Property Investment Strategies – Part Two

by Kelvin Kingsley

10:43 AM, 17th January 2012
About 9 years ago

Property Investment Strategies – Part Two

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Property Investment Strategies – Part Two

Following on from yesterday’s Property Investment Strategies part one.

Assignment of Contract

With “Assignment of Contract”, when done correctly, you don’t even take title of the property. It works like this. You close a deal on a below market value property, then you sell or assign your right to buy the property to another buyer at a higher price. The difference in price is your quick profit.

Many property investing apprentices get started with the use of this technique. It offers flexibility and minimal cash requirements.

The key points here are to have enough time say, 60 to 90 days to re-market and close the property. Not forgetting a list of other buyers standing by to quickly sell or assign the property to. But always make sure there is enough money in the transaction to warrant your time and effort. Your payment or quick profit could even be a delayed one made contractually payable after six months when the buyer refinances the property to pay you.

No Money Down

Without going into detail, I personally don’t know of a single “No Money Down” strategy available that does not involve some form of non‐disclosure to a lender. Non-disclosure is deemed mortgage fraud; it’s as simple as that.

Finally, be prepared to make many below market value offers to be successful. What’s needed here is a shotgun approach. However, since the credit crunch and the uncovering of some fraudulent no money down schemes, lenders now seek full disclosure of any buyer or seller incentives or sub sales. If in doubt consult with your solicitor to make sure you are on the right side of the Council of Mortgage Lender laws and regulations.

3: “Cash Flow

A common misconception is that wealth is cash in the bank. It isn’t. True wealth is cash flow consistently coming in every month.

Owning assets that other people pay you to own is real wealth.

That’s why property should form part of everyone’s investment portfolio. Some of the best cash flow properties can be “Houses of Multiple Occupation”, better known as HMO.

What is an HMO?

The term House in Multiple Occupation refers to a rental property which falls into one of the following criteria:

  1. A house which is split into bedsits
  2. A house, or flat share, where each of your tenants has their own tenancy agreement
  3. Students who live in shared accommodation
  4. Bed & Breakfast accommodation and hostels which are not used just for holidays

Such properties are generally larger in size with regulations and licences aplenty. Investors are advised to seek proper advice before entering the HMO letting field.

Gross rental yields can be high for such properties, 15% is not uncommon. However with higher yields can come greater voids, greater maintenance costs and greater time costs. On that basis it is recommended that such property purchases are kept within a reasonable driving distance of the landlord.

Advantages – Excellent cash flow and good tax deductions.

Disadvantages – High property management costs, time and cash intensive, greater hassles, lower capital appreciation, larger deposits needed, and a long-term investment cycle.

This is not an area I personally participate in so the HMO discussion will have to end here. Anyone wanting to venture into the HMO field is well advised to first read up on the subject of HMO properties and lettings and also talk to several successful HMO landlords.

Good cash flow properties are not just restricted to HMOs. If one looks hard enough there are properties on bank repossession today in the £30,000 to £50,000 range that can offer an attractive 12%+ gross yield. However, unless the property is in sound condition the costs to maintain the property will be disproportionate to its value and the net yield will fall.

4: The “PIE” strategy

Now we come to the final property investment strategy. An amalgamation of all three strategies, creating a fourth strategy that I like to call the “PIE” strategy. A strategy where you really can have your pie and eat it!

Over the years I have learnt the hard way what works and what doesn’t with regards to property investing. I have had my winners and my losers, but as long as you pick 8 out of 10 winners you are doing fine. And with my added insight why not aim for 10 out of 10.

By combining the best attributes of each strategy you not only reduce your risk and increase your reward. You can also build a larger portfolio for any given investment fund.

So why PIE? The P stands for Profit, I for Income and the E for Equity. Profit comes from selective buying and reselling quickly. Income comes from selecting high yielding properties to keep long term for good positive cash flow. Equity is the increased equity that comes from building up a larger portfolio over time.

The strategy of buying and reselling for profit keeps the money turning over to replenish the investment fund. An increased fund means you can buy more property to hold and to sell. Also in absence of an appreciating market without the “Selling”, the investment fund would soon become empty; so ending the buying and portfolio growth.

Advantages – Great profit potential, steadily increasing rental cash flow, excellent cash flow, good tax deductions, increased portfolio size and greater equity accumulation over time. Not to mention greater diversity leading to less risk.

Disadvantages – Not many! High turnover and moving to a higher tax bracket. The latter can be eradicated with sound knowledge of property tax strategies see “Understanding and Paying Less Property Tax”.

So now it’s your turn. Assess the property market in your area. Always research anything you do with property and make sure you understand the cash flow numbers at all times.

Now is the time to select your investment strategy or strategies from above. The most important thing to remember is that these strategies work best at the bottom or depression part of the “Property Cycle” Then develop a plan with long term perspective, but most of all take action.

One, who acquires knowledge but does not practice it, is like one who ploughs a field but does not sow it

Please do enter your thoughts and views on Property Investment Strategies. Maybe you have an unorthodox strategy of your own that you would like to share with others?

Ultimately, there are two factors that determine risk and reward in property investing, and that’s leverage and diversification. You really can lower your risk substantially by diversifying across many properties and sectors. This and more will be discussed and revealed in the next “Property Maverick” blog “How to build a balanced property portfolio with No Risk”.

Until we speak again. “If you do things well, do them better; be daring, be first, be different, be just, be a Maverick”.


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Comments

Don Holmes

17:09 PM, 19th January 2012
About 9 years ago

Is this flip concept simply Back2Back which under the 6
months rule simply can’t work Can it? Or are you talking personnel cash buys in
which case what difference does registering the tittle make?

 

Kelvin Kingsley

16:44 PM, 14th February 2012
About 9 years ago

Sorry for the delay Don, I have been away. No its not back to back. Today if you buy properties regardless of how cheap they are you will have difficulty reselling them within 6 months to a new buyer. Solicitors have to report if a property has changed hands within the last six months. That applies whether the seller purchased with cash or with a mortgage.

The buying and reselling in short times frames of 6 months to 1 year is purely to stop an investors investment pot from running dry. Also the release of equity enables the purchasing of more properties and therefore excelerates the growth of a portfolio.

On the subject of reassignment of a property sale to another buyer. As mentioned its best to use a joint venture agreement so that you as the property sourcer/ reseller gets paid 6 months down the line when the buyer refinances or sells the property. That way you and the buyer have not created a sub sale or artifically increased the original purchase price. The joint venture agreement is a profit share agreement, see example at http://www.instantequity.biz/links&downloads.html.

Good luck.

Regards Property Maverick

14:45 PM, 27th February 2012
About 9 years ago

 What you advise is a punt on the so caleed 'equity' on purchase being 'real and realisable' for refinancing after 6 months of ownership. If they are such good deals why do you not buy them yourself, is the obvious question? Richard

Kelvin Kingsley

16:17 PM, 29th February 2012
About 9 years ago

Hi Richard as explained I practice what I preach and I am constantly buying discounted new build property today and have been since early 2009. Please read my latest property blog on property118.

Only just last week I paid a reservation fee over to a national home builder and so did another investor I co-ordinated to buy at the same time. This was for a brand new, finished and complete large 4 bedroom townhouse that fronts a canal with countryside views on a highly regarded new build estate in a good location, and constructed by a quality NHBC registered national home builder. The developer list price was £169,950, but for quick completion (28 days) I secured each townhouse for £110,000.

But don't be fooled by the list price although this is and has been paid in the last 12 months by home buyers. The real market value is £150,000 not £170,000. So the Instant Equity is circa £40,000 on day 1, which is better than my norm, which is usally 100% return on cash in to buy as a rule.

There's no mystery here, I am very well connected in the property business and my reputation for buying often, consistently and completing quickly is just what developers want to hear when they have completed stock to sell quickly to hit their sales targets. The later is the most important to them. It matters not if they sell 5 ot 6 highly discounted properties at cost or just below cost on a site where sales have slowed. Site scheduling and progression dates are most important build dates they work too; so their sales targets must match this too.

My cash flow is not such that I can afford to buy all of the time, but I buy selectively and very often and so do some investors that buy with me. They too taking advantage of my contacts and my buying power. Please see my website instant equity for further details.

As for remortgaging or reselling to retrieve/ release equity and cash flow to buy more properties of course this is possible. This is precisely how I continue the buying process.

All this and more is explained over various blogs I have written for property118. Also unlike some other property sourcing people or companies that charge many thousands for services and deliver half as much as I. I charge nothing, so in that respect there's no need to doubt my sincerity or my sharing of the property knowledge and opportunities.

The Property Maverick

Kelvin Kingsley

16:32 PM, 29th February 2012
About 9 years ago

Hi, Richard - Maverick again. Forgot to say property investing is never about taking a punt. I look at dozens of discount new build deals every month and short list only some and target only some for buying. This is where my property analysis techniques come into play, and the knowing of these areas helps too. So investors have the safety and knowledge when I buy or recommend to buy its safe for them to buy. As with buying any product for sale, the greater the buying power and buyer the greater the discount achieved; timing is also key.


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