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The Complete Guide to Property Investment

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by Rob Dix




  The Complete Guide to Property Investment

  How to survive and thrive in the new world of buy-to-let

  Rob Dix

  Published by Team Incredible Publishing

  Copyright © Team Incredible Ltd. 2016

  All rights reserved. This book is sold subject to the condition that it shall not, by way of trade or otherwise, be lent, re-sold, hired out or otherwise circulated in any form of binding or cover other than that in which it is published and without a similar condition including this condition being imposed on the subsequent purchaser.

  GET THE EXTRAS!

  I’ve put together some totally free extras to cover important concepts that don’t quite lend themselves to “book” form.

  All you need to do is register (for free), and you’ll get access to videos showing:

  My step-by-step process for assessing a potential investment area

  How to determine the value of a property

  How to calculate the maximum price you can afford to pay for a property you’re planning to refurbish and sell

  My method for setting goals, and the spreadsheet I use to do it

  It’s all totally free with no strings attached – so for instant access, just sign up at propertygeek.net/extra.

  INTRODUCTION

  Getting a UK-centric audience excited about property investment is about as challenging as getting YouTube views with a cute cat video. There are over a million private landlords in the UK, and millions more who’ve thought about it. A quick glance at any day’s newspaper headlines, meanwhile, will show that everyone else has a very strong opinion about it.

  Technically, all that’s needed to call yourself a “property investor” is to buy one house or flat and rent it out – and if you do that well, you’ll have an asset that will bring in money each month and grow in value over time. That’s pretty good, and it will put you ahead of the 80% of the population who just work all their lives and retire without any real assets to show for it.

  But the game is changing. As political pressure against landlords mounts and the tax regime changes, it’s becoming impossible to be a casual buy-any-old-house-and-watch-it-go-up-in-value investor. Strange as it may seem though, I think the coming years will be better than ever – for educated and committed investors, at least. Amateurs will get squeezed out of the market, leaving opportunities wide open for those of us who are switched-on, strategic, and in it for the long haul.

  Even if changes weren’t afoot, I still think we can – indeed should – aim higher than just buying the odd property when we can. After all, for most of us the ultimate dream isn’t an extra couple of hundred pounds in our pocket each month or bragging rights at dinner parties. There’s some kind of goal we’re aiming for, like securing a comfortable retirement or being able to support our family without leaving for the office at 7am every day. Property can be the means to that end… but unless we’re clear on what the objective actually is, it can easily just be a source of hassle and disappointment.

  Over the last few years I’ve spoken to hundreds of aspiring and established investors. Often, they’ll ask for my advice because they’re not sure where to start – or they’ll be disappointed because they’ve got going and bought a property, but still don’t feel much closer to where they want to be. In almost every case, the problem would be solved if they just had a meaningful goal paired with a clear strategy designed to help them reach it.

  But I’m rarely asked about that – instead the questions are about what mortgage to use, how much to pay for a specific property, whether or not to self-manage, what research to do before buying at auction, and a million other things about the “procedural” aspect of property investment. These are all perfectly good and valid questions… but they’re all secondary concerns until a goal has been set and a strategy sketched out.

  In this book, I’m going to cover it all: the strategic overview, the nitty-gritty procedural details, and everything you need to know to adapt and thrive over time – whatever the economy and the politicians throw your way.

  By calling this the “complete guide”, I know I’m leaving myself wide open for people to go through looking for flaws, errors and omissions. If you go in search of things to disagree with, you’ll find plenty: as this is a book written by one person, there will be some parts that you don’t think are explained fully enough and others where you don’t agree with my reasoning.

  When it comes to the word “complete” itself, I don’t mean that it will cover every situation that you could possibly encounter over a lifetime of investing in property – clearly, that’s not possible. What I mean is that it takes you through the entire process of becoming a successful investor. Most books focus on how to research and buy a single property, but this one starts way before the first purchase and doesn’t stop until you’ve built a long-term portfolio.

  In Part 1, I get you thinking about your goals by showing you five different investment strategies that you could follow – each suitable for different objectives, financial positions and levels of involvement. The aim is to give you a vision of what you can achieve – even if you’re starting out with no special skills or experience.

  In Part 2, we’ll go through every step of the property investment process in order. Starting with arranging finance, we’ll advance through deciding what to buy, assessing potential deals, getting an offer accepted, surviving the buying process, and going all the way through to managing the property and taking care of the paperwork. You can read it through to prepare yourself for exactly what’s ahead, then refer back to each chapter as you progress through an actual investment to make sure you’re confident at every step.

  Then in Part 3, it’s time to look at the topics that separate the “dabblers” who buy a property on a whim from those who are serious about building a long-term financial future: refinancing, surviving downturns, shaping your portfolio over time and thinking about an eventual exit strategy.

  Overall, everything in this book is geared towards helping you to take action. It’s not telling you “how I did it” and giving you one model to follow, it’s not an inspirational story, and it’s not a boring list of first-do-this-then-do-that. It’s designed to take you from wherever you are now to wherever you want to be, by arming you with both the procedural knowledge and the big-picture thinking you need to make smart decisions.

  If property isn’t your obsession yet, I hope it will be by the end of this book: not only is it one of the most profitable things you can be obsessed with, it’s also a whole lot of fun.

  ABOUT ME

  While this book is intended to serve you rather than my ego, it might be helpful to give you a bit of context so you know who I am and where I’m coming from.

  Property investment is the geeky hobby that took over my life.

  As soon as I started researching my first investment in 2006 as a place to stash some spare cash, I was hooked. I’d spend all my spare time reading books and message boards – and yes, watching a fair bit of Homes Under The Hammer – absorbing everything I possibly could.

  I was fascinated by the number of ways in which it was possible to approach property investment, and I began to see how success involves understanding human psychology (and understanding your own abilities and motivations) in addition to knowing the cold, hard numbers.

  As a happy side-effect, I loved the fact that – as hobbies go – it can make you seriously wealthy.

  In 2012 I started my blog, Property Geek, as a place to think out loud and make contact with other investors so I could learn even more. Since then, even though my “day job” is technically being a copywriter, property has almost completely taken ov
er…

  I’ve written three best-selling property books, which have over 350 five-star reviews on Amazon between them.

  I co-present The Property Podcast, which is the most popular business podcast in the UK and is listened to over 100,000 times per month.

  I co-founded The Property Hub – a community for property investors with over 13,000 members, which runs a network of over 35 monthly meetups and publishes a quarterly magazine.

  I’m a director of a nationwide letting agency (Yellow Lettings), and a bridging finance company (LendSwift).

  I don’t have the UK’s biggest portfolio or decades of experience, but I’ve supplemented my own knowledge and experience with learning from hundreds of investors who I’ve had the pleasure to meet and quiz. It means that if I haven’t done it myself, I’ve spoken (at length) to multiple people who have.

  My own strategy? Well, it’s evolved over time – and I’ve certainly had my fair share of getting sidetracked. When I started out, all I cared about was buying as much rental income as I could, as cheaply as possible. That approach led me to good-quality ex-council flats in London, which nobody else wanted to buy – especially after the mid-2000s crash – yet rented spectacularly well to young professionals. Over time I came to think more in terms of total asset growth: parking my savings in quality properties that make me money each month but also have good growth potential. Additionally, I began adding to those savings by flipping the odd property where possible. (I can’t shake my old yield-monkey tendencies completely though, and occasionally I’ll buy properties with limited growth potential if I can get a great return while leaving little cash in the deal.)

  The ultimate plan? To be in a “work optional” situation, with a big lump sum in the bank and a few moderately leveraged properties generating a nice income, at a young enough age to mean I can pursue whatever seems interesting at the time without money being a factor.

  Just to be clear: I’m not a tycoon with hundreds of properties, and there are many, many, many investors who are vastly more successful than I am. If there’s one specific strategy or aspect of investment you want to know about, there will be someone more qualified than me to teach you about it (and I might be able to introduce you to them). But what I can do is give you an easy-to-understand, comprehensive and hopefully fun overview of the whole property landscape.

  So let’s get on and do exactly that.

  PART 1:

  STRATEGIES

  In this first part of the book, I’m going to explore five potential investment strategies – each of which requires a different amount of cash and time input, and pays off over a different timeframe.

  If you’re just starting out, feel free to flip through them to get a general sense of what the options are – but don’t go any further with planning out your next moves until you’ve clearly defined your goal.

  You might think you’ve got a goal already, but if you were forced to get it out of your head and onto paper it’d probably look embarrassingly vague. A goal like “own lots of properties” or “eventually reach the point of not having to work for someone else” just isn’t going to cut it – you need more precision in order to select the strategy that’s best suited to getting you there.

  When it comes to setting a goal, there are three elements that I think are the most important:

  It needs to be specific enough that you’ll know when you’ve achieved it – which is where “lots of properties” falls down. Pinning a number on it is an easy way to accomplish this: if the goal is “£3,000 in monthly net profit”, you’ve either achieved it or you haven’t.

  You need to define a timeframe. As you’ll see when we get to the strategies, this is probably the most important factor of all: the approach you’d take to make £3,000 in monthly net profit by next year would be radically different from if you wanted to achieve it in ten years.

  It’s got to be meaningful, so you’re motivated to keep making progress through thick and thin. If a goal like “own 100 properties” or “have a million-pound portfolio” is meaningful to you, that’s fine – but for many people, what’s truly motivational is having enough monthly income to replace their job or enough equity for a comfortable retirement.

  I could bang on about goal-setting for another few chapters at least, but I won’t. Instead, I’ll recommend that if you don’t have an appropriate goal in mind already, you should watch the free course we put together on The Property Hub. It makes sure your goal meets the criteria above, and shares a technique that a lot of people find very useful in defining a meaningful outcome (and leads to surprising results).

  It’s free as part of the extras that come along with this book, so go pick them up at propertygeek.net/extra.

  About the strategies

  I’m going to walk through five investment strategies, and of course there are far more than that out there – each of which could be sub-divided into all manner of different varieties. But I’ve chosen these particular examples for two reasons: to give a sense of how property investment can work for you, whatever your goals and constraints; and to explore some of the big themes that will keep appearing throughout this book.

  Before getting into them though, we need to be very clear about a few things.

  Firstly, I don’t recommend that you attempt to follow any of these strategies to the letter. Not because they’re unrealistic, but because you can actually do much better! To keep things simple, I’ve left out all kinds of clever tricks and imagined that the person in each example is blindly following a plan without improving as they go, or looking at the world around them and changing course as needed. If you come back to Part 1 after reading the rest of the book, you’ll be able to spot all kinds of tweaks you could make to get far, far better results.

  The flipside of keeping things simple is that there are a lot of things I just don’t mention. For example, mortgage arrangement fees: they get added to the loan, so they don’t factor in your initial calculations (and interest isn’t charged on them), but you will have to pay them back when you sell or refinance. Also, I don’t mention the need to pay council tax and bills while a property is empty and being refurbished. This isn’t an attempt to gloss over the facts and paint a pretty picture – it’s just that if I included every last detail the overall point would be lost, and I try to be careful enough with my numbers elsewhere that it doesn’t matter too much.

  Then there’s tax. I mention the possible impact of tax in each scenario, but it’s impossible to make statements like “your tax bill from this transaction will be £X” or “make sure you set aside £Y”. The answer will be different depending on your other sources of earnings, marital status, whether the property is owned by an individual or a company, other property transactions you’ve made that year, and about a million other things.

  So the results I talk about are always pre-tax – not because I’m trying to make them look better than they really are, but because it’s impossible to do otherwise: the amount of tax you’ll need to pay on the income from any given property will depend on whether you own the property as an individual or a company, your other earnings, your losses or expenditure across the rest of your portfolio, and plenty of other factors.

  Just because it’s impossible to generalise about the tax implications of any particular purchase, that doesn’t mean it’s not important: it’s very important indeed. If you’re new to property investment, you might be surprised by just how harsh the treatment of property income can be. While it’s much more fun to get excited about the money you can make than to think about the money that could be taken away from you, you should absolutely spend plenty of time getting to grips with the tax implications of property investment before you begin. The time you spend structuring your investments to be as tax-efficient as possible at the beginning could add up to tens of thousands of pounds over your investing lifetime.

  We’ll cover the major aspects of tax you need to know in Part 2, so feel free to skip ahead and read that first if y
ou want to. In the meantime I’ll attempt to flag up the points at which it’s an important consideration without getting into too much detail.

  And finally, because my crystal ball’s a bit hazy at the moment, I’ve been forced to lay everything out as if there aren’t going to be any major changes in legislation – and who knows what might happen in terms of inflation, interest rates and everything else that affects an investment. That’s why, again, these aren’t intended to be 100% accurate and they’re certainly not recommendations for what to do – just models to give you an idea of some of the different approaches that are out there.

  I think that’s enough caveats for now. Just one last thing before getting to the strategies: a quick overview of the calculations you’ll encounter as we discuss the results of different investments.

  Measuring success

  To be successful in property investment, you need to know your numbers. I appreciate the beauty of a good spreadsheet as much as the next person (as long as the next person is extremely geeky too), but in truth, maths isn’t my strong point. That’s why I like to stick to three simple calculations, each of which is most useful in a slightly different situation.

  You should already be familiar with these if you’ve read any other property books (including my one, Property Investment For Beginners). But as they crop up so often throughout this book, it’s worth a quick refresher to make sure we’re clear on exactly what we’re talking about.

  (As a quick note to avoid confusion, these calculations are always made on pre-tax returns for reasons discussed earlier.)

  You’ll hear a lot about yield, of which there are two types: gross and net. In general, when someone says “yield” and doesn’t specify which type, they’re talking about gross yield – and that’s a convention I stick to here.

 

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