Analysis or Paralysis
This weekend I attended a Tony Robbins seminar. You might say so what? What’s this to do with property? The answer is everything.
Top sports personalities and top business people call upon his talents, and these don’t come cheap. His consultancy fee is $1 million, for a one to one, one hour a month, over a year.
Tony Robbins deals with the fundamentals of what drives a person.
Underpinning all human activity is emotion. We are emotional creatures. Intellect is not what controls you, we only use the intellect to fuel and justify what we already feel, to give it a ‘story’. An intellectual personis likely to have a more sophisticated ‘story’, but the fundamentals are the same.
The reason why most people do not invest in property is not because they have other better alternatives, or see something wrong in what’s being presented. It is very easy to check what is being presented. One can confirm property data within 1/2 hour with the help of the internet and a phone.
So then the reasons cannot be these.
The reason is fear. People are driven by this. Most human activity is driven by avoiding pain or seeking pleasure. The avoidance of pain is stronger than the need to gain pleasure, this holds them behind all spheres of life.
It stops them from making decisions. In property people lose more money from not making a decision than making the wrong decision. The word decision comes from the latin word to cut off, so this means to cut off your past and move forward.
It can take many years for someone to decide to invest in property. A client of mine who came to the seminar with me, came to us about seven years ago looking for a mortgage. He later admitted to me that he chose us over another broker because he thought as we were Indian we were likely to be more astute with property related matters. He also wasn’t looking just for mortgage deals, he wanted someone who would look after his finances long term. He had done very well through sheer hard work, running his father’s businesses and he had picked up a few BTL properties around where he lived. There was a lot of equity in these few BTL properties he had. I encouraged him to refinance and purchase more properties.
He kept hesitating, and procrastinating, and being too busy running his businesses. One property we offered him was a freehold property minutes away from Baker St station and Marylebone station. This property was generating £63,000 per annum and we could get this property for £700,000. The property was fully on the market with two agents, and to be truthful I thought I was missing something because it looked to good to be true so I kept scratching my head wondering what was wrong with it. The answer was this: it had been on the market too long, that was simply it. It had a couple of failed sales and this made the property lose its shine, nothing more.
At this time you could still get 85% mortgage deals so the deposit required was only £100,000. He missed out on this property and it was sold in December of 2005 to another one of our clients. It was later resold by that client in February of 2011 for £1.15m, so there was a gain of £450,000 over a five year period, so about £90k per annum, not to mention the rental income every month.
After it was sold, predictably the client who missed out kicked himself. A few years later in March 2009 he purchased a property through us blind. It was a studio flat in W2 for £214,000. The property now is worth £365,000. Now he keeps buying without any hesitation.
There was another client of mine, a pharmacist, who for years would call me up and ask about properties we were advertising, he would find out everything, speak to his wife, and then do nothing…. Until I met him at a seminar, and then I told him not only was he wasting my time but more importantly his. Make a decision or leave it alone! He argued about being forced to make a decision quickly.
The reason for having to make a quick decision on these properties is that they are deals and if you don’t purchase them, someone else will very quickly.
So I explained that this is the reason the why you need to move fast, nothing else. So this was the final trigger for him and he signed up and purchased a two bedroom ex council property in Hallfield Estate for £315,000, the property was promptly rented for £550pw. It was purchased in February last year and in August it was valued at £375,000.
What people fail to realise is by doing nothing they are losing money. Doing nothing is not an option anymore. Your cash in the bank is being eroded day by day. The times we are facing will not get better, the government will not be able to look after you in retirement, or medically, or educate your children. You need to take ownership of your finances.
Of course all stories are not so straight forward, inevitably we have had some ‘not so great’ scenarios, often to do with the tenants. When the rental yield for ex council properties were very high one investor picked up a few three bedroom properties. The purchase prices were around the £300-£350k mark, and the expected weekly rentals were £720-800pw giving in excess of a 10% yield.
However just after the credit crunch, council tenants were not interested in renting ex council flats, with a budget of £800pw they had their eyes on bigger things. During this time bankers disappeared from the rental market. You had a scenario where ex council tenants were renting penthouse apartments with three bedrooms and three bathrooms worth close to £1m. Consequently the expected yields for this particular investor didn’t materialise, but his properties did get rented at lower amounts. This was a yield problem, however the bulk of the money in property is not made here but on the capital growth of a property. And the overriding factor in the growth of a property is its location.
Even allowing for hiccups property is still a safe investment, otherwise the banks wouldn’t give you the majority of the funds, even during current times.
Cheap three bedroom flat within walking distance to UCL
Spacious flat that is ideal for letting to students
Walking distance to Euston and UCL
Rental income of approx £30,000 expected with minor updating
Purchase price of only £350,000
Long lease and low service charges mean more income!
Sow & Reap
A Property Investment Company
! Tips of the Week
* Try to take emotions out of the purchase and look at it purely as an investment. For some reason people tend to get more emotional regarding buying a property and not when putting their investment in a product.
* The bulk of the money in property is made in capital growth, don’t sacrifice this for rental yields as this is only a fraction of the return.
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