Investor Blueprint: a detailed plan of action ...

The Five Pillars of Success:

1.  See (really see) what is possible;
2.  Know specifically what you want to achieve;
3.  Make good choices;
4.  Understand the tactics to get things done and change minds;
5.  Earn the trust and respect of the people around you.

First of all, understand the four most important concepts in property investment:

• Leverage

• Cash-flow

• Mindset/Attitude

• Other people’s money

Leverage:

Cash-flow:

Mindset/Attitude:

A fixed mental attitude or disposition that pre-determines a person’s responses to, and interpretations of, situations. In property investment, you need to programme your mind for success by thinking outside the box, acting decisively, and networking with, and learning from, other like-minded individuals. You also need to recognize opportunities when they arise, and constantly take action to drive things forward.

You can buy in the skills of brokers, solicitors, and letting agents etc. However, it is you who has the vision and commitment to drive your property business forwards.

For recommended reading see our bookstore Click here

Other People’s Money:

Please note:  2010 - The below strategy does not work with the current market conditions and the current financial products.

Banks are some of the wealthiest institutions in the world. They take your money, lend in out to someone else, and charge them interest. Why not do the same?! Use the bank’s money (mortgage) to buy an investment property. Other people’s money. Use tenants’ money (rent) to pay the mortgage. Other people’s money. The true way to massive wealth is to use other people’s money to take control of appreciating assets and make you money!

There are a number of ways you can start investing in property - it just depends on your current financial position, your personal goals, and your attitude to risk. You must understand that there is no "one size fits all" or "wholesale" approach to property - it is all about you and what you want to achieve.

When I got started in 2004, I recognised is that I had a secret financial weapon at my disposal - EQUITY. (Equity is the difference between the value of a property and the amount of the mortgage secured on it). Let’s think about equity for a second. What does it do for us? We’re all aware that it’s a security blanket, and I’m of the same view myself.

The reality is it’s doing absolutely nothing. It’s a bit like sitting on a gold mine without mining the gold! Your mortgage is like a shovel to get at this gold, so all those people who think it’s prudent to pay off your mortgage are not making the most of their own home to use the equity in it to grow additional assets*.

You also have access to another powerful financial tool – LEVERAGE. I was sitting on a property that I bought 10 years ago for £70,000 and now it’s worth £260,000. That means I had equity worth £190,000. What I did was leverage a modest amount of money out of my own home by re-mortgaging and withdrawing tax free cash - money that went on to fund a cash flow rich property portfolio.

* If you are going to release equity from your own home to kickstart a portfolio, then do not over-stretch yourself, and make sure the net positive cash flow from the rent more than covers the increase in your own residential mortgage payment.

With property, it only takes a small amount of money to control a large asset. Let me explain. I think it’s fair to say that if you buy £100,000 worth of stocks and shares, it will probably cost you around £100,000. It’s also fair to say that you could buy a £100,000 property with a £10,000 deposit.

Consider the maths. If your shares go up by £10,000 in a year you’ve made 10%. However, if your property goes up by £10,000, you’ve made 100%! It’s not rocket science.

All I did was take a small amount of money out of my equity, and that’s now controlling a significant property portfolio with cash-flow from the rent, month on month. That’s the power of leverage!  Additionally, we always ensured that we purchased with a significant discount.  As a result, our cash flow was greater, and our exposure to market conditions less risky.

While capital appreciation cannot be relied upon, cash-flow is the best way of future-proofing your property portfolio against challenging market conditions.

You can’t buy property in the past, and you can’t buy property in the future. There’s only one time to buy it – NOW! In fact, with prices currently falling, some people might say that this is one of the best possible times to purchase property.

I’ve never been one to say that anything is written in stone or guaranteed. However, what I will say is that if you do intend to go down the route of using property as an investment vehicle, then the sensible thing to do is surround yourself with like-minded people and expertise to ensure you move forward successfully. Get the right information from the right source, someone who is actually making a success of investing in property! That’s why we chose to come up with Property Tribes.

We appreciate the value of education and that investing in property is not about owning a second home, it’s a state of mind – it’s being successful. By adopting a professional and business-like approach, you can minimise risks and maximise returns.

A thousand mile journey starts with a first step. Your first step is to explore this site and find some inspiration.

To re-iterate Albert Einstein, ‘the only source of knowledge is experience.’ It’s the experience we’ve gained that we wish to share through this site.  However, we always maintain that property is not a case of "one size fits all" and what worked for us at the time we built our portfolio (2004 - 2008) might not be right or even appropriate for you or the market conditions and financial products available.  If you visit our Property Tribes forum, you will be exposed to the most up-to-date strategies and a variety of opinions, not just ours.

I’ll leave you with this thought. This is singularly the best investor tip that I can give you – START!

Nick Tadd

4wallsandaceiling.com

Factual information gathered from: -
Halifax PLC, HBOS plc, Kate Barker report

Click here for the Kate Barker report.

1. here
2. here
3. here

Next: Set some big, fat, hairy goals ... (in other words clarify why are you doing this!)

"Personal achievement starts in your mind. The first step is to know exactly what your problem, goal or desire is." ~W. Clement Stone

A lot of us obviously dream of financial independence. Others of traveling the world. Or learning to play the piano. Retiring to the country. Raising money for cancer research. Becoming an expert on wine. Writing that novel. Learning to speak Spanish.

Of course, if you aren't pursuing your dreams, the real question is what's stopping you?

For many of us, it is a lack of specificity… and a deadline. Our thinking is too vague. What we need are realistic, well-articulated goals. Dreams with deadlines.

For example, "I want a comfortable retirement" is a wish. "I want to have a £2 million net worth on my 65th birthday" is a goal.

"I'd like to do something for charity" may be a heartfelt desire. But "I want to raise £30,000 for the Whale and Dolphin Conservation Society by December 31st" is a definite end.

Goals give your life meaning and direction. They focus your time and energy. They shape and set your priorities, giving you a reason to get up in the morning.

Without them, we tend to drift. Millions of us have fallen into a largely meaningless cycle of eating, sleeping, working and watching TV. After a while, a sort of bored existence sets in.

But when you have a goal that inspires you - whether it's traveling to the Arctic, reading the world's great books or swimming with dolphins - you feel motivated. Goals are empowering. You know exactly what you want and the idea of attaining it energizes you.

As the English novelist Charles Kingsley observed, "We act as though comfort and luxury were the chief requirements of life, when all that we need to make us really happy is something to be enthusiastic about."

Transcendentalist Henry David Thoreau agreed. He said, "If one advances confidently in the direction of his dreams, and endeavors to live the life which he has imagined, he will meet with success unexpected in common hours."

Of course, setting goals and achieving them are two different things.

A few years ago, I came across an article by author Michael Masterson titled "How to Accomplish All Your Most Important Goals… Without Fail."

Here, essentially, is what he said:

1. Take out a sheet of paper. Title it "Life's Goals" (if you have no shame) or "Stuff to Do Before I Fall Off The Perch" (if you are afraid someone will see it).

2. Now make a list of everything you want to accomplish.

3. Narrow your list down to four main goals. Think in terms of a long-term wealth-building goal, a long-term health goal, a long-term personal-relationship goal, and a long-term personal growth and development goal. These are your top priorities, your bottom-line objectives.

4. Convert each of these into annual goals and then break them down further into manageable, bite-sized weekly objectives.

5. Once a week, spend one hour establishing your priorities for the next seven days.

6. Finally, spend about 30 minutes each morning organizing your day around them.

His approach is straightforward: Dream it. Plan it. Do it.

Of course, some of us never make an concerted attempt to achieve our goals for a single unspoken reason: fear of failure. Yet there is much to be gained in pursuing your dreams, whether you ultimately achieve them or not.

So follow Thoreau's advice and go confidently in the direction of your dreams. Take action. Live the life that you've imagined.

As Mark Twain observed, "Twenty years from now you will be more disappointed by the things that you didn't do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover."

One of the best things you can do for yourself before investing in property is to ask yourself WHY you are doing it? What is your GOAL? Without a goal, you have nothing to aim for.

If you have to make a decision in life, or indeed property, ask yourself "will doing this take me closer to realising my goal?". This will help focus your mind and help you make the right choices.

If you are already investing, when reviewing your portfolio, think about if it is helping you move closer towards your goals? I know from my own experience that it is very easy to go off at tangents!

For my part, it is my dream to own a yacht and go sailing round the world with my husband visiting all the places on my long list. I want to become a master sailor and challenge myself every day. I love sailing and love being on the water. There is nothing more peaceful than sailing across a flat and deserted ocean with only dolphins for company! I also want to share my success with my family and friends. I have a little nephew and neice who I want to provide for, both in terms of their education and future lives.

We live in a world of abundance, if we choose to view life like that. Set big, fat, hairy goals. To grow you need to think big and kick ass! Implement your dreams with MASSIVE action - that has proved to be our recipe for success!

Good luck and bon voyage!

Vanessa Warwick, November 2008

Then: Decide your personal strategy and what types of property to invest in ...

4wallsandaceiling.com believes in building a diverse and balanced portfolio of both U.K. and international property. We are CASH-FLOW investors. We therefore advocate purchasing houses, as these provide better cash-flow than apartments. Houses also enjoy higher capital appreciation than flats, which is a bonus. It is our belief that there is a massive over-saturation of flats and apartments in the U.K., particularly in city centres, and these type of investments should be avoided.

Before you decide what property investment strategy is right for you, you need to determine your own personal goals (as above), as this will determine your own strategy, and will be based on:  your own personal financial situation, your attitude to risk, how much capital you have to put into deals, how much time you can dedicate to building and managing your portfolio, and the timeframe you wish to achieve your goals.

There is no "one size fits all" in property - it is highly personal to you and your unique situation.

A fantastic way to start safely is to find out where there is a demand, and then create the supply!

And while the old adage “Location, location, location” is important, in more professional terms it’s “due diligence, due diligence, due diligence”. In other words, research your chosen area thoroughly and understand the local market.

Look for high yielding houses in areas of investment, communication, and infrastructure with a ready supply of professional tenants. By its very nature, if investment is going into an area, property prices will rise. If it has great communication/transport links, and infrastructure (shops, leisure facilities, etc) tenants will want to live there.

For maximum rental yield, more experienced investors can utilise very specific strategies including HMO's and holiday lets.

In the current challenging market conditions, these are the only types of investment we recommend.

Properties accommodating five or more people become a House of Multiple Occupation (HMO). Recently introduced government legislation means that a licence from the local council may be required and you will need to adapt the house to conform to local regulations. This type of investment may be suited to more experienced investors and there may be more "upfront" costs such as fire doors, fire alarms, etc..  The financing options for this type of investment are also more limited and may involve larger deposits.

Meanwhile, U.K. holiday lets give fantastic cash-flow and also benefit from what we call "coastal appreciation" i.e. premium capital growth through being close to the sea! Coastal properties are favoured by second home owners, holiday homes, and people retiring or down-sizing. Therefore, these people tend to have money, which maintains the integrity of coastal property, especially as there is a limited supply of it. Furthermore, with the strength of the Euro, many people will choose to holiday at home in 2009. There is a real renaissance in the great British seaside holiday, led by magazines like "Coast", so the credit crunch may well lead to the rejuvenation of many seaside resorts when families decide to holiday at home and this in turn will make holiday lets an even more attractive option for the cash flow investor, provided that you invest in areas that can demonstrate year round appeal.

For U.K. wide investments, be sure to keep away from properties on busy roads, under airport flight paths, or those close to railway lines or radio masts as these will not appreciate at such a high rate and tenants will find these environmental factors off-putting. You also need to be wary if a property is located near water as it may be subject to flooding. Also, if a property is located near industrial premises or sewage works, there may be off-putting smells and noise which down-value a property and limit your market for potential tenants. Properties in areas of high crime rates are also to be wary of. We avoid the particular types of investments listed above.

Whichever type of property fits your strategy, we recommend that you visit it yourself and apply your own personal benchmark. Would you live there yourself? If the answer is “no”, then why should you expect your tenants to live there? Ask yourself if you would feel safe walking home at night. If the answer is “no”, then you are cutting out potential female tenants which is half of your market

Parking is a very important consideration and will improve the rent-ability and value of your property.

Tenants always like to have a lot of storage, so make sure you choose properties where there is built in storage, or plenty of space to put wardrobes. Try and find houses with equal size bedrooms and en-suite bathrooms, as these will particularly appeal to sharers. If the house has a separate dining room, you can turn this into a bedroom to increase your cashflow!!

In a nutshell, if you buy the right property, in the right location, at the right price, with the right mortgage product, you minimise your risks as you will be able to charge a competitive rent, and so secure a tenant quickly.

It is worth noting that new build properties come with a ten year NHBC or similar guarantee. They are therefore also low-maintenance and conform to all building regulations. As they are new, clean, and have all modern conveniences, they are a popular choice for tenants, especially in areas where a lot of the housing stock is older.

Finally, whatever type of property investment you choose, you must ALWAYS have an exit strategy in place. In layman’s terms - how are you going to realize your capital out of the property should the necessity arise in the future? In other words, who are you going to sell it to if you need to?

If you are serious about long-term financial freedom, you should really be investing in property for the medium to long-term, focussing on cash-flow.

When you have accrued sufficient equity, and the rental income allows, you can re-mortgage the property and release cash, which is TAX FREE. You can then use this money to invest in more property. Therefore, the business model we advocate is to hold all your stock for the long term, release equity when circumstances allow, and purchases more property. In other words, re-cycle your cash. After a while, your portfolio will become self-funding. If you have invested with positive cashflow from the rent, you are first and foremost making money month on month. You should treat your property portfolio as a business, and, as we all know, businesses cannot function without the lifeblood that is cashflow.

If you do sell a property, you incur a capital gains tax liability. Therefore, the true way to wealth creation in property is to hold onto your stock indefinitely, and just keep taking equity releases to fund further investment, finance your children’s education, allow you to retire, or fund your lifetime ambition when market conditions and mortgage products allow. You can use an equity release from your investment property to pay back the original equity release from your own home, which means you only borrowed the money from yourself for a few years to grow additional assets.

Click here - to watch a video on this subject.

It's worth noting that, strangely enough, the more properties you have, the less the risk, and the easier it seems to get! Treat your properties as a business. Keep them well maintained to achieve the maximum rent. Treat your tenants with respect to avoid void periods.

Buying a property might take a month. However, you may have a business relationship with that property for the next 20 years. The skill comes in ensuring that the property performs and delivers cash-flow on a month by month basis. After all, you wouldn't work for free, so why build a property portfolio without getting paid at the end of the month? Understand that, as a Landlord, you become a "service provider" for your clients (tenants). That requires commitment and effort on your part, so be prepared for this.

If you follow our blueprint, you won’t go far wrong.

Finally: Build your property portfolio on a professional and business-like foundation ...

The key to being a successful property investor is down to being a successful Landlord! After all, if no one wants to rent your property then you are paying the mortgage! As a Landlord, you are a SERVICE PROVIDER. You need to provide what people want!

There are plenty of "me too" or identi-kit properties on the market for rent. Make sure yours stands out from the crowd! Ensure it is clean, well maintained, and well equipped. We try and make sure that each of our properties has a Unique Selling Point. This could be a jacuzzi bath, a plasma screen TV, free internet or anything that makes it stand out from the crowd. We call this the "free prize inside". If the tenant views lots of houses and they are all the same, but yours has some extra thoughtful touches or incentives to rent, they will choose yours every time.

Keep decoration neutral and fresh as strong personal statements can put some people off.

There are always acquisition costs with any property and having a budget for these is vital. A few such costs are mentioned below and they should be considered or dealt with leading up to, and after, completion. The list is not exhaustive but should give some ideas.

Start to liaise with letting agents 6 weeks prior to completion – get ideas from them as to what the demand is i.e. fully furnished, part furnished etc. They can start marketing your property, and, with the permission of the Site Manager, start showing people around.

• Keep in constant touch with your letting agent and encourage them to be pro-active and communicate with you regularly. Ask for feedback after viewings, so that you can establish what prospective tenants think of the property and how it sits in the market place.

• You should already know what white goods (fridge/freezer, washer/dryer, dishwasher) are included by the developer – if you need to supply any, consider renting them. That way there is no capital outlay and the rental money is 100% tax deductible.

• You should have already ascertained what flooring covers are included by the developer – if no flooring is included, get quotes. Consider laminate for the hallway and living areas, and carpet for the bedrooms. It is worth spending a bit of extra money on tiling the bathroom and kitchen floors, as this is harder wearing than vinyl floor coverings, and also looks better.

• Blinds/curtains are generally not included by the developer. Therefore, get quotes or fit them yourself - don’t forget that tenants expect these to be done as standard.

• Bathroom fittings e.g toilet roll holder, towel rail, shelving should be professionally fitted to avoid your tenant doing a `bodge` job. The same applies to light fittings, which must be fitted by a qualified electrician.

• We recommend “dressing” your property with a few pictures, mirrors, shelves, etc as this will make it stand out from the crowd. We are of the opinion that if you present your property in the best possible light, it will attract a tenant quickly, and hopefully the tenant will want to keep the property up to the standard you have set.

• If your tenants require the property to be furnished, that furniture needs to comply with fire regulations. There are many companies who provide “furniture packs” specially for Landlords and deliver and fit the furniture, taking away all the hassle. We can recommend some companies to you, if required.

• Obtain permission to sub let from the management company – usually a fee required.

• Establish what the service charges are , if any– consider monthly standing order. Flats tend to have high service charges, whereas houses do not have any - that is another reason why you achieve a better net cashflow with a house (as opposed to flat).

• Make contact with the utility companies and inform them of your correspondence address

• Obtain a set of keys for yourself

• Apply to the local council tax office for an exemption notice - this is available on a new build for 6mths providing that it remains unfurnished. Many Council Tax offices can now be contacted via email so look them up on the internet.

• Obtain Landlord’s insurance – if you have purchased an apartment, the buildings insurance is generally covered by your service charge. Otherwise, with a house purchase, you should arrange buildings and contents insurance. Also consider accidental damage cover, rent guarantee and legal expenses.

• Car parking – is it included in the purchase price? If not, then this is an extra cost that usually can’t be included in the mortgage. Usual cost for car park space is around £15-20k. Before buying a space, liaise with lettings agents to see if it is essential.

• Conform with the new legislation re: the holding of tenant’s deposits, Energy Performance Certificates etc. Your letting agent should guide you on these matters.

• Get tenants properly checked out – there are companies out there that will do just that if the Landlord intends to manage the property themselves. Always ensure that you take details of the tenant's next of kin. This is a useful line of enquiry should the tenant abscond without paying the rent, be taken ill, disappear, or have an accident. If the tenant is under 22 years old, or just starting a new job, you might like to ask for a rental guarantor.

• Ensure the property has the necessary gas and electricity Landlord’s safety certificates. If you have your property fully managed, the letting agent will arrange this.

• We believe in protecting our investment by having our properties professionally snagged to rectify any defects that have arisen through the build - allow approx £450+VAT for the average 3 - 4 bed house.

• Arrange to have a digital TV aerial fitted (houses only). This costs in the region of £100 - £250.00.

• Keep receipts for everything – you may be surprised at what can be offset against tax!.

• Network – making contact with other landlords can be just as useful to a first-time landlord as well as to a more seasoned one! This can done via discussion forms, property magazines, local property network groups etc … the list is endless. We have our own networking event at 4 Walls which you would be most welcome to join.

• Your letting agent, or you, should visit the property every three months to ensure that the property is being well looked after. It's important to keep a line of communication open with your tenants so that any difficulties can be resolved quickly and amicably.

The great thing about property is people with properties love to talk! As a property investor you never stop learning. It is a fantastic business to be in and done wisely, can secure your financial future. So if you are not already involved in property – START !!

Please visit 4 Walls Interactive for further information.

If you have any questions and would like to know more about how 4wallsandaceiling.com can help you, please Contact us.

This is just the beginning of your investing career ....

It probably won't be all plain sailing.

But remember, if you adopt the right attitude, there is no "win or lose" , only "win and learn" ... !