time today and it’s good to talk to somebody who is pretty down to earth, who is actually doing it. Making the strategy work, on the ground as it were. It’s been a pleasure to talk to you Tom, I really appreciate your time, information and experience.

Tom: Thanks a lot, Richard. I will speak to you soon.

Richard: You too, you take care. Thanks a lot.

Property Chatter

Interview with Subject Matter Expert: Tom Appleton.

Resources mentioned:

Book reference: Escape The Rate Race – Barry Davies

Contact Tom: tom.appleton01@gmail.com

Lease options at first glance are a property investor’s dream. Imagine being able to control a property to derive an income from it with an option, not an obligation, to buy the property years into the future for a pre-set value…often for just a £1 down-payment.

It is true, this can certainly be done and indeed is being done as Tom so clearly demonstrates to us.

However, Tom also stressed the importance of getting educated and specifically when it comes to an advance strategy such as lease options. On the surface the concept is quite simple to grasp, however, there are a number of things that could potentially cause our dream to turn into a bit of a nightmare.

Firstly, speaking to property owners and agents…do they understand what a lease option is? Possibly not unless the right language is used to help them get their heads around it. Use the wrong language and it could blow the opportunity simply by being confusing or making it seem just too difficult.

Then legally, there are several aspects to be careful with. Tom also stressed the importance of both sides being legally represented and having a watertight agreement drawn up by solicitors. The last thing we need is to get 5-7 years down the line and find that our option is unenforceable. Similarly, make sure the responsibilities of each party are clearly laid out in the agreement, including maintenance, repairs, furnishing, decoration and any structural issues.

Similarly, as ownership stays with the property owner until the option agreement is exercised and the title is transferred, should the owner fall into financial distress or mortgage arrears then that property could be called upon by various parties to settle off any debts.

Permissions and compliance is another area to consider, especially lender permissions, insurance and licensing. Make sure the property is capable to be used in the way you want to use it and that the relevant bodies and authorities have consented to that.

Lease options are something of an advanced and also a creative property strategy, but as can be seen, done correctly, they can offer a great way to ‘finance’ our property investment by using the equity or existing finance of the property owner with this type of arrangement.

I did agree to proceed on a couple of lease option deals myself at the turn of the year, so it is an area that interests me as well as part of a balanced portfolio. The idea of having a few properties that are producing a short-term income with a deferral of the payment of the purchase price is certainly very appealing. However, always do your own full due diligence as if you are buying the property…and a bit more on top too! By their nature, these types of option agreement are more complex and also tend to attract people and properties with some underlying issue. Our job is to understand that issue and then ensure we are protected against it.

I know that I have been a little cautious in my wrap-up, it’s just that the sizzle of a lease option can appear irresistible to some and so I just want to make sure the right balance is brought into the conversation.

However, as you could probably tell, Tom certainly seems like a down-to-earth sort of chap, who likes to do things the right way. So, why not reach out to him and ask him more about his experience if you are interested in this type of creative property finance proposition.

OK, so another week of financing alternatives is under our belt and we are not done yet either! Next week, I shall look at lease options again, as I speak to a specialist in lease options that acts as a deal sourcer finding deals for investors.

As always, email me personally if you want to talk about anything from today’s show or more generally in property investing to podcast@thepropertyvoice.net, the show notes will be over at the website www.thepropertyvoice.net

Other than that, I would just like to say thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Property Financing: Lease Options – A retired footballer returns from the USA to build a portfolio using lease options | S3E11 appeared first on The Property Voice.

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    Over the next few weeks, we shall look at how we may not actually require any financing at all, at least to begin with. We will consider how we can leverage an existing property owner’s asset and potentially their existing finance to fund our prope...     Over the next few weeks, we shall look at how we may not actually require any financing at all, at least to begin with. We will consider how we can leverage an existing property owner’s asset and potentially their existing finance to fund our property investments. Today, we start with my discussion with […] Richard Brown & Casa from www.thepropertyvoice.net clean 51:56 3561
Property Financing: Pension Finance – From an ‘Oh sh*t moment’ an untapped resource of pension-funded property investments | S3E10 http://www.thepropertyvoice.net/property-financing-pension-finance-oh-sht-moment-untapped-resource-pension-funded-property-investments-s3e10/ Wed, 16 Nov 2016 05:59:22 +0000 http://www.thepropertyvoice.net/?p=3454 http://www.thepropertyvoice.net/property-financing-pension-finance-oh-sht-moment-untapped-resource-pension-funded-property-investments-s3e10/#respond http://www.thepropertyvoice.net/property-financing-pension-finance-oh-sht-moment-untapped-resource-pension-funded-property-investments-s3e10/feed/ 0 <p>You know how some words are an instant turn-off in a conversation right? Well, today might just flip one of those words on its head I can tell you. Regulation, insurance and pensions are quite possibly three words that would send many of us to sleep or straight off to Rightmove anyway. However, stick with […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/property-financing-pension-finance-oh-sht-moment-untapped-resource-pension-funded-property-investments-s3e10/">Property Financing: Pension Finance – From an ‘Oh sh*t moment’ an untapped resource of pension-funded property investments | S3E10</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> luck-152048_640You know how some words are an instant turn-off in a conversation right? Well, today might just flip one of those words on its head I can tell you. Regulation, insurance and pensions are quite possibly three words that would send many of us to sleep or straight off to Rightmove anyway. However, stick with us today and you might just have a different perspective of these three words, as together they can form the basis of a property investment fund that you thought you didn’t have. Or as my guest today, Neil Ryder from My Goal Is would say, a massive untapped resource.

Resources mentioned

To see the video FAQs on using your pension for property (and other investment) purposes, visit My Goal Is or contact Neil Ryder from My Goal Is on 01793 858215 or via his website and remember if you  mention The Property Voice to him, Neil promised me after recording that he will also send you a free copy of his forthcoming book as well.

Richard & Damien’s 360° Property Business Workshop or drop me an email to be added to the wait list for our next event instead, podcast@thepropertyvoice.net

Link to the Podcast feedback survey

Today’s must do’s

Follow Neil’s one-step process and contact your pension provider to request the current transfer value and release forms. Then tot up the totals…if you have something like £160k or more, then with a pension buddy or on your own you may be able to access a previously untapped resource for your property investing fund. Reach out to Neil, or drop me a line of you want me to try and help to match you up to someone in a similar position.

If you already have a fund or SSAS…then we really should talk about getting you a return on your fund J

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com in case you would like to get yourself a copy to accompany this series

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello, and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

You know how some words are an instant turn-off in a conversation? Well, today might just flip one of those words on its head I can tell you. Regulation, insurance and pensions are quite possibly three words that could send many of us to sleep or straight into Rightmove at least. However, stick with us today and you might just have a different perspective of these three words, as together they can form the basis of a property investment fund that you thought you didn’t have. Or as my guest today, Neil Ryder from My Goal Is would say, a massive untapped resource.

Let’s hear how we can make our pension work for us in all types of property strategy, including residential property, right now and not in a time far, far away.

Here we go…let’s hear what Neil has to say on the matter.

Richard: Hello everybody, once again, thanks for joining me again this week, I’m very pleased to have yet another, fantastic guest. I have been in contact with Neil Ryder. First of all, Neil, hi, how are you?

Neil: Hi, how are you? I’m fine thanks.

Richard: Excellent, thanks for joining me today. Our engagement if you like, started about a year ago, and finally managed to get you on the podcast, I’m really glad. But, I also wanted to make sure I got you on at a relevant point in time, from when I first heard you. Yeah, because you are going to be telling us all about untapped resources. Label it, property finance using a pension, I know we are going to have a discussion around that. We are in the middle of a series, we are talking about alternative and creative ways of financing in property, and this very much a topic they are not very much aware of, and even if they are they think there is too many restrictions, it’s too difficult or whatever. And, maybe you can put the record straight.

Neil: Well I hope so!

Richard: Brilliant. Well, what I think would be a great way to start; we normally do with guests on the podcast is just ask them to give a brief introduction, a bit of background about yourself and in particular about the area you have come to talk to us about today. So, over to you now.

Neil: Ok, my name is Neil Ryder, I’m 64 in two weeks’ time, married, two children, one grandson, and I got involved in this work with pensions around 2010. I have followed the real strong principal that is indoctrinated into all of us of; get a good education, get a good job, with a good pension, you are set for life. Well in 2010, we faced what we now call our ‘Oh Shit’ moment, when we realised that the pensions that we had were not really going to give us what we needed moving forward. And in 2010, I decided to take control of my own financial future. And I wanted to take a pension and turn it from this situation where if it is invested in stocks and shares, where it just goes up and down on a regular basis and invest it into things that were going to produce a known return at a known rate. And, since 2010, we have been through various iterations of this. So, we started off by looking at a SIPP, and then we discovered how you could use a SSAS, then all the of the benefits you can get of using a SSAS, where—a SSAS is a Self-Administered Scheme, where you as a trustee, can determine the investment strategy for your own fund. And, in 2014, working with another colleague, we spent the whole of the year, working with HMRC to get a SSAS model, pre-approved. So, that when we make a SSAS application, when a client makes a SSAS application, it goes through what’s called a Fast Track Approval. So, we can get the SSAS approved very, very quickly, using pre-templated programme. So, they know, HMRC know what they are looking at, they know what the investment strategy is going to be. Now, in the past months, getting SSASs approval has taken quite a while. And I have always said to clients, look I’d hate to see slow-track, if we are on Fast Track, then what’s slow-track like. But, in recent months, we are now getting down to the point where, we are now getting new SSASs in about a 6-8 week period. Which is pretty good, from an HMRC point of view. I’m not an IFA, I’m not regulated by the Financial Conduct Authority, so, there’s a warning for you. And what you have to realise is that, SSAS as a product, is a pension product, is not regulated by the Financial Conduct Authority. And so, in terms of providing guidance as opposed to advice, I can quite happily do that, but, because it is not a regulated product, it’s very, very much down to the individual to move forward, based on the due diligence that they take themselves. So, that the background really.

Richard: Ok, brilliant. Interesting. And, there is a number of things that have already come out but I’m sure we will get into the detail as we go forward. So, thanks for the intro Neil. I guess, pensions—one of the reasons by the way I got you on, is you can make a dull subject, sound quite interesting. There is a compliment to begin with. But, when we talk about the subject of pensions, and then we try and tie it together with property investing, as a potential avenue, particularly from a financing point of view, not many people will be aware that they can use that as a resource. And, even if they are aware, they will think it is too hard, too complicated, you kind of alluded to…it can take too long, you get into the whole advisory piece etc. Could you maybe just take us through that a little bit? Particularly how you see it and how we could use pensions effectively as part of our overall financing solutions.

Neil: Ok, I think, first of all what we need to do is, we need to understand what a pension is. Ok, if we deal with this in its literal sense, a pension fund is purely a tax efficient vehicle to collect money. So that’s what the pension bit is, and as a tax efficient vehicle, it’s a trust fund. It’s managed by trustees, so if you take a standard personal pension, then you may go to one of the big providers, it might be Aviva, it might be Scottish Widows, somebody like that. And all they are providing is this wrapper, this trust wrapper, that you can put money into, or your employer can put money into, in a tax efficient way. Now, its managed by trustees, so, the trustees then, are appointed by the company. So, it might be, Legal & General, they are appointed to every few…they appoint the trustees. And then the trustees, have the ability to invest that money, to make money. And that’s what they do. But, the investment bit, that sits behind it, is technically not part of the pension, it’s a separate provision that the particular provider makes. And if you move to a SIPP—a Self-Invested Personal Pension, you then have to work with a pension provider, again, or a SIPP provider, and that SIPP provider then becomes a trustee. And, that master trustee, then, has a list of pre-approved investments, and providing what you want to do is on that list, then that trustee will invest that money for you. And that the self-investing bit. But if we move to a SSAS, then the SSAS holder—me, you, whoever sets up the SSAS, is the trustee. And within limits, they can invest that money…there is certain constraints that are imposed by HMRC, because with a SSAS, the SSAS is regulated by HMRC, not FCA. So, within certain guidelines, you as a trustee, can invest that money into anything that you want to invest into. Now, we know that a pension fund, under HMRC regulations, cannot invest directly into residential property. In saying that, you can, but it creates a taxable event. You can use your pension fund to invest into a residential property but you are going to pay a tax penalty, you are going to pay 55% tax on that investment. Same as if you invested into gold, if you invested into vintage motor vehicles, its exactly the same. Now, I think we also recognise, that say something like a SSAS, could invest into a commercial property, that’s allowed. But, our approach, the SSAS model that we have developed, isn’t about holding property inside the SSAS, it’s about creating funds, that you can use outside of the pension fund, outside of the SSAS, that you can then use freely to invest in whatever you want. So, if you want to invest into residential property, you can do it. Because, we are not holding the property investment, itself, inside the pension fund.

Richard: So, you create some sort of separate fund?

Neil: We use the vehicle called…we create a Special Purpose Vehicle and we do what’s called a Preference Share Issue. So, from the fund itself, we buy, the pension fund buys shares in the SPV, and the SPV then gets money for those shares. And then, they can invest in what they want.

Richard: Even if the SPV, then itself, invests into property of some description, let’s say its residential, because we know we can’t do it directly. So, even if that SPV was to go and buy a Buy to Let property, residential, that would be permitted, would it?

Neil: Yes, it would. I mean, the SPV itself, cannot directly invest in property. This becomes your Property Management company.

Richard: Ah, right. Ok.

Neil: Right? But then it can lend money to another company which can do what it wants.

Richard: Yeah…

Neil: There are certain conditions around this, in terms of saying that if we create an SPV and we do a Preference Share Issue, then the directors of the SPV have to provide personal guarantees, they also have to take out Key Man Life Insurance, the company has to take out Key Man Life Insurance, and they have to…and because it’s a Preference Share Issue, there has to be a dividend payment, an annual dividend payment from the profits of this SPV back into the pension scheme. But at the end of the day, you are paying yourself. It’s a great way of circulating money round, and growing the pension pot. So, you may at a later date, be able to do another Preference Share Issue, to increase the amount of money that you are using, outside of the pension scheme.

Richard: Well, you probably picked up some of this already but I was just going to ask, how would it work in general terms, I think you have outlined it there, unless we have missed anything. So, you create a SSAS with your pension, then you create a fund with an SPV…

Neil: The basic process, is that, providing there is a Limited Company sitting there, because…a SSAS is an occupational pension scheme, so it has to be associated with a Limited Company. Now, a Limited Company can be set up, as long as it is registered for Corporation Tax and it has what’s called a UTR, a Unique Tax Reference number, and its registered for PAYE, HMRC then view that as a trading company. So, we then can make, or the individual can make an application, to set up a SSAS, ok? And then that SSAS—now the best way to make these work, is for there to be no more than 2 members in that SSAS. Ok, and what we are looking for is a pot, that needs to be a minimum of about £160000 between two people. And at that particular point, it starts to make it worthwhile. Now, if somebody has a smaller pot, and really, once a pot gets below about £100-£110000, it doesn’t work. So, there is a little bit of a limitation, in terms of making it work. But if you think about, if you have worked, say, in the corporate world, and you have spent 15-20 years working for 2 or 3 organisations, when you actually ask for the transfer values of these frozen pensions, they very, very quickly add up. I mean, I had a client in this morning, I got a text message before she arrived and said, I have had the transfer value through, I can’t believe it. And she worked part time for a company, for not that long a period of time. But this was, she is just coming up to late forties and she has got a transfer value on her pension, she has got 2 pensions, and the total transfer value on those 2 pensions, is £126000. So, now we are starting to look at something that is worthwhile. It doesn’t give us everything that we want, but if we are prepared, to leave that pension money say, for 2 years, to let it grow, and it will then almost double in value, then we have got a really good pot that starts to make using Preference Share Issues of raising, or creating a £100000 investment pot, that we could then use for our property, makes it very, very worthwhile and very, very easy to move forward. So, you have to look at this in terms of different strategies. There is no one strategy that orks for everybody, so you need to take into account, what sort of size transfer funds they have got, what sort of age they are, what their aspirations are. And if we sit down and work these through, and I see our role at My Goal Is, is very, very much about helping people to determine what their financial strategy is, going forward. So, we look at what the investment strategy needs to be, to get the pension to the point, where it delivers their property aspirations.

Richard: Understood. We will talk about some potential property projects in a second, but just to go back a little bit there…so, just to clarify for everyone listening in, the SSAS, the Small Self-Administered Scheme, as a wrapper, you would transfer in, existing pension funds into that SSAS, and I guess, it would be linked to Limited Company. So, there’s all the payroll, so it’s a legitimate company pension effectively?

Neil: And if you think about it Richard, the way that the property investment is changing now, a lot of our property investors are moving towards, having a Limited Company in the background anyway.

Richard: Or maybe more than one, yeah, that’s where I was going. You can have a trading company…

Neil: So, if you have got more than one, you have already got the structure in place, to link one, for one to be the sponsor of the SSAS, and for another Limited Company to actually be the SPV that we use for the Preference Share Issue.

Richard: And, one of the other things I was just going to make, it might be a statement of the obvious, but I guess you can top up payments into the SSAS?

Neil: Yes…

Richard: There we go…

Neil: Oh, yes you can. This is a very, very interesting process, because it’s an occupational pension scheme, and if you have a Limited Company, and lets just assume you have head a very successful year, and you have made too much profit, then that company can make a pension contribution, into the SSAS, which reduces the amount of profit that it’s made, and consequently the amount of Corporation Tax that it pays. Now, with pension contributions, there is a limit, as to what you can pay in any one year. And you are limited to; your gross earnings, and that can be made up of your salary, dividend payments, interest payments, or £40000. It’s the lower of, so, it’s the lower of your gross income, or £40000. So, if you don’t earn £40000, if you only earn £30000, then you can only make a pension contribution of £30000. If your gross income is £50, £60, £70000, you are limited to a maximum payment of £40000.

Richard: Good illustration.

Neil: But, you can back pay up to 3 years. So, as long as you have had a pension…if you have got a frozen pension that is sitting somewhere, and you have not made any contributions into that, as long as there is a pension scheme that existed over that 3-year period, you can back pay up to 3 years.

Richard: And, is there a tax benefit of doing that as well?

Neil: Well, it’s reduced the amount of Corporation Tax that you have paid, and it’s now sitting in your pension fund and that going to increase the amount of money we can…the value of the fund. And what is available as a Preference Share Issue. We can take out, up to 65% of the pension fund value, as a Preference Share Issue.

Richard: So, now we are getting interesting, because we are now going to say, what are we going to do with that 65% Preference Share Issue, that we can do great things in property, what sort of projects, do you think, are then suitable if we then look at property strategies?

Neil: What do you want to do with it? Do you want to do a JV? Do you want to be a silent JV partner? So, nothing to stop you then lending that to an unconnected third party at an interest rate that you determine. If you want to use it as a deposit for an HMO, well you can use for a deposit for an HMO. The only thing you have got to bear in mind, is that the company we have done the Preference Share Issue through, has to make some profit, because it has to pay a minimum dividend of 7% back into the pension scheme each year.

Richard: Yeah, so…

Neil: And that’s the only restriction. So, in terms of projects, the money is now sitting outside the pension scheme. And is not subject to any restrictions. You could, there is nothing to stop you going down the road tomorrow and spending it all on scratch cards. But what we would say, is you have got to bear in mind, that at some point that money has got to go back into the company. So, that’s why we turn round and say, right if we are going to do a Preference Share Issue, we want personal guarantees from the directors, we want Key Man Life Insurance, so, you know if this money is invested outside the scheme, if anything happens to the director of the company, then the life insurance pays back into the SPV, that money then is available to go back into the pension scheme and for the shares to be returned to the SPV. And any investments that have been, still continue. They don’t have to be sold back into the pension scheme. So, what it’s doing Richard, is its creating a very secure vehicle for ongoing investment. And when you think about it, as a property investor, we make property investments for our own needs and also for the needs and requirements of our family. Now, what I don’t want to do, is in the event of a death, I don’t want to go back…if you and I were working together, I don’t to have to go back to your wife and say, you know all those investments Richard made that gives you the income and the lifestyle you have got at the moment, well could you sell them so we can put the money back into the pension scheme. What we are creating, is a situation where by all of those investments that are outside or protected, the Life Insurance is putting the money back in the company and that money now has gone back into the pension scheme, and your wife is now going to inherit, free of Inheritance Tax, the full value of the pot, that’s sitting behind that pension scheme. So, it’s a bit like double bubble.

Richard: Yes, I can see that. So, you get the money back in the fund, but you also keep the assets of all, the assets that the fund acquired.

Neil: And something that when we work with a client, is instilled into them, all the way down the line, is that you protect the capital at all costs. Right, you never spend the capital, you invest the capital and you live of the income that the capital generates.

Richard: Ok, so, just to clarify then…

Neil: You always have to bear in mind that the capital, at some point, has to go back into the pension scheme.

Richard: So, just to clarify one point then…you can say they can do anything, so you could actually have a trading strategy, you know buy and sell property, using that fund as possible. You could do conversions, you can do anything basically, is the point.

Neil: You can do anything with it. And its creating the value in the fund, initially, that enables you to take the value of the Preference Share Issue, that meets your aspirations, as far as property development, your property strategy, is concerned.

Richard: So, can I just ask, one point of detail, or technical point if I can? The SSAS, so if I wanted to set up a SSAS, do I need to have some kind of qualification status, like a net wealth, sophisticated investor, anything like that?

Neil: Not really no. The scheme itself is the entity. It helps, if your understanding of things…if you are an experienced property investor, then it makes a big difference in terms of understanding the way investments work.

Richard: Indeed, ok. It helps, but it’s not essential.

Neil: There is no real qualification. The only real qualification is, that there must be this Limited Company, that sponsors the setting up of the SSAS. Now, I think it’s also important to point out, that the Limited Company and the SSAS, have no legal link. They are separate legal entity, so, if anything should happen to the Limited Company, let’s say the Limited Company goes bust. The creditor of the Limited Company, cannot go after the content of the SSAS. It’s a separate legal entity.

Richard: So, we have gone through the how, and some of the structure and that sort of thing. So, I’m going to ask you, it’s probably a bit of a dumb question, because I know what you are going to say. Does this represent a big opportunity right now, for property investors?

Neil: It is a massive opportunity. If you think that the UK…the value of UK Penson Funds is in excess of £2-trillion, and it’s the second largest amount in the world. It moved into that position about 12 months ago, America has the largest pension funds, Japan was always the second largest. And in 2015, our pension funds grew to be bigger than the Japanese pension funds. So, we are now the second largest holder of pension funds in the world. And, the pension freedoms, came into play in 2015. And, that allowed over 55s to actually withdraw funds from their pension pots and do what they want with it. And a number of property investors have done that. But, they have paid a tax penalty, by taking that money out. Now, since 2015, about £3 billion has been withdrawn from this £2-trillion pot. And to put that into perspective, that is only 0.5% of the total UK pension fund value. And a lot of people don’t value pensions, because they can’t touch them; I can’t touch it till I’m 55. And, what they tend to only see, is the value of the pension that it might provide. So, my client that came in this morning, she has a pot of £126000, that’s going to give her a current value, of just over £4000 a year as a pension. And that’s not a lot of money, and we don’t value it. What we have got to do, is value the pot that sits behind. We have got to look at the value that is actually going to fund that pension, and we have got to take control of that so, that pension pot that she is going to bring over, of around £126000, at this point doesn’t allow us to do a Preference Share Issue. But, if we invest that money for 2-3 years and quite typically, and this is the bit where, sometimes peoples’ or my creditability, is stretched or not always believed, because they say, look this is too good to be true. But, our pension funds, our SSASs are growing by around 20% per annum. So, what that means, that in 3-3 and a half years, the actual value of the fund doubles in value. So, £126000, becomes £250000 in 2-3 years. Now, we are talking about having some real money that we can do a Preference Share issue on. And on a fund of around £25000 we could be looking at a Preference Share Issue, of around £100000.

Richard: Oh, I see, yeah, because of the 65% thing. Yeah.

Neil: Because of the 65% rule. So, you know, it’s up to 65%. We have got another client that we are working with, a husband and wife, they are at the point where they could withdraw their pension at the moment. And when they looked at the pensions they were going to get, they were going to get pensions of £14-15000 per year. And, when we pointed out to them that there was a fund that sat behind this and they ought to get it valued. There was a look of, what do you mean there is a fund that sits behind it, surely, if we are being paid from the pension contributions that current people are making into this. No, that’s only in government schemes, government pension schemes are Ponzi schemes, and what we mean by that is, the people that are being paid out, are being paid from the contributions that people are making currently. So, if you are a Civil Servant, you are in the Armed Forces, you work for the Emergency Services, then there is no pot that sits behind your pension, and you can’t transfer that money. You are not allowed to transfer it. But, when they went and got their pension valuations, between the two of them, they were sitting on funds of £1.2 million. So, then we are talking about, what do you actually want to do with it, what are you looking to do in property? But, you don’t necessarily have to use the money to invest in property, you can invest in what you want, providing you protect the capital.

Richard: Indeed. So, let’s just talk Neil. That was a fascinating story, £14000 odd, projected pension, actually was £1.2 million as a fund, between the two of them. It’s fascinating. So, people don’t really look at it that way. But, it kind of takes us into, the next thing I wanted to really ask you. What are the benefits, why would people do this?

Neil: Well, I think there is potentially, 3 reasons why you would do this. One, is if you don’t want to do property investment and you just want a pension fund to grow. I mean, there are a lot of people with quite small funds, and they know, that fund is not going to give them what they want. But, maybe they are not prepared to risk that money, because there is always an element of risk, in terms of saying, well I will use it for property investment. I just want it grow. But we can provide—because you are the trustee, there is no middlemen. So, if you are working with a commercial provider of a pension, they have got overheads to pay, they have got bonuses to pay, and most of them are proper Limited Companies. And their loyalty is to their shareholders. So, they will pay the shareholders first, before they will make contributions and give you growth on your pension pot. So, one reason that you should do it, is you are the Trustee, there are no middlemen. And the cost associated with a SSAS are incredibly low. They are amazingly low. You are going to get great growth on those schemes. We use, the investments that we use are…the bit that you leave in there, or if you want to leave all of it in there, they all go into asset backed investments. Which give us known returns or known dates. It’s not about gambling with it on the Stock Market, as to what it might finish up with. We know, we can be very predictable and accurate in the predictions that we make, as to what a fund will be worth, at a particular point in time. So, that’s one reason—growth. Second reason, is that you have the ability to release some of those funds, even below the age of 55, to help you grow your property today. And the third reason that you would do it, is inheritability. Now, all pension schemes, if you die before you take or draw your pension—so, this could be an employers’ scheme, a personal pension, or even a SSAS—if you die before you draw your pension, the value of that pot, passes to your nominated beneficiaries, free of Inheritance Tax. And that is common with all schemes. If you have got, if you draw an employers’ pension, or a personal pension, and you actually start taking your pension, and you die, your surviving spouse, assuming you have one, and if you don’t have a spouse, then, that’s the end of your pension. It just reverts to the provider. But, if you have got a spouse, your surviving spouse, will get a spouses’ pension. And that could be, usually, 50% of what you were getting. And when your spouse dies, that is the end of the pension. It dies with you. The pot that is still there, that’s untouched, reverts back to the providing company. But with a SSAS, there is this big pot of money, that is sitting there, it doesn’t belong to a company, it belongs to your Trustees. And, providing you have filled in your nomination of beneficiary form, your nominated beneficiary, which might be your spouse, it might be your children, will then receive that fund, free of inheritance tax. So, one really big reason of using a SSAS for your pension, is that you are creating a big pot of money, which will transfer free of Inheritance Tax, its outside of your estate.

Richard: Yeah, so its great estate planning purposes, if nothing else.

Neil: Oh yes.

Richard: So…I’m sold, so far. So, how do our listeners get themselves ready…how do they go about this? Because, it’s not like going to a bank and borrowing some money, which you would do with a Buy to Let mortgage. What do they need to do, what’s the process, what’s involved?

Neil: It’s a fairly simple process. What you need to do…if you have got frozen pensions, what you need to do is contact the providers, and ask them to send you a transfer value and release forms. Ok, because that actually fixes in your mind, at that particular point, what the value is, of your pension fund. I’m not interested in what you might get if you took your pension at the age of 5%, what we want to know, and what you want to know, is what is the transfer value of those funds today? And that’s the bit that surprises most people. And once, we have got that, we know what we are working with. We can’t really move forward, we can have hypothetical conversations, about what might do and how a SSAS might work, but until we get those transfer illustrations, we can’t really start to work on a transfer strategy or an investment strategy, for a potential SSAS member.

Richard: So, it’s a one step process…

Neil: It’s a simple process. It’s just, pick the phone up, make the phone call to current providers, say send me the transfer values and the release form please.

Richard: And the release form is what, allows somebody else to…

Neil: It’s the piece of paper that you will need, if you decide to go ahead, I that you have to sign, to send those people those funds to the SSAS once it’s been set up.

Richard: Ok. So, in terms of the top line process, obviously, I can get the point that, depending on what the results are, depending on what your investment goals are, depending on your stage of life, etc. that you know what happens next, could be a variety of different things.

Neil: It could be a variety of different things. It usually involves quite a lot of paper, as do most things, but we hold peoples’ hands, all the way through the process. So, we can describe the process, there are various parties involved in making this work, but its all transparent. It’s all pre-approved with HMRC, so they know exactly what they are looking at, and they know what the investments are. The schemes are overseen by, an independent pension fund administrator and they report directly to HMRC. And all of the investments are pre-approved. And they are overseen by a directly authorised IFA. So, it’s not just about working with My Goal Is, there is independent oversight. So, I am not connected to the Pension Fund Administrator, or the IFA, in any way, shape or form. My role is about strategy. And then we have independent oversight by an administrator and an IFA.

Richard: So, very good, there has got to be protection in there. We are talking about peoples’ financial futures, so that makes a lot of sense. General tips and pointers—if someone is listening to this going…I wonder if this might work for me, are there particular, is there a checklist, is there a traffic light system, something like that, which would give them an idea in their minds eye, you know what, that sounds like something I should get involved in, I should look into.

Neil: I think it’s not necessarily a traffic light system, it’s more of the first hurdle, and the first hurdle to get over, is having a fund that you can actually do something with. And, really, you have got to be getting around, it’s got to be of the order, I’d say, £160000, that gives me a little bit of creep room down. Like the client that came in this morning, £126000, yeah it just about squeaks through. But, that £126000, isn’t going to allow a Preference Share Issue for probably 2-3 years’. We have got to grow that fund up.

Richard: £160000, is roundabout…

Neil: £160000 might give us a Preference Share Issue of around, £50000.

Richard: Which it probably wouldn’t be worthwhile doing for that level?

Neil: Well…it depends what you want to do. It depends where you are on the journey. And that why, I think with something like this, this kind of process, is not a one size fits all process. I always say to my team, although we might set an entry level, we really want £160000, there may be a good business case to actually do something at a slightly lower level, but it’s got to be a business case. It’s not, well they have got nice looking eyes, and you know, they talk nicely to us. It’ got to be a business case to actually do this and make it forward.

Richard: So, on the flipside then, what are the downsides, what are the risks or things that people should be looking out for Neil?

Neil: I think, the downside is…I thought quite hard and long about that, to sort of say, what could go wrong. Because of the way, we work with this, its pre-approved, we are only using asset backed alternative investments, the downside is total global meltdown, financial meltdown. The Armageddon scenario, and if that actually happened then it wouldn’t matter what your money was in, we are all in the same boat. You know, the downside is, it doesn’t happen tomorrow. So, if you are the middle of doing a property transaction, and you suddenly realise you have got a load of money in your pension fund and you want it out by Friday, sorry, it’s not going to happen. We are dealing with government bodies, and although we have this Fast Track Approval, and although currently we are working on 6-8 weeks for a SSAS approval, and that works quite well. Transfers…you are in the hands of the current provider. And we have had one transfer that has taken 2 years to complete. Because these kind of people, they are commercial organisations and they will do everything they can to hold on to the money. So, you can’t turn around and say, this has got to happen by a week on Friday, it isn’t going to happen.

Richard: Understood…

Neil: It will happen when it happens, and there has got to be a realistic expectation, as to what the timescales might be.

Richard: Understood. And I guess the other side of it Neil, is what you do with it, once you get the money out, you need to be careful, because you are playing with your future…

Neil: You don’t need to be careful. It is this thing about, protect the Capital at all costs. We won’t realise the money or the funds, the fund administrator, won’t release the money, until the personal guarantees are in place, the Key Man Insurance is in place. Nothing moves until that’s all on file. And then, we build up a relationship with the individual, we are almost like the coordinator, of the whole thing. So, we build a relationship with the pension fund holder, we are talking to them, we are helping them, with their strategies. So, you know, we are holding their hand through the whole process. And they do get, very much brainwashed into, protect the capital at all costs. This is not spending money, this is not money that you are going to spend on a boat. This is money that you are going to invest. And then if you make enough money, from the income that you have made, you can go buy a boat. But, this capital, has to come back, at some point.

Richard: Yeah…makes a lot of sense. And so, I guess it leads onto—I think I know what you are going to say here as well, I had a little dig around your website, but want to talk about resources, that maybe could help people find their way through this. Any particular ones there?

Neil: Yes, if people go to our website, which is www.mygoalis.uk.com there is a pension education video series. It’s 15 short videos, think of them as video Frequently Asked Questions, and they are common questions that we get asked about SSASs and about pensions. What we have done there, is rather than just type up an answer, we have put a little video series together, you can access those, just download all 15, or watch all 15 in one go. And I think that’s quite a good resource to prompt people as to, or even fill in a few gaps, as to what actually happens, how this works and what the alternatives are and how they are overseen. So, that quite a good little resource to go to.

Richard: Fabulous. I guess, in a similar vein, what do you do, it’s a bit of a cue for you, to talk about how you can potentially help people who might be considering this as an avenue to pursue, is there anything unique or special about the way you go about it?

Neil: Well, I believe that the SSAS offering that we have is still unique, within the UK. There are SSAS offerings available, but they are what we would call, traditional SSASs. They don’t provide the freedom of the Preference Share Issue. They create a loan, but the loan is back to the sponsoring company. It has to be repaid within 5 years, and it has to be at a commercial rate of interest. And the money that can be made, we have had clients, we have inherited clients that have had the old style SSASs, where they have really not made, any in-roads, into their property investment from it. Because all the profits are just being eaten up to pay back the loan. And they have transferred that money over, so they have transferred into one of our SSASs, and then used it as a Preference Share Issue. And they have found that a far better way to fund their property investment strategies. So, I think that what we have is unique, I don’t know of anybody else, that is offering this SSAS solution. So, working wih us is fairly easy, I’m in a position where I can give quite freely of my time. Over the 6 years since 2010, I have created quite a high level of passive income, through property investment and through other investment and I don’t need to charge for my services, what I do is met through other means. And I am quite happy to talk to people, answer their questions, initially over the phone, maybe through an online meeting, and we can look at their individual needs. And once we get to the point of knowing, this is serious, then we can start to meet on a face to face basis and start driving it forward. But what we first of all need to do, is to get through this first hoop of knowing we have got a fund we can actually work with. And what I like is for people to come to me and say I have asked the questions of my current provider, I have got the transfer values, I have got the release forms, it looks like it’s in the right kind of order, can we start looking at the strategy that I can use, to help me to achieve my property investment aspirations.

Richard: Very good. So, you are offering your time freely, you can have a chat, you encourage people to get over that first hurdle of getting the transfer value, and you don’t charge, as you mentioned. So very, very good.

Neil: Getting the transfer value, what you have got to think about is, it could be 2 people, it could be a husband and wife, it could be somebody and their partner, their business partner, their life partner. It could just be 2 people that work together through a network, that know each other. Now by investing your money, by putting pensions together, it doesn’t mean to say you have amalgamated your funds you can’t do that. Your fund is still your fund, but by going in together, you benefit from the ability to get into things that you couldn’t get into on your own. So, it’s a great way then of combining 2 peoples’ funds, bear in mind that the average transfer value that people have in this country is around the £80000 mark. So, two people, working together, with an average transfer value, are well above the minimum threshold.

Richard: Find a friend…

Neil: Find a friend, work with a friend. Again, if you go to property networking events or anything like that, there are always people who are looking to do, to work together, that are in the same boat. And I’m pretty sure, that you can find people that you can work with.

Richard: Very good. So, before I perhaps, I am going to ask how people can get in touch with you in a second Neil but perhaps before that, is there anything else that you feel you cannot leave this discussion without expressing?

Neil: I think we have covered…when you asked me to do this, we talked about the general kinds of area that we might look at, and I am looking down my list of things that we could talk about, and I think we have covered most of the things that are there. The thing that I would really, really stress is that Pensions are very much, or the value of pensions is under values. Because all we tend to look is what we might get, when we retire. And I think what we really need to start focusing on, is what is the value of the fund that is sitting behind it, that might provide that pension, eventually. And if you can take control of it, the way that I did, you are then, very much, starting on a journey, which is going to provide you with funds, that you can use to create investment outside the fund, which might mean, you never have to touch the pension fund itself. And that pension fund, could pass in its entirety, on your death to you nominated beneficiary.

Richard: That seems like a fitting note, maybe not so morbid, or sombre, sounds like a fitting note to rest it there and just talk about it being an untapped resource, that you can pass on and you can use in other ways. And that exactly what I wanted to get out over the course of this series. Appreciate that. So, Neil, how can people get in touch with you?

Neil: Well, they can get in touch with me by email, my email is neil@mygoalis.uk.com or they can ring through, we have switchboard here and the switchboard number is 01793 858215. If I’m not here, leave a message with reception, they will send me an email and I will get in touch you as quickly as I can.

Richard: Fabulous, and it works, I tried it myself. Thanks Neil. I really appreciate you taking us through that and I know there is probably a lot kore, that you can share with people, so I would just encourage people to reach out to you, have a look at the FAQ videos on your website, you know, that’s a really good resource in itself and thanks for sharing with us today. I really appreciate it.

Neil: It’s my pleasure and look forward to talking to people.

Richard: Me too. Thanks Neil, you take care.

Property Chatter

Interview with Subject Matter Expert: Neil Ryder.

Resources mentioned:

To see the video FAQs on using your pension for property (and other investment) purposes, visit My Goal Is or contact Neil Ryder from My Goal Is on 01793 858215 or via his website and remember if you  mention The Property Voice to him, Neil promised me after recording that he will also send you a free copy of his forthcoming book as well.

I have to confess that even I was a bit worried about covering the topic of pensions with you today. However, when I first heard Neil talk about the subject around a year ago and how we can potentially free up the locked in values in our pensions to help us with our property investing today, I knew I had to share it with you at the right time.

Let’s just consider a couple of practical scenarios where this could come into play then shall we.

Scenario 1

You might be thirty-something, have friends or a partner in a similar position but are struggling to raise a sufficient investment fund to fully realise your property investing goals.

If we have been in employment, be it public or private sector, employed or self-employed, for any reasonable period of time…say 15 years or more…then we are quite likely to have built up quite a reasonable pension fund once personal contributions, employer contributions and tax credits are taken into consideration. Remember that with generous company pension schemes with a matched employer contribution and tax rebate that the total amount paid into the fund could be between 220% to 245% of our own personal contributions. Then the fund should achieve growth after costs and fees as well. It may be the case that the £80,000 average pension fund value, that Neil referred to, would be realised with a personal monthly contribution of less than £150 within 15 years. Team up with a buddy in the same position and you can start to free up your pension for future property investment purposes.

Based on Neil’s figures of a 65% funds release on the £160,000 combined fund value, we would have an investment pot available to us of £100,000…enough to buy each of the last couple of flip projects that I have been involved with in cash or 4 of these using BTL mortgages.

So, the untapped resource here could start a flip or BTL strategy potentially.

Scenario 2

You are on the downward slope, heading toward retirement age but feel you could be leaving some money on the table by leaving your pension to sail into the harbour of annuities.

With something like 25 years or more pension contributions from a lifetime of employment-based pension contributions, your pension fund value could easily reach the £300,000 mark or more. This could be enough to release up to £200,000 or more for property investment purposes.

Imagine investing that as a private joint venture partner on secured property assets and getting a return on investment of say 15% per annum. This would provide an income of around £16,000 per year and in addition, your investment fund would still be topped up by a further £14,000 a year as well. This compares to let’s say your average annuity of around £6,000 a year with no additional top up to the investment fund.

Now, I must say that I have just made these scenarios up by way of illustration to highlight how powerful these funds could be if we can unlock them. I didn’t discuss them with Neil and nor did I agree the figures with him, so please only treat them as purely potential, yet practical illustrations of some scenarios won’t you?

I will leave you to discuss your personal situation with Neil directly. However, if you are looking to find a pension fund buddy, why not drop me a line and I will see how many others also write in and perhaps if I can match you up to form a pair on the lines that Neil described that might also help to get going.

Just before I end today, a reminder that Damien and I are running a Property Business Planning Workshop in London on 26th November. The link to the event will be in the show notes or just drop me an email and I will share it with you. We are expecting a sell out this time, but you still can try and get a ticket. Alternatively, we aim to run another event early next year, so just let me know and I can add you to the wait-list for that.

Finally, do email me personally if you want to talk about anything from today’s show or more generally in property investing to podcast@thepropertyvoice.net, the show notes will be over at the website www.thepropertyvoice.net

Other than that, I would just like to say thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Property Financing: Pension Finance – From an ‘Oh sh*t moment’ an untapped resource of pension-funded property investments | S3E10 appeared first on The Property Voice.

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You know how some words are an instant turn-off in a conversation right? Well, today might just flip one of those words on its head I can tell you. Regulation, insurance and pensions are quite possibly three words that would send many of us to sleep or... You know how some words are an instant turn-off in a conversation right? Well, today might just flip one of those words on its head I can tell you. Regulation, insurance and pensions are quite possibly three words that would send many of us to sleep or straight off to Rightmove anyway. However, stick with […] Richard Brown & Casa from www.thepropertyvoice.net clean 57:26 3454
Property Financing: JV Development Finance – It’s a time for opportunity…with a hint of caution | S3E09 http://www.thepropertyvoice.net/property-financing-jv-development-finance-time-opportunitywith-hint-caution/ Wed, 09 Nov 2016 05:59:53 +0000 http://www.thepropertyvoice.net/?p=3435 http://www.thepropertyvoice.net/property-financing-jv-development-finance-time-opportunitywith-hint-caution/#respond http://www.thepropertyvoice.net/property-financing-jv-development-finance-time-opportunitywith-hint-caution/feed/ 0 <p>  You have probably spotted that over recent weeks in this series that the range of financing options is becoming increasing more diverse, niche and…well decidedly alternative really. Today, we begin to blur the lines even further as we start migrating into more creative or hybrid financing methods. To some extent we already blurred the […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/property-financing-jv-development-finance-time-opportunitywith-hint-caution/">Property Financing: JV Development Finance – It’s a time for opportunity…with a hint of caution | S3E09</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p>  

gear up with JVs

You have probably spotted that over recent weeks in this series that the range of financing options is becoming increasing more diverse, niche and…well decidedly alternative really. Today, we begin to blur the lines even further as we start migrating into more creative or hybrid financing methods. To some extent we already blurred the lines, for example with angel finance coming in the form of debt or equity and the multi-layers of senior debt, equity, mezzanine, JV money and private funding.

Today’s discussion with Thor Portess from Develop With Us is another very interesting one, as he shares how we can work with existing land and property owners in partnership along with other developers and investors too.

Resources mentioned

 

To receive a copy of Thor Pertess’s development deals appraisal spreadsheet and the offer to walk through a oive opportunity, get in touch as follows: www.developwithus.london/contact and please don’t forget to mention The Property Voice to make sure you get the free offer you are looking for.

Property Business Planning Workshop with Richard & Damien, some fantastic property investors just like you and a Happy Hour to boot…what’s not to like? Link version: https://www.realworldpropertytraining.com/26thnov/

Link to the Podcast feedback survey

Today’s must do’s

Interested in development and conversion projects with a JV partner…sounds familiar doesnt it?! A great opportunity in the current climate I would say, so make sure you have a chat with Thor to get the low down from his perspective…or have a chat with me about some of our development opportunities if you like as well.

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com in case you would like to get yourself a copy to accompany this series

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello, and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

You have probably spotted that over recent weeks in this series that the range of financing options is becoming increasing more diverse, niche and…well decidedly alternative really. As a financial services guy by training or profession, I have been fascinated with the sheer variety that is open to us as property investors and developers I can tell you.

Early in the series, we discussed some of the institutional forms of property financing solutions, such as BTL, bridging and commercial loans. More recently we have discussed what I have labelled alternative financing methods, such as peer-to-peer and crowdfunding, development finance and angel finance among others.

Today, we begin to blur the lines even further as we start migrating into more creative or hybrid financing methods. To some extent we already blurred the lines, for example with angel finance coming in the form of debt or equity and the multi-layers of senior debt, equity, mezzanine, JV money and private funding.

Today’s discussion with Thor Portess from Develop With Us is another very interesting one, as he shares how we can work with existing land and property owners in partnership along with other developers and investors too. He talks about how best to structure the deal and determine who does what, with clear expectations, possible outcomes and exits all discussed and documented. So, let’s have a listen to my rather excitable discussion with Thor know and we shall draw some quick conclusions at the end.

Richard: Hi again, everybody. I’m very pleased to have another special guest with me again, on the podcast this week. I’m really enjoying this series, because I’m getting to talk to so many interesting people, about so many different, interesting topics. And, today is no exception, I’ve got Thor Portess on the phone with me today. Hi Thor, how are you?

Thor: Hi Richard, hello everyone. I’m well, thanks, and yourself?

Richard: Yeah, I’m absolutely great, thank you very much. We could talk about a lot of things, in fact we already have, but I think what I would really like to pick your brains on, if I could today, is about Development Joint Ventures. And I know we could talk about a wide range of different financing options—this series is all about alternative and creative financing in property. When we spoke, this one really struck a chord with me. Perhaps, you can set the scene a little bit, just tell us a bit about yourself, your background and effectively I have got you in this chair as a Subject Matter Expert, just give us a quick outline about yourself.

Thor: Yeah, brilliant Richard. So, hi everyone, I started investing when I was 19, so that’s about 18 years ago now, in Australia, using the conventional way of buying property. So, obviously, I have come to the UK, I have been here about 10 years now. And been actively investing in London for the last 7. So, I have mainly used alternative methods to finance deals and to get deals across the line. I started off just after the recession doing Vendor Finance deals, because obviously, it was hard to get mortgages, so, we used Vendor Finance, and then as the market has gone on, and the market has gone up in the last few years, we have typically done Joint Ventures with sellers, also investors, to bring in equity for deals. So, I have personally done over 40 deals so far, and counting. We have done a few more in our company, so, Crowd With Us and Develop With Us, and that’s where we are at today.

Richard: That’s fantastic. Yeah, we could talk about the crowd funding side of it. I don’t know if you have been tuning in, you probably haven’t because you are a busy man, but, over the last couple of weeks we have done a bit of peer to peer and crowdfunding, and that’s one of the reasons why I was going to go into the whole Development Joint Ventures piece. In fact, why don’t we just do that, before we came on air, we started to talk about the different angels, didn’t we, of Development Joint Ventures. Why don’t you just give us a bit of a snapshot into what those are, and maybe how they fit into the overall, I call it financing landscape, because it’s a kind of alternative form of financing potentially, on both sides. So, why don’t you just give us a bit of a lowdown on the different flavours, that we spoke about earlier?

Thor: Yeah, that’s right Richard. So, when someone talks about a Joint Venture, we would think of that in two different contexts. So, one is a Joint Venture with the land owner or the property owner, so, you as a developer, would come in with the finance, the funding and you know, the resource and the knowledge to develop a site. And then, the land owner would stick the land or the property in, and that constitutes a Joint Venture. So, that’s direct with the seller, or the owner of the property. The more sort of, conventional Joint Venture for developers like yourself Richard, like I am sure some of you guys that are listening and their selves, that we would typically bring in finance, so, outside finance for the equity required to either buy a site, or to buy and or develop it. And we do a Joint Venture with the investors.

Richard: Very succinct explanation. So, there will be terminology like, Assisted Sale and this sort of thing. In other words, partner with the land owner, they bring some skin to the game, in terms of the land, so to avoid necessarily purchasing that, that could be a collaboration. But, I think the alternative could be, as you said, the more conventional finance route. So, you in this case, or any Joint Venture partner, could bring money to a project that is viable and got some legs. So, we will maybe keep that in mind, as the discussion unfolds, we could flip flop between the two. But, I guess for the purposes of this conversation, we will probably focus more on the second point, which would be the Joint Venture finance angle. So, just talking about that side, how does it work? How do Development Joint Ventures work, in general terms, certainly from your experience?

Thor: Yeah, so you mentioned Assisted Sale, Richard. You know, there are various terms that are bantered about in the property world. So, the contract we use, we do actually call them a Joint Venture. So, a Joint Venture, is basically, the contract is a legal framework, which sets out who is going to do what and when by. And if you don’t do that, or one party doesn’t do, what they are obliged to under the Joint Venture of what happens in those cases. So, you would typically have a framework of basically, which option you want to talk about where, you, or your listeners or us, we are going in as a developer, and we bring in investors, to finance the deal. And talk about a Joint Venture in that context. So, basically, you would bring in, you mentioned that…and I have heard you talk about in recent discussions, your podcast, peer to peer finance and equity finance. The benefit of doing a Joint Venture with investors, is, if the market turns or whatever, incidentally it probably is right now, it’s more secure for you as an investor, not to be tied into paying a fixed coupon, on the money. So, a coupon is basically an interest and may sort of, turns for everyone who is listening. For example, if you bring in investors, and you say, right, you are going to promise to pay 10% per annum. If for whatever reason, your costs go over budget and the market drops, and you can pay that 10% per annum, it is actually more advantageous to just do a Joint Venture with the investors, as equity partners. So, that means, if the deal goes well, they might make a 20% return, on their monies, because they are getting half of the profit from the deal, for instance, and it might work out at those sorts of returns. And then, similarly, if the market turns, they will get a lesser return, but that’s better for you because you are not obliged to pay them a fixed return.

Richard: Yeah, so you minimise the downside if you like, if the market turns against you, by having an equity sharing arrangement. But, of course, you end up giving away a bigger slice of the pie, either under normal circumstances, or if the market goes ahead. But, I can see where you are coming from, it takes the downside, in case the market turns. I talked before we came on air about tangents, and things, but you just talked about the market potentially turning, I can’t let you make a statement like that without probing a little bit. I’m pretty sure I know what you are going to say, but curious to know why you would say that, why is the market turning right now?

Thor: Yeah, I mean, we are selling properties ourselves, you are in the market yourself Richard, for your listeners, we all can see what’s happening, if you are actively involved in the property game right now, and the market has definitely slowed. So, you know, there is a lot of opinion out there as to why things have slowed down, and potentially where it’s going. We think that it was going to happen anyway, regardless of Brexit. But, Brexit has happened, much to our surprise incidentally, we think that’s actually just compounding, what was inevitably going to happen anyway. We have had such growth over the years, it had to slow down, or top out eventually.

Richard: Yeah, if you follow property cycles, or any kind of economic cycles, it’s exactly that. It goes in a wave, it goes in a cycle, and I guess we were due for some sort of wobble. You know, we obviously had one, I’m sure it’s still in peoples’ memories, even though it was what….2008-2009, we have had a period of growth since then. You probably heard of this specifically, the 18-year property cycle…

Thor: Yes, I have. And there are quite a few different cycles, depending on which analyst you listen to, they talk about it.

Richard: That’s right. But, the bottom line is, things go in cycles, and perhaps, we are due for some sort of, stabilisation, correction, whatever language you want to use. But, Brexit hasn’t helped, you are right. And it was a surprise.

Thor: Yeah, it was. And, its interesting times, on the flipside, the market definitely has slowed down. So, when we are appraising deals, and I’m sure your listeners and you mentioned in our conversation, we have to be cautious when analysing deals in this market. On the other hand, there is still a lot more demand, than there is property.

Richard: Yes, exactly, the fundamentals are still there aren’t they.

Thor: And finance, the cost of finance, actually for Buy to Let finance and Owner Occupiers, you know, getting residential mortgage, I don’t think it’s ever been cheaper really. Has it?

Richard: No, it’s one of the cheapest forms of finance you can get. And as you say, historically low, for quite some time. Yip, there are a lot of drivers there that are pushing people into property. And the need for housing is very, very real. Let’s see what happens over, I don’t know…however long the fall-out from Brexit takes, but certainly in the short-term, it’s going to take some time before that demand dissipates anyway I’m sure. I was going to say Thor, just talking about Development Joint Ventures, generally speaking, fits in. do you think it’s a big opportunity right now, not necessarily right now, but perhaps in the few years ahead?

Thor: Yeah, definitely Richard. I mean as the market has slowed down and turned…we started in the last recession so we know how to operate in this market and im sure, for many of your listeners, they will be thinking the same thing, that if the market is slowing down, it actually creates a lot of opportunity. So, it’s basically a time to be gearing up. That’s why, for any of your listeners, who actively want to be buying, the key thing is to look at raising finance, to get that cash lined up. So, that when you do find a deal, you can execute, and either exchange and do a Joint Venture or whatever you want to do, or buy the property outright.

Richard: Yeah, and I was talking…it’s a well-oiled phrase, banks will lend to you when you don’t really need the money, type of language, you know. If you can prove that you don’t need the loan, they will give you it. So, I think, what I’m driving at there, of course, having access to alternative funding streams, funding routes, as a property investor, property developer, is a good thing. It’s part of the point of this series actually, is to make people aware of what else is out there. And I guess, you provide one of those sources of funding, you know, alternative funding, for developers.

Thor: We do, Richard, yeah. It’s just been a progression of how we have done deals over the last few years, but increasingly, more and more developers…we are all in the same boat, we are all out looking for deals, and we are all out looking for finance. You need both to do the deals, and if you are doing enough deals, you eventually run out of your own cash. So, this is why we have gone off and built our fintech platform and FCA regulated, Crowd With Us, is to raise the equity finance, that’s needed for developers to do deals. There are a lot of members out there that do the 70%, you know the senior debt, but no-one really does the equity, because that’s the most at risk money in a deal, if things go pear-shaped.

Richard: I’m glad you said…well not glad you said the last bit because I was thinking about what I was about today, but, I was just glad you said the whole 70/30 split, you know, it’s relatively straightforward, certainly when you have got a tangible property, to secure 70% Loan to Value, type of lending on short-term loans, or long-term loans from financial institutions. But, it’s that extra 30%, that’s just the deposit on the property, and then of course you have got the cost of development works etc. fees, anything on top of that. And that’s a big gap, and it can amount to quite a considerable part of the overall project expenditure, couldn’t it. We are driving into some of the benefits, I guess, of somebody providing equity as well as debt finance. So, maybe you could help me elaborate that list a little bit…what are the potential benefits to a property developer, of having some kind of Joint Venture arrangement, we have kind of touched on a few already, but, if we can get our shopping list out, it would great…

Thor: Yeah, so obviously if you are a developer, and you have got more deals on the table, than you have cash, then obviously, its beneficial to team up with someone who can provide the equity, to do the deals. So, you know, a lot of developers Richard, we discussed this, a lot of developers will do this themselves and raise the finance, but obviously, it’s time consuming. There are only so many hours in the day. So, we have done and we are continuing to do, we are building a platform, to assist developers, by spending the time to go out and raise that finance, to bring into developers deals and provide the equity for developers, to keep doing deals.

Richard: So, basically, provide the equity funding and reduce the time in doing so, I guess. It is time consuming, you are absolutely right. And, also, we will come on to evaluation later probably, but, there are a few frogs to kiss, like we were saying earlier. But we will come back to that maybe. So, I have been talking a lot to people who are operating finance in various forms, to property investors and developers. And, I use the phrase bankable, but I use it in a very general sense. How do you get yourself for investment of, whether its equity, or debt, or other forms, I guess I pose the same question for you? More from a, if a developer is presenting themselves to a potential Joint Venture partner, i.e. someone with the money, what’s the best way to prepare themselves, so that they have got the best chance of success in raising that money, would you say?

Thor: It’s a good question. So, obviously, you want, if you have got experience as a developer, you want to be able to show that, very succinctly and transparently to any investors. And it is all about sales, and we always use the idea that a good salesman, never has to lie, or tell a mistruth, obviously, you have got to sell the sizzle, but I find that the most successful method, is just being transparent with your investors. If you are not that experienced, let them know. If you are not that experienced, but you are also not confident enough to do the development yourself, bring in some outside experience with another developer, or consultants, or whoever you need to fill that gap. And then present solid numbers. That’s the biggest thing. So, it’s the numbers, about how you are going to make that profit, your contingencies, also, what’s the security for your investor. How is their money secured against the property?

Richard: Yeah, there are quite a few things in there, actually, that I’m scribbling down as well, the exit strategy, or actually more than one. Invariably, you need more than one exit from your deal. Knowing your numbers and providing contingencies in case things go wrong. I quite like what you said about partnering up and being transparent, even if you don’t necessarily have the experience, I’m really interested in that because you can be a relatively inexperienced developer, but you can still take on a project, by bringing in people who have the experience and still make it viable, still make it work for everybody, would you say that’s fair?

Thor: Yes, I think so, it’s case of also being fair. So, you know, we do Joint Ventures, with sort of, novice investors. But we get people with a name and a phone number sometimes, saying we want 50% of the deal. So, we have to politely just educate people in that situation but, there’s more to just a phone number and an address. The deal negotiation and the structure is a big part of how you make the money. You make the money on the day you buy it, ultimately, its tying up a good deal. But, if you have managed to do that, then that’s half the battle, then you have got to get the finance and do the development. So, you know, like you say, can just bring in architects and builders, just do a Joint Venture with a builder. Or, if you are confident enough, we only on very large stuff, we were looking at a Joint Venture with a developer, in Whitechapel, where he gets basically, a fixed return. So, he doesn’t have to worry about building in a margin and contingencies for materials and labour, you know, it’s probably about 5 million GDV. So, if he is doing that on a fixed price, well he is going to work in a few hundred grand as contingency, a buffer. So, on that one, we are confident enough with the materials and the labour, how much that’s going to cost, and we will just pay him a fixed management fee. And in that Joint Venture with him, we will say, look, you are basically working on this site, and we will allow for him to run two other sites. Which will be sort of, maxed out, in terms of his time and how he can commit to each deal. Yeah, I have sort of gone off on a tangent there. That’s the fixed management fee, to manage the deal, as the builder, the main contractor.

Richard: In that example, would he be charging costs of materials and labour, and then just take a management fee off his profit effectively?

Thor: Yeah, he will have a fixed management fee, let’s just say for arguments sake, its £100000, I’m just using that as a simple number, and then he would simply pass on the cost of materials, you know. So, we would run all that through our accounts, and the cost of labour and simply pass that on, and we would pay the invoices.

Richard: So, generally speaking, you mentioned a couple of opportunities, or projects already, but what sort of things are crossing your desk as Joint Venture opportunities? What types of project are out there at the moment, that would lend themselves particularly to, this type of solution?

Thor: Yeah, so the benefit of doing Joint Ventures is, obviously, the benefit of scale. So, we are not as bolshie as some other developers, who have made, some massive success in the last few years. We have taken the cautious and stead approach, because we don’t need to go bankrupt and lessons in this development landscape, we want to be cautious and it’s all about risk mitigation. So, the types of deals we are seeing right now, which the risk is mitigated, to the max and the profit is leverage for the amount of cash we are putting in. Typically, Joint Ventures with land owners, and land owners that actually want to keep some of the properties.

Richard: So, you are seeing a lot of that. People who are sitting on land themselves, who perhaps, don’t have the either, finance or the capability to develop that opportunity, partner with you, they will bring in the land, you will bring in the money, the expertise, to get it delivered. Would that be fair?

Thor: Yeah, and they are actually quite savvy people usually. So, if they are sitting on land that’s worth, £2-5 million, it hasn’t landed on their lap through chance. They are usually savvy business people, who have grafted away, they have ended up with property that’s quite valuable, but they generally don’t have the time and/or the inclination, and sometimes the cash, you know, liquid cash, to actually do the development. That poses a great opportunity for you listeners for property developers.

Richard: And what about the conversions type of landscape, ground up development, i.e. building new stuff on existing land, kind of fits a little bit, into the example you just have just given. But, what about converting brown field site, office space, this sort of thing, are you seeing a lot of interest in that sort of area?

Thor: Yeah, I have got colleagues that have done a lot that, I think it worked well, 3-4 years ago, before it became a well-known, sort of angle, to do developments, but it seems to have been maxed out. And it’s very competitive in that space right now. Or it certainly has been up until now, and pre-Brexit, its more straightforward, whereas if you need to go for planning, and you know, really think about how to structure the deal and the design and max out how many units, the massing on the site. It tends to be more upside on those deals, because they are less straightforward, and also, if the owners want to retain most of the site, all of it if they could, then that’s sort of an angel, that most developers wouldn’t be used to approaching.

Richard: Yeah, that makes a lot of sense. The land owner can still have an ongoing interest, potentially in the project, doesn’t have to give it all away. You also, talking of tangents, when you said something earlier about—you have got this sort of, land available, this property available at their disposal, they are usually quite savvy people. I guess by definition, they are also, high net worth people too, and that takes me into…it’s a bit of a leading question Thor, to be honest, but I guess, you are in the landscape of the high net worth and sophisticated investor, more so, aren’t you with this type of arrangement?

Thor: You are, and people sometimes, think that it’s harder to deals with people who have got high net worth or you know, more assets. But we find that actually, people who are doing well, they understand that, as a developer, you are a business as well, and you need to make money. So, sometimes it’s actually a lot easier to sit round the table and strike a deal that’s mutually beneficial for both parties.

Richard: That’s right. But, it does draw me a bit into the downside risks, of this type of opportunity. I have been speaking with other people as I mentioned, and I’m sure you are aware, with anything to do with finance in property, there are risks. You have already mentioned a couple as we have been talking—for example, if you are lumped with a fixed coupon, or fixed rate of interest in a downturn, that kind of thing. But, what would you say would be the potential downsides to watch out for with Development Joint Ventures?

Thor: Well, one of the obvious risks, is the market… the GDV, the gross development value of the site, so, that’s an obvious risk. The deal appraisal and the structure, you need to work that in, you know, what happens, if the exit is to sell the properties, at a certain margin, if you can’t sell the properties at that price, is there a second exit? So, that’s a risk to manage, and an obvious way to get around that, is to have, instead of 1 year money or 2-year money, have 5-year money in the deal, where everyone is of the understanding that if we don’t achieve a certain return, that the properties get rented and get sold at a future date when it hits that trigger value. So, that’s an obvious risk. And then, I think probably, the next biggest risk is not meeting peoples’ expectations. So, that could be investor partners, or if you are doing a Joint Venture with a land owner, you don’t want to be in the situation where you haven’t met someone’s expectations.

Richard: Which obviously stems from setting the right, or agreeing on the right set of expectations, right at the beginning, doesn’t it?

Thor: It does. And I think that’s where the transparency really comes into play. It’s just being open and upfront with people at the start and not leading people up the garden path, in terms of ramping up their expectations, for something that’s unrealistic to achieve. So, we tend to use the conservative approach. We will say, look, this is the conservative level that we are looking to achieve. Because it’s pretty much guaranteed, you can’t say guaranteed of course, but 99.9% certain we will get this because of all the planning constraints or whatever constraints you are working with. Then you say, look, this is the potential upside and this is what we are aiming to get. But, its clearly illustrated and outlined in your Joint Venture contract, that that’s what you are aiming for, but worst case scenario, this is you would potentially be left with, if you didn’t get that best-case scenario, or its going to be somewhere in between.

Richard: You have made a lot of good points, I think—talking about transparency and good sales people don’t have to lie, be open about what you are aiming to achieve and have alternative exists, different scenarios…if it goes well, if it doesn’t go so well. There is a lot of ethics actually, in what you have been speaking about. I think, in a landscape, where ethics can be thin on the ground…we haven’t had a long conversation about this, but it strikes me that that’s important. You see that as an important ingredient, in terms of developing, long-term successful partnerships, in this type of venture. Am I right in thinking that?

Thor: Yeah, 100%. I think we are—you mentioned something in the conversation we had off line, Richard…that this is a people game, we are dealing with the property, but it’s really a people game. And if you can good deed, by someone or with someone, then that will lead on to more business. And we have had a lot of sellers, where we have done Joint Ventures with sellers, or we have taken Options to buy properties or whatever, got the outcome, that we were setting out to achieve for the sellers, and they come on as Joint Venture partners, or Angel Investors, in future deals. So, you know, I mean, that’s a brilliant result to aim for.

Richard: Yeah, I think, I might be at risk of taking us down a tangent here, but I think it’s a long-term game. And there are lots of people with money around, but if you don’t nurture them, nurture the relationship, deliver on your promises, all of that, demonstrate good values and ethics in the way you operate. You probably won’t deal with them beyond the first opportunity, if you don’t look after them. You might not even get to the first opportunity, of course, if you don’t display some of these characteristics. But, of course, if you do, and you deliver on what you say, and even if, let’s face it, things can also go wrong, but if the way you tackle things that go wrong, is transparent, and ethical, and you open communication etc. chances are you will get a lot of respect, and you will get a lot of repeat business with them, as you kind of alluded to.

Thor: Word of mouth is the best form of marketing. If you have got repeat business, and your previous clients are selling the virtues of working with you, then less resources need to go into marketing to raise finance and find more deals, which are the two big things that all developers are doing constantly.

Richard: Yeah, I want to talk about resources in a second, because, I think there is something interesting there to talk about. Maybe before that I just wanted to ask, is there anything I haven’t asked you that you are thinking, Richard, I wish you had asked me this question, this is so relevant, its burning in my head, is there anything like that that you want to get out there? There might not be, by the way…

Thor: I think there is a lot of uncertainty in the market right now. But the smart money has probably anticipated this, you know the large investors. It’s probably been on the cards, for the last year or two. There are going to be some great opportunities out there, so it’s time to get ready, to capitalise, to basically do some great deals, but also to be cautious. Because, the finance world is changing, although the interest rates are quite cheap, there is talk of the deposits, that are needed for Buy to Let mortgages, being quite significant in the next year or two. This is just what I have heard from brokers that we are speaking to, who speak to the banks.

Richard: Oh, there is definitely a tightening up, certainly in conventional Buy to Let, isn’t there? I think with affordability checks coming in and the rent coverage percentage is going to be increased, the stress testing level is going to be increased. It all points towards a stricter regime for the lending. But, I’m wondering therefore, if development is a better avenue?

Thor: Yeah, potentially, so long as the numbers are right. I mean, if a developer is working on 20% margins on todays’ values, it might not be enough. If the market does turn, and it has slowed down already. And if you need to get stuff shifted, then the only way to shift it is to drop the price…

Richard: Yeah, I think a lot of people lose sight of this. They think 20% is a pretty decent margin, but as you rightly say, you can be in a development for a couple of years, so to some extent. And it could turn against, and 20% could be gobbled up quite quickly.

Thor: Yes. And the cost of your senior finance, that can rack up quite quickly, so you don’t want to be hanging onto properties unless you have got some long-term finance in there as a back-up.

Richard: So, as Buffett says, I’m not sure which way round he said it, off the top of my head, but be greedy when others are fearful, and fearful when others are greedy. But, you were saying it’s a time for opportunity…providing you have a conservative type of approach.

Thor: Yeah, when all the amateur investors are running for the hills, it’s time to go and start doing more deals, like Warren Buffett says.

Richard: Fair enough. Sounds good to me.

Thor: My business partner has met him on a couple of occasions actually so…

Richard: So, thanks for that little anecdote, of where you see the market. It’s been really fascinating. What I tend to ask, some of our Subject Matter Experts, of course, like yourself Thor…is there anything special, or unique or some kind of offer that maybe you could make available to listeners of The Property Voice, is there anything in that regard that you have in mind?

Thor: Yeah, as we mentioned earlier Richard, we don’t have any sort of sales and brochures or anything like that, or information on things, it’s all on our website. But in terms of, if one of your listeners is, or some of your listeners are not massively experienced, in terms of property development, then we have a very systematic way of appraising a deal. So, if one of your listeners has a prospective lead, that they are looking to do themselves, we are quite happy to do to run through the numbers and do a 5-minute desktop appraisal. So, that basically looking at your, reverse engineering method, which most developers do. So, you look at your Gross Development Value of what you expect to achieve, your development cost, which is the cost of developing the site, obviously, then you have got your deal costs, which we break down separately, to development cost. And that’s typically, your Stamp Duty, your finance, which is the one, and then your entry cost into the deal…you know, your legals, insurance etc. And then, your exit costs, which the main one is your estate agents’ costs, and your exit of the finance, if there is a redemption penalty there. And then, you obviously, work out your profit margin that you need, or you are comfortable with, and then looking at all of that, you end up with your Residual Land Value, which is the amount that you would willing pay for the land, or the property, to do a viable deal. So, yeah, we can send a spreadsheet of to any of your listeners and run through it. As I mentioned, it probably wouldn’t make much sense if we just sent them the spreadsheet, because our guy who analyses all the leads, he is an ex-banker, and he is a bit of a master on spreadsheets, so they can, be a little confusing, on the bigger ones. But the 5-minute desktop is straightforward, and basically enables you to analyse a deal in 5-10 minutes.

Richard: Oh, that’s great. So, basically, I guess what you said there is, you have got a spreadsheet which allows any would be developer to appraise a site. But equally, if I understood what you said correctly, you would help alongside them, to guide them through that process, is that right?

Thor: Yeah, we would run through them, the analysis, with the listener, who is analysing their lead, or their deal, if they think they are going to go and buy it. And as I mentioned to you before, we have an in-house programmer, who we employed full-time to build the fintac platform with us, he has developed some…we use APIs to pull down Land Registry data, so if we have got the address and we know the type of properties that we going to building. you know, it could be houses, we will run a search within a quarter of a mile radius of the house, to pull down all of the sold prices, within the last 12 months. So, that used to take us hours, probably 3-4 hours, to go after Rightmove, Home Track, Zoopla, Find a Property, and Land Registry has some data there, that takes us about 5 minutes now.

Richard: Very good. Well I’m sure a lot of people will find that valuable. So, it’s probably the natural question, as to how can people get in touch with you Thor, what’s the best way for people to get a hold of this spreadsheet and start talking to you about some Joint Venture Development Opportunities?

Thor: Yes, our website Richard, is the easiest way. So, its developwithus.london and our phone number, emails etc. are there. That’s the easiest way to get in touch.

Richard: That’s developwithus.london, ok. I guess there is the crowdfunding one, do you want to just mention it just in case people have got an interest in that?

Thor: Yeah, if people are interested. We are actually still building that, we have spent a lot of money on it. But its crowdwithus.london and we are just working with a principal firm right now to get some interim permission before we apply for our own. but yeah, we have a lot of off-line investors, that’s how we have traditionally funded deals, and we are still doing that. But we are looking to use tech to bring all of that online and systemise and optimise it.

Richard: That’s brilliant. So, developwithus.london and the offer of the desktop appraisal development spreadsheet and maybe a little bit of guidance along the way and even potentially I suppose, partnering up on a potential development opportunity. So, there is quite a lot there I think.

Thor: Yeah, we always love to share information and help people do their own deals. But you know, you never know where things go and you sometimes end up doing a deal with people.

Richard: Exactly. I think it’s about reciprocity, giving and you get back. Thanks for your giving today. I appreciate that. It’s been really good to talk to you. Both, during the formal interview process and obviously beforehand as well. And I hope we carry on talking afterwards. It’s been very interesting, very fascinating.

Thor: Likewise, Richard. Thank you for putting in the time and I think it’s great what you are doing. Providing valuable content to your listeners and I am sure everyone is very appreciative.

Richard: Thank you very much for that final note. I shall definitely make sure that stays in the edit!

Thor: Exactly.

Richard: Thanks Thor and I will speak to soon. You take care.

Thor: Brilliant, Richard. Thanks for that. Thanks everyone.

Property Chatter

Interview with Subject Matter Expert: Thor Portess.

To receive a copy of Thor Portess’s development site appraisal model and the offer to be guided through it on a real opportunity, visit www.developwithus.london/contact and mention The Property Voice when asking to receive a copy of the development appraisal spreadsheet.

I really enjoyed the discussion with Thor as it was clear that he has an alternative approach to doing deals rather than just the conventional approach. JVs with land and property owners and partnering with existing developers to provide much-needed equity as well as debt finance being just some of the angles he raised with his brand of Development JVs.

There was a lot of ethics that came out in our discussion, which I won’t labour here too much. However, it is extremely relevant I think as JV partners are not like London buses unfortunately with two a minute turning up. This means that we need to act with integrity and transparency as Thor said and this not only helps to convince at the outset but can also help to ensure an enduring and repeating business relationship spanning several projects too.

I also appreciated Thor’s conservative approach. In fact, Damien and I were just laughing at how miserable we are when it comes to projecting the end values on projects just before I recorded this. Miserable could also be translated as conservative and so that means protecting the downside when it comes to doing a development appraisal…which is doubly important when working with a JV partner and their funds.

This may not be the last time we talk about joint ventures in this series, however, I am sure you found this discussion to be a very worthwhile one if ever you find yourself in a position of wanting to scale, or having more deals than your funding allows.

It seems to me that this series has been the one you have enjoyed the most, certainly judging by the download numbers…would that be right? If it is, then please do me one small favour, would you…just pop over to iTunes right now and leave a nice little review for the show, would you? That would be great if you could. But even if you don’t, just take a look at the one left there by PontesValter, which pretty much made my year! That certainly helps me to keep going I can tell you 😉

One last thing before I go, Damien and I are running a Property Business Planning Workshop in London on 26th November. We are sharing over 30 years of experience for the benefit of your property business in just one afternoon. There is a link in the show notes with full details of the event. Tickets are very limited and as the event is being run on a cost-recovery basis only, we expect them to sell out fast. We will be walking through our property business planning tools and templates with the aim of making YOUR next year in property the best one yet. And if nothing else, you can meet us face-to-face and have a bit of a laugh after the event at a sociable Happy Hour as well.

As always, do email me personally if you want to talk about anything from today’s show, for more info on our workshop or more general in property investing to podcast@thepropertyvoice.net, the show notes will be over at the website www.thepropertyvoice.net

Now all that remains is to say thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Property Financing: JV Development Finance – It’s a time for opportunity…with a hint of caution | S3E09 appeared first on The Property Voice.

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  You have probably spotted that over recent weeks in this series that the range of financing options is becoming increasing more diverse, niche and…well decidedly alternative really. Today, we begin to blur the lines even further as we start migrating...   You have probably spotted that over recent weeks in this series that the range of financing options is becoming increasing more diverse, niche and…well decidedly alternative really. Today, we begin to blur the lines even further as we start migrating into more creative or hybrid financing methods. To some extent we already blurred the […] Richard Brown & Casa from www.thepropertyvoice.net clean 47:37 3435
Property Financing: Angel Finance – Forget Dragons Den & Shark Tank…here we find the property financing angels in reality | S3E08 http://www.thepropertyvoice.net/property-financing-angel-finance-forget-dragons-den-shark-tankhere-find-property-financing-angels-reality-s3e08/ Wed, 02 Nov 2016 05:59:23 +0000 http://www.thepropertyvoice.net/?p=3423 http://www.thepropertyvoice.net/property-financing-angel-finance-forget-dragons-den-shark-tankhere-find-property-financing-angels-reality-s3e08/#respond http://www.thepropertyvoice.net/property-financing-angel-finance-forget-dragons-den-shark-tankhere-find-property-financing-angels-reality-s3e08/feed/ 0 <p>We all enjoy a bit of TV drama from time to time, don’t we? Well, I would also wager that we property investor types have had the odd snigger or even wow moment whilst watching the funding pitches on Dragons Den. Well, today we have a guest that has access to some real life dragons…well, […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/property-financing-angel-finance-forget-dragons-den-shark-tankhere-find-property-financing-angels-reality-s3e08/">Property Financing: Angel Finance – Forget Dragons Den & Shark Tank…here we find the property financing angels in reality | S3E08</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> angels

We all enjoy a bit of TV drama from time to time, don’t we? Well, I would also wager that we property investor types have had the odd snigger or even wow moment whilst watching the funding pitches on Dragons Den. Well, today we have a guest that has access to some real life dragons…well, angels actually. A sub-group of Angels Den, which provides funding solutions to businesses, has emerged specifically to fund property investments and developments. It is called Property Angels Den. No doubt we can find property angels through other means, but for now, let’s understand a little more about how Property Angel Finance could add yet another dimension to our property financing repertoire, as we get the low-down from subject matter expert, Ray McLennan…the man that can connect us to the angels.

Resources mentioned

To receive a copy of Ray’s Property Angel Finance FAQs, send an email, quoting The Property Voice to raymond@angelsden.com

FAQ 1 “Is Angels Den Like Dragons Den?”

FAQ 2 “How Do I Pitch to Angels?”

FAQ 3 “How Do I Find a Business Angel or Investor?”

FAQ 4 “How Do I Successfully Follow Up Interest from an Investor?”

FAQ 5 “What Other Sources of Finance are There?”

Link to the Podcast feedback survey

Today’s must do’s

If you fancy pitching your next property funding project to a flight of angels, then why not reach out to Ray McLennan from Property Angels Den where over 1,000 high net worth investors with an express interest in proprty funding hang out…or whatever else angels get up to!

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com in case you would like to get yourself a copy to accompany this series

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello, and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

We all enjoy a bit of TV drama from time to time, don’t we? Well, I would also wager that we property investor types have had the odd snigger or even wow moment whilst watching the funding pitches on Dragons Den.

Well, today we have a guest that has access to some real life dragons…well, angels actually. A sub-group of Angels Den, which provides funding solutions to businesses, has emerged specifically to fund property investments and developments. It is called Property Angels Den. No doubt we can find property angels through other means, but for now, let’s understand a little more about how Property Angel Finance could add yet another dimension to our property financing repertoire, as we get the low-down from subject matter expert, Ray McLennan…the man that can connect us to the angels.

Richard: Well, hi again everybody. I’m very pleased to have with me, a very special guest today, its Ray McLennan, hi Ray, how are you?

Ray: I am absolutely fine, Richard. Thank you for the invite.

Richard: No problem at all. Thanks for joining me today. As you probably know, we are in the middle of a series on creative and alternative financing in property. We have had a couple of weeks, where we have been talking about some of the more traditional financing methods that people have been used to, like Buy to Let mortgages, bridging finance, commercial lending, that type of thing. But some of the alternative stuff, is really what I want to get into, and indeed, not just what else is out there, but equally what is the practical application for property investors and developers. And you have been on my radar for quite some time; why don’t I just cue you up, why don’t you just tell us a little bit about yourself and I know you have got an interest in Angel Finance, but just tell us a bit about yourself, just to help set the scene and then we will take it from there if that’s ok?

Ray: Sure, first of all, I do have property of my own, I have got 30 properties that I have invested in. My background previously…I have always been self-employed, my whole life. I have owned a variety of businesses including restaurants, a wine bar—and imported wine and imported beer, and then I was a corporate lawyer for a while…which was the only time in my life where I actually had a title, and the only time my wife could actually tell people what I did. So, that’s kind of, where I came from. About 5-6 years ago, I was doing a talk in London to lawyers, about how to grow a business—I’m a great fan of Michael Gerber, The E-Myth; Four Ways to Grow any Business, and I was applying that to legal firms with some success. And in the audience, was a chap called Bill Morrow, who had recently founded the company Angels’ Den and for those of you who have seen, or watched, Dragons’ Den, Dragons’ Den is the pantomime version of what we do for real. So, we have a variety of Angels, and those Angels invest in a variety of businesses, covering the whole spectre. And, Bill always said to me, we are not interested in investing in property, because they had made money in property. They were interested in investing in Enterprise Investment Scheme deals and the like, start-ups and so on. He didn’t think there was ever any point in putting any property deals to people. But, a couple of years ago, I had a property deal that I was doing and my Joint Venture partner, was unable to come up with the finance, he was in a chain in London, and the house wasn’t going to sell. And he gave me a couple of weeks’ notice to say, sorry you are going to have to raise this money on your own. It was a substantial chunk, and I turned to Bill and said, I have got a couple of weeks to raise £500000, can you put it out to the Angels? He said well they won’t go for it but ok. So, we sent out a one-pager, and the bottom line was…we had the money in the bank, in under a week. So, there clearly was an appetite. Then, Bill said, we should create Property Angels, then. And you are to run it. And that was a couple of years ago, and that’s what I have been doing ever since. Great fun, we have got lots of investors, in Angels’ Den, when we last looked, it was 18000, active investors. But they don’t all go for property. At the moment, we have under a 1000, who will do property only. But, that number is growing on a daily basis. So, for the last couple of years I have been pulling together Angel Investors, property people and matching them up. That’s really what I have been doing.

Richard: It’s kind of a dating agency type of concept, for raising money for property.

Ray: Yeah, it is. But, it’s great when you have been on both sides of the fence, you know you have advanced money for property and you have also had to ask for it. I think I have more of a working knowledge of how these things work. But, the more important thing was, we developed a system that…when you ask an Angel Investor, or investor in property, what do you want to see in a deal—we follow a thing called the CREST model, which is Credibility, Return, Exit, Security and Trust. So, those are the things they are mainly looking for. Then we have 17 questions that they ask, and I’m afraid I don’t have an acronym for that, but I will come up with one, I’m sure. So, there is 17 questions that they will ask you, and the proposals that we put to them, have to answer those 17 questions. And if they do, what we discovered—I’m quite one for analysing these things, but, just to put some figures on it, if you make an application for funding, generally, so man on the street, wants to make an application for funding, the stats are usually 1 in 20. So, 1 in 20 will get funded. Using our process, we have narrowed that down in some cases, to 1 in 5. I thought that was quite—I wasn’t particularly blown away with it, until I spoke to some brokers. And they said, 1 in 20 is quite normal, we would be happy with that. For every 20 deals’ we get, one them will get funded. I thought that was outrageous. But apparently, that’s the industry normal. There you are, what did I know. But we have managed to create a nice little system where, the person seeking the funding, follows the system, then we reduce the odds of being rejected, and increase the odds of getting funded. And that’s really what it’s all about I suppose. Playing the odds.

Richard: Yeah, I’m sure that is what it’s all about, trying to get a match, as you say. Someone getting a return on their investment, somebody getting the fund they need for their particular project. With Dragons’ Den, as you said the pantomime version, and I know its not exclusively, but it’s often, the majority of cases at least—its offering an equity type of investment. They normally put money in, they get a share of the business and so on. I know there is other types of deals and the Shark Tank, is the American equivalent, you know they come up with licensing alternatives, and perhaps they will do some of working capital, lending facility as well. They have got a number of tools that they can play. But, in terms of the Property Angels’ Den is it an equity or a debt play, or is it a mixture…how does it fit in effectively, in terms of the property financing landscape for property investors?

Ray: Right, ok. Well, first thing is first, when someone comes to me looking for funding, I always try and work out, what would I do if it was my deal? Angel investment and equity investment is not cheap, it’s not a cheap way of doing it. But, quite often people will say, I can’t get a loan or I can’t borrow the money from the bank, or there is usually some reason why they have landed with me. And I always encourage them to take a look again, because, some banks are lending, some banks are not, some banks are lending quite a lot, and other banks are not. And, lending at the moment is relatively cheap, you know, we have had some people that have managed to get Development Loans at sort of, 4,5,6 %. 8% would be quite normal. But, an Angel Investor is going to want more than that. And if you are doing an equity deal, or a Joint Venture, then you could possibly be exchange half the profit. Which can work out to be a great return for the Angel, but not necessarily for you. So, I always want to encourage people to look at the alternatives. Because, we are one of many options for funding. So, step 1. Angel Investors, will look to do a—well they will want to balance their portfolio, and in that case, it might mean that they are happy to do a short-term loan. So, if there is a property deal that requires money for 6 months, 9 months, 12 months, up to about 18 months, would be the definition of a short-term loan, then there is quite a few that will look at that and will do it. And we have done a load of these. And then there are others, who do want equity, and there are others who will do what’s called a Prudent Call Option, which is they will buy from the company at one price, and you them back at another price. So, that a kind of hybrid. It’s not really a loan, but it’s not equity either, but for tax purposes, some Angels want to do it that way. So, there is a number of ways of getting the funding. It really, kind of, depends what the deal is, and it depends also, if the Angel has the cash or, if they are ready to move now and so on. So, there is a whole load of reasons why we would look at it. So, it’s never one or the other, I think its whatever fits. But in terms of answering your question, at the moment, it’s probably about 50/50. Half the money we are doing is in short-term loans, and half the money is in equity. Something like that, if that answers your question?

Richard: Yeah…it actually does and I think what I’m getting at actually for the listeners, how could they potentially consider using Angel Finance as an option, to have a debt or equity play or some sort of hybrid, I think helps people to frame that. But also, you also rightly say, its having a mixture of different financing options available, I daresay many people listening to this won’t be aware that there is Angel Finance specifically for property investors.

Ray: Yes, there is! We also do—the other version that I haven’t even mentioned is crowdfunding. Now in terms of crowdfunding, most people might be familiar with Kickstarter, Crowdcube, if you Google them there is lots of them there. And one of the first to do that in this country was a company called BrewDog, an Aberdeen based brewer, they brew ale for punks, and they like to be contrarian. They were turned down by their banks, so they turned to their customers and said, we want to grow this business, would you like to buy some shares in the company.  And they raised a phenomenal amount of money crowdfunding. So, Kickstarter and Crowdcube, these companies, what they will do, is they can offer equity or they can offer rewards or they can just ask people to fund a business for the hell of it. And you can have people looking for funding, who might want to raise £500000, and will get £500000, but it will be in £10 from John down the pub, or £50 from Auntie Miriam, that sort of thing. We do crowdfunding, but the crowd we have are high net worth individuals and sophisticated investors. And their minimum amount, tends to be much, much higher than that. For example, we had a property deal in Cornwall, that was £1000000, that was funded by 11 people, so that the extent of our crowd. So, it’s not going to 30000 people, or 15000, which is administratively a nightmare to manage. Our crowd tends to be small. And there are property crowdfunding options out there, there is quite a few of them, where you can put your property on and raise money. Or, if you want to invest in property, you can go there as well. So, that’s another option that we do as well.

Richard: I didn’t realise you also did crowdfunding. You won’t be surprised to know, I’m covering crowdfunding as part of this series. So, in fact, tomorrows episode that goes out is specifically about form of Peer to Peer lending, rather than crowdfunding per say. It’s a bit like what you have just described, just a small collection of private individuals, rather than a large crowd. But, we will be covering that. So, I’m fascinated to know you even do that.

Ray: Yeah, absolutely, if you need any names or contact numbers of people that are in that space, please let me know. I’m quite happy to point you in the direction, you can speak to my equivalent in the crowdfunding platforms that do property.

Richard: Sounds good, I might well do that. In terms of understanding how it works then, let’s go back to the core of Angel Finance. People have probably got in their mind, walking into the Dragons’ Den, the Dragons with their pile of cash, interrogating you, while you just do a pitch from memory, you know, the TV show…but what’s the reality? How does it work, from a general industry perspective? You can talk about how you work, but I think from a general industry perspective, how would it work for someone?

Ray: Ok. Well, Angels’ Den has been very successful by doing what’s called Speed Pitching. And Speed Pitching, is where you get however many Angels you can into a room, 20, 30, 40 or 50 into a room. So, that room might be in a lawyers’ office in Central London for example, round tables, or square tables, you will spread the Angels around the 5 or 6 tables, and then 5 or 6 companies would come in to pitch. And they do a 3-minute pitch and then 3-minute Q&A. So, before they get to that point we do pitch training, we go through it with them, you know, we say here is what to say, be yourself, have a checklist rather than a script, bring in products if have got it. So, entrepreneurs would come in, and they would sit down and say ’Hi, my name is…I’ve got this idea, here are how many customers I’ve got, with your help and your money, I can double the customers and we will all make lots of money and it will be great fun…Any questions?’. So, that’s it in a nutshell. And then the Angels ask questions back and forward, how did you come up with this idea, who is your best customer, what’s your average spend, etc. Great, that’s fine. And they have a bit of paper in front of them, and they note down whether they’re interested or not. So, the Angel writes down, next other company name, ‘I’m interested’, ‘I’m interested but won’t invest’—so, I’m interested in mentoring, or helping, I have contacts… ‘I won’t invest, but I know someone who will’ or ‘This is not for me’ and then a remarks column. And then what we do is, at the end of it, we would gather in all those bits of paper and say to the company, ok, you have got 6 notes of interest or 10 notes of interest, or whatever it happens to be. And then, we match them up, we just allow the entrepreneur then to deal directly with the Angel Investor, to strike the deal. So, that’s how Angels’ Den started. With Property Angels’ Den, we do something similar, except it’s a 10-minute pitch with a PowerPoint presentation. So, someone who is pitching to get funds for their property deal, they are generally looking for much more, maybe £500000 for a commercial conversion or something, or they want to buy 4 or 5 HMOs and need a £1000000, or something like that. And they will come in, we give them a template, which shows, basically a ‘Presenting to Property Angels dummies guide’. So, you can drag and drop pictures in there, you can drag and drop maps in there, and then it will say ‘Answer this question’, where is it, who is the borrower, how much are you borrowing, what’s the exit, what’s the security etc. Again, prior to people presenting that, I go through it with them. So, we would share the screen, we would do a Skype call, and they go through their PowerPoint presentation, its only 10 minutes, and I say that’s great, that works, or there is too many words on the page, or leave this out, or you forgot to mention an important point and so on. So, there is coaching and guidance. Nobody ever thrown in front of them, without being prepared. And because I have invested, and because I know what our Angels will look for; I ask all the hard questions in private. Now, a note about Dragons Den, quite a few of the companies that we either have rejected or have not accepted, have ended up on Dragons Den. And that’s no surprise to me, because sometimes the people will come to us and they don’t know the numbers, or they don’t do their homework, or its clearly a product that we can’t support, and we will say sorry. And they go and apply to Dragons Den. And the TV companies are on the lookout for television, for pantomime effect, so, when someone comes out with a clearly ridiculous concept, that makes good tele. People want to watch and throw things at the TV, or they want to get an emotion that’s neither good or bad, or oh my god, how could they possibly come up with that. But, that’s what they do, it doesn’t happen in real life. If you have got a deal, we will expect you to follow the checklist that we give you. And I always look at it…is it something I would invest in? If it is and I like it, chances are goo the Angels will like it. But, if something that’s clearly ridiculous, we would try and steer someone on a different track. So, in that respect, that’s how it differs. Angels’ Den they do a 3-minute pitch, Property Angels’ Den it’s a 10-minute pitch. And then a Q&A, and in fact, drinks afterwards.

Richard: Social as well. I think the fact that you have the period of time to pitch and you have the PowerPoint presentation to rely upon, you don’t have to remember 5 years’ worth of trading history or something!

Ray: In real life, no-one is interested in that. They are not even interested in the 3 years’ cash flow, because everyone in business knows it’s going to change, things are going to happen. They just want to know that you have got a fairly, good idea of where you are going. They are really interested in—when I mentioned the CREST model, the creditability, they are interested in the creditability of the project. Because in property, a lot of our investors are property people and they will look at a commercial conversion and think to themselves, well actually, there is quite a bit of profit in this, if he makes a complete mess of it, or they go bust, or the builder goes bust, or anything like that, I can step in and take this over. Because I can touch it, feel it, walkaround in it. So, the question is, you are safe as houses is true, and in property, it’s not a question of will you make money. The question is how much will you make if it’s done right. Whereas, if you are investing in a start-up, it can be very much hit or miss. That’s why there are such good tax breaks.

Richard: The VC hit rate is pretty poor, but when they win, they sort of strike out pretty big. But, property as you say, there is a lot more assurance in there. There’s an underlying asset for a start. Touching on it a little bit, because, the difference between say Venture Capital Equity and this sort of thing, and I know you straddle debt and equity, but realistically, would a property investor or developer, expect to get 100% of their project costs funded this way? Or is it more of a mezzanine approach, a mix and match, put some skin in the game yourself, get other factors, how would that work? Would you necessarily, or would any investor, come to your Property Angels’ Den and get 100% funding? Or is that not realistic?

Ray: It has happened and can happen. And, depending on the project and depending on what it is, yeah it can happen, absolutely. I mean the last one for example, was a DOA, £150000, chap came, he said I need £850000 completely to do this whole thing. And I said, well how much have you got to put in, he said nothing. Why have you not got anything to put in? He said because it’s all tied up in other projects and I am waiting on them completing and there is nothing more I can do in project number 1 and 2, but once they complete, I will release the money from there. But at the moment, I have not got anything and I don’t want to lose this deal. So, it was a commercial conversion, so, I would in the first instance, go to a Development Finance provider. Now, for example, The Funding Circle, everybody knows The Funding Circle is there, and The Funding Circle can provide development finance. So, the deal is £1000000, The Funding Circle might turn around and say well we can provide £800000 of the money that you need, as long as you can come up with the other £200000. So, now it’s a different pitch to Angel Investor, you are not going to an Angel Investor, looking for a £1000000, you are going to an Angel Investor and saying, The Funding Circle have looked at this, here is their terms sheet, they are prepared to put up £800000, all I need to do is find £200000. That’s a completely different approach. And then, an Angel Investor can say, right, well, if The Funding Circle have crawled all over this and done their diligence on it, then I am quite happy to pledge £100000, and then you can find someone else you will pledge £100000, and then you have got your money. So, in that respect, the developer gets 100%. Now, what’s in it for the developer, what’s in it for the Angel? Well, if it’s £1000000, and then the GDV is £2000000, and there’s for arguments sake, £500000 in profit, then they will split that equally. So, the developer will make £250000 and the Angel will get £250000 and the Development Finance provider gets their interest and their fees and costs and all the rest of it. And everyone is happy. And the building has been developed and now the developer has £250000 to play with. But, he has a relationship with a couple of Angel Investors, who will want to do another deal.

Richard: Yeah, that’s what I was driving at really. So, if you talk about 100% finance anywhere, it’s going to be 1. Hard to get and 2. Very expensive. So, what you have got here is a mix and match approach. You have got an element of debt and a top slice effect, effectively, of the equity stake and that’s where you probably come in. So, it’s more raising the equity gap, I guess, is probably the right sort of, pitch.

Ray: Bear in mind, what you have got usually, is a developer who comes to us and says I have an option on a building that’s not on the market, so its not being advertised. I can buy it at 10-15-20% below market value, because the person wants to move quick. So, the developer is bringing his skills, knowledge, experience, enthusiasm etc. to the table, so, he is not bringing nothing, he is bringing the deal. He just needs the money, and there’s lot of it, plenty money. So, to then say to an Angel Investor, well actually, you are buying this below market value, we are buying it in an SPV, a Special Purpose Vehicle, which a company set up specifically to buy it, you Mr Angel Investor, can own all the shares in it. But, you have an agreement on deal, set to one side with the developer, that you will split the profit. So, if he messes up, you own everything. The SPV, will get the money from the development finance provider and the developer, he will put in his sweat equity to make it all happen, while you just sit back and watch the building develop. So, that’s a win/win, that’s a JV and that can be funded 100%. And if the developer then, in this particular case, half way through the project, he will be able to buy back some of those shares from the original Angel Investor. So, the Angel Investor is putting up £200000, but after 6 months, the developer will be able to give the Angel Investor back £100000, to reduce his exposure. So, it can work and the do work. And there are deals out there, that are being done like that. I had a conversation yesterday—I’m not really sure if I should tell you this, but I’m going to anyway…I was just about to name the bank, but let’s just say a major bank, a major well-known high street bank, phoned me yesterday and said…we understand you are doing some quite good stuff, why aren’t you sending anything our way, and I said…forgive me Mr Banker, but let’s deal with the elephant in the room, you are not lending anybody any money. And he said…well we are. And I said…no you’re not. And he said…well we are. And I said…well you are not, you think you are, but the perception and the word on the street is that banks are not lending. And what you will do is, a developer will approach you, you will make all the right noises, and you will say send me everything, and then after 3 months, it goes to your risk department and they say no. And then they are left high and dry. So, he went…well that’s not how it works. I said well that’s the word on the street. So, if you want to change that, then you are going to have to fundamentally do something with your marketing department, or something. So, he said…well can you come and speak to all our property guys and tell them this. And I said, I will happily come along as long as you meet my fee, which is £5000 an hour. And he went off to consider it. So, you never know. But, I think a lot of developers are coming and saying, I need 100%, I went to the bank and they said no. because it doesn’t get past first base in that case. The guy at the counter will just simply say, no, we don’t do 100% lending. And in that circumstance, they don’t, but they could have funded 80% of it. But, I said that to the bank, you could fund 80% of this, and I will get Angel Investors to fund 20%, and he went, whoa, why are we doing business then? And I said, let’s talk about it. Pay me £5000 an hour and I will tell you how to do it. That was left, there is a perception out there, it’s not strictly true, but, I suppose, I will say it here…when the taxi driver starts to give me advice, or starts to tell me that he is getting back into Buy to Let, or he is getting back into property, that’s when I will stop. And at the moment, taxi drivers are saying you can’t make any money in property, nobody is lending, fantastic. If that the case, and that’s what taxi drivers are thinking and telling everyone, as long as they keep saying that, there will be money to be made in property.

Richard: So, Ray, you made a good point in that story, the conversation with the bank. One of the points I really wanted to pick up, was timing. So, forgetting the saga, with the high-street bank etc. but how long should an investor expect a project to take before it got cash in the bank, from cradle to grave, engaging with Property Angels, for example?

Ray: Yeah, I mean, it depends on the property itself, and it depends who we speak to. But we have made a phone call, on receiving a deal, and called up an Angel Investor who has the cash and it’s as quick as the lawyers will take to get it done. And in some cases, that can be pretty quick. I don’t think I have seen in it done in any less than about 2 weeks, but, you are usually looking at about 4-6 weeks. We have had short-term loans of £50000, £150000 and so on, which we have spoken to someone on a Monday, spoken to Angel on the Tuesday and they have had the money on a Wednesday/Thursday. But that’s unusual, but can happen. But, for the larger deals, the commercial conversion deals you are looking at certainly a couple of months anyway, to getting that done, and then however long the deal takes. Commercial conversion deals, some of them are taking 6-9 months. There is one in Gloucester, which is a commercial conversion, which is due to take 7 months and they are rattling on with it and everyone is happy.

Richard: When you say 7 months, is that the actual conversion project, or the funding?

Ray: Yeah, that’s getting keys and striping out the building and then building it back up again.

Richard: But, you are somewhere between 2 weeks and 2 months effectively, to get the funding?

Ray: Yeah. There are some out there that are taking longer. But, if we get all the information, we can get a decision in principal, pretty quick. The time-consuming part of my job, is people giving me the information. So, I will just simply say, have you got a RICS valuation, have you got plans, have you got planning permission, can we see the planning permission, can we see this, can we see the terms sheet, can we see…? Gathering that information is time-consuming and I can’t really do anything until I have got it all. The crowdfunding thing that we did only took a matter of hours, but it took a couple of months to get all the information onto the platform. Then once it’s on the platform, it can be funded pretty quick.

Richard: Yeah…that’s kind of leading me onto another question that I had really, is that how could an investor or developer, get themselves ready, because you need to be ready to be funded. So, it’s going to be different let’s say a Buy to Let mortgage, where you need your payslips, and you need your bank statements and some details of the property. So, generally speaking, what would an investor need to do in advance to successfully pitch, generally speaking?

Ray: Ok, there’s a couple of things here, one is…if they have a property, if they have identified a property and they want to pitch, then that’s different. If they don’t have a property but they want to pitch for funding, then that’s what’s called a Hunting License. And we are working with a number of providers, and lenders and family offices, to try and secure a Hunting License for people. Now, how a Hunting License works is…you are a developer let’s say, and you have developed projects, I don’t know, let’s say between £1-5 million, so at any one moment in time you might have a project on the go. You don’t have another project in mind, but you would quite like to get the finance organised for it in advance. That’s what’s called a Hunting License. So, you would come to us, and we take a look at what you have done, the kind of projects you are quite good at, what previous projects you have landed and what profits they have been, and so on. And then look at the assets that you have, whether they are incombered or un-incombered. And then we can get the lender who would say…we can give you a Hunting License for up to £1.5 million. So, now go find something and when you find a property, come back to us and you draw down the money within 24-48 hours. So, that’s a very powerful tool for the developer to secure the next deal. Because, you can go into a Vendor and say…here is my proof of funds. I have got up to £1.5 million. And, the one that I’m thinking about right now, he went back and haggled the deal, because our fees, had to come out of that, so, we would charge a 2% fee, and that 2% fee, in this case, was going to be the guts of £50000, and he went back and negotiated a £50000 discount on the purchase price, to cover the fees. So, that was win for everyone. So, that’s the Hunting License aspect. And that’s something that we are still working on and is not completely ready yet. But, we have got 1 or 2 that have been eligible for it, but I’d like to extend that further. The next one is, if they get a deal and they come to us, we have a checklist. Simple as that. We will just say, here is the checklist, here is the items we need you to produce, go away and produce them, and then we can put this in front of the Angels. It’s nothing onerous, it is what is, as long we have got the information. We know what our guys will ask for, we have got a 17-point checklist, and we just need to answer the questions. Simple as that.

Richard: That sounds good. I guess, some of them have come out already, but what would you say are some of the benefits or Property Angel Finance?

Ray: The benefits of Property Angel Finance…well, it can be quick. It’s equity, you can establish long-term relationships with investors. Those investors have all got friends, who have got money, who are all looking to invest, so, when you meet one, you can tend to meet the others. And, yeah, you can achieve your objectives. You can get things done. You can get the Angel Investors who have contacts, skills and experience. They are not all just investors, sometimes they will come along and say…I know a great deal about this location, I know great deal about this building, I know a great deal about whatever it is they want to turn it into. Sometimes, we have had people looking to build flats, and we have had an Angel Investor say…do you know what would work here really well, is a hotel? Build that as a hotel, I have someone that will buy this from you, if you build a 100-bedroom hotel, instead of flats. Or, will rent it at a phenomenally good rent, and it does bring a different perspective. We did have a developer that was taking a look at something, and when he was given the option of a hotel and looked at the figures, he actually wanted to retain it, he wanted that to be his pension, if you like, rather than just buy it and sell it. He wanted to keep it, and this was an option he didn’t realise existed until he had spoken to an Angel. So, that’s the benefits I daresay.

Richard: Do you think there are particular types of property project, that would lend themselves particular to this type of solution?

Ray: Well, we have done all sorts of things, Quarries, Trout Farms, what else have we had…Hotels, Pubs, Pubs being converted to HMOs, Offices being converted to Flats or Serviced Accommodation, all sorts of things. If its property, heritable property, as in you can touch it, then everything is up for grabs as it were. The only thing about property is, you make money buying it, you don’t necessarily make money selling it. So, if its property, and it’s a reasonable price and you can do something with it, you can add value to it, then its win all round. In terms of what’s doing well at the moment, I would say what’s doing well at the moment is…commercial conversions, in England and Wales, commercial conversions are doing really well, because you don’t require, Permitted Development, yeah, you don’t require planning permission. We don’t have it in Scotland, Scotland is also being affected by Nicola Sturgeon and her request to make Scotland independent, that’s putting some people off, English investors, for example. But then, some of them are actually seeing an opportunity and going, well actually…there is a lot of opportunity, there are less buyers around, I’m coming to Scotland. And the Brexit thing, that was a storm in a teacup, it kind of lasted for a couple of months. In fact, a lot of our investors said the day after Brexit, you know what, I’m going on holiday, I will see you in September. And, July and August were terrible for trying to get deals done because everyone just decided to go away and let the storm calm as it were. Thing are picking up now, commercial conversions are doing well, there is no doubt, there is a big shortage of property across the whole of the UK. I can’t remember what it was, 350000 are required. The definition of a household is…a person looking for a house. So, it doesn’t necessarily mean a husband, wife and kids, it could be a single person. There is a 350000 shortfall, and what did they build last year? 151000. So, the supply and demand that there is, Economics 101, means that there isn’t going to be a property collapse any time soon. We never seen in Scotland, we certainly never seen it in Edinburgh, which is where I live. It does happen in other parts of the country, that if you get a boom, you will get a bust. But it tends to be very slow and steady up here, I did speak to one investor, who said to me…prices in Ireland collapsed by 60% and I said…well that’s because they were already over inflated by 100%, so what do you expect? Prices in Ireland now are actually quite good, Northern Ireland is a good place to invest right now. Southern Ireland is a good place to invest right now.

Richard: So, Ray, just conscious of the time, and you know its fascinating to hear some of these anecdotes and stories, and everything, but I’m just concentrating that we try to get it in a certain time. So, if I can move on to one of the questions I like to ask, obviously, we talked about benefits, but what about potential downsides, you might say there aren’t any. I’m sure there probably are, I’m counselling you as an industry expert, Subject Matter Expert. So, what re the potential things that, someone not so experienced in this field, raising this kind of money that is, should look out for?

Ray: Timing is the big one, you think something is going to take a year, it probably won’t. It will take 18 months. If you think it will take 18 months it will probably take 2 years…

Richard: Are you talking about the actual project, rather than the fundraising?

Ray: Well, you can raise the funds based on the fact that it’s going to be 1 year. If you don’t pay that money back after 1 year, you are into penalty interest. And that will just eat away at your profit, so that’s a potential downside. In terms of, downsides to getting the funding—having unrealistic figures, you know, not knowing what you are doing. But, you wouldn’t get in front of the Angel Investors if that’s the case, because we look at everything. If someone comes to me and says, I can convert this building for £50 per square foot, well, you know you can’t, there is no way you will. It’s going to cost you double that at least. And I have had people like that…’no, it’s definitely…I will get it done for £50’. And I’m like, ‘no you are not’. So, you have to go away and redo the figures, they go and red the figures and it doesn’t stack up. So, people adjusting their spreadsheets to make it work, rather than putting it what’s real, is something that we catch. So, it doesn’t get to the investors. When something gets to the Investors, it stacks up. What can let people down is, they say the wrong thing, or body language, or something. Its only happened twice, that I can recall, in the last 6 years, where someone has let themselves down badly, by saying the wrong thing. We do have, after they have attended and met Business Angels, they get a chance to have a drink afterwards…a glass of wine and some nibbles. We always say to people, don’t re-pitch, ask the Angels how they became an Angel, and if the Angel wants to ask you about the project, they will. And we had a couple of people who had too many drinks, and an Angels comes over and says…I’m out, I was in, but mark me down, I’m not interested anymore. And then we have had the opposite, people who have met over a drink and said…I wasn’t going to put any money to that project, but I really like that guy, put me down. So, it can happen both ways.

Richard: Alcohol, eh? That’s one of the potential downsides!

Ray: We provide quite good red wine and nibbles.

Richard: But apart from maybe, penalty interest on the commercial side. Penalty interest could kick in, I guess that’s the short-term loan type of arrangement. You talked about SPVs, potentially the Angel owning the shares in the SPV, there is an element of loss of control. I guess, by definition.

Ray: There is, but that can be managed by agreement. You can have Heads of Terms, you can have a Deed of Trust. You can manage that by agreement. Again, going back to Dragons’ Den, Peter Jones will say, I will invest £100000 in your company, but I want 50% of the shares. We have had people who said, I will invest in your company, but I want 100% of the shares. But here is what I will do, if you reach the milestones, you say you will reach; I will return those shares to you, so that we will end up with 60/40 or 50/50 or 70/30 or whatever it happens to be. So, the control element can be—if someone is putting a lot of money into something, it can’t happen without the money, they do want an element of control.

Richard: No, I do understand it, I was just highlighting it really that, someone putting money in, is going to want something back. One of the things they probably want back is some kind of security. And the other thing they want back is some sort of control, or some sort of walk through arrangement in case things go awry.

Ray: Absolutely. They will quite often—what an Angel Investor will do in a commercial conversion for example is, they will put their man on the ground, they will put their quantity surveyor in. So, they might have pledged £1 million, but they are not going to write a cheque for £1 million on day 1. They will make £1 million available, and on day 1 what will happen is the quantity surveyor will come along, and you can draw down £100000 or £200000, whatever it is. Then at the end of the first month, you can draw down a further £100000, at the end of the next month you will draw down more. So, it happens in stages, so that’s how its controlled if you like.

Richard: Ok, good. So, thanks for that. I guess, drawing to some conclusions, or drawing to a bit of a close. We were talking before we came on air obviously, but I normally ask the question…is there anything special or unique that maybe you have available for the listeners of The Property Voice, that you could potentially share?

Ray: Well, I have a Frequently Asked Questions, which is the most common Frequently Asked Questions relating to raising Angel Finance. So, I have an e-book on that, which I am quite happy to let you have and that calls on things like, how do you pitch, how do I find a Business Angel, how do I successfully follow up interest, what other sources of finance are there? Those are the commonly asked questions. We have got 20 Frequently Asked Questions, but these are the 5 most common ones, and certainly the ones that everyone seems reasonably happy with to receive. So, yes absolutely, you can have that. If that’s of any use.

Richard: I’m sure it is. I have seen it myself. You kindly sent it over. What I suggest is, we are going to ask how people can connect with you in a second, but if people want to reach out to you and just ask for the FAQ e-book and reference The Property Voice. I think that’s important. If they reference The Property Voice when they do so, obviously, it will allow us to track if effectively, where this invitation has come from. People can do that, I have seen the book, it’s quite a few pages and they are very helpful. So, I think the other thing to ask is how do people get in touch with you then Ray? What’s the best way to reach out?

 

Ray: Ok. Well I have a website called Raising Angel Finance. Raisingangelfinance.co.uk or through Angels’ Den, angelsden.com is the website, and if you go to About Us, you will see me there and all my contact details are in there. Or if you just contact anyone in Angels’ Den, or submit any email or any question to Angels’ Den relating to property, it will come to me. Or, Raising Angel Finance is just a separate site, where I have control over that and I can put things in there that are helpful and useful and so on. The Angels’ Den website is very geared towards what you see on Dragons’ Den, which is start-ups and so on. We are working towards creating a separate site, which is called Property Angels’ Den. But, that’s in the pipeline, it’s not there at this moment in time. So, angelsden.com equally, I should point out that as well as people looking for funding, I often get a lot of people—I speak at events, I do things like this, people say well actually I’m not looking for money, I have got money, I want to invest money. I like what I’m hearing, I want to invest it through you. So, we have a mechanism for that as well. There is a website called becomeanangel.com, or people can simply email me, and tell me what it is they are looking for. Whether you have money in a pension, or cash available, or whatever it happens to be, we can certainly help. And, there is good returns to be had there. So, it’s both sides of the coin.

Richard: Would you mind just reading out your email address so people can just jot it down as they are listening in? Obviously, I will put it into the show notes as well, for people who want to visit that.

Ray: Sure, its raymond@angelsden.com

Richard: raymond@angelsden.com ok, fabulous. Absolutely great. You know, it’s been fascinating talking to you. You shared a couple of case examples, and that’s what I’m really driven at, practical application. I really appreciate your time and probably, for a lot of people, what is a new area, a new funding source. It opens peoples’ eyes I think and I’m sure you are probably going to get a lot of people reaching out to you for that FAQ book. And more. So, I just want to say thanks Ray, it’s been really good talking to you. Valuable insights, we have run out of time unfortunately, but just want to draw a line there and say thank you.

Ray: Alright, Richard. You are very welcome, thank you for inviting me.

Richard: You are welcome, take care. Bye.

Property Chatter

Interview with Subject Matter Expert: Ray McLennan.

Resources mentioned:

To receive a copy of Ray’s Property Angel Finance FAQs, send an email, quoting The Property Voice to raymond@angelsden.com

Once again, we have located another relatively new and untapped source of funding open to property investors and developers in the form of angel finance.

I know a couple of people that have successfully funded projects using Property Angels Den and lived to tell the tale, so it isn’t quite as scary as the TV programme pantomime versions make out.

I particularly like the idea of the pre-screen that Ray mentioned to improve the chances of success and, also the doing away with the ridiculous idea of a pitch without notes, as raising finance is not a memory test!

Ray mentioned that property angels can use a mixture or debt and equity solutions and of course there is also the additional route of crowdfunding available from a flight of angels too. So, if nothing else, you may have learned what a collection of angels is called for the next time you watch Eggheads 😉

Right, that’s me for another week and another piece of the property financing puzzle is in place. By all means do email me personally if you want to talk about anything from today’s show or more general in property investing to podcast@thepropertyvoice.net, the show notes will be over at the website www.thepropertyvoice.net

Now all that remains is to say thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Property Financing: Angel Finance – Forget Dragons Den & Shark Tank…here we find the property financing angels in reality | S3E08 appeared first on The Property Voice.

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We all enjoy a bit of TV drama from time to time, don’t we? Well, I would also wager that we property investor types have had the odd snigger or even wow moment whilst watching the funding pitches on Dragons Den. Well, We all enjoy a bit of TV drama from time to time, don’t we? Well, I would also wager that we property investor types have had the odd snigger or even wow moment whilst watching the funding pitches on Dragons Den. Well, today we have a guest that has access to some real life dragons…well, […] Richard Brown & Casa from www.thepropertyvoice.net clean 49:43 3423
Property Financing: Development Finance – The 3P’s that turn a ‘Hope Project’ into an optimised funding solution | S3E07 http://www.thepropertyvoice.net/property-financing-development-finance-3ps-turn-hope-project-optimised-funding-solution/ Wed, 26 Oct 2016 04:59:02 +0000 http://www.thepropertyvoice.net/?p=3404 http://www.thepropertyvoice.net/property-financing-development-finance-3ps-turn-hope-project-optimised-funding-solution/#comments http://www.thepropertyvoice.net/property-financing-development-finance-3ps-turn-hope-project-optimised-funding-solution/feed/ 1 <p>After a structured asset finance career in the City, Piragash Sivanesan aims to bring large corporate finance know-how to the everyday property developer. We have a housing shortage in the UK and so property developments and conversions into homes for people to live in is both in high demand and potentially also offers great rewards […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/property-financing-development-finance-3ps-turn-hope-project-optimised-funding-solution/">Property Financing: Development Finance – The 3P’s that turn a ‘Hope Project’ into an optimised funding solution | S3E07</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> house-development

After a structured asset finance career in the City, Piragash Sivanesan aims to bring large corporate finance know-how to the everyday property developer. We have a housing shortage in the UK and so property developments and conversions into homes for people to live in is both in high demand and potentially also offers great rewards too. However, it is not quite as simple as it may seem, but Piragash walks us through the ins and outs of development finance and the 3P’s of a development project: people, project & place.

Resources mentioned

The Major Development Group UK on Facebook

As with Craig Snider last time, Piragash Sivanesan is happy to give his time to walk through the different options and providers that operate in the major development financing space.

Piragash Sivanesan’s contact details:

Link to the Podcast feedback survey

Today’s must do’s

Interested in development and conversion projects…yep, me too! A great opportunity in the current climate I would say, so make sure you have a chat with Piragash to get the low down…or have a chat with me about some of our development opportunities if you like too!

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com in case you would like to get yourself a copy to accompany this series

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

Sometimes people say to me that they cannot believe that the information that is shared on The Property Voice podcast and blog is free, which of course it is. The fact of the matter is that we all get to grow and develop as a result of some of the fantastic guests and subject matter that we get to trawl over each and every week. It is an absolute pleasure, in fact, to be in a position to do this and I get a lot out of it too!

Today is no exception, as I am joined by the founder of Totum Finance, Piragash Sivanesan, who has a wealth of knowledge about Development Finance I can tell you.

From a structured asset finance career in the City, Piragash aims to bring large corporate finance know-how to the everyday property developer. So, put your feet up, sit back and relax as you have a listen to someone that really knows how to get your development finance project funding approved…after all, he used to the be the man that said yes or no when he worked for RBS and Lloyds in the past.

Richard: Hi everybody, it’s Richard again. And I’m joined today by Piragash. Hi, first of all, just let everyone know you are there.

Piragash: Hi everyone

Richard: Good to have you join us. And I won’t say…well I will say actually, because you have given up some time over the weekend, so I really want to appreciate that and acknowledge that in advance. So, thanks for giving up some time at the weekend to do this recording for us. We are in the middle of a series, on financing in property, we are going to talk about a wide array of different financing solutions. We already have done and Piragash, you are going to talk to us today about Development Finance. What I normally ask a guest, such as yourself, coming to join me on the show is, just give us a brief introduction into yourself and your background and why this is a good specialist topic for you to be talking about today.

Piragash: Great, thank you. So, my background is really Corporate Investment Banking, for the last 15 years, doing Structured Asset Finance. I have been working in different banks, Lloyds, and then latterly RBS. I worked in the Credit department, underwriting, and really making the decisions, when, your listeners are making a request for finance; I have been involved in the structuring. Which I think is critical for any banker, because you really understand why, when things go wrong, they set up as there, and also on the frontline in terms of structuring deals. So, for most of my career, it’s being involved an asset that’s had some element of construction. Sometimes its property, sometimes it can be things like an oil rig for example, and then they sometimes put it into a mortgageable asset, where a bank will put a mortgage and lend against, and ultimately that asset produces an income. And I set up Total Finance about 15 months ago. The real reason was to give a level of expertise, that we would normally give into a FTSE company to the SME, small time property investor and developer.

Richard: Excellent, well it’s funny actually, I spent some time in Asset Financing, perhaps in a slightly different context, but I was looking at equipment related financing. So, interesting that we have had that type of background. It’s fascinating the whole Development Financing piece. So, why don’t you just kick us off, why don’t you just explain what actually is Development Finance, and where does it fit into the overall financing landscape for Property Investors and Developers.

Piragash: Sure. I guess, its most basic. Development Finance is where you are taking, in the context of Property of course, you are taking your asset, and you are fundamentally changing it, you are developing it. So, I’m not talking about a brand-new kitchen, and perhaps some new walls. I’m talking about something where you are making structural changes to the overall design, or extending. Really, when we talk about Development Finance, its often with ground up developments or perhaps more latterly and quite popular, is the commercial to residential conversions. So really something where, you buy an asset worth, let’s just say for example, £100. You are really spending in excess of £40 to alter the make-up of the asset. Traditional lender, so for example, let’s just say for example, your Buy to Let lender, wouldn’t necessarily to be seen to be financing or holding a 25-year loan, while you are completely changing the make-up of the asset. And that’s where Development Finance comes in. To break it down, let’s just say, normal Development Finance spreads between land, so you buy some land, then you might get some planning on it, then you might have construction period, and then finally your sale period. Your typical Development Finance offering, encapsulates that last two pieces of the puzzle. Not so much land purchase, not so much planning but the construction and the sale components of the financing.

Richard: Ok. So, would you have to do something else to acquire the land part then?

Piragash: Again, there is always a yes and no. If, for example, you bought some land with planning, then you wouldn’t necessarily have to do that. You can purchase the land and the constructors part of the Development Finance Loan. But, if it’s just for example, you decided to buy some grazing land, the chances of planning are 50/50 or 40/60. It’s unlikely that a Development Lender would actually want to lend on that piece, until you get full planning. And it’s almost one of the reasons why, you have got an industry that’s called Planning Game, where you take a piece of land, you add planning and often the value of the land shoots up. But, when we talk about the different ways of financing—feel free to reign me in Richard…

Richard: No problem!

Piragash: One of the areas is, people who don’t have much funds can buy a piece of land speculatively…the type of lending you would probably get on a speculative piece of land is maybe 50% Loan to Value, occasionally a little bit more…but when you get planning on that land, especially if it’s high density, by that I mean several houses or several flats, the value of the land will really shoot up. And that extra equity, that you will have created, so for example, you bought the land for £100, and now, as a result of get the planning its worth £200. When you now go, and get Development Finance on it, you will be able to talk about the equity, that you are bringing to the deal; the skin of the game, that the banks always like to look at as the planning that you created. That extra £100, that will then form the basis and then ultimately you will look to get funding on the £100 that you haven’t put in, plus whatever the construction costs are thereafter.

Richard: Yeah, so I was driving at how, we can answer this in a different way or explore it in a different way, because Development Finance is a component part, perhaps isn’t it, of an overall mixture or basket of different financing that you could look at. Development Finance is specifically targeted, as you say, with heavy spend, in changing a property or land, from its current situation or current use, into something else. Typically Buy to Let, light refurbishment is 15% spend or less. You would have a heavy refurbishment type of concept and that might be up 25%, 30% probably tops. And then, Development Finance, if you are going to be spending quite a substantial amount of money, as you suggest, 40% or more. You can see how it fits in, and that’s what I was going to ask you. Where does Development Finance fit in, generally more from an industry perspective, where does it fit into the overall landscape, and how does it work? How does it work is probably a better question?

Piragash: Ok, where it fits in, you have got to spend something more than 40%. The thing about it is, your typical lender will look at a property if you are massively altering it, and if they are providing a Buy to Let loan on it, they are uncomfortable providing a term loan on something that’s drastically changing. Actually, the margin that they get, they need to be certain that there is an income flow. And of course, once you are drastically changing an asset, chances are there won’t be income flow. That also started to hint at where Development Finance is. Development Finance and developments generally, are actually pretty risky. When you buy a Buy to Let property, generally speaking, the asset is habitable, and straight away tenantable. But of course, once you are drastically altering a property, build something from ground up, there are multitude of things that can go wrong.  A Development Lender is there to understand all the risks and to manage that, to believe in your experience in order to be able to execute that building. and then, to be able to then provide your lending on that basis. Now, actually, Development Finance, the way to look it is to almost work backwards. So, for example, when you put a bridging loan on something, you look at the Loan to Value, you can get from the bank, to work out how much equity you have got to put in. Similarly, with a Buy to Let, you might look at the income flow, then you would look at 65, 75, 85% Loan to Value. Well, on a development loan, it works kind of backwards. You might start with what’s called your Loan to GDV. GDV means Gross Development Value. I mean, what is the value of your completed product. So, it maybe for example, £1 million, and a lender may be able to lend, for example, 60% Loan to GDV. Which basically means they are willing to lend you up to £600000 of that £1 million. It gives them plenty of profit, effectively that’s the margin. So, your costs could go up, or your GDV could go down, but it presents a buffer for the lender. Now, from there, they will deduct the sale costs and also the construction costs that they would lend you. Typically, they like to lend you 100% construction costs, and will come onto why in a minute. And finally, they would then add back the interest that they will be charging you, because the other thing about Development Funding is that—and something that’s critical, absolutely critical, about financing, is you have got to approach a turnkey funding solution. That means that, once you start constructing, you know, that you have got all the funds to finish the project. In Development Funding, there are no prizes for coming up 100, or 200k short. Because a site which isn’t finished, which isn’t fully funded, is going to be a huge, huge problem and it could result—that’s where some of the real big issues turned up in 2008. So, just to reiterate, Loan to GDV, your construction costs, your interest costs, your fees, professional fees; all of these costs are covered, then of course, whatever is left…typically then provided towards the loan. Sometimes people can get very hung up on…what is my day 1 Loan to Value, how much am I going to be able to get against this property I’m developing or this this commercial unit, or for example, this land. And actually, the way to look at it, is the word backwards. So, what is the end product, and then work out how much is left to put towards the land. Because often, that is the biggest risk for a Development Lender, because…and this is where often, Development Finance lenders, quite like the idea of an individual bringing the asset or the land, and providing 100% development fund. The reason is that the security of the land is considered, generally speaking to be static, it provides the most certain type of security. So, if you own a land that’s worth £100000, with full planning, it’s always going to generally be worth £500000. You can then, if the lender was to not provide you anything for the land…for every £1 they to loan, technically you are then going to start construction and create an extra £1.25 or £1.35, or £1.4 of value. So, for every £1 that they put in, value is constantly being created, so their security cover is nicely being managed. And the overall security package. Which is how they look at it. Of course, thigs can go drastically wrong at times. And that’s when really understanding the document is the only thing that’s really important. Does that answer your question, Richard?

Richard: It does a lot, yeah. I guess, the surprising thing is more that they tend to look at percentage of GDV, in the way you have just explained that. But I understood, that major Development Funders, would look at all of your costs and advance against that. Maybe section out the existing land and building cost and then your construction costs and interest fees as separate items, and lender percentage against that. But I guess, they will still have an eye on the GDV, won’t they? The reason I ask that question, is that, if the project doesn’t get completed, of course, the GDV doesn’t get realised…

Piragash: I guess what I should say, in the first instance, when they are working out what kind of overall loan should be made available, they will look at the Loan to GDVP. The second thing is the Loan to Cost. So, although they are willing to lend a certain amount of the potential profit, they will also want to make sure that you have some skin in the game. And this is where for example, if you bring just the land, that’s quite a big element of the cost that you are putting up. Sometimes the land can be very, very cheap, the cost of the building, for example, up North you may get a very cheap piece of land with a huge site, but actually all the cost is certainly in the construction. As you say, in order to manage their risk, what they will do is, they will drawdown funds—those funds are conceptionally agreed on the GDV, then they will draw down funds based on the schedule of works to ensure that a…you are using those funds efficiently and in the way in which your Project Plan intended. So, that they can step in if there are any issues. Sometimes you will get lenders which will step in very positively and that will work with you and sometimes you get lenders who will push you quite hard and turn off the taps. Ultimately as a percentage of costs that you have incurred, they will refund you that money that you have spent.

Richard: Yeah exactly. They are not necessarily just going to write you a cheque on day 1 they are going to want to see milestones being hit and releasing money on pre-planned drawdowns as they go. But, equally, they are going to play an active role in the project, because they are going to want to see he progress and, as you suggest, perhaps prodding you a bit, if you are behind schedule. Maybe even, you said, turn off the taps, they could actually stop giving you the money. Hence, it’s a very different type of landscape here, isn’t it, from a funder. The relationship is different, their engagement, their activity level is very different as well, compared to say bridging lenders and Buy to Let lenders. That’s the spectrum we are looking at.

Piragash: Yeah, absolutely. I suppose there is 2 things, 1…this is not one of those situations where you should allow your solicitor to be the sole region of the loan agreements that are being put in front of you. You need to understand what drawdowns look like, what do you need to commit to, what do you need to be able to achieve in order to be able to get new funds, what is the timeframe of the play, understand all the commercial elements of your loan agreement, because you will be testing it on a constant basis. This is not like a Buy to Let situation, where you may never choose—to be honest, for all loan agreements you should read, but probably never test the various clauses. Whereas, you can be sure, in a Development Loan you will constantly be testing the various clauses and you will be utilising funds on an ongoing basis. So, it’s really, really important that, if you don’t get it, to get your solicitor, to get your broker in fact to sit down and talk through all the commercial items, understand how you will be getting funding, so that there are no surprises. You know then that, presumably you run a professional operation, and you know what you need to get out of your builders, what you need to get out of your site team, in order to be able to get the next stages. How you need to be able to interact with the banks’ monitoring team, so that they are quite happy to forward you your funding. But, the bit I always like to pick up on is, sometimes there will be, I’ve seen some people using bridging to do property development in the sense of, almost constantly re-valuing the value of the property that’s being re-developed at different stages, in order to get more funding. And I have only seen things go wrong in that instance, because often there is a massive disconnect. There is a difference between valuing your overall building and the value of it versus actually valuing the cost that you have input into the development and understanding how the funds will then be released in order to meet your next stage, because sometimes the value of the property won’t have actually increased by very much, despite the fact you have spent a lot on it. And that’s where development funding is really created for this purpose. Whereas in some instances people put on bridging products which are inappropriate for what they are trying to achieve.

Richard: Yeah, I’m glad you said that. I always talk, I’m sure you wouldn’t have heard, but I always talk about having the right financing solution for the right project. So, just recently, this is totally out of context for this specific discussion, but just recently someone was talking to me about a Flip Project, it was a refurbishment on a Flip, and they wanted to get a Buy to Let mortgage. They were saying I’m looking for a Buy to Let mortgage, with no early redemption penalties because that’s a cheaper solution than bridging, and I’m going this is wrong. It’s inappropriate, first of all the lender is not going to like that very much, second of all, there is a risk that you could get blacklisted for Buy to Let lending, because you are using long-term funding for a short-term project. We could go on about that type of conversation, but people will do it, and of course, they have an attitude…if I pay 3% on a Buy to Let loan versus 10-12% on a bridging loan, it’s cheaper. But there are risks of doing that, and one of which I have just highlighted, the same as you have just highlighted here, in the difference between bridging lending and development finance. So, I’m glad you brought that up. Maybe flipping the coin a little bit, let’s just talk about, what is the opportunity right now for property investors and developers, what sort of projects on a practical level would you say lend themselves and what are the hot topics…you already mentioned a couple, but it would be great just to get a list and then talk about what type of projects are coming across your desks at the moment, where development finance is being utilised?

Piragash: I guess, there are numerous things really, as a general rule, I don’t think people should necessarily let their finance rule their strategies. If your understanding is, having a strong Buy to Let portfolio, maybe right now it’s all about understanding Serviced Accommodation or HMOs. Development and construction generally, involves a certain level of skill and experience, that often you will bring into your team via your builder or your QS or your architect. But it’s also not something that I think people should play at. It’s absolutely critical, that people are a master of the various—or bring in people that are masters of the various tasks that need to be done. Having said that, I do not need to be telling your listeners that we have a housing shortage. I do not need to be telling your listeners that construction, development, planning games present some quite big opportunities for profit. But, they are also very different from investments, because actually we are talking then about a trading business, rather than one that is a passive investment. Now, the thing about a trading business that I find really interesting and something that people in property, as I see it, are only just starting to get on board with, is really the brand. When you are a trading business, the value of your business is in excess of net asset value. What I mean by that is, it’s worth more than your bricks and mortar. So, for example, you pay probably less of a premium to About Homes Development, than say something by the Candy brothers. Ultimately the bricks and mortar are probably not that different, the end result is more in the marketing, the execution and the value that its perceived that you are providing. And that I think, starts to get really interesting and really exciting in terms of what you can build genuinely that you can then live with your growth in terms of a funding perspective, but also in terms of income generation and ultimately a sale of business. So, talking about things that are very much alive at the moment, clearly the PD rules. I mean that people can get involved in development that are very much conversions. Now, on one hand its pretty good because you can buy a building often. You can perhaps by a building, an office on bridging, while you decide what you want to do with it. You can maybe add some planning to it, or you can just convert as is. There is a different sort of regulation in terms of the builder regulations required versus a ground development. It can be more accessible but there are risks. Sometimes when experienced developers that I know, when they look at conversion projects, their contingencies are a lot higher, some of them are 15% if not 20% bracket, because sometimes you can unearth something that is just not singular in terms of the building. Whereas on a ground up development, once you have got passed the foundations, it should be fairly easy to build, because there is less issues that you are dealing with. But, the really exciting thing, from a finance perspective—I have to apologise to some of the listeners now, this is where I’m going to get a bit geeky, but, is that its accepted in Development Finance that you will have tranches of different forms of funding. And what that really means is, you can start to use more of other peoples’ money. i.e. less of your own. and the reason why that’s accepted is that, in London for example, if you are going to do a decent size development, you are probably in the £3-5 million in terms of site purchase, and then £3 million plus in terms of construction costs. Up until recently, the banks would offer quite a high leverage, something we would call Stretch Senior, but since Brexit that’s paled away a little bit. So, what this really means is that, if people can imagine a rectangle, and that rectangle represented 100% of the funding that you needed for a project. Now, for the first time…if this rectangle was Buy to Let, you would be looking at a split of 65/35 for example, between the debt that a bank would give and the 35% of equity that you would put in. And that would be it. But, actually the development piece, we can put more layers, and the reason is twofold, one-there is more profit to play with, which means that you can give more costs of financing. Because the more complex you get, the more cost it’s going to be both in terms of legal costs and also fees and just complexities. But now, for example you might take a senior debt bank, and they will give you 50% of what you need, of that triangle, and then you may get a mezzanine bank to provide say 25%. Then you may get a preference so in terms of your equity, you may take out some preference shares, preferred equity for say, 10%. Then you may get a JV partner, so a preferred equity is the guy who will take a loan and receive a flat 12%. Your JV partner may put in another 10% profit share. And finally, the sponsor equity will be provided by you. And that element, is effectively, massively reduced, because you the fact that you can split out various forms of funding. As a general rule, lower end you are in that triangle, the less risk you are taking, because you are naturally secured, by the primary type of security. And the further up you are, the less chance you have got of getting your money back, if things go wrong. But you tend to get a bigger reward. And just that concept, is what I find really interesting about Development Finance. And actually, it’s how a lot of the more sophisticated developers operate and how they are able to do a lot bigger deals. And of course, size comes more profit.

Richard: Yeah, I can see why maybe having pictures and that sort of thing can help here. I might talk to you about how we could do that later on. Started with a rectangle, ended up with a triangle, but got the same picture, that essentially you build blocks. You have got debt, other types of debt going on top and equity partners and the bottom line is, the top slice. Its top of the triangle, the right-hand side of the rectangle. Could be as little as…5-15% of sponsor equity as you call it?

Piragash: It can be, absolutely. I mean, you know your broker will know who is the best person, who is the best lender comfortable with all those various different stages and generally speaking, if you are a decent Senior Debt Lender, everybody else is subordinated; and by that, I mean they will be able to make no decisions until the debt bank is happy. But ultimately, why it’s really important to understand is, you might not be the sponsor equity in this case, and they may be listeners who are actually just investors, and they may be approached by someone to do a Development Finance deal. And actually, understanding where you are, in that triangle, or in that rectangle, is really important when it comes to pricing. Because, sometimes people will just say…yeah, sure, I will accept 6% or 10% because I’m secured in some way so I’m very relaxed. But actually, not understanding that, the bank below them that has more priority, actually is maybe charging more. Its then where the sophisticated investor will really understand where they sit. And it’s a good way for them to benchmark how they should be pricing. When perhaps it’s not their deal, but they are just investing in a deal.

Richard: Great. So, you mentioned PD; Permitted Development. Permitted Development, for example, turning an existing office block into flats or apartments, would be an example of that. As a range now, the government I think have made it permanent now, haven’t they? Permitted Developments. What you said about housing shortages, so turning brown field sites, which is abandoned office blocks, or warehouses, and this sort of thing into living space, would be an example at one end of the scale of, potentially where Development Finance could come in. and, of course, as you say, ground up developments, so taking a plot of land and building houses or apartment blocks, would be another example on a practical level. They are the two main areas are they, that you would tend to see?

Piragash: Yeah. Absolutely. Sometimes you may look at someone who is purchasing a bigger commercial site that requires a little bit more, in terms of getting involved in planning. But of course, and often many of us will want to do a development project but not necessarily have the funding to sit that and land make effectively and wait for the planning to come in. Giving you a complicated—the reason the government has really pushed this concept of PDs is; the idea is it just takes the whole planning equation out of the mix. Although, I would certainly urge people to ensure they get the relevant certification to ensure that the development that they are proposing does in fact, sit under PD rules. Sometimes people get carried away, with having PD and actually start wanting to do stuff that’s out of PD and it can then create issues in terms of building regulations. So, even if you believe you site is fitting under PD, it’s always good to either get confirmation from a professional consultant or preferably more directly from the council.

Richard: Ok, good. Thank you. We talked a little bit about benefits, other peoples’ money is certainly one of them, that comes to mind. And having a finance partner that understands what you are doing is another one. Maybe we can pick up that. But, really what I wanted to get into is how could a investor, or developer more likely, get themselves ready for raising finance with a Development Finance provider? I guess there is some key things they need to do, or to be able to demonstrate at least.

Piragash: Yeah absolutely. I think generally, when it comes to Development Finance, we try and look at the three Ps; that is the Person, the Project and the Place. So, the person, a person or people—when I say this, if you don’t feel you have one of these things, then you can always JV with someone to bring that relevant experience or background. But, does the person, do the company have the ability to execute on what they are proposing. If, for example, we are talking about a 20-unit development, ground up, have they done anything like this before? If the answer is no they haven’t, that the sort of thing that’s going to start to worry a bank in terms of presentation. You can bridge that bringing in a builder or a developer that’s done this sort of thing before. The second thing is to what degree does the person or individual have the ability to get more funding if things go wrong. Something that’s been really—something that you have probably not seen in a few years, because actually since 2008 the market has always gone up; is that when a project goes wrong and it requires more funds, generally a bank will support putting more money, because actually while we have all been standing still building stuff or digging into the ground, the GDV, then end sales unit, has actually gone up. For the first time, we are in a situation where it may stay the same or go down. So, the ability for the bank to put more funds in is, more difficult. So, understanding the wealth behind the group of people is important. But also, your access to more funds. So, this is where if you are a more sophisticated company, you have raised funds via the crowd or you have raised funds by public markets, or you have good investors that are always ready to invest in the company, it provides an opportunity for you to say there will be money to put in, if something goes wrong. Some lenders look at roughly 20% of the loan, or 20% of GDV being available, net assets, in terms of personal guarantees. So, they are the sort of things we look at in terms of the person. You know, what sort of experience do they have and what kind of background do they have. Then it comes to the Project. And this is where I would really encourage your listeners, if you are going to do a development, to really be a master of your development appraisal and all of the different components. So, you start with your site, what is your site worth, what sort of planning is required, what kind of acquisition costs, do you understand the concept of how much stamp duty you have got to pay, how much professional fees you are putting in, are these professional fees capped, is there are risk of these going over. In terms of the site itself, yes you are going to purchase it, but there is probably reports you will need to do. Environmental reports, all sorts of things to ensure you can start building on this. Are you aware of all the costs, the knock-on effects if those things don’t come in as expected? The construction itself, what kind of costs, what kind of contingencies do you have, Section 106 payments. Have you thought about all these things in terms of, do you have a minimum, does your project work without it, are you going to fight it? Professional fees, who are you going to employ on the site, apart from your main contractor, the instructor, the QSs etc. And the finally your GDV, your end product, how confident are you, what sort of comparable analysis have you done, have you gone out to two sets of estate agencies, so that you have done your own analysis, but you have also gone to an independent party. Perhaps, you have gone to the extent of having your RICS red book survey done on the end product, that the bank has used. All of these things, once you start to present them, we always encourage when we put our deals forward for Development Financing, that we work with our borrowers, to make sure that we have got a really nice pack that contains all this information, so that, when the lender looks at it, you come across as someone really professional and ready to, do your first project.

Richard: And then the place I guess, is the actual location?

Piragash: Sorry, yeah. The place absolutely. Its all about location. For example, you may be building it in an area that’s due to have huge re-generation. Bring that out, talk about the availability that can buy your product. If you building £6 million townhouses in an area that typically has working-class people that can afford houses at £400-500000, then there is a mismatch. You are understanding the area that you are building into, the appetite for—also, things like off-plan and overseas investors to come in and support some of the marketing is all related. We all know, there are a number London and South centric lenders, albeit that they are starting to change a little bit. And starting to look up North, but it’s really important to understand your patch. Are you looking at an area that’s a town city, or is it a complete suburb? Or are you trying to create demand in an area that’s (inaudible) to date. These are all factors which the lender is going to consider, when they look at how appealing your appraisal and your project is.

Richard: Yeah and all this from a lenders perspective, looking through their lens. Answering their question; do these guys know what they are doing and if it all goes wrong, are we likely to get any money back? They are the key questions behind it, they are effectively advancing the funds, as you say, a lot of risk, a lot of moving targets so, they need to understand that. In other words, the developer, pitching to them, needs to demonstrate their capability. And it’s very much a business case sort of presentation, isn’t it? It’s not here is a property, lend me some money, that’s that. It’s much deeper than that, its cradle to grave type…looking at the project as a business and evaluating it, scoping it, doing the research, presenting the numbers, having contingencies, having the experience to know to know you are just plucking figures out of thin air, you have actually done some analysis, and third party reference points.

Piragash: And you know what, there is a world of difference between a developer that understands this point and around marketing. I would urge anybody that when they do their projects, whether its refurbs, prior to getting into the really big stuff, is to take pictures, have the video entries on YouTube, really create a great marketing portfolio that you can put in front of anyone. Because, that is what…we are all people at the end of the day, the underwriters etc., and when they see something that’s slick, clearly truthful, realistic and has been given a lot of thought, you are making it so much easier to get the funding.

Richard: Yeah, I think that’s absolutely critical. In anything like this you need to showcase yourself in the best way, to some pretty hard-nosed financers. Good piece of advice. I guess there is quite a lot of, how to prepare yourself, what other projects, what are the potential benefits. I guess, we shouldn’t let you off without saying what are the potential downsides from a developers’ perspective, what can catch them out, what do they need to watch out for?

Piragash: I think ultimately, when you do a development, there is a lot of hope capital in the project, and this is that you are hoping to create something. History is laden with people who are hoping to do something, are they able to do that. The consequences of not adhering to your plan, to your development program is something that need to be considered very, very carefully. Often, when you have a Buy to Let loan, you can afford to put all your deposit sometimes, into the project and hope it starts cash flowing. In a construction project, there is no cash flow until the project is finished and having you plan b, plan c, plan d, is absolutely critical. Because sometimes, you may get some get Development Finance, subject to planning, the planning might come in, it might take a lot longer, it may eat into your profits, you may not have a deposit to purchase the site. When you are constructing you may think that you have got a JCT contract—guess what, a JCT contract does provide a fixed basis, upon which you can act with your main contractor. But there is a whole load of items out there that he or she can actually pass on costs that aren’t described in your contract. Understanding all these things are critical, because again, ultimately, if you have got £100 million and you are doing a £1 million project, chances are you are always going to be fine. But, when you are in project where, you may need more cash—I was speaking to some very, very experienced people, and it is so rare that a project; I mean so rare, like 0.005% of a project actually finishes exactly how it was planned. Now, you may end up actually to budget, but it would be of no relevance to the actual plan that you had, when you started the project. Yes, you used your best ideas, but all of these things mean that often you have got your own personal guarantee; which means you are putting your homes at risk, or you are actually eating into this. And if things go drastically wrong, the bank can’t just sit there and say, well I’m really sorry this hasn’t worked out for you, we will just sit here for another while longer. That can sometimes be the biggest downside, is that, the reason people want to do developments is that the numbers are so attractive. But you need to understand your downside, you need to your downside with various investors, you need to understand your downside for you. Because, let’s just say, if you don’t lose any money but your investors do, you can kiss goodbye to your investors ever coming back. Looking after your investors and making sure they don’t lose any money, is absolutely critical in this business, if you are going to be using investors going forward. Because, you need them on project 4, 5, 6, 7, not just on 1 and 2. So, there is a lot that can go wrong in a project. And to help you understand there is a contractual agreement, and actually running through the various things that can go wrong and having a plan b, c, and d is so important to making this work.

Richard: Yeah, I think that’s really sage advice to be honest with you. I think people when they look at returns in property, development is at the upper end of the potential return curve, as it were. But equally some of the risks are, some of the returns have to be high, to be able to cover some of the risks that you take. And they can disappear very quickly. If planning is held up. It has to go to appeal. You get a couple of units knocked out, you know, big chunks of profit can be carved out as a result of that. Interest costs start accumulating, there is all sorts of things. And as you quite rightly say, it’s like a cascade of events that you don’t get the drawdown you are looking for, the bank doesn’t give any more funds, then potentially, they start calling in the personal guarantee. They will probably take back the site, sell it and maybe fund the losses on disposal, other investors lose money so your reputation gets tarnished, you lose money, you lose reputation, you certainly lose profit. It can quickly go that way. I don’t want to paint it in an overly negative way, I want to bring this out, that whilst on the one hand there is attractive potential profits, there are significant risks as well. Much, much more than there are with Buy to Let, in terms of passive investing types of channels. Fair point?

Piragash: Absolutely, and the other thing I would add to that, you summed it up really well, I think the other thing about it—there are profits to be hard, but equally we had got into a market, certainly up to Brexit, whereby one planning was on a site, often the margin for the developer has been really squeezed. Everybody wants to get into development, you would normally expect a healthy 25% profit margin, certainly London 20%, and then to 15% and really this becomes a race in terms of cost to finance. So, if you are a cash buyer, and you can afford no interest costs, you can effectively afford to bid a lot higher for your land, because it costs you less to actually build out and this is also where it’s really important for someone to understand, consider all the plan b’s and plan c’s, consider all the cost that could happen. You need to be really sure about what…when you bid for a piece of land or conversion project, you need to be able to understand for you, what is the optimum price of what you can bid. It doesn’t matter if someone can bid higher, it’s got nothing to do with what you can do. Because they maybe a cash buyer, there may be a multitude of different things, could be using other peoples’ money and actually they are just taking a fee, it could be a builder that’s building at cost, and all these other factors mean that, every project will have an optimum price for you and you alone. And you need to focus on that. And always be insular to whatever is happening on the market. Which is why, more and more…especially if you are starting out I encourage people to, I know it’s not easy, but to get off market deals, because when you are starting out you need the time to process the type of structure you want to put on that land, but also more importantly, you need to be able to structure something that works for you and will work with the vendor, and not something that necessarily the market situation, especially if it’s a particularly nice site, those margins get bid out. It’s a real, real problem and actually, that’s why the people that have some money have some sense, will actually focus on some of the land planning. Because it’s actually in the planning and changing the land that you start to add value and therefore the projects that you bring investors, will have naturally more margin and so naturally are more fundable as well because there is just so much more equity in there, rather than something you are trying to buy on market with planning, it becomes incredibly competitive for someone that’s perhaps inexperienced.

Richard: Yeah, I can see that very clearly. Been looking at a few projects recently and doing the exercise that you just described, what’s it worth to me, and then you suddenly find projects are just going for way above that price. For very different reasons. But very competitive and I think you summarised it really well. Thank you for that. I was going to ask you a question, in fact, we talked before we came on air about resources that you might have, and I think you said that maybe you wouldn’t necessarily have one, but I thought of one, while we have been talking. Of course, you manage a Facebook group, don’t you?

Piragash: Yes, I do. You mean Major Developments?

Richard: Yeah…do you want to just share what that Facebook group is and what it’s about?

Piragash: Major Developments, is an open Facebook group for people that are considering, or would like to be, and interested in learning about how to developments. We have got loads of types of people there, from QSs to architects to developers and builders, to land people, and sources who will be able to help you on your journey.

Richard: Yeah, it’s a useful resource for people to go and find, have a look and do some research before ploughing into this. I think drawing some conclusions, and draw a closing a little bit; you have shared so much and you clearly know your stuff, just tell us a little bit about what you do on a professional level and maybe how people could connect with you and pick up the conversation after they have heard this show. How do they reach you, where do you work and what service do you offer?

Piragash: Ok. Thanks very much Richard. So, Totum Finance, you can find us on the web, totumfinance.comwe are on Facebook, myself and my colleague Craig Snider, who I believe you interviewed last week on crowdfunding, are available to answer any questions. The way we operate, so both of us we have a background in property and structured asset finance, we offer a free advisory service, so when you have first got your development, or your bridging deal or your commercial deal that you want to look at, we will help you, we talk you through, as opposed to giving you something very generic and something like that, I’d much rather sit down and try and understand your background and how you are looking to execute on a particular project, whether you are bridging or its development. And then we will start to source, in terms of, not only an info memo that represents you but also the types of lenders that will best fit you. Crucially, in terms of our practice, we don’t get paid until your loan draws down, which means, we are really a true partner and we are vested in insuring your product, your loan goes ahead, we have got access to 150 development and bridging lenders. Which should also give hope to people, there should be a lender out there. As long as your project is profitable, if experience is an issue or funding is an issue, there will always be an opportunity to get your project funded. I would encourage everyone to get in touch with either via email, Facebook group or directly on our website.

Richard: Fantastic. And you have given a lot of information freely and I have certainly appreciated to you, and for sharing with our listeners all that you have. So, all of these contact details, will be in the show notes so people can get a hold of them, obviously, they can listen to the recording and there will be a transcription done of this so, I’m sure they can find you one way. Just before final wrap up, is there anything you are thinking Richard, why didn’t you ask me this? I really need to tell you this just before we close! Anything like that?

Piragash: No, I think we have covered everything really well. I think the critical piece is developments and development funding shouldn’t really be entered into without professional advice. And that goes from broker to lawyer, your conveyancing lawyer that you use on the Buy to Let stuff, may not necessarily really be the right one to work with you on the development stuff. Your architect, your builder, all of these people, plus the education that you choose to take up. Whether on land planning or be in terms of development or regulations etc. this is all super important. And you know, that’s the important thing that you should be doing, but I would absolutely say that this country need to build and if you can find a way to build successfully, and to really be able to scale up from not just one or two projects but to 3, 4, 5, 6 projects, not only are you going to be able to certainly meet an ever growing demand, but you will be able to create a brand, which overreaches and goes beyond the physical work that you are doing.

Richard: Well I think that’s a great way of drawing to a close, to be honest, nice and positive, we do need lots more housing in one shape or form and that’s why it’s such a great opportunity. As you rightly say, doing it professionally and managing the downsides as you go. So, I’d just like to say thank you, I really appreciate your time today Piragash, and I’m looking forward to, hopefully getting, some of those triangles or rectangles drawn out, maybe if we could some sort of blog post for our readership audience rather than just the audio audience. If you would be up for that, at some point in the future of course.

Piragash: Absolutely, just not at the weekend.

Richard: Yeah exactly! I will give you your time back now! Thanks again, I will let you get back to your family now. Thanks for joining us, we really appreciate that.

Piragash: Cheers bye

Richard: Bye.

Property Chatter

Interview with Subject Matter Expert: Piragash Sivanesan.

Resources mentioned:

The Major Development Group UK on Facebook

As with Craig Snider last time, Piragash is happy to give his time to walk through the different options and providers that operate in the major development financing space.

Piragash Sivanesan’s contact details:

Given the length and detail of this week’s episode, a very quick wrap up from me.

Development and conversions do represent a great opportunity right now in property and as Piragash said, we have a housing shortage, so the demand is very high. However, running a development project is unlike many smaller scale or passive investing projects and so a business-like approach is required.

To be frank, there are lots more I could add, but in the interests of time, I will merely signpost you towards Piragash, who would be more than pleased to talk to you I am sure. In property, we need to build a team of professionals around us that have specialist knowledge and contacts in the areas we wish to operate. This includes finance partners and in particular with a complex development funding project, so I am very pleased to have had Piragash’s insights on today’s show. Just mention The Property Voice when you do connect with him.

That’s me for this week then. By all means do email me personally if you want to talk about anything from today’s show or more general in property investing to podcast@thepropertyvoice.net, the show notes will be over at the website www.thepropertyvoice.net

Now all that remains is to say thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Property Financing: Development Finance – The 3P’s that turn a ‘Hope Project’ into an optimised funding solution | S3E07 appeared first on The Property Voice.

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After a structured asset finance career in the City, Piragash Sivanesan aims to bring large corporate finance know-how to the everyday property developer. We have a housing shortage in the UK and so property developments and conversions into homes for ... After a structured asset finance career in the City, Piragash Sivanesan aims to bring large corporate finance know-how to the everyday property developer. We have a housing shortage in the UK and so property developments and conversions into homes for people to live in is both in high demand and potentially also offers great rewards […] Richard Brown & Casa from www.thepropertyvoice.net clean 58:19 3404
Property Financing: Peer-to-Peer Lending Part 2 – 50 to 200 funders…making sense of it all | S3E06 http://www.thepropertyvoice.net/property-financing-peer-peer-lending-part-2-50-200-fundersmaking-sense-s3e06/ Wed, 19 Oct 2016 04:59:25 +0000 http://www.thepropertyvoice.net/?p=3373 http://www.thepropertyvoice.net/property-financing-peer-peer-lending-part-2-50-200-fundersmaking-sense-s3e06/#comments http://www.thepropertyvoice.net/property-financing-peer-peer-lending-part-2-50-200-fundersmaking-sense-s3e06/feed/ 1 <p>  Last time out we talked about one brand of peer-to-peer lending and today we follow this up by talking to a guest who has worked on the inside of the creation of not one but three start-ups in the peer-to-peer lending & crowdfunding space, or ‘marketplace investing’ as it is now becoming known. Formally […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/property-financing-peer-peer-lending-part-2-50-200-fundersmaking-sense-s3e06/">Property Financing: Peer-to-Peer Lending Part 2 – 50 to 200 funders…making sense of it all | S3E06</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> untitled-design-7

 

Last time out we talked about one brand of peer-to-peer lending and today we follow this up by talking to a guest who has worked on the inside of the creation of not one but three start-ups in the peer-to-peer lending & crowdfunding space, or ‘marketplace investing’ as it is now becoming known.

Formally of Funding Circle but now working for a brokerage advising on how best to navigate the wide and varied array of up to 200 peer-to-peer and crowdfunding lenders for your next ‘project funding campaign’.

Resources mentioned

Resources shared by Craig Snider:

For background checks on potential peer-to-peer platforms: Trust Pilot

The Alexa Listing tells you about the depth of users of a given platform (this is a link to the Chrome browser extension).

In terms of regulation and compliance check out the FCA & the Peer-to-Peer Finance Association as well.

Craig is happy to give his time to walk through the different options and providers that operate in the peer-to-peer and crowdfunding space, his contact details:

Link to the Podcast feedback survey

Today’s must do’s

Start to research peer-to-peer lending as an option for your property projects

Contact Craig to makes sense of all the different peer-to-peer & crowdfuning platforms out there, quoting The Property Voice obviously.

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com in case you would like to get yourself a copy to accompany this series

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

I have been truly fascinated not only by the many alternative financing methods we are uncovering but also by the wide array of excellent guests that have helped me to create this third series. I am genuinely looking forward to sharing many of the interviews that I have already recorded over the coming weeks and we have another very interesting guest and topic today for you.

Last time out we talked with Ben Shaw about is brand of peer-to-peer lending and today we follow this up by talking to a guest who has worked on the inside of the creation of not one but three start-ups in the peer-to-peer lending space.

Formally of Funding Circle but now working for a brokerage advising on how best to navigate the wide and varied array of peer-to-peer and crowdfunding lenders, let’s hear my chat with Craig Snider now.

Richard: Hi again everybody, Richard again. I’m joined right now by Craig Snider, from Totum Finance. Craig, Hi, how are you?

Craig: Hi, good afternoon, I’m well, thanks.

Richard: Great. Thanks for joining me. It’s always valuable I think, for not only me, but our listeners, when people, such as yourself, with the background that you have got, join us share their knowledge. And I know also, it’s a weekend so, appreciate that, for giving up your time at the weekend to join us. So, welcome to The Property Voice podcast. Why don’t you give us a bit of an outline—we are in the middle of a series on financing. And today we are going to talk about, I know there is a couple of umbrella terms, we are probably going to get into that, but Peer to Peer/Crowdfunding, that’s where we are talking today. Why don’t you give us a little bit of background about you, and an insight into your specialist knowledge in this particular area?

Craig: Absolutely. Thanks Richard. I spent a few years with the big banks, RBS and with a couple of the other great big finance companies that exist around the world. And at one point decided I needed to branch out, diversify my experience and also have a bit more fun, than was happening in the bad old days of finance around 2008-2010, when I left. I moved towards the fintech sphere by taking a job with The Funding Circle. So, I spent just under 2 years, with The Funding Circle, helping to build their Corporate Finance offering. So, at the time they were only doing funding for trading businesses. They didn’t have anybody with any Corporate experience and it was an area that they were very keen to get involved with, to help them increase their loan amounts, the money that they could get out the door and their overall portfolio because they were a new type of borrower. We put together our product and launched it probably about 6 months later. And it was doing very well, and it continues to do very well for them. Since then, a couple of years after I started with The Funding Circle, it got to business as usual area, which was fun, but again, very similar to my work with RBS and companies before that. So, one we got out of the business as usual point of the product lifecycle, it was time for me to move on and help another company get started. So, I moved to a Peer to Peer lender that I got a years’ worth of consultancy work with, a company called Crowd2Fund, which also funds property as well as trading businesses. Then I spent a year working with a company the GK Group, so that encompasses GK Capital which is Peer to Peer firm, that you might hear about a bit more in the next 6 months. It’s one that’s just launching now as well as GK Credit and GK Pay and a couple of other things that they have. That sort of brings me to today, where I have recently joined Totum Finance, with a good colleague from RBS, Piragash, who I think you are having on here soon, but we are now looking at different ways for investors to gain finance for property development. So, we are a funding brokerage, we help business access finance.

Richard: So, that’s exactly what we are looking for, someone who has actually been on the inside if you like, of the industry. You have been involved in some of the start-up organisation, obviously Funding Circle, I’m sure a lot of people will have heard about, and Crowd 2Fund and GK Group. So, we talked a little bit earlier, and I want to get into this right at the beginning, Peer to Peer/Crowdfunding, what’s it all about, what’s the difference, where does it fit in, more to the point, this is obviously a property orientated podcast. Where does it fit in, as far as property investors and developers are concerned, from a financing point of view?

Craig: Absolutely. So, Peer to Peer finance, probably the biggest in finance, the big uproar that its creating and the reason it’s so busy and it’s such a big disruption to the industry is that its de-centralising finance. And, rather than going to the all-powerful mega-bank that sits in the high street and asking for funding, there is just a lot more access to funding, there is different people running funding platforms. So many different models out there now, rather than your typical, individual goes and puts money into a savings account and tucks it away for 10 years and the bank borrows it in the meantime to lend it on the high street, it sits back and takes in the difference. We now have Peer to Peer lending, which is making things a bit more democratic, its individual, instead of putting their money into a savings account, can now choose to log into a website, do their own due diligence, to some extent, depends which platform you use, how much due diligence you have to do yourself. And then choose which business or which projects you would like to put the money in to. Because there are so many different models out there. You touched on some of the different terminology, there’s Peer to Peer finance, there is Crowdfunding, and now if you want to be right on the cutting edge, the word that’s being thrown around a lot these days is Marketplace Investing. It’s another spin on a similar concept, and each of these different models, pretend to, sometimes it will be all the due diligence model from the platform, you literally just go on, put your money into an account, take the interest out, all the way to the other end of the spectrum where you have an investor who logs into the platform, does all the due diligence, they research the person behind the business or the projects in the case of property files, then you search the actual home, you might even be able to go and visit the home and take a look at the bricks and mortar yourself and decide where you want to place your funding. And of course, this has implications to the borrower as well. The borrower may need to make themselves available, for due diligence, to get on the phone and answer questions, to certainly do a bit of marketing themselves. In some cases, these platforms will literally just be a platform, that allows you to run your own funding campaign, market yourself. Go to friends and family and say, will you lend money to me, if so, put it into the project in this website etc. so, it does create a lot of opportunity, for borrowers, in the sense that there is so many different models out there, all using a slightly different spin on old school finance. It’s no longer, just go to your bank, fill out a form, wait 3 months and hopefully get the funding, there is a lot more different models being used today.

Richard: Yeah, that’s kind of where I was going with it really. I guess, the biggest one, using the old terminology, that’s become more known, as far as property is concerned is Crowdfunding. I guess, my particular interest would be, as a property investor or property developer, to be able to go to let’s say the Crowd, a collection of Peers, that’s why it probably falls under the heading of Peer to Peer, but I go to the crowd, there is a collection of people who could potentially, collectively fund my project. Now, whether it’s a Buy to Let investment, a development of some description, effectively I could go to a platform and draw down money, would that be fair? There is a market place that exists where I could tap into another source of funds as opposed to mainstream banks?

Craig: Absolutely. There’s many of them, I’ve heard. Depending who I’ve asked, there is anywhere from 50 to 100, possibly 200, Peer to Peer platforms out there in the UK today. Personally, and this won’t be the definitive market accepted answer, but I personally view Crowdfunding as the term for slightly more philanthropic directed platforms. So, it could be we designed this amazing backpack, it just needs to get made, you don’t have the money, you are really chucking in a couple of pounds, and we will get it made. And we are thinking with a discount on the backpack. Something like that. Or maybe someone needs some support because of a health issue, let’s all kick in £5, and hopefully get this person the help they need. It won’t be everybody’s view, but I see that as more crowdfunding today. Personally, I view Peer to Peer finance as slightly more higher headed commercial view. Somebody, who is looking to put money, make an investment, get a return, a win/win proposition at both sides. For the borrower and the investor. As I say, it’s not everybody’s’ type of view, but that’s kind of how I like to differentiate the two.

Richard: Ok, shall we use Peer to Peer as the generic term for the rest of our conversation?

Craig: Sure, yeah. It probably fits better for us.

Richard: Ok, excellent. So, in terms of Peer to Peer Financing, as far as property is concerned, in general terms, how does it work, what’s involved and how do people go about it?

Craig: Sure. On the front, it probably looks very similar to your typical banking relationship. You will have, you might go through a broker, like myself, you might go directly to the platform, and tell them a little bit about what you would like the money for, who you are, what your back ground is and your experience. And they will take all sorts of information from you, they will run a credit check, and they will hopefully approve it for you. That is the point where it changes slightly. Most Peer to Peer platforms won’t just write you a cheque, what they will then do is list it on their platform; so, they will advertise your business, your proposition. How much they will release, depends on their platform, the business model and to some extent, your consent. And investors, will then get an opportunity to decide whether or not they like what it is you are doing, whether or not they would like to contribute to it, without any return. That process can take a week, 2 weeks, 6 weeks, it really depends on the platform and the amount of investors that they have. What they will do is, that’s the point where they are going out seeking funds for you. They are trying to knock together a little of the money that you are looking to borrow. Once that’s complete, once its funded, if it funds, then they will progress back to your traditional lending relationship, where they might have to do their evaluations, or they will transfer the money to you and you will carry on as it where any other bank.

Richard: Ok, I guess, you said if it funds, is that a key part of the process? Because I have seen with Kickstarter and those funding platforms for example that if you set a funding limit and you don’t reach it, then you don’t get any of the money. Is that typically how it works with Peer to Peer or could it be that you have got 80% of your funds, so we could advance you 80% of you target, would that be acceptable? Do they have differences in how they work that way?

Craig: Yeah, absolutely. I would say, particularly when you are looking to borrow for property development, you will almost always find that you need to reach your target. If you need to buy a property for £200000 and you need £50000 to develop it, giving you £150000 isn’t going to do much for you, in fact, it’s only going to increase the risk, in many cases. So, most platforms, as I say especially with property development, won’t allow you to take part of the money. It will be a hard target. It’s not always the case, especially with trading businesses, if you are looking for £50000 for stock, there are some that work on the Kickstarter model, who will give you, as long you reach a hurdle sometimes, they give part of the money. But, because you are a Property Developer, and that can be a major risk. If you are going to a bigger lender, like Funding Circle, they have a fantastic track record of funding. Last I checked, absolutely everything they have ever listed. In they have different ways of doing that of course. There are many smaller platforms where, it can be the exception that something gets fully funded after its listed. You might find projects, are not being funded, left, right and centre. That can be a waste of your time and a risk for you as well as a borrower.

Richard: Yeah. I got that. In terms of opportunity, you talked about this being, de-centralised finance, it’s an emerging technology, fintech, as you say, its disruptive, its growing. But in terms of for property investors and property developers, would you say it is a big opportunity? Whether it is now or whether it might be in the future?

Craig: Yeah, certainly. I think it’s quite a big opportunity, it possibly could have less of an impact on property development, as a niche area of Peer to Peer lending. But, it will certainly have an impact. And I think we are already seeing it. Just recently, The Funding Circle announced that they were the third biggest lender to small businesses in the UK, this year. So, they were behind RBS and one of your listeners will have to correct me if I’m wrong but I think it was Lloyds, that was the other one that was beating them. That can only have an impact on the banks as well. When you have a competitor that’s that dominant, that quickly. So, there will be other platforms that are offering funding, like The Funding Circle, has dove into the property space, there are a couple of others, Landbay is one that are doing property lending. Not all of them are getting into property ending. However, whether they are or they aren’t, just having more sources of funding will, not only change terms, more money available on the wider market. But will also force banks to be more competitive. So, Funding Circle as an example, tend to turn loans around within 2-3 weeks, something like that. They can get from application to cash in your bank account within that time. And that’s forcing the banks to be faster. The days taking 3-6 months to get a loan out of a bank, are just not acceptable anymore. Considering there is more choice, banks need to toe the line, and need to recognise that there is more competition and they need to do better than they have done. And that will have an impact, putting borrowing directly from Peer to Peer, or if you are borrowing from a bank, Peer to Peer is looking over their shoulder.

Richard: So, you are going to have more options, there are going to be more of these players, as you say, coming into the marketplace, and getting bigger and that’s going to create more competition. So I can see competition will probably drive better service, such as turnaround times, as you mentioned. I guess price will be squeezed with some of the more established players, there is going to be more options for people to go to as well. What the general—they are probably quite key benefits, but what other benefits might you see, coming out from Peer to Peer financing as far as investors are concerned?

Craig: As far as investors, looking to borrow from Peer to Peer firms, I think that’s going to be the majority benefits, you are going to see the banks sort of smarting up their process, move more quickly and with a bigger view to satisfy the customer. That’s probably going to be the biggest impact. As I say, there are more companies to lend to, there are other models as well. You might find some platforms will take a share in the equity, you might find some platforms will be willing to call together equity investors for you. So, I suppose we are looking at it primarily—up to this point we have been discussing debt, but that’s not to say equity doesn’t also appear in the Peer to Peer space. So, there will be other ways to access equity, and smaller equity investors, as well as debt. With all the different models that come along with it.

Richard: Yeah so, I guess there is speed, there is variety in the service level and that sort of thing comes in. You have got the equity play as well as the debt play. It’s not just borrowing money, it’s also investors putting money into your project. So, there are a couple of reasons I gather, from what you have just said. One of the question I did want to ask you though; I did a write up about some of the Peer to Peer lenders a while ago, and I have used previously, a phrase of banks in disguise and you talked to me about credit checks and this sort of thing. But are they following bank based processes in the main, I mean apart from speed, and the platform they are going, but have they got a credit committee type of process, do they do a formal credit application in the same way that banks do, or are they starting to look at things in different way, and maybe separate themselves in that kind of way?

Craig: Yeah, that’s true. There is some variance in there, in terms of procedures and some the bigger more established ones are probably banks in disguise, it’s a fair phrase to use. Funding Circle have on their board, ex Wachovia directors for example, I’m sure there is other people who differ from banks to now work for platform and the other employees like myself. I was approached from a bank to go and work for them. Naturally that’s going to filter in some bank processes, into Peer to Peer process. And some of those are going to be best practice. They are going to be better. However, there are platforms who are doing more interesting things, one of them for example, the name has just slipped my mind, I will come back to the name; but what they do is something diligence by crowd. So, what they will do is list a deal on the website, and they will give you the information that you need to your diligence, that’s what they will say, that they will list sufficient information, and leave it to the crowd to do the background checks, do the searching. You are taking that as a vote of confidence. So, it’s an interesting model, I guess you could call that a massive crowd credit committee, is one way to look at it. It can be a bit intimidating, as a borrower. Instead of having to justify your project to 5 or 6 people in a room, you have got a crowd that you can’t see online, potentially doing all sorts of digging. As I say, that can be quite intimidating. No other platform will expect to release that sort of information, but that’s Thincats is the name of that platform.

Richard: Oh yeah. I guess the conclusion is that even if you have got debt or equity, it is still a financial proposition, there should be due diligence that takes place. It would be reckless, wouldn’t it, just to throw money at people without making a few checks. So, there is obviously going to be some bank or venture capital type of processes, which go into it. Perhaps, a bit unfair of me, to expect none of that to exist. But, mind you, what did you call it, the diligence by crowd, might be a bit scary! Thousands of people pawing over your credit file, I don’t know.

Craig: They probably won’t go so far, there is a privacy issue there of course and I don’t know if they would go so far as to, well they wouldn’t go so far as to release your private credit information on your mortgage or credit card for example, but they might release the details of your project, what you expect the GDV to come out, and you might have people in the crowd who speak up and say, why £50000 I that neighbourhood, no way. And others you say that’s pretty fair, so you will find your project discussed to no end in forum somewhere. It can be interesting, and it can, in some cases that can even help to kick the project into shape, if the crowd comes up and says I will put in £50, but I have a feeling that you might get more equity out if you did it in this structure. Or you might get more a profit out of it if you did it this way. So, that could be an advantage as well.

Richard: Very interesting. I’m going to go look that up later. In general terms, how would a property investor, so we are talking from that perspective, property investor, property project, how would they get themselves ready to pitch their project, with a Peer to Peer provider? And does it differ from other types of lending proposition?

Craig: Definitely. So, when you engage with a platform, they will tell you what their process is, and of course, it will vary from platform to platform. There is a theme that’s emerging there. But, some will do more work than others to get you pitch ready. So what they may do is, they may send you is send you examples of other pitches, and then expect you to put together a PowerPoint presentation. They may expect you to put together pictures and diagrams etc. or they may take you by the hand, they may ask you for what I have mentioned and they may put it all together on your behalf. So, what you will need is the full details of your project, what you have planned, your background, your information, what you would expect from a bank, what you are buying the property for, how much you are going to sell it for, and what you are going to do with it, what your GDV is also, every month, profit potential etc. So, having got that information to hand, don’t expect to go there and cuddling in together. As the conversation emerges, have information to hand and they will take it from you and they will help you kick that into shape as a presentation for potential investors.

Richard: Ok, as you say, the key phrase is, it varies from platform to platform.

Craig: Of course, yeah. More so than the banks I think.

Richard: Yeah, banks usually have a generic application form, which is fairly consistent form provider to provider. But this one, depends on the model of the platform I guess. That can shape that. I guess, the unwritten thing here is, perhaps having some guidance could be useful. Where to go to.

Craig: Yeah, most platforms will have examples of successful campaigns and unsuccessful ones. Probably a good word to remember is well actually is the term campaign. So, as for the bank, you might be going in the door, giving your information, completing an application form, get the money. The flipside with Peer to Peer is that it will be a campaign. Whether you are driving that campaign or the platform is, there will always, always be an element of publicity that somebody does, to bring in the funding.

Richard: That actually, is a really good distinction, that you just made there. I hadn’t really thought of that way, but you are right. It’s kind of a marketing campaign, to raise funds. It’s a good way of putting it actually.

Craig: Certainly, with some campaigns, some platforms over others. You look at platforms like Kickstarter, they are very much—I mean it’s even in the name, it’s very much a publicity thing. I do think of some them as a form of financial entertainment. It’s almost like you are putting money, just to have a go, a bit like playing casino. Whereas others are more grounded, more level-headed companies like Funding Circle for example, are less financial entertainment and more hard headed investment.

Richard: I got you. Have you got any general tips and pointers, for people looking at Peer to Peer and Crowdfunding? For example, does it suit particular projects or particular situations?

Craig: Yes, definitely. There will be projects that are easier to, that are more appropriate for these sorts of platforms. A lot of it, as we touched on, will come down to how much information can be in the public domain. There is a privacy issue in some case, and that will also speak to which plat form you want to go to. That will be a question worth asking when you go to the platform. How much information are we going to have to release? And if you are a private person, it’s a very private investment that you are making, then perhaps Peer to Peer isn’t for you. If you are willing to put at least the basics into the public sphere, then it suits better. I suppose the other one could be timelines, if it’s a long-terms project, perhaps it’s not suitable for Peer to Peers. If it is quite a complex project, where it requires complex solutions with the funding, then Peer to Peer, you will probably find its more up to it in Peer to Peer rather than the banks. They tend to be straight down the line and expect that to maybe suit Peer to Peer very well. When it comes to engaging a Peer to Peer platform, which platform you choose is going to be critical. The last thing you want to do is just google Peer to Peer and whichever one comes up first, spend the next 6 months teamed up with them. Some are going to, as we touched on, expect quite a lot from you, some will expect less, that may be reflected in the beans. But I always say, one of the main thing to be conscious of, is the success rate of funding for the platform that you choose to deal with. You can generally figure this out by spending some time on the website. You can see how many different deals they have, how long those are listed on the website. If you go back to the same website, every day for a month and the same loan is listed on that platform, you have to expect that yours will probably be on there for a month as well. That might be ok for you. You might expect funding quicker. But if you are looking for money inside of a week or two, you don’t want to use a small lending platform with the same deals on it for 6 weeks. You won’t get your funding in a week. That’s something to be conscious of. Make sure there is liquidity on there. Do some research. See if they have the funds behind that they offer.

Richard: Ok, some good pointers there. I guess the ones who are very successful are going to shout about it, you will probably find them easily in other words. The ones who are not so successful, they are probably not shouting about it too much, or they are shouting it in a very clever way let’s say. So do a bit of digging. I was just thinking to myself, it’s such a broad array of different possibilities, we are trying to get to the practicalities a lot, in this series, and of those is what is the right funding solution for the right project. What sorts of projects, I am thinking in my head Buy to Let project, a Bridging and short-term finance project, a refurbishment project, a conversion project, a development project; that’s just 5 that we have thrown out there, would any and all of those be suitable for some sort of Peer to Peer or Crowdfunding solution, or do you think some of them lend themselves, better than others to consider that route?

Craig: That’s a good point actually. I think that the development projects are going to be ideal for Peer to Peer. You have got a situation where someone has a great plan, a great scheme, the skills behind them, a track record and they can do this. What’s holding them back is they need to unlock some money for 6 months, a year, year and a half potentially to get this project completed with big rewards on the back. That is perfect for Crowdfunding, Peer to Peer lending. That’s something hat going to be easy to convince the Crowd or a group of people to part with their money for, with the hopes that they can earn a nice return in 6-12 months. What may not be suited and no doubt there are platforms that do it, but possibly not as attractive, is the Buy to Let deals, which fairly vanilla, fairly straight down the line, a bit less risk, but require, probably longer term commitment and longer return, over the same period. So, Peer to Peer tends to be a shorter timeline return. You will no doubt find a Buy to Let product out there through Peer to Peer but probably, less attractive than somebody doing refurbs, developments those types of things are going to be in the right space for Peer to Peer.

Richard: Yeah, if you have got relatively short timescales, up to 18 months being short, 2 years perhaps at a push, but relatively short timescales and a degree of complexity, you are perhaps adding value, to the property in some way, shape or form, they would probably be your cues to say well, let’s look at Crowdfunding or Peer to Peer as an option.

Craig: Yeah, certainly I think that’s a good way to wrap it.

Richard: We actually had a preliminary conversation before we came on and started recording. I don’t know if you remember, I started talking to you about resources and that sort of thing. I just wondered if you have got any resources that maybe our listeners could find helpful that you use, that you could direct them to?

Craig: Absolutely yeah. I think my priority just comes around to doing background checks, and doing reputational checks on these platforms. So, a big one, and it doesn’t just apply to Peer to Peer, so it won’t be particularly new to a lot of people, Trust Pilot, is a great website for getting a bit of background about a property, before you do business with them. If you go to Trust Pilot, these being Peer to Peer, being used by definition, websites, then it’s bound to have a Trust Pilot page and that will have lists of what they use, there will be borrowers and investors and you want to see both sides happy really. If you seeing investors aren’t happy, then they aren’t going to have many investors for long, and clearly if you are a borrower, you want to see borrowers happy with their experience with that platform as well. Probably more so than any other industry, you are going to want to see depth of records, as well. If you have got 5 or 6 people on Trust Pilot, reviewing it, I wouldn’t consider 5-6 people a crowd unless you are in a small London flat, it’s not going to be the type of crowd you need to fund a big property deal. You are going to want to see dozens if not hundreds of reviews on Trust Pilot, that it has a big user base. There is also, I believe it’s called the Alexandria Listing, which will—forgive me you will have to google, but the Alexandria Listing I believe, is something that gives you the depth of users on a website as well. It tells you what the traffic figures are for a website. You want to see pretty substantial traffic going to Peer to Peer website, to know that it’s going to have a crowd of people. And then on a more regulatory view, the Peer to Peer Finance Association, which lists a very short list of, I think there is about 6 or 8 Peer to Peer finance platforms, that…although it’s not industry regulator, it is an industry trade body and the industry as a whole is very interested in making sure things are doing responsibly, and this their way of making sure that happens. So, the Peer to Peer Finance Association holds platforms to account, they require that business is operated in a certain way to make sure things are done. And the FCA is improving their offering in the Peer to Peer finance space, they are ratching up the regulation. It’s not as highly regulated as the bank of course, or even most lenders, but it’s certainly heading that way. The regulation is getting tighter and tighter every day. This doesn’t prevent from all accounts. You know the biggest Peer to Peer lenders are cheating this as well because, you all it takes is one swindle and your credibility is gone in the industry. So, you can also checkout any government websites, the FCA etc. to make sure that they have a clear background and that they are a regulated firm. Usually it will be at the bottom of the website, if they are directly regulated or to an appointed representative from somebody else. That gives you an idea of how credible they are.

Richard: Yeah, the regulation piece is emerging still, as indeed the industry is, I think that’s the other thing that might put people off a little bit. The Peer to Peer Finance Association, we weren’t sure, but roughly between 6 and 8 members, but you, earlier said something of the order of 50-200 different types of Peer to Peer lender out there, it’s obviously a very small minority of the wider industry. I know that you mentioned Thin Cats and Funding Circle and I believe both of those are members of the Peer to Peer Finance Association. So, it’s the thin end of a wedge, I guess where I’m going, regulation and industry compliance is still growing and emerging, was the big takeaway there. So, thanks for the resources, Trust Pilot is a good one, that’s interesting because what was going through my head was a Crowd funder is getting reviewed by the crowd. Using crowds to another level. I’m going to ask you in a second about how to get a hold of you and what do you do effectively Craig. But, is there anything that you feel that we should bring out whilst we are talking, before we do that before we draw a close?

Craig: What we have just touched on is the regulation, that’s probably not the right time to bring it out at this point, into the wider discussion, because it’s probably a whole show unto itself, is the regulatory piece in Peer to Peer, but I what I would say is, to anyone considering using Peer to Peer finance; the framework for Peer to Peer finance has gotten a lot stronger. It started out with the FCA giving the industry enough rope to hang itself. It hasn’t happened. It’s been self-regulated to this point, and it is becoming more and more regulated. It’s becoming much more difficult as a platform and its certainly becoming much more difficult for things to go wrong. The industry is very concerned about its own reputation, and they have done a good job of self-regulating. It is going to get tighter and the fact that there is so many platforms out there. So, few of them are members of the Peer to Peer Finance Association, is not reflected of the quality. It’s not to say that there are only 8 of them worth engaging with either 200 or 4%, it’s more a matter of those are the most established ones. Those are the ones that have been around the longest. Those are the one that operate in a way that is defined by that association as officially Peer to Peer. So, there will be others who do more interesting things that just don’t fit perfectly into their space. There may be some that just haven’t proven themselves as of yet, but there will be more—I’m sorry just those 6-8, that have something to offer. Especially if your particular deal is slightly quirky. You might find that you need to engage with a platform that’s newer or a bit more cutting edge or not yet, a member of that mainstream body.

Richard: Very good. I think that’s really helpful to know that. It is a new area, it’s still emerging, still growing. I’m sure it’s going to improve and tighten up over time. But your point about if it’s a bit more quirky then to look at somebody who is still getting themselves sorted out, could be quite useful. So, to draw a bit of a conclusion, where do you fit in and how could you help people make sense of all this, because I am kind of thinking to myself 50-200 players, not all of them necessarily regulated, not all of them necessarily member of the industry body, horses for course, some do secured lending, some don’t do secured lending, some offer equity finance, and other don’t. I guess, I’m cueing you up Craig, where do you fit in and how could you potentially help?

Craig: Absolutely. Well, as a broker, it’s my job to know, which lenders have which expectations, and they might not even be lenders, they might be equity providers and the best thing I can do is speak to a borrower, a property developer, and talk to them about what their project entails. Where they are comfortable, what they are comfortable with, whether its privacy issues, regulatory issues, etc. We will take a view of just how quirky the deal is and we will partner them up with the right platform. We have a good idea at Totum Finance of which Peer to Peer firms are credible, which ones have the funding behind them and which ones will make empty promises. I hate to say it, but there are some that won’t be able to bring about a deal. And we know which ones can and which ones can’t. We are happy to speak to the developer and talk to them, make sure they are partnered up with the right firm. So, rather than holding a project back. They firm that they eventually engage with are pushing it forward.

Richard: Very good. And so how can people get a hold of you Craig?

Craig: My email address is craig@totumfinance.com that’s T-o-t-u-m. We also have our website, totumfinance.com. you can use either one, I’d be happy to speak to anybody who has a deal that they maybe need a little bit of help funding. And hopefully we can put something together for them.

Richard: That sound great. And I think probably will, if nothing else just to try and understand, make sense of this and see it as an option. that they have available. But perhaps a bit if overwhelming to think up 200 different players, all operating out there. So, I guess, you can do the legwork and you obviously been on the inside track, a couple of times now, I’m sure you are well positioned to help people. I just want to thank you so much for coming on and sharing what you have about this emerging—you called it Marketplace Investing, didn’t you?

Craig: Yeah, another phrase that springs to mind.

Richard: Peer to Peer, Crowdfunding, Marketplace Investing, so making sense of it all, effectively its getting money from crowds or individuals in a less than mainstream way and avoiding some of the formal institutional banks and this sort of thing. So, appreciate it. Especially at the weekend. We will get the show out, the show notes will be there and all the links that you shared, I will dig them out and do the Google Searches. Make sure they are in there and of course, your contact details will be in there as well. So, as I say thanks for coming on…

Craig: Thanks for having me on…

Richard: You are welcome, we will talk again soon.

Craig: Absolutely, thanks Richard.

Richard: Take care, bye-bye.

Property Chatter

Interview with Subject Matter Expert: Craig Snider from Totum Finance.

Resources mentioned:

For background checks on potential peer-to-peer platforms: Trust Pilot

The Alexa Listing tells you about the depth of users of a given platform (this is a link to the Chrome browser extension).

In terms of regulation and compliance check out the FCA & the Peer-to-Peer Finance Association as well.

Craig is happy to give his time to walk through the different options and providers that operate in the peer-to-peer and crowdfunding space.

Craig Snider’s contact details:

Finally, a quick wrap up from me.

There were lots of good points that came out of this discussion with Craig I think. Note least of which the fact that there are such a wide variety of different providers and platforms that fall under the peer-to-peer, crowdfunding or marketplace investing umbrella.

We have the unsecured lender types like Zopa,

the business lenders such as Crowd Cube,

the secured lender types that will fund your property project such as Funding Circle,

and then a few specialist providers that offer investors the opportunity to fund the company’s own projects, such as Crowd With Us.

I am sure I have missed a few out, so maybe give Craig a call and he can help you work out the best options to consider on your next property project. The brokerage that he works for is Totum Finance they are not selling courses or anything like that. They get paid on results, so that is essentially the special offer that they have available to you dear listener – their time and expertise. Make sure you mention The Property Voice when you do connect with them though won’t you!

That’s me for this week then. By all means do email me personally if you want to talk about anything from today’s show or more general in property investing to podcast@thepropertyvoice.net, the show notes will be over at the website www.thepropertyvoice.net

Now all that remains is to say thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Property Financing: Peer-to-Peer Lending Part 2 – 50 to 200 funders…making sense of it all | S3E06 appeared first on The Property Voice.

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  Last time out we talked about one brand of peer-to-peer lending and today we follow this up by talking to a guest who has worked on the inside of the creation of not one but three start-ups in the peer-to-peer lending & crowdfunding space,   Last time out we talked about one brand of peer-to-peer lending and today we follow this up by talking to a guest who has worked on the inside of the creation of not one but three start-ups in the peer-to-peer lending & crowdfunding space, or ‘marketplace investing’ as it is now becoming known. Formally […] Richard Brown & Casa from www.thepropertyvoice.net clean 47:17 3373
Property Financing: Peer-to-Peer Lending Part 1 – Not a Bank in Disguise! | S3E05 http://www.thepropertyvoice.net/property-financing-peer-peer-lending-part-1-not-bank-disguise-s3e05/ Wed, 12 Oct 2016 04:59:14 +0000 http://www.thepropertyvoice.net/?p=3311 http://www.thepropertyvoice.net/property-financing-peer-peer-lending-part-1-not-bank-disguise-s3e05/#respond http://www.thepropertyvoice.net/property-financing-peer-peer-lending-part-1-not-bank-disguise-s3e05/feed/ 0 <p>    We now start to move ahead with some of the more alternative and creative forms of financing open to us property investors and developers over the next few weeks. We start off today by taking a quick look at peer-to-peer lending. I am joined on the show by one of these more emerging […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/property-financing-peer-peer-lending-part-1-not-bank-disguise-s3e05/">Property Financing: Peer-to-Peer Lending Part 1 – Not a Bank in Disguise! | S3E05</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p>  

podcast-oct-12

 

We now start to move ahead with some of the more alternative and creative forms of financing open to us property investors and developers over the next few weeks.

We start off today by taking a quick look at peer-to-peer lending. I am joined on the show by one of these more emerging and disruptive players, with Ben Shaw managing director of HNW Lending.

Resources mentioned

Free Property Valuation Offer: Send an email to Ben Shaw, quoting The Property Voice and he will agree to provide a free valuation on a peer-to-peer loan through his company High Net Worth Lending.

Ben Shaw’s contact details:

Link to the Podcast feedback survey

Today’s must do’s

Take a look at some of the peer-to-peer lenders out there. Some are banks in disguise for sure, but a growing number offer more flexible, alternative financing facilities particularly when you have a requirement for speed or handling an unusual situation perhaps.

Contact Ben to inquire about his free valuation offer, quoting The Property Voice obviously.

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com in case you would like to get yourself a copy to accompany this series

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.

OK, so we have spent the first couple of weeks getting ourselves reacquainted with some of the more obvious forms of property finance. However, we did attempt t0 consider these in a slightly less than obvious way along with a more practical application where possible.

We now start to move ahead with some of the more alternative and creative forms of financing open to property investors and developers over the next few weeks.

We start off today by taking a quick look at peer-to-peer lending. I am joined on the show by one of these more emerging and disruptive players, with Ben Shaw managing director of HNW Lending.

I will do a wider, follow up on peer-to-peer lending later, but for now let’s hear what Ben has to say on the matter.

Richard: Hello again and I’m very pleased to welcome Ben Shaw from High Net Worth Lending onto the show today, and Ben is going to tell you a bit about himself in a minute. We are carrying on our theme about creative financing in property. And Ben is going to tell us a little bit about what he does in the space of Peer to Peer lending, which is primarily where he operates. Ben, Hi, how are you?

Ben: I’m good thank you, thanks for inviting me to have a chat with you about this.

Richard: Absolutely, it’s good to have you on. Thanks for joining me. In fact, in that vein, it would be useful if you would mind giving an intro about yourself and your background. And, I guess a bit of a clue to the specialist knowledge you might have in this area, just so our listeners know who they are dealing with.

Ben: Yeah…my background, I started off as a chartered accountant, and then went into property and spent 15 years working for, probably the largest privately owned property company, that’s about 15000 properties. What I thought was a niche in the market, was to do financing, being a bit more creative, taking unusual assets—things like cars, boats, fine wine and the kind of exciting stuff. But the reality, given my background, most of my loans have been backed by property, but we do is more innovative, certainly more than banks and for most bridging companies out there, in that we will look at a property financing and try and give the customer exactly what they need. So, if they want a higher Loan to Value, we might take, some other piece of collateral, such as a boat, or a car or some fine wine, or indeed a second charge or third charge, over another property. If someone is looking for 100% to buy a property, traditional will only lend them, say 75% against it. We might still be able to lend them 100%, because we will put a further charge on the property that they are buying. And a second charge on maybe their house, or a Buy to Let that they have got. Or a car or a boat.

Richard: Yeah…we will come on to that. I think that’s one of the things…you actually wrote a blog post for us, The Property Voice, a while ago. And it was this whole idea of securing against unusual assets, as you describe, which really captivated my imagination. But, before we drill into that a bit more about what you can do as a company. It would be useful to pick your brains a bit, because I’m talking about this sort of, growing area you alluded to in your introduction, about alternative financing, creative financing, so it includes alternative lenders, Peer to Peer, Crowdfunding, those types of, let’s say, less than mainstream lenders, like the Buy to Let lenders and the bridging finance companies that you mentioned. So, you are obviously in the space, generally speaking, of being a Peer to Peer lender, would that be a fair description?

Ben: Yeah, that’s right. I guess, what makes us a Peer to Peer lenders, is we are taking money from individuals, rather than taking money from the bank, it gives us a lot more flexibility. Because the individuals aren’t as rigid with credit committees, and can be a bit more flexible about looking at unusual situations.

Richard: Yes, exactly and where would you say, Peer to Peer, generally fits in terms of, a less than mainstream financing landscape and for property investors, in particular? A lot of people possibly, might not be aware of this type of offering.

Ben: Yeah, I mean there are quite a few Peer to Peer lenders out there now. Quite a few of them are backed by banks and private equity houses, and are effectively very similar to banks and private equity houses. And it’s quite hard to work out which ones are a bit different and can really think outside the box. And there is not many of us like that, who are funded by individuals, so if someone turns around to me and says…they have got a holiday home in Majorca, can they use that as collateral, well very few companies in the UK would even think about that, because they are UK property lenders. But we would look at it and say, well I have got several of my lenders who have holiday homes in Majorca, therefore they are comfortable with values of properties in Majorca. In fact, we have done quite a large loan in Majorca, where the lender has said I am quite happy with his, it’s a really nice house, and if the worse came to the worse, id quite happily pay off the loan and on the house. And that’s a really good way of looking at it.

Richard: Yeah, so you mentioned there, the space is emerging for a start, it’s a disruptive type of market place isn’t it. You have got Peer to Peer lenders, who are literally individuals and there is a middleman or middle organisation, that puts borrower and investor together. People putting money in at the top and coming out at the bottom. Now, you have got this accumulation of bank, or private equity based sponsors or providers that you have mentioned, and you have got some people that security over assets and other people who don’t. So, there is this hotchpotch of different mixes. You are right, in what you say, insofar as what your company does, is maybe fitting a nice niche in that space. If I understood it correctly, this is what I am trying to get at really, is the landscape of the market. Would you say that Peer to Peer in general, Peer to Peer funding, represents quite a big opportunity for property investors, if not today but maybe going forward?

Ben: Well, I think it present s a good opportunity today as well as going forward. There certainly—I think the statistics show there is over £1 billion worth of Peer to Peer lending going on and its almost all in property. I think to be fair, you are still going to get a cheaper loan from a bank or a building society, than you are from a Peer to Peer lender. But the other side of the coin is, if you want to do something that’s slightly outside the box, a Peer to Peer lender may well be cheaper than a traditional Bridger.

Richard: Yes, and I think there is other criteria as well which we will come onto as the conversation unfolds, as to what differentiates Peer to Peer. But, looking I guess, at the benefits side of the equation, now obviously, to a property investor, that’s where I come from, in doing some research for this particular episode—I hope you don’t mind me mentioning but I came across another company called Borrow, and I think they emanated from the US. They do some lending which is geared towards property, themselves. But what are the general benefits of people like Borrow, or people like yourselves, High Net Worth Lending, to property investors overall and how does it differ from other types of financing that’s available?

Ben: Borrow is much more…its model is more a Pawnbroker, and they have taken on property, because they can’t get enough pawnbroking type deals at the ridiculous pawnbroking rates that they want to charge. I think there is a, the issue is that there is a lot of providers out there, and if you are doing anything that’s outside the easy mainstream, what a bank or building society, or if you don’t have the time to wait for a bank or building society to give their cheap Buy to Let or whatever type of deals that you want from then, Peer to Peer lenders offer a great opportunity. Because, I think a lot of us are cheaper than traditional bridging providers, and some of us are more flexible as well.

Richard: I think that’s what is was driving at, because I know, I looked at a range of different Peer to Peer lender, particularly operating in the property space and when I was looking at them, to be honest with you, I couldn’t see a great deal of difference, between them and let’s say a traditional bank. You know, they still wanted to do credit underwriting, valuations, and all of the affordability type of testing, all seemed to be a bank in disguise.

Ben: I think you are right and a lot of them are a bit like banks in disguise. And that is the difficulty, if you are a property investor, you need to find those that are not banks in disguise, otherwise you might as well go to the bank.

Richard: That was an observation, that you kind of just clarified really. I sometimes go off on a bit of a tangent. In terms of, investors getting themselves ready, maybe to engage with this type of lender, so somebody that might approach you for example, what should they do, and in particular, what should they do that might be different to how they would approach a mainstream lender, if there are differences?

Ben: I think the key difference, with somebody like us, is you can call us. You will probably end up speaking to me and I will tell you in the space of 2-3 minutes of speaking to you, whether or not we can lend to you, and roughly, what the rate is going to be. And the sort of service you don’t get from other people out there, because they have a credit committee and they have a whole series of checks they have to do and forms they have to fill and whatever. Now, I’m not saying we don’t have any forms to fill in, in order to get a loan, we are obviously going to have to ask you to fill in a form and say what’s your name and what’s your address and what property are using as collateral, how long do you want the loan for. But it’s really simple, it’s really quick and we have a very, very streamlined process and we can skip things. If you, if there is a real urgency and the Loan to Value makes sense, we don’t need to have a valuation done. If there is a problem with the title, that a bank would normally say no to…maybe there is a right of way over the property, we can take a view over that and say, ok, there is a problem with the property, it doesn’t really affect the value very much, we are happy to go ahead with the loan. And that’s the kind of flexibility that we can offer that most other people can’t.

Richard: I guess in general terms as well, if we just look at the wider industry of the Peer to Peer lenders, I know you don’t represent them and the industry, but when I go to their websites, they do sort of have information on their about how you can approach them, so I suppose that’s probably a good starting point. If they have any differences, but if they are the bank in disguise, you better get ready for the full-on finance application type of route.

Ben: I think you will find that a lot of the Peer to Peer lenders are like that. and its partly the FCA forces people down that route. Or tries to force people down that route, because it’s a route they are comfortable with.

Richard: We mentioned the FCA and that kind of brings us on to the regulation and compliance angle I wanted to talk to you about. What is the situation with compliance and regulation with Peer to Peer lending at the moment? I guess I am looking more at the borrower point of view, I am not saying use Peer to Peer as avenue for investment yourself, I am actually considering it here as a borrower, a property investor, who is using Peer to Peer as a finance vehicle.

Ben: I think a firm having FCA authorisation, whether its interim or full, and to be fair, nobody has got…I think there is 6 people in the country who have got full, none of the big players have got full registration. But as long as they are in the process, it gives you quite a bit more comfort than going to an unregulated player. The FCA forces you to go through a procedure that gives protection to borrowers, in a way that unregulated firms don’t have to do. I think, the FCA rules are challenging for everybody, which is one of the reasons why they let nobody through. But, I think they are good for borrowers, because they give borrowers protection, they wouldn’t otherwise have.

Richard: There is a bit of a trade-off there I suppose, isn’t there. Just taking about accessing you and other types of Peer to Peer lenders, would you say that Peer to Peer is more suited to certain situations, I think you kind of alluded to it earlier…

Ben: It’s definitely more suited to situations where you need the money in a hurry, and where it’s an unusual transaction, or there is something unusual about it. If you have got the time and you can get a cheap Buy to Let mortgage from a bank, that is always going to be your cheapest option, because their borrowing from the ECB at 0.5% and they are lending out at a couple of percent above that. It’s very hard at the moment to get anything cheaper than that. If you can’t then Peer to Peer lenders are an option, you should be looking at.

Richard: So, it’s pretty much a string, amongst many other strings, in your bow, really. That you should have in your armoury. So, I suppose if you need to move fast, maybe you have got an un-mortgageable property, that kind of thing. Even other types of challenges, Peer to Peer will probably come into your thinking, is that kind of the rule?

Ben: Yeah, yeah.

Richard: Fair enough. In terms of, we talked about regulation, it might be a difficult question for you to answer, but are there any downsides, or—I use the word ‘gotchas’, things that just the average property investor might not be familiar with, that you can give a few pointers towards, when it comes to specifically Peer to Peer?

Ben: Well I think you should try and work out, if you can, whether its bank in disguise as opposed to a Peer to Peer lender. Whether you are just going to have a very long drawn out process, or whether…a lot of these Peer to Peer lenders don’t have the funds. So, you might go through a whole process with them and they are relaying on people putting in £50, £100, £200 at the end of it, and it may not happen. The put the loan up on their platform and it never gets funded. Just be aware that is a possibility with some of the providers. And choose your provider accordingly. And the other thing I would say is, take comfort from the fact that a company is FCA authorised and regulated, it will give you as the borrower, more protection.

Richard: Yeah, you make a good point actually, because a lot of the platform, which post up your project, it’s the sharing economy type of space, its micro sums of money that gets bid to satisfy that loan. So, you are relying on quite a large number of people chipping in, generally speaking. But your model is not quite like that, if I understood correctly.

Ben: Our model differs. First of all, the founders of the business have got a lot of capital and will underwrite loans using their own money. And secondly, our lenders generally put in a hundred to a few hundred thousand pounds per loan, so if you are looking for a couple of hundred-thousand-pound loan, it’s usually a call to 1 or 2 people. If the founders are putting their own money in anyway.

Richard: So, I’m actually a bit curious Ben, because you talked about unusual situations, and you have talked about unusual assets, why don’t you just share, you talked about this property in Majorca, was it I think earlier. What types of asset have you actually lent against if you like?

Ben: We have done first, second and third charges against properties, in England, Scotland, Wales, we have done first and second charges on property in Spain and Majorca, which is obviously Spanish also. We have done first and second charges on properties in France. We have had loan offers out against properties in America, Bahamas, Argentina, a number of other places, Germany, for one reason or another they hadn’t transacted. Then of course, we have some of the more unusual assets, which include some very unusual cars, and some slightly less unusual cars, but very expensive cars. We have had a couple of planes, in fact, we have got two planes at the moment. We have done some fine wine, a little bit of jewellery, the most unusual I think was timeshare units. Which I was very lucky, I found someone who had the same timeshare units and was quite happy taking 50% Loan to Value against somebody else’s timeshare units, because they would be quite happy if the person defaulted, having their timeshare unit.

Richard: They get their timeshare at a discount.

Ben: I mean, these are expensive, this is a £100000 worth of timeshare units.

Richard: But that’s the point of what you do, you said earlier, you spotted a niche. You mentioned a lot of things you get involved with, seem to be property backed loans, but you drift into these other high value assets as well. Which I thought was really interesting when we first exchanged, about cars and fine wine, I guess antiques would fall in to that category as well, would it?

Ben: Yeah.

Richard: It’s fascinating. Are there any criteria that you would like to share now that’s relevant? Or is it just contact you for more information? What’s the best way for people to follow up?

Ben: Yeah, just contact us, I will happily spend a couple of minutes on the phone with you, because everybody’s scenario is different, so it would be silly for me to try and give scenarios. We are not a bank, we are not saying you have to fit into a certain box. You tell us what you want, you tell us what your assets are and we will do our best to work something out.

Richard: So, its personalised to the person effectively.

Ben: Yeah.

Richard: So, what’s the best way to get hold of you then?

Ben: Email…ben@hnwlending.co.uk or phone 07958 636106.

Richard: I will make a note of those in the show notes, as well so people can track you down. Before we perhaps draw to a close, actually, I have got one final question but one in anticipation of that. Is there anything I should have asked you but I haven’t that you think, Richard, you probably should have asked me this, its burning in my head…

Ben: I don’t think so. I think you have covered pretty well what the opportunity is in Peer to Peer Lending for property investors.

Richard: Ok, well that’s good. That’s the intention. One question I do tend to ask people like yourself who come on the show, is there anything in particular, whether it’s a special offer or something like that, you would like to make available to listeners of The Property Voice?

Ben: Yeah absolutely. We decided that what we are prepared to do is offer a free valuation to anybody who quotes The Property Voice when they submit their application. Valuations range from a few hundred pounds to a couple of thousand pounds when its multi million pound properties. So, that can be quite a good discount.

Richard: Yeah, quite generous. Thank you for that. I appreciate it that. Again, I will make notes on how to go about that but just to be clear, if you mention The Property Voice when you contact Ben, there is an offer of a free valuation. So, that’s fair enough. Ben it’s been great actually, really enjoyed talking to you, thanks for coming on. And I know you have been close to The Property Voice for a while, you submitted a guest blog. So, it’s always good to get your insights and I think in particular, in this space which is kind of emerging, and new. So, well done you for offering some alternative fiancé, which can often meet the needs of us strange property investors.

Ben: Yeah

Richard: Really appreciate it.

Ben: Great, it’s a pleasure

Richard: So, thanks a lot Ben, as I say I will get the recording and the show notes up there. Thanks for joining us. We will be in touch soon.

Ben: Great, thank you.

Richard: Take care

Property Chatter

Interview with Subject Matter Expert: Ben Shaw.

Resources & contacts:

Free Property Valuation Offer: Send an email to Ben Shaw, quoting The Property Voice and he will agree to provide a free valuation on a peer-to-peer loan through his company High Net Worth Lending.

Ben Shaw’s contact details:

So, just a quick wrap up from me this time. Lots of great advice in how to apply peer-to-peer lending, particularly when there is a requirement for speed or if the situation is a little less commonplace or unusual as Ben mentioned.

I have in fact worked with Ben on a couple of projects of my own and can vouch for the fact that he can act very quickly and adopt a flexible approach. Specifically, I remember when I contacted him about a project and he had a loan offer in my email inbox within a few hours. When you consider that we were each travelling and in different countries, with the property in yet another country, it was quite remarkable really.

Anyway, whilst P2P lending is an emerging and at times very useful form of financing to have available, it is not for everyone and every situation. I shall pick up this theme a little more in a follow up episode, so look out for that won’t you.

I hope you enjoyed listening to our opening foray into peer-to-peer lending, especially when it is not from a bank in disguise! I will return to the practical application part later, but for now let’s leave it at that.

By all means do email me personally if you want to talk about anything from today’s show or more general in property investing to podcast@thepropertyvoice.net, the show notes will be over at the website www.thepropertyvoice.net

Now all that remains is to say thank you very much for listening again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Property Financing: Peer-to-Peer Lending Part 1 – Not a Bank in Disguise! | S3E05 appeared first on The Property Voice.

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    We now start to move ahead with some of the more alternative and creative forms of financing open to us property investors and developers over the next few weeks. We start off today by taking a quick look at peer-to-peer lending.     We now start to move ahead with some of the more alternative and creative forms of financing open to us property investors and developers over the next few weeks. We start off today by taking a quick look at peer-to-peer lending. I am joined on the show by one of these more emerging […] Richard Brown & Casa from www.thepropertyvoice.net clean 25:26 3311
Property Financing: Cash, Residential & BTL Mortgages and Bridging…some practical applications | S3E04 http://www.thepropertyvoice.net/property-financing-cash-residential-btl-mortgages-bridgingsome-practical-applications-s3e04/ Wed, 05 Oct 2016 04:59:32 +0000 http://www.thepropertyvoice.net/?p=3248 http://www.thepropertyvoice.net/property-financing-cash-residential-btl-mortgages-bridgingsome-practical-applications-s3e04/#respond http://www.thepropertyvoice.net/property-financing-cash-residential-btl-mortgages-bridgingsome-practical-applications-s3e04/feed/ 0 <p>In today’s show, I wanted to just pause for thought a little on what we have covered so far. I thought I would add some practical application of residential mortgages, cash, BTL mortgages and bridging finance in order to get you thinking of how some of these more common financing methods could operate in your […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/property-financing-cash-residential-btl-mortgages-bridgingsome-practical-applications-s3e04/">Property Financing: Cash, Residential & BTL Mortgages and Bridging…some practical applications | S3E04</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> podcast-10-4

In today’s show, I wanted to just pause for thought a little on what we have covered so far. I thought I would add some practical application of residential mortgages, cash, BTL mortgages and bridging finance in order to get you thinking of how some of these more common financing methods could operate in your property business, perhaps in some ways you had not really considered. Interested in 100% finance, tax-free income & gains and cutting out mortgage & broker fees based on real world experience? Thought you might be!

Resources mentioned

Link to the Podcast feedback survey

Today’s must do’s

If you have existing property or are thinking of expanding, think about some of the practical applications outlined in today’s show – can you capitalise on some of the items listed to go to the next level?

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com in case you would like to get yourself a copy to accompany this series

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

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Transcription of the show

Hello and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show today.

In today’s show, I wanted to just pause for thought a little on what we have covered so far. I thought I would add some practical application of residential mortgages, cash, BTL mortgages and bridging finance in order to get you thinking of how some of these more common financing methods could operate in your property business, perhaps in some ways you had not really considered.

So let’s get practical then…

Property Chatter

So far in this third series, we have covered residential mortgages, cash, BTL & commercial mortgages and bridging finance. Today, I plan to share some practical applications mostly from my own personal experience for you to consider. Let’s start with our residential mortgage.

Residential mortgage

Earlier in the series I talked about using our home as an asset in our property investment business. We can leverage our home in a number of different ways, some of which I have done personally and will share with you in today’s episode.

First, something I have not actually done myself – consent to let. I mentioned considering using a consent to let arrangement with our residential mortgage lender instead of converting our home loan to a BTL mortgage if we wanted to rent it out. That’s a good way to get going should we want to start a rental strategy, where we let out our former home and instead buy a new home to live in. Consent to let can often be obtained on better terms than a BTL mortgage, so it is definitely worth investigating before deciding to sell your home.

This can also present us with some interesting tax benefits as I mentioned previously as well. Most notably lettings relief and an element of capital gains tax relief on any profit on a subsequent sale.

So, from something I have not actually done myself to something I definitely have: a lodger.

I have taken in lodgers into my home to convert a potential liability into an asset. Remember, Robert Kiyosaki, among others, defines an asset as something that puts money into your pocket each and every month. Our home will not do that unless we can produce a rental income.

So, on a couple of occasions I have rented out rooms in my home for rent and retained all of the rental income tax-free as those are the rules set down by HMRC. The current annual rent that you can receive tax-free is £7,500 per year, so it is now a very generous tax-free allowance…even if it means sharing a part of your home in doing so.

A simple lodger agreement or license is all you need to protect you and don’t worry, there is not the same rigmarole to evict a lodger as there is a tenant either.

Over the years, I have taken in a Monday to Friday lodger, who worked away from home during the week before going homes at weekends…neatly keeping the room available for friends and family visitors at weekends too.

I have also had a permanent lodger, renting a room at home…the ones that I have had have tended not to stay for too long as they are often in transit for some reason, such as moving home, changing job, relationship change and so on.

Finally, I have also a holiday home, which is rented out via the holiday rental portals, including Airbnb to provide additional income to support the costs of owning this property.

Whether it is long-term tenants using a consent to let, lodgers on a license agreement or short-stay guests using holiday rental sites like Airbnb, there are a number or legitimate ways to leverage our residential mortgage as a tax-efficient rental investment…at least in part.

Always makes sure you have the correct lender permissions and understand the insurance risks, whilst checking the income disclosure rules to HMRC before blindly following one of these options.

Finally, we can also use a residential mortgage to realise a tax-free capital gain under the right conditions.

In another personal example, I bought a property below market value, lived in it for a year and then sold it on at a profit. Clearly, without renting it out my investment return would have been limited to the capital growth on the property but as the full gain was capital gains tax free, being my home, the after tax position of doing this was compelling when compared to some alternative investment projects I could have undertaken instead.

It is something I have undertaken a few times now – here is an example with some headline numbers to illustrate the point.

  • Home purchase £165,000
  • Costs c£9,000
  • Mortgage deposit c£25,000
  • Total cash investment c£34,000
  • Sale value £186,000
  • Profit on sale £12,000 (tax-free)
  • ROI 35%

Had I also taken in a lodger or something like that, the results would of course been better.

There is an obvious flaw in this idea and that is that as we are dealing with our home, we will need to either reinvest some or all of our profit into a new home or switch to renting instead to retain it. An alternative is to use this concept to continue to climb the property ladder, adding value into one property before extracting it and reinvesting in a larger property as you go. However, these practical applications to turning your home into a property development may not suit all of you and especially if you have a partner or a family.

The other potential downside is that it could be interpreted as gaming the tax system by HMRC and so it’s not something to repeat too frequently. In my own case, it suited my lifestyle to have a relatively short time living in this property after a change in my personal circumstances and so it was opportune to have an eye on the investment side of things whilst doing so.

Cash

Let’s look at a couple of real examples where I have expressly decided to use cash as a means to fund a property investment.

I am a firm believer in leverage i.e. using other people’s money such as a bank’s in order to grow my effective return on personal cash investment. However, there are some occasions where the benefits of cash have trumped the use of finance.

For example, I have agreed on a transaction a couple of years ago just before Christmas, which is a quiet time generally speaking. The vendor had had two previous sales agreed on their property and were looking to see a quick return of funds at a distinctly quiet time of year.

Being a cash buyer I was not only able to secure a discount of around 18% from comparable property values locally, but was also able to knock out some of the first time buyer competition, who all required a mortgage…the same types of buyer that caused the previous two sales to collapse in fact!

Speed and simplicity were key to securing an attractive level of discount on a deal I found from a local estate agent with very little work involved. The previous mortgage-backed purchases also gave me leverage in my negotiation.

Quite recently, I have been involved in a couple of flip transactions, which were closed in cash and once again speed was the most important criteria in securing the deal in the vendor’s mind. However, in addition, let me illustrate how using cash also helped to improve the returns on some of these lower value transactions.

Cash finance example:

  • Property purchase price £72,000
  • Improvement works costs & all fees c£35,000
  • Total cash investment £107,000
  • End Valuation c£125,000
  • Net profit £18,000
  • ROI 16.8%

Bridging finance equivalent

  • As above aside from incremental fees arising due to bridging finance of £7,600
  • Total cash investment £64,200
  • Net profit £10,400
  • ROI 16.2%

As I highlighted in a previous episode a couple of weeks ago, often the lower value property projects can lose a significant chunk of profit once all of the finance fees are taken into consideration, especially when some of these fees are not directly proportional to the purchase price.

Granted, in this example you could argue that with a similar ROI that we should still use the bridging finance option as we could in effect undertake nearly two projects of a similar value simultaneously and generate a higher overall cash return. However, property projects are often not as predictable as we would like and so a more certain £18k is probably a better bet than a less certain £20k just in case we hit a delay in one or both of the projects that results in increased costs of finance!

Therefore, at these lower purchase price levels, we often find that cash still offers a cost effective return whilst carrying less finance risk with it.

I think this illustrates quite well how cash can still be an effective financing tool in practical terms…less external interference, more speed, higher perceived buyer status and at the lower end of the scale similar returns but less financing risk issues too.

BTL

BTL mortgages are pretty boring in all honesty. In the past, many property investors would have taken out a vanilla BTL loan and so will be fairly familiar with them. A practical variation looking forward will be commercial BTL mortgages, should we decide to acquire investment properties through a company to avoid some of tax restrictions of investing in our personal names. That twist aside, they are broadly similar offerings for the purposes of the discussion here.

Granted there are a couple of interesting variations now on the market, such as light and heavy refurbishment BTL mortgages, where a further advance can be drawn down after improvement works have been undertaken. I have not personally undertaken one of these further advance improvement works loans, so I can’t share a practical application on these here. The main reason for me not pursuing these refurbishment loans to date is that I have found better ways to recycle my cash, which is one of my main personal investment drivers.

However, one neat practical application of using BTL mortgages that I can suggest you look into is when it comes to renewing an existing BTL mortgage, for example when the fixed rate period comes to an end or considering remortaging.

Over the past year or so, I have had the initial fixed term on several BTL mortgages come to an end. In each case, the broker that I used approached me and suggested a remortgage onto a better rate with a new lender. This would save me money on my monthly payments when compared to the standard variable reversion rate with my existing lender. However, the level of fees involved would make this saving highly questionable in reality, especially if renewing for a short period of time, like 2 or 3 years.

I think there must be a secret code between lenders and introducers, though, as in each of the last 3 renewals that I was involved with, the following sequence took place:

Around 3 months before the fixed-rate expiry, my broker would contact me and suggest an alternative mortgage rate, probably with a new lender. The result was a new application, which apart from being a bit of a hassle, also involved a new set of fees for the broker, new lender, and possibly a solicitor to handle the remortgage.

Then, around 1 month before the fixed-rate expiry, my existing lender would contact me and offer me a new loyal customer fixed rate renewal. Admittedly, it seems that the new rate from the existing lender was not always as attractive as the new best rate from the new lender proposed by my broker…but it was close. In addition to the rate being close however, there are no broker or lender renewal fees to pay and using a solicitor was purely optional as nothing had really changed since the original loan had been put in place.

So, I learned that waiting for the existing lender to come into play close to the renewal date enabled me to effectively reduce my total cost of financing when compared to switching lender. It seems that in the decision to stick or twist, sticking could help to beat the bank.

That is another practical example of how to leverage your BTL mortgage but here is another…further advance.

I have a property in Cornwall which I bought and refurbished. As it happens, I felt the original valuer had undercooked the revaluation post-works but that is another story! However, what I did want to share here was the fact that this lender was open to the idea of providing a further advance on the property after a couple of years based on their current ‘desktop valuation’!

This further advance would have been on better terms than a remortgage, would have eliminated a complex new application and would also have avoided some potential costs in the process. If I wanted to release additional funds for further portfolio expansion, I certainly could have accepted this further advance at a reasonable rate and got hold of a lump sum close to another deposit on a new investment property. Personally, I decided against accepting this to be honest, but only as I wanted to keep my average portfolio loan-to-value down at the time. That does not mean that you have to follow suit of course and so that may be an option open to you to release additional funds for expansion.

There’s around 3 different practical applications of how to leverage your BTL loans to reduce your personal cash resources, reduce hefty fees and expand your investment activities in the process!

Bridging

Kevin Wright was our last guest. He made the case for bridging finance pretty well I think. So, I just wanted to share a couple of personal examples where I have applied some of the benefits of bridging, although perhaps in less obvious ways.

How about 100% funding of the purchase price for example? I thought that may get your attention!

Kevin did mention this when we had a chat but this was in a different context, often where we gain key access a property before legal completion to undertake improvement works and then get the valuation done afterward. That is certainly a great practical application of shrinking your deposit as he described it.

In my own case, what I was secure a bridging loan on both the property I was buying but also on a second property I owned as well. In my particular case, the second property was unencumbered, which means it had no mortgage on it, so the lender was happy to take a charge on both properties and advance me a loan that allowed me to pay for my purchase 100% using the bridging loan. The reason that I decided to do this was because the level and cost of improvement works on this particular project were quite high and so having less money tied up in the property was an attractive advantage. It was not a low-value purchase and so the costs of financing did not adversely affect my net ROI after finance costs either.

Whilst I was able to offer a second property for the lender to take a charge over that had no mortgage on it, in fact, if I did have a mortgage on it this still may have been possible. However, the loan-to-value after the additional bridging loan was in place would have had to be within the lender’s acceptable limits and permission from the existing lender would also be required.

As I mentioned, I was able to keep my cash input down to a minimum for the project and so was able to leverage someone else’s money allowing me to do more with less of my own funds. This is not necessarily a beginner financing strategy, so do take the time to fully understand all that’s involved in such an undertaking.

Another application of bridging finance that I really like is to compliment what I call the BRR Strategy. BRR stands for Buy, Refurbish & Refinance and is a personal favourite.

What this means is we buy the property using bridging finance to keep our personal cash input down, then undertake improvement works to increase the property’s value, before exiting the bridging loan by taking out a BTL mortgage based on a higher revaluation once the works are completed.

The new BTL mortgage will be based on the valuation after the works have been completed and so at a higher value. The remortgage will allow the bridging loan to be repaid, some or all of the costs of undertaking the works and in certain extreme cases also provide additional cashback into our pocket for further investment too! In addition, we also have an extra property in our portfolio to generate an income and grow in value over time.

This BRR Strategy allows us to recycle our personal cash funds to enable us to buy more properties with the same starting investment fund. I normally budget on leaving in around 10% to 15% of the property revaluation in each deal and so I then seek to top up the difference through savings and rental profits ready to go again the next time. If I do manage to fully recycle my deposit on remortaging, then so much the better, as I can start my next project straight away.

Of course, you don’t have to have a bridging loan to follow this strategy, we could apply the same logic when buying in cash as well. The key is to add value through improvement works before refinancing onto a long-term financing product such as a BTL mortgage to release some or all of your starting cash investment funds.

Here is an overview of one project similar to this one.

Project in Lincolnshire

  • Purchase price £142,000
  • Improvement works and fees c£12,000
  • Finance charges c£8,000
  • Cash required £62,200
  • BTL mortgage revaluation £195,000
  • New loan £146,250
  • Cash left in after refinancing £15,750

This is equivalent to 8% of the property’s revaluation, which compares favourably to a 25% deposit on a property bought without undertaking this BRR Strategy. It therefore allows me to leverage bridging finance and BTL mortgages in order to make my cash funds go further. In this case, I can stretch the same deposit funds by 300% by following this approach.

When you add in the relative merits of speed into the process, I think you would agree that there are several practical applications of bridging finance too.

OK, so I really wanted to pause and recap on some of the institutional financing methods that we have covered so far and apply some real-life, practical application. I hope you found some of those examples helpful. We shall continue the theme of alternative financing methods in property over the coming weeks as we bring in more guests and look to extract the practical application as we go.

As ever, please feel free to email me personally if you want to talk about anything from today’s show or more general in property investing to podcast@thepropertyvoice.net, the show notes will be over at the website www.thepropertyvoice.net

Now all that remains is to say thank you very much for listening again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Property Financing: Cash, Residential & BTL Mortgages and Bridging…some practical applications | S3E04 appeared first on The Property Voice.

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In today’s show, I wanted to just pause for thought a little on what we have covered so far. I thought I would add some practical application of residential mortgages, cash, BTL mortgages and bridging finance in order to get you thinking of how some of... In today’s show, I wanted to just pause for thought a little on what we have covered so far. I thought I would add some practical application of residential mortgages, cash, BTL mortgages and bridging finance in order to get you thinking of how some of these more common financing methods could operate in your […] Richard Brown & Casa from www.thepropertyvoice.net clean 28:33 3248
Property Financing: Bridging Finance for the ‘Savvy Investor’ and an inspirational story with it | S3E03 http://www.thepropertyvoice.net/property-financing-bridging-finance-savvy-investor-inspirational-story-s3e03/ Wed, 28 Sep 2016 04:59:45 +0000 http://www.thepropertyvoice.net/?p=3227 http://www.thepropertyvoice.net/property-financing-bridging-finance-savvy-investor-inspirational-story-s3e03/#respond http://www.thepropertyvoice.net/property-financing-bridging-finance-savvy-investor-inspirational-story-s3e03/feed/ 0 <p>  Discover the difference between ‘income-based lending’ and ‘asset-based lending’ as we explore bridging finance and similar types of short-term lending solutions, like auction finance. Then become a ‘savvy investor’ or even a ‘Ninja investor’ if you prefer, as we learn how to shrink our deposit, increase our purchasing power and act as if we […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/property-financing-bridging-finance-savvy-investor-inspirational-story-s3e03/">Property Financing: Bridging Finance for the ‘Savvy Investor’ and an inspirational story with it | S3E03</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> podcast-28-9

 

Discover the difference between ‘income-based lending’ and ‘asset-based lending’ as we explore bridging finance and similar types of short-term lending solutions, like auction finance. Then become a ‘savvy investor’ or even a ‘Ninja investor’ if you prefer, as we learn how to shrink our deposit, increase our purchasing power and act as if we are a cash investor using the techniques shared by Kevin Wright, our subject matter expert guest today. Finally, a bit of a bonus at the end as Kevin shares a remarkable personal story of the triumph of mind over matter…not to be missed that.

Resources mentioned

Resources mention by Kevin:

Website: Recycle Your Cash

Website: Ninja Investor Programme

Video FAQs

Free Book Offer: Send an email to Kevin, quoting The Property Voice before 31st December 2016 and he will send you a copy of his forthcoming book ‘Recycle Your Cash’. All he asks for is if you could cover the cost of postage and packaging (or ask if there is a Kindle version instead!). Hint: Kevin also suggested asking nicely if you see this after the end of 2016 as well 😉

Kevin Wright’s Facebook details

Link to the Podcast feedback survey

Today’s must do’s

Be a ‘savvy investor’ and open up your thinking to applied bridging finance into your property investing toolkit.

Contact Kevin to register for his free book offer, quoting The Property Voice obviously.

Listen to the last 10 minutes of Kevin’s interview once again – powerful stuff!

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com in case you would like to get yourself a copy to accompany this series

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show today.

We continue our examination of property finance and now look beyond cash and buy to let mortgages in the rest of the series. Today, we shall take a tour of another form of institutional finance, specifically bridging finance. We are joined on the show by subject matter expert, Kevin Wright.

Normally, I try and keep these sorts of guest contributions to around the 30 to 45-minute mark. Although, today I am sure you will enjoy the extra 10 minutes we have with Kevin, as he has a truly inspirational and very personal story to share about the power of the mind and how it can transcend any situation…not just property. So, please stick with this through to the end to hear that.

I will do a follow up episode on bridging finance later, but for now let’s hear what Kevin has to say on the subject.

Property Chatter

Interview with Subject Matter Expert: Kevin Wright.

Resources mention by Kevin:

Website: Recycle Your Cash

Website: Ninja Investor Programme

Free Book Offer: Send an email to Kevin, quoting The Property Voice before 31st December 2016 and he will send you a copy of his forthcoming book ‘Recycle Your Cash’. All he asks for is if you could cover the cost of postage and packaging (or ask if there is a Kindle version instead!). Hint: Kevin also suggested asking nicely if you see this after the end of 2016 as well 😉

Kevin Wright’s Facebook details

Just a quick wrap up from me – lots of great advice in how to apply bridging finance and also in the power of the mind over the body during that conversation I am sure you would agree.

I hope you enjoyed listening how to use bridging as a savvy investor, or as Kevin also likes to call us Ninja investors! I will return to the practical application part later, but for now let’s leave it at that.

By all means do email me personally if you want to talk about anything from today’s show or more general in property investing to podcast@thepropertyvoice.net, the show notes will be over at the website www.thepropertyvoice.net

Now all that remains is to say thank you very much for listening again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Property Financing: Bridging Finance for the ‘Savvy Investor’ and an inspirational story with it | S3E03 appeared first on The Property Voice.

]]>
  Discover the difference between ‘income-based lending’ and ‘asset-based lending’ as we explore bridging finance and similar types of short-term lending solutions, like auction finance. Then become a ‘savvy investor’ or even a ‘Ninja investor’ if you ...   Discover the difference between ‘income-based lending’ and ‘asset-based lending’ as we explore bridging finance and similar types of short-term lending solutions, like auction finance. Then become a ‘savvy investor’ or even a ‘Ninja investor’ if you prefer, as we learn how to shrink our deposit, increase our purchasing power and act as if we […] Richard Brown & Casa from www.thepropertyvoice.net clean 56:30 3227
Property Financing: Cash & Institutional Finance…from a different angle | S3E02 http://www.thepropertyvoice.net/property-financing-cash-institutional-financefrom-different-angle-s3e02/ Wed, 21 Sep 2016 04:59:38 +0000 http://www.thepropertyvoice.net/?p=3195 http://www.thepropertyvoice.net/property-financing-cash-institutional-financefrom-different-angle-s3e02/#comments http://www.thepropertyvoice.net/property-financing-cash-institutional-financefrom-different-angle-s3e02/feed/ 1 <p>Let’s start off this series three off proper by considering some of the more obvious ways of financing our property investments, however, with a bit of a twist as it will perhaps be coming from a less conventional angle. Today, we will talk a little bit about cash and what I call ‘institutional finance’ and […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/property-financing-cash-institutional-financefrom-different-angle-s3e02/">Property Financing: Cash & Institutional Finance…from a different angle | S3E02</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> tpv-podcast-9-20

Let’s start off this series three off proper by considering some of the more obvious ways of financing our property investments, however, with a bit of a twist as it will perhaps be coming from a less conventional angle. Today, we will talk a little bit about cash and what I call ‘institutional finance’ and how to apply it a perhaps little differently. The focus will be more on creative and practical application rather than the nuts and bolts of BTL mortgages…so tune in to hear how these more familiar property financing options could be applied in slightly different ways.

Resources mentioned

Several links to previous shows are mentioned in the show notes below, along with mention of the ‘home as a tax-efficient asset calculator’. All of these resources can be shared if you drop me an email podcast@thepropertyvoice.net

Link to the Podcast feedback survey

Today’s must do’s

Open your mind and get the creative juices flowing in terms of what property financing can do for you. When to use cash and when not to, how to use consent to let as an alternative to a BTL mortgage and how to look at further advances or remortgage to accelerate the rate of expansion of your portfolio. It’s all about doing more with less and being smart in how we use our property financing options.

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com in case you would like to get yourself a copy to accompany this series

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show today.

You may know that I have sought some feedback on the show, there is still time to have your say…just look out for the survey link in the show notes or drop me an email and I will send the link to you. One of the comments was to reduce the intro and get straight into the heart of the matter…so here goes with this week’s show looking at cash and institutional finance in property.

Property Chatter

Let’s start off this series three off proper by considering some of the more obvious ways of financing our property investments, however, with a bit of a twist as it will perhaps be coming from a less conventional angle. Today, we will talk a little bit about cash and what I call ‘institutional finance’ and how to apply it a little differently.

In series one we covered financing your property investment in a reasonable amount of detail. We revisited the topic again in series two with a two-part episode, including a subject matter expert guest contribution from the highly respected finance broker Simon Allen, where we explored the main characteristics and structure of some of the common methods of finance available from institutional lenders. The link to these episodes are in the show notes so you can revisit them there.

Given that we have covered the topic a couple of times already, two questions probably come to mind:

  • Why bother doing a whole series on the subject?
  • What more is there to know?

Dealing with the first question – the answer to that is simple…in this series I plan to go deeper into the alternative and creative financing options and their practical application than I have done previously. I will also have other subject matter expert guests on the show that are either specialist service providers that offer these alternatives, or real property investors applying them in their own property businesses now.

As for the second question, aside from what I just mentioned about some new aspects of finance and their practical usage, I would like to consider some more creative ways of applying financing than is perhaps commonly thought of.

Using Cash

Let’s start today’s discussion off with cash then.

Well, it is difficult to add too much more than I have covered before without too much repetition I suppose. At the simplest level, buying a property with cash means that we are using our own personal cash resources to acquire an investment property…probably using savings or a windfall of some sort.

Paying in cash offers two main benefits to us as investors at face value: speed and reduced cost of acquisition.

Speed is a true benefit, and whilst there are some other finance options around that can be completed quickly, cash is still king here. Even with other fast to arrange financing, such as auction or bridging finance, which we shall cover next time, cash buyers have less complexity and outside interference in their purchase, which has a distinct benefit to a vendor and to us too.

So, what else is there to say about cash then?

Well, first of all, using cash allows us to position ourselves ahead of all other investors who are using some sort of financing, in the minds of an agent and a vendor.

Here are some tips for you to consider when thinking of using cash…whether directly or indirectly.

Quite often, to secure a great property opportunity, we will be asked to provide ‘proof of funds’ to the agent or vendor in order to verify our cash buyer status. This means having the funds readily available in a fast access bank account, including being able t0 share a copy of a recent bank statement to prove this. So, the first step is to have the funds set aside and have the statement ready to be presented.

From a tactical point of view, we could consider attaching the proof of funds to any offer we are making, if we feel it will elevate our standing and help to offset the discount we seek as a result.

Next, we could consider using cash for the initial purchase in the interests of speed, but then backing into a financing facility, such as a mortgage or bridging loan, soon after completion. I used this tactic to bag a good deal before the stamp duty rise at the end of March this year and then sorted out the lending in April once the stampede had died down.

You could also try the ‘swtcharoo’ technique of saying you are paying cash, having the proof of funds available to verify it, but then switch to using say bridging finance later on instead. The downside of this is as a minimum a loss of credibility with the agent, potentially damaging future relations and / or also with the vendor, potentially risking them pulling out of the deal. For these reasons, I do not advocate this approach, as I prefer to maintain a good reputation for doing what I say I will do…the property community is surprisingly small and also very well connected, so word does seem to get around.

Buying in cash can work particularly well with smaller property purchase values, when compared to some kind of financing. The main reason for this is that many of the costs of acquisition are not directly proportional in percentage terms to the purchase price. Examples can include legal, broker and lender fees, which can sometimes be either fixed fees or banded according to a purchase price range rather than a set percentage of the actual purchase price. The effect of this can be to increase the proportion of total costs associated with financing on smaller transactions. As a result, small deals particularly lend themselves to cash purchase I have found.

However, perhaps on the downside of fully using our own cash are some of the economic arguments. In particular, two terms to keep in mind are opportunity cost and leverage.

Opportunity cost basically means, how much of a return we may need to give up in order to use our cash for the purchase. If we estimate that we will make a return on investment of say 8% on our cash in a property transaction, we should look at how else we could use that same cash in order to work out the opportunity cost.

If we have the cash on deposit earning less than 1% per annum in interest at the bank, our 8% ROI from the property deal looks like a no brainer. However, if say we are offered the option to become a private financier with an annual return of 10%, then the decision becomes far more marginal. Looking at returns alone, we may decide against using cash to buy our property and instead lend it out to other investors instead. In this simple example, the opportunity cost of using our funds for the property transaction is either 1% per annum by withdrawing it from the bank, or 10% per annum by using it as a private lender instead.

There is a growing market for this type of private financing, as we ourselves have found with some of our own projects, which can offer a win-win outcome for both parties. However, as always consider the risk reward trade-off and do your research and have adequate security from who you are lending to. It may or may not meet other investment objectives too, such as a desire to own assets, so it’s not for everyone all of the time either.

With regard to leverage, this is also a topic that I have covered in various ways and at different times in the past. The simplest explanation is that leverage can increase the returns on our own cash by using the funds of someone else instead, provided the total return on our project exceeds the total costs of using the other party’s funds.

As an example, say we are looking at buying a £100,000 property, which we will rent out for £500 per month. Ignoring all other costs for the moment, that would produce an annual return on investment or ROI of 6% on our £100,000 cash investment.

Now, if we took out a BTL mortgage at 75% LTV with an interest rate of 3.5% let’s see the difference. To keep things simple, again ignoring all other costs…here’s how it would look:

  • Purchase price £100,000
  • Deposit funds £25,000
  • Mortgage £75,000
  • Mortgage payment £2,625 per annum
  • Rent £6,000 per annum
  • ROI 13.5%, which is more than double the equivalent for a purely cash purchase in this illustration.

Theoretically then, we could buy 4 of these same properties with the same £100,000 investment fund, also increasing our total return as a result. The debt would be fully serviced by the rental income received.

This partly explains why many investors like to use mortgages and other forms of finance, but it is a trade-off when a particularly advantageous cash buying opportunity presents itself.

Generally speaking, many vanilla property purchases would simply not justify using valuable cash resources and so they would not come into play for many acquisitions. Where cash can come into its own more frequently is when the level of discount or the benefit of elimination of our competition is high…that’s when we should be considering using cash to secure a property purchase.

One last point on cash is a slight tweak of technique I have used before. If we buy an investment property, rather than our own home in cash, we still have the possibility of financing it later on. I have touched on financing the target property for a long-term BTL mortgage, or even a bridging loan for this particular project. However, we could also look at either of these options to fund an additional purchase of another investment property purchase as well.

This could allow us to secure that juicy flip deal using cash and then say a more conventional BTL purchase using the equity released from a BTL mortgage or bridging loan on another project altogether later on. This can therefore accelerate our ‘deal velocity’, meaning getting more deals done with the same initial cash funds in an efficient way.

In summary then, cash is great in the following situations:

  • To move quickly on a great deal
  • To secure deep discounts or locking out other finance-backed purchasers
  • On smaller transactions in particular, where the proportional cost of finance can be higher
  • When we are less concerned about opportunity cost and leverage
  • When we know we can still access the cash equity later on for whatever reason

Institutional Finance

After cash we can take a look at institutional finance.

In the most part here we are talking about BTL mortgages, commercial loans and bridging finance. As I have a great guest coming up to deep dive into bridging finance, let’s stick to the BTL mortgage and commercial loan options here today.

Or perhaps not!

Rather, I do not plan to go into exactly the same aspects that I have previously covered. Instead let’s share some alternative ways of looking at what has become quite a common form of property investment financing. For ease, I will use the term BTL mortgage to cover both BTL mortgages and commercial loans as they are very similar finance offerings.

First, a quick definition. A BTL mortgage is a first-charge, secured-loan provided by a bank or similar institutional lender on a rental property. The idea is to identify a property, buy it and then apply for a BTL mortgage on that property to in order complete the purchase, before renting it out to cover the costs of repayment to the lender.

But wait a minute, there could be some alternatives we could consider here to suit some specific situations. Let’s walk through a couple of these now.

Many of us starting out in property have our own home, where we may be thinking about how we could utilise this to get involved in property investing. We may even be considering selling the property to raise funds to invest. One variation to this approach is to use the asset we already have, namely our home, and raise r release a mortgage against it to release funds instead. Granted, we won’t be able to realise the full market value of the property this way due to loan-to-value restrictions. However, once selling costs are taken into consideration, perhaps this fund-raising gap is not quite so great. Plus, we get to have a rental property and potentially crucially a couple of tax-benefits only available to homeowners as well.

A couple of generous tax breaks only available to residential homeowners are as follows.

Rent a room scheme allowance

This is a tax-free income of up to £7,500 each year where we rent out space in our own home. Admittedly, it means taking in a lodger or Airbnb-type short-stay guests into our home, so it won’t suit everyone. However, the tax-free rental income is extremely generous and should be considered seriously, especially when we are starting out as it could help us save for the deposit on our next investment property more quickly.

If we also consider a mix and match approach of remortaging our home and renting out space within it, we can leverage our home as an asset with a tax-free income this way.

Lettings relief

if you don’t fancy sharing your home with strangers, then an alternative is to move out, renting or buying somewhere else to live and then renting your former home out in full.

HMRC offer a rather generous relief, which at the simplest level is worth up to £40,000 should you later decide to sell your former home and realise a capital gain arising after you moved out. Just by delaying the sale for a couple of years, a basic rate taxpayer can generate the equivalent of over £220,000 in tax savings when compared to the gross equivalent in income.

Capital gains tax

Similar to lettings relief, capital gains tax can be a more tax-efficient investment approach when compared to income tax. It can get complicated, but at the simplest level, would you rather pay 18% in tax with the first £11k being tax-free or a flat 20% tax rate on your property sale profits instead? You would prefer the first option right. This compares to 28% versus 40% for higher rate taxpayers and don’t forget the increased tax-free element increases with joint ownership.

Well, you can do this when you rent your former home and sell it at a profit later using a combination of private residence relief, lettings relief and annual CGT exemptions in order to offset a significant part of the gain achieved. It effectively accelerates what you could have done by trading property or renting other properties quite a bit and is one reason why I am a fan of using your home as an asset…if you can persuade the other half to go along with the idea obviously!

This is a more complex topic but if you wanted to pick up the thread with me personally, including getting a copy of my home as a tax-free asset calculator, just drop me an email podcast@thepropertyvoice.net and we can continue that way.

Tax is not the only situation where we could consider a variation when it comes to looking at accessing the equity in our home. Here are some other potential permutations to consider.

Consent to let

If we decide we want to rent out our home, we often think about getting a buy to let mortgage. In fact, it will breach the terms and conditions of a residential mortgage if we let it out without the lender’s formal consent. An alternative is to ask for what is called ‘consent to let’ instead. Some lenders will allow you to rent out your former home with no or little changes to their terms. This could preserve an attractive mortgage rate, reduce additional deposit requirements or reduce remortgage fees as a result. Therefore, it could be a lower cost entry point into BTL.

Equity release by remortgage, further advance or second charge

Selling the property can introduce a lot of costs and BTL loans carry higher rates and deposit requirements that residential loans in the most part. So, releasing additional equity for property investing purposes can be attractive by accessing equity in our home either by a remortgage with the same or a new lender, a further advance with the same lender, or a second mortgage with a new lender instead.

There are pros and cons in each situation. However, I have used the further advance option a couple of times on both residential and BTL properties as a way to retain my asset for long-term wealth creation, whilst releasing additional cash for my portfolio expansion too. One thing to watch here is to always make sure that the ROI on the application of the additional funds released exceeds the interest rate on this same amount.

These are some of the possibilities that could give rise to applying institutional finance in alternative ways. Some of these possibilities also apply to existing BTL property. In particular, the idea of further advances, remortgage or second charges.

Remember that selling property crystallises any tax due at that point in time and also carries additional transaction costs, such as estate agent and conveyancing fees. Therefore, looking at raising finance from an existing asset without selling it can help to reduce these taxation and transaction charges, even when there are limits linked to loan-to-value and interest rates to consider. Once again, it’s a trade-off.

Some investors also elect to never sell property, choosing instead to refinance several times in order to release funds to expand their portfolio. This can be an effective way to keeping the tax and sales transaction fees under control as mentioned. However, please do be careful about how these funds are used. It should be OK if the funds are reinvested into the portfolio, as that way a return on investment over and above any refinancing charges can easily be calculated and justified. Although, I would not recommend this approach where the debt is used in substitution for an income, as there are a number of negative tax consequences that could arise here. I have dedicated an entire podcast episode to this potentially flawed strategy if you want to know more about this, the link is in the show notes.

Finally, here are a couple more perhaps less well known applications of the conventional BTL mortgage. Equity release from an existing rental property to fund new acquisition deposits, works costs & fees. Equity release from an existing rental property to fund existing property upgrades, conversions, lease extensions and other added value projects. Equity release could come by remortgage, further advance, a second charge or even a temporary bridge…but that is taking us a little further into a slightly different domain.

In short, the aim and intention here is to use cheap money such as BTL mortgage loans to invest in higher returning property investment return assets instead. It’s a kind of debt / investment arbitrage in other words.

Make sure that you are comfortable with the new higher debt level and that the property being refinanced can still service the debt repayments on the new lending wherever possible. Even so, the new acquisition should also produce a higher net profit and cashflow position to stay on the right side of debt servicing ratios and to avoid highly-leveraged over expansion.

My golden rule is to make sure every single property in my portfolio can stand on its own two feet when all costs and provisions are taken into consideration. However, there may be an opportunity to consider refinancing a property every 5-10 years, subject to undertaking a sensible risk assessment of the situation at the time.

There you go then, a slightly different approach to the subject of property financing using some of the conventional financing methods available to us, namely cash and BTL mortgages. I have tried to apply some practical and sometimes more creative ways of looking at these types of financing methods that could help us to expand our portfolios more rapidly, growing the snowball at a faster rate if you like.

This type of creative or applied practical thinking is going to be a running theme in this more specialised series I think you will find. For now though, let’s leave it there. Next time, we will take a close look at bridging finance. I will be joined by someone with bags of experience as both an investor and a finance broker. Not only that, he has a terrific and inspirational personal story to share as well, so make sure you listen in next time for that episode for certain!

By all means do email me personally if you want to talk about anything from today’s show or more general in property investing to podcast@thepropertyvoice.net, the show notes will be over at the website www.thepropertyvoice.net

Now all that remains is to say thank you very much for listening again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

The post Property Financing: Cash & Institutional Finance…from a different angle | S3E02 appeared first on The Property Voice.

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Let’s start off this series three off proper by considering some of the more obvious ways of financing our property investments, however, with a bit of a twist as it will perhaps be coming from a less conventional angle. Today, Let’s start off this series three off proper by considering some of the more obvious ways of financing our property investments, however, with a bit of a twist as it will perhaps be coming from a less conventional angle. Today, we will talk a little bit about cash and what I call ‘institutional finance’ and […] Richard Brown & Casa from www.thepropertyvoice.net clean 28:37 3195
Property Financing: Introduction | S3E01 http://www.thepropertyvoice.net/property-financing-introduction-s3e01/ Wed, 14 Sep 2016 04:59:02 +0000 http://www.thepropertyvoice.net/?p=3176 http://www.thepropertyvoice.net/property-financing-introduction-s3e01/#comments http://www.thepropertyvoice.net/property-financing-introduction-s3e01/feed/ 1 <p>  Property financing is one of THE most important topics we could cover in property investing. It’s not just about cash and buy-to-let mortgages either, although, in order to do the series justice, we shall spend a little time talking about these options too. However, what I really want to get into in this series […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/property-financing-introduction-s3e01/">Property Financing: Introduction | S3E01</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p>  

tpv_podcast_14-9

Property financing is one of THE most important topics we could cover in property investing. It’s not just about cash and buy-to-let mortgages either, although, in order to do the series justice, we shall spend a little time talking about these options too.

However, what I really want to get into in this series are the alternative and creative financing techniques that allow us to go beyond cash and buy-to-let mortgages. Today’s show is an introduction to series 3 and sets the scene for the coming weeks as we talk property financing!

Resources mentioned

Hometrack & Mouseprice Pro property valuation reports

Today’s must do’s

Put Wednesday back into your diary to make sure you don’t miss an episode of series 3: property financing

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com in case you would like to get yourself a copy to accompany this series

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Did you miss me then? Or if not me, at least another opportunity to immerse yourself in more property content over the past few weeks? My name is Richard Brown and as always it is a pleasure to have you join me again on the show today.

You may have noticed that I have taken an extended break from the podcast over the summer and I am now ready to go with a brand new series of The Property Voice Podcast.

I will give you a brief insight on one aspect of what I have been up to…which is definitely on topic…before sharing an outline of what we can expect from this third themed series on the subject of property financing.

Let’s get straight on with the show then.

Property Chatter

Property financing is one of THE most important topics we could cover in property investing. Even if you happen to be the Sultan of Brunei, you will want to know and understand all of the different ways in which you can apply financing techniques to your property business.

It’s not just about cash and buy-to-let mortgages either, although, in order to do the series justice, we shall spend a little time talking about these options.

However, what I really want to get into in this series are the alternative and creative financing techniques that allow us to go beyond cash and buy-to-let mortgages. Here are just some of the different ways that we can fund our property investments:

  • Cash
  • Institutional finance – including buy-to-let mortgages obviously, but also extending to financing from other financial institutions such as bridging finance, commercial loans, second charge loans, equity release and so on.
  • Alternative finance – which is finance provided by other entities and people that are not always mainstream. This can include crowdfunding and peer-to-peer lending, angel finance, joint ventures and so on.
  • Creative finance – which at first glance is often not considered to be a form of financing at all. This will include options, lease and rent-to-rent structures, assisted sale, delayed completion and instalment contracts and ‘sweat equity’ among others.

I don’t plan on spending too long in this introductory episode on the subject as I am still shaking off the recording cobwebs and getting back into the swing of things.

However, if the idea of acquiring an investment property using little or none of your own money sounds appealing, then you need to make a date to listen to each new episode in the series every Wednesday for the next month or two. We will cover some topics with just me, but equally, I have a range of different ‘subject matter expert’ guests lined up to share their wisdom too. Having already recorded some of these interviews, I can tell you that there are some real gems of information, tips and real life experience that we shall share together in the coming weeks.

Here is one from me in the meantime to whet your appetite. I am currently competing on a 3-bed property in Chicago, USA, which has required none of my own money to acquire, outside of some fees and expenses. In 15 years I will own this property outright, having made 180 monthly payments and without taking on a mortgage either. The property is tenanted and the rental income will cover the full cost of acquisition and operating expenses over the term, leaving me with a fully paid off property to boot. In the US this is called a lease-purchase agreement, similar to an instalment contract agreement in the UK. It is an example of creative financing in action using what is known as ‘vendor finance’.

Keep in mind, however, that it is also an advanced strategy and as such it carries quite a few more risks, which conventional BTL in the UK does not have. A different contract structure, legal and tax system currency risk and a property on a different continent all add to the complexity here. I reject far more of this type of structure than I take on, so the devil really is in the detail as far as due diligence is concerned.

That all said, as one component of my own property portfolio, these properties do provide me with an interesting way of acquiring assets in a less than conventional way.

This is just one example of one of the many types of alternative and creative property financing that I plan to share with you over the coming weeks, so if that hasn’t caught your attention, then I don’t know what will!

OK, so moving on with today’s show then, let’s hear a little more from you…

Your Voice

As you may know by now, I have been writing a column in Your Property Network magazine for a few months now with a regular feature under the umbrella of ‘New Beginnings in Property’. A new beginning, need not be a brand investor, although that is certainly within the scope of my audience.

In addition to newbies, I am interested in people who are seeking a new beginning having already been involved in property for some time. It could even be people looking for alternative ways to finance their property activities, as we are going to cover over the next few weeks in the podcast.

With that in mind, I have opened a section of the YPN column aimed at dealing with reader questions. Here are some of the themes of those questions featured since I have started the column:

  • Am I on ‘The Danger List’ of vulnerable property investors following the recent swathe of Government policy & tax changes?
  • How can I make myself attractive to a finance provider and become more ‘bankable’, which looks at traditional lenders as well as non-traditional ones, such as JV partners?
  • Should I invest in off-plan property?
  • How do I work out which properties, out of the hundreds or thousands out there to view and then make offers on?
  • I will also try and address a rather large series of questions, which is all about taking our strategy into a detailed, daily activity plan in a forthcoming issue.

All of these reader questions are answered through the column using text, audio and sometimes also video. So, as a loyal podcast listener, if you want to see my exchanges on these topics and more from YPN readers, then just drop me a quick email: podcast@thepropertyvoice.net with YPN in the subject line and I will add you into the subscription-free content that covers these.

If you happen to be a YPN subscriber already, then why not drop me a quick line, including your questions for me to consider answering, using the same email address and subject line. You never know, the next video I shoot could feature your question!

Shout Out

I haven’t had a Shout Out for a little while now either, so here’s one for today that could be very useful when you are next evaluating a property investment opportunity.

Valuing a property can be a tricky business. I plan to write a blog post on the topic in the next few weeks or so. However, in the meantime, here are a couple of places you can go to get a pretty decent ‘desktop valuation’ on a property for around £20.

A lot of lenders and professional property investors use services by Hometrack and Mouseprice Pro for a pretty decent evaluation of a property value based on local market sales and in some cases mortgage valuation purposes.

There is no substitute for doing your own due diligence, or sometimes spending the several hundred or even thousands of pounds with an RICS surveyor for a professional opinion, but these valuation reports are a useful middle ground solution to help us along.

We recently completed a quick flip project, where these reports provided some very useful pointers on the ‘street value’ of our property. One of the reports, in particular, suggested a sale value of £180,000 for a property we paid £135,000 for…we ended up selling after a refurb for £185,000 within 7 months end-to-end. The desktop appraisals assisted with our due diligence process.

I have provided links to both Hometrack and Mouseprice Pro in the show notes for you.

OK, so that’s me back in the recording saddle again then and another episode of the Property Voice podcast in the bag. Next week we will start to drill down a little more into the subject of financing our property acquisitions. We will look at some the conventional, alternative and even creative financing methods that are open to us over the course of this series.

Don’t forget to drop me an email personally, if you want to talk property to podcast@thepropertyvoice.net

Meanwhile, the show notes will be over at the website www.thepropertyvoice.net

Right now, though, I would like to thank you very much for listening again this week and until next time on The Property Voice Podcast…it’s ciao-ciao

The post Property Financing: Introduction | S3E01 appeared first on The Property Voice.

]]>
  Property financing is one of THE most important topics we could cover in property investing. It’s not just about cash and buy-to-let mortgages either, although, in order to do the series justice, we shall spend a little time talking about these optio...   Property financing is one of THE most important topics we could cover in property investing. It’s not just about cash and buy-to-let mortgages either, although, in order to do the series justice, we shall spend a little time talking about these options too. However, what I really want to get into in this series […] Richard Brown & Casa from www.thepropertyvoice.net clean 11:41 3176
Soundbite Episode – People can make or break our property investment business http://www.thepropertyvoice.net/soundbite-episode-people-can-make-break-property-investment-business/ Wed, 27 Jul 2016 04:59:24 +0000 http://www.thepropertyvoice.net/?p=3062 http://www.thepropertyvoice.net/soundbite-episode-people-can-make-break-property-investment-business/#respond http://www.thepropertyvoice.net/soundbite-episode-people-can-make-break-property-investment-business/feed/ 0 <p>Often, when we consider becoming involved in property investing, we may think that it’s all about two main things: properties themselves and money. As much as it is about these things, there is another aspect to this business that we simply cannot overlook and that is: people. I would go as far as to say […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/soundbite-episode-people-can-make-break-property-investment-business/">Soundbite Episode – People can make or break our property investment business</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> prop

Often, when we consider becoming involved in property investing, we may think that it’s all about two main things: properties themselves and money. As much as it is about these things, there is another aspect to this business that we simply cannot overlook and that is: people. I would go as far as to say that people in and around our property business can make or break it. So, in today’s show we consider where people are likely to play a part and consider some of the implications of this for our property investment business.

Resources mentioned

The Property Voice Podcast listener survey – have your say on the podcast, what works and what doesn’t…complete the survey to let me know

Today’s must do’s

Stop and evaluate the people within your property business under the following headings:

  • Tenants & guests
  • Business advisors, professionals & agents
  • Trades & suppliers
  • Staff & contractors
  • Owners & equity business partners

Are they (and you) fully measuring up?

Join the RWPT Facebook Group, tag yourself into some of the posts to receive some free resources and articles.

Please continue to send in your thoughts and ideas for content and themes that would fit into the ‘New Beginnings’ brief that I outlined for my upcoming YPN column: admin@thepropertyvoice.net

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com in case you would like to get yourself a copy to accompany this series

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello and welcome to another edition of The Property Voice Podcast, my name is Richard Brown and as always it is a pleasure to have you join me again on the show today.

Often, when we consider becoming involved in property investing, we may think that it’s all about two main things: properties themselves and money. As much as it is about these things, there is another aspect to this business that we simply cannot overlook and that is: people. I would go as far as to say that people in and around our property business can make or break it. So, in today’s show we consider where people are likely to play a part and consider some of the implications of this for our property investment business.

Later, I will share some stats on our listener numbers and express my sincere gratitude for you and the great many of people like you that choose to tune in and listen to my ramblings each and every week…thank you very much for that.

Finally, news of a short break in the schedule, as I myself look to take a break from recording before returning with a bang with series three on creative financing in property in a few weeks.

Lots to cover then, so here we go…

Property Chatter

Property is actually a people business…and people can make or break our business too.

The people involved in our rental property business fall into a number of general categories:

  • Tenants & guests
  • Business advisors, professionals & agents
  • Trades & suppliers
  • Staff & contractors
  • Owners & equity business partners

Looking at each of these in turn, let’s consider some of the people issues that we may need to be aware of.

Tenants & guests

First and foremost, tenants in long-term rental property or guests in short-stay rental property are customers. However, given that we use terms such as tenant, we sometimes forget this fact and as a result can adopt something of a false picture of the relationship instead.

The terms landlord and tenant does suggest that there exists a balance of power, in favour of the ‘lord’, particularly from a historical perspective. Whilst, to some extent this is true…for example, we can serve notice on a tenant and ask them to leave. However, the reality of the situation under the modern day law has redressed the apparent imbalance of power quite a lot, since the old Roman Manorial system and in particular the British Feudal system when such terms came into use.

For example, we need the permission of a court before a tenant can be legally evicted from our property. I have recently seen a case where this has taken a year to conclude, which does not sound like a very powerful position to be in from where my point of view!

In other cases, whilst we may have a tenancy agreement, or similar with a short-stay guest, the reality is that we may be open to issues of non-payment, a breach of the terms such as having pets without permission or in some extreme cases damage to our property that we cannot recover through a deposit.

If we know these things or risks to be true, then we should ensure that we think about two main points when to comes to selecting someone to live in one of our properties:

  1. Tenants are in fact customers to our business. This means attracting the good tenants that are likely to pay our rent on time, stick to the terms of the agreement and look after the property. This is, therefore, a customer attraction task…or marketing in other words. Therefore, it should follow that we need to present our ‘product’ to our ‘customer’ in the best possible light in order to attract those better tenants that do in fact have a choice.
  2. Bad tenants have legal protection that could cost us both time and money to overcome. Avoiding the bad tenants, which are likely to do the exact opposite to the good tenants we have just described is probably a wise thing to do then. This is, therefore, a customer qualification and selection task in reality. How do we do this? Once we have the good marketing in place to attract them, we need a filtering system that helps us to avoid as much of the downside risk as possible. Some good practices include: gathering full information on a tenant in the form or an application. This should capture their current address and previous landlord (where applicable), former addresses for the past 3 years, their employment & earnings details, their creditworthiness, their income and expenditure and ability to afford the rent payments, their nationality and right to remain in the UK and if possible their next of kin and / or guarantor details to assist with tracing them later if required. We should confirm this information to be true and accurate, often by using a referencing service. In addition, we may choose to visit them in their current home, or at least in person to verify they are who they say they are. Regular property inspections once they are in the property should help to flush out any potential problems that could arise, sooner rather than later. Finally, financial protection in the form of deposits and insurance is a must given the potential costs of any damage, non-payment of rent and strung out eviction processes.

Business Advisors, Professionals & Agents

We can start to rent property with a simple set of advisors, professionals and agents around us. Initially, we may only need a legal conveyancer to help us through the legal process of buying a property. We may decide to self-manage the property, although, in the current climate of regulation and compliance, we must ensure that we fully understand our responsibilities here – lots of resources exist, but my recommendation would be to become accredited with one of the major landlord associations.

Beyond the basic approach, other third-parties that we can engage to support us in our property rental business include:

  • Solicitors – not just a simple conveyancer to offer more in-depth advice on property issues and risks
  • Accountants & tax advisors – to guide us on the best way to structure our affairs
  • Mortgage brokers – to get the most appropriate deal for us when we use finance to help acquire a property
  • Letting agents – to transfer the tasks if not the liability of letting out our property to a specialist

There could be others as we grow, however, selecting the right people to work with can help or hinder us as these examples will illustrate:

Solicitor – I recently heard of a property buyer who managed to buy a property where some garages were built within the grounds without the required planning permissions in place from the seller. That now leaves the new owner open to additional risk and cost. Conversely, a good solicitor can help to complete a deal quickly, which is very useful in a competitive situation where speed is important.

Accountant – I heard of an accountant advising their client that the second home stamp duty premium would not apply to them when they convert their existing home to a BTL and then buy a new home to live in. This is incorrect advice and would cause the client to incur a 3% premium on the second purchase that they weren’t expecting. On the other hand, having the correct legal status from the outset can save thousands in income tax and inheritance tax in particular.

Mortgage broker – some brokers believe that the so-called ‘six-month rule’ is an unavoidable rule that cannot be overcome. This is not true and a refinance or even under the right conditions a sale within 6 months is entirely possible. Equally, some brokers are specialists in their field and so if you have a commercial loan, short-term bridge, or conventional BTL requirement…there may be a specialist broker best placed to look after your interests here. Personally, I have several broker contacts for this very reason.

Letting agents – I could say quite a lot here but a good letting agent is worth their weight in gold and can save hours of painstaking time on nitty gritty issues in managing a property. The opposite can also be the case, however! I have had agents advise me on my legal requirements, helping me to avoid potential risks and recourse. On the other hand, I have also had a letting agent fail to properly protect a tenant deposit, which left me in a very exposed position legally.

In conclusion then, it is a good idea to have a suitable team in place, one that can evolve over time, remember that decent advisors will command decent fees too, so don’t expect a premium service from a cheap service provider either.

Trades and suppliers

Whether for refurbishment works pre-let or maintenance & repairs post-let, either way, we will need a collection of reliable trades people to support our property business. Finding good trades people that are both trustworthy AND available at the time we need them can be a tricky business, however. This is one reason why concentrating our portfolio in a specific region can yield dividends. An alternative is to seek referrals and recommendations from letting agents, local landlord association reps and fellow investors.

Just to illustrate their importance, I have had an electrician certify a property as having a full rewire, fully tested, when in fact sections of the property were missed off, out of date and unsafe practices were adopted and they were no longer registered with their trade body at the time the certificate was issued. In any property, but especially in the HMO concerned, this could have left me dealing with a potential serious accident and even a prison sentence had things have gone the wrong way. Therefore, always check on a suppliers trade registrations and insurance as a part of your basic due diligence.

Staff & contractors

Probably by now we are getting the picture that we need to have good people around us to help our business to grow and develop. Success depends on getting the right people of course.

As we grow as property investors, we may decide to take on additional support in-house, be that by directly employing people or by having contractors instead.

Proper recruitment and legal procedures from the beginning, including application forms, interviews, short tests and references are highly recommended practices for us to adopt.

There are now lots of ways that we can recruit people, many of them online and some even virtual. Tools and apps such as virtual assistant websites allow us to access highly educated staff from places like The Philippines, where the cost of living and the cost of labour is much lower.

However, nothing replaces the best practices of getting involved in the process ourselves. Never underestimates the value of a gut feeling either…as long as we can trust our gut that is! However, relying completely on our guts is potentially leaving us open to unnecessary exposure.

Owners & equity business partners

Finally, this relates to us and the others who have an equity interest in our business.

Starting with the others – I will say this, regardless of financial or other resources that a potential partner can bring to our property business, it is their ethics and values that count the most in my experience.

Do they see the world in a similar way to us? How would they react in various situations where a choice needs to be made between principle and money? For example:

  • Releasing a tenant early from their lease
  • Ensuring that a property is maintained to a safe and comfortable standard
  • Refusing to hold a distressed seller to ransom by threatening to withdraw from a sale without a further price reduction a day before completion

These are the sorts of issues that are important considerations when working with someone else as an equity partner in our property business.

As for us, yes we too are people and as such are prone to many of the factors that I have touched on over this discussion. Are we committed to our business, are we prepared to educate ourselves to ensure that we stay current and compliant, will we put in the hours required to maintain and grow our property business to meet our goals and so on?

There is much I could say about the personal development side of things. However, ultimately we need to be good stewards of our business, and indeed of ourselves, if we are to realise the hope and promise that we set out at the onset. This may mean taking a frank and honest inventory of ourselves to identify any gaps or shortages in certain areas and then to set about plugging these gaps. One thing is certain, in achieving what I like to call our ‘Someday Goal’ we will probably need to be different people with different skills, experience and knowledge by the time we get there as opposed to where we start out.

So that’s this week’s show then – an assessment of how essential a part of a property business people will be to us.

I particularly wanted to leave this topic here for you to perhaps reflect upon or re-evaluate how the people aspect of how your property business is performing. This may start with you of course, or you may take a step back and consider that some other aspect of what I have spoken about requires attention or even change.

As for me, I plan to take a few weeks off from the podcast in order to take a holiday and enjoy the Olympics with family and friends. Therefore, the next scheduled podcast that I will release will be available on Wednesday 24th August. This will also signal the start of the next series of the podcast, which is all about property finance and in particular creative financing in property.

I have already lined up a good many subject matter experts in their fields to join me in this series, so I am looking forward to sharing that with you very much indeed.

In the meantime, I wanted to acknowledge and thank you for your commitment to the show. We have had over 50,000 downloads and are now averaging over 5,000 downloads per month now. I know that this podcast is more like a staple diet meal than a dinner and a show experience, so I understand that to achieve these sort of numbers with this type of approach to content and format means that you are serious about your own property knowledge and personal development. Thank you for joining me each and every week and please do come back in three weeks when I get back after my jollies won’t you?

If you are lost for something to do over the next few weeks, then I can certainly highly recommend a book for you to read. The portrayal of the life of Warren Buffett is captured in a book called The Snowball, written by Alice Schroeder. If you need an audio fix over the next three weeks, then you won’t go too far wrong by having a listen to this I can tell you. It is fascinating to get the insights into how this man became a self-made billionaire, starting from odd jobs and simple trading strategies from his childhood. So, maybe check that our for some summertime reading.

Finally, you can stay engaged with me by dropping me a note to podcast@thepropertyvoice.net with any ideas for the show, or to share personal property questions, stories or challenges…I will still be around even if not recording these next few weeks. It would also be of great value to me if you could see your way to leaving a glowing review of the show on iTunes, as that really does help to grow the reach of the show for others just like you.

But for now and in the famous words of Arnie…I’ll be back. So, thank you very much for joining me on the show today and until next time on The Property Voice Podcast…it’s ciao ciao!

The post Soundbite Episode – People can make or break our property investment business appeared first on The Property Voice.

]]>
Often, when we consider becoming involved in property investing, we may think that it’s all about two main things: properties themselves and money. As much as it is about these things, there is another aspect to this business that we simply cannot over... Often, when we consider becoming involved in property investing, we may think that it’s all about two main things: properties themselves and money. As much as it is about these things, there is another aspect to this business that we simply cannot overlook and that is: people. I would go as far as to say […] Richard Brown & Casa from www.thepropertyvoice.net clean 21:36 3062
Soundbite Episode – 10 Reasons why I don’t like off-plan property investment http://www.thepropertyvoice.net/soundbite-episode-10-reasons-i-dont-like-off-plan-property-investment/ Wed, 20 Jul 2016 04:59:03 +0000 http://www.thepropertyvoice.net/?p=3042 http://www.thepropertyvoice.net/soundbite-episode-10-reasons-i-dont-like-off-plan-property-investment/#comments http://www.thepropertyvoice.net/soundbite-episode-10-reasons-i-dont-like-off-plan-property-investment/feed/ 1 <p>I wrote this piece at least a dozen times in my head over the years. I have posted on forums, drafted email responses to listener and reader questions and delivered pretty much the same speech to a few mentees as well. You see, I am not a big fan of off-plan, new-build property investment and […]</p> <p>The post <a rel="nofollow" href="http://www.thepropertyvoice.net/soundbite-episode-10-reasons-i-dont-like-off-plan-property-investment/">Soundbite Episode – 10 Reasons why I don’t like off-plan property investment</a> appeared first on <a rel="nofollow" href="http://www.thepropertyvoice.net">The Property Voice</a>.</p> new-build-1

I wrote this piece at least a dozen times in my head over the years. I have posted on forums, drafted email responses to listener and reader questions and delivered pretty much the same speech to a few mentees as well. You see, I am not a big fan of off-plan, new-build property investment and I have ten very sound reasons why I really don’t like it as a property investment model. However, I also have one exception to the rule, which can potentially trump the other ten…or some of them anyway.

Resources mentioned

Real World Property Training (RWPT) Facebook post: 10 Reasons Why I Dislike Off-Plan, New Build Property Investment…Plus One Exception. Here you will find details of how to get hold of the full 7-page, 2,500+ word report, including my top tips on how to stay safe with off-plan.

The Property Voice Podcast listener survey – have your say on the podcast, what works and what doesn’t…complete the survey to let me know

Today’s must do’s

Like the Real World Property Training (RWPT) Facebook Page, tag yourself into the off-plan post and receive the full article along with the top tips of how to overcome some of these factors.

Please continue to send in your thoughts and ideas for content and themes that would fit into the ‘New Beginnings’ brief that I outlined for my upcoming YPN column: admin@thepropertyvoice.net

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com in case you would like to get yourself a copy to accompany this series

Get talking!

Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net

Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello and welcome to another edition of The Property Voice Podcast, my name is Richard Brown and as always it is a pleasure to have you join me again on the show today.

You do know that I love property don’t you? And I know that you love property as well, that’s why you are here of course…so we understand one another then don’t we? J

However, there are one or two things about property that I really don’t like that much if I am totally honest with you. Today is all about one of these: off-plan, new-build property investment.

Join me on a mini-rant as to why I really do not like this type of property investment if you will. However, as a reward for putting up with my apparent negativity on the topic, if you stick around towards the end, I will give you one very good reason why I actually love new build property along with a way to get my top tips to manage most of the reasons why I dislike it!

So strap yourself in…let’s go!

Property Chatter

I won’t lie to you, I wrote this piece at least a dozen times in my head over the years. I have posted on forums, drafted email responses to listener and reader questions and delivered pretty much the same speech to a few mentees as well. You see, I am not a big fan of off-plan new-build property investment and I have ten (10) very sound reasons why I really don’t like it as a property investment model.

I do have with one exception to the rule, which can potentially trump the other ten…or some of them anyway, so make sure you stick it out to the end to find out what my one thing I DO like too!

OK, so straight into it, with ten reasons to dislike off-plan, new-build property investment.

Reason to dislike #1 – Developer Risk

With an off-plan / new-build property, there is one significant risk over and beyond that of buying from the existing housing stock – the developer.

Lots of smaller developers have left the market – going bust, diversifying or being acquired. They often operate on fragile finances, which can change quite a lot over a 2-year development project.

A development from a major housebuilder (building over 500 units a year) should provide some comfort as to their longevity, but that is not all that matters.

Other factors to consider are reputation, track record, build quality and of course financial strength.

Reason to dislike #2 – Market Shifts

If I told you that within a year we would have a global financial crisis preventing mortgage lending without at least a 40% deposit and a housing crash that would wipe out around 30% off the value of house prices, would you commit to locking your money up with a contract you could not get out of? No…thought not…but that’s exactly what happened from spring 2007 and a whole bunch of off-plan apartments at that time!

OK, so you may say, things go in cycles, which is true.  However, can any of us predict with any degree of certainty when the next down cycle will be and even if we could, what about other so-called ‘black swan events’ like the UK exiting the EU? You see, over a 12 to 24-month development project, a lot can change.

Reason to dislike #3 – Lender Risk

Lenders are strange folk apparently. They usually employ lots of people to help them calculate, manage and then avoid all kinds of risk with their money. A lender’s first question is always ‘how will I get my money back on this deal and if not, what kind of realisable security do I have?’.

This type of thinking means they produce a bunch of rules and guidelines and when it comes to off-plan, these rules can also affect our deal. Maximum numbers of units with a single lender, maximum numbers of units sold to investors on a site or in a block, maximum number of floors, the right type of guarantees, the right developer (see Reason #1 from earlier) and so on. Many an investor has no clue whether they will get a mortgage on an investment property in a new build development until they apply often many months after tying themselves into the deal.

Reason to dislike #4 – Valuation Risk

How do we usually value a property? Well, for a standard rental property, we will most likely look at recent, local comparable sales values to assess whether we are paying the going rate. When we buy off-plan, how do we undertake this kind of analysis? Well, we certainly can compare to recent, local sales values but these will be out of date by the time the property is ready to complete in around 18 months’ time. How can you value something that does not exist?

Reason to dislike #5 – No Rental Income

If I were to buy an off-plan property, I would usually have to tie up a large amount of my capital (deposits, fees, progress payments, etc.) with no guarantee of capital growth, which would be speculative anyway, and certainly no rental income either. As the typical new build project runs for around 18 months, that’s a long time with no return on my money. I don’t like leaving my money lying around too long without it working for me to earn a return.

Reason to dislike #6 – No Opportunity to Add Value

As an entrepreneurial investor, I am always looking to maximise my returns. Forcing the appreciation, rather than chancing it with capital appreciation, is certainly one way of achieving this. I can often beat the market by improving a property in some way and that also gives me an equity buffer in case the market turns against me.

A new build property has no opportunity to add value at all…

Reason to dislike #7 – Time to Repay Developer Premium

If we were to build our own home, what would be the costs involved? The most obvious would be the cost of land, the cost of materials and the cost of labour. When a developer builds a property, they have similar costs but also add on their profit margin and quite rightly. This profit margin is known as the ‘developer premium’.

This can often produce a disconnect between new build pricing and existing stock pricing. When it comes to selling that property, or sometimes valuing it for lending purposes, this premium does not always stand up to scrutiny. The minute a new build property has been bought and lived in, it becomes second-hand. This means a would-be buyer is not as likely to pay a premium as they would for that new build when it is brand spanking new…they will probably go and buy off the next new build development site down the road instead, unless the price is discounted sufficiently.

How long does it take before this developer premium is written off? Well, it can vary, but I usually allow 7-10 years myself.

Reason to dislike #8 – Build Quality

Creaky floorboards, paper thin plasterboard walls, cheap fixtures, fittings and sanitary ware are just some of the potential challenges faced with a new build property that can give rise to unexpected issues arising. Also, many new builds come without carpets, white goods and even grass in the garden, which is another expense to factor in.

Say no more…

Reason to dislike #9 – Snagging Issues

One of the major selling points of a new build development used by the builder is the new build guarantee, usually from the NHBC. It is designed to provide assurance to the buyer that the developer will put right any issues that arise after completion.

However, a few problems exist in the system. It is a hassle to deal with snagging, it takes time, the developer’s interest is to deny any claim and minimise cost, which is at odds with ours as the property owner and not all house guarantees are the same either! I am aware of several cases where people have either given up or had to go through arbitration or the courts to resolve their disputes.

Reason to dislike #10 – Snake Oil Sales People

This one is slightly more irrational, to be honest. However, I just can’t help but notice that with new build development often comes glossy brochures and slick one-sided illustrations of the potential and no mention of the fact a refuse site is around the corner, or the road won’t be finished for a couple of years along with phase 4, or the service charge on the flat starts to increase soon after completion…and so on…and so on.

Ok, so that was all a bit negative and possibly slightly controversial wasn’t it? So, let’s try to even things up with my ONE reason to like off-plan, new-build investment property shall we? J

Reason to LIKE #1 – When the Deal Stacks Up!

So far, I have given a range of reasons why I don’t like off-plan property investment. However, I have actually bought a few new-build properties and there was a common denominator in each case…they were either completed or very near completed when I did.

Buying direct from a developer towards the end of their development can sometimes produce a decent opportunity and one that can offset some of the risks in buying off-plan as mentioned earlier.

For example, one project that I did buy was presented to me when a developer wanted to get off site and sell off the last remaining units quickly. This meant an opportunity for a discount that I could actually have some confidence in. In other words direct, recent comparable valuations. Once I was satisfied that the price was fair, or even discounted, this was an easy yes.

However, it was still not without its risks, for example, many other investors had bought at the same time and for the same reason. When they applied for financing, the later ones struggled to get finance approved due to ‘concentration risk’ issues identified by many lenders (remember Lender risk from earlier). They often found themselves having to process several mortgage applications before being approved, or simply change strategy and sell on instead.

So technically, whilst I have bought several new-build properties, none of them were actually off-plan! That’s my get out of jail free card here…you can make a new build investment property work for you, but it is far better when it is already built and not bought off-plan.

So, in conclusion, you can tell that I am not a fan of off-plan, new-build property investment. Yes, it can and does work for some people under the right conditions. But, for me, I prefer to reduce the number of risk factors in the deals I get involved with, or at least to have some element of control over them. For this reason, I tend to find happier hunting ground with existing stock for property investment opportunities. Alternatively, I can take on the role of the developer myself to some extent and add value with a corresponding developer’s premium of my own built in J

Now then, I must confess that I originally wrote this piece for the new Real World Property Training blog that I am developing together with Damien Fogg. Therefore, in order to be respectful of that and also provide some added value to you dear listener, here’s what I am going to do.

I am going to post a summary version of this onto the brand new Real World Property Training Facebook Page. Then, I have a much longer 2,500+ word article which, in addition to more great rationale as to why not to invest in off-plan, also has my top tips of how to protect yourself from these ten potential downsides to off-plan property investment as well.

So, it’s not all doom and gloom and if you fancy a bit of off-plan, then this list will definitely help you out. To get it, all you need to do is visit the Real World Property Training Facebook Page, like the page and then tag yourself in the off-plan post which you will find there and I will make sure you get the full article along with the top tips. That’s fair, isn’t it? All the links will be in the show notes, but I hope you know by now that you can also just drop me an email podcast@thepropertyvoice.net and I