How Many Properties Before My Portfolio Will Run Off Its Own Steam?

A great question from one of my investors:

Hi Brett,

A little question was nagging me today Brett. In the current UK property investment circumstances, how many properties (or in cash terms if you prefer) do you consider as being the “tipping point” for a momentum to ensuring one can achieve the 7-10 properties without further leveraging one’s other resources such as one’s residential equity, other saving, other loans etc? In other words, is there a point where you consider a portfolio as having developed a self-sustaining momentum to ride on on its own steam but not having to wait for yonks for the equity to grow?

Great question! OK - the easy way to answer this questions is this: "it varies". The harder way I will detail below but it still leads to the same answer as before.

There are so many factors at play in your portfolio that no-one can say exactly when your portfolio will run off its own steam.

Strategy

This is always the starting point for every portfolio answer. The strategy you use will depend on the results you achieve. If you are prepared to put the time in researching and finding deals, developing relationships with agents then you can probably pick up a deal here or there. The specific strategy I use is a new build one. This means that I choose having lots of time over some of the best deals that are out there.

Let me explain what I mean. If you are prepared to put the time and effort in you can search down some fantastic deals. Now normally these are simply one property here and one property there. The deals are everywhere but you need to put a lot of time and effort into finding them. More often than not these deals are better than any property club or investment consultancy could ever provide and the reason for this is simple. Property investment clubs need to do bulk deals so they simply cannot provide the best of the best deals as they lose sometime in the volume. Now what you lose in the deal you pick up in the ease of purchase and the fact that you are putting very little time into the deal. This frees your time up for Lifestyle. For me lifestyle is more important than constantly pushing for the best deal.

So it will depend on the structure you adopt, if you are doing all the work and searching a deal here or one there then this will decrease the time to momentum, if you are using a property club then it will be increased.

Structure

How you structure the deal is vital. Using a property investment club, means that you can structure the deal in such a way as to put in as little money as possible so you have more to purchase more property. Doing it yourself means that you will be putting in the full amount so you will require more time to momentum. Now this last statement will raise a lot of controversy in some circles and I agree if you know what you are doing and are happy to “walk the line” you can structure with minimal outlay but for the average investor this would be a line not worth walking.

Stage of Cycle

This is fundamental, assuming you are in the galloping stage of the cycle you will normally create significant equity and move to a position of momentum. If you play your cards right, by the end of this cycle you will be able to operate your portfolio under its own steam. Of course this always depends on your circumstances and the amount of risk you have managed. Let’s face it over the course of the galloping cycle your property should double in value.

Equity Available

This the major determinant as to how fast you can grow your portfolio. If you have £100,000 you will be off and racing a lot quicker than £25,000 and £500,000 will give you a massive head start.

Income or Cashflow

If you have a £100,000 income versus £18,000 you will also be able to move a lot quicker.

There are a few more that we could speak about but in truth the answer to your question is simply it depends, there are so many aspects and variables that you can only work this out with an experienced portfolio manager and a great understanding about the market.

I believe that you can set yourself up in the position that your pension is secured with 1 cycle or 7-10 years. I truly believe this and this is why I focus on taking all of my clients from 0 - 10 properties, providing all the education, experience, and support they need along the way.

How long it takes? Well, thats really up to how much you want it? And that’s a different topic of discussion. :)
---------------
Brett Wood is an author and property investor. He runs a successful property investment consultancy in the United Kingdom. His strategies have helped thousands of investors to get on the property ladder and build successful property portfolios.

Originally from Australia where he was a successful mortgage broker he moved to the UK in 2002 and since then has build a massive portfolio of off plan and new build residential properties in the UK, Spain, Slovakia and Australia.

For further details contact Brett Wood at http://www.yourpropertyclub.com or directly on 0870 042 1188.

Should You Buy a Property in Thailand?

South East Asia has always had a special appeal for me. I first began spending time there about 5 years ago. I love the organised chaos of the roads in Bangkok, the food that is cooked right in front of you, and the haggling at the markets. Amazing.

Altogether I have spent over 3 months in Thailand and I have so many fond memories, add to that the fact that it is halfway to Australia and QANTAS offers a stopover of only 45 minutes which gets you to Oz quicker. It's a great destination.

I usually spend a week stopover on the way back to the UK. It gives me a break after 2 gruelling weeks with the family and friends and the 2 hour massages for around £7. What more could you want? :)

So naturally l thought if I'm spending so much time here l might as well buy a property. Then naturally if I am prepared to buy and have done extensive research why wouldn't my investors also buy as well?

Having looked into Phuket property before the tsunami, I thought I would check out Pattaya (pronounced “Pat-e-ya”) which is only around 1 hour 20 minutes drive from the new international airport in Bangkok (the capital).

Pattaya is a seaside town (tick-These ticks and crosses are my due diligence) with a new highway which will mean it will only take around 45 minutes to get to and from the airport. (tick).

Pattaya has 3 distinct property markets.

The first is the local market. The properties are priced between 1 and 3 million Baht (70 Baht to £1) So £15,000 - £45,000. Sounds good right. Well maybe not. Unless you are a local it's unlikely you would buy at this level.

You could only rent to locals and the investment returns I don't feel would be great enough. (Cross)

The second and most interesting market is the 20 to 30 million Baht. £285,000 - £430,000. Incredible you say? Well thats what I thought too. In fact forget incredible — l was downright shocked. But this is the market of the off plan speculators. In my books, another word for 'speculator' is 'gambler' and hopefully you know by now what I think of gamblers.

I do believe you can make money on these, but only by 'flipping' before completion but obviously there are no guarantees with prices already so high. Incidentally, this market has seen an incredible amount of growth so that waterfront apartments are as expensive as central London, Sydney or New York. (Cross)

I feel that this market has been driven by paper gains rather than underlying fundamentals. I see this happen quite often, and it's one of the reasons I deal in properties 99% of people would rent.

The final level is the 5 to 9 million Baht. So £70,000 - £130,000. This is the retirees' and expats' market. You would be more than happy with these houses. 3-4 Bedrooms, large open spaces, ensuites, parking and best of all - air conditioning.

These I feel would be ideal for investment and present your best opportunities. (Tick)

Rentals are great as a lot of major multinationals have offices in Bangkok and the expats are happy to commute up daily or it's cheap enough to rent a place in Bangkok during the week while spending the weekend home in Pattaya. (Tick)

As an investor in Thailand the first thing you have to realise is that you cannot own land (Cross) so at present you have two choices: either buy in the name of a Thai company and have Thai nationals who own it (but you have a signed deed saying you can replace the Thai nationals at any time). It's a reasonably secure way of buying.

The other way and the way that is becoming more accepted is a freehold/leasehold similar to what we are use to in the UK. A lot of new builders are structuring ownership this way.

BUT… The Thai government has an unfortunate habit of changing laws so you may find yourself at the wrong end of a change. They made a decision early in 2006 that effectively stopped or severely curtailed foreign ownership (Cross) and the stock market began to spiral downwards so rapidly that they changed the law back by day's end. This sort of government backpeddling is a potential warning sign. (Cross)

The country has had 18 coups since 1932, although the past 15 years have seen none until 2006. Whilst they have all been peaceful coups, they still create political instability. (Cross) On the other hand a coup to a Thai person is probably like on of our Labour politicians voting with the Lib-Dems so it's not that big a deal in reality.

Most coups have been backed by the King. Thai people have an amazing allegiance to their king, wherever you go in Thailand you will see him, and as long as the King has backed the coup everything is alright. (Tick)

The King is the real power in Thailand, he has been an active participant and a representative of the people, and is a stable force in a thriving country. (Tick)

The problem Thailand faces is that the King is getting old and may one day pass the throne onto his young son who is renowned for irresponsible antics. So no one really knows just how he will take to the position of King or whether the people will take to him. This could cause an instability in the investment market. (Cross)

One of the biggest things overlooked when inexperienced investors seek out exotic new investment regions is how to get your money back. Oftentimes the capital growth is fantastic, so your £20,000 investment doubles and doubles again (so you now have £80,000). This is a paper profit until you actually sell it or remortgage it.

So the essential question is not often will I make money? but how will I get paid? or who will sell it for me?, who will buy it from me?, how much tax will l pay?, how much will I have leftover? Or if you don't want to sell it how will l make the equity work for me?.

Often the answer is you won't. You won't remortgage it and you won't sell it, or if you do you'll need to accept considerably less than you want for it.

In Thailand mortgages are very tight. The Asian economic crisis hit Thailand particularly hard, and in fact they've only just now started continuing a number of concrete highways which stood unfinished and vacant above the ground level. These massive highways stretch for miles with no entrance and no exits and are amazing to see.

The bottom line is Thai banks don't trust farang (foreigners) so you might be made to jump through hoops just to get a 50% mortgage. And if you thought getting a mortgage was hard, try remortgaging. So that kind of leaves selling as the option which kind of goes against our entire philosophy.

All in all, I decided that it would be better to rent out a 5 star hotel or villa on the beach for 2 weeks a year than to own a property which has so many variables.

If you are interested in buying in Thailand, you can definitely make some money but as always 'Do your due diligence?' I am happy to give you the research that we undertook before I went if you are interested.

Live with passion,

Brett :-)

PS. I love Thailand and if you get to go make sure you hire a bike and get out into the real Thailand rather than just around the cities and tourist places. The people are lovely and the food is soooo good.
--------
Brett Wood is an author and property investor. He runs a successful property investment consultancy in the United Kingdom. His strategies have helped thousands of investors to get on the property ladder and build successful property portfolios.

Originally from Australia where he was a successful mortgage broker he moved to the UK in 2002 and since then has build a massive portfolio of off plan and new build residential properties in the UK, Spain, Slovakia and Australia.

For further details contact Brett Wood at http://www.yourpropertyclub.com or directly on 0870 042 1188.

The Best Time To Buy Is...

Now.

Yes, it's a cliche, but allow me to explain why it holds true in all markets.

In our business we love property values that grow quickly because it builds our portfolios and makes our investors happy with their decision to purchase. The flip side is that while this is happening the demand for property is good and developers offer less discounts which means you need more money to invest in property and therefore less people want to invest (or at least the sales are more painful for them.)

The trick is to view a constant return that you will achieve.

So — when developers give you the big 15% discount, the market is probably stagnant, so you'll see a net return of 15%. But when the market is galloping, your capital growth will be at say 7% and your discount will be lower at say 8%-10%. Your net return may be around 15%-17%.

Either way you are making around the same return even though you might not see it.

Of course, this is a massive oversimplification since there are so many factors that l have overlooked but the important thing is this: you are going to need to invest some money. How much will depend on the market and the structure.

If you buy in a stagnant market then you get in cheap but you have to cash flow the ongoing costs so it's good for your capital and bad for your cash flow. If you buy when it's a hot market it costs you more capital but because of the growth your cash flow is better.

I hope this explains why the answer to the age old question of 'When should you buy?' is always Now, today, right this moment!!

-------

Brett Wood is an author and property investor. He runs a successful property investment consultancy in the United Kingdom. His strategies have helped thousands of investors to get on the property ladder and build successful property portfolios.

Originally from Australia where he was a successful mortgage broker he moved to the UK in 2002 and since then has build a massive portfolio of off plan and new build residential properties in the UK, Spain, Slovakia and Australia.

For further details contact Brett Wood at http://www.yourpropertyclub.com or directly on 0870 042 1188.

How To Guarantee The Health Of Your Property Portfolio, Even Through Market Downturns

The "2 year cash flow" is one of the most important concepts you'll learn when building a property portfolio. It's a simple formula that most people forget to calculate prior to committing to buying a property, yet it will guarantee the long term health of your portfolio, even through market downturns.

In most cases people will work out the initial acquisition costs and as long as they have to the funds required to purchase this they will dive head first into purchasing.

Funnily enough even though some of these people will consider the monthly mortgage they will neglect things like service charges & ground rent. Whilst this is a problem by far the biggest problem lays in the fluctuations in interest rates.

Capital growth will make you money but not having capital growth is nothing more than a frustration. The real major issue is a lack of cash flow to pay the mortgage and interest rates are the thing that most affects your ability to pay your mortgage. (I've never heard of a house being repossessed due to negative equity but l know 100s that have been due to not paying the mortgage (lack of cash flow).)

I have a client who every time that interest rates go up 0.25% he has to find an extra £4500 each month. You can imagine how much that would hurt if he hadn't made allowances.

OK, so l think we both realize how essential it is to consider the cash flow of each property. So now let's consider the mechanics of working it out to ensure you both take full advantage of your capital and don't take any unmanageable risks.

Before you consider purchasing an individual property you will also need to consider the cash flow impact of the purchase over the entire portfolio. We will talk about this further soon, lets now jump into the 3 aspects that we must consider with regards to cash flow.

- Your income

- The properties income

- Trading capital for cash flow

You spend your income and I will spend your capital.

Centered at the heart of my portfolio building philosophy is my belief that you spend your income and I will spend your capital This simply means that you shouldn't sacrifice your lifestyle to build a property portfolio, you should only enhance it, lifestyle that is. This assumes that you have equity available to invest, if you don't then you will need to use your income to supplement, save or borrow the cash flow for the property.

Is 130% mortgage coverage still applicable?

The second aspect of cash flow is creating a difference between the rent you receive and the expenses you pay out. This is rarely positive when you first purchase a new property and if interest rates are high but if you can achieve a positive you will need to consider the effect of interest rate fluctuations. I also believe that the days are gone of having 130% coverage on all property. This is certainly the trend in other similar countries.

Trading capital for cashflow

The third involves a principle l call trading capital for cash flow. It works like this and involves a delicate balancing act between your equity or capital and your cash flow.

In the 100s of clients l have supported over the years, most have their own home and have developed considerable equity in it.

Now assuming you stopped paying the mortgage but you were in a situation where you had a huge amount of equity and owed a little on your mortgage this would theoretically not stop your property from being repossessed. This is because even though you have equity you do not possess the cash flow pay the mortgage.

Now if you refinanced the property in such a way as to allow access to the equity as you needed it (through what we call a line of credit or sometimes called a flexible mortgage) You would the be able to use this money for whatever purpose especially to fund the monthly shortfall of rental on a property.

We call this trading capital for cash flow and it is fundamental if you are to build a substantial portfolio.

How long should you consider cash flow?

Now the only thing left to consider is how long do we need consider the implications of cash flow. As a rule I use 2 years. This is simply because a lot happens in property in two years, property prices will go up, interest rates will go up or come down or both, the market will change. If you have a new property it will give the property plenty of time to settle into its surroundings and ensure a stable rental market is established.

Given the above, in 2 years you should theoretically be able to refinance, sell, or at least have some flexibility to make changes that will allow you to recalculate the cash flow for a further two years.

Once I explain my 2 year cash flow rule people will ask one of two questions.

Is 2 years too short? If you track a number different factors that affect the property market you will find that the only time that 2 years may fall short from a cash flow perspective is as interest rates begin the rise. Normally though we can approximately work out how high interest rates are heading and simply adjust the cash flow accordingly.

Is 2 years too long? The only time it is too long is when the market in at low interest rates and property prices are galloping upwards. In this case you will normally be able to refinance or re-mortgage within the two years and take some more money out.

Regardless of what you actually believe the facts are that you will need to consider the ongoing cash flow of the property in order to fully be prepared for all markets in the property cycle.

-------

Brett Wood is an author and property investor. He runs a successful property investment consultancy in the United Kingdom. His strategies have helped thousands of investors to get on the property ladder and build successful property portfolios.

Originally from Australia where he was a successful mortgage broker he moved to the UK in 2002 and since then has build a massive portfolio of off plan and new build residential properties in the UK, Spain, Slovakia and Australia.

For further details contact Brett Wood at http://www.yourpropertyclub.com or directly on 0870 042 1188.