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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. Spoiler alert…I have been applying some of the financing options discussed in the last series.
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Resources mentioned:
Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com
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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
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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.