The 3+1 Plan series
How to Predict House Prices By Brett Alegre-Wood Peoples Book Prize Winning Author of The 3+1 Plan.
Published by: YPCGlobal Ltd | 1 Olympic Way | Wembley | London | HA9 0NP. Copyright Š 2015 Brett Alegre-Wood The right of Brett Alegre-Wood to be identified as the author of this work has been asserted by him in accordance with the Copyright Design and Patents Act of 1988. All rights reserved under International Copyright Conventions. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means without prior permission in writing of the publisher, nor be otherwise circulated in any form of binding or cover other than in which it is published and without a similar condition including this condition being imposed on the subsequent purchaser. Phone: 0207 812 1255 (outside the UK +44 207 812 1255) Email: info@ypc-group.com www.ypc-group.com
Exclusion of Liability and Disclaimer While every effort has been made to ensure that this publication provides accurate and expert guidance, it is impossible to predict all the circumstances in which it may be used. Accordingly neither the publisher, author, retailer, nor any other suppliers shall be liable to any person or entity with respect to any loss or damage caused or alleged to be caused by the information contained in or omitted from this publication.
Contents The 3 + 1 Series ..........................................................9 Stock Market Experts Very Rarely Predict the Next Stock Market Crash.......................................11 Expert Predictions and What We Can Learn From Them................................................................13 Variables: The Elements that Make the Prediction Process so Difficult.............................19 How UK Property Experts Fared with Their Price Predictions in the Last Few Years.............26 Most experts are wrong most of the time..........33 The (Abridged) Property Trend Cycle................38 The other, often forgotten, side of investing......44 It all comes down to two choices but one responsibility.............................................................52 YPC Group’s Vision................................................56 Our Values (What we stand for)..........................57
Introduction Hello and Welcome
Hey Guys,
Brett Alegre-Wood
Chairman YPC Group
I’ve been involved in real estate and property investment most of my working life. I’ve written this book to address one of the most common mistakes that investors make today. By the time you’ve finished reading it, you’ll be in a position to avoid the same mistake, and be better positioned to make the enormous profits available when investing in property.
If you’ve listened to most property investment gurus, you’ll be ready to do what the majority of property investors do – and when you’ve done that, in a year or two you’ll look at the numbers and wonder why it all went so horribly wrong. After all, you bought in a great location, at what was the right time, and you negotiated the price down in your favour. All the expert forecasts you read told you that the value of your property investment should have inflated like a balloon. Instead it’s as flat as a pancake. I can tell you now that it’s those two words – expert forecasts – where your property investment strategy fell down. You’ve read, listened, or watched the experts as they’ve persuaded to agree with
their predictions. Yet, as you’ll come to see as you read through this Book, experts are useless at predicting the market. This isn’t a phenomenon restricted to the property market, and we’ll have a little fun at the expense of plenty of experts throughout the following pages. For example, I would bet that you curse an expert almost every day of the week for getting things so drastically wrong. Yet, you still hang on every word that expert tells you every day. I am, of course, talking about the weather forecaster. We British (even though I’m an Aussie, I’ve been here long enough to have taken up many of the customs and traditions and granted a passport) play slave to the weather. The weather guy, or girl, tells us we’re in for wall-‐to-‐wall blue skies and we leave home without a brolly or waterproofs. By mid-afternoon, the skies are black and the rain is falling. And we’re soaked to the skin. Of all the experts in the world, weather forecasters should be the most accurate. After all, they are dealing with irrefutable scientific facts to make their predictions. If they can’t predict with any accuracy, how can you expect property market experts to do any better? By the end of this Book, you’ll understand how flimsy those property price predictions of the experts are, and why you must ignore them when building your property investment strategy. If you’re brand new to property investing, then you shouldn’t have fallen into the bad habit of listening to the property gurus. If you’ve been a property investor for a while and can’t understand why you aren’t making better profits, this Book will help you eliminate the mistake of following what the experts predict about the future of the market. I’m going to blow the lid on experts and their predictions in this E-
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book. You’ll never trust another property market expert again – or any other so-called guru, either. I’ll also show you why trusting experts is such a common mistake, and give you strategies that will help you actually profit from the experts’ forecasts and predictions. By the end of this book, your property investment plan and strategy will be more balanced, better perceived, and unencumbered from the expert property predictions that will otherwise cause you nothing but anxiety and a dented wallet. In fact, with a little understanding and keeping up to date with the markets you will be making your own predictions and weighting into the conversations (opinions) of your friends and family. Finally, if by the end of the book you are thinking, I’d rather just build a relationship with someone that makes sense and follow their lead then look me up and give my team a call. I’d love to chat. Live with passion and fun,
Brett Alegre‐Wood
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8
The 3 + 1 Series
What does it practically mean to retire? How much do you need, really? During a conversation in 1999 with one of my mentors, the question arose: “how much do you really need to retire?” He explained that you only needed your own home, and three other investment properties to get into a position to fund your retirement. Unbelievable it may sound, but yes, 3 investment properties are all that is required to fund your retirement! Why only 3 properties? How does that work? Well simply put, in the UK, Australia, the US and many countries around the world, the average person spends their income in threebasic sections: • 1/3 on taxes • 1/3 on rent or mortgages • 1/3 on lifestyle (food, entertainment, living etc) So imagine that you have 3 investment properties – all without mortgages so all the rent was yours to keep. You’d receive a third of each of your tenant’s income, which adds up to a full income for you. The plan works whatever your income since as your income increases you are more likely to buy properties of a higher value. 9
If you earn £100,000 you would normally buy properties around the £500,000 mark, if you earn £20,000 then properties around the £80,000-£100,000 would probably be what you would be buying. Obviously you’re going to have to pay tax on that (which you’d do on your own income anyway) leaving you with two thirds of the rent. What about the ‘+1’? The +1 is your own home, fully paid off. The beauty of it is you don’t have to pay rent because you own your own home, which leaves the full two thirds of rental income for you to spend as you wish. It works well because it’s simple. You don’t need to change jobs, work late, give up your weekends or alter your lifestyle to make it happen. It’s a proven method to build a portfolio with very little time commitment on your part. The best part: the whole plan is indexed to inflation (rents go up over time) so you don’t have to worry if you live well into your hundreds. The 3+1 Series (of which this is the first volume) gives you all the tools you need to put ‘The 3+1 Plan’ into practice. Each book covers one of the many potential stumbling blocks to a successful portfolio. From finding the right property in the first place to managing it in the future The “It’s a proven method 3+1 Series gives you simple ‘how to’ guides to help you build a successful to build a portfolio. You property portfolio and secure your don’t need to change financial freedom. jobs, work late or give up your weekends.”
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Stock Market Experts Very Rarely Predict the Next Stock Market Crash
Very few stock market observers predict the next stock market crash. This has been the same throughout history, but the biggest stock collapse of all time – the 1929 Crash from which it took 25 years for stock prices to recover – was marked because it put an expert who has been called “the greatest economist the United States has ever produced” in neon lights for all the wrong reasons. Less than three days before the Crash, Irving Fisher told the world that “stocks have reached what looks like a permanent high plateau.” He told bankers that “security values in most instances are not inflated.” He explained that stock prices had not caught up with their real values. Considered the greatest economist of his time, Fisher got the market drastically wrong. In more modern times, the name of Warren Buffet is synonymous with stock market success. Yet he failed to see the impending subprime led market crash and the global financial crisis (GFC). Buffet is known as the Oracle of Omaha for his market ability, yet investors in Berkshire Hathaway, the company of which he is CEO and is staffed by a multitude of market experts, lost billions during the GFC. George Soros rocketed to fame and fortune as the guru who predicted the collapse of Sterling. In one day, 16th September 1992, Soros bet 11
against the pound and made billions. His reputation as a financial expert was sealed. That didn’t stop him from losing hundreds of millions on a stake in Lehman Brothers that he bought shortly before the bank went bust: he didn’t predict that one. Those experts that predicted the stock market crash of 2008 have built up a huge following, but there records since are pretty dire. Peter Schiff was ridiculed by other experts when he forecast the market stock market would collapse in 2008. Yet he was spectacularly right. Of a further 15 market predictions he made between 2006 and 2012, only three proved right. You’d have had a better result by tossing a coin. If you look hard enough, you’ll be able to find predictions of impending stock market crashes, but these will be few and far between. Most experts are hired guns of investment firms. Those investment firms make money form the commissions they charge on funds held by investors. If investors sell their funds, then there are no commissions rolling in the door to pay huge salaries and bonuses. Now I’m not saying that Warren Buffet and his entire team of dozens of market experts never saw the subprime fiasco, housing bubble, or stock market collapse coming, but he’s wrong when he said that “no one did.” Some did, but can you imagine the devastation that would have been caused to Berkshire Hathaway and its funds and income if Buffet had said, “the market is overbought and is about to fall out of bed”?
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Expert Predictions and What We Can Learn From Them
A Few Expert Predictions that were Cataclysmically Wrong Weather forecasts are not the only predictions we follow blindly. Hands up if you remember the nightmare of Y2K. Let me refresh your memory: As the new millennium approached, computer geeks around the world warned that a huge problem existed. They told us that the change from 1999 to 2000 would cause the computerised world to fall into oblivion. Some of the predictions at the time included: • Onboard flight systems would malfunction, causing planes to dive into the ocean • Traffic lights and CCTV cameras would simply stop working, causing chaos on roads and giving looters a once in a lifetime opportunity • Bank vaults, protected by digital vault doors, would be open house, while ATM machines would seize up Businesses and governments spent tens of billions on protective measures and hiring extra staff at extortionate rates over the NewYear celebrations. The new millennium came and went without as much as a single computerised whimper. Back to the stock market for a second. James Glassman and Kevin Hassett published a book at the height of the dotcom boom in 1999, 13
predicting the Dow Jones would run up to 36,000 within a few years from its then level of 16,300. It never did. Meanwhile, in 2011, Harry Dent (who in 1998 predicted the Down Jones would reach 35,000) predicted that the Dow Jones would crash to 3,800 in 2013. Both books in which he made those forecasts – The Roaring 2000s: Building the Wealth and Lifestyle You Desire in the Greatest Boom in History and The Great Crash Ahead: Strategies for a World Turned Upside Down – were bestsellers. Other predictions by experts have cost more than mere money. In 1939, Winston Churchill commented that, “Atomic energy might be as good as our present-‐ day explosives, but it is unlikely to produce anything very much more dangerous.” Six years later two atomic bombs finally ended World War II, destroying two Japanese cities and killing hundreds of thousands of civilians. In April 1912. The Titanic, a ship that had been called unsinkable by Phillip Franklin, VP of the White Star Line, went to the bottom of the ocean after hitting an iceberg. Perhaps if the operator, captain, and crew had been less confident of its invincibility, the Titanic would have had enough serviceable lifeboats aboard to save at least some of the 1,517 people that died that night. It’s easy to bet on the wrong horse On a lighter note, let’s look at one of the biggest days in the UK’s sporting calendar: the Grand National. Almost half the UK adult population place a bet on the Grand National, yet the only real winners are the bookies, who take in an estimated £300 million in bets. If all those betting slips were placed end to end, hey would stretch from Aintree to Las Vegas and back again. Now, with years of experience behind them, and the form guides and inside knowledge to back up their predictions, you might expect the 14
bookies would be pretty darned hot when it comes to predicting the winner. Yet the favourite rarely wins. In fact, since 1950, only seven of the 65 winners have been favourites. So, let’s get this right: bookies, with a limited number of variables – weather and ground conditions – and all the pertinent information at their fingertips – how the horses have run previously, jockey records, weights, etc – only pick he winner around 10% of the time. And bookies only have a field of 39 horses from which to pick the winner. Compare that to the job that property experts have. They have an almost never ending list of variables: they have the choice of dozens of counties, hundreds of towns, thousands of suburbs and villages, and millions of houses. What sane property investor would bet on a property expert’s predictions given those odds? Before we look at these property market variables in a little more depth, here are six big lessons that the history and record of ell expert predictions teaches us:
Lesson 1: Beware of experts with vested interests Always consider who is making the prediction before accepting it at face value. In fact, with almost 100% accuracy, if you know a little bit about the expert before listening to the prediction you’ll be able to say what the prediction is going to be. • • •
A financial advisor who makes his salary, commission, and bonuses from selling investment funds is hardly likely to predict a big crash in the market and advice people to sell. The owner of a football club is hardly likely to predict that the team is too weak to challenge for any trophies and will probably be relegated this season. An estate agent in any town is not going to tell you that the local market is about to pull back a little. 15
Get the idea? Indeed, it’s when an expert with a vested interest does make an unexpected prediction that you really need to take notice. In the late 1990s, Tony Dye, a fund manager running one of the biggest funds at Phillips & Drew (later to become part of UBS), told all his clients that the stock market was overvalued and would soon crash. By 1999, Dye’s fund was the worst performing of all funds in his sector, and he had earned himself the nickname of ‘Dr Doom’. In February of 2000, a short while after the FTSE 100 had broken the 7,000 mark, Dye was sacked. Only a couple of weeks later, the stock market crashed, led lower by the high tech stocks about which Dye had been particularly vociferous. Within weeks the market had halved in value, and stagnated for three years.
Lesson 2: Sensationalism sells. Be mindful of experts with publications soon to be released Many experts make money from their predictions, but not by betting on what they forecast. They release books, websites, training packages, and so on, often at very high prices. These types of publication need a hook to get people to buy them. Would you buy a book titled “Why I think the stock market will grow at 5% a year for the next ten years?” Is the title “Dow about to explode and hit 36,000” more intriguing and exciting? Big statements sell. Be careful of falling into that trap.
Lesson 3: It’s easy to predict more rises in a rising market and more falls in a falling market We humans like to be told we’re right. If the price of an asset is rising, and we have already bought that asset, we’re more likely to listen to an expert’s prediction and agree with it. It confirms our good 16
sense and judgement, and we can tell our friends how clever we are, pointing to the expert forecast we just heard. The same goes for a market that is heading south: if we have sold, we’re happy to hear that the market is going lower. This is really a warning against becoming too emotionally attached to an investment. Take emotion out of the equation and you’ll make far better investment decisions.
Lesson 4: Even Insiders get it wrong sometimes You would expect a person with deep inside knowledge to be on‐the‐ ball, wouldn’t you? But even they get it wrong. They don’t allow for the unexpected, and fail to prepare and protect their investment. They are so convinced by their own infallibility that their judgement gets clouded, and before they know it, they’ve run into an iceberg. Always look for what might be lurking beneath the service.
Lesson 5: Only 10% to 20% of an expert’s predictions will be right This is a biggie. Only one or two predictions out of every ten made will be right. The problem is it’s hard to predict (pun intended) which ones are right, and if the next one will be part of a ‘lucky streak’. But with odds like that, it might be better simply to use a blindfold and a pin, or decide strategy on the flip of a coin. (I’m not actually suggesting you do this, by the way!)
Lesson 6: Some expert predictions are simply made because of weight of money The weight of money going into a market tends to skew the view of experts. Bookies are a case in point, but so too is Berkshire Hathaway’s miss on the subprime problem. When the big money is piling into 17
commercial property, for example, it’s hard to say “the smart money should be moving into residential.� Experts, like the mug punters who follow them, tend to stay where it is safest: and that is with the crowd.
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Variables: The Elements that Make the Prediction Process so Difficult
Have a look at this graph, which shows the UK House Price Index between 1954 and the second quarter of 2015. There have been a couple of blips in the market – most markedly the early 1990s and 2007/2008 – but overall it appears that the market has been on a gently rising curve for more than 60 years.
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This, however, masks the incredible volatility of the housing market in this country. It is this volatility that can make or break the property investor, and this is best demonstrated by looking at the house price inflation data in graphical form over the same period:
Consider buying a house in 1971, with house price inflation at more than 40%. You might be tempted to bid up for your property, in a desperate attempt to buy before the price is driven higher still. Roaring house prices might tempt you to overstretch on the financing, safe in the knowledge that in as little as three months you’ll be sitting on a nice profit. Then house price inflation simply falls away. If you’d made such a buying decision in 1989, when house prices were rising by 30% annualised again, you’d have been even worse off a few later, with prices suddenly and sharply falling. Experts make their predictions generally for the year coming, sometimes for a couple of years. If they get it right, and you back their expert opinion, you could do very well, thank you. The problem is they 20
very rarely do get it right, as we’ll see in the next chapter. Before we do though, I’m going to explain why property experts are so often wrong, and most of it is to do with the variables that affect house prices and create such volatility. These are in no particular order of importance, mainly because the effect if each on house prices also varies! The economy When the economy is good and incomes are rising, people have more money to spend. It’s also the case that when the economy is strong and people are confident about their futures, they are prepared to commit more of their money to a new house. So borrowing increases disproportionately to earnings growth. Similarly, when the economy goes into a recession, people lose their jobs, can’t keep up with the mortgage payments, and fall into arrears. Repossessions rise, and house prices are hurt. Interest rates When interest rates rise, which is most usually after a period of economic expansion, mortgage payments rise, too. Higher monthly payments reduce demand for new homes, because the mortgage at current levels becomes less affordable. For property investors this is a two edged sword: higher interest rates may make financing a property investment more expensive, but it also increases the attraction of renting (and the need, on a cost basis). Generally speaking, the more sharply that interest rates move up, the more the possibility that house prices will fall.
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Consumer confidence Consumer confidence is itself influenced by a number of factors, including the economy, general inflation, and interest rates. When people feel more confident, they are more willing to take the risk of borrowing to buy a home. In this regard, if people expect house prices to rise, they will feel confident of taking on the mortgage debt to stoke their property purchase. When experts say that house prices are going to rise, it can be, at least for a period of time, a self-fulfilling prophecy. Availability of financing There aren’t many people, investors or home buyers, who have the cash to spend on a property purchase. The market therefore depends on the availability of mortgage financing. In the run up to the Global Financial Crisis, banks were falling over themselves to lend money. This led to loosened rules on lending. Banks loaned money to people who were already massively indebted, or didn’t have the income to support the property purchase. Loans of 125% of property value became commonplace. In America, this practice was further fuelled by subprime securities: loans between banks and finance houses which shifted the risk around, until everyone owned a slice of debt that relied on property prices rising higher and faster than ever before. Eventually the market crashed, leading to the Global Financial Crisis. Since then, banks and building societies have tightened their lending rules. Buyers need bigger deposits, and ‘self-‐certified’ earnings are no longer allowed. Banks are less eager to lend to each other, too. Consequently, not only has it become more difficult to get a loan, but also there is less money being loaned (though the amount loaned did rise in 2014).
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Supply side economics When builders build too many homes for underlying demand, house prices are likely to fall. When not enough houses are built, house prices are likely to rise. This is basic supply and demand economics. However, developers tend to build more when the market is strong, and if the market suddenly collapses like it did in 2007 through to 2008, there is often a glut of new properties left on the market, which the builders are unable to sell. This creates what is called a stock overhang, which further weighs on sentiment and prices. House price to earnings and affordability These are ratios that are used to measure the ability of people to buy a house. The house price to earnings measures how expensive houses are in comparison to average wages. For example, the average household income in the UK is around ÂŁ460 per week, or ÂŁ24,000 per year (Institute for Fiscal Studies, March 2015). The average house price, according to globalpropertyguide.com, is around ÂŁ183,000. So the house price to earnings ratio is now 6.7. This number is skewed heavily by London house prices, where the ratio is 9. The ratio in the north of England, for example, is only 3.2 (Natonwide). Affordability is often accepted as a better measure of relative house prices and affordability. This is simply the amount of money spent on mortgage payments as a percentage of income. With interest rates at historic lows, this measure has fallen from its peak in 2007 when it was over 50% (as it was immediately before the house price falls in the early 1990s). According to Nationwide, mortgage payments now make up about 34% of household income.
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Geography As if all these variables aren’t enough for experts to contend with, there is also the fact that geography plays a major part in house price performance. Every area of the UK seems to have different economic dynamics, with localised inflation, earnings, and housing supply. Confidence varies greatly between the north and the south, as do house prices. Prices in the UK as a whole may have risen strongly since 2008, but in some locations they have hardly moved at all, or even fallen further. Desirable areas can see property prices rise even when other areas are experiencing falls, while undesirable areas can see prices fall even when the general economy is experiencing strong growth. Debunking the myth of statistical analysis Okay, before we go on to look at those predictions from property experts, I want to just mention something called statistical analysis. 24
This has become very vogue in some investment communities over the last twenty years. The idea is that it is entirely possible to ignore all the fundamentals – things like the economy, interest rates, and wages – and collect numbers only. These numbers are then collated, mashed up a bit, and a prediction is churned out with the aid of a couple of whizzy algorithms. All clever stuff, and very successful… until it goes wrong. Then the mathematical boffins return to the drawing board to come up with new calculations that prove why their first calculations were wrong in the first place. Let me tell you, there is one underlying reason why this type of data gathering and extrapolation of numbers doesn’t work: the only thing that is truly predictable is the unpredictability of markets, and that includes property! Let me give you an example of what I mean. Remember the General Election in 1992, when all the polls pointed to a Labour victory, even those conducted the day before the nation went to the voting booths. The Conservatives won an outright majority. Similarly, in 2015, all then opinion polls throughout the campaign said there would be a hung parliament. Come the election, the Conservatives won an outright majority. There have been many reasons put forward for the failure of the polling companies to correctly predict these results, extrapolated from tens of thousands of people asked which way they were going to vote. The truth is, even when given such a large data set to work with (more than 400,000 voters were polled during the 2015 General Election campaign), the final outcome is still largely unpredictable.
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How UK Property Experts Fared with Their Price Predictions in the Last Few Years
The first thing I want to do in this section of this book is to apologise to anyone working at the firms I’m highlighting – considered some of the most reliable and expert property forecasting companies in the UK – for any embarrassment I cause them. But you bring it on yourselves. By now, you’ll know that making expert predictions is a fool’s game. It’s not that the hundreds of people employed at these firms are fools, it’s just that they don’t get not to make predictions. In some cases, as you’ll see shortly, the predictions were so far out that they could have been pulled out of a hat from a bunch of hastily written guesses. Without further ado, let’s get started at examining the predictions of the great and the good in the property world. In the following summaries, you’ll notice some years where there isn’t a prediction. This is because the expert didn’t give a clear percentage prediction that year. Another point to note is that most of the experts are corporates rather than individuals, sure the individuals may claim to make them or be the face but the have a backroom of economists and professionals doing analysis. Let’s kick off with my personal predictions. I didn’t make one every year as I was focussed on having two kids around end of the year 26
when I make my predictions. I don’t have a backroom, just a computer and an intimate knowledge of the UK marketplace. Brett Alegre-Wood - YPC Group Year
Forecast
Actual
Difference F o r e c a s t (% points) Direction
2010
+5%
+2%
3
CORRECT
2011
+4%
+1%
3
CORRECT
2013
+7.5%
+8.4%
.9
CORRECT
2014
+5%
+7.2%
2.2
CORRECT
* 2015 not yet finalised. Ernst & Young ITEM Club The ITEM Club is sponsored by Ernst & Young, one of the world’s biggest auditing firms and the third largest professional services firm on the planet. The ITEM club is an independent forecasting group, and the only non-‐governmental group to use the HM Treasury model of the UK economy to aid it in its work. ITEM states that it is free from any political, economic, or business bias, though I’m guessing it gets permission to use government models from somewhere, and them, of course, there’s the sponsorship it receives from E&Y. Anyway, around 40 economists work on producing its forecasts, which include those for the property market. Here’s how the ITEM Club did over the last few years:
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Year
Forecast
Actual
Difference F o r e c a s t (% points) Direction
2009
-10%
+5.9%
15.9
WRONG
2010
-5%
+2%
5.1
WRONG
2012
-5%
-1%
4
CORRECT
2013
+4.4%
+8.4%
4
CORRECT
2014
+6.6%
+7.2%
0.6
CORRECT
Fortunately the group seems to be improving with its forecasts, but it is worrying that some of its predictions are really way out, and in two of the five years it even got the wrong direction. I’m not sure if this says more about the Treasury’s economic model or the ability of 40 economists to interpret the evidence around them, or simply the fact that predictions are incredibly difficult. John Charcoal John Charcoal are one of the biggest mortgage brokers in the UK, and in its marketing literature states it is the UK’s leading independent mortgage and remortgage adviser; and they are good at what they do. Except, perhaps, when it comes to making property market forecasts, although its effort for 2014 was pretty close: Year
Forecast
Actual
Difference F o r e c a s t (% points) Direction
2008
-2%
-15.9%
13.9
CORRECT
2010
+4%
+2%
3.9
CORRECT
2011
+2% or ‐2%! +1%
3 to 1
CORRECT
2012
-4%
-1%
3
CORRECT
2014
+8%
+7.2%
0.8
CORRECT
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The good news is that John Charcoal got the market direction correct in every year, though it hedged its bets in 2011. However, if you had sat and forecast a tight range in every year, you’d have had a similar result, only going horribly wrong when the market moves a large amount: exactly the forecast that might be important to an investor. IHS Global Insight The HIS website says that it is the source for critical insight and information, the premier provider of global market, industry, and technical expertise. It says its “unique combination of information, analytics and expertise enables smarter, better decision making in everything from day-to‐day operations to long term investments.” Like most other firms, it doesn’t make a percentage call every year. This is a good thing, because if it did we’d be able to highlight how poor there previous predictions have been even without a percentage placed on them: Year
Forecast
Actual
Difference F o r e c a s t (% points) Direction
2011
-10%
+1%
1
WRONG
2012
‐5%
‐1%
4
CORRECT
2014
+8%
+7.2%
0
CORRECT
Not a brilliant record, though a marked improvement in 2014. Hometrack Hometrack’s homepage on its website offers “unrivalled property expertise”, offering to “help you identify residential property risk, benchmark performance and save money. Its website meta description states: “we are the property market experts”. I’ll let you make up your own mind: 29
Year
Forecast
Actual
Difference F o r e c a s t (%points) Direction
2008
+1%
‐15.9%
16.9
WRONG
2009
-12%
+5.9%
17.9
WRONG
2010
‐1%
+2%
1.1
WRONG
2011
‐2%
+1%
3
WRONG
2012
‐3%
‐1%
2
CORRECT
2013
‐1%
+8.4%
9.4
WRONG
All I have to add is “Oh dear!” Centre for Economics and Business Research (CBER) One thing you’ll notice when looking through the CBER’s guesses… sorry, predictions… is that it never predicts the market will move too much. With a strategy like that, its forecasts were bound to blow up at some time. So it proved in 2008, when it was miles out. So far in fact, that it refused to make a numbered prediction for two years. Unsurprisingly, when the market is dull, the CBER’s predictions are not too far wide of the mark:
Year
Forecast
Actual
Difference F o r e c a s t (% points) Direction
2007
+7.6%
+4.8%
2.8
CORRECT
2008
+1.5%
-15.9%
17.4
WRONG
2011
+2.2%
+1%
1.2
CORRECT
2012
+1.6%
‐1%
2.6
WRONG
2014
+3.9%
+7.2%
3.3
CORRECT 30
If you’re thinking to yourself that the CBER doesn’t predict a fall, you’d almost be right. For 2015 it is predicting that UK house prices will fall by 1% the only forecaster that is plumping for a price decline over the calendar year. Capital Economics Billing itself as one of the leading independent macro-‐economic research companies in the world, it supplies research to institutional and corporate clients around the world and is cited in the press a fair amount. If you hold a property fund that invests in UK property, and that fund hasn’t done so well, you might be about to find out why: Year
Forecast
Actual
Difference F o r e c a s t (% points) Direction
2008
‐3%
-15.9%
12.9
CORRECT
2009
-20%
+5.9%
25.9
WRONG
2010
‐10%
+2%
10.1
WRONG
2011
‐10%
+1%
11.0
WRONG
2012
‐5%
‐1%
4.0
CORRECT
2013
‐5%
+8.4%
13.4
WRONG
2014
+5%
+7.2%
2.2
CORRECT
If Capital Economics had been correct with each of its forecasts going back to 2008, the average house price in the UK today would be around £99,500 – that’s some way of the actual average of around £183,000! As you can see, the predictions of the experts are patchy at best and would be disastrous to follow at their worst. Oh, and just in case you 31
think this phenomenon is restricted to the UK market, take a look at this table that shows property market predictions in Canada over the last few years: Year
Expert
Forecast
Actual
Difference F o r e c a s t (% points) Direction
2009
Gluskin Sheff
‐35%
+4.9%
12.9
WRONG
2010
Economist
-25%
+5.7%
25.9
WRONG
2011
Capital ‐25% Economics
+6.8%
10.1
WRONG
2012
CBC
‐25%
-0.3%
11.0
CORRECT
2013
Fitch
‐21%
+5.1%
4.0
WRONG
2014
Bank of Canada
‐30%
+6.0%
13.4
WRONG
If we looked at every single developed property market in the word, we would see that experts are no good at making predictions. We don’t have time to do so here, though, because there are other things we need to discuss, and we’ve only got a limited amount of time in which to do so.
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Most experts are wrong most of the time...
The problem we have as humans is that we are conditioned to blindly follow experts. They know more than us, so they must be right. In his book Wrong: Why Experts Keep Failing Us, David Freedman calls this the ‘Wizard of Oz’ effect. We’re taught from cradle to grave to respect the opinions of others (which I’m not suggesting is wrong) and that someone else always knows best. I can’t argue with that last point, either. There is always someone that knows better. But the point is to learn how to discern between good expertise and bad expertise. The first thing to look at is track record and percentages. Looking at the predictions from experts that we discussed a short while ago, you might come to the conclusion that Hometrack and Capital Economics are – how best to put this? – ‘pants’ at predicting while at least John Charcoal gets the direction, even if not the magnitude, right. Bad advice tends to be certain of itself, while good advice seems to be questioning. For example, “I think that property prices will rise again this year, possibly at the same rate as last year, though a headwind could be the possibility of a rate rise caused by better than expected economic growth numbers.” Immediately you have a basis for consideration, and a number of other elements to consider. The definitive, eye-catching, mouth‐ 33
watering advice (Dow will go to 36,000!) might be exciting and compelling, but it’s not empowering. The experts also tend to provide a ream of evidence, all supporting their view. There is no contradictory meanderings, no counter argument. The world is a complex place, and predictions are a complicated part of the information world we live in. To hold on to evidence that would shoot their predictions to shreds would make them less of an expert. Data is cut down, edited, and sometimes discarded if it doesn’t fit the prediction. Contrary to what Warren Buffet said after the event, there was plenty of evidence out there that trouble was around the corner for financial markets – did he and Berkshire Hathaway choose to ignore it? Maybe we shall never find out. It’s easy to fall into the trap of blindly following the experts. We’re told something by someone who knows better, and we switch off to our own ability to question, examine, and judge. Experts can be confident, charismatic, even hypnotic; so much so that we simply accept what they tell us as the reality of all things. You now understand that the predictions of property experts simply cannot be relied upon, and you have a few strategies to help you avoid the Wizard of Oz effect. So what about the people around you? What can you learn from what the majority are doing? There’s Safety in Numbers: The Psychology of the Crowd In trying to discover the reasons why the property experts simply can’t get their predictions right, we’ve largely looked at the issues with ever changing market fundamentals that don’t hold true from one street to another, never mind across the whole country. But there is another factor at play in the property markets that is even more difficult to monitor than interest rates, the economy, wages and affordability, etc. This factor is market sentiment, or as some would call it, investor madness. 34
We touched on this earlier, when describing how we tend to believe bullish predictions when the market is good and bearish predictions when the market is bad. In other words, we allow the emotions of today rule our expectations of tomorrow. If you open a newspaper and see headlines such as “Property to fall 30% this year”, or turn on the television and watch news of another property investor gone bust because interest rates have gone up, you’d probably get a little scared. You might not rush to sell your family home, but you’re more likely to sit on your thumbs and ignore what, just a couple of months ago, you thought was good value. And if you hear or read or watch stories of boom times and property shortages, you’re more likely to rush out, jump on the bandwagon, and pay over the odds for a property you wouldn’t have given a second thought at the price a few weeks back. Sentiment is a funny thing. Emotion also gets in the way of real information. You get so confident, or so distraught, that you ignore anything that offers a contrarian view to popular thinking. Emotion is a powerful beast. It is able to drive property booms and busts, get in the way of an otherwise sound investment strategy, and put your wealth and health in jeopardy. But when that emotion gathers a following, it’s like a snowball rolling down a mountain. It grows and grows until the sound of the avalanche is deafening. This phenomenon is exacerbated today by the easy flow of information (and misinformation). Social media, property forums, and message boards all spread news and views fast. Often people don’t read or hear things right, or type on their keyboards with fat fingers (how many times have you sent a text or Facebook post and then realised that words are spelled wrong or missed altogether?).
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It’s also easier to be a part of the crowd. It abdicates responsibility should something go wrong: your parents/ uncle/ brother/ sister just did this or that so it’s got to be a good thing, right? Finally, lack of education informs the crowd. This could simply be because of time. I remember back in the mid-‐2000s that investors, experts, the media, and the man on the street never gave a thought to the possibility that property prices can go down. Well, here’s news for you: they can, and do. On a regular basis. That’s part of the property cycle. Just like economies go through growth and recession. Falling prices are every bit part of a property investor’s life as rising prices and vacant periods. If you can’t rely on the experts, or take solace in the crowd, then who can you rely on? If you’re at the stage where you’re trying to answer this question, then you’re already on your way to a free mind, unencumbered by reliance on experts and the comfort of the crowd. That’s a good thing, because a thoughtful, questioning attitude is the best way to protect yourself from making poor investment decisions. This isn’t the same as procrastination, by the way. If you are actively questioning, then you are being active towards making a great investment choice. The trick is to listen to the experts, then go and find all the data and evidence yourself and come to your own conclusions. Look in the press; watch the news, listen to the radio. Search the internet, and then check every fact two or three times. Don’t forget that most of these channels publish only the exciting stuff, the eye‐popping headlines that grab our attention. You need to look deeper. Look at what the crowd is doing, and ask if it is logical action or a knee jerk reaction that presents opportunity.
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Oh, and don’t forget that I’m an expert, too. So perhaps you shouldn’t trust me, either! But what you can trust is the constant turning of the property cycle and a proven property investment strategy. Then, based upon this, your own solid judgement.
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The (Abridged) Property Trend Cycle
The great thing about property is that it moves in very clearly defined cycles. So if you are holding property then it will shoot up, sit stagnant, and then shoot up again. If you are buying, selling or remortgaging then it will shoot up, overshoot the mark, slight correction then slow, steady growth and fall off the face of the earth and shoot up again. This represents 1 ½ cycles so the second time we say it shoots up it is actually a totally new cycle but it assists our understanding if we look at 1 ½ cycles. Interestingly, most people will draw a clock face to explain the property cycle but the problem with this is that it’s difficult to apply timings to the cycle. So the time is takes to go from 12 o’clock to 3 o’clock may not be the same as the time it take to go from 3 o’clock to 6 38
o’clock. That’s why I find it my easier and much more accurate to draw a graph. The strategy for each stage Now the important thing to understand about the property cycle is the strategy that you must apply to each phase of the cycle. The first thing we do is draw in two stop signs at either ends of the growth or galloping cycles. These Stop Signs remind us that the massive capital growth won’t go on forever and that if we want to hold our portfolio through any stagnant or falling period or more importantly through times of high interest rates we will need to STOP and review our portfolio’s requirements. The simple reason we STOP and assess before the boom has slowed is so that we can create an equity buffer that will see our portfolio through.
Where your exact STOP sign will be placed with depend on your situation, the more capital and cash you have available the longer you can leave it, if you have a fixed income and not a lot of capital then your STOP sign will be much sooner in the cycle.
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Now the time between property prices shooting up after the falls and the stop sign we apply is one simple strategy. It’s called Buy, Remortage, Buy, Remortgage, Buy and you can do it almost disregarding cash flow totally. Your properties will be increasing in value so much that you can buy as much as you want, once it has increased you can remortgage and buy more. Now cash flow never really gets neglected totally but it is less an issue than other parts of the cycle. Two Dynamics of Property: Cash flow and Capital. You see there are two very important dynamics that affect your portfolio and managing them is essential if you are to grow your portfolio whilst remaining safe and secure. Disregarding Capital and it will mean you won’t be able to buy more property, disregarding Cash flow and you could lose your entire portfolio. In the boom time, the amount of capital you have will determine how much property you can buy, in the stagnant market the amount of cash flow you have will see you through the period safely. Now, sometime after the whole economy takes off and prices shoot up the Bank of England will come under increasing pressure to raise interest rates to bring inflation and prices under control. So around the STOP Sign you will typically have rising interest rates. So Cash Flow becomes much more the priority. The Concept of Lag Now imagine a supertanker travelling along at full speed. The captain says ‘FULL STOP’; How long will the fully laden tanker come to a full stop. Kilometres won’t it, because of the momentum. This is a similar concept to the concept of LAG in the economic cycle. So raising interest rates has the same effect as stopping a boat, the decision to raise interest rates or stop the boat will have a lag effect for the next 2 weeks, 2 months and 2 years even.
40
Now at some point along the phase these interest rate rises will take effect and many times the economy will fall off the face of the earth. Their will be different names for this point every time; the oil crisis, the credit crunch, the savings and loans scandal, the dot-com bubble but in every case there is a date and name for it. Now it doesn’t mean that every time their will be house price drops and a property bubble bursting. The important point to remember while everyone is losing their heads is that because the economy will be slowing down interest rates will be trending downwards which will ease cash flow with every drop. As the interest rates drop its time to reset your cash flow and ensure that you restock any provision account monies that need to be put aside. Where are we now In this whole cycle is that it is impossible to pick a specific date on the cycle. As they say in the joke: ‘If you ask 3 economists you’ll end up with 4 answers’. We can however track the trends within the cycle and by tracking trends we can easily choose the right strategy to apply in every market and therefore make money in any market, even when prices are dropping. It’s this reason that we say the best time to buy property is now. If you understand the property cycle you will understand how to do this. Your strategy from here The property cycle is possibly the most overlooked aspect of building a portfolio. Far too many property experts and investment companies overlook it totally. This is extremely irresponsible especially considering that you will most likely be holding your property through the various stages of the property cycle. Applying the most appropriate strategy for each stage of the property cycle and making sure that you take advantage of the opportunities as well as avoiding the dangers. 41
Experts play with figures So here is my opinion. I’ll leave it to you to agree. I read expert opinions all the time to challenge my thinking and hone my own skills at deciding the market. Sometimes they add value in parts, others I entirely agree with, many I totally disagree with and then others appear to have self-serving intentions but the important thing is many experts have baggage attached, they work for organisations who don’t make money from property so it’s in their interest to promote a negative view of property. I have to make up my own mind who to listen to and follow and more importantly, take responsibility for these decisions. Noone else is to blame when I am wrong. Be warned that if you choose to listen to my predictions or any guru, author, consultant, family member, politician, whoever… and if you make decision based on their advice and it turns out they got it wrong.; they are not going to pay your mortgage. Experts don’t understand your specific situation and therefore their advice might be totally correct for everyone else but in your circumstances it could lead to disaster. No Decisions, No Responsibility I work on the principle of ‘No Decisions, No Responsibility’ which means I will NOT make any decisions for you and I won’t accept any responsibility for your decisions, even if they were based on my wrong predictions. It may sound harsh but it has to be that way and you should approach every situation in this way. It empowers you but it also makes you the only person to blame… full stop. In my own portfolio I have had to face these decisions and consequences many times over the past two decades but I probably wouldn’t be in the situation I am, if I blindly listened to the people who have offered
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me ‘can’t lose’ opportunities. Ha… can’t lose, or even guarantees, I have seem more of these fall over than the non-guaranteed, non-certain deals. So go in with eyes wide open and ensure you don’t get caught up in the hype and BS of a sales pitch or a self interested guru/expert that works for, or on behalf of, property companies and so its in their interests to promote a positive view of property and downplay the negative. I always try and work out where the expert sits when accepting their predictions. The whole purpose of this book is to realise that ‘Most experts are wrong most of the time but that’s not good enough as it leaves a void in our knowledge and this is where my Property Trend Cycle steps in to fill the void. If you feel that you’re still not confident or you are already beyond the basic principles and models in this book then you need my more advanced book called “Property Trend Cycle” it dives deeper into the cycle and looks at each of the 10 specific stages of my cycle. Chat to my team or sign up to my website to get your copy. When you understand this cycle, how to spot where the market is within the cycle, and how each phase interacts with the previous and the ensuing phases, then you’ll be able to invest with the most clarity and best timing. It doesn’t take a huge amount of expertise or time to track the trends and if you are out you are normally not dramatically out. I am not a big advocate for high-risk strategies that many investors use, these investors have to call the market correctly and in my experience their portfolios are more gambling than strategy and market foresight. I am an investor not a gambler. I follow a system and I rarely move away from my strategy and system. Certainly for the past twenty years it has worked for me and I am sure it will work for you also.
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The other, often forgotten, side of investing.
I don’t want to scare you into thinking you need to understand the above model we use for researching and choosing areas and properties. In fact, all I want to introduce you to in this chapter is the other side of the process. So far we have talked about the Property Trend Cycle but it’s absolutely no good choosing the right time to buy if you are going to choose
44
the wrong type of property. For this reason it’s essential that you do your due diligence on every property. By all means, pick the right time, but also choose the right area and the right development. This model has worked in every country in which I have invested, whether in Europe, Asia, or Australasia. It takes what is termed a top-down approach, examining the big picture first before drilling down to deep knowledge about the property and its real prospects to provide: income, capital growth and the often forgotten, ease of ownership. The actual model is simple. The Overall Story or Elevator Pitch This is not in the model but it’s developed at every stage of the model, I want to end up with an elevator pitch of sorts, a quick story or compelling reason why it is I would want to invest in this area, development, or property. The overall story is an essential part of the model. It’s what I tell my wife, Arlene, when she asks why I am putting our money into this opportunity. Ultimately if I cannot convince Arlene about the viability of an investment in a quick story or a quick elevator pitch, I most probably won’t invest in it. She is my non-emotional, non-involved sounding board for investments. I do all the work in researching but if she’s not convinced then I will have to either go back and rethink it or leave it altogether. I cannot recommend enough having someone, and it doesn’t have to be your wife, to run things over.
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My 10 Minute Due Diligence Checklist So I start with a my 10 minute Due Diligence Checklist, Quick Checklist for short, to work out if its worth investing the time to continue doing the detailed research, this is usally done Online only and possibly some Phone research. It takes about 10 minutes using various sites like Rightmove, Zoopla or the equivalents around the world. For full details, speak to the team about my book What Property The 4 Immutable Concepts of Property Investment. Research Process - Big Picture to Little Details Research is conducted online, by phone, and in person. It is this research or due diligence that forms the basis of my decisions to invest or not. Each stage of the model a decision needs to be made on whether to continue the research as at each further stage the amount of work gets bigger and the research deeper. Online research is the easiest to do. It allows us to get a good feeling for an area and its prospects. We can learn a lot about the development that is taking place nearby, about the finances of the local authority, the local jobs market and economy. It doesn’t take a lot of time to get a really good feeling for an area, purely from online research. One caveat, though: always seek out relevant information, and double check for validity – there is a great deal of misinformation on the internet (for example on ‘wrongepedia’ or ‘out-of-datepedia’). Once the internet research is completed, though sometimes it may be done concurrently, it’s time to hit the Phones. By speaking to local estate agents, employment agents, and developers, I’ve found it possible to glean specific data and information. You must, however, be armed with the right questions: the people you speak are likely to 46
have a vested interest in painting an overly optimistic picture. Estate agents want to sell homes, employment agents want good people on their books, and developers need investors and home buyers to part with their cash. The final piece of the puzzle is the Site Visit. Inexperienced investors will use this to look only at the property they are considering buying. That’s a mistake. The site visit should be used to get a feel for the area, too. It is this site visit that will provide the corroboration of all the information gathered and crunched to date. Drive around the area. Look at the state of the roads, the schools, and nearby public buildings. What development is taking place? Are there signs of a homeless problem? Are factories closing down? Is the local high street a thriving place, or is every other shop empty? It’s all about the fundmentals... Good Solid Fundamentals. The next stage is a detailed research into the 5 fundamentals: • Shops, • Schools, • Transport Links, • Major Employers, • Major Investment. I say them in that order but I actually research them in the opposite order so starting with major investment, major employers, transport, schools, shops. Again I want to research in as much detail as I need to convince myself of the fundamentals, or the change in fundamentals in the case of regeneration (or gentrification).
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Then as always there another decision to make, continue or leave it. Detailed Property Research. So we are happy with the overall offering, and the area so we can now start on the development and property. We begin with the development (or neighbourhood), then move to external of the property and move inside the property. Legal and Cash flows This is when you get into the details of the contract, searches and all the details that I normally get my solicitor to do. Remember at the end of this you have to make a serious decision to buy the property. It’s all just a series of simple questions.. So, this strategy allows me to identify area and then individual property prospects. It enables me to avoid the errors that inexperienced investors make, and when I invest I do so with the near certainty of success. I’m not saying that this strategy does not involve a fair amount of work – if it didn’t it wouldn’t be of value – but the research needed can mostly be conducted on the internet: it’s now way easier to make great investment decisions. In fact, I would say that 80% or more of my research time is spend online. I augment this work with telephone conversations, and then finally I’ll visit the area and the properties I’m interested in purchasing. Even then, I might skip this final visit if I have someone available (whose judgement I trust) that is able to do the site visit for me. The research that is required by this model is really a list of questions. We start at the top, with the broadest, most general area of decision
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making, before then ratcheting up the magnifying glass until we get to property specifics. The questions we ask fit into four key areas: 1. Macroeconomic factors This is the big picture. We look at the state of the economy, the housing market, and make an assessment of where we are in the property cycle. In particular, we’ll look at both national and local elements, searching for evidence of governmental or local authority investment (roads, rail, airports, schools, other public buildings and amenities, etc.). We’ll ask questions about the supply and demand sides of the property market, again at national and local levels, and make an assessment about the state of the economy: will the area and economy support the goals of income and growth? 2. Microeconomic factors At this next stage, we are concerned with the local area only. This is where we really become involved with the area in question, examining in more detail those infrastructure plans. Is local authority development being supported by private development, for example? Are schools and colleges helping to build communities, and is local business thriving? Are there shopping and community facilities to encourage money into the local economy? We’ll look at local demographics, review crime rates, and consider average wages and credit ratings. If you know where to look, all of this information is available while sitting at your computer. We want to have a deep understanding of the area in which we’re considering an investment, and learn what type of person may want to live there. In other words, does the area have a rentable value?
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3. Development specifics We now examine the development itself, looking at a broad range of factors. These include size and design of the property right down to minutia such as the standard of work, floorings, fixtures and fittings. Also of concern is the developer itself, and here we’ll be looking at track record. If the developer is one with whom we’ve worked successfully before, all the better. If the property being considered is a pre-existing home, I’ll be looking at levels of maintenance previously undertaken, and perhaps ground searches, rented properties of a similar type nearby, and if there are any plans for the area that might adversely affect the property going forward. 4. Portfolio specific Finally, we want to know how the property will fit into the overall portfolio. We want to know that it complements the existing properties, and that it won’t drain resources that might be needed elsewhere. Specifically, we want to know if the addition of this property will aid in the development of the portfolio, providing the income and/or capital gain to do so. Of course, this due diligence is going to vary from person to person, property to property, and country to country. It’s not a one‐size‐fits‐all model. In summary With the internet, telephone conversations and site visits, you have as much information available to you as the property experts. The only real difference is that your vested interest is in making you money, either by means of income or capital growth (maybe both). You’re not at the behest of an employer, you don’t fear the withdrawal of millions from a fund, and your eyes aren’t blinkered.
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Using the systemic property investment strategy that I’ve outlined above, you’ll make better judgements which are unencumbered by an emotional bias, and not clouded by those expert opinions that have no more than a 20% chance of being right. The maximum value of this systemic approach is achieved when you ask the right questions. Too many novice investors think they have all the information they need on a two or three page summary provided by an estate agent or developer. People who buy based on such sparse data are those who lose their shirt. We have developed a set of 150 questions, and by the time our due diligence is complete, it will run to around 30 pages of written copy and a pile of A4 research about 4 to 10 inches thick. An investment in property is likely to be the biggest capital investment you will ever make. Get that first one right, and you’ll be in a position to add more, building a valuable and high yielding portfolio. Do you really expect the foundation for such an investment to be a two or three page report? With the best due diligence and a systemic approach to property investment, you’re virtually guaranteed the outcome you expect.
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Your Next Step.... It all comes down to two choices but one responsibility. So we’ve come to the end of this book. Congratulations and hopefully you see now that, at least at high level house prices are predictable, maybe not in exact percentages but at least in the general trends. If you want to learn in more detail then my Property and Economic Trend Cycle book is for you, either as a general interest read or to start predicting your own portfolio growth. You can also keep up to date with my prediction and market updates through the website or the team are always up to date on my current thinking on the market. The way I see you have two (actually three) choices from here. 1. Do nothing, say thanks Brett, great book but I am happy to be the ship that sails the ocean with not rudder, guided by the currents and at the will and mercy of the tides. To be fair, this is a decision but not one that I would recommend. 2. Read more, learn more and start making your own predictions. This is a bold and admirable step and I would love to support you on this journey. It’s frought with dangers and self-interested parties but if you can wade through the hype and BS you can actually confidently look at the market with objective eyes and make informed decisions.
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3. Get someone else to help you. I’d love this to be me. This is where I can come in or any number of property experts and organisations that provide market commentary. The important thing is that you largely agree with the person you are following and they are commenting on your situation generally. It’s no good having a billionaire market expert whose talking about the US market when you are in the Asian marketplace. Sure the US has a lot of influence in the market, it’s the largest economy in the world, although China is fast becoming the largest. In the end, all three decisions come down to one fact, one responsiblity. You are the only one responsible for your decisions. It’s a big responsiblity but one that I am profoundly confident that if you accept and really embrace you’ll find that before long your entire outlook on the world will change. Taking responsibility is the recursor to so many positive changes in your life. Forgetting all of the contents of this book, if you take away just one message from this book, beside most experts are wrong most of the time... Know this... Taking respondsility for your own life is the most important decision, its the decision that is the foundation of all other decisions. In my own life, I can pinpoint the turning point, when I was a seminar, guru, book junky and I finally make the change, took responsiblity and within 6 months my life had profoundly changed and to this day it continies to change for the positive. Sure, I have challenges, in fact more challenges now than I did before but I am so used to dealing with them, overcoming them, even the ones which I think ‘Oh sh*t” what am I going to do about this? Even these big ones actually cause me to smile as I accept the challenge.
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So accept the challenge, expect them all the way along and when you solve one, expect another but know that they are part of the journey you are already on. Remember that my team and I are always on call to guide you through the challenges that will be presented. There is always help around you, trailblazers who have been where you are going. So embrace this, don’t think that doing it alone in some way makes you a better person or means you will have a better triump march. Delegate the task, accept the responsibility In truth, I look at the people who don’t want help as unfortunate. They are missing the joy of sharing a challenge and standing on the podium together. I was a control freak for many years, now I cannot get rid of a task to someone else quick enough but I always accept the responsibility. Anyway, enough of my rant, get out there, start reading up on the market, speak to my team, watch some of my property investment news updates on our website. Become the responsible investor who questions the word of experts, gurus, family, politicians and newspapers. Ask what the self-interest of the expert is and before long you’ll be calling the trends and preempting the market to your profit. Live with passion and fun,
Brett Alegre-Wood
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If you’d like to know more about our approach to property investment, and how that approach can be tailored to suit your individual circumstances, call our team now on +44 (0)207 812 1255.
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YPC Group’s Vision A simple idea will change your world. Your home + 3 Properties = Change your world. Since the late 90s Brett’s vision has been a simple way to retire and live a fantastic lifestyle. The 3+1 Plan is this vision. It’s simply owning your own home and 3 investment properties which have no mortgages by the time you retire. This was the topic of his bestselling book ‘The 3+1 Plan – How to achieve financial freedom with just 4 properties’ and it’s been the vision and passion of his property investment company, YPC Group since 2004. It’s a vision that anyone who is prepared to build a simple portfolio of properties can change their world forever. The mind once stretched never returns to is former self. Property investment will profoundly change who you are for the better. At YPC we simply make this process of change as easy as possible through our values, our vision and our mission.
Creating Exceptional Investments, Guiding your Path, to Extraordinary Lifestyles. Find out more at www.ypc-group.com/about-us/ 56
Our Values (What we stand for) We believe a simple idea will change your world.
Your home + 3 properties is all it takes to change your world. We believe it doesn’t matter whether you’re young or old, rich or poor, client or team. Anyone can own property and anyone can build a portfolio. We believe it’s fear, naivety, lack of education, and emotional immaturity that stops us. Education overcomes all this; and this education should be free. We believe in today’s world, we are all too busy making money to actually create wealth. We believe you want someone you trust to help you every step. We believe that governments and big business cannot help you, and that all pension plans are flawed. That the herd (society) mentality will take you off a cliff. We believe your own actions are the solution to the problems you face. We believe that acting alone; the odds are against us, acting together we will tri-umph. We believe you are not alone, there are countless others on the same journey that want the same things as you. We believe that wealth, success, happiness is all a journey. Ups and downs are as much a part of the journey. We believe that obstacles on the journey stop people. Having someone to guide your path and hold your hand is key. 57
We believe that the use of technology saves us time, that time should be spent on pursuing the things we love, our passions. We believe that you want to face your fears, overcome the obstacles, become who you want to be, lead your family to freedom of lifestyle. Live a life of wealth, success, happiness and ultimate fulfillment. We believe that passionate people like you will change the world, change your world. We believe that there is a way out of the rat race... a simple idea that will change your world. Your home + 3 properties is all it takes to change your world
If you feel that these are your values to then why not join us to help change the world by changing your world first... Find out more www.ypc-group.com/about-us/
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Other books in the series
24 Property Investment Secrets
What Property? The 4 Immutable Concepts of Property Investment
The 10 Minute Property Due Dilligence Checklist
The 8 Biggest Property Myths
The Greatest Scam of All Retirement Through a Pension
Property and Economic Trend Cycle
Property Emotional Intelligence
Profiting From New Build Property in the UK
True Property Stories 35 Lessins in Building a Property Portfolio
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Get Your Free Copy of The 3+1 Plan Book The insider’s guide to property investment success with just 4 properties Ideal for people considering property investment and have no idea where to start, know that their pension will not meet their retirement needs, want a proven plan of action for property investment success. This People’s Book Prize winner will show you how to: • Achieve financial freedom with just 4 properties. • Grow your property portfolio and become an effortless investor, not a stressed landlord. • Save time building your portfolio so you can spend time enjoying your life. • Manage your cash flow and use checklists to stay on track. Find out why property investment is the most effective way to secure your financial future, plan for your retirement and live the life you want. Find out why most property investors never succeed at building a successful property portfolio.
Go to www.ypc-group.com/the-3-plus-1-plan-ebook-download or call the team on +44 207 812 1255 60
Get Expert Opinion on the London and UK markets with Brett Alegre-Wood Two Decades of Property Thought Leadership for the Everyperson…
His property career started in 1994 when as a New Build Estate agent he sold off plan property before moving to become a Mortgage broker. He helped set up the 3rd largest non-bank lender in Australia (Mortgage Ezy) before moving to the UK in 2002. In 2004 he founded YPC Group and since the has contiuous written, recorded, predicted and strategised for clients across the globe. These days his time is spent recording videos, writing educational material and running seminars whilst he travels between UK, Middle East Asia and Australia. Join Brett for Property Education: • • • • •
Seminars Property News Updates Over 200 hours of video More than 1,000 articles Over 25 books
Brett Alegre-Wood Property Expert and Author
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Don’t live in the UK but want to buy UK property?
We are London and UK Property experts
Our business is ideally setup for expats and international investors. We handle everything for you, giving you one point of contact for everything.
Plan - Strategy - Source - Negotiation Mortgages - Solicitors - Lettings - Management Meet the team in one of our marketing offices across Europe, Middle East, Asia and Australia. Call the team on London + 44 207 812 1255 Lincoln +44 1522 503 717 Singapore +65 6736 0500 Hong Kong +852 8191 1255 Australia +61 7 3102 3766
Producing exceptional investments, while guiding your path to extraordinary lifestyles. 62
Effortless Property Management with Ezytrac... Our dedicated Property Managers will become your trusted advisor for all your properties. Our Full Set and Forget Property Management gives you more time and the Peace of mind that YOUR property is treated like OUR property. 32 Point Property Management Our 32 point Effortless Property Management checklist covers far more than any other agency. We’ve kept all the good of a small agency whilst providing the range and depth of service of a large agency. Insightful Communication Having a dedicated Senior Property Manager means that whatever you need you have one point of call, a direct mobile and direct email, no different departments, no queues, no delegation of tasks…you deal direct with the person who will provide the solution. Total Peace-of-Mind Management The team are all qualified, trained, accredited and passionate about making the process as smooth and effortless as possible. We can’t stop things from going wrong but we can respond in a quick, professional and decisive manner based on our years of experience.
Go to www.ezytrac.co.uk or call the team on +44 152 250 3717 63
Can you pick the next property hotspot?
Save time by using our expertise in researching the current hotspots, future shooting stars and areas with the best fundamentals. Our unique Hotspots Algorithm brings 108 data points across 324 UK postcode districts. We then picked the minimum criteria we would be happy to invest in and did detailed research, preparing a Property Investment Guide for each, providing: • Detailed area research • Full analysis of the core fundamentals - Investment, Employment, Transport, Schools and Shops • Brett’s expert opinion, as always expressed in his to-the-point, straight-shooting style
Go to www.ypc-group.com/detailed-research-due-diligence or call the team on +44 207 812 1255
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