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What is the critical problem right now
Many people are still fixated by no money down schemes
or offerings. Whilst we don’t deny the viability
of this strategy, we question its validity in a
downwards market and whether this can form the basis
of a sustainable portfolio in the long-term. The
problem right now is you are still chasing a dream
which hasn’t existed for nearly 18 months
now and really, you need to wake up and smell the
roses. Yes, property is still an extremely good
viable long-term investment but you need to be prepared
to – dare we say it – leave some money
in a deal – if the cashflow is strong enough
and gives you a good cash-on-cash return.
Its no longer enough to go chasing large cashbacks
on houses that at best just about wash their faces
and at worse, will leave you with a nasty cold for
a long time. The only thing that matters in any
business is cashflow.
What
are the core components for running a successful
property business
Strong systems and processes linked with a strategic
vision that gives you massive cashflow every month.
Lets look at two different investor strategies and
see which one you think will work in the long term:
Investor
A has 30 houses around the country that he bought
over the last 3 years. He has a mixture of new-build
and resale units with varying yields of 3%-7%. His
portfolio spans a radius of 300 miles and he rarely
gets to visit all of his properties. Instead, he
has agents that fully manage them and averages occupancy
of 85%. His cashflow is negligible because even
though his properties on paper yield good returns
every month, the ground rents, service charges and
outsourced maintenance drain away his cash. He is
hoping for long-term capital appreciation but already
knows that in reality, it will be 5+ years before
his properties are back to the same valuation prices
he bought then at.
Investor
B has 10 houses in two towns local to her that she’s
bought over the last 10 years. She manages them
all herself and has a handyman that works part-time
for her maintaining the properties. She owns 9 little
terrace houses and 1 new apartment. Her occupancy
is in the high 90’s and her yields average
7% but her on-costs are lower as her properties
are mainly freehold and maintenance is preventative
rather than reactive. She makes good cashflow each
month and isn’t too bothered about capital
appreciation as she is paying down two of the small
houses every month on repayment mortgages.
Which
investor would you rather be?
Investor A is 3 months away from going under; Investor
B has a sound system in place with established processes
that allow her to make good cashflow and occasionally
treat herself.
Put
in place the processes and systems to enable you
to generate cashflow but not at the expense of adding
cost to the business. For example. Matthew has a
marketing system for generating dozens of tenants
leads per day that he couldn’t turn off even
if he wanted to!
What
strategies are you following today?
There are several that spring to mind. Many people
have talked about them before but the proof is always
in the walking and not the talking. Multi-Lets,
HMO’s, Professional Houseshare etc. We’ve
talked about this all day – many “experts”
say they are hard work and a hassle; most of them
have never managed or set foot in a HMO so they
wouldn’t know. If your HMO is full, then you
can manage the property in less than 2 hours per
week. If you’re making say £150 per
week per full house; complain all you like about
hard work; nothing was ever delivered on a plate…
High-yield
single let
There’s only one type of single let you
should be aiming for – and that’s
a high yielding 9%+ property. Anything less and
you are massively subject to the vagaries of the
interest rates, unexpected maintenance charges
and management fees. Whether its rented through
the LHA, private tenants or corporate lets, do
your homework and go where the yields are. Oh,
and buy at least 5+ in an area so you can maximise
economies of scale.
Commercial/Businesses
We are not talking about dead office space here
– these are bona fide businesses operating
in commercial territory. Whether its hotels, bars,
nightclubs, care homes or whatever; if it’s
a business, its successful and generates good
cashflow, there are methods of financing and buying
to add to your asset base.
Finance
Nothing else matters but gaining finance to support
your business. We have made it our priority and
key focus to get the building blocks in place
to ensure that when others are falling by the
wayside, we can continue buying. Do you have access
to instant refinance, refurbishment, asset financing,
open bridging and open doors at many lenders that
do not have a high street presence? We do and
you can get access through our website.
Overseas
We have seen massive drops in overseas asset pricing
which makes them extremely attractive to purchase
– and with similar commercial mortgages
available, now is the time to get in and start
generating cashflow. With yields of 15-20% in
some areas, provided you perform due diligence
and buy in a concentrated area, this adds another
diversity to your portfolio which will reap benefits
in years to come.
What
do you think the next 12 months hold?
We forecast that lending will become a more bespoke
individual decision rather than the mass-market
“the computer says no” approach taken
by many of the high-street lenders today. We have
already seen encouraging signs of it with lenders
who want to meet, greet and touch you and understand
your business, your vision and help support your
goals for the future. We also believe that being
part of the right community will become even more
beneficial with the lines clearly drawn between
the amateur investor and the professional investor.
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