Why is Property Risky?

Properties can be bought from “Motivated Seller” who need to get rid of a property quickly or are struggling to get rid of it for some reason. Under present lending rules in the UK once you have owned the property for over 6 months you can re-mortgage the property at its current value, allowing you to recycle some or all of your initial deposit into another property. The first rental property I bought after living in Florida for nine year in 2002 was for £23,000. Six months later it was valued at £46,000. Currently I am finding deals at 25% to 45% below market value.

Where development land is scarce then there can be a considerable uplift in the value of land when you apply and successfully gain planning permission. How much of a gain? There really is no norm. I have purchased land for £40,000 and sold it for £75,000. Not too bad for about 15 hours’ work. I have a very good friend of mine who bought a small strip of land next to a railway line and gained planning to put up two billboards. The land was bought for £15,000 and was worth post planning consent £45,000. He was then able to re-mortgage the land for £30,000. The rent from the bill boards more that covers the mortgage and he has £30,000 to invest in another project.

My company Fyneside Developments built its first new home which was completed in 2006. I was able to extract two profit centres from this property. The first was the purchase of land which did not have planning on it and the second was from the actual build. This was a 2,500 sq. ft. house in a remote area in the west coast of Scotland. I sold the house in 2008 at a reduced price as the market was falling away. In fact it was £10,000 below market value. I still made £100,000 out of this project for what was essentially 6 months part time work.

This is where you have a regular house and you rent the rooms out to individual tenants who pay you a monthly rental that in inclusive of rent, taxes, heating, lighting and in better quality ones perhaps satellite TV and broadband. What you will find is that two and three bedroom flats will rent out for a reasonable rent. However once you get beyond that you are into diminishing returns. So a property that might be producing a net cash flow of say £200 could produce a cash flow of £600 to £800. A further advantage of using this system is that if you suffer a rent void it will be only for one room and not the entire house.

This is really a variation of an HMO except you don’t own the property. You simply rent the property from a property owner for an agreed amount, the incentive being to them that you will guarantee them that amount. You then offer the house up for rent room by room. You then pocket the difference between the rent you pay the owner and the amount you receive. Since you will often be receiving twice to three times the income of what you are paying the owner you are able cover any rent voids.

So what do they do now? They would focus on building their asset base. The more time they focus on this then the wealthier they become. The reason for this is when you focus on building your asset base you are carrying out one time actions that produces continuous streams of income with very little maintenance. i.e. you purchase a property, have a system in place for it to be managed and the rent comes in every month without any additional effort from you.

Want more information on this then visit our section on property.

Here again you do not own the property or land. You pay the owner of the property a sum of money to agree that you have the option to purchase the property at a certain price within a certain period of time, usually 5 years. You can then exercise that option at any time within that period. So if the price rises or you need to secure the land for a development and the value has gone up in-between then you keep the profits. If it decreases in value or you no longer want it, then you walk away and the owner keeps the option money.

This is considered the less sexy area of property, but has the potential with the right type of commercial property to produce good steady returns. Examples would be perhaps a disused factory that was converted to produce industrial units for self-employed operators such as mechanics, joiners, etc. I have another friend who has very successfully built up several business service centres for smaller businesses to let out office space.

This is a good strategy to use in conjunction with a property that comes with extra land. Perhaps it’s a house on a corner plot. Could a second house be sited on that land. You could buy the house, gain planning permission on the extra land and then split the title. Rent the existing house out as a HMO and build the new house and rent it out as a HMO. What makes this deal really sweet is that the value of most houses in the UK are made up of 1/3 to ½ of the value is the land and the rest is the house. So you got the land for the house for almost, (value it at agriculture prices) and you built the house at cost. Now you have several options. Rent both houses out as they are or as HMO’s, lift someone of the value out of the property for your next project by re mortgaging or sell them both and bank all the money for your next project.

As more and more people enter into higher education the need for quality (if basic) accommodation is on the increase. It may surprise you that the rents achieved from this accommodation are very good. This is obviously requires a bigger financial commitment and therefore makes it ideal for a Joint Venture project.

Despite environmental concerns there are more and more cars on the road each year. Also we are travelling more particularly by air. Our airports are continually adding capacity, which means we need more long term parking. When you consider how much space a car takes up you know with the fee charge that there are good returns to be made here. We have access to company’s involved in these type of developments where you can get in on the action for less than £3,000. These companies are also into hotel developments.

If you know how to build and run a business that conforms to our criteria set out under the “Business” tab you could purchase a brinks an mortar business introduce systems to make it produce a predictable and consistent profit. Then lease the business for a share of the profits or sell a lease on it and retain the freehold on the property which you will be guarantees you a monthly income.

There is plenty of property that is no longer used for the intention they were built. We all know of pubs that have closed down, shops in residential locations all which with a change of use can be converted into other uses. As long as you know what you are doing these can create some very hansom returns.