Property cash cows.

In this blog, you will learn:

1- Diversification

2- What is “flipping”?

3- Off-plan investing

4- Buy to let

5- Investments in land

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Everyone seems to be talking about the need to “diversify”, in fact it’s one of those words that financial advisors simply love to use.

However, the world’s second richest man said that if you are a “know something-investor” then spreading your bets across a large number of stocks is likely to “hurt your results and increase your risks”. Given that American billionaire Warren Buffett has outperformed the market by a staggering 12% a year since 1965, you cannot ignore such advice.

What Buffett means is that knowing what you are doing is the best way to reduce risk.

I agree with this.

I encourage you to get really good at what you do and accumulate your knowledge and experience.

This is much more important than diversification. I have several investments but in a limited range of industries which I know well.

Being part of the new generation of marketers I understood selling online fairly well so set up some Ecommerce sites selling a product I loved. (www.soft-claws.co.uk, www.catscratching.co.uk, www.pimpmycat.co.uk, www.spuk.com, www.softpaws.co.uk)

My other obvious passion is property, so I invariably brought investment property and now I am involved in the selling and renting of property for others (www.cityquays.co.uk)

I consider myself good at running these businesses and each one crucially makes a profit each year without too much personal involvement.

Indeed, if you diversify fully then you are less likely to be good at all the investments you make.

Whatever you save in mitigating risk you lose more in spreading your effectiveness and skills thinly.

Diversification is a primary strategy if you decide to invest via stocks, unit trusts and funds. As property often requires relatively large lumps of money it is very difficult to diversify with £50,000 or £100,000 when investing in property directly.

But if you really do want to diversify, then I recommend that you:

1.Focus on what you are good at – Stick to something you know well, so do your research and be confident that you can achieve the results you want

2. If you are looking at other unfamiliar industries, find a expert in that field and ask them if they can mentor you. Listern to their systems and follow it.

2.Look at the major external changes that can affect your investments. Don’t forget to diversify, enough so that one such change will not affect your whole portfolio.

2-Flipping

 

Flipping is the buying of an off-plan property and the selling-on of the contract before the property is complete.

Flipping is leveraging without borrowing. You put down £20,000 to pay for a £100,000 property that is ready in three years. In exchange you get a legal contract that states you will own the property on completion but must finish paying for it.

The good news is that you do not take out the £80,000 mortgage on that property until it completes. If you can sell the contract for £120,000 after only one year then the new buyer takes up the responsibility to complete the purchase and provide the mortgage. You walk away with your initial £20,000 and the £20,000 profit – a 100% return.

When flipping, you never have the hassle of managing the property, and you also avoid all the buying and selling costs as you never have to register the property!

Caution! If you fail to sell, you must be able to complete. Failure to do so will result in your losing your deposit. This can be a very risky strategy and you must confirm you have permission to asign the lease before exchnage.

 

3-Off-Plan investments


Off-plan means to purchase a property from a developer before it is complete. I have done this quite successfully in recent years, purchasing over 6 flats and 2 houses in the last 8 months.

The Investor often gets a discount and chance to benefit from capital growth as the property is built.

For the Developer it is a means to finance the development. It’s a win-win situation.

The following points are essential to minimise your exposure to risk when purchasing off-plan property.

This is the checklist that we use for personal investing and also when sourcing off-plan deals for City Quays

1.Does the developer fully own the land? You can ask for evidence of this.

2.Does the development have planning permission? Ask for proof.

3.How many years has the developer developed for?

4.Get proof of other completed developments.

5.Ask around about the developer. People in the market know what’s going on and who is who. Talk to accountants, surveyors, independent financial advisers, the competition and even the estate agent,if you can. Check the furnishings.

6.Obtain the opinion of a surveyor regarding the quality.

7.Carry out comprehensive comparable study.

8.Find out what proportion of buyers are investors. The greater the proportion of investors, the greater the risk when it comes to resale. There may be too many investors selling at the same time, creating a temporary glut.

9.If your development depends on views, check on any current or future threats to the view. I buy all my properties in London with views of the City or Canary Wharf. They have great views and are usually near Docks or the River. My flats achieve 10% more than an equlivant flat without.

10.Define the kind of end buyers who will buy the unit and describe their key needs. Verify that these needs will be satisfied, e.g. local shopping centre, schools, hospitals, proximity of beach, restaurants, nightclubs. These needs will differ for every development.

11. Something which I can explain in another lesson, creative structuring and bulk buying. This is a very effecive way of making better use of limited funds. YOu can often get massive discounts and have an immediate exit strategy whilst still retaining the property. Yes this is possible!

4- Buy to Let

My favourite but probably the most labour intensive, buy to let is the backbone of nearly all my successful friends. You can build a strong asset base relatively quickly that continues to grow year on year, and makes banks want to throw money at you.

I have built up a sizable portofilo in the space of 4 short years. It is now valued at £3.5 Million and provides me a passive income that underlies wealth generation.

I see buy-to-let as a slow burning money system which generates money month on month year on year Guarenteed!

I once had how it works explained to me in quite crude terms by my very straight talking friend Martin Skinner, so please pardon this example.

Bacially you buy boxes, and you place people in them. For that privilige they pay you a part of their wage without arguement at the end of each month. You pay the mortgage, the rent often exceeds this by 40% and you keep the difference.

The more boxes you have there more pipelines of cash you have. That simple.

Admittedly this investment class takes up most of my time albeit 3 hours a week but provides me with over £16k a month in cash flow and around £4000 profit (due to cheap rates of course)

 

5 -Investing in land

 

You can make plenty of money from land. This can be done without undertaking any development. I dont have too much experience in this but I have seen people make money, heres my take:

One of the best ways to do this is to add value by improving its planning rights and then selling on to a developer.

Remember that a developer only buys land to make a return on his money. The more profit the developer thinks can be made from a piece of land, the more they will pay For it.

If you are seriously considering buying land as an investment then you should have satisfactory answers to the issues listed below.

1.Check with a reputable surveyor that the land is the size you are paying for.

2.Research the various levels of planning regulations to understand the planning status of your land. Normally, countries have any combination of master national plans, regional plans and local restrictions.

3.When investigating the land planning rights, get at least two opinions and educate yourself so you understand all the issues.

4.Is electricity available to the land and where is the nearest connection point? Is the capacity sufficient for the developed land?

5.What is the access point? Are you sure the gradient can take a road? How much road has to be built? What length? At will the cost be?

6.Look out for neighbouring land that could, if built on, obscure key views from your site. What are the planning restrictions on this land? Could any future development augment or decrease the value of your site?

7.If the land you are buying is made up of several plots, are these plots contiguous and do they form a coherent whole?

 

SUMMARY

 

1- If you find a great investment it is probably safer putting more money in it than spreading your money over lots of investments. If you do this, your are also spreading your success and profit.

2-Flipping can be useful sometimes to make a quick profit as you avoid all of the fees. Remember though if you cannot complete, you will lose your deposit.

3- Buying off plan is a win/win situation for the investor and developer. Check them out though as they is a huge variety of these types of investments.

4- Buyto let, very involving but can be very rewarding. It is possible to generate enough surplus cash each month to not have to rely on just your Wage. it is very empowering once you achieve this.

5- Land can be a very profitable way to invest but make sure that you check things out thoroughly before committing yourself.

We hope you have enjoyed your first lesson.

If we can help you in any way, please do not hesitate to contact me.