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Emotional Intelligence 16 Lessons on how to overcome the emotional barriers faced while building your property portfolio by Brett Alegre-Wood Author of the number one Amazon bestseller "The 3 + 1 Plan: The Insider’s Way to Achieve Financial Freedom with Just 4 Properties...�"
Emotional Intelligence 16 Lessons on how to overcome the emotional barriers faced while building your property portfolio by Brett Alegre-Wood Author of the number one Amazon bestseller “The 3 + 1 Plan: The Insider’s Way to Achieve Financial Freedom with Just 4 Properties”
Published by: YPCGlobal Ltd | 4 – 8 Rodney Street | Islington | London | N1 9JH. Copyright Š 2010 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 Fax: 0207 788 9670 Email: info@yourpropertyclub.com www.yourpropertyclub.com ISBN 978 0 9559669 1 0 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. Property values and rentals can decrease as well as increase. You can lose your property if you do not keep up payments secured against it.
CONTENTS Hello and Welcome The 3+1 Series Your Pre-Reading Pep Talk… Lesson Lesson Lesson Lesson
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Lesson 5 Lesson 6
Lesson 7 Lesson 8 Lesson 9 Lesson 10 Lesson 11 Lesson 12 Lesson 13 Lesson 14 Lesson 15 Lesson 16
Your property will rent out Interest rates will go up Prices will stagnate and sometimes even go down You will find a cheaper, better property than the one you just bought Politicians, friends, newspapers and parents will all have a negative opinion of what you are doing You will never know 100% if it’s the right decision to buy, and you will never believe how much you’ve made from so little work When others zig you should zag Everyone is a salesperson, everyone Someone, somewhere will lend you the money The rich and educated get richer and the poor and uneducated inevitably get poorer Nobody has your interests at heart as much as their commissions The property cycle is a 7‑10 year cycle and not an 18‑24 month one The government only ever succeeds in taxing the poor and middle class. The rich are too smart and flexible Searching for the perfect property deal Cash flow is king until you want to buy more. Capital is king until you cannot afford the cash flow… Lifestyle is the only reason to build a portfolio
Your next step About the author – Brett Alegre-Wood Do you want help in handling your portfolio? The top 8 most asked questions about working with YourPropertyClub Here’s what others have to say about working with YourPropertyClub Contact details Useful websites
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Emotional Intelligence… Hello and Welcome
This is the most important information in property that you will ever come across! It’s a bold claim I know; but one that I am very comfortable with. I have been involved with the property market since 1994, helping people build their property portfolios and, after all that time, without a single doubt the most important factor in the success of a portfolio is how you will cope with the process on an emotional level. What do I mean by this? Brett Alegre-Wood Chairman YPC Group
It’s this very reason why I place so much emphasis on the development of your “Emotional Intelligence” when investing.
Most people will tell you that property is all about location, location, location. Well I’ll tell you differently. Having worked with thousands of clients across the world, I know that the one common factor that prohibits or slows the growth of their portfolio is emotions. Developing the emotional intelligence of an investor is all about educating yourself with the types of barriers you will encounter as you build your portfolio. This educational booklet is an overview of the most common emotional hurdles. 4
The greatest growth in your emotional intelligence will take place in the early stages of the development of your portfolio with fully 80% of your growth during your first five properties. After this you will have different emotional challenges, but by this time you should have started to see some results from your portfolio. While I could go on for hours about each of these points (and I generally do), I have tried to capture the essence of each of the lessons and present them here. While nothing can replace the actual emotional responses that you will experience from each of the lessons as you grow your portfolio. So it’s imperative that you do more than just read this and think ‘that’s great information that I will apply at some time in the future.’ Get involved and take some action! Live with passion,
Brett Alegre-Wood
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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, Peter James, the question arose: “how much do you really need to retire?” He explained that you only needed your own home, and three other buy to let properties to get into a position to fund your retirement. Unbelievable it may sound, but yes, 3 buy to let properties are all that is required to fund your retirement! Why only 3 properties? How does that work? Well simply put, in the UK and Australia the average person divides their income into three and spends: • 1/3 on taxes • 1/3 on rent or mortgages • 1/3 on lifestyle (food, entertainment etc) So imagine that you have 3 buy to let 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.
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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 3+1 Series gives you simple ‘how to’ guides to help you build a successful property portfolio and secure your financial freedom.
“It’s a proven method to build a portfolio. You don’t need to change jobs, work late or give up your weekends.” 7
Your pre-reading pep talk…
Before we get started I need you to have a basic understanding of the principles that are directly related to the development of your Emotional Intelligence. Before coming to the UK, one of the companies I owned was a personal development self study and seminar company. I learned the importance of taking into account the emotional side of any change program (yes, whether you like it or not, building a portfolio will change you). So it doesn’t surprise me that the more clients I speak with, the more I realise that my business is about 10% to do with property and about 90% to do with emotions. Whether you like it or not, building a portfolio is an emotional change program and, in most cases, it’s a massive emotional change program. One of the biggest reasons we go through such a massive change when building a portfolio is because we are never taught about financial intelligence at school. In fact, you won’t even find a university that will teach you how to achieve financial security, yet it’s something that we all struggle with on a daily basis. Is it any wonder that this lack of education is why we have developed so many fears and limitations that supposedly keep us safe? Let’s get a better understanding of fear, I like to define it as False Education Appearing Real.
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The trick to overcoming fear is to replace it with good quality education based on strong and proven fundamentals. The thing about fear is that once you provide some good quality education and then take someone by the hand leading them one step in front of the other it doesn’t take long before the fear is replaced with excitement. One of the most common questions that I am asked by clients is how long will it take to build a portfolio. People will jump in and say it depends on how much money you have access to! In my experience, this is wrong. The amount of time it takes to build your portfolio depends totally on how well you can cope emotionally. The Property Sleep Test Can you invest in a property and sleep a full uninterrupted night without worrying? If the answer is ‘yes,’ then you are ready to invest. You can make a decision based on a sound and calm mind. Sleeping on a decision gives you time to stop any compulsive buying, no matter how good the salesperson or presentation is. If you can’t sleep a full night (providing you haven’t been drinking double espressos all day) ask yourself if you’re lacking in education or detail in some area? If you are, then you need to take action prior to investing. If you’re not lacking in education or detail, then perhaps it is not the right deal for you. The application of this is simple: no matter how good the deal seems, always delay your decision until you have slept on it or until you are sure that you completely understand the deal. This will normally only come with experience. So if you wake in the morning feeling enlivened and fresh, then you have passed the sleep test. If you wake feeling as if you had just gone to bed, then perhaps it is time for more education.
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One of those moments! A couple of years ago, after a relatively ordinary day in the office, I had a conversation with my mum who lives in Australia. After speaking to her a sense of fear and doubt came over me as I realised how far I have come since leaving Australia. I have built a significant portfolio in both the UK and Spain since leaving home, and speaking to my mum triggered a momentary sense of fear and doubt. Although it passed, for a moment there I was a beginner investor gripped with fear again. Guess what I’m trying to say is that it doesn’t matter how much experience you have or how many properties you have. On some days you’ll stop, catch your breath and think: Goodness, what am I doing? Am I climbing too high? Running too fast? Will I fall flat on my face at any moment? It’s nothing to do with logic. It’s simply your memory of who you were coming back to say “boo!” It may not be your mother. It may be a newspaper article, a television program, a word from a friend or it might just be a moment between thoughts. But whenever you get those moments, you had better have someone you can call on to guide you through. But most of all, don’t worry – it will pass. Just know that even the best investors have these moments. Funnily enough, they tend to happen when you are pushing your comfort zones.
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Lets get started!
Lesson 01
Your property will rent out
No matter how much you want to believe that your property is going to be vacant, it will be let out and void periods will become less and less of a problem. There are only ever two reasons a property will not let out: either you have not found a competent agent or you have not found the realistic market rent. Finding a competent agent to let out your property won’t necessarily be easy. I regularly sack agents that are not performing or not inspiring me with confidence. To get your property let out, you need to manage your letting agents like you manage children. If you aren’t harassing them for updates, you can bet they are not following up potential tenants. You will need to stay on top of your agents, calling every day – every hour if you have to! Two Rents in Property A word of warning… far too often people are conned into believing that the realistic market rent is the same as the rent the valuer stated on the valuation for your mortgage. It can often be hundreds of pounds less – I call it the ‘Two Rents of Property’. If they said you’re “You need to manage your letting agents just like you manage children…” 12
going to receive £700 per month on the valuation (The Valuers Rent) don’t be surprised if you receive only £600 - £650 (The Realistic Market Rent). Use the £600 - £650 figure for your cash flow forecasts. Don’t be fooled by what letting agents or anyone else tells you. Unless you know what your realistic market rent is, you can’t work out the correct cash flow and it’s your lifestyle that will suffer in the end. To find the realistic market rent, follow what the agent tells you and if you don’t get any viewing after a week or two, then drop the rent. Continue to drop the rent at regular intervals until you find the right level. Once you find the realistic rent the market will pay, your property will let quickly, often within days. What’s more, over time, you will forget that you’ve ever worried that your property might not let out.
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Lesson 02
Interest rates will go up
The property cycle means that due to totally normal and almost predictable market forces your interest rate will go up (and down). This will normally move within a certain range; the trick to property is to pick this range and know where interest rates are heading. This way you’ll know when to fix the interest rate and when to choose a tracker. If you have no idea how to do this, don’t worry because most economists have no idea either. Just fix your rate every time and sleep easy. To sleep even easier, then might I suggest that you use my principle of Mortgage Cost Averaging (MCA) and calculate all your rates at 6% and put money aside as if you were paying that rate regardless of the interest rate you are actually paying at the time. When applied to property investing, Mortgage Cost Averaging works like this: 1. Pick the interest rate that you think will be the average over the market cycle; say 6% for the UK market. Remember that this is the
“…the trick to property is to pick this range and know where interest rates are heading.” 14
actual interest rate you will be paying on your mortgage — not the Bank of England base rate. Let’s call this the MCA rate. 2. Work out all of your mortgage payments based on the MCA rate. It’s a simple equation: (Mortgage owing x MCA interest rate /12 months) = the amount you should pay each month into an account 3. Now depending where you are in the cycle, two things will happen: • MCA above actual rate = surplus of money each month. This surplus should be paid into a provision account and will accumulate over time. • MCA below actual rate = shortfall each month. Fund this shortfall out of the provision account. This is a crucial time because it’s when you’re most likely to start thinking that things are going badly. This means when you’re actually paying 5% you will be paying an extra 1% into your provision account and when the rate is 7% you’ll be eating into that provision but overall you will be paying around your MCA rate of 6%. Once you have applied either of these techniques, just switch off to all the doomsayers and economists and get on with living your life. You have now allowed for any changes in interest rates.
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Lesson 03
Prices will stagnate and sometimes even go down
Yes you heard it, the price of your property will stop growing and even decrease and it will do it at two points along the property cycle, straight after you’ve had massive growth and right before you are about to have massive growth again. Regardless of this, no bank will repossess your property unless you stop paying the mortgage on it. So the only question is: if prices are dropping, can you hold the property until they go up again? The easiest way to lose money in property is to follow the crowds. “Prices are dropping so we should sell!” they say. “Prices will crash so you’d better sell!” “Prices are stagnant so get out while you can.” Whatever the current cycle is, as long as you can cash flow through it, you’ll overcome any stagnant period. Don’t worry if the value of your property drops the day after you buy it – it’s a natural part of the cycle and only affects you if you sell during the period. If your overriding philosophy is one of buy and hold, then you will be fine.
“If prices are dropping can you hold the property until they go up again?” 16
Lesson 04
You will find a cheaper, better property than the one you just bought
It’s always the way. If you look for something you’ll always find it. You buy a new red car and all of a sudden everyone has gone out and bought a new red car. You will get whatever you focus your attention on. It’s called the Law of Attraction. So as soon as you buy - stop looking Stop trying to find a better deal. Instead, focus on getting this purchase set up so you can easily manage it (using my Set and Forget philosophy). Property increases more than it decreases. In fact it normally falls one year in ten, so it’s more likely that the longer you wait the more that you’ll pay. I always say that you have three months to buy property, any longer and you are procrastinating. Any less and you may not be doing
“…it’s more likely that the longer you wait the more that you’ll pay.” 17
enough research. So once you find a property that stacks up: GO FOR IT! Don’t wait till the next one comes along to see if it is better, by then it’ll be too late and you’ll be in a continual state of procrastination. Once you’ve done your research and are comfortable with the property, take the plunge, the very fact you got involved is a broad statement of your intention to be successful. A loser is always waiting for the market to get better. Winners choose their strategy to meet the market and make money.
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Lesson 05
Politicians, friends, newspapers and parents will all have a negative opinion of what you are doing
Don’t expect the world to be universally positive about your plans. You’re more likely to get a pat on the back from the statue of Nelson! A politician’s job is to create an orderly society, so it’s not in their best interest to have everyone rich, they prefer people to struggle along in quiet desperation with not enough time to smell the roses but not get angry enough to rebel. Newspapers: well, we all know sensationalism sells... One day it’s house prices rising, the next it’s a bubble ready to burst. On and on and day by day it’s a never-ending emotional roller coaster ride mostly heading to certain destruction or worse. I wish my property portfolio was as exciting and volatile as the papers make it out to be. Property moves in slow, clearly defined cycles and once you understand these cycles you will make money, full stop. And finally, your family. They are well–intentioned, but they care more about passing on words of their own misguided adventures
“I wish my property portfolio was as exciting and volatile as the papers make it out to be.”. 19
than supporting you in yours. You should understand that their opinion counts, but you need to remember, add a grain of salt (or perhaps a kilogram). Far too often they are treating you as the juvenile they remember you were instead of the adult that you are. You may want to heed their warnings if, on the other hand, they are already financially successful. But, for the most part, I have found that most financially successful families will have already passed the wisdom on well before you get to the stage of investing and therefore their advice will be nothing more than supportive. It’s not that I have anything against families, politicians or the newspapers, I just see way too many misguided people quoting articles and statistics that they don’t really understand. Good quality education backed up by solid market experience is the only solution. Unfortunately they aren’t teaching that in schools, you need to learn it yourself.
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Lesson 06
You will never know 100% if it’s the right decision to buy, and you will never believe how much you’ve made from so little work The crystal ball; if we had one we could pick the next greatest hotspot even before it was announced as a hotspot. Unfortunately, we don’t have a crystal ball so no matter where you buy you’ll always have a level of uncertainty and that’s what makes property so much fun. The important thing is not that you’ve made the right decision or not, it’s that you have actually bought something unlike the thousands of others that are gripped with fear. Indeed, one of the reasons I’ve written this booklet is to give you a level of comfort that you’ve made the right decision. Given time you will begin to realise just how good a decision it was to buy, even if you bought stupidly at the top of the market, above the real value, or in a bad crime–ridden area. In property, and with time all the mistakes of the past are forgiven. In fact even the worst investments turn around and put a smile on your face with time. The important thing is to make your investment as easy to manage on a day-to-day basis, and that’s the whole idea behind ‘My Set and Forget’ philosophy.
“In property and with time all the mistakes of the past are forgiven.” 21
Lesson 07
When others zig you should zag
This is perhaps the best advice I ever received. The principle of ZigZag. When the world is shouting ‘No’ you turn to them and politely scream ‘Yes.’ When the papers say ‘buy’, you sell. When they say ‘sell’, you buy. They say ‘Zig’, you Zag! Everyone has an opinion on property, what it’s doing, where it’s going, where to buy and where interest rates are going. Repossessions are up, arrears are up; it’s all very Chicken Little and ‘the sky is falling down!’ The point, quite simply is this: the wider population is largely uneducated about property and behave like Pavlov’s dogs – ring the bell and they will begin to salivate. In other words, whatever the front page of the newspaper tells them to think, they will believe it without even thinking about it. If it says ‘buy’ then they will buy, if it says ‘sell’ they will sell. It really is that simple!
“When the world is shouting ‘no’ you turn to them and politely scream ‘yes.’” 22
Lesson 08
Everyone is a salesperson, everyone
The developer through to the letting agent, the portfolio manager to the person that installs your blinds; everyone is a salesperson and they want YOU to buy! Let’s face it, in this wonderful game called property, the only time we all make money is when you buy something. So no matter how much we all seem like your best friend and confidant, remember that we have to feed our families too and we pay for this from the proceeds from the sale of a property. So knowing this, you should go in with your eyes wide open and ready to ask the hard questions. Believe nothing, question everything, learn to second–guess any statement you are not 100% sure of. Now don’t take this to mean that you are being lied to, cheated or misled. We have to sleep at night and go home and tell our families about our successes and struggles at work. One final point that I have always insisted upon if I am working with anyone in property is to have a mobile contact and after–hours
“...go in with your eyes wide open and ready to ask the hard questions” 23
number. Let’s face it, if the team you choose to work with only lets you call during business hours on an office number, then you need to seriously consider if their portfolio management service is really about helping you build your portfolio or just helping to line their wallets. Just remember that 90% of those emotional moments – I call them ‘Oh sh*t!’ moments – are going to be after hours.
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Lesson 09
Someone, somewhere will lend you the money
In over a decade of helping people buy property I am yet to find a deal that I couldn’t get a mortgage of some sort for. Somebody is always prepared to lend you the money. Now I am not talking about ridiculous proposals, but as long as you put up a reasonable commitment and demonstrate the means for the lender to get their money back with a healthy return, then you will find a mortgage. Look at it this way, the mortgage company makes a profit out of lending money, and obviously they want to make money therefore they will be willing to lend money. If you find a property with good solid fundamentals and a clear and acceptable proposal for them to make a return, then somebody will lend you the money to buy it.
“Somebody is always prepared to lend you the money.” 25
Lesson 10
The rich and educated get richer and the poor and uneducated inevitably get poorer
Life rewards performance not stagnation. If you are poor, you are poor for a reason and if you are like most poor people, you will have a great many reasons as to why you are that way and these are exactly the type of excuses that will keep you poor. We all feel pity for the poor, not because we want to be in their shoes, but because we don’t want to be in their shoes. We pity the fact that they cannot see how simple it would be to lose the excuses, the repetitive destructive habits and take back what is rightly theirs. The rich, on the other hand, are rich because they have discovered the basic secrets (even though they are freely available) of wealth and they apply them, all the time, further amplifying their results and gaining them further wealth. This is an unstoppable truth. The choice you have is – where are you? Rich or poor? Envied or pitied? Making decisions or making excuses? The decision or excuse is yours to make. Note that I didn’t say anything here about happiness; that is a totally different discussion. I am talking here about wealth.
“This is an unstoppable truth, the choice you have is where are you?” 26
Lesson 11
Nobody has your interests at heart as much as their commissions
Sure, this lesson is a bit on the pessimistic side, and I am normally a positive person. But I’ll drum the message home. Whoever they are, they are not your friend; they are a savage dog wanting their next meal, a hawk sizing its next prey. Sure they have developed all of the stealth of a ninja warrior and cunning of a hyena so you are lured into a false sense of value, then BANG! Don’t fall for it all, whatever they say, check it, whatever the benefit, refute it, whatever the pressure, pause on it. If it seems too good to be true it probably is! And it probably is too good, not because your deal is too good, but because their commission is too good. If you do your own due diligence you can be sure of what you’re buying. Assume the responsibility for every decision, don’t rely on someone else to spoon feed you information and then get upset when it’s wrong. Listen to what they say, but if you invest based on a sales pitch alone you have no one to blame other than yourself when the perfect deal turns into a not so perfect one.
“Whatever they say, check it, whatever the benefit, refute it, whatever the pressure, pause on it.” 27
Lesson 12
The property cycle is a 7-10 year cycle and not an 18-24 month one
If only I could beat this lesson into new investors, tattoo it onto their foreheads or something. The cycle is 7-10 years. Not just a few – not the amount we would like it to be. It’s far too easy to think that as long as you can buy a property, you will be fine. This is not the case, buying it is the easy bit, holding it is what takes the skill. Do you have the cash flow to hold your property through a slump? If you don’t then you shouldn’t be investing. The sooner you change your real expectations for property from some get–rich–quick–fly–by–night–expedition into a long-term emotional change and lifestyle journey, the sooner you can sit back and enjoy the holding and all the joy, experiences, relationships and lifestyle choices it allows.
“Do you have the cash flow to hold your property through a slump?” 28
Lesson 13
The government only ever succeeds in taxing the poor and middle class. The rich are too smart and flexible
Most poor and middle class people are too busy trying to make ends meet to think about a better way, a better future and that’s exactly what the government wants – a hoard of people who are just over broke. A job is a thing you do with your time that keeps you Just Over Broke, therefore never having any time to find a better way to live and definitely no time to find ways of paying less tax. Therefore the poor and middle classes always feel the full effect of tax from the government while the rich adapt, overcome and avoid. This means the rich are getting richer and paying less tax as they do it. What gives them the right while others pay more tax and get poorer? Well the dramatic truth is that everyone has the right, its just most people are uneducated, uninformed and too gripped with fear and procrastination. The rich know the rules of the game, and more importantly use them. I’ve always said it this way: There is the black, the white and the grey... and the grey is where you must play. “A job - it’s the thing you do with your time that keeps you Just Over Broke.” 29
The rich play in the grey, the little known fringes of the rules between what everyone knows (the white) and where the law says ‘that’s too far’ (the black). The poor stay well within the safety of the white. Some play in the black, which can produce outstanding results very quickly until the law inevitably catches up with them and their fortunes are reversed. The sooner you play in the grey the sooner you will see your results amplified and your lifestyle grow.
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Lesson 14
Searching for the perfect property deal
One of the most damaging self-limitations that a beginner investor can face when building a property portfolio is the search for the dreaded ‘perfect deal’. As if trying to find a property wasn’t hard enough, the budding investor now has to find the perfect finance, the perfect solicitor, the perfect area, the perfect rent, the perfect growth prospects, the perfect builder, the perfect sales consultant, the perfect company and the perfect interest rate. There’s no such thing as a perfect deal and there is danger of procrastination if we try to find all those perfect elements within each purchase. I have been involved with property one way or another for well over ten years, and I have yet to find the elusive perfect deal. I have however consistently made money from property and built a substantial portfolio of properties, despite every single property that is part of my portfolio being imperfect in some way (sometimes in many ways)! The most important thing to remember is timing. Now is the perfect time, since it’s the only time that you can actually take action!
“There is danger of procrastination if we try to find the perfect deal.” 31
You need to understand that the moment you say “it’s the wrong time to buy”, you reveal your lack of education. You’ll always be able to find a reason not to buy, but those who succeed in property are the ones that overcome this procrastination and buy anyway. My 3 month procrastination rule Please don’t misunderstand me; I am not advocating that you buy the first property you see. This is why I have a 3-month procrastination rule. Put simply, if you haven’t purchased something within 3 months of the time you began looking, then you’re probably procrastinating. By the same token anything less than 3 months and you may not be doing your due diligence.
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Lesson 15
Cash flow is king, until you want to buy more. Capital is king, until you cannot afford the cash flow…
Building a property portfolio is all about the two opposing dynamics of capital and cash flow. Cash flow is readily available cash, able to be used at a moment’s notice. Capital is equity you have in your house or investment properties that can be leveraged (to buy more properties if you wish) in the form of a mortgage or by selling. Both capital and cash flow are extremely important and both play a major part in the development of your portfolio. Capital is important when you want to buy more property. You need to have enough to make your purchase. Once you’ve purchased, your cash flow is the most important since if you don’t have enough to pay your mortgage, your properties will get repossessed. Unfortunately, investors can sometimes get caught up in the excitement of purchasing property, and neglect to put aside enough to cash flow them. The problem is of course that their capital is gone (spent on purchasing property) and they don’t have any left to pay their mortgages.
“Cash flow must always be your first concern when building a portfolio.” 33
I always recommend using my 2–year cash flow rule. This involves putting aside enough money right from the start so you can be sure you’ll be able to afford to hold your property for at least two years. Consider rent shortfalls, void periods, and whatever other expenses that may arrive. By doing this, you’re planning for a realistic worst-case scenario and in most cases, you won’t even need to spend the money you’ve put aside. But I’m sure you’ll agree, it’s better to have it and not use it than need it and not have it!
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Lesson 16
Lifestyle is the only reason to build a portfolio
Your portfolio should always give you more life. It should only ever enhance your lifestyle. It should create lifestyle choices now and into retirement. All too often I see people thinking that they cannot afford to build a portfolio because they think they will have to scrimp and save and go without. This has never been the way that I have built portfolios. Sure you have to be disciplined, that is a given, but there are simple strategies that you can use to build your portfolio with little or no impact on your current lifestyle. The idea is that you should be able to enjoy your portfolio and it should work for you rather than you for it. I see your property portfolio as a vehicle of personal development, as the means by which you can achieve your goals and enhance your lifestyle. So if you find that it’s taking more of your time (and life) than it is creating, then you really need to look at your portfolio or at least the strategy that you are following.
“The only reason we should ever build a property portfolio is to give ourselves more lifestyle choices.” 35
Your next step
This booklet is just a taster to some of the adventures that you are likely to have as you build a portfolio. Each person’s experience will be different, but you will encounter most of these barriers in some form or another. If you would like to read more about any of the topics you simply go to my free educational blog which has over 620 articles on just about every topic in property. You’ll find it at www.yourpropertyclub.com/ blog. You can also call the team who will be happy to discuss your exact needs in building your portfolio. Simply call our office on 0207 812 1255. Live with passion,
Brett Alegre-Wood
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About the author Brett Alegre-Wood
Brett Alegre-Wood is an accomplished business owner, investor and educator. He has been building and growing businesses for as long as he can remember but ultimately Brett’s passion is property. His love affair with ‘bricks and mortar’ began back home in Australia way back in 1994 where he trained as an estate agent with a local entrepreneur. With the help and inspiration of his mentor Peter James he got his first property and became a mortgage broker in 1999. Not long after Brett was invited to join the State Committee for the Mortgage Industry Association of Australia. Brett’s flagship company YourPropertyClub.com (YPC) was born out of the huge success of his ‘Tips and Tricks’ newsletter. After coming to the UK he began publishing the newsletter in 2003 - one year later he’d amassed a following of loyal readers. Today YourPropertyClub.com is the largest free UK property education website with over 20,000 subscribers, a team of 52 and offices in London, Lincoln and the Gold Coast Australia. Spending time with the likes of Robert Kiyosaki, Michael Gerber and Anthony Robbins led Brett to develop his unique approach of blending personal development with property investment. The strategies that he has used to build thousands of investors’ portfolios are the basis of Brett’s first book ‘The 3+1 Plan: The Insider’s way to Achieve Financial Freedom with Just Four Properties’.
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Brett lives in London with his wife Arlene just down the road from YPC’s head office. They make regular visits back home to Oz and every so often escape to their home in Spain.
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Do you want help in handling your portfolio?
Since the beginning of 2000 a new type of industry has emerged in the UK, called the property investment company or property club. It’s unlike an estate agency, in that it represents the buyers’ interests rather than the sellers’. Originally, many of these types of organisations were very sales focused. Some concentrated on buying and renovating, others on second hand property or land acquisitions and rezoning, but most stayed in the off plan and new build marketplace. I first started in the property club industry in 1994 in Australia, and, when I moved to the UK, I began running the typical ‘millionaire in two–to–five years’ seminars that you so often see in the newspapers. But I soon realised that these seminars are selling pipe dreams, and what people really needed was help in making their dreams come true. So, in 2004, I set up my company YourPropertyClub.com, which was originally focused on educating consumers about property investment principles. In fact, the source of much of this book comes from the 400 various articles that I wrote for clients. Property clubs offer many benefits, especially for busy people who don’t have the time to build a portfolio, but exactly what? Anyone, with a knowledge of property investment, and experience in seeing though the sometimes complicated deals, can create their own portfolio. But I believe there are seven main reasons why any41
one might welcome the help of a property investment organisation, which has all the services in both obtaining and then servicing properties. The benefits are these: 1. Wide access to property 2. Experienced structuring of a deal 3. Reduced prices from bulk purchasing 4. Management of the buying process 5. Management of your portfolio 6. Regular reviews of your portfolio 7. The fees are less than you save 1. Wide access to property The great thing about most property clubs is that they can source property throughout the UK. I have done deals as far north as Scotland and as far south as Southampton, from Grimsby across to Liverpool and over a hundred places in between. Working alone, there is no way you could cover this much distance. I have a full–time team of three who do nothing other than source deals for me and they have around forty developers, as well as another five full–time sourcing people that they work with. This network of relationships allows my company to source much more property than we could ever need; this in turn allows us to be choosy about what property we take on. 2. Structuring the deal One of the great things about using a property investment company 42
is its ability to use various structures to ensure you use the minimal amount of capital. When you begin investing, you will probably use the simplest of structures to purchase property, which normally involves a 15% deposit, plus all the costs in the case of a buy to let property. A property investment company will be able to guide you through the most effective use of your capital and should be able to cut down both your outlay and your time. 3. Save 7% from bulk purchasing power One of the best financial traits of an investment company is their ability to negotiate discounts on bulk purchases. Much the same as going to a supermarket, you get a special discount when you buy bulk. It’s exactly the same principle in property. These companies can negotiate large discounts over and above what individuals can achieve. If you walk in off the street, I always assume that you can negotiate at least a 5% discount off any individual property, but a company negotiates a 12% discount off the asking price of a property, because they have reserved 10 units. In some cases discounts can be between 5% and 35%, depending on the market. The properties are worth £100,000 each, so the company would actually buy them for £88,000. The real financial advantage of using the company is actually 7% or £7000 (12% less 5% leaving 7%). Importantly, if you are buying through a property investment company, you will still have all the normal costs associated with the purchase. 4. Management of the buying process Today’s busy society has left us with little time to do the things we want to do, let alone have the time to manage the process of buying property
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and building a portfolio. For this reason, above all others, a property investment company can be your best friend. Most if not all companies will refer you to a broker, who will get the mortgage completed with the minimum of fuss. They will also refer you to a solicitor who can handle the conveyance issues involved. Some even help you get you your first tenant, furnish the place and organise the flooring and curtains. 5. Ongoing management of your portfolio Portfolio management is what I see as the most important aspect of building a portfolio; it is also the least understood in the UK. This entire book is about building and growing your portfolio. The ongoing management of the portfolio is the key. So many times we get so excited about buying the property that we neglect the ongoing holding of the property, but that’s where the money is made. A full portfolio management service will give you all the education you need, as long as you need it, rather than an all–in–one hit (as with a seminar). This was perhaps the most important aspect as I got started in property. It’s vital to have someone who is independent of your portfolio, a mentor, someone who can give you an unemotional, unattached view of your portfolio. I have been lucky in my life: I have consistently found a number of people who were more than happy to provide me with clear direction and an insight into the next step. I was able to heed their counsel and grow my understanding and wealth. I am pig–headed at the best of times and a lot of the time, when they gave advice, I didn’t fully understand it and therefore didn’t apply it. I soon learned the lesson the hard way. I have a story that has stuck with me for many years. You are enrolled in a full–time informal course called ‘life’ and each 44
day at this school you will have the opportunity to learn lessons. You may like the lessons or think them irrelevant or stupid. But lessons you will have. There are no mistakes in life only lessons. Your growth is a process of trial and error, of experiment, and the failed experiments are as much a part of the process as the experiment that ultimately works. A lesson will be presented to you in various forms until you have learned to cope with it. Then you can go on to the next lesson. There is no part of life that does not contain lessons; if you are alive, then you are still learning lessons. This has stayed with me for a long time and I consistently remember its powerful message. Another way I like to explain its message is this. You have lessons to learn from life. First, life will whisper softly in your ear. If you don’t listen, it will tap you gently on the shoulder. If you don’t listen, it will shake both your shoulders. If you still don’t listen, it will take a block of four by two wood and smack you across the back of the head. 6. Regular reviews of your portfolio One of the key elements of The 3+1 Plan is regular reviews of what you have achieved and how to take the portfolio further. At the very heart of my strategies is the fact that you will need to remortgage the property on a regular basis in order to cash flow the portfolio for further periods. The decisions to do this will be based on decisions made during a review. I strongly suggest that if you haven’t found a mentor to help you build your portfolio, you start by using one of my portfolio managers to help you on your way. They will use the review checklist detailed below. It’s essential that you get some professional support on a regular basis.
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The topics that you will cover during each review will be: PORTFOLIO REVIEW CHECKLIST 1
How much capital you have available to fund your portfolio or purchase more property.
2
How much cash flow you require to fund each property into the future.
3
Amount of funds in the provision account, and the amount of funds required for the provision account.
4
The current value of each of your properties.
5
Which Properties can be remortgaged, and how much you can take out.
6
Whether the rental should be raised on any of your properties.
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Review all of your mortgage products and whether you should change any.
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Whether you require any major capital payments for lifestyle.
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What the portfolio goals are from here.
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Whether you are achieving the goals previously set out for the portfolio.
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What areas of education you require to jump to the next level of understanding.
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Whether you need to change any of the systems that enable you to Set and Forget your portfolio.
7. The fees are less than you save So, what’s the cost of using a company? Most property investment companies will charge a fee for the sourcing of each property between 2% and 4%. Most companies will leave it there, but others may charge any number of things. Here’s a list of other potential charges: • Monthly fees between £20 and £120 • Joining fees between £500 and £5,000 • Weekend seminar fee between £395 and £5,995 • Aftercare services such as sourcing furniture, blinds, flooring (often at a premium) 46
So as you can see these costs can add up. My company charges a flat fee every time you buy a property – I don’t believe in all the other fees that some companies charge. They are extortionate for what you get in return. Should you buy from a property investment company? Personally, I’ve only ever bought through this type of company. For me, it’s been worth it as everything was done for me and I’ve experienced total peace of mind. Well worth the money. In contrast, I remember back to my first few properties in Australia and the trials and tribulations of making money on them. I was buying and renovating them myself and it took so much of my time. Sure I made money, but really, when you take into account the actual time and emotions that I spent while attending to my properties, I sometimes wonder if it was worth all the fuss. A property investment company can be a fantastic way of getting into property easily and building a substantial portfolio with minimal capital. It can be pain–free and a downright delight. But as with anything in life, go in with your eyes wide open, trust no one, ask lots of probing questions, speak with existing customers and you should come out on top.
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The Top 8 most asked questions about working with YourPropertyClub.com
1. Why do I need to build a property portfolio? We all know that we need to do something about our future, for the security of knowing that we can live with the same quality of life when we retire. And for most of us property is the one form of investment where we’ve seen our family and friends succeed. The fact of the matter is that if you don’t do something nobody else will do it for you. By building a property portfolio you can secure both financial freedom now AND the security of knowing you can retire in comfort. 2. Who is YourPropertyClub.com Ltd? YourPropertyClub.com (YPC) was created in 2004 by our Chairman, Brett Alegre-Wood. It was initially set up to expand the reach of his newsletter called ‘Insiders Tips and Tricks’ – In 2006 the subscribers numbered over 2000 and by March 2010 we had over 52,000 loyal fans. Time, Responsibility, Trust. Our clients want to build a portfolio but they lack the time to do it themselves. We offer a unique solution where they maintain full responsibility and we enable them to trust us to manage their investments for them.
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3. So why do I need YPC’s help? Investing in property can be daunting, it’s difficult to know who to trust and whether or not you’re getting the best deal. We operate under an upfront and honest policy. Alongside our portfolio management services we source high quality off plan and new build property. Thanks to our strong relationships with developers our buying power means we can secure you the best deals. We also subject each and every property we sell to stringent due diligence and provide you with a completed 89 Point Due Diligence Checklist and supply this along with a complete 2 Year Cash Flow Worksheet. We only source in high demand areas with good solid fundamentals - shops, schools, transport links, major employers and major investment. All the things that will mean constant rental demand for your property for as long as you own it. 4. Won’t investing just mean more work? Being an investor is about reaping the financial benefits not spending hours making payments, sorting out letting agents, tenant problems and missing rent. Brett’s Set and Forget philosophy says that you should buy property and set it up in a way that you can then go on an continue your life and forget about it. That’s why we manage the entire process of buying and letting for you. From the point of reservation right the way through to completion and lettings, we’ll look after the mortgages, solicitors, carpets, flooring, blinds and furniture as well as finding your tenants now and in the future. Basically we do all the hard work for you and if you have any questions or concerns your Property Consultant and Property Manager will be there every step of the way. 5. So, who makes the decisions? Now this is the most important thing to remember: we won’t make 50
any decisions for you. These are entirely up to you. Your Portfolio Manager will guide you through the process but you make all the decisions and take all the responsibility. 6. What is Portfolio Management? Portfolio Management is one of the most overlooked aspects of property investment especially in the UK. It is fundamental to building a successful portfolio and our focus on this aspect of the process is what makes us different from most other property investment companies. You see if you’ve just got 1 or 2 properties it’s ok but if you want to build a viable portfolio you need to know what you’re goals are and what you need to do to achieve them. Your Portfolio Manager will spend a lot of time talking, figuring out what you want your portfolio to do for you and drawing up a specific plan with a structure and strategy to achieve it. 7. Are there any guarantees? Yes! YPC’s 4 Property Guarantees are unique in the industry. No one else even comes close to offering you the peace of mind that our guarantees give. The theory behind our guarantees is that if we don’t do our job of researching your property and standing behind the things we say then we don’t deserve to get paid. Our 4 Risk Free Property Guarantees 1. Formal Mortgage Guarantee Providing that you have nothing wrong with your credit rating then we will guarantee to get you a mortgage Decision in Principle otherwise we’ll pay back your fees.
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2. Amount of Rent Received Guarantee We guarantee that the monthly rent you will receive will be within £50 for properties under £100,00 and £100 of what we said it would be for properties over £200,000 or we will pay the difference for a full two years. 3. 6 Weeks to Let Guarantee If your property isn’t let within 6 weeks we’ll pay the rent until it does. In the case that the property needs flooring this extends to 8 weeks. 4. 24 Hour Sleep Test Guarantee Once you’ve decided to go ahead with a property we’ll give you 24 hours to ‘sleep on it’ and you wake up in the morning ready to go then great if not say “NO” and you won’t have lost anything. These guarantees mean you have more certainty. Let’s face it you know that you will receive a mortgage, the property will let out within a reasonable time, the rent will be what you expected and you will have time to sleep on your decision to buy. 8. So how do I get started? The first step is to chat to one of our Property Consultants. They’ll be able to answer any of your questions and suggest the next best step. Call the office now on 0207 812 1255 or visit www.YourPropertyClub.com.
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Here’s what others have to say about working with YourPropertyClub
Kully from London “Overall you made our first purchase as easy as possible with minimum input from us. We put our trust in you and we are more than happy with the outcome. We will gladly recommend your services to others!” Simon from Hertfordshire “My face-to-face meetings showed me that I can have a different lifestyle through property and since I started working with YPC my life has changed full circle. I have no criticisms whatsoever of the service I receive from YPC. Keep up the good work!” Andy from Cheshire “The purchase of my property in Kings Lynn went very smoothly. The letting agent (recommended by YPC) had a tenant move in within four weeks of completion. I have since reserved three more properties and I am confident that the process will be just as smooth.” Belinda from London “Brett has this ability to make everything appear simple and stress free. I have learnt a lot from reading his book and I look forward to building my portfolio with the help of Brett and his gang. They are always patient and
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happy to help. I love going to visit them I always feel a tad happier about life when I walk out of their offices.” Roger from London “I am very impressed with the efficiency of YPC as well as the knowledge, diligence, experience and character of the YPC staff. YPC did what it said it would do i.e. found me a promising investment property, completed on it and quickly found a tenant - with the minimum of involvement for myself!” Wullie & Angie from Glasgow “My knowledge has vastly grown in working with Brett, I don’t think of Brett as a Property Consultant, I think of Brett more as a friend who I can trust to look after my interests, as for results well, I’ve almost reached the million pounds mark in my portfolio, not bad for a couple from Glasgow.” Peta from London “Unlike other companies offering property deals who sell you their expertise, Brett and Simon are willing to pass on their knowledge of the property market and how to prosper from it freely.” Michael and Richard from Gloucester “We are just about to sign for our second property thru Your Property Club. What is so different to most property clubs is the education. It’s all free. They are always there when you need them. No matter what time of day or night. When we have any concerns no matter how trivial. We have comCheck out more client tespleted two properties with them. timonials and watch the We would not hesitate to do more video interviews at: properties in the future.” www.YourPropertyClub. com/success_stories 54
CONTACT DETAILS
HEAD OFFICE YourPropertyClub.com 4-8 Rodney Street London N1 9JH Ph: +44 (0)207 812 1255 Fax: +44 (0)207 788 9670 www.YourPropertyClub.com info@yourpropertyclub.com LONDON | LINCOLN | AUSTRALIA
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USEFUL WEBSITES
Here are some sites handy websites that we use‌ www.rightmove.com This is a great website to do all your research and due diligence in the UK. www.findaproperty.com Similar to Rightmove.com. www.houseprices.co.uk This is a great Web site that gives you Land Registry data. It may not have the most up to date figures, like most of these types of Web sites they won’t have the previous three months figures. www.nethouseprices.co.uk Similar to houseprices.co.uk. www.propertypriceadvice.co.uk Free online valuation. www.nhbc.co.uk The National House Builders Council provides an insurance policy for new homes built under the scheme in the UK.
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www.hometrack.co.uk This website allows you to buy an automated computer valuation for any chosen property in the UK. www.checkmyarea.com Search by postcode to find out what type of people live in the area based on demographics such as affluence etc. www.checkmyfile.co.uk Similar to checkmyarea.com, search by postcode for census information, house prices, etc. www.upmystreet.com This website provides a heap of information on any postcode in the UK. A great site for due diligence and research. www.britishgas.co.uk Check out the Property Care for Landlords. maps.google.co.uk Don’t just see it on a map, use the satellite feature to see that the area really looks like.
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Property: the new pension Your pension is in danger, whether you know it or not. Worldwide pension funds are losing their value rapidly and can’t possibly provide for you and your family when you retire.
You need another plan...
The 3+1 Plan! It’s been proven that “brick & mortar” investments have been a safer, more reliable long term investment than volatile stocks or shares, but how many properties do you need to provide for your future? And will your strategy see you safely through
even
the
most
adverse
market
conditions? Do you even have one? The 3+1 Plan is a simple and proven plan to achieve financial freedom quickly along with the security of knowing you’ll be able to retire in comfort. Inside, I‘ll give you a step-by-step guide to invest safely in any kind of market without sacrificing your lifestyle or falling victim to changes in the market.
www.yourpropertyclub.com/emo This book is a powerful distillation of real, market-tested strategies that Brett has used to build thousands of people’s portfolios in the UK, Spain and Australia.
Visit The 3+1 Plan website to find all the resources you need to put the plan into action!
Free access to Ezytrac software
Download Brett’s special reports - learn about the various types of emotional barriers you'll face and how to overcome them
Find the essential Set and Forget Checklist to manage your portfolio
Read over 200 property articles and the latest property news on Brett's educational blog
Subscribe to Brett's 'Tips & Tricks' newsletters
www.3plus1plan.com/emo "Inspired read..." Belinda and Rakesh - London Brett’s strategy is great for all those cautious investors. There's a focus on getting educated and developing your emotional intelligence and lifestyle. Brett's book is a great introduction to property investment. I have learnt a lot from reading it.
"Property advice to listen to..." Martin - London I think the best thing about working with Brett is that he keeps everything very simple but at the same time does not deviate from the principles. He supports and educates you through the emotional and financial aspects of portfolio building. Through this certainty we have been able to secure a portfolio of 9 properties.
THE
3+1
PL AN SERIES
Read this report before you even think of making another property investment! Property investment isn't just about where the property is, the rise and fall of interest rates or how much discount you're getting. It's about the hundreds of little barriers and hurdles you stumble into that keep you up at night. Having worked with thousands of clients worldwide, I've found that the single most important factor that slows or stops the growth of your property portfolio is how you cope with these 'emotional barriers' that come along the way. In this booklet, I'll teach you how to put your emotions aside, to allow you to make vital property investment decisions with a sound, calm mind, allowing you to make investment decisions like the pros. It's time to take your journey the easier, quicker way...
About YourPropertyClub.com Founded by by Brett Alegre-Wood in 2004, Your Property Club has worked with thousands of investors to build thriving, profitable property portfolios. We manage the entire process for our clients from purchase, right through to letting. Using tried and tested strategies, our portfolio management team works one-on-one with clients to develop specific plans so they can invest with confidence. ISBN 978-0-9559669-1-0
Call us on: 0207 812 1255 Visit our website: www.yourpropertyclub.com
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