Why Invest In Property?

Why would you want to invest in property?

As Andrew Carnegie once said, “Ninety percent of millionaires become so through owning real estate.”

Or as John Stuart Mill once said, “Landlords grow rich in their sleep.”

To become wealthy, or to have what you’ve always desired, owning or leasing property is an excellent way to get there.

All millionaires and billionaires own property.

A lot of these people use the money they have made from their businesses to invest in property to generate a strong return on their money.

You see these people are doing it for a reason, and that’s because it’s single handedly the best asset class to own.

Property, especially in the UK, tends to double in price every 12 to 15 years. With this, as John Stuart Mill said, you really are growing rich in your sleep.

The beauty of owning property is that you are being paid twice - from both rent and capital appreciation. Is there any other asset class that gives you this luxury without having to work for it?

I will always swear by property.

Of course, with any other asset class, you have the option to choose something else. I would like to take this opportunity to go through some alternative options that you have and why they are inferior to property.

So, starting off with Stocks.

Stocks have been something that the “middle class” invest in for decades, but they simply do not have the value they once had.

In the S&P 500 stock, the stock of the 500 biggest companies in America, you can expect around an 8% return on your money annually.

As an investment, I don’t actually think this is something to stick your nose up at. It’s a steady return without having to do any work.

But here’s my problem with Stocks. You do not control the asset.

Owning a stock, in my opinion, means very little. You have absolutely no control over what happens with it, so if someone mismanages a company and their stock drastically crashes, so does your money.

You can’t control this and therefore you’re out of pocket through no fault of your own.

The second reason why I don’t like stocks is because of the ridiculously high inflation that we’re seeing in modern times.

As I’m recording this, inflation in the UK is currently at 5.3%. This is what the government has told us but other sources suggest that the actual figure is nearer 13%.

Let’s not skip past this, 13% inflation!!!

If you’re investing in the S&P 500 index and you’re getting 8% return, which isn’t actually that bad, then you’re likely losing 5% of your money per year.

I must admit, it’s not as bad as not investing at all, but it’s still pretty bad!

Cryptocurrencies are quite similar.

The problem I have with crypto and the reason why I have never invested in it before is for one reason. It’s too volatile.

One day you could feel like you’re on your way to millions, the next day you have nothing.

And the cycle continues.

I can understand someone wanting to get into crypto to make a quick buck, but I think you seriously need to reconsider your financial planning if you’re wanting to get rich, or financially free from crypto.

Watches are quite similar to stocks. Depending on what watch you buy all depends on whether it goes up in value or not.

If you’re buying a Rolex Daytona in decent condition, the chances are it’s going to go up in value…eventually.

I know this because that’s what they have typically done over the years.

But if you buy a different watch, even a different Rolex, this may not be the case and your watch may actually go down in value.

This is the risk you take when you invest in these categories.

Cars are exactly the same. Sure, if you get a classic it can go up in value and can become an asset, but for the vast majority of vehicles this simply isn’t the case.

Most people buy a new or relatively new car and watch that car depreciate massively over the first few years. They’re losing thousands of pounds per year and they’re thinking they’ve got an asset.

The only true, tried, tested asset is property.

Some of those “assets” don’t even pay you once, let alone twice the way property does.

Once you understand that cashflow is arguably the most important factor in an asset, it will allow you to become financially free a lot sooner as you’re being paid a recurring income every month which can replace your salary.

This leads us nicely to each property strategy, and what their pros and cons are.

Starting off is the traditional Buy To Let.

This is the most typical form of investing and is the most well known.

When most people think of property, they think of Buy To Let investing.

This is where you buy a property on a Buy To Let mortgage and then rent the property out to tenants, which is typically a family.

They pay you a monthly rent and you keep the difference after you have paid your mortgage.

The positives of a Buy To Let is that it can be less hassle, especially if you have a management company in place.

You’re having to look after less people than other strategies and are collecting rent from only one tenant, which makes everything less stressful.

It is relatively easy to get into, as long as your credit is good.

The best properties to rent out on a Buy To Let basis are typically terraced houses, which means you don’t have to fork out as much money to purchase one of these.

I must stress that with Buy To Let, and with every other strategy for that matter, it HAS to be about formulas, not about feelings.

It’s not about how lovely the house looks or how pretty a certain room looks or if you can imagine yourself living there.

Remember, you’re not the one living there, and you need to be as neutral with your feelings as possible.

If the numbers stack up, then it’s an investment worth investing in. If the numbers don’t stack up but your feelings are telling you to buy it based on how it looks or how much you like it, please, please, please do not buy it.

Formulas over feelings has to be your mantra in these scenarios, and people are quickly caught out without putting this into practice.

As much as I said Buy To Lets are relatively straightforward and hassle free, the opposite is certainly true, too.

Buy To Lets can be absolute nightmares.

If you don’t find a good, trusted tenant, you could be led up the garden path of no rent being paid and your property being absolutely trashed.

Like I said Buy To Let isn’t simple, but if you get the right tenants, it can be.

Okay so let’s move onto House of Multiple Occupancy, or HMO for short.

This is where you buy a property and rent each room out individually to tenants. So in theory, instead of having one contract for the property, you have as many contracts as you have rooms in the property.

This may sound a little complicated, but is a lot more straightforward than you think.

However, there are certain rules to stick by when doing HMO’s.

If you have between 2-4 rooms to let, you do not need a licence and this is typically called a “mini-mo” in the industry.

If you have 5 rooms and above, you will need a HMO licence.

But here’s where things get a little more complicated…

If you have over 7 rooms to let, you will need to apply for planning permission from the local council. This can take a considerable amount of time to get and can be costly.

If you have six or more bedrooms, you have the ability to get a commercial mortgage. A commercial mortgage is where the bank lends you money based on the rental income, rather than the property’s actual value.

This can be very good as it allows people to pull their money out of the investment. More on this later.

You will definitely get a commercial valuation on a 7 bed HMO property, but having six can be a grey area.

There is also an Article 4 area for HMO’s. Article 4 is an instruction a local council will put in place to stop the development of HMO’s in a particular area. Each council is different, so you will have to check each council, as some Article 4 areas cover an entire city, and others are just in a particular area of town.

HMO’s can be a lucrative property strategy if, like the Buy To Let, you get the right type of tenants.

I have viewed tonnes of properties and I am yet to see a tidy HMO.

Unfortunately, with the low cost of entry, HMO’s tend to attract bad tenants who don’t care about the state of the house.

I have seen the worst of the worst in these types of properties, but I also have a good number of friends who are finding this strategy really profitable.

Personally, I don’t like this model as if one tenant stops paying, the likelihood of your profit being taken from you is exceedingly high and again, like the Buy To Lets, it can take forever to evict them.

Another strategy is Serviced Accommodation.

So Serviced Accommodation, or SA for short, is an exceedingly profitable business model if set up correctly. This is where you put the property on the likes of Airbnb and charge a nightly rate for guests to stay there.

As you’re charging your guests a nightly rate, you can see how this is much more profitable than a weekly or monthly contract.

I know of investors who charge between 80 - 250 per night in their properties, so it allows the cashflow to be much higher.

The main reason why I love serviced accommodation so much is for a few reasons.

You are able to charge a premium for the same property, resulting in a better profit for your property business.

You are also more in control of your property. With standard Buy To Let AST contracts, you have to give 24 hours notice to your tenants before making a visit, whereas this is not the case with the Airbnb model.

Another reason why I like it so much is that after every guest’s stay, your cleaners come into the property and make sure it is in immaculate condition. This isn’t practical in a HMO property as you’re not allowed in any of the tenants rooms, and certainly not viable for BTL as it’s someone’s home.

Knowing your property is in good condition allows you to have peace of mind and lowers the risk of your investment.

A lot of people make the point of potential partygoers visiting your property, and while that is possible, you are still in control of your property and can even charge a deposit if required.

Next up is Buy Refurbish Refinance Rent, which is a strategy that is on the rise and is a brilliant way of investing in property.

The clue is in the name with this one.

With this model, you buy the properties in a bad condition that need fixing for a cheap price, you refurbish them to a high standard and then you refinance the property with the new property value, to put on a normal Buy To Let mortgage, and if done correctly, you can essentially get a house for free.

Obviously, it’s a lot more complicated than that and there are of course obstacles in the way, but once learnt it is an unbelievable strategy to have up your sleeve.

Another strategy to implement is Rent To Rent

This, alongside Deal Sourcing, is one of the most common ways people with little money invest in property.

Rent To Rent is where you rent the property from the landlord, and then rent the property out yourself as a serviced accommodation property or a HMO. This allows you to benefit from a property that you don’t actually own.

John D. Rockefeller once said “Own nothing but control everything” and this is perfectly true when it comes to rent to rent.

I really like the model, although if you enter a contract with a landlord it can go drastically wrong.

Again, people in my network have done this successfully and others have failed. You need to know your numbers with this strategy as it’s tighter margins in comparison to others.

Don’t get me wrong, it’s still a really good strategy.

The reason I say this is because you can get into these types of agreements with as little as £1,000 to £2,000, depending on the situation.

Some landlords will offer you a property that’s furnished, and all you need is the rent and deposit to get you started.

For a beginner with very little money, I think this, as well as deal sourcing, is a fantastic way to start your property journey.

Speaking about deal sourcing, let’s move onto that next.

Deal sourcing is where you go out and actively find property deals for investors, and you take a small fee as your reward.

Investors are always looking for their next deal, so you’re actually doing them a favour, especially those who simply don’t have the time to view properties.

Of course, with any industry you get the good and bad ones. The bad sourcers have given sourcers on the whole a bad reputation.

Unfortunately, the bad sourcers, who are usually not even compliant with the law and regulations, just want a quick buck and sell an investor a deal and then leave them in the dark.

My advice to anybody looking at getting into deal sourcing is to hone in on one strategy and become an expert in that.

Flipping is another strategy that you can take full advantage of.

Although this won’t give you the passive income that you desire, it will allow you to make considerable profit if you invest in the right properties.

Flipping is where you buy a house, refurbish it to a high standard, and then sell for a profit.

I would say that, alongside Buy To Let, it is one of the most well known property strategies.

It is very similar to the Buy Refurbish Refinance model, but you’re selling the property at the end rather than refinancing.

Again, I know many people in my network doing this successfully so it’s definitely an avenue to explore, but you just need to be aware that this will be active income rather than passive.

The final strategy I’d like to mention is Lease Option Agreements, which are also known as Purchase Lease Options.

This is where you essentially buy now, pay later.

You agree a price with the landlord to pay in x amount of years, and in the meantime you give him a monthly rent. When the “lease” of the property comes to an end, you have the OPTION, not the OBLIGATION to purchase the property.

I like to think of Lease Option Agreements as Rent To Rents, with the option to buy at the end.

These strategies are really creative and you can make a lot of money without necessarily having to put tons of money into the project.