Investing in property: Reassurance you did the right thing!

You did the right thing!

Yesterday, I had a long conversation with John, who's been a client for the past 4 years and bought 6 properties through Gladfish.

He wanted reassurance that investing in property was still a sound decision based on what has happened over the past 2 years.

My answer was a resounding absolutely.

I am sure you can understand that as the owner of a property company that might be my answer but I genuinely believe this with all my heart, despite what has gone on and what is likely still to come.

Let me explain:

My client, John has two portfolios.

The first was the investment property portfolio he bought between 2005 and 2007 (Portfolio A). It was all bought with little or no money or remortgaged quickly to get money back out.

The second portfolio is the two properties he has recently bought in January 2009 (Portfolio B), bought at the bottom of the market but this time he needed more money to make them happen. None the less they are all cash flow positive on a monthly basis.

What prompted the discussion was that he was saying that he wished he'd waited bought all his properties “now rather than back then!”

On first look, this sounds like a valid statement.

The problem with his assertion is that he missed some important points.

Deposit Required to Complete

Between 2005 and 2007, John only had to find 10% deposit if he was using a 5% gifted deposit. These days (2009), he's required to have 30-35% deposit, and he has much less choice in lenders.

This effectively meant that between 2005 and 2007 his capital went a whole lot further, or to put it plainly, he bought a lot more property with his capital.

Emotional Intelligence

The second point was that when John first started investing he was very emotional.

Having never invested in buy to let property before and not having built up the emotional intelligence of a property investor he was emotionally immature. Between 2005 and 2009 he's had the chance to learn so much about the principles I teach for investing as well as the many lessons about himself that affect his decision-making ability and emotional state. Had he started in 2009 it would probably be 2013 before he had the emotional intelligence to continue investing?

I hope that you can see that these previous two points play such a huge role in the portfolio he has today.

Had he started today he would have been able to afford just two properties at today's prices, yet now he has 6 properties for the same money. Although the first 4 have dropped in value (some more than others) he is a much different person today than he was back when we first met in my office. He also commands a portfolio worth £720,000 in today's values rather than a portfolio of just £205,000. That's a whopping difference of £515,000.

Just think what happens when the market climbs by just 10% and loan to value increase from 65% to 75%. He's sitting on an absolute goldmine.

Sometimes it pays to look beyond just the short-term financial picture and look at the long term life-changes that you have made. Changes that going forward allow you to take advantage of the next property cycle in ways that you would never imagine if you are just starting out now.

So if you bought property between 2005 and 2007 don't worry or regret anything, You still did the absolute right thing!

Live with passion,
Brett Alegre-Wood

Brett Alegre-Wood
April 10, 2009

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