Chapter 1
Introduction
āSuccess is nothing more than a few simple disciplines, practised every day, while failure is simply a few errors in judgment, repeated every day. It is the accumulative weight of our disciplines and our judgments that leads us to either fortune or failure.ā
Jim Rohn
In these pages I will show you how to invest in property and create residual income that can eventually replace earned income. Using a few simple principles, you can grow your own property portfolio that will provide all the money you need, leaving you free to enjoy life.
I began investing in property in 1995 and have built a portfolio with my husband Dave of more than 60 to date properties worth over Ā£10 million, with more than Ā£2 million in equity and released cash. Property is our main source of income. Neither of us previously had a high income or any other special advantages, yet through property investing we have become financially free.
āMost people overestimate what they can accomplish in a year - and underestimate what they can achieve in a decade!ā
Anthony Robbins
If you stop to think what you were like ten years ago, I am sure you will agree that you are now very different from the person you were then. Whether or not you feel you have made as much progress as you would like over the last decade, now is the time to resolve that you WILL achieve your aims and goals for a brighter future starting today and it is my aim through this book to help you.
The information in this book can enable you to retire younger and richer than you may ever have thought possible. Buying to let is ideally based on a medium to long-term investment outlook. Indeed, it could be said to be the equivalent of value investing in shares (as practiced by Warren Buffett, one of the worldās richest men), which is based on the idea of buying stock that is undervalued relative to its long-term trend or prospects. This is the ideal circumstance in which buy to let property should be purchased. But the good news is if the current market does not provide such conditions, they can be artificially created in the property world (unlike shares) through buying below market value ā which is why this has become so important.
Despite short-term corrections in prices, property has quite consistently doubled in value every 7-12 years over the last century; hence the long-term prospects for property are very positive. Of further significance for renting out property, the private rented sector is growing.
It is only since 1996 that buy to let mortgages have been available in their current competitive form and this, together with the increasing demand for rental property due to demographic factors, has provided the opportunity for ordinary people to make a fortune using other peopleās money. This is a crucial and unbeatable point about property investing, relative to any other business or investment. There is no other business for which you could so easily borrow 85%, 90% or even 100% to start up! This is known as leverage and is one of the key benefits of property investing. We will be developing this point a great deal throughout the book.
Although I believe there is no better business than property, I do recommend you consider as many alternatives as possible before deciding on property. You may have a very unique ability or talent, or discover a market that is about to explode! Most people at some stage wonder how to make money beyond the idea of getting a job. Each person will have his or her own individual circumstances and reasons for this. It is important to know what you really want: what your own personal goals and wishes are, and how you would like to live your life. So take time to reflect.
As well as the more obvious reasons:
ā¢ I want to invest my money to make it grow
ā¢ I want to become a millionaire
Further reasons may include:
ā¢ I aim to retire young, retire rich
ā¢ I would like to become an entrepreneur instead of working for others
ā¢ I want to prove my worth in the world, which I have found difficult to do in paid employment
ā¢ I only get paid acorns, but I am determined to grow a mighty money tree
ā¢ I find my work unfulfilling
ā¢ I have been made redundant
ā¢ Iām worried about my pension
ā¢ I have to be at home caring for young children or other dependents
And not forgetting, of course, if property investing is for you:
ā¢ Property investing excites me and I love the idea of being a property investor!
It is important to have a passion for what you do as it will be your life and you want to enjoy how you live it! I can honestly say that one of the best things for me about being a property investor is the people I meet, who are a generally fun-loving bunch. Most successful property investors have high levels of integrity too, in my experience.
Having decided that property investing IS for you, you must ask yourself whether you want to buy to let or are more interested in property development. As a property developer, you must further decide whether to let property you have developed, or sell it when complete. Or perhaps you would rather get involved in making money from property in other ways, such as by becoming a letting agent.
You can only choose wisely when you have first examined all the options and are then able to make clear distinctions between one choice and another.
The finer the distinctions you can make, the better the quality of your decisions will be.
Within the realm of property investing there is a whole range of possibilities, in addition to buy to let. One of the appealing things about property is that there is so much scope for different approaches and here are just some examples:
ā¢ You may choose to spend money improving or extending your own home, or principle primary residence (PPR), perhaps by having a loft conversion or adding a study. A big advantage here being that any capital gains arising will be totally exempt from tax. Some people choose to improve their own home as a first step to property investing, having the home re-valued after improvement and then re-mortgaging, to subsequently use the funds generated as a deposit on their first investment property. There are lots of magazines (with websites) that you can find on newsagentsā shelves, aimed at people interested in improving their own homes.
ā¢ You may be attracted to buying property abroad, either to let or as a second/holiday home, often a combination of both. (A variation being to purchase a time-share property).
ā¢ You may be looking to buy a holiday home or country residence within the UK.
ā¢ You might choose to invest in commercial property. Whether large or small, commercial properties really are distinctly different from residential property, with quite different market forces operating.
ā¢ You might be interested in building your own property, or at least project managing your build (or, more modestly, an extension to your existing property). Self-building is very popular today and there is a wealth of information, including several magazines and websites, available on the subject.
ā¢ Barn conversions are very popular in recent times, for luxury homes.
ā¢ If you are keen on building, you may even consider setting up your own building company.
ā¢ You can invest in reversionary properties. This is done through a specialist agent. The arrangement involves older people selling on the equity, or part thereof, to the buyer at considerably below the propertyās market value, in return for the rights to stay living in the property for life - sometimes rent free. Not a good cashflow choice from an investorās viewpoint though.
ā¢ There are still potential bargains to be found by buying property at auctions.
ā¢ Or, of course, you may stick to the more basic buy to let opportunities, although even this covers a wider range of opportunities than it may at first seem.
For any form of property investing, you may wish to act singly, with a partner or as a group of investors forming a syndicate. You may seek property to buy for yourself or as a finder or agent for others. You may act as an individual, a partnership or a limited company.
The list below shows some of the finer distinctions that should be made in property investing. All of these points will be further examined throughout the book, so that you can decide whatās right for you:
ā¢ Which types of property do you want to buy, and where?
ā¢ How do you want to go about buying your property? Consider how you may buy property below market value and how much time realistically you can find for this.
ā¢ How will you manage your property or development project?
ā¢ Do you want to deal with tenants yourself?
ā¢ In any area of property investing, you will find costs which may be improved on. Question everything from purchase expenses and insurance to management and maintenance costs.
ā¢ It is important to continually plan, forecast and keep your records up to date, as well as carrying out a risk assessment before each new move.
ā¢ You will need a game plan - or overall idea of what your investment strategy is for life. Know your long-term goals and your exit strategy.
ā¢ You should also be aware of your own strengths and weaknesses and the areas in which you need to develop further. Develop awareness of who you need to create a winning team.
ā¢ Finally, most successful entrepreneurs are conscious of the need to have the right mind-set for success. I began my self-education with an examination of these principles and hope you will explore them further too.
Your decisions will be based on the quality of your information. It is possible for you to build wealth through property investing by making shrewd decisions and picking your way through the minefield of possible mistakes.
I was a late starter with regard to investing, having been brought up in a financially naĆÆve environment where money was not much discussed. In common with many youngsters, I was not bothered about money in early adulthood, as long as the ends met. As a student, my thinking was along the lines that money was something you only cared about when you couldnāt get the drinks in, eat, or board the bus to college! For me, it seemed right to focus on different things at different phases of my life: first fun, then love, marriage, babiesā¦ Money could wait!
However, eventually wealth creation beckoned, and I became determined to create financial success for my family.
I became interested in the idea of how to become a millionaire, before deciding upon buy to let. It was important to me that I made the right choice for us, out of the many possibilities. The first book I read about making money was called How to Make Ā£1,000,000 in Two Years or Less (no longer in print). The book did not give detailed knowledge on any one area, but covered a lot of options and suggestions for further reading, which turned out to be of great future benefit. It set me on a trail that eventual...