This week we share Richard’s guest appearance on the Pengafolde Podcast in Sweden, hosted by Nana Piesie.
Martin eases us back into the grove after a few weeks off from TPV Podcast by sharing this guest appearance. Listen as Richard talks about some things you might not have heard mentioned too much before. Topics such as why invest internationally and how to build your international power team. Views on structuring business and taxation. Finally, something you really want to know...Richard’s favourite Film. Now we’re talking 🙂
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Transcription of the show
This week we share Richard’s guest appearance on the Pengafolde Podcast in Sweden, hosted by Nana Piesie.
Martin eases us back into the grove after a few weeks off from TPV Podcast by sharing this guest appearance. Listen as Richard talks about some things you might not have heard mentioned too much before. Topics such as why invest internationally and how to build your international power team. Views on structuring business and taxation. Finally, something you really want to know...Richard’s favourite Film. Now we’re talking 🙂
Property Chatter
Welcome to The Property Voice podcast, helping you to navigate safely through the world of property investing. Get the low down and updates, insights and outcomes on all matter 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.
Hello and welcome to The Property Voice podcast. My name's Martin and yes, I'm taking over again. I'm really excited to introduce this interview between Richard and Nana who is the cohost of the Pengaflode Podcast. I hope I'm saying that right. It's a Swedish podcast, but luckily for Richard, and I imagine most of the people listening to this podcast, it's in English. The reason I'm in particularly excited about this one, aside from the fact that I get to introduce it of course, is because what Richard speaks about in essence for you is details around the property investments and its business structure that we haven't yet heard a lot about on the podcast and it's really interesting to listen to. So without further ado, let's get into it.
Today we have Richard Brown. How are you, Richard?
Hey, Nana. Hi. I'm good, thank you. Good to see you. Thanks for inviting me on, eventually.
Yeah, this have been a long time coming, but I want to save the best for the last.
It's all right. Okay, I'll look to see who's coming on after me then.
No, but I think you have a very interesting story and how you invest, you are the exact, that type of person and investment type of strategies that me and Emily wanted to do, so I thought this episode would be very, very interesting and informational. So tell me about your background.
From property point of view, well I mean let me just tell you about me. So now I'm getting on a bit, I'm 54, so I've had a life and a career already. I'm British, I married a Brazilian, we got three adult, grown up girls. They're between 21 and 26 years old, so that's the sort of family if you like. We have this sort of multicultural life because obviously my wife being Brazilian, so that's really great to have that, and by the way, that plays a part in our lifestyle, as I'm sure you are aware. But I followed a traditional route I guess from a professional point of view. I've got educated, did what my dad told me to do, I was a good boy in that sense, even though I resisted a little bit. I got educated and then went into "Corporate land" as I call it, I had a career, mainly financial services.
I worked dominantly for banks and then I also worked for manufacturers, delivering... Sorry, not manufacturing, financial services, on behalf of those manufacturers, so business to business finance really was my sort of first phase career, and then I've always wanted to run my own business and so I stepped out at one point and became... I ran a few small businesses for about ten years or so. Did okay but didn't do stellar. I did okay. So bought and sold some businesses, ran some businesses, taught myself a few different industry sectors, so I guess that would be my second phase career, and then effectively, I kind of went back into employment with this crazy guy called John Chitty who, hats off to him, he gave me a job and went back into corporate land and was working for some blue chips, like big IT companies and big sort of industrials again on the financial services side, but I've also done a bit of consulting too, so that would be the third element to my professional working career.
Basically, I know you've you've cued me, and I know I probably shouldn't say this, but you've asked me a question about what would be one of my favorite movies, probably a bit of fun question like later. So spoiler alert, I'm going to answer one of the fun questions that you possibly might ask me at the end, and one of my favorite movies is The Matrix, and it's a bit dated now, but I love the concept of The Matrix. What I like about The Matrix, it talks about basically a parallel universe and that we're trapped in this almost a game. That's the concept of the film, and I think to some extent, working for other people is like that. So that's why I brought it in at this point. My point being that I was kind of restless in the corporate environment. I didn't feel that I really fitted in. If you can imagine, you're going with something that's nice and smooth but if you go against that grain, it's rough, it's jaggy that you get stuck, and I felt like that.
So I made the second leap to leave full time sort of corporate land employment about eight years ago, something like that, and I've been kind of doing my own thing, predominantly property based and some associated services around property for the last eight years or so and started property just about 11 years ago. So property has been my thing now for about decade or so, and yeah, we can get into the detail of that, but that's kind of the context, that's how I got here. I started late I guess because I told you, I'm in my mid 50s, so it was in my 40s, early-mid 40s when I kind of realized that property, "Wow, what is this thing? I could do something different with my life. I could escape The Matrix," to keep my analogy going, and I was asleep, I wasn't awake to it and then I eventually did wake up, and it was four years after waking up before I actually managed to escape and find my way out of The Matrix.
I don't know if that's how you wanted me to answer that question but that's a little bit of my sort of background personally and professionally and how I got here generally.
No, that's perfect. That sounds quite fun. So what about your portfolio then? Because I know you have a big portfolio from different countries as well.
I guess there's four elements to my business effectively. So I've got the existing rental portfolio, I've got a couple of service accommodation units, and I've got some developments which I'm predominantly converting to retain, although some of those I will move on, and then I've got investor services type of business, so there's four elements to what I do. So in terms of the portfolio which is effectively all but those services, there's 75 rental units across four countries. They are, to be fair, concentrated in the UK and the secondary market or the second largest market is the USA, but I've got a few interests in Brazil, which you might expect given my wife's nationality, and also in Portugal which is still a very small exposure in Portugal, and as it's Portuguese speaking, the Brazilian speaker in the family helps a lot with that too.
What was interesting I suppose is that, maybe we'll get on to this a little bit, but these are round figures. I probably got to around about 25 rental units approximately two or three years ago, and now it's 75. So it took about seven or eight years to get to that 25 and it's taken another two, three years to get to 75. You can see the kind of, it was more of like a linear growth and then it sort of start change in the last couple of years, so that's' kind of just the brief overview if you like of the number of units and where they are.
May I ask what happened?
That's a really good question to be honest because I suppose what I was doing was what I call "Cookie cutter approach" for the first seven or eight years, so I was following predominantly a BRR type of strategy, buy, refurbish, refinance. I love to add value to property and so I was kind of just doing it. I was doing between two and about three a year I suppose of these types of project. A couple running at the same time, stack it across the year and I was steadily growing to about, as I mentioned, approximately 25 units and kind of one project at a time, although doing three of them on average, and what changed was really two or three years ago, I recognized that actually, I could do multiple unit conversions predominantly. So I was looking at four units, six units, 12 units conversions predominantly. A little bit of new build, not a lot of new build, mostly conversion, and so that's what created that growth.
For example, an 11 unit commercial conversion in Stoke-on-Trent. That's 11 units in one go, and yes, it's more complex, but at the end of the day, it's still one project. So I could do that project, it would take longer, it's more complex, there's issues you need to deal with which are different to your vanilla buy, refurbish, refinance on a single family home, but that's what allowed me to scale and of course, it takes you into another level once you get to look in at projects like that. It's another level of complexity and planning and financing. Managing the project is different, the team you have is also different, so there were some growing pains between going this flat line to this sort of steep line. To be honest with you, there were some growing pains, but just sort of coming through that now, and now I've got a bit more sort of control on things, a bit more order and my team is more settled, so that's what made the difference.
That's how I went from three a year to whatever, 12, 15, whatever a year it's been since then, maybe 20 a year actually, closer to that. Somewhere between, so on average, about 15 a year in the last three years.
That's different.
Yeah, and I also spoke because a lot of people who develop, so let's call develop conversions as well as ground up developments, BRR's development actually but it's low level development, it's just a refurbishment or maybe a bit of an extension work or something. So when you talk about development, so like a commercial to residential conversion, that kind of development or a ground up development, I'm predominantly converting or building to retain in my portfolio as well. So that's my preferred model, my preferred exit route, and that's why my portfolio is also growing. That also allows me to look at opportunities, look at projects in a slightly different way to a traditional developer. A traditional developer is building to sell, and obviously, they need to find a site, manage a site, sell a site and maximize their profit and then go and find another one and do it all over again, whereas as a... I use the phrase build to rent but I'm not doing the full build to rent model with extra services for example, but I am building or converting to retain in my portfolio.
I can afford to take a slightly different view on the project phase profitability knowing full well that I will retain the asset and I'll have an income stream theoretically for life, so therefore I can sort of... Maybe a site is more appealing to me than it is to a traditional developer because if you need to make your 20, 30, 40% profit, whatever it is a developer might look for, I don't need to make that on the actual conversion side. I'd like to but I don't need to. That sort of enabled me to scale my rental portfolio on a kind of a self develop type of basis.
That lead me into my third question. Why do you invest in several countries?
For fun. The serious answer is diversification. I've got investments in four currencies, so euro, pound, dollar, and Brazilian real, so I'm hedging against different economies, currencies, and property markets. It gives me some diversification, so theoretically, if the UK's down, maybe the US is up and maybe they follow each other fairly similar to be fair, but Portugal is more in the euro zone and obviously Brazil is in a different sector, so I think because also we have an international family with an international lifestyle, it's also useful for us to have earnings in different currencies as well. So diversification of risk, diversification of economic factors, diversification of currency, that's the logic behind it, and then obviously I get to travel and visit people and all these places and it's a great opportunity, it's kind of fun too, to be honest with you, so there was a bit of seriousness in me saying "Fun."
That's the logical answer as to why I invested in different countries. I wouldn't necessarily recommend doing that for everyone, by the way.
Why?
Well, it's complex, basically. Obviously, I know for example, you're in one country looking to predominantly invest in another one. So you located in one and investing in another one, and that already brings some complexity for you, you can learn the differences between those two countries. So if you multiply that by four, it's more complex and there's more things to learn. In fact actually, the USA is not really one country, it's 50. I'm not investing in 50 states. So for example, I have investments in three states in the US, it's not quite like investing in three separate countries, but there are differences. Different tax laws for example, different landlord laws in different states in the US, so it's complex. So that's why I wouldn't necessarily recommend it in exactly the same way that I have done it.
I might do a bit of consolidation going forward and I'm certainly more concentrated into primary markets than I was. You learn things as you grow and develop, and I think the start in the US for example, it was more opportunistic for me about five years ago and I had an opportunity to invest in a couple of properties in Florida, and that was what got me in to the States, and then after that, as you can tell, I've done a bit in Florida, done a bit in Chicago, Illinois and also in Ohio, so I might consolidate a little bit in the States and I probably won't grow too much more in Portugal and Brazil either, so I'll concentrate more in the UK predominantly and USA to the second level. So maybe two markets is probably the right number rather than four.
Which one is the most difficult of these countries or counties because you have it different in the US?
I guess they're easier and difficult for different reasons. For me personally, Brazil is the hardest one without a doubt because I don't speak the language very well, so me personally. Whilst I have the help and assistance of my wife and my wife's family in fact, so my brother in law... My brother in law, not my wife's brother in law, he's an accountant for example and has access to legal services, so that makes life easier, but I don't speak fluent Portuguese so language is a barrier. And then the other thing about Brazil for example, my predominant strategy is basically buy something rubbish, do something good to it, and then extract the value to retain it, BRR and whatever, whether it's a single family or whether it's a development type of project. Now in Brazil, there isn't a secondary finance market in the same way that there is in say the UK or the US. So it's really difficult for me to actually do follow my primary investment strategy or investment model in Brazil.
So I think Brazil is probably the hardest for me personally, and mainly because of language issues. Also, it's not as mature from a legal point of view. There are sometimes some title challenges on properties. Then I think I'd say obviously, UK being my home market is the easiest market for me, and there's a lot of good things about the UK whereas the USA is more advanced in many ways. You can do different things in the US that you can't necessarily do in the UK. There's more owner financing for example. They have what's called a "Low note system," so that's really private lenders who will lend money on properties, and there's more of a marketplace for that, it's more accepted.
So it's sort of easier in some respects to do more creative strategies in the US than there is in the UK, but you get other complexities that kick in like three levels of tax, different state laws that you have to get your head around, and then the tax code changes halfway through you deciding to go a certain direction, which can happen anyway by the way, so there's always change and we have to adapt to change. So I would say the UK is the easiest one for me because of the familiarity. The USA is really interesting because of the opportunities that exist in the USA, and then what makes it difficult is the differences, but once you get your head around the differences, then you can navigate okay, but I'd probably step out a little bit more steadily than I did. If I would have my time again, I'd do it more gradually is what I'm saying.
So which country do you think is the best place to invest then of all of these countries that you mentioned? Obviously not Brazil but I'm thinking maybe US or the UK.
It depends on how strong a constitution you've got because I think in the USA, the highs are higher and the lows are lower, so land value. If you extract the major cities like New York, San Francisco, LA, those sorts of cities, and if you go to some of the places I'm invested in, so Chicago is a good example, it's still a fairly large city but it's got a lot of growth potential, and within the city, there's like the north side is the wealthier area, the south side is not so wealthy. So you get these different demographics and you kind of make factors, but land values generally speaking in those sorts of places, they're not the same as they are say in the UK. They're lower, so you can literally have two houses next door to each other on a street in the USA in say Chicago with like let's say 100,000 difference in value. I regularly bought properties for like $20,000 which would've been revalued up at about 150 or 180 or something like that, and literally, the property nextdoor would be worth 180.
Whereas if you go in the UK, you won't find that. You just wouldn't find it because the land value reduces the differential. So I think that there is opportunity in the US, but like I said, you have to have a strong constitution because it can be quite a lot of risk as well. With the crash, it can go deeper than the UK. With a rise, it can go higher. Like I said, the land value is lower, but consequently, the conversion costs are higher in the US than they are in the UK because labor rates tend to be more expensive. Let's say people demand quite a high, they got high standard of living and cost of living and so they demand quite a high wage, so it costs more money to do the refurbishments or the conversions in the States relatively speaking, and therefore, if you kind of don't get the budgeting right, it can swing the numbers quite significantly.
Of those four countries, which country do you think have the most cost of refurbishment? Is that US?
From my experience, yeah, definitely. So let's say the areas I invest in, so it isn't necessarily the whole of the US, I would say land values are lower generally and refurbishment, conversion costs are higher let's say than the UK, and indeed Portugal for that matter. Brazil has got the lowest labor cost, but as I mentioned, it's difficult to extract the value unless you sell. I could do flipping, I could flip in Brazil, but for the reasons I've mentioned probably, I would say to people who are looking at investing in Brazil, either flip or if you're going to invest for the long term, have a good reason to be there for the long term. We have a good reason because of family connections, and we always spend time in Brazil for that reason.
I'm asking this because a lot of Swedish investors usually used to either want to invest in the US or in the UK market, so that's why I'm asking these questions.
I personally prefer the UK because it's more stable I think. It's more predictable therefore. The US can get better returns but can also lead to losses pretty quickly if you're not careful, and also there's a lot of what I call "Trophy investments" type of thing in the US. The nine bed villa in a Disneyland. Sounds great but as an investment, it's not necessarily a good idea. I'm always about return on investment, income returns on investment, and I mean I know that people, and they'll tell you the numbers they want to tell you, I talked to someone recently who bought an art deco building in Florida, in Miami actually, and he was telling how much, he's renting it for $500 a night and blah, blah, blah, but I looked at his calendar and he didn't have that, it wasn't that booked out, so he was telling me what he wanted me to hear, if you follow me.
So this trophy asset stuff, and in the major cities, it's expensive and it's more of a capital growth play, whereas in these sort of Midwestern places in like Chicago, like Ohio, you can get crazy return on investment, but you need to be careful what you're buying. For example, I was offered rather what we call a turnkey investment in Ohio and I had it inspected, kind of like a survey, and the guy who was selling me the unit, he's like "What do you want it inspected for? This is turnkey, we've done all the work." I'm like, "Because I want an independent person to look at this please. That's okay with you." Anyway, I had the inspector go around, and the inspector told me that it was going to fall over basically. The basement foundation was not secure and it would be a significant amount of work to make it so, and there were other issues with the property which...
So they've kind of done a glossy sort of facelift, but behind the scenes, it wasn't that good an investment, and so we just walked away, and guess what? I didn't have any faith in that particular turnkey provider after him doing this to me. So that was supposed to be a fully turnkey, you're ready to go unit, and it would probably be okay for a few years but then suddenly, the skeletons would've crawled out of the woodwork later, so you got to be watch... Sometimes I do say the US is like the wild west still, so you got to be careful. Whilst I am investing in the US, it's my secondary market and I've had to be careful, I've had a few close shaves over the years, and so I prefer the UK personally. I invest in the US for diversification reasons and you get probably double the gross yield on a single family home in the US than you would on the UK, but there's all this other stuff that goes with it.
How did you manage to find your power team in these different countries? I know you got your power team invested from your wife's brother, your brother in law, but in Portugal and in US. UK, I know you're from UK.
Excuse me. I took a drink, it went down the wrong way, sorry about that.
No worries.
In the States, they call it "Boots on the ground," but basically, and I say having your own eyes and ears. You need to have your own, so a bit like with that turnkey guy, it's a good example. I was introduced, I was referred to this turnkey provider in the US by someone in my network. Everyone's got a vested interest, right? The guy who referred me would get paid if I did a deal with this turnkey provider, and the turnkey provider clearly was getting profit if he sold me the deal, and it goes what I learned later is could I really trust the referral because he was getting paid? The answer was no, actually. So just be careful who... You go through referrals, you try and get referred to what you think a good quality, reliable, respectable people to deal with, but always ask the question what's in it for them and literally ask them, "What's in it for you?" And if they've got some sort of monetary gain, then it's difficult to trust. The other phrase is "Trust but verify." You can trust someone to give you a referral, but verify.
There's things in the US called, so for example, there's a rating system called Better Business Bureau. So you can look up, it's a bit like Trustpilot and things like that for businesses. So you can look up a business's reputation on Better Business Bureau and you just get people saying whatever they want to say about that business, so that's quite a good resource to sort of double check. Maybe the referral routes, they're called the property managers, letting agents, they're called property managers in the US. So if you go, you could see, I used a different terminology, but the concepts are the same. So a property manager or a letting agent can refer you to contractors who'll do refurbishments for example, so that's quite a good place to go, but always trust but verify. Do the extra reference checks.
I had somebody once, just to drift off, who was also introduced to me as someone who could provide financing to me as an overseas investor, and there are ways to get financing as overseas investors but I was introduced to this person. Let's just call him "Dodgy Daryl." I looked up, there's a resource over in the states, so there's a lot of more transparency in the States. So you can look at values, you can look at in the UK too, but this evaluations, you can look up online, and there's also a service called White Pages, and White Pages basically you can look up someone and see if they got any criminal records, see if they've got any outstanding judgements and things like that.
So Dodgy Daryl looked a bit dodgy basically, so when looked him up on White Pages, I just felt it was a very elaborate phishing scheme. He was going to lend me hundreds of thousands, but in order to lend me this money, I had to pay him like 30,000 or something, I was like "why am I giving you money so you can give me money?" I was like, "No, no, no, I'm never going to see that again, am I?" But he produced professional damage insurance and some references and stuff and I just... When you just get that feeling in your stomach, I was like "No, no, no, it's not right," so I just gave that one a bit of a swerve. So there's some resources you can get out there when you look in at the States. In the UK, it's not quite as advanced in that respect, but you can do the checks around the social networks and the forums and these sort of online referencing, so building this team.
So what I would say is try and go on a referral but be careful about referral. Trust but verify, so validate then, and I think the other thing to say is this really, and it applies anywhere. So forget US or UK, Brazil, Portugal, whatever, it applies anywhere. You're going to end up kissing a few frogs so to speak. I work on a general rule that if I go into a new area, that could be a new city in the UK or a new country, if I go into a new area, I'm pretty well expecting that one in three people, I would work with again on the next project. So notice, two out of three I probably wouldn't, and then of course if you retain that one, then you've got a similar sequence, so it probably takes you two or three projects before you really build your "Trustworthy power team" as you call it, so I think it takes some time.
You might get lucky, you might just be able to plug in to an existing network or team or something, and maybe partnering with somebody who's already there is a good way of doing that potentially, but I think if you go in on your own and try to build your power team from scratch, just be a bit careful I'd say.
That leads me into a fall in question. How do you manage all of your projects from abroad? Living the dream.
I told I was 54, I'm actually 24. I feel like I've aged quite a bit in the last few years. So we got two types of management, we've got projects and properties. Obviously, so just to differentiate, in the project phase, that's when you're doing something to the property, a refurbishment, a conversion or building it, and then on the management phase, that's really once it's tenanted and you're renting it out. So long story short, I rely on other people, and that's it. I have good people around me or trying to get people around me who look after those various elements. I have a project manager. Now, it doesn't always follow that I have a project manager in every country I work in. Sometimes, you can ask a letting agent or their equivalent to be a project manager. So if it's a small refurbishment, they could go and check on it, they could look on the quality of work of a trained person and sort of play that role, and then you could have a main contractor who also doubles up as the project manager.
You could follow that route with the projects too or you could have your own independent project manager or even a site manager depending on how big the job is. That's on the project side, and on the property side, if it's a foreign market to me, I use letting agents or property managers pretty much exclusively in overseas countries. But here's the caveat. Have your own eyes and ears. So even if you're appointing a property manager or let's say a letting agent or equivalent to look at things, get somebody independent to check in on things occasionally. It doesn't matter, all the will in the world that those people, you think they're going to be okay to work with, but just get your own independent eyes and ears, and in the States, you can have like what they call property inspectors who will go in and do that sort of role. You can employ people who just go and check in on things for you, do your own sort of mini inspections in between things. It's the trust, verify thing again to be honest.
Do you extract money from different companies?
At the moment, no is the answer. I reinvest everything pretty much, so I'm on a quest at the moment to grow my portfolio, grow my asset base. I've got a big vision which is to develop a foundation actually which will outlive me, so everything kind of gets from back into the pot. I do have alternative income streams. I have like mentoring, consultancy sort of revenue stream. Unfortunate, my wife is still working, so that provides a bit of income stability in that sense, so we don't need to dip in to the money from the property side, so I kind of save it. I'm also doing this to some extent but my wife's predominantly income for today and I'm predominantly well for tomorrow. That's kind of how we do things. My wife's on her last assignment now. I don't think she's going to work beyond this role.
She probably got two or three years and then we'll go into our semi retirement mode, and our semi retirement mode is living between three countries, so that's how we'll operate, and they'll probably start to draw down income from the portfolio at that point in time, so we're kind of building things up and reinvesting everything, going the snowball, and then I do have alternative income streams as I mentioned, as does, well, the family has alternative income streams, and then we'll start cashing out chips in a little bit, maybe in two or three years time. That's our plan.
I was thinking about asking you what strategy do you prefer each country, but you mentioned before that you want to retain everything, so I'm going to leave that one out or should I still ask it?
At the moment, I don't do like the conversion development project, large development projects anywhere but the UK. So I guess I prefer to do larger conversions and developments in the UK. I think in the other countries, it's a mixture of smaller units, just say that, and some of it's service departments or service accommodation, so that can be a difference. I think in the US though, I'm looking at what they call duplex and triplex units. I don't know if you know what they are, but essentially-
Yeah, I know. Maybe not the listeners, so maybe you can explain it for them, what it is.
Yeah, sure. So essentially, you got a single family home where obviously, as its name implies, you just have one family that lives in the property, but some units I've built that they could be split into say two flats or three flats, so it'd be like a title split perhaps in the UK or sort of a... Not really a miniature model because each unit's a separate unit. So a duplex would be two units in one and a triplex would be three units in one, and they're pretty good from a yield and therefore, return on investment point of view. I like those in the States, and then Brazil, in Rio, normally, we're not in normality, but normally, in Rio, it's got fairly consistent all year tourism industry, so that lends itself quite well to serviced accommodation or holiday lets, and same with... We only actually have now, I have one property in Portugal and that's in The Algarve, so that's also a holiday let.
So you kind of mix the strategies a little bit, depending on those locations. So predominantly, conversions and developments in the UK, predominantly long term buy and hold duplex and triplex in the US, and more like serviced accommodation or holiday lets in Brazil and Portugal.
Do you have a parent company for the whole portfolio?
Currently no, but it's interesting because I'm really in the process of looking at that right now, so I'm in talks. We got to be careful how we structure it because we've got different elements to our business. We've got overseas entities, we've got different types of property company, so we've got property investment companies, development companies, trading companies, and rental companies effectively. Property investment, the first one, and rent are the same thing, but serviced accommodation's different to normal buy to let type of rentals, so there's quite a lot of complexity, and really, in all honesty, we're now being putting it off. I just need to kind of suck it up and go and deal with that and I'll probably end up putting a holding company in place, but I just need to think about it.
For me developments, I tend to use SPVs, and at the moment, I'm tending to own those SPVs and sometimes, I own them jointly with an investment partner for example, so that doesn't lend itself to sitting within a group structure for me if I'm investing in an SPV with a third party for example, so I'll probably still have SPVs around the edges as well.
What would be the benefits if you will do it like you mentioned of doing it as a holding company?
I think you can move properties around more easily between entities here if it's a holding company. There are tax benefits that you can potentially play, you can offset obviously on a group structure basis. It can simplify your operations that you're operating, so there's a number of benefits, but I think really, the main benefit is consolidating everything into a single point of ownership, and that allows you-
Do you know how lending would be in the different countries if you were having that or you haven't checked that yet?
I haven't checked it apart from the UK. So in the UK, typically, lenders, they'll go... It's like onions, peeling an onion with a lender. What is the entity that needs the money and how solid is that entity, how solid is the business case, the investment proposition, and if they're happy with that, so there's enough equity, there's a strong asset base, there's a track record for example of an entity, then maybe they'll just lend to the entity and take security over the asset in question, and that's that. However, if they see a strong intergroup connection and funds are really not in the entity but they're in the group or an intermediary in the group, they'll maybe try and take an intercompany loan or a parent company... Sorry, like a guarantee, I didn't mean loan, that may take an intercompany guarantee or a parental company guarantee or they'll try and take security across assets across the group.
That's actually partly one of the reasons why I've resisted going for the group structure in honesty because I'll probably end up getting cross company guarantees, parent company guarantees for example, and it's not so much they're unversed to giving them, it's just that you could get this complicated structure that you might have given let's say a debenture to a bank which then precludes you using that same security for another entity, so I would be cautious about piling in to the whole group structure, and that's part of the reason why I've resisted, because the banks, they'll look for this type of security, and guess what? I actually sort of bank...
I went on a presentation day with a bank once. It was a development and finance lender, and they said, "Hey, listen, we'll ask for stuff. We don't always expect to get it." That tells you, "We'll ask for a director's guarantee, we'll ask for shareholder guarantee, we'll ask for a cross company guarantee, we'll ask for a parental guarantee, we'll ask for debentures, we'll ask for whatever, blah, blah, blah," but sometimes you can just push back, especially if like I say, the deal and the entity stacks up, so why do they need all this other security? It doesn't mean you'll always succeed in pushing back, it just means that sometimes they will ask for this much but they're not necessarily expecting to get everything, and maybe they'll get a little bit less.
I think lending is an interesting point. I can't really speak for too much about the other countries. I think the US, I'm just doing some refinancing as I've had to give a personal guarantee, but I didn't have to give up... There is actually a parent arrangement pair. So I've got a US company which is owned by a UK company which I in turn own, and so the lender has asked for my personal guarantee but they didn't ask for the parent company guarantee. To be fair, I think they've only asked for the personal guarantee because I'm an overseas investor. Because if they needed to come after me or generally, it's more difficult. Where do they find me? So they've asked for my personal guarantee because it's probably easier to find me than it is the company. I think that's the reason why they've asked for that.
Which country is the hardest to get lending? Do you have lending on the other properties in Portugal and in Brazil or you just-
Yeah. Actually, not in Brazil. We don't have any lending in Brazil, and that's because it's probably the hardest country to get lending for me personally. Now for my wife, it's easier, she's a national, so it's actually easier for her. Actually, the more general answer to your question is if you are not a national and not resident of the country that you're investing in, then it's challenging. It's just challenging. Then the secondary point is if you look at say the UK and the US which are the easiest markets I'm operating in from a lending point of view, they will look at the asset, return from the asset, the income from the asset, if that follows, so like buy to let mortgages in the UK, they will go "Okay, as long as there's enough coverage between the rent and the mortgage," the 125% rule, 140% rule, I can explain what I mean if you need it, but basically, that the rent covers the mortgage by at least 125 or 140% depending on your tax status. That's what that means.
You can get a loan on a buy to let if you meet that criteria, whereas in say Portugal, it's down on income affordability which basically means how much... It's like a residential mortgage application, like can you afford to service this date on this asset? So it makes it difficult to scale in say Portugal, and the US I found it's a little bit similar to the UK. They look at it both ways. They could look at affordability or they can look at the income returns on the asset.
So it's the same in Sweden. They look at the income that you're generating from your job, the personal income and not the income you get from your rental.
That seems to be quite common across euro zone generally. Germany is the same, France is the same, Portugal is the same, Spain's the same. Obviously, you're telling me about Sweden, which I didn't know.
Now you know.
I do, and so one of the issues, because for example with me, I'm building this snowball and I don't have an income deliberately because I'm leaving it all invested. So if I have to go to a bank and go... I could show an income, quite a significant income, but I choose not to because I'm reinvesting everything in the business, so I don't have a large income. Actually, what we do in our case, because my wife has the provable income, she gets the lending in the countries where you're going affordability, and I get them where... That's another reason why I'm investing in the UK and the USA because it's not so relevant, that by income.
So how do you stay tax efficient?
This might surprise you, my answer. I don't sweat too much about tax is the honest answer. Now, don't get me wrong. I don't just ignore it completely. It's just that I work on a general principle that if I'm making money and need to pay tax, I'm doing okay. But yes, there are things that you can do to make yourself more tax efficient. So just to give you one small example, because obviously it differs between countries, the tax rules, so if I could just focus on the UK for a second. Two big tax breaks that you could get. One is if a property used to be your own home. You can only have one own home at one time, so this is kind of limited, but if you can imagine, you had your own home, and it used to be more attractive, they changed the rules. It used to be that they had something called "Lettings relief" but that's gone now, so forget that, but if you had your own home, if you buy your own home and you make money on your home and you sell that home, then any capital gain is tax free.
The period of ownership is still tax free if you convert it into a rental property, and you still get a residual period of time and you get a capital gains tax allowance, so actually, owning your own home, converting it to rental for maybe two to five years and then selling it is quite a tax efficient way to extract a gain from that property, and then of course in my case, I'll be reinvesting that money, I'm not spending it, so that's one. You can't do that a lot because it's your own home, and another one is on buy to lets. If you obviously keep a buy to let, if you sell a buy to let property, it's not subject to income tax, it's subject to capital gains tax on any gain. So I'm always looking at the values of property in my portfolio over time, and I'm also looking at the relative return on investment. I'm getting return on income, return on equity. I'm always looking at them, and I often select a property to dispose of, if I own it personally this is. That's what I'm talking about here in anyone.
Past couple of years, I've kind of sold one property a year that I owned in my personal name and I've not paid any capital gains tax often or a low amount of capital gains tax. I reinvest those profits in my portfolio so I could... Whereas if I left it, there will be a point in time where if I were even to sell it or become part of my estate, it'd be subject to quite a high level of taxation at that point, so I'm looking to recycle. There are costs associated with selling a property. Transaction costs for example, state agent fees, et cetera, so you need to kind of do some. I do that kind of exercise. I don't do anything fancy like trusts or that kind of thing particularly.
One quick mention about taxation which might not work for overseas investors but it might work for a lot of people I engage with is the use of a SSAS pension. That's also quite tax efficient, and so if you have a SSAS pension, a link to your property business, you can get some tax breaks. Let's just say that. You can get some tax breaks there and also you could be your own bank to some extent for the pension. Lots we could talk about but I don't sweat it too much with taxation.
I totally agree with you with that, that if you pay a lot of taxes, that means that you're doing quite well, so I agree with you. How do you transfer the money? Is it Forex trading or is it internet bank or is it TransferWise, Revolut, et cetera?
I use TransferWise and Revolut quite a bit, especially with the US. TransferWise, they've got a borderless account system now so you can setup a US dollar account, a euro account for example and a GB, pounds account, pound sterling account borderlessly with TransferWise, so that's my go to source. The thing is this though. There are different banking systems as I discovered. So with the US for example, they have like at least two different banking systems, and TransferWise only use one of them. So for example, there's the concept of an eCheck, electronic check in the States. TransferWise don't support that, so you can't pay or receive eChecks with TransferWise. You can't send a wire transfer with TransferWise but you can send what they call ACH.
First time you get into these things, you'll probably make a mistake and you realize "Oh, I can't do that," but then you've got international wire transfers which are typically quite expensive, but if you got a small purchase, it's probably not worth sweating too much about exchange rates. TransferWise and Revolut probably take care of most things for you, but if you've got like a large payment, like a refurb cost or a purchase or a mortgage transfer or a settlement figure or something like that, it's probably worth going to some sort of currency broker and getting a price on that, because going to the mainstream banks, you'll pay an awful lot in fees and lose a lot on the conversion as well.
Which country did you suffer most or was most painful during this pandemic or we're still in it?
It's kind of weird because I suffered in all of them in a way. Brazil, not so much because of the way our investments are structured there, but the US had more arrears on the sort of rentals. In the UK, because I've got more development activity, I've suffered more with the development projects which just couldn't get on site for example, so I suffered in a different way, and then I think in Portugal which is a holiday let, it just closed for business effectively, and the same with, funny enough, the... The serviced apartments in the UK, they emptied for about two or three months and then they've picked up again. Portugal, I kind of missed the season, so that's a bit rubbish. So I kind of suffered in different ways in different countries, but thanks for reminding me.
Sorry about that.
That's okay.
What tips can you give someone who would like to do the same as you?
With the international investing and developing and things like that?
Yeah.
By the way, just to go back to that point, one tip there is to expect challenges and changes and to make provision for that and also to deal with things quickly, so I would say that as far as what happened with the pandemic and the lockdown. There's always going to be something that will come around every ten years on average which is big. Global financial crisis, now the pandemic, dot com bubbles and recession, stuff like that, it's just always going to happen, so expect that and then make certain provisions, and I talk about making your property bulletproof. I probably got a resource on that if people want that, but in terms of getting yourself set up and to be more of an international developer or investor, well there's a difference by the way between an international investor and developer. So maybe start as an investor, and I probably either tie up with someone who's on the ground locally to where you want to invest and leverage their network and their contacts and their knowhow as much as you possibly can.
I'd also adopt this sort of trust but verify approach. It's great to have that person but just have your own eyes and ears that could be literally your own eyes and ears. Go meet them, see what they do sort of thing, or it could be, if that's not easy or convenient for you to do, maybe you could send someone periodically to check on things, particularly if there's like a development project. I'd probably scale more gradually than I did in so far as overseas expansion, and I definitely get good advice around you, so have the right sort of accounting, tax, legal advice around you, and don't forget the cross border issues. There are international tax treaties for example that you kind of need to be aware of, is the one, isn't the one? Could you be taxed twice? You could be taxed twice. Sorry, you could be taxed once but you'll end up paying the highest tax rate if there's a treaty, and if there isn't a treaty, you could be taxed twice, so have good professional advice around you. Have your own eyes and ears.
Go steadily as you go. Suck it and see sort of thing, just see how it goes with a small project and then maybe move to a different one, but I'd hook up a network with people on the ground as well rather than just try and wing it from your laptop from afar. They're the main tips.
Good tips. I hope the listeners have taken notes about that. Now, we've come to the fun part. I want to know your best movie, your best TV series, and best books.
Spoiler, you did tell me you were going to ask me these questions. By the way, thank you that you did because I hadn't thought about it, and so I guess with films, I've got a lot of... We were just chatting about this the other day funny enough in the house, and I tend to like the sort of suspense thriller type of film, but I try to think about what I might like generally, just two answers to your question basically. So The Matrix. I talked about The Matrix, didn't I? The reason I like The Matrix so much is it is this sort of parallel universe, it's' like trying to escape the rat race, trying to escape corporate land. I applied that analogy to where I was and what I did, so I'm Neo escaping it. It's dated now but I really love the concept of it. On a sort of more business related film, I like The Big Short. I don't know if you've seen that one.
Me too. Yeah, I love it.
People could see the crisis coming but no one will believe them, and I like things which are contrarian, generally speaking. That's the reason why I like that one. So TV, right? I think I have to look at my notes. There's an American guy called Marcus Lemonis. I don't know if you've heard of him.
No.
He's a business investor and he goes in and kind of buys small businesses and turns them around, and he's got a TV program called The Profit, with an F. He's not like a prophet prophesying what's going to happen, and I really love that program because, well I love turnarounds by the way. I love the whole idea of a turnaround, and he just goes in and he does deal on a handshake, a lot on trust and he's got some really good ideas of how to simplify and expand a business and he's got called "Trust the process" or as he calls it, "Trust the process," and I love that concept, so that's a good one. Not sure what channel you can get it on. We have a number of different cable networks so it's on-
Maybe on YouTube I can find it otherwise.
Maybe. And then I love any property reality TV. I don't know about you, Nana, but if we travel, and I'm going to tell you this now, if we travel, it's actually my wife who will go on the TV and look for something like Sarah Beeny or something like that, and there's The Property Brothers which is a US one, these different property... We watched one the other day. Funny enough, we're watching Sarah Beeny at the moment with How to Live Mortgage Free, so we always make a beeline. It's very unromantic I know, but we like this sort of property reality TV for a little bit of chill, we don't take it too seriously. In terms of books, I'm a massive book reader, I think you know.
Yeah, I know.
So it's really difficult for me to pick one or even two, but I think-
I'll get three.
You want three out of them. Let's see if have any out on my list. Two similar ones. They're picking up my line about contrarian thinking. There's a book called What I Learned Losing A Million Dollars, because people write about success but not many people write about what you can learn from failure, and that's the reason why I like that book because if you ask anyone about "Well what's your secret to success?" They'll say this or say that, then you ask the next person, they'll say the other and the other, then you go "Well, which one is it?" Because actually, there's a lot of different things that contribute to a success, but this book talks about, there's only three main things that contribute to failure, especially as an investor. That's a really good book I recommend to people because you can learn a lot from failure.
I'm going to read that book. I'm writing it down now.
Do you remember what I said about everything goes in cycles and there will always be something big that happens and then everyone's always taken by surprise? Guess what, it always happens. There isn't really a surprise. The only surprise is what is the thing. So the book The Black Swan, have you come across that one?
No. Is it the same as this Never Split The Difference, is this the same author or no?
No. Different author to Never Split The Difference. That's a good book by the way. It's Taleb. I forgot his first name.
Because he calls his group The Black Swan, that's why I think that parallel.
I understand. Chris Voss wrote Never Split The Difference, and he has got a consultancy called The Black Swan, and he has taken the concept of the black wwan which is basically a rare occurring event that nobody could see it coming but actually they happen more frequently than you imagine. I love that one for that reason, and then I guess if I'm going to pressed into a third one, everybody talks about Rich Dad Poor Dad, right? So I'm not, because everybody else does.
I love it.
Rich Dad Poor Dad obviously, everyone should read that one. Ironically, I suppose I love Unscripted. There we go. Have you read The Millionaire Fastlane by MJ DeMarco?
I have it on my list. I have so many on my list.
He became famous, MJ DeMarco, for writing The Millionaire Fastlane, which is a good book by the way, but I really like the second one which is called Unscripted, and guess what? Unscripted is a bit like The Matrix, so kind of ties in. It's the idea of escaping this sort of treadmill rat race world, and maybe if you're doing it through business actually. He talks about business but he also talks about investing. He talks about real estate as well, so I quite like it. It's quite a long book and you probably need to have read Millionaire Fastlane before you read Unscripted, and having said that, you can probably the first third of Unscripted if you've read Millionaire Fastlane, so there you go. There's three. One bonus one. Particularly if you've not got a good grounding in personal finance which I didn't when I started, but I love The Richest Man In Babylon.
Yeah, that's a good book.
Easy to read since it's a parable.
And very short as well.
Exactly. So you now chop another book on your target quite quickly. So I'm reading for you for a month.
Yeah, that was good choices. But there you have it, listeners. Richard Brown. If people would like to reach out to you, how can they reach out to you? I know you have a podcast. That's how I found you from the beginning, but yeah, how can they reach out?
Let's keep it all together, and so email me, podcast@thepropertyvoice.net, which obviously has got the website address in that as well, so go thepropertyvoice.net. We've got a page which tells you about the podcast. It's also on iTunes, Stitcher, and Spotify, blah, blah, blah. The Property Voice is how I'm probably most known I suppose. I've written a couple of books. You could find some of those books on Amazon, and then I write for YPN Magazine, so if some of this, you kind of said "Oh, that's interesting," I talked about bulletproofing your portfolio, I've written the odd article in investing in the USA for example, there's a lot of bits and pieces of resources.
You can get all my back catalog for YPN Magazine if you just subscribe, so just send an email, podcast@thepropertyvoice.net, and I'll try my best to help you out and direct you or probably get my assistance out, probably more likely. That's I think the best ways of getting hold of me.
Okay. There you have it listeners. Thank you for listening to this great guy and for me asking all of the questions.
Thanks for getting me on the show, I really appreciate it. I hope your audience in Sweden get some benefit out of it, but I was going to digress... Let me not digress because I'll just digress forever, but I remember a really good occasion I had in Stockholm, a summer party in Stockholm, but let's not go there. I've got a good memory of Sweden for sure as a result of that, so hello to all the people in Sweden, and we tend to get on well, the Brits and the Swedes, and I'm sure all the nationalities are also included and welcome.
There you have it, people. Don't be stressed, invest. Bye.
There we go. I hope everyone else found that as interesting as I did. I really love the idea of investing in multiple countries, but as Richard said, I can imagine there is a large learning curve, but nevertheless, it was a great insight into what it's like to have a portfolio that spreads multiple countries and hearing about both the business and management hurdles, about how Richard has found solutions to those as well. Now, I know it's been a few weeks since Richard has been back on the podcast, directly that is, but I've been assured... Well actually he said "Hopefully," but a bit of accountability, that the podcast will begin again next week. So that's definitely something to look forward to.
That having been said, I hope you enjoyed the interview. It's been a pleasure to be back. The link to the Pengaflode Podcast is in the show notes. They have more English guests so it's quite mixed and some really interesting interviews, so worth checking out as well. As always, the show notes will be a thepropertyvoice.net. You can always contact Richard directly via email at richard@thepropertyvoice.net or myself by emailing martin@thepropertyvoice.net. Have a great day, afternoon, evening, whatever time it is where you are right now, and we look forward to seeing you here again next week. Goodbye.
Thank you for listening today. Now, head over to thepropertyvoice.net for more inspirational content and get updates through our mailing list. Join us next time on The Property Voice podcast, and if you enjoyed the show, please don't forget to rate us on iTunes.
That's all from me this week, remember if you want to talk about anything from today’s show, or just talk property investing more generally, email me at podcast@thepropertyvoice.net, I would be happy to hear from you! The show notes can be found at our website www.thepropertyvoice.net
Thanks very much for listening again this week, so all that left to say is ciao ciao!