Property Strategy: Building on Solid Foundation | PVP S1E01

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The Property Voice Podcast: Series 1 – Episode 1

Welcome to the very first episode proper of The Property Voice Podcast! This episode is the first part in a series called Property Investor Toolkit: Building on Solid Foundations. Under our Property Chatter feature we will look at the fundamentals of investing in property, starting this week with Property Strategy. We also have the Your Voice segment, where we consider a forum poster’s question of how best to start in property investing. Finally, we have the Shout Out, where we point you towards more great property resources to carry on the property journey. Thanks for listening!

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Resources mentioned

• Property Investor Toolkit– the book link on amazon.co.uk site or Property Investor Toolkit on amazon.com in case you would like to get yourself a copy to accompany this series
• Return on Works – I made reference to the idea that not all works undertaken on a property will automatically add value beyond the cost of undertaking them. This article elaborates on that concept a bit further.
• Different property strategies outlined – this is an article that mentions at least a dozen of the twenty different property strategies mentioned in the podcast. The Property Investor Toolkit lists all twenty and the Property Strategy Selector tool mentioned later help to identify the one(s) best suited to you and your current situation.
• Starting out in property investment – here is an article that considers the dilemma of a novice property investor when starting out and how to prioritise the strategy from the practical steps involved.
• Book reference – How to Get Rich Not Quick by Norb Janis, a gem of a budgeting and savings guide including the author’s own spreadsheets.
• Strategy Selector Tool – we have devised a tool to help you to identify your ideal property strategies; drop us an email at podcast@thepropertyvoice.net and we will send you a copy to get you started.

Today’s must do’s

1. Subscribe to the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!
2. Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!
3. Rate and review the show on iTunes…this helps us to get noticed and that means more people can get to hear our property content and join in
4. If you would like to, grab yourself a copy of the book: Property Investor Toolkit (link in Resources above)

Get talking!

• Join in the discussion, either here in the comments section below, or anywhere else on the Blog
• Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page

Transcription of the show

Hello there and welcome to the first episode proper of The Property Voice Podcast!

My name is Richard Brown and I will be your host but I am not alone, am I Casa?

Casa: Hi Richard and hi to the listeners of The Property Voice podcast. Yes my name is Casa and will be the co-host of the podcast. I am here to bring a little bit of ‘virtual reality’ to proceedings.

Thanks Casa, I look forward to having you here with me to keep me focussed on ‘reality’ 😉

OK, so tell me Casa, what do we have to look forward to in today’s episode?

Casa: Well Richard, you did such a good job of setting the scene in the Introductory episode. Today we have Property Chatter, Your Voice, and the Shout Out, to cover during the show. So, here we go…

Property Chatter

The idea of this first series is to cover what I call the foundations of property investment. Over a sequence of episodes, we will cover the following property investing topics:

• Strategies
• Criteria & calculations
• Research & due diligence
• Reading & property communities
• Lettings & property management
• Financials
• Property as an investment vehicle
• Continued learning & next steps

The inspiration for this series is taken from my recently published book: Property Investor Toolkit. You may wish to get the book to accompany you throughout this series, although it is by no means not essential. I intend to cover the main themes throughout this podcast series but it will neither cover everything in the book, nor indeed will everything I say here be covered in the book either. Either resource could act as a standalone aid to gaining foundation in understanding what property investing is all about.

Returning to today the, our main subject is all about the R.I.G.H.T property strategy.

The word ‘RIGHT’ here spells out a series of words to create the mnemonic, which is kind of neat really, as it will make it easy to remember.

When we start out in property investing, or when we are perhaps thinking of expanding into a new area, one of the first things we tend to think about is the right property strategy to follow…and there are quite a few that we can consider too, I have identified at least twenty different ways to make money through property and that list could be easily extended by adding in more niche areas if we put our minds to it.

I will come back to this next point a little later but suffice to say now, that whilst it is tempting to think of a property strategy to follow and then throw ourselves headlong into following it, that may not in fact be the best approach.

I always like to talk about alignment or flow, depending on whether you are more or a left-brain logical thinker or right-brain creative thinker.

Without spoiling things too much – our chosen property strategy really does need to be in line with our long-term direction, hopes and capabilities. But more on that later.

So, property strategies…here’s how we can break them down into the RIGHT strategy categories:

R is for Rental Income

I is for Investor Services

G is for Growing the Capital

H is for Handling Property by using other people’s money or assets

T is for Trading Property

That’s the general categories covered, so how do these break down further into more individual property strategies that we can adopt?

1. Starting with rentals also makes a lot of sense, so fortunately my word starts with an R! Rentals as in buy-to-let is probably the first thing we all think of if asked about property investing of course.

Buy-to-let is exactly what it sounds like, buying a property and letting (or renting) it out to tenants on a long-term basis. Typically, a property will be rented under a single tenancy agreement known as an Assured Shorthold Tenancy, or AST for short. An AST lasts for a minimum of six months, however many tenants stay in a property for several years renewing the tenancy agreement periodically. Tenants here could be singles, couples, families or even sharers for example. The key idea is to rent an entire property to an entire household under a single tenancy agreement.

There are some variations to this general principle of property rentals, including:

Houses of Multiple Occupation or HMOs, such as but not exclusively student lets. HMOs can also be found in different market niches, such as working tenants or ‘blue collar workers’, professionals or white collar workers, those in receipt of benefits such as local housing allowance and so on. The reason for defining HMOs in this way is not to create a class-distinction or anything like that, it’s just that people with a similar background and circumstance do tend to get on a little better together, although that is by no means guaranteed! HMOs are similar to BTL in that each tenant will enter into an AST and so are expected or want to stay for a relative long-term i.e. at least six months anyway. A variation to individual tenancies per room is a single tenancy agreement with all tenants included, which is more common in the student market or with a group of sharers already known to one another. The key idea here is to rent an entire property but on a per room basis to several different people.

Short-term rentals and holiday lets are two more rental strategies that follow some similar patterns. Here the idea is usually to rent an entire property, usually to a single household but over a short time period such as days or a few weeks at most. As the property will be rented to one household and then another afterwards, factors such as occupation rates come into play. The occupation rate is the actual time the property is let out compared to the maximum time it could be. Think of hotels and the concept is similar.

In addition, to occupation rates, some other things to arrange are furnishing, cooking & dining equipment, cleaning, laundry, meeting & greeting and marketing which makes the business model a very hands on and fast-changing one to manage. Location also plays a significant part here with most short-term rental properties being located in major cities, close to areas of interest or coastal regions say.

Finally here, a lodger, as a variation, one of the easiest ways to get involved in investing in property is to rent out a room in your own home. Here the idea is to rent by the room, either on a long-term or short-term basis under what is known as a license agreement rather than an AST. Some things to keep in mind here are that you have permission to rent a room out, for example it is your house and not rented, there are lease terms that restrict this if it is a leasehold property and that any lender or insurer is notified and agrees to allow the arrangement to take place.

These are the main strategies under the Rentals section. As we progress we will note that there can be some overlap and cross-over between different strategies that is possible.

2. Next up is Investor Services.

In truth, this would have been better suited towards the end of this summary but as it began with an ‘I’ it gets the second slot instead!

Not all of the ways of making money through property actually involve owning a property at all as we shall see. Investor services is the perfect illustration of this in fact. Here we consider ways to make money by offering support to other property investors. Whilst this list could in truth run into dozens of different services, we shall focus on just a few of the more direct ways here.

The 3 main areas I wish to highlight here are:

Lead or deal sourcing, project management & lettings management. These are all great strategies if we have limited finances available to invest personally but do have time and / or skills in the areas mentioned…or if we can acquire them. I said these can be used if we don’t have a lot of money available to invest but in fact they could be used alongside a more traditional property investing strategy to either earn a living or provide for more investment capital to grow the portfolio.

There are a range of other services that I could describe as trades and supplies that I could also mention but that is not the main thrust of this section today.

Lead or deal sourcing, as it suggests is providing property investment opportunities to other property investors in exchange for a fee. Many property investors are we can call ‘time poor’. In other words, they may be working full time, or have their own business or simply live overseas for example. They may well be interested in getting access to good investment deals supplied by others and would pay someone to do this too. I myself have paid for a deal sourcer to bring me property investments.

One thing to keep in mind here though are the regulations around what is known as becoming a ‘buyer’s agent’ and so checking with organisations such as The Property Ombudsman is a must before venturing too far down this path to ensure you are doing things correctly and within the law.

Project management is where someone takes on the management of the refurbishment, renovation or development of a property on behalf of an investor. Again, time and skills are the prerequisite here to be an effective service provider and justify any fee. As with deal sourcing, many investors either don’t have the time, or indeed the knowledge to effectively manage a project that involves multiple trades under the constraints of budget and regulatory control and so are happy to outsource this.

Finally, lettings and management. Until recently, pretty much anybody could call themselves a letting agent and take on the management of a property on behalf of an investor. Whilst the rules have been tightened up, and quite rightly too, it is still possible to act as an agent on behalf of a property investor and manage tasks such as finding tenants, collecting rent and taking care of maintenance. Again, check the regulations before going too far here but many property investors have expanded their businesses by taking on other investor properties to manage.

3. G is for growing the capital. Now this might sound a little obvious, surely this is key component of any property investment strategy? It most certainly is and many property investors see their wealth grow by the benefits of capital appreciation, or property prices increases. There are actually two ways in which this grow takes place. The first is the one we all know about – increases in house prices and this will happen naturally over time as history has shown us.

However, here I am really talking about other ways of achieving this growth and in particular over a shorter period of time and also ahead of the natural market price increases. The term that is often used here is ‘forced appreciation’.

Forcing the appreciation basically means creating value in a property by making a change that results in a higher valuation than before the change was made. This is in fact one of my favourite strategies, as if it is done correctly it can lead to ways of recycling most of our starting investment funds.

Some examples of forced appreciation are:

Undertaking a value-adding refurbishment – remembering that not all works on a property will result in an increase in the property’s value over and beyond the costs involved. I have written on the blog over at www.thepropertyvoice.net on the subject of return on works for example.

Other ways to force the appreciation are:

Undertaking some kind of renovation, remodelling or development work, such as adding an additional bedroom, building an extension or loft conversion or building a new property on part of the land in the overall property. There are lots of examples here and these are just some to get you thinking.

Next, there are various ways of enhancing a property’s value and some are more of a legal or ‘paper exercise’ that involve applying some creative knowledge to the property. For example,

Planning permission

Extending a lease term

Splitting the title from one into several units, and

Change of use such as commercial to residential

4. H is for Handling Property by using other people’s money or assets

What I mean here is we could undertake one of the main ways of generating a profit through property without necessarily owning the property and / or by using other people’s money to do so. The main ways to actually earn money through property are actually through renting it out and by selling it at a profit.

So how can we achieve one or both of these money-makers when we either do not own the property or perhaps don’t have the funds to invest? Whilst these are all advanced strategies and require more research, knowledge or training and professional support…here’s how:

Lease options – where we take control of a property without owning it but where we have the right, or option to own it at some point in the future. This relies on the current owner finding the arrangement acceptable to them and the most obvious reasons for this are if they are either in negative equity now, have become what is called a tired landlord or for some other reason want to move on with their lives. Typically with a lease option the property is rented out on a single-let basis by the investor

Rent-to-rent – think of this as sub-letting a property, where the investor sits between the owner and the tenants. With a lease option, the investor at least has the right or option to buy the property at some future date whereas here that is not necessarily the case. Here the obvious way in which a margin is created is to let the property by the room rather than as a single property, as that can make the economics work a little better.

Note that lease options and rent-to-rent can be somewhat interchangeable with lease options being turned into HMOs or rent-to-rent agreements coming with an option to purchase.

The next major area to look at here is that of joint ventures. This can be a very complex area and so to keep things simple a joint venture or JV usually means the collaboration of two or more parties that combine skills, time, money, knowledge or contacts for mutual gain. The best JVs are where the parties bring different aspects to the partnership, for example someone has money and someone else has time and knowledge. Other examples are where the parties have similar or at least overlapping attributes but feel that by joining forces they can grow faster, or at least share the journey and experience of property investing as they do.

Some other examples in this area that I will just mention are:

Assisted sale, instalment contracts and delayed completion which all involve an agreement from a property owner to either wait to get paid in full or give up some of the profit on sale on a property instead.

I know that I have whistled through this list a little – you will find more on the blog and perhaps I will go into further detail in another episode of the podcast another time also.

5. T is for trading property

Flips, buy-to-sell and trading property are all names for the same thing – buying a property and then selling it for a profit.

The key phrase there is making a profit of course and whereas TV shows such as Homes Under The Hammer suggest it can be easy to do this, it is not always the case…especially when ALL the costs, including our time are factored in.

I have however just given at least one clue of where to find potential properties and that’s via auction. However, do be careful if buying at auction, as often a property is placed at auction because there is some sort of problem with it. The job then is to identify the problem, establish that we can live with or fix the problem and then turn it around by adding value sufficient to make a profit.

Other ways of ensuring we make a profit have to some extent already been mentioned here under the growing the capital or handling the property sections, so I won’t repeat them again here.

All I will say is that we can make quite reasonable sums of money by getting this strategy right, although of course we by definition won’t retain ownership of the asset by doing so.

That brings me to my concluding point under this section. Making money through property is just that. However, with some of the strategies, such as investor services and trading property, as well as some of those listed under handling property, we do not always retain ownership of the asset.

I just wanted to highlight this, as by far the best way to achieve long-term wealth is by owning appreciating and / or income paying assets. Therefore, go for it with whichever strategy suits your particular set of circumstances but if I were you, I would also be looking at ways of building a portfolio of assets that I retain for myself at the same time.

Before finishing the segment, I did mention alignment and flow earlier if you recall. I want to return to this point briefly here.

Consider a situation where we work out that buy-to-let is the way to go and we invest a not insignificant savings pot into a single property. That’s all fine as long as that fits in with our main purpose for investing in the first place. If it is to supplement a long-term pension for example, then this may be a suitable option. However, what if you needed to replace your income having been made redundant – would it be as suitable to obtain an average of say £200 per month from the average single-let property using a mortgage? I doubt it. That’s why it is vital to match the strategy to our goals and personal situation and that is also why I decided to name this episode as the RIGHT Strategy too!

Your Voice

So Casa, what do we have under Your Voice this time? Is it a question, an investor story or a bit of a moan from one of our listeners?

Casa: well as we have only just started the podcast, we shall go with a question from a forum poster who shall remain anonymous. The question is: if I do not much money to invest in property now, what could I do to either start getting involved or to prepare myself to start investing in property in the future?

That’s an excellent question and to some extent very relevant to today’s theme, at least in part.

I would say do these three things:

1. Get yourself educated and involved in the world or property investing. No need to splash the cash right now. Start reading property books and magazines, join one or two (not all) property forums or groups, attend one or two property network meetings. Do this for the next 3-6 months and raise your knowledge level before deciding what to do next.
2. At the same time, I would prepare myself financially. Make a financial plane that includes these key elements: 1) a proper budget that tracks all your income and expenditure…remembering to put the actuals against the budget items at least every month. 2) if you are in debt, make a plan to pay the debt off – this could mean by selling things to get the debt down, adjusting the budget to pay off more debt each month, using the ‘snowball effect’ to accelerate repayment and 3) allocate your money now as you intend to go on. That means setting aside a specific sum each month for your investment fund – pay yourself first though, so set up a standing order on pay day to take the money before you spend it. It doesn’t matter how little this is to start with, the key is simply to start.
3. Identify your preferred property strategy that fits in line with your personal situation and goals. We have produced a ‘Strategy Selector’ tool to assist with this, which we will make available through the show notes, so head over to the website to check these out.

This will evolve as time goes by but it is a useful place to begin at least.

Shout Out

Casa: Today’s shout out is actually two for the price of one.

The first is a book called, How to Get Rich Not Quick, by Norb Janis. This will help with the budgeting step mentioned under the Your Voice segment earlier.

The second is, The Strategy Selector Tool, also mentioned under Your Voice. It is highly relevant to today’s theme. This is available by sending us an email to: podcast@thepropertyvoice.net, with your name and the subject line: Strategy Selector Tool. Or simply subscribe to our mailing list on our website before the end of April.

Thanks Casa, I am sure these resources will be very helpful to our listeners.

So there we have it, our first episode proper is in the bag. How was it for you, did you find the discussion useful?

Why not head over to the website at www.thepropertyvoice.net to see show notes for today’s episode and other great property ready for you.

Until next time on The Property Voice podcast…ciao-ciao