It’s never too late or too early to profit from property investment
A few weeks ago, I had a chance meeting with a mate who had become disillusioned with the whole idea of investing. He’d been with the same financial advisor for almost 20 years and had initially put £50,000 into a stocks and shares portfolio in 1998 – a lot of money back then. For the first couple of years, he’d been happy with his fund’s performance.
“Then I was smacked with the dotcom bubble. I don’t know of a single investor who wasn’t hurt by that. Me? From being up 25%, I found myself down 25% on my original investment.”
He explained how his financial advisor had recommended he stay with it. “ ‘Stocks go up and down,’ he told me. He was right. Over the next five years, they went back up. All the way to where they’d been just before they crashed in 2000. Then guess what happened?” he asked.
I shrugged my shoulders, though I knew what he was about to say.
“The stock market fell out of bed again. It was called the ‘Global Financial Crisis’. It had taken five years to get back to where I’d been, and a year to fall all the way back again. My fund nearly halved. After ten or eleven years of being invested in the stock market, my £50,000 had shrunk by nearly a quarter.”
“What did you do?” I asked.
“I stuck with it again. I’m terrified now,” he said.
“Well, stocks have been going up for more than seven years now. They’re at record highs.”
“That’s good, isn’t it?”
“Yeah, sure it is. But it was at record highs in 2000, and 2007, too. Both times all my profits and a lot more were wiped out. I’m terrified it’s going to do the same again. Then it would be 20 years and counting with nothing to show for my investments.”
I took a sip of my coffee.
“You know the worst thing?” he asked. “All that time and the fund managers have taken 2% a year from me. 2%, every year, regular as clockwork. Those good-for-nothings have received almost £20,000 from me, and given me nothing in return.”
“Well, you’re in profit now, though?” I ventured.
“Yeah, but for how long?”
“Tell me, do you own your home?”
“Yeah, I bought that at the same time I invested. I have left an inheritance of £100,000 and split it between the purchase of a home and making an investment for the future. Some future that’s given me.”
“How’s your home done?” I asked.
“Great! The mortgage is paid, and me and the wife own our home outright. It’s worth nearly two hundred grand now.”
“Okay. Well, it sounds to me like you’ve invested pretty well.”
“My house? That’s not an investment. I wouldn’t know where to start in property investment. Besides which, I don’t have the right skillset to buy a place and do it up. And I don’t have the time to run around after tenants, either.”
“Okay,” I said. “But what if I could show you how you could invest in property today, using some of the equity in your home and by selling the stock market fund that you’re so worried about and retire tomorrow?”
“It can’t be done,” he shook his head. “My financial advisor would have told me about it. Wouldn’t he?”
“Let me tell you about the 3+1 Plan. It’s a simple concept: you buy three properties, plus your own, and the rent replaces your income. A third of the rental income pays the mortgages and costs, a third pays taxes, and a third substitutes your income after tax.”
I ran through the numbers with him and showed him how it would work for him. He could sell his stock market fund that was making him lose sleep, release some equity from his home, and still have equity of £100,000. I know it was an unconventional way to do things – we usually invite clients to come and visit us in our offices so they can see what we’re about – but this was someone who needed to know this stuff.
“Okay, I get it,” he said. “But, it still sounds risky to me. Can I afford three properties? And what about finding tenants, and then doing the property management thing afterwards? I’d just be replacing one job for another, wouldn’t I?”
“No, not at all. For a start, we’d hold your hand and make sure the properties you bought were in a great area and demand. In fact, we’re so confident of this that sometimes we give rental guarantees.”
“You mean my income would be guaranteed?” he asked.
“Yep, that’s exactly what I mean.”
“Go on,” he said.
“We’d help you find all the professionals you need – solicitors, mortgage brokers, and so on – and then we’d hook you up with a professional property management company. They find your tenants, service them, make sure you get your rent paid on time, and if there are any problems with your property portfolio – like a leaking water pipe, for example – they take care of the lot.”
“I bet that costs a fortune,” he said, suddenly looking a little dejected.
“The professional help will charge you separately. Your contract is with them, not us. As for the property management, the company we recommend charge around 10% of your gross rental. And you can offset that against your rental income to reduce your tax.”
He tapped his fingers on the table, next to what was now a cold cup of coffee. “What about your charges? Are you going to make money out of me like those crooked fund managers?”
“I’m not going to lie to you; we make money. It’s a business after all.”
“I knew it!”
“We take a finder’s fee when you buy your property. That’s it. No ongoing fees, no other commission, no nothing.”
He frowned. “That’s it? Nothing more?”
I shook my head. “All the liaison and support throughout the buying process is included.”
“Why didn’t my advisor tell me about this when I invested in that damned fund?”
“Ah, well now. He does get paid. Every year you hold the fund, he gets what called a renewal commission. That can be anything between 0.5% and 3% of your fund value – usually they operate on around 2% depending on the size of your fund. If he advised on property – which he’s not allowed to anyway because it's what’s called an unregulated investment – he’d lose those annual renewals.”
Before we parted, I gave him a copy of my book,. (you can download it for free on that link) He promised he’d read it and get back to me. So why am I telling you all this now?
John called me yesterday. He’d read my book, and spoken to his financial advisor.
“He said I should switch funds to a government bond fund. But that makes only about 3% a year. When I asked him about residential property, he told me it was risky to invest in houses. So, I told him I wanted to sell my fund.”
“Just like that?” I asked.
“Yep, just like that. After I spoke to you and read your book, I did some digging around. I found out quite a lot about you, and I also found out a lot about my financial advisor. It turns out he owns three residential properties, which he lets out to tenants. Has done since the early 2000s.”
John’s coming to see me in a few days after the cheque from the sale of his stock market fund has gone through.
You don’t have to put up with the BS, hype, and underperforming funds from a financial advisor. Contact one of our team today on +44 (0)207 923 6100, and make an appointment to come in and talk about hassle-free property investment opportunities. The chances are that your investment in your home has done better than any of your other investments – isn’t it time you grew your investment wealth pot just as fast?
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