Here we have our first ‘victim’ of the latest series of going full-time in property as Ian Brown (no relation) shares his story.
Ian shares how he used ‘leverage on leverage’, became his own bank and created a diversified, multiple use rental property portfolio. Ian’s definition of true wealth is time freedom and now needs not worry about paying for healthcare or losing a job after achieving financial freedom well below the official retirement age.
So many nuggets are shared throughout, including plotting a goal and a formulating a plan, delaying gratification, getting outside help, using savings, redundancy payments along with company and then SSAS pensions to not only be his own bank but be the bank to other investors and developers too.
A pie and a pint man who is quite literally now the millionaire next door and a genuinely authentic person too...perhaps unlike the perfectly curated row of mission, values and vision statement posters that used to adorn the entrance corridor of the company where he worked for 30 years!
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Transcription of the show
Here we have our first ‘victim’ of the latest series of going full-time in property as Ian Brown (no relation) shares his story.
Ian shares how he used ‘leverage on leverage’, became his own bank and created a diversified, multiple use rental property portfolio. Ian’s definition of true wealth is time freedom and now needs not worry about paying for healthcare or losing a job after achieving financial freedom well below the official retirement age.
So many nuggets are shared throughout, including plotting a goal and a formulating a plan, delaying gratification, getting outside help, using savings, redundancy payments along with company and then SSAS pensions to not only be his own bank but be the bank to other investors and developers too.
A pie and a pint man who is quite literally now the millionaire next door and a genuinely authentic person too...perhaps unlike the perfectly curated row of mission, values and vision statement posters that used to adorn the entrance corridor of the company where he worked for 30 years!
Property Chatter
Welcome to The Property Voice Podcast, helping you to navigate safely through the world of property investing. Get the lowdown and updates, insights and outcomes on all matters property, with a splash of entertainment along the way. The Property Voice, a voice to trust among the crowd. Now, let's get started with your host, Richard Brown.
Hello and welcome to another episode 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. Well, we've got a really good conversation to share with you today. It's the first in the series about going full-time in property. I'm delighted to have a guest in the name of Ian Brown, no relation, who's joining me on the podcast today.
And what I've been talking about generally through this series is to try and profile what I call everyday people, and Ian's definitely an everyday person. He's a self-described pie and a pint man. He's gone full-time in property. He's had a meandering path, and he's going to share a little bit about his story, his journey, how he's got there.
Because it's quite a long interview, we decided to try and retain as much of it as possible rather than labor the point and come back with a detailed summary, which I often do in this type of interview, but I'm just going to let it speak, let it roll. I might add some commentary in the show notes, which will maybe collate a few of the key points together, and I might do a wrap-up at some point during the series, or at the end of the series as well, rather than, as I say, put it onto the end of this particular one. So, without further ado, I'm just going to cue in and let's have a listen to the conversation I had with Ian right now.
I suspect, but obviously you're my first victim on this latest one. Yeah. Let's see if this is a mini series or a full series. But essentially, what I wanted to do was really just talk to people about going full-time in property. And I'm setting this up, if you like, as ordinary people. So it's people in my community, in my network, who I know, and I want to come at this from a couple of different angles. So I want to come at it at an angle of people who have already done it, and obviously that's in your case. You've gone full-time in property, and perhaps talk us through what you did, how you did it, what you learned, all of that good stuff.
And then, I think I'm probably just going to balance things out with perhaps people who are starting out now and just bring them in as well, just to get this different perspective along the way. So obviously we're starting out with somebody who's done it, and congratulations, going full-time in property.
Thanks.
Yeah. But why don't you just maybe ... Let's just maybe go through a bit of a timeline and a story. Shall we just start with a little bit about you and your background and certainly before property came along. You don't have to tell me your birth sign or anything, but just kind of in the build up, just so people understand a little bit about you and can kind of picture you in their own mind's eye, if you like. Would that be okay?
Yeah, sure. Yeah. So I worked for 30 years in the computer industry, started out as a programmer and basically carried on being a programmer but got called a consultant more towards the end. So I used to travel around a lot, mostly around Europe but also a little bit further afield. That was great fun to start with, but I got to the point where I wasn't really enjoying it so much, and I think the company culture changed and so on. So it became not the greatest place to work, shall we say.
Actually, I was thinking about this earlier. I used to walk into one of the offices and they had this corridor where you had to walk into the open plan office space and they had a series of posters on the wall. And this company ... I mean, obviously a lot of companies have mission statements, for example. This company had mission statements, it had the value statements and it had vision statements, so it really went for it.
Anyway, these posters had all these values along the wall, and there were all these pictures of these happy, smiling faces, and they were perfectly diversity audited.
Yes, exactly. That's right. So there's exactly the right number of gender, ethnicity and all the rest of it on these pictures. And they were so clearly actors and not people who actually worked in the company. And they all just had words with the different values. And by the time you got along to the latest one of these pictures, at the bottom in big letters it said, "authenticity". And I really remember walking past there one day and thinking, "You know what? If you've got to fake authenticity, then I think probably at some point, me and this company are going to part company."
So I started thinking about how I would get out and how I would be my own boss. So that was certainly one of the driving forces behind it. But there were lots of things going on as well. It dawned on me from maybe a couple of years before that that property had a lot of advantages over other kinds of investment. It had this leverage which, up until that point, I just thought that was a name for a baby hare, but it turns out that actually it's a really powerful thing which is ...
The classic example of you buy a £100,000 property, put £25,000 of your own money in and then after five years of 5% growth, it's worth 125 and you've just doubled your money by using other people's money. So that's a brilliant tool available to you which you don't have in most other asset classes.
So there was a few little things like this and a few little clues along the way, and I decided that I wanted some income to live off. Not necessarily replace my income, which I think would've been a bigger ask, but I think have enough money to cover my expenses.
Mm-hmm (affirmative). Like a security, almost?
Exactly. That's right.
Yeah, exactly. And I think there was a ... I don't like using buzzwords like "mindset", but there was a bit of a mindset change gradually over time and I started to realize that if you've got a job, it's a single point of failure. You've got one organization paying you every month. Whereas if you've got multiple properties, you've got lots of people writing checks to you every month. So if one of them dips out, it's not so much of a problem.
So I went for this strategy of income which really boiled down to doing HMOs, multi-lets. So that was what I settled on as an approach. So I did a bit of background research and reading. I went into it, but I think it's a completely different thing to do it as it is to learn about it and to read about it. So I think I probably learnt most of my lessons at that point.
Oh yeah. Well, there's always a price to pay for our learning, and some of it is experience.
Exactly. Yeah, exactly.
Perhaps before we get into the strategy and what you did, just, if you don't mind revealing this personal information, but what sort of age might you have been looking at making that transition, this gradual mindset change and a step out of one income source, your full-time job, and perhaps starting to consider alternatives like with property? What sort of age were you at that point?
Well, it's a good point actually, because probably since about my 30s, I remember thinking to myself, "I'd like to be retired by the age of 50," as a goal. Or as an aspiration, I will probably say at that point, because I wouldn't have called it a goal because, apart from having a time limit to it, I didn't have any sort of path to get there.
So I was diligently piling lots of money into a pension and then getting a pension statement once a year, looking at it, feeling slightly depressed, sticking it in the bottom drawer and forgetting about it. So that was my ... Like a lot of people, I think that was my early retirement strategy.
So again, I think the property idea was a way of getting to that aspiration in a more concrete way, and also sooner. So it dawned on me that, if I was making money through property, I'd be keeping all of it rather than giving money to fund managers and other people along the way that you tend to do with pensions and so on.
So my original aim was around about 50. I missed it by three years, but I don't consider that too bad a-
Not at all.
... miss, but I think having a goal is critical. I mean, I think that's probably.
So when did you make that switch from aspiration to clear path, as you said?
Yeah. So I looked at moving into the property world around about 2010 is when I actually started getting going, but 2008 is when I started thinking about it seriously and looking at possible ways of doing it. So I started going along to property shows, reading books, as I say. I got myself a mentor as well at that stage. So did all the sort of things to prepare. At some point I had to make the leap.
I think there's a certain amount of fear of the unknown there and what might happen. So I think to try and help myself in that process, I started quantifying what could go wrong under those particular circumstances.
You started with what could go wrong?
Yes, I did. Yes, I did. Yeah. But I started that and actually that was a good thing because by quantifying it and making it something real in my mind, then it became less scary in that sense. So just things like, what happens if the interest rates go up on a mortgage? Can I still afford to pay it?
Somebody said to me at one point when I was being a little bit overwhelmed by this whole process, I was actually going through the process of buying my first property, buy-to-let property. A friend of mine just said to me, "Well, if the tenants don't pay," bearing in mind I was still working full-time then, "Would you be able to cover the mortgage?" And I said, "Yeah, I would." He said, "Well, you haven't really got anything to worry about, then, have you?" So that helped.
Yeah, yeah.
Mm-hmm (affirmative). Yeah, that context really helped. Yeah.
So you're resisting answering my age question, so I'm not going to push it too much further, but I've worked it out because I'm pretty good at maths, but it must be something around the mid 40s to late 40s type of thing when you made that clear path and started in earnest. But you don't have to answer that question because clearly I don't want to put you on the spot, but that's what it sounds like perhaps, maybe.
Yeah. Probably would be, actually, yeah. Yeah. Yeah.
Okay. I mean, it's good to know because ... which also means that you're man and boy working in the IT industry by the sound of it, too.
Yeah, straight out of college I went into IT, yeah.
Yeah. It's interesting, so a few things just there you may not have even spotted yourself, of course. Well, I'm sure you did. But you talked about, for example, your pension and you were putting money into a pension. So I take it you had an employer who was also contributing to your pension, is that right? Wasn't all in your-
Absolutely, yeah.
And then there was ... There's a really nice guy called the taxman. He was also contributing as well, wasn't he? I'm assuming it's a he.
Exactly. Yeah, exactly, yeah. That's right. So that particular penny dropped quite a while before the property penny dropped, if you like. So yeah. I realized that that was a very effective way of saving towards retirement. After all, if you think about it, there's a lot of restrictions around pensions: when you take them, how you can take them, what you can and can't do with them. And somebody would only really subject themselves to all of those different rules and potentially have a run in with nice Mr. Taxman unless there was a big benefit of it, and I think that benefit of being able to save tax outweighs all of that, really.
Just to jump in, I know it's a big part of your story as well, how this pension plays a part, so I don't want to steal any thunder, but I just wanted to highlight that point because you talked about leverage, and of course one way in which we can prepare ourselves ... I've kind of focused on your age a little bit not to embarrass you, but just to say that effectively you were doing a lot of preparation work, whether you realized it or not. So, for example, putting money into a pension, getting the matched contributions from your employer, getting the tax rebate from the taxman, you were already leveraging and building this pot of money, which you probably thought you couldn't touch until a grand old age or something, and which just seems to be getting pushed further and further out anyway.
So I just thought it was an interesting observation at this point, and I know that it's probably going to play a part as your story unfolds, because, of course, I know what it is. That was one point. And I think there was another point you made which was you kind of just touched on, and that's that you got some kind of outside help or support or input in some way. You mentioned a mentor, I think, actually. So what happened there and why did you decide that was going to be helpful?
Well, I think a lot of it comes down to, I suppose, personality type, and I'm the kind of person who likes to prepare and to ... What's the word? Investigate, if you like, before jumping in. So I've got to be careful with myself that I don't end up spending all of my time preparing and not actually doing, which is another thing. But certainly I spent a decent amount of time, as I say, reading books. And I found this chap who was recommended to me as a mentor.
I mean, I only had something like eight hours of his time, maybe a little bit more. And he was based more down in the south east. He'd got properties around the London area and Kent. So, to be fair to him, he probably didn't know a lot about the market in which I eventually chose to jump into with both feet. So, I mean, I would say that, in general it's a good idea to have a mentor but perhaps, in his case, he didn't really pick up some of the potential pitfalls that I ended up getting into, which is a bit of a shame. I don't really blame him for that. It was just unfortunate.
So in terms of preparation, yeah, I do like to do a little bit of forensic investigation first, and I think that does help to pay off.
I can see the little smile on your face, and for anybody who might watch the video version of this, they might see it too. But just, I want to pick up on that because you kind of say that in such an understated way, but I think one of your ... Because I do know. One of your strengths is your forensic ability, as you call it. The eye on detail and due diligence, and I think you certainly ... I talk about going in layers of due diligence, but you've got another couple of layers on top of mine sometimes, so I thought that was interesting, but maybe that's more relevant as we unfold.
Let's just get the story out, then. So you realized that, perhaps, you wanted to make a change from single income to multiple income, let's say that, or a subsidized income from property. You got a plan or a path to do that. You got a bit of outside help and you'd done a bit of self-study. And then what did you decide to do and what happened? How did you go about things? You've alluded to it, but what did you do, so strategy and direction?
Yeah. Well, without going too much into the more boring details, I went to a property show and there was a chap there who was basically selling properties in the Blackpool area which were multi-lets. And what he was doing was taking ... Because in that area, obviously, there's a lot of holiday accommodation, a lot of it was getting converted into permanent. So he was selling those. But with my perhaps false sense of optimism and bravado, I thought, "Well, I can do that myself. I can buy a rundown holiday flat and do that myself. What could possibly go wrong?" So that's what happened.
So I put in an offer on a place in Blackpool and purchased it, and I think the owners basically couldn't believe their luck that they'd got this new, naïve property investor from down south who turned up, paid them too much money for this property and had taken a big problem off their hands. So there were a number of errors along the way, as you can probably tell.
So I didn't really think about, "How am I going to manage this property from 250 miles distance?" I was living in Oxfordshire at the time. And also how I was going to find somebody who could manage it. So all of these little minor details passed me by. So it was an interesting experience to say the least. It took a little while to get to a point where it was making some money.
The other thing was I did a classic schoolboy error which was mixing up profit with cashflow. I had to, because it was holiday flats, I ... Don't do this at home, folks. Don't go and buy something commercial and then rent it out as residential if you don't have planning. But that's exactly what I did.
So I had to get a commercial mortgage on it, and the problem with a commercial mortgage is that ... Well, it's not a problem, but they tend to be repayment and they tend to be lower loan-to-value. So I was paying quite a lot of money out on the mortgage because I was paying off the chunk of capital. So what looked fantastic on a spreadsheet didn't look quite so good in real life with no money actually rolling into the bank account. So a bit of a schoolboy error.
And it also proved to be very difficult to find somebody who would reliably manage it for me at that distance. I think the old saying that while the cat's away, the mice will play definitely came into the fore at that point. I got through it.
Yeah, I was going to say, I'm already starting to sense some battle scars. So Blackpool, flat, a conversion, basically, into residential, let them out. And I guess it was a sink or swim experience, right? So you got thrown in the deep end a bit there with certainly the property and tenant management side of things. And you've found your way. You didn't sink.
Yes. As my friend had pointed out, I still had enough money to pay the mortgage, so that was okay.
Well, there you go. So you tested that one by the sound of it. So that was the first one, in Blackpool, and then how did the things unfold after that? Just walk us through the next stages?
Yeah. So I bought another one in Blackpool. I must've been a bit of sucker for punishment but there we go. And then things went quiet for a couple of years because I was desperately trying to wrestle with these properties and try and get some money out of them and deal with what would laughingly be described as managers. By the way, in the end I put a letting agent in charge, which probably is something I should've done from the beginning, but that certainly helped that problem.
But I didn't stop looking around, and I connected with an agent in the Liverpool area, and that was quite a useful situation. They were just starting out. They were incredibly young and keen and they also had an affiliated company which was a building and maintenance company. So they'd quite smartly, really, worked out that they could provide a full package. So, as agents in the local area, they knew the area. They had contacts. They were able to source properties. They were able to take fairly rundown properties, do the buy refurb rent model and they would make money on the commission on managing them and letting them out afterwards.
So they gently steered me towards student lets. And at the time, certainly Liverpool, it's still a huge student city, and at the time there weren't so many purpose-built student blocks in the area, and the whole world hadn't really cottoned on to Liverpool as a cheap capital area, a cheap property area, and therefore a high yield area.
So I basically got, if you like, leverage on leverage because I was able to use these people who would do the refurbs. I was able to leverage a low-cost area, high yield area, and I was able to do my HMO strategy. So I was getting benefits on both sides, really. So that worked out a lot better. So each property was generating certainly a five-figure net cash flow every year.
I had to put more money in. I had to buy all the properties and spend a lot of money to refurb them to a decent standard before I could mortgage them back out again. So it was a capital intensive process. But luckily I'd got enough capital behind me that I could do that and I was able to leverage somebody else's knowledge, and their time as well.
Mm-hmm (affirmative). So the foray into the student HMO market in Liverpool kept you busy for a while, presumably? Do you want to share any-
Yeah. That allowed me to hit my, if you like, again using a bit of a buzzword, that financial freedom figure. So I had enough money coming in then. I had six of them.
About six of those, yeah.
Yeah. Over a course of about two or three years, I bought six of them.
Mm-hmm (affirmative). And it's also relevant to ... So you were getting sort of, as you say, five-digit annual net cashflow on around about six of them. We're kind of doing the maths there. And that allowed you to hit your target number, which allowed you this flexibility to decide what to do.
But just before we maybe go to the next step, you said you had a bit of capital behind you. So how did you find the capital to do ... Presumably, you didn't rob a bank so ...
You've just given my strategy away.
I can see a balaclava behind you.
Yes. Yeah. Some Sicilian associates I've got. No, I mean, I had some savings as well, so I had enough. These properties, again, they were relatively cheap. So you could buy them for around about 50,000. You could spend anywhere from about 30,000 to 50,000 doing them up. And I'd like to think that actually I was one of the first people to think of doing this in this area because the agent/builder that I was working with did look at me a little bit strange when I first suggested it.
But we're talking about little mid-terraced, Victorian houses here. And basically gutted the first floor completely, back to brick. Well, all of it back to brick. And rebuilt the first floor to fit in three double bedrooms and a bathroom. Because students don't tend to mind so much sharing bathrooms. It didn't need to have all en-suites. So there were two receptions downstairs so one of those could become a bedroom, so then that gives you four bedrooms.
And then I said, "Well, why don't we just go in the loft? What would it cost?" So it probably added about another 10,000 to the refurb cost to do that. And we could even fit an en-suite up there as well. So by maximizing the space, or optimizing the space, [inaudible 00:27:40] maximize the income a well because the expenses didn't change much but the top line went up by 25%, so that basically fell straight through to the bottom line. So by renting out an extra bedroom, that was pure profit, really.
So other people took that idea and then extended it to the max, I think. It probably went a bit overboard all around that area. They started putting in two bedrooms in the loft, so they were getting up to six-bedroom HMOs. To be fair, I think that was pushing it a little bit, a little terraced house. I always try to go for a minimum room size of three meters by three meters so that they were double rooms. And also, with an eye to the future, then I would be able to get back to renting it out as a very good quality single let or selling it as a good quality family house at any point in the future if I needed to.
That's an important distinction, actually, that you're not squeezing the juice out of the lemon too much and that you're also ... Because, by the way, students will need desk space, won't they, as well?
Exactly.
As well as the bed. And it's single-occupancy but with a larger bed, presumably?
Exactly. Yeah, yeah.
And I think the other thing you kind of highlight is that you had one eye on it being used in an alternative way to give you an alternative exit, essentially.
Exactly, yeah. That's right. I think that's one lesson that everybody should take away from this is you need to have a plan B and preferably a plan C and a plan B if you can because ... Especially with what's going on at the moment. Nobody expected any of this coronavirus and all the rest of what's going on. You need to be able to be flexible, absolutely. And the more options that you give yourself, the better.
Exactly. So you had the Blackpool experience. You moved to Liverpool. And then kind of as ... I know there's more in your story, so just get it all out there, Ian. Let's just [inaudible 00:29:56].
Yeah. So that got me to the point where I could've left my job if I wanted to, but I chose not to. I carried on working. Actually, it's an interesting thing. I once heard somebody talk about what the definition of wealth is, and if you ask most people, it'll involve money somewhere along the line. But to me, I think the real definition of wealth is time freedom because you can ... There's no real limit on how much money you can make, with some caveats. You have to work hard. You have to know the right people. You have to have some capital upfront. I'm not saying anybody can make an unlimited amount of money. But in the right circumstances and the right person, they can. However, they've still got the same number of hours in the day, so it's how you use that time.
But also it's giving yourself time freedom, I think, is the real measure of wealth, and being able to decide what you want to do with that time, and that's really what it gave me. And, in a way, it became a lot easier to go into work every day knowing that I didn't have to go there. Because it became optional, it kind of didn't matter that much.
Every time you went past the vision statements, the value statements, what was the word? Was it authenticity?
It was authenticity.
Yeah. You kind of had, like you are now, a big smile on your face, presumably?
Yes. Yeah. Yeah, exactly. Rather than a grimace, it was more of a smile at that stage.
So it bought you peace of mind.
Yes.
If they'd have said, "Ta ta," or you'd have wanted to say, "Ta ta," you could've done.
Exactly, that's right. I think that puts you in an immensely powerful position, really.
Yeah.
I mean, another thing that, talking about how I got into thinking about an alternative to working, there was a redundancy program announced not long after I started in my property journey, while I was still basically struggling with Blackpool properties. Probably around about 2010, something like that. And, as it happened, I was fine. I didn't get selected. But this would be post the 2008, 2009 downturn.
But being a North American company, they are quite a sort of hire and fire, and they don't tend to think an awful lot about long-term future and having to retrain people and find people with those skill sets in future. So if the bottom line's suffering, then the first thing they'll tend to do is take people out.
So Brexit worked really well for me in that sense because when it got to 2016 and the IT consultancy pipeline dried up a bit, they announced another redundancy program. And because I was in a position where I could not have to worry too much, I'd already intimated to one or two people that should there ever be any possible requirement to slim down the organization in the future, I wouldn't necessarily be too devastated if they wanted to let me go.
You were very subtle. So you didn't go round photocopying your backside, then?
Well, only at weekends. But no, most of the time it was fine. No, that was all it took, really.
Did you get a redundancy?
Remember these things. I got the redundancy, yeah. I got a redundancy. And it was all pretty amicable, really. So I walked away into the sunset about two years ago, just over two years ago, so that worked out fine. But I wouldn't necessarily suggest that as soon as you think you've got enough money in the bank that you don't need to work again and you basically go in and tell your boss exactly what you think of them and take in a small picture of a bridge and set fire to it and walk out the door. I don't think that's necessarily ...
You're fired.
Yeah, exactly. Yeah. And yeah, in fact, they did say, "If we do get another project along, can we call you?"
Right. Let's just pause on that thought, though, because a lot of people actually have the idea, and I'd be interested in your take on this. In fact, you've kind of just said, but I'd like to understand the rationale behind the thought process. That once you get your financial freedom number or whatever it is, the income replacement number, you said you didn't leave immediately and then you've just said it's not necessarily the right thing to do to leave at that point in time. Why is that?
Well, I mean, a couple of things. First of all, perhaps we ought to talk a little bit more about diversified income streams. But there's another income stream right there. Why would you cut it off? Why would you cut off your nose to spite your face, really? If someone's daft enough to keep paying me for not doing very ... I mean, for being a highly valued member of the team, then why would I refuse, really? So it would've been rude to.
Don't look the gift horse in the mouth, yeah?
Exactly, yeah. Exactly. So there was that. And certainly, my intention at the time was to continue to increase the portfolio. And, as I say, we'll have to talk a bit more about diversification but, if you like, to shore up my position, to make sure that I was really in a comfortable position financially.
Okay. And then, just to move on to maybe some lessons and stuff like that, just to conclude. So, at this point, you're redundant. You've presumably got a wad of cash burning a hole in your back pocket. Yeah, okay. Which will fuel the additional growth you just alluded to. Was there more than Liverpool HMOs? I think there is?
Yeah. Yeah. So again, talking about diversifying, I thought to myself, "Well, I've got ..." Blackpool is just sitting there in the background at the time and not really doing a lot. Most of my income's coming from Liverpool HMOs. So I just thought to myself, "Well, I don't really want to have all of my eggs in one Scouse student-y basket," if you like. I thought, "I better do something. Diversify, perhaps geographically, diversify tenant type, diversify strategy." All of those things.
So I started buying HMOs, or refurbing houses into HMOs around the Greater Manchester area. Tameside, [inaudible 00:37:42]. So I'm in all three of those now, and they're generating a nice income.
Just to clarify. Sorry, Ian. They're not student HMOs, are they?
That's right. Yeah, they're professionals. So yeah, again, different tenant type. Different geography. But still HMO strategy. So then latterly, as I mentioned earlier, I've moved up to sunny Lancashire and I've got some properties probably less than five miles away from where I live now, which are single lets. They're flats. So they're obviously a lot lower maintenance than HMOs, but lower returns as well. But they do have a lot more if you like, stability, less tenant turnover, that kind of thing. They're not that far from the hospital so, as you can imagine at the moment, they're no problem letting them out.
Mm-hmm (affirmative).
So that's proved to be a good move as well. And yeah, so the other area that, having reached ... go on, I'll put it right out there. The magic age of 55 last year, that allowed me to access-
Did I guilt you into that? I'm sorry if I did.
Yeah. I know I don't look old enough, I know that.
Absolutely.
As people often tell me. But that allowed me access to my pension, but also I've discovered the power of SSAS pension. So I was able to access that money and lend it out to third parties so then I was able to use that as another income stream. So interest on development loans, essentially. So that's immediately given me a very broad base of different income streams right there. So it gives me a lot more comfort, if you like, that even if one goes-
Helping to sell the shovels in the Gold Rush.
Exactly, yeah.
This is an interesting point, actually. I was hoping you'd get to this point. So you talk about SSAS, small self-administered pension scheme, obviously.
Yeah.
Now, there's probably a few people who don't really know what that is, and I know you know it pretty well, so why don't you just give us a quick overview of that?
Yeah. So it's basically a company pension scheme, which is ... I think it can have a maximum of about 20 members. So normally it's used by small companies for their directors. And it's an occupational pension scheme, so it differs to something like a SIPP, which is a personal pension just for an individual.
Because I've got a company, investment company, which just owns the properties and I'm the director, I can basically set one of these up, and it has a lot more flexibility because ... and a lot more control over the pension fund than you would get with a personal pension, for example. So it allows you to do some unusual things like you can lend money to your sponsoring company. So my investment company can borrow money from my pension and use that to invest in property or lend out or whatever you want to do with it, pretty much, within the scheme. Within HMRC rules, obviously. But because it's a loan, there's not really that many restrictions.
And the other thing that you can do is you're free to invest it pretty much how you'd like. So, again, as long as you're prudent, it's on a commercial basis and it's secure, those three rules that HMRC put against it because, if you were to lose all of your money then HMRC wouldn't make as much tax. Obviously they're quite concerned that you don't fritter it away.
So that also gives you a lot of flexibility. So you could invest in the stock market. You could invest it in bonds. You could invest it in other developers. And so that immediately allows you to loan money out. You can secure those funds, just as a bank would, I don't know with a charge, first charge and so on. So yeah, it's a bit of a strange feeling. I didn't think when I started out 10 years ago that I would become a bank. It's interesting seeing it from the other side of the coin, I suppose.
A lot of people who go full-time in property, they don't expect to be a bank and they don't expect to be a letting agent. They're often what happens.
Yes. Yes, exactly.
I mean, I know in your case you're still outsourcing a lot of the lettings and property management, but I know you also have a bit of a watching brief over them. But I won't go into that too much because of the interest of time.
But I really wanted to just get back that whole pension thing. So just wind back to you said you were squirrelling away money into your company pension, which was then being matched to some degree, or all of it, by your employer, which was then being topped up by the taxman. Fast-forward to however long that was to then transfer that out and into your own company-controlled SSAS, which you are then using to fund your future property investments yourself, and indeed, to also provide loans, as you say, to other developers to provide an additional income stream. So I just really wanted to join those dots. I'm sure it's not-
Yeah, I mean, if there was an aha moment, it's probably somebody saying to me, "Why don't you get one of these SSAS thingies?" And then looking into it and realizing the power of it. And certainly, when you look at using other people's money, it is an incredibly powerful tool.
As you say, when I was putting money into my pension way back when I was a 40% taxpayer, so the taxman was basically subsidizing that 40% back. My employer was matching. And you save even more money because if your employer's reasonable switched on then they'll do it through a salary sacrifice, which means that, effectively, you're not paying National Insurance on that money, either, and neither is your employer. So when you look at it, it's something like about a 50% tax saving when you add it all up. That's what your employer's throwing into the pot.
And most retirees are basic rate taxpayers, so you only ever pay tax on that money at 20% and there's no National Insurance to worry about. And you can take a quarter of it as a tax-free lump sum anyway, so it's a no brainer, really.
But in terms of the control, yeah, so those funds you can lend, as I say, 50% of your pension pot back to your company. You have to do it over a maximum of five years, capital and interest, so it's a big chunk of money to pay back. You need to have the cashflow to do it, which is where the HMOs come in. They can fund those repayments. But once you get over the 55-year-old threshold, then you can access a quarter of your money tax-free anyway, so you could even use that to start to pay back some of these loans back if you need to. So there's ways and means around it.
But just to hold that thought, though, because I know you're not 55 yet.
I am.
You can access 25% of it tax-free personally. When you hit 55, which is obviously a lot before the retirement age, the state retirement age ... I've forgotten what it is now. What it is these days?
67 now. 67, yeah.
Yeah. So that's already 12 years in advance of the national state retirement age for state pension. That's 12 years in advance. But interestingly, you were utilizing the funds in your SSAS before then, weren't you?
Mm-hmm (affirmative). Yes.
So you can actually utilize the funds well in advance of age 55 as well, which obviously you were doing. So, here's my conclusion.
Absolutely, yeah.
Not my conclusion. My observation is, and I don't know what you think about this. I know you don't like buzzwords. But, essentially, you were your own bank, weren't you? You were then creating these deposits which, I've just done some quick maths, and you were multiplying your ... Let's say it was 10,000 a year. I don't know what it was, but let's say it was 10,000 a year you were putting into your pension. Matched by your employer, another 10,000. 4,000 taxman tops up because he tops up your contribution. That's 24,000 on every 10,000. Obviously whatever you put in.
It didn't really matter what the performance was, did it? I mean, I know you were upset and you put your statement in the drawer and stuff like that, but if you actually clocked how much you put in versus what the fund value was unless you invested into some fruity areas or something, it was probably a lot more than the total contributions that you personally made on that, I imagine?
Yes, definitely. Yes, definitely. Yeah, I think there have been suggestions mooted that the generosity of the tax [inaudible 00:48:40] around pensions might well change in future. But I would definitely say to anybody who's got an opportunity to take an employer's pension, grab it with both hands. You need to make hay while that particular sun is shining. [inaudible 00:48:53] going to be there forever.
Maybe so. I just wanted to get that point, maybe being your own bank. But equally, I think another success principle is the point of delaying your gratification. So you were patient here, weren't you? You squirrelled away money into your pension. You said that even when you took loan backs from your SSAS that you had to repay that over five years. So effectively you were deferring certainly cashflow from the investments that you were utilizing if I'm ... I don't know about the details, but in principle, you had to repay it over five years before you really had free cashflow without that repayment thing. So there was a lot of this delayed gratification that you were practising.
But just paint the picture of what your life is like today. I know that you're kind of a private person. I don't want you to go into too much detail. But how does life look for you these days?
Yeah. I mean, as I say, I was living in probably a fairly expensive part of the country, and I've moved a bit further up the M6. I'm in a very lucky position that I've been able to buy the house that I've got outright, so I don't have any personal mortgage to worry about. I've got a lot of buy-to-let mortgages, but that's a different story.
But yeah, in terms of the house that I've got, it's bigger. It's in a lovely part of the country. So it's allowed me to do all of those things. But as you say, it's not something that I jumped into doing. I did it when I had the funds available. And also selling a smaller house in a more expensive part of the country allowed me to have some change leftover as well.
So it's certainly worth thinking about thinking long-term rather than thinking about getting the newest car or whatever as soon as you start making a bit of money. People think it's funny I'm still driving around in a 15-year-old Toyota that just about gets off the driveway under its own steam. A number of people have commented that I don't look like a millionaire property investor when I turn up outside.
Well, do you know, the thought that was going through my mind there was The Millionaire Next Door. You've probably read that particular book.
Yes. Yes. Yeah, that's a really good book. Yeah.
Yeah. And what do you do with your time, Ian?
So pretty much what I like, which is the great thing. Probably the biggest payoff that I've got, really. So even if I was still sitting in my little house in Oxfordshire, I probably wouldn't have worried too much. But yeah, I don't have to ... One of my objectives for leaving my job was making sure that I never have to work for another idiot again. Also-
I hope he's not listening, or she's not listening.
No names, no pack drill. And also, no matter what happens, I can do what I want, when I want without having to worry about how to pay for it, really. I don't have to worry about losing my job. I don't have to worry about getting sick. I'll probably make people jealous just saying it, but I can drive five minutes down the road and can be at the beach. But if it makes them feel any better, it is Morecambe Bay, so it's not all ... [inaudible 00:52:50] was very nice yesterday, I have to say, in the sunshine.
I don't want to embarrass you, but I know you're a modest man. You just said you drive a 15-year-old car, for example. Would you say you like a champagne and caviar lifestyle?
Yeah, well somebody said to me once, "You're more of a beer and a pie man," which I think that ... I'm not quite sure what made him say that. I can't possibly think. But yeah, he's probably right. I don't have lavish tastes, which probably helps.
But I know that you've got-
But I do enjoy doing certain things. I like making my own beer, for example. I spent most of Monday brewing a batch of beer, for example. So with all these pubs closed at the moment, you've got to do what you can, haven't you?
Well, absolutely, yeah. I'm looking forward to tasting some at some point. That'd be good. I also know that you manage to get away now and again.
Indeed, yes. Yeah. So my missus is from Australia, brought up in Australia, so we try and get over there every year to go and see her dad. Unfortunately, the circumstances have intervened this year so I think it's going to be difficult to fly anywhere. But otherwise, yes, we like to get out and like to ... I've had quite a few holidays in the UK as well. Again, I enjoy that. There are lots of places to explore around here, too.
Excellent. And maybe just starting to think about, towards wrapping, there's maybe a couple of points I just want to get out from you, and if there's anything you want to share as well, obviously. But what have you learnt along the way? Because was it all plain sailing? Have you had any ups and downs? Have you changed your mind or direction about certain things along the way? So those sort of things.
And then I guess, equally, have you got any tips or advice or suggestions for anyone listening to this who might want to follow a similar sort of path? Those sort of key wrap-up type questions, I suppose.
Yeah. As I sort of alluded to before, I think diversifying your income streams is key. Certainly, when I started out, I didn't realize how much work was involved with HMOs. That might not necessarily have been my first choice with hindsight. Certainly, when the tax changes came in, that threw a bit of a spanner in the works, as I owned all of my Liverpool properties in my own name, so I had to scramble to put all of those inside my limited company before the introduction of the extra 3% stamp duty came in. So I was one of that massive peak of transactions that happened before that came in.
So again, it's probably cliché but that's pivoting, really. I think you have to be pretty agile as an investor, as an entrepreneur. You have to be able to look at what's happening around you, and at the moment there's a lot going on. There are all of the regulatory changes that are coming in. There are the tax changes. There's coronavirus. So you need to be able to, as I say, think of multiple exits and also think of how you can actually use those to your advantage.
I think, again, it's like that sort of mindset changes that talk about different threats, but you can also look at them as opportunities. And I think what an entrepreneur does, really, is spot opportunities while other people don't. All of those things a lot of people see as problems: tax, regulation, coronavirus, whatever. But that's making the market possibly less competitive because fewer people are going to want to get involved in all of that, and a lot of landlords who are doing it might be getting tired and fed up and wanting to move out of the market. So there could be buying opportunities there. There could be less competition. And I think potentially the letting industry will become a lot more professionalized as times goes on. I think that's partly what the government are trying to achieve by introducing regulations and so on.
I think it'll get to the point pretty soon where people are going to be pushed into using letting agents unless they really know what they're doing and have systems and processes in place that a letting agent would have in order to be able to manage a property professionally. How many amateur landlords are out there that don't even have gas safety certificates, things like that? Basic stuff which we all know about, but a surprisingly large number of people don't. It's really quite scary when you think of that. So you can understand why they want to professionalize the industry.
Mm-hmm (affirmative). Okay.
Yeah.
Is there anything you would do differently?
That's a difficult one to say, really, because I think hindsight's a wonderful thing, but completely useless, obviously.
It's useless to you, perhaps, but may be of benefit to someone who's listening to this.
Yes, exactly. Yeah, exactly. So if I didn't have the 10 years of experience that I've got now, would I have done anything differently 10 years ago? Possibly I would've taken, perhaps, slightly smaller steps, rather than jumping into a pretty complex investment type and trying to do it at arm's length. I'd have perhaps picked something within an hour or so of where I live or lived at the time. Perhaps go for a single let, learnt the ropes that way.
And I think the other thing that I didn't really have a lot of was a network of people around me. I didn't have professionals who were really experts in the particular industry, letting industry. There's a lot of, for example, solicitors out there who can ... perfectly good conveyancing solicitors but they don't understand letting. The same problem with mortgage brokers, for example. So I think getting a good team of people around you, that's pretty critical as well. Yeah, as I say, I think also networking.
Yeah. Maybe just a couple of quick follow-up ones just to finish off. So don't think too much about it, but two questions. One is, I know you like your apps and your resources and your little tech and tools, so I'm going to ask you to think about just one really cool app or piece of tech or tool that you like. And whilst you're thinking about it, the second thing I'm going to ask you about is, what's your favourite book?
So, there you go. I've just put two ideas in your head at the same time there. So come on, then. What would be your top tip for an app or a hack or a resource, and then what's your favourite book?
Okay. Well, I'll go the other way round because the first thing that popped into my head was the book. So I'm going to say an author rather than a book, which is Nassim Nicholas Taleb, and I find his books ... So he's written a couple of books, Black Swan is one, Fooled by Randomness. And I love the way that he thinks about, if you like, probabilities and chance and that sort of thing in a completely different way to how most people do. And I think that sort of survivorship bias that we hear about all the successful people and they all did it by having some magic source. How much of it was actually random, and perhaps it's something I haven't talked about much on this, but how much did luck play in my story? Probably not an insignificant amount. I've probably lucked out in a few ways. So that's one thing.
In terms of apps, I'll probably be really boring and say something like Outlook, because I can do things like schedule reminders with Outlook, not just meetings and so on. But it's quite good at nagging me into do things because I can set up a reminder, it pops up, I'll say, "I'll do that in an hour," and it pops up again an hour later. So things tend to get done quite well that way.
In terms of walking around, I'll go for another app while we're talking about it. Evernote's quite good as well for catching information on the go and thoughts and so on. There you go, two for the price of one.
Absolutely. I was interested in the psychology of some of that because you were saying this sort of contrarian thinking with Nicholas Taleb, and I agree with you some of his books are very good actually. And then you talk about this constant nagging that you give yourself with Outlook. So I'm just trying to put those two things together and work out what that tells me about you, but I don't think it tells me anything. I just think it's just really interesting.
I just wanted to thank you for joining us. You're the first victim, as I mentioned, on this series. I really appreciate that.
You're welcome.
It's been great to hear and-
I hope it was useful.
No, no. It's very, very useful. Thank you so much. I appreciate it so much. But probably in the interest of time, we'll say bye for now and thanks for joining us today on the podcast here. It's been great.
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Thanks very much for listening again this week, so all that left to say is ciao ciao!