Does this investing model make sense?

by Readers Question

17:11 PM, 2nd February 2020
About 9 months ago

Does this investing model make sense?

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Does this investing model make sense?

I’ve seen people make millions investing in property, despite not earning that much in their regular jobs, or having much financial sophistication.

As primarily a share investor, I was surprised that people could make money with these strategies.

I have decided to document what they have done in a general sense, using 5 scenarios. The model used explained in the video below.

I was hoping for some feedback on the model.

Does the video clearly convey the technique?

Is there something I am missing that could improve this model?

Would you consider using this model?

I know it works because I’ve seen people use it. So I just want to make an improved version 2 of the video.

Thanks

 


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Mark Alexander

17:21 PM, 2nd February 2020
About 9 months ago

You have explained the gearing model reasonably well, but to most Property118 readers you will be preaching to the choir. Gearing really is property investment 101.

Key points you might wish to cover in follow up video's might include:-

1) You cannot negotiate the price of shares but you can negotiate the price of property by seeking out motivated sellers. If you approach a property developer when he has say just four units left to sell, if you buy them all you will have a very good chance of being able to secure a discount. Also look for opportunities known as the "three D's", i.e Death, Divorce and Debt to snap up bargains. If you're smart, you can add value on the day of purchase simply by securing a discount because you are in a very strong position to negotiate, i.e. you're not in a chain.

2) Finance costs can no longer be deducted from rental income for private landlords, but they can by Limited Company landlords.

3) Choosing the right tenants is critical, i.e. those who will pay rent on time, respect the property and respect the neighbours. Insurance backed referencing is available is viable via all good letting agents - see >>> https://www.property118.com/letting/

4) Shares grow in value within a persons estate, which is subjected to IHT when they die. The same applies to property, but with a Limited Company, by utilising a Freezer/Growth shares structure, it doesn’t. See >>> https://www.property118.com/tax/inheritance-tax-legacy-planning-property-company-owners/

5) A big mistake that property investors make is forgetting that a property rental business is far from passive. They should factor at least a third of their rental income for costs other than mortgage interest, e.g. repairs, statutory compliance checks, accounting, licensing, insurance etc., let alone their time!

I could go on, but as you only created five points I thought I should add the same number to give you a "starter for 10"

TheBiggerPicture

21:28 PM, 2nd February 2020
About 9 months ago

I originally pitched this at share investors and amateur landlords and those who just don't know. But see that you have been pushing this point for quite some time. 🙂

All my properties, I have bought at a good price. As I have always been in a strong position when buying, and bought when market conditions good. The fundamentals support the property, and they rise a lot in a short time.

However I have had trouble finding good value properties in my area. So it's good you mention buying properties at a discount, as that is the scenario I need to use, to buy another.
How do you find the properties with the 3 d's?
I cant snap up 4 remaining properties on a development, would it be advisable to snap up the final one? [ The one no-one wanted?]

I have money in a ltd company, that cannot be taken out easily. I was thinking of buying a property via this ltd company, but it seems the amount of lenders is limited. (its not a SPV).
Am I just looking at rates in the wrong place?

I may make a video on points 2 and 5 if there is any demand.
As well, as extend the video above, about how to accelerate the model using scenarios 6 and 7.

Thanks for your patience, expertise and time.

Mark Alexander

9:10 AM, 3rd February 2020
About 9 months ago

Reply to the comment left by at 02/02/2020 - 21:28
In regards to money in your Limited Company and the lending complications you have identified, please take a look at this article >>> https://www.property118.com/surely-there-must-be-a-more-tax-efficient-way/

The last property on a development might just be the last to have been built, or, as you say, there could be a very good reason why nobody wanted to buy it. Accordingly, you need to take a commercial view.

Mark Alexander

9:25 AM, 3rd February 2020
About 9 months ago

Reply to the comment left by at 02/02/2020 - 21:28
PS - in regards to the "three D's", you need to develop relationships with agents who will tip you off. Their primary interest is selling properties quickly in order to earn commission. If they genuinely believe that you will follow through on your brief to them you can expect them to call you as soon as they come across opportunities that fit your criteria, even before properties are officially listed.

Let's take probabte sales as an example. Some beneficiaries live miles away and don't even want to find time to visit a deceased persons property for a variety of reasons. they just want a quick sale.

Sometimes, divorcees hate each other so much that they are prepared to bite off their nose to spite their faces in regards to agreeing a price.

If people are in debt and risk being repossessed their primary motive is often speed of transaction as opposed to getting the best possible price. If receivers are appointed, they are likelyy to get even less. If it's gone beyond that stage, any offer you make to a receiver must be seriously considered. If you put a timescale on that offer, e.g. the offer stands for X days, they are at risk if they don't consider it very carefully.

TheBiggerPicture

11:19 AM, 3rd February 2020
About 9 months ago

Reply to the comment left by Mark Alexander at 03/02/2020 - 09:25Thanks - yourself and this website is rich with good advice. (Meaning advice that can save or make money!)
I wish i was in a position to take more advantage of it.
i.e Have a builder as a partner, closer relationships with agents, more time to focus on property management.(Management agents used in past have been poor).

Mark Alexander

12:11 PM, 3rd February 2020
About 9 months ago

Reply to the comment left by at 03/02/2020 - 11:19
The Agents that I use are phenomenal - see >>> https://www.property118.com/letting-supermarket-full-management/68829/

silversurfer2017

13:01 PM, 3rd February 2020
About 9 months ago

Reply to the comment left by Mark Alexander at 03/02/2020 - 12:11
Tried Lettings Supermarket.com. We had a superb 2 bedroom flat in Windsor with them for 6 weeks and only had 2 viewings and no sensible offers. Managing director apologised for such dismal performance. Switched to Romans at 10% + vat and got good tenants within 3 weeks. It's no good promoting yourself at 5% + vat if you can't perform on the first major part of the job and find tenants! That six week void cost us nearly £2,000 in lost income. With hindsight we should have limited our loss and switched after 4 weeks.

Mark Alexander

13:09 PM, 3rd February 2020
About 9 months ago

Reply to the comment left by at 03/02/2020 - 13:01
There is always a reason that properties don't let. Sometimes it is price, other times it is just the time of year. Maybe you should have advertised the property with both agents from day on and agreed "whoever lets it first gets the business"? I know Romans and they market properties in exactly the same way as LSM, i.e, on Rightmove, Zoopla, Prime Location etc. so there must be other factors at play in your rather unusual case.

Dennis Leverett

16:25 PM, 3rd February 2020
About 9 months ago

Reply to the comment left by at 03/02/2020 - 13:01
I have used Letting Supermarket for several years and can't fault them. Never had a bad tenant, void period or problem. The local lady used is very good/thorough at her job.
Far as video goes, not sure what the aim of it is. Bit naïve, basic, there's lots of property "experts" out there that get the newcomer into trouble. The most important thing is to have the right connections with people you can trust, people that know the game, people like Mark and his team but at your level in your area. You have to prove to them also that you are worth their time and experience, it's a two way street. Nothing comes easy, unless you have loads of money to chuck at it, there is always risk involved.. Due Diligence number one. Common sense number two.

silversurfer2017

20:19 PM, 3rd February 2020
About 9 months ago

Reply to the comment left by Mark Alexander at 03/02/2020 - 13:09There were other factors at play! I think part of the problem was the manager for that area was so laid back as to be almost horizontal. There was no feedback - we always had to phone him. We were unimpressed by the person sent round to take photos - we could have done better with our mobile phone - in fact we replaced some of the worst ones with pictures we had taken. Unfortunately the person who took the photos was also the person who would be doing all the viewings. When speaking to this man about our property and its plus points he made it obvious that he was not listening to what we were saying or the slightest bit interested in our property, This is not the sort of person you want to conduct viewings on your property. Romans on the other hand were completely professional right from the start and they quickly had 3 tenants interested in the property. We did not pick the highest offer but the one who could move in the soonest having wasted so much time already. I will not be insulting by referring to monkeys and peanuts, but I will say that what initially seems to work out cheap and a bargain can often turn out more expensive. From our experience we would not recommend lettings supermarket to anyone. Mark - you can phone the managing director - we spoke to him regarding our complaint around March/April 2019, he should remember my call and give you more information so that you can improve.

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