Milton Keynes, United Kingdom (PressExposure) January 02, 2010 -- Basically when property trading in normal times the concept is to buy a property at a bargain price, add value by refurbishing the property then to sell for a good profit normally aided by a little bit of capital appreciation.
Currently while we are in the middle of the credit crunch I am taking advantageof the current buyers market and buying property at around 65% to 70% of marketprice.
The methods of buying property at this type of discount are fully covered in my one day how to buy property below market value course [http://www.glennarmstrong.com/bmvproperty.php].
Or the basic principles are available in my free 5 part mini course âProfit from propertyâ available by clicking opposite.
We also held a 1.5 hour webinar on buying property below market value this is available by emailing firstname.lastname@example.org for Â£29.99 When buying at these prices it allows you to add value if required by refurbishing the property and then sell it on offering the property for sale at slightly below market price or with incentives such as offering to pay the 10% deposit.
It is important whatever market we are currently experiencing to understand what your exit strategy or end game is for each purchase. Have a plan âBâ for every property you buy which will allow you a non loss exit.
Are you waiting for the bottom of the market?
You can shelter from the storm or come and dance in the rain. If you are one of the 1000âs of investors waiting for the bottom of the market before you start buying againâ¦.. thank you. You are the reason there are so many bargains about.
I will guarantee that the bargain properties that we are picking up at 65% to 70% of CURRENT market price due to lack of buyers will no longer be around when everyone comes back to the market. I believe we have seen the bottom of the market and I also know that the properties I am currently purchasing will never drop in price to the level I am buying them for.
Like the one I just purchased for 65k even though it is in a very bad state it will only take 10k to put it right and will be worth 120k when done. Then the MOST IMPORTANT THING is that once refurbished I can get a further advance on the mortgage so I end up with more cash than I started with AND end up with a cash flow positive property.
My buying criteria is... That I end up with more cash than I started with after each purchase even after buying costs and refurbishment costs.
Looking at the property above purchased for 65k refurbishment cost 10k buying and financing costs 5k = 80k Loan 75% of 120k = 90k Cash in 10k And a cash flow positive property with at least Â£200 per month cash left after paying the mortgage and the insurance. Mortgage payment of this property is approx Â£375 per month Rental income of this property will be Â£775 per month This property may drop in value over the next 12 months to Â£110k or even to Â£100k
But I cannot see it dropping any further Marketing for property investment deals We are currently buying around 5 properties per month. 4 out of every 5 are coming from estate agents.
Buying from estate agents.
The only way to get the very best no brainer deals is to be the investor an estate agent rings first. So when someone comes into their office and wants to sell their property quickly you are their first call. It is important that the person you are dealing with knows how to create a deal.
How can you be the estate agents first call?
Letâs start from the beginning. The best days to call on an estate agent are Tuesday, Wednesday and Thursdayâs. This is because any good agent will be booked for viewings on Saturdays and Sundays and the only person in the office will be the weekend person and as you need to build up a relationship with the hottest agent in the office then weekends are out. Mark Penn who works for me now used to be the area manager of a 5 branch Estate Agency told me the following.
âMondays are typically made up of meetings with their manager going through figures from the week before and Fridays are where they are setting themselves up with viewings for the weekendâ.
When you arrive at the estate agents office if there is a good agent in there they will be jumping over desks to be the first to speak to you.
Mike who works in our office was the top salesperson for a large chain of agents for 14 months running and he says that he used to be the first person at the door anytime anyone walked into their office.
Now your objective is not to walk up to them and say â I am a cash buyer, I can buy quickly here is my card see you laterâ It is to build a rapport with them the old adage people buy from people is the same when it comes to selling.
So as I said the key here is to develop a rapport and we do this by chatting to the agent for around 20 minutes mainly about the market in general but also about them. I would not go into details about your buying criteria yet. So midweek as it is the agents least busy time is when the agent will have more time for a chat. Then I will ask the agent to show me the best 3 buy to let properties they have on their books.
Now it would be very easy to rubbish the 3 choices but donât ask to view them which will give you another hour with them and more time rapport building. After you have viewed the properties is when you start talking about your buying criteria and how you can make the 3 properties fit your buying criteria.
So firstly explain that THE RENTAL INCOME IS THE MOST IMPORTANT FACTOR and that your offer price will be based on your rental income being Â£200 per month more than your mortgage payments. You then need to explain that you can borrow 75% of the ACTUAL VALUE of the property.
Value of property = Â£100k Amount you can borrow = Â£75k Your offer is what you can borrow which in this case is 75k less 4k buying cost less refurbishment costs of say 6k
In this case your offer would need to be 65k for the deal to meet your buying criteria Assuming this also fits with your rental requirement of Â£150 per month cash flow.
If the property is on the market for 100k an offer of 65k does not normally appeal to an estate agent but this is where you need to be using the best agent in the office. You donât want the agent ringing the vendor and apologising for the call and explaining that they have just had a very poor offer as the vendor will nearly always say no.
Let me give an example of a deal we recently did.
The agent knowing our buying criteria and knew we would pay 90k for a property that does not need a refurb and that would value at 125k. So he called me to confirm that he had just found a property for me that had been on the market for 125k that the vendors wanted to sell quickly as they had found a property they wanted to move into as soon as possible and that they were prepared to drop to 115k for a quick sale.
He had then contacted the developer from who they were buying their property from to say that they had had an offer from a very good reliable cash buyer at 30k less than the asking price. He then explained that they could only afford to drop 10k and would the developer be prepared to drop 20k from their price. The developer agreed so the agent rang the vendors and told them that he had a brilliant offer for them from a very reliable cash buyer and could he come round to see them.
So rather than apologise to them that he had received an offer of 30k below their original asking price he phoned to tell then that he had received a brilliant offer and asked if he could make an appointment to discuss it with them face to face.
He then went to see them told them about how great it was to have an offer in such a poor market and how good it was to have an offer from such a reliable cash buyer. He then went on to tell them that he had managed to get a 20k discount from the property that they were buying because they had an offer from a great buyer at 20k below the asking price. They accepted the offer That was when he phoned me, I viewed the property within 1 hour and agreed to purchase at 90k
It will take a while to establish this sort of rapport with an agent. I found from every 10 agents I visited I built this sort of relationship with one of them. It has been easier for me to develop this rapport with newly employed agent working in the large chains rather than the office manager. The office manager normally already has a network of people he can call.
It is also not as easy to work with independent agents as they tend to buy these deals themselves or the owner will pass it on to a friend.
We offer a service where one of the ex estate agents who works for me will go out with you and visit agents in your area explaining your buying criteria and explaining the finance methods used. [http://www.glennarmstrong.com/estateagentday.php]
We also have a 1.5 hour webinar we recorded on dealing with estate agents. It is available by emailing glenn@glennarmstrong the cost is only Â£29.99 and is full of great tips to help you accelerate your success.
Financing property in the current market For full details on how to finance property please contact email@example.com We can explain how you could fund the above example. Getting extra profit from deals Once you have purchased your property it is important that you maximise your returns.
Alternatives to single letting the property are, Hmos. Where you split the property into bedrooms where everyone shares the kitchen and bathrooms. I would advise that properties with less than 5 rentable rooms are not very profitable. I would also advise that by splitting the property like this you should triple the profit you could make from single letting the property. It is however not without a downside. You will have considerably more wear and tear and the property will certainly take 10 times more effort to manage. We take you and show you how split up our multilets and how we run our multilets on our Mentoring day. We also cover hmos comprehensively on our 1 day property course.
This is where you convert a single dwelling into 2 or more dwellings that are then split into several land registry numbers and can be individually financed. I take you to see several examples of these on my mentoring days. Each time we split a property like this we normally add around 100k value after costs
Example: Purchase price of large 4 bed terraced repossessed town house 110k Cost of splitting into a 1 bed garden flat and a two bed maisonette including architect fees and planning applications is 25k Valuation of flat after split is 110k Valuation of 2 bed maisonette 125k
Most common mistakes made by investors
Still buying a property that does not fit their buying criteria. How many properties do you own? This is not the most important question How much income do you get from your portfolio? This is the most important question.
Spending to much money on a refurbishment. You need to ask yourself who are your target tenants and refurbish the property accordingly. Your target tenants are DSS and you do not refurbish to a standard you would want to live in.
The key questions here are:
How much profit will this property earn me each month? How much will each part of the refurbishment cost? If you cost the refurbishment in number weeks profit and ask yourself these two questions for everything you have planned to do. Is doing this part of the refurb essential to finding a tenant? Is doing this part of the refurb going to earn me more rent? Sometimes painting existing wallpaper magnolia is far easier and cheeper than stripping, plastering and painting the walls. Sometimes replacing work surfaces and doors will save you hundreds instead of replacing the kitchen.
Sometimes new taps with a shower and re-grouting tiles or using white grout paint is all a bathroom needs. Buying properties all over the country in a scattergun approach. If you are happy with a maximum of 20 properties then this is ok. However it will be trial and error finding good management agents. Looking after them properly yourself will become an impossible task as you get over 20 properties. Most examples of landlords who fail are people with properties everywhere.
If your eventual plan is to leave work and manage your properties yourself then buying them in the same area is essential. As your portfolio expands then the economies of scale really start to kick in. economies like only a 5 minute drive In between two non paying tenants that need a personal call. Plumbers will give you a great price if they are doing the boiler services for 2 boilers. Or if you donât plan on managing them a management agent will give you a better deal if you have multiple properties. This all adds on to your profit margin.
As your portfolio expands another common mistake is to overtrade or to buy to many properties to quickly making buying more property the most important aspect of what you do instead of making sure that the ones you already own are running smoothly. It is amazing the number of investors who come to me when they own around 20 properties because they have a cash flow problem and when we look in depthat their portfolio they discover they have 2 or 3 tenants that have not paid them for three months.
Because we are still buying investment properties at an average rate of around 10 per month he stays on the cutting edge of where to f ind the best deals and how to finance them whatever the market throws at investors.
Indeed, our unending search to keep updated the perfect system to arm property investors with all the tools they need to buy their own portfol ios together with the sheer enjoyment. Glenn gets from helping others build their portfolios has earned Glenn an unrivalled reputation for being the key property investor who continues to walk the talk, while others simply talk the talk.