A place in the sun exhibition
Yesterday, my wife and i went to the ‘A place in the sun’ exhibition at the Excel exhibition centre in the Docklands, London. We arrived early as we wanted to go to all of the seminars about investing in property.
How to build an investment portfolio
The first one began at 10.30 and was entitled ‘How to build an investment portfolio’ and was given by Mark Bishop from ‘A place in the sun’ magazine. Mark built up his own portfolio of 8 properties in different parts of the world. His talk was excellent.
He started by giving the advice that to build a portfolio, just like any business, needs a plan. He identified four types of investor:
1. Someone looking for a lump sum or cash flow for retirement
2. Someone who has retired looking to maximise the return on their money
3. High roller, with lots of money looking for future generation wealth
4. A couple with a small sum looking to gain maximum growth of their spare income
He defined three variables in each person’s plan. These are:
1. Looking for cash flow or income
2. Looking for capital growth
3. Time
When making the plan, he advised knowing exactly what type of investor you are, do you want income, do you want capital growth, or a mixture of the two? What time frame do you hope to achieve this in?
He then talks about what assets do you have already, what are the raw materials you have to invest, these are things like:
· Lump sums of cash
· Equity in property
· What is your mortgagability? This is a word I think he has trademarked.
· What is your ability to service the debt, i.e. can you pay the mortgage back?
· Spare time
· Experience or skills
· Appetite for risk
He then talked about the different techniques of fundamentally analysing a property, its location and the country to see if it is worth investing in. He talked about what yields were and how to work them out and also the different ways of investing in property such as:
· Borrowing, or using leverage to maximise return on investment
· Flipping, or putting a deposit on an un-built property and then selling it before it is complete for a higher price.
· Lease backs, which is a French idea, where the government tie you in for a long period of time and give you a small return each year. This essentially pays for the mortgage but doesn’t give you an income. The idea is that it is very safe and when the tie in period is over, you have a property in France that you have got for potentially very little.
This is a very socialist idea from my point of view, and fits in with Alan Greenspan’s comments about some of Europe, especially France having very strong identity values that are more important to the French than the economy.
· Contrarian buying, which I won’t talk about here.
· Self financing
· Off-plan buying, which basically means buying from the developer from the plan of the property before it is built.
He then discussed legal situations and what are the rights of the landlord or potential buyer and gave some very good tips regarding looking around the properties and how to deal with agents.
The talk lasted the full hour and so we had no break when the next speaker came on.
How to finance your investment property abroad
The next speaker was Nigel Lewis, again from the magazine. He is a journalist and has written for Daily Mail. (Although, this is nothing to be proud of in my opinion.)
His talk was very honest, and was an account of how he and his wife financed their property abroad. He talked about the different thought processes they went through, some of the mistakes they made and how he would have done it differently.
I won’t go too deeply into his story as he had different goals than I do. He wanted to be able to holiday in his property and that was a key part of his decision making process when buying somewhere. This is not one of my goals. If I want to go on holiday, I want to just go somewhere I feel like going and not to the same place over and over. My investment is purely for investment.
Nigel’s plan was to borrow a small amount of equity from his own house to raise a deposit for a mortgage on an investment in France. He chose to get a mortgage in France as the rates are much lower than here. He chose to buy a French lease back which guarantees his return at 4% index linked for 9 years with the option to extend for another 9 years after this.
He will not see any return on the property until the property finishes the 18 years of mortgage repayments and he either sells the property or rents it out himself.
One of the problems that he found was that dealing with a French bank, they refused to deal with him in English and he had to sign a French contract. This is another indication of the French culture being more important to the French than business.
This type of agreement does not seem to be in line with my own beliefs or expectations of return. I also would not like to be tied into an agreement for such a long time. So although very interesting, I will look for another solution for my investment plan.
What to look for when making a property investment
The third speaker was again Mark Bishop, this time the topic of the seminar was ‘What to look for when making a property investment’.
Mark started off by giving the advice that before you can make the choices you need to know what your goals are. He recommends writing a business plan with a list of the desired outomes, what timescales these will be achieved and what resources you have to achieve them.
He talked about making a shopping list of the what you might want in your portfolio, how many properties, when you would buy them, where and for how much.
Then you can work out what income these would generate or what capital growth you might make.
He defined 10 triggers or points to go by, these are:
1. Other people money
How little of my own money must I tie up, make sure you leverage other people’s money. By making use of borrowing you can by more property and make money on capital gains. He also discussed flipping (An idea that R. Kiyosaki hates).
2. Net Yield
This is the rental income less deductions as a percentage of purchase price. Also whether this is actual (based upon past history), projected (based upon other properties in the area), or guaranteed by a developer.
3. Mortgagability
How much can I borrow, at what rate, fixed, variable or capped.
4. Money in verses money out
Making sure you take into account void periods (un-rented time). What is the difference between mortgage payments and net yield?
Make sure you perform monthly cash flow projections
5. Short term capital appreciation
Is the fundamental value of the property below the market value or can you get it to be? Is the market in a low cycle? How is the currency performing?
6. Long term appreciation
Look at trends (demand, yield increases), political, transportation or other events
7. The Tax regime
Do you buy in your own name? Make sure the country has a double taxation treaty with the UK. Buying through a company or a trust. Which country to register the business, which country to borrow money? Make sure you get independent advice. (See later speaker)
8. You Rights
Legal comeback if a property from a developer is late. Rights as a landlord. How well protected is the property title.
9. Due Diligence
Test every assumption and every claim. Does the developer own the land, does the seller own the property? Does the brochure match the property you are buying? Is the beach really 2 minutes walk? Who is guaranteeing the income for guaranteed rentals.
10. An easy life
Good documentation and good sellers go together. Bad contracts, probably bad people. Spread risk. Multiple complexes in one development to save on costs. Choose good advisors. Make income and debt in same currency.
All in all, another excellent seminar by Mark.
One of the most interesting things actually came after the seminar when I asked Mark about how he had built up his portfolio and he had come to the same conclusion as me, in that he would buy say 3 properties and put all of the rental income into paying off the mortgage on one of the properties, then buy another one, and put that into the mortgage. Very quickly you can pay for a house outright and then the income on that house is large. You then use that to pay off another one, and with those two get the next.
It is all about getting as many properties as possible and using the income to grow your portfolio to a size you are happy with. Then once the houses are all paid off, you have a large income cash flow.
Making your investment pay for itself through rentals
The next seminar was given by Ross Elder from Holiday Lettings.
Ross talked about what you can do to make your rental property stand out from the crowd. His company is a web based advertising company that advertises holiday properties to holidaymakers on behalf of the owners.
He talked about making sure you have good photos, neutral colour walls, and decent furniture. He talked about making sure that you do not get too personal with your investment.
He talked about making sure you understand the season and therefore how many rentals you are likely to get. He said that the season is NOT defined by the weather, but by the airlines that fly people to your location.
Watch out for changes in flight paths that stop people coming to your locations.
For 52 week coverage you could look at Euro breaks or the Canary Islands.
He said in most locations, it was common to have 90% occupancy in peak months, 40 – 70% in the shoulder months either side.
He said to watch for letting longer than 3 months; otherwise in some countries the renter may gain tenancy rights.
Do people need to hire a car? This money will come out of the budget for their holiday and therefore won’t go on the rent.
Check for the demographic of the area. Don’t buy a one bedroom apartment next to Disney. Most people will have children. What are the main attractions? Does the area have mass appeal?
Look for unique selling points.
He talked about making sure the cleaning is done correctly; maybe leave a welcome present such as a cheap bottle of champagne. He also said that is an agent is letting it, make sure you get the money. Call the property and if someone answers, make sure you have money for that week.
Don’t forget to include things like liability insurance into the cost. Leave an emergency number in the property with an information pack about the local area and different language peaking doctors locations.
His talk was very informative and I will definitely take some tips from him when I do buy a place to rent. His website apparently generates an average of 40 leads per advert. Not all leads generate a sale of course.
After this time I must admit I was getting a little hungry. These seminars were back to back and I was a little tired so I went to get some lunch. As a result I unfortunately missed the first half of Jonty Crossick’s talk on ‘Measuring risk and making returns’.
Measuring risk and making returns
Jonty talked about the different locations around the world and in particular the risk of currency fluctuations in the market. His company find good deals all over the world and advertise them to investors. They make a fixed fee if you buy the property.
I received an email from them after enquiring about a property in Brazil for only £15K.
The next seminar was by John Howell from The International Law partnership.
Protecting your investment
I found John to be a little cynical and dry but had some excellent advice. I will almost certainly use their services if I buy abroad. He is exactly what you need in a lawyer!
His company has a UK office but has offices with local solicitors in many other countries. They specialise in nothing else but property bought abroad.
His key message was ‘Protecting your investment starts before you buy!”
He had ten points which he went through as part of his seminar, these were:
Before you buy
1. Understand Risk and Reward
2. Understand the Maths and the effect of borrowing
3. Understand the effect of Tax in the UK and elsewhere
4. Decide on your investment strategy
5. Do your research
When you buy
6. Don’t buy rubbish
7. Put the property in the right name
8. Always use an independent lawyer
After you buy
9. Understand how to get good management
10. Understand when to sell and how to get a good price
After the talk I collected a few leaflets for later reading. I wanted to find out about foreign mortgages, so I got some information from a Spanish bank with a branch here in the UK I specifically asked them if they dealt in English and unlike the French the do.
I got some more details of some accountants who might be able to help me trade through the business rather than as an individual.
I got a really good book called ‘How to be a successful property investor’ by Alise and Jonty Crossick from Ready2Invest. This looks like an amazing find and I am looking forward to reading it.
I will of course write my comments here when I get round to it.
I got quite a few estate agents brochures advertising properties around the world and of course the ‘Place in the Sun’ magazine.
I think the exhibition was well worth going to and that my knowledge as an investor has increased significantly.
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