Over 36 years of property investing experience!
This article appeared in the April 2017 edition of HMO magazine.
Everything changes, and nothing stays the same… it’s true of everything. Especially in property.
I have been an investor for a long time: I bought my first BTL in 1986. It was a different world then. No internet. No mobile phones. Fax machines had just made an appearance and amazed us all. No property ‘Guru’s’. No meetings, very few strategies.
In fact, the only strategy we had was to buy a property (on a residential mortgage – BTL mortgages didn’t exist) and go from there. So that’s what I did. I had an idea, and just did it. I spoke with my solicitor who told me that he had a client with money to invest. So, to cut a long story short I ‘discovered’ OPM. Other People’s Money. I started buying properties with someone else’s money, and I haven’t looked back.
Move on 31 years and it’s a different world. I have traded through two recessions and seen absolute highs and depressing lows in the property world. I’m still here, though, and still loving it!
So where are we now? Well, we survived the last recession, and things are moving nicely. The banks are lending, there are new mortgage products almost weekly, the mortgage requirements are easing and house sales are boomimg.
Just like they were in the early 2000’s. Before the crash.
Now, if you think that I’m suggesting that there will be another recession, you’d be…right. Because it’s inevitable. As sure as night follows day we will have another recession. It’s not a case of ‘If’, but ‘When’.
Do I care? No. In fact I’m looking forward to it, and for one simple reason.
You can make far more money in a recession than during the boom times!
Of course, you have to prepare for it, and have the right strategies in place ready, but that’s for another time, another article…
So, back to today. What am I doing these days?
Two main strategies: Lease Options and adverse possession. Both are incredibly powerful ways of building huge portfolios and wealth quickly.
Take lease options.
I love them. I am firmly of the opinion that God sent lease options to make us poor property investors rich. And they do. But only if you use them!
Now, I owe my success in options to the President of the United States of America. Donald Trump!
He explained how they work. Not personally, of course – I’ve never met him, but back when he was just an ordinary billionaire he wrote a book about how he acquired so much of Manhattan. He didn’t buy it, he controlled it, and that’s when the lightbulb came on.
Very few, if any investors were using options in the residential property market, although there were being used commercially.
Anyway, I dived in, with Donald’s book clutched firmly in my hand and started. Boy, did I make some mistakes! There was no-one else doing it, you see. No-one to learn from.
But I persevered and to date I have acquired close to 100 properties using options, and I got them all for peanuts.
But, like I said earlier. Nothing stays the same.
Commercial to residential
The internet has changed the way we live our lives, and we can never go back. Imagine a world without Google!
One effect of the WWW is that people can now work remotely. From home. You can now employ English speaking, degree-educated professionals around the world for just a few US$ an hour.
It doesn’t make sense to house your staff in a office block… Which means that there are thousands of office blocks standing empty around the country because the owners can’t rent them out. Not only that, but because commercial property is valued on the annual rental income, rather than the bricks and mortar like the residential market, they are often valued lower that the outstanding mortgage. Which means they won’t sell, and that’s a bummer for the owner, because he still has to fork out for his rates, insurance and probably security.
A right old albatross around his neck.
However, their loss is our gain. Why? Because we can take these empty office blocks and convert them into flats, apartments or HMO’s.
And here’s the thing that makes it all possible and easy: You don’t need planning permission!!!
That’s right. You don’t need planning permission. You submit a Prior Notification form (costs eighty quid!) and everything is automatic. This won’t last forever though (everything changes) so get in whilst you can!
The government sees it as a way of easing our critical housing situation: using empty offices to create (mainly) social housing units. We see it as a way to make substantial easy money.
Here are the figures on a project in Birmingham nearing completion.
The purchase price on this office block is £300,000. The investor picked it up on an option deal for five years at just £13,000 a year! Conversion to 20 self-contained HMO’s almost completed. The conversion costs are £200,000. Annual rental income is minimum £100,000. Fully let the value will be around £800,000. 70% of the value (£560,000) can be released. Pay off the refurbishment costs and there is £360,000 left over. The property still doesn’t need to be bought until five years later, and the annual rental until then is just £13,000!
THAT’S how to use options!
So, if you’re still in the get-a-mortgage-pay-20%-deposit-create-a-5-bed-hmo route, maybe you should be re-thinking your options!
If you’d like to learn how to source, negotiate and use options I am running an Options Masterclass periodically at the Hilton Hotel, in Milton Keynes. Full information can be found by clicking on the ‘Courses’ link in the menu at my website www.pica.uk.com