Just lately, I have spoken at length to several of the TPV Apprentices about some of my personal property investment philosophy. This can best be summarised as aiming to seek out clear and tangible ways that we can control how we profit through property. I describe these as the 3Fs of Property ProFFFit.
If you want to find out what they are, along with another bonus way to influence if not control our property investing profit, then grab some headphones, get comfortable and tune in.
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Transcription of the show
Just lately, I have spoken at length to several of the TPV Apprentices about some of my personal property investment philosophy. This can best be summarised as aiming to seek out clear and tangible ways that we can control how we profit through property. I describe these as the 3Fs of Property ProFFFit.
If you want to find out what they are, along with another bonus way to influence if not control our property investing profit, then grab some headphones, get comfortable and tune in.
Property Chatter
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.
Richard Brown:
Well, this week I wanted to focus on a topic that's been just banging around, hanging around, just very, very prominent for a number of reasons, and that's what I call the three Fs of property profit, if you like. I'm going to share some of my own property philosophy, which I'm summarizing as the three Fs. There's three Fs that I'm going to walk you through, and there's one bonus one if I remember to include it at the end.
Richard Brown:
But, let's just tell you what the three Fs are right now, and this is really all about profiting through property, it's about generating profit, or a revenue stream, through property investing primarily, but including development. So, the three Fs, the first one ... In fact, they're all forcing something, in my mind. That's my philosophy, to force something to happen in this context.
Richard Brown:
The first one is to force the discount. And if just say that the average discount achieved from a property listing price on one of the portals, for example, or with estate agents, is 3.9% across the UK, according to Zoopla, so just under 4% in other words. So I you can beat the 4% discount from the listing price, then you're forcing the discount over and above the average.
Richard Brown:
The second F is to force the appreciation. And according to the ONS, the Office of National Statistics, I couldn't remember what it was for a second, the average house price growth has gone up 3.4% in the year to June, which is the last time figures were available at the time I recorded this. So 3.4%, so if we can force the appreciation, I add value to a property, to get over and beyond a 3.4% increase in a 12 month period, then we are beating the average to force the appreciation. Notice I'm saying forcing the appreciation there? I'll come back to other types of appreciation later.
Richard Brown:
And the third F is to force the yield. Housie did a report, or commissioned a report recently, that talked about the average yield across the UK being 3.6%. Actually, that was quite surprising to me, it's gone down, really, over recent years, let's say. That's obviously a pure average across the country, so there will be some parts of the country where it's lower and some where it's higher than that. But of course, it stands to reason if you can achieve a higher yield than this average, then you're forcing the yield.
Richard Brown:
This is actually, just to elaborate, it's a topic I'm sharing for YPN Magazine in the next issue. In that magazine, I actually go into a lot more detail, so I'm just going to give you some headlines today. But, if you look out for the magazine, if you're a subscriber, I give some examples about the impact of just going a little bit beyond the average in each of those areas. We've got just under 4% for discount, 3.4% for average house price growth in a year, and 3.6% as an average yield. So if we just do a little bit better, and I talk about its pieces of a pie, effectively, so imagine those three pieces of pie, discount, appreciation, and yield, and if we can just expand each piece a little bit we actually get a bigger pie, basically. What I tend to look for is at least one, if not two or three, of those three Fs in any property deal that I do.
Richard Brown:
I can't resist it, I'm going to have to tell you now what the bonus one is. That, really, is one I don't necessarily believe ... Well, I believe in it, I believe in it, because the facts are there, but it's not one I rely upon. The reason I don't rely upon it is I can't force it. So the three Fs are things I can force, in other words they're within my control. The fourth one, the bonus one, is natural capital appreciation. If you look at longterm house price growth, they tend to go up, on average.
Richard Brown:
Now, they don't always go up, sometimes they go down. Of course, during the financial crisis, about a decade ago, they went down. During the Brexit irrational period, et cetera, and during COVID-19, they perhaps went down. Or, they softened at least. So there's no guarantees, in other words, and therefore I can't force it, I can't make it happen, I can't control it. But, there's no doubt about it, if you hang onto an asset, a property asset for long enough, you're probably going to get some capital appreciation. It's just that you can't really bank on it, you can't really work your numbers around it, and yet it is there. If you look back you'll see some natural capital appreciation, which is always good of course.
Richard Brown:
So let's just talk about some examples for some of the headlines, if you like, just to give you a flavor of how to do these things. For the first one, of course, is forcing the discount. The first thing to say with forcing the discount is, basically, if you don't ask, you don't get. So ask, ask for a discount, always ask for a discount. I must admit, I was a bit taken aback by someone asking me for a discount the other day, but then I thought about it. I thought, "Well, I'm saying ask for a discount, so why don't they ask for a discount?" But within reason, and also recognize when you've got something of value, perhaps, when you're buying. But, ask for a discount. And of course 3.9%, if you ask for a bit more discount than that, then you're beating the average.
Richard Brown:
The second point here is what I call filtering. Here, what I'm talking about is filtering out the easier targets. Imagine you've got a sieve and you're filter ... The second one is if you're effectively filtering. So here, what I'm talking about is perhaps on the property portals, to filter out some of the easier targets. Imagine you've got a sieve, and you're just sifting through the opportunities and you're letting all the small pieces drop through the sieve and all those larger nuggets are just sat there, waiting for you to go after. So that's filtering, for the easier targets.
Richard Brown:
Some examples could be properties that have been stuck on the market for a period of time. There could be a property that's maybe just got one photograph, or not many photographs, or only external photographs. Maybe it's got a fixable problem that's been identified in the listing, or you get to hear about it. Or maybe, there's been some price drops, either big price drops or frequent price drops. Or indeed, collapsed sales because probably around one in three of all properties that are agreed to sale don't actually sell, so they're the filtering targets. It doesn't mean you'll get a discount just because of those filters, but there might be more of an opportunity, let's say, to seek a discount in that situation because perhaps the motivation of the seller has changed, as a result.
Richard Brown:
And then, the third area under the forcing the discount category is circumstances. That's really where the seller is motivated, perhaps because of one of the three Ds, of death, debt, or divorce. But of course, I'm not talking about ambulance chasing here, it just might be a clue to their circumstances. Maybe they need to move quickly, for example, need the money fast. That might just lead naturally to them accepting a discount. But, act with great ethics, of course, in this particular area and try and achieve a win-win outcome is what I suggest. So they're the three top tips, if you like, with forcing the discount.
Richard Brown:
Next, we have forcing the appreciation. Here, we're talking about a few different ... Forcing the appreciation, really, is to try and grow the value of the property over and above what it would do under normal circumstances if you did nothing to it. So you might get natural capital appreciation, if house prices are going up, subject to what I said about speculation around capital growth, capital appreciation. But, forcing the appreciation is where we really are doing something ourselves to make that happen.
Richard Brown:
The first one I wanted to talk about is develop. Now, develop perhaps with a small D, or even a big D. You don't have to be a developer to develop property, but you can add improvement works. You could refurbish a property, you could extend, you could convert, or indeed, obviously, new build. Develop is one way in which we can force the appreciation.
Richard Brown:
Another way is through planning, planning uplifts so we can add value to a property by changing its use. Remodeling and offering additional space, or more units, through the planning process or permitted development rights.
Richard Brown:
The third category I just wanted to mention here, under the category of forcing the appreciation, was paperwork. Now, that probably doesn't always occur to people, but we can sometimes add value just by pushing paper around. So think of a lease extension, or gaining a share of a freehold, for example. Perhaps we could fix a title issue, we could gain retrospective planning approvals and certificates, we could put insurances in place where there's gaps in certificates or title issues as well. So we give protection, and therefore we add value, therefore we force the appreciation. So there's three, develop, planning, paperwork.
Richard Brown:
The third category, of course, is forcing the yield. I say of course, it might not occur to you. Well, I mentioned it already, haven't I? So forcing the yield, and that's obviously trying to get a higher yield on our property than other averages in the area. And in fact, area is the first one to think about here. So target areas with higher average yields, to begin with. Obviously, if we've got the average yield in the UK as something like 3.6%, then it makes sense to target an area that perhaps has got a higher yield than that.
Richard Brown:
I do always talk about what I call the Goldilocks principle, here, of finding an area that's just right. So the yield is not too high, and not too low. We don't want it too low that we don't really generate the income that we need off a property, and we don't necessarily look for it to be too high, either. In particular with too high, we could be trading off some capital growth potential there, and if it's too low, we could be relying too much on capital growth potential there. That's why I talk about the Goldilocks principle of targeting an area which is just right, so above average yield and has got capital growth potential as well, even though I don't really on it.
Richard Brown:
The second one is through a yield strategy, and we could look at high yielding strategies. Of course, that could include multi-lets or HMOs service accommodation. And if you're really brave and you want to get your head around it, certain benefit types of tenants as well, could give rise to high yields, too. That's the second one, the strategy that we adopt.
Richard Brown:
The third one, that people possibly don't think about too much, is some kind of premium with the property. What I mean by that, well some examples can include providing property which is fully furnished. Usually providing a property that's fully furnished will command a premium. You know, we could, on occasions, offer additional services, this is possibly relevant in HMOs or co-living spaces, so laundry, cleaning, cooking, and those sorts of services could be added as extras and add value to the yield that way. And then, there's some maybe not so well thought of, so clever design and premium looking features and finishes can also add to the image of the property, and can command a premium rental.
Richard Brown:
There we go, there's a few tips under forcing the yield. We've got area, we've got strategy, and we've got premium, of course.
Richard Brown:
To summarize, we've got the three Fs. We've got forcing the discount, forcing the appreciation, and forcing the yield. Don't forget, of course, we've got the bonus one of capital growth. Now, it was funny, actually, because one of the reasons I decided to share this particular share today was I saw a post on Property Tribes, and someone there had talked about the four ways to generate an income through property. Not surprisingly, mentioned the four that I've talked about now, perhaps in using different language.
Richard Brown:
But, the one that really struck me was the idea that, on occasion, having a property empty could actually still leave three ways to profit through property, even if a property is empty and therefore not generating a rental income. It goes against the grain we me, completely, because of course if you can rent it out, you can generate a profit that'll get an income return on your investment. But, then I started to think about. I thought, well, if you force the discount above average going in, you force the appreciation by undertaking a value adding project on the property, and then it happens to be in a naturally rising marketplace so you get natural capital appreciation, as speculative as that is, as I've been saying, then you've still got three pieces of that four piece pie. I've expanded it now, to four pieces.
Richard Brown:
You've still got three pieces of that expanded pie to think about. So, I'm not suggesting that we just buy properties and leave them empty because we'll have extra council tax, and it's probably not a very good idea to have empty properties lying around in terms of the housing crisis that we've got in the UK, but it was just a thought. That perhaps, if times are difficult, it's not necessarily the end of the world, depending on how we structured ourselves. I thought that was an interesting one. Perhaps, it's not the end of the world to have an empty property.
Richard Brown:
I had one myself, actually, at the beginning of the year. It became empty and February, and low and behold, the lockdown came shortly after that, it was empty. There's nothing I could really do about it, actually. I decided to sell it, in the end. I couldn't really sell it either, actually, during the lockdown period. But, as it happened, when the market opened up in more or less June, I did actually sell it shortly after that. And in fact, I was able to bag quite an increase in the capital growth as well. So it just proves a point, really, doesn't it?
Richard Brown:
There we go, hopefully that's helpful, what I call the three Fs of profiting through property. That's really my philosophy summed up, really. Whenever I talk to people ... One of the reasons it's been so prominent at the moment is I've got two separate apprentices groups going on. I've got the I call it the grownups apprentices, and then the young apprentices, so there's 10 people I'm talking to regularly, at the moment, in their one-to-ones and the group calls. I keep going back to the three Fs, so it's very much top of mind. I'll just put it out there, it's very easy to remember, of course, when you summarize it in a way like this, with the three Fs. Hopefully, that's helpful. You probably knew most of that already, maybe you didn't know all of the nuances. If you want to know a little bit more, and some of the examples, and perhaps how that pie could be carved up, then maybe look out for the YPN article.
Richard Brown:
Just a quick note on that, by the way. If you subscribe to YPN, which is obviously at a subscription cost, then you'll see it in there. But equally, if you just want to get a copy of my articles for YPN Magazine, all you need to do is just drop an email, admin@thepropertyvoice.net, ask Karen if you could go onto the YPN subscriber list. That's my own articles, I stress. I'm not giving away the whole magazine, it's literally just my own content. I've got a back catalog, there. I did a summary the other day, I think it's about 85,000 words and about 55 articles, over about four and a half years, from memory. I might have got some of those facts wrong, but there's a lot of content, basically. There's plenty there for you to get your teeth into, so just drop a note. There's no strings attached to that, it's literally you get a password to get access to my subscriptions. There we go.
Richard Brown:
But before I finish today, I wanted to come back to this topic of, well I haven't mentioned it yet ... On Saturday, the 10th of October, it was International Mental Health Day. Or, Mental Health Awareness Day, and the World Health Organization was sponsoring this type of awareness campaign. They called it mental health, or mental wellbeing, really. I prefer the term mental wellbeing, because it's a taboo topic isn't it, mental health? It's something that we don't really talk about, it's something that we don't really admit, something we don't really know how to talk to other people about, either. I think it's good to get this awareness out. It was extremely relevant.
Richard Brown:
I'll be a little bit vulnerable with you, because I was struggling a little bit myself, actually, in recent weeks. I couldn't quite put my finger on it, I was just feeling down, I was tired, I was lethargic. I was a bit snappy and ratty with people, I was just struggling. I was just procrastinating on a few things. Yeah, I was just in a bit of a funk. I was really just struggling. I'd put it down to basically stress, I've got a lot of work on at the moment, I was working too many hours. I think I clocked, a few weeks ago, I was doing about 66 hours a week, which is far too many and it's not really what I wanted. Actually, it wasn't the lifestyle that I actually designed for myself when I stepped out and went into property full-time, as I have done.
Richard Brown:
How did I get myself in that place, really? Well, it was sheer volume of work, and also dealing with some issues that have going on with some of the sites. I talked, previously, about four strands to my property business, so there's development, service accommodation, the rental portfolio, and the investor services, or the mentoring that I do. Whilst three of them struggled actually, particularly through the pandemic, the lockdown period, some tenants weren't able to pay, some properties were empty as I mentioned, service accommodation fell off a cliff overnight, developments couldn't keep moving. Even if we couldn't get people onsite, we couldn't get approvals through planning, we couldn't get building control out, couldn't get materials to site, there was a whole bunch of stuff there.
Richard Brown:
There was a lot of negativity, really. Problems, challenges, or hurdles. That language, in itself, is probably not the right language to use, as I'm sure you're identifying. That was one of the ways, by the way, the clues to perhaps we're not in the right place. What are those clues? Well, perhaps we're very tired, perhaps we're disinterested in things that we normally would enjoy, perhaps we're a little bit irritable or ill-tempered with people, a bit snappy with people. Just this low mood, low energy. These are things that we need to watch out for in ourselves, of course. You know, managing our mental wellbeing is a personal responsibility. It's down to us, really, to keep it in check.
Richard Brown:
But, what I also noticed in my own case is I let a few things slip, in recent times, that were just good disciplines to have. I was getting up very early in the morning to have a personal morning routine, and yet I was working as soon as I got up, I just slipped into that routine. That's one of the reasons why my working hours had increased, because I'd given up time I'd saved for myself in order to have a personal routine, but was actually working instead. Of course, part of the personal routine was some good habits.
Richard Brown:
Here's another clue. If you've got some good habits, things like practicing gratitude, perhaps practicing mindfulness, focusing on your goals, journaling, those are the sorts of things I was doing. Just reading, and getting good input. There was no danger, I'm always getting good input, but I had allocated some specific time for that. Perhaps some affirmations, or visualization. Perhaps even a little bit of exercise, or even combining some of these together. So in a morning routine, I've talked before about The Miracle Morning, it's a book, that had gone by the wayside. I've got a lot of stress because of external factors, I was working really, really hard, I'd let some habits slip, if you like, and then you look at what I call the health fundamentals.
Richard Brown:
The health fundamentals are sleep. Well, I was getting up earlier and going to bed late, so I wasn't getting enough of that. Exercise. Well, I was kind of hanging in there, but I was very focused on just running, I was running about three times a week. I'd let some of the strength exercise go, strength conditioning go, and some of the flexibility side of it go as well, so perhaps wasn't doing as much. I was doing some, but maybe not doing as much. And then you've got diet, as well. I thought my diet was actually quite good, in fairness, I went pescetarian at the beginning of the year. Trying to eat a plant-based diet, as well. I do wonder whether I have the right balance, and that's something I'm going to check back on now. And then, you've got the old favorite of drinking water.
Richard Brown:
Anyway, you've got the fundamentals. Just, are they in order? Sleep, exercise, diet, drinking water. I think the other thing, really, is to engage with people. Now, some of us are introverted, some of us are extroverted. But, even the introverts after a period of time being isolated can struggle. So eventually, if you go through a lockdown, or quarantine, or isolation, or those sort of things ... which, by the way, has been very prevalent, of course, over recent times so it can affect anybody and everybody.
Richard Brown:
I think watching for the signs ourselves is a good thing to do, and then trying to do something about it. Some of the good things, check the fundamentals, the health fundamentals that I talked about. Keep some time for ourselves and what's important to us. Live by our values, if you like. Talk it out, it's better out than in as they say. Try and talk it out, phone a friend, and just try and talk it out. Just say something, and just get it out rather than in. It could be just journaling, you don't have to talk to people but just get it out of yourself is a recommendation, really. That's a good thing to do.
Richard Brown:
I think the other things are to consider ... be mindful, that's the other thing I was just trying to think about. When I was in my funk, I was very absent-minded. My mind was wandering, I couldn't focus on certain things that I was doing. I was absent-minded. The opposite of being absent-minded is to be present-minded instead. Another word for that is mindfulness, and one of the ways to help with that is meditation. But, it's not the only way we can be mindful. But, the idea of being mindful is to focus on the here and now.
Richard Brown:
Some of the most common mental health issues are depression and anxiety. So if we're struggling with depression, we're perhaps focused on some negativity that's either from the past or is in the current situation that's affecting us, which can lead to thoughts and feelings which are not helpful. Similarly, anxiety's normally worry or fear about something that might happen in the future, and I say might because often it doesn't. I think the old saying goes ... Well, it's not the old saying, I think it's a Buddhist mantra. "This too will pass," just to remember that we go through seasons in life, and we go through spring and summer, but we also go through autumn and winter. We go through seasons, this too will pass. Things, usually, someone else's cross is sometimes heavier to carry than our own, in other words somebody else's problems are harder than our own. But of course, when we're in amongst it ourselves, we can only see our own problems.
Richard Brown:
So anyway, the first thing is to be aware ourselves, and then to try and tackle it in ways I've just talked about. But also, look out for one another, I think is the other thing I wanted to talk about. Because there could be other people around us that are struggling, and we just need to be a good friend, really, just show some kindness and some consideration for other people. Ask how people are doing. Or, if you can see signs that I've talked about in them, perhaps ask them how they're doing. Or, just be there for them. No one is expected to be a care professional, a mental care practitioner or something, but often just talking to people can help. Of course, if we spot there are more serious issues, then someone might need to go and talk to a professional, of course. I'm not ruling that out. There's a few steps there.
Richard Brown:
That's quite a long-winded way, I was just going to make a reference to this idea. But, if you consider that, I think from some of the research I saw ... And by the way, I'm going to put a link in the show notes to the World Health Organization's fact sheet on mental health and mental wellbeing. You can pull that down yourself. But, one of the facts that leapt out at me was that one in six people were struggling with some kind of mental health or mental wellbeing issue in the last week, and that's quite a lot. That's about 15% of the population, so you're probably going to know someone who might have been through a difficult time. Yeah, I think just be aware of that, really, making people aware. It can be a bit of a taboo subject. I think we're prone to it if we're solopreneurs, working in our silos. Of course, in these difficult times of perhaps being locked up, locked down, unable to do things, it could be even more pronounced than usual of course, at this particular point.
Richard Brown:
Watch out for ourselves, look out for others, watch for the signs, and then try and do something about it. We ourselves are responsible for our mental wellbeing, it's absolutely essential for us to function, and to survive and thrive in life. To have good mental wellbeing, as well as physical wellbeing, emotional balance, these things are essentials to make sure that we can carry on doing what we want to be doing for ourselves, for our families, for our communities. Yeah, there we go, there's my big up for the Mental Health Awareness Week. Somewhat belated, obviously, Mental Health Awareness Day was Saturday the 10th of October. But, this is the closest podcast recording I had to that, so hopefully that's got the message out. Hopefully you might have been aware already, but hopefully it helps in some way, whether it helps you or it helps you to help someone else.
Richard Brown:
Well there we go, on a bit of a different finish today. But it is relevant, trust me, it's extremely relevant. Well there we go, the show notes are going to be over at the website, thepropertyvoice.net, including a link to that download that I mentioned. Don't forget, if you want to get a copy of the article, the three Fs article, or indeed any of the YPN articles that I write, admin@thepropertyvoice.net is where you're going to find out more about that. Or, you can always drop me an email if you want to talk about anything from today's show, or anything about property for that matter, I'm more than willing to have a bit of a natter, or an exchange of emails perhaps.
Richard Brown:
Without further ado, I just want to say thanks very much for joining me once again, this week. And until next time, on The Property Voice Podcast, [inaudible 00:27:24].
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!