The 3+1 Plan in real life-changing action
It is the story of twins Danny and David, who had been left £100,000 each when they were in their early twenties. Their auntie, who had always had a special affection for her nephews, had taken some good financial advice. Although her death had been unexpected, she had written a will and provided for inheritance tax with life insurance policies.
Being twins, it was almost a given that they would both decide to buy residential investment property. However, after making their investments, they took very different approaches to property investment.
This property investment blog tells the story of these two property investors and one that demonstrates why a first property investment is never the whole answer to your financial objectives.
Taking advantage of off-plan property opportunities
Using the £100,000 inheritance as a down payment, Danny and David bought identical properties in a new build development. Their London off-plan property investments completed two years after putting down the first payment. By this time the value of their properties had increased from the £250,000 original valuation to £300,000.
Danny’s ‘success’ as a property investor
Danny was ecstatic about his investment. It was what his auntie had planned for him. The property investment he’d made was truly life-changing. The rental income was £1,250 per month, and after his mortgage costs, property management fees and other expenses, he was left with around £350 per month to do with what he wanted.
With this positive cash flow, Danny could finally treat his wife and young children to the holiday in Florida they had always dreamed about. He wouldn’t have to work quite so many hours, either.
Over the next few years, Danny reaped the rewards of rising rental prices in a market that continued to be in high demand. He was able to work a little less as he had planned.
Interest rates fell, and his positive cash flow increased. His net income grew, and he was able to save some money towards his children’s university fees. By the time Danny had turned forty years old, his property was valued at almost £1 million. His net rental income of £25,000 was almost enough for him to semi-retire.
If he paid off the mortgage, he would be left with £850,000 profit. He’d have to pay a fair amount of capital gains tax, but he’d still be left with around £600,000 net − a life-changing amount a second time around. He had a bunch of options open to him. But he’d missed a trick. He’d stopped at the first property investment he made.
David’s portfolio building strategy
Like Danny, David was stunned at the performance of his off-plan property investment by the time it came to complete. But that was where the similarity ended.
Instead of subsidizing his income and lifestyle with the net rental income, he started saving as hard as he could. At the same time, he decided to take equity out of the first apartment and use it as the deposit on a second off-plan apartment.
Danny thought that his brother had gone slightly mad. He could take his family on dream holidays, work fewer hours, make other investments and what had he done? Bought a second property. They’d been lucky with the first purchase and lightning doesn’t strike twice, as they say.
Investing with a strategy
Unperturbed by his brother’s arguments, David stuck to his strategy. Lightning did strike a second time. But then he’d taken a chance to do a lot of property research, read property investment guides, and calculate his cash flow.
By the time his second off-plan investment completed, it too had increased in value. He now had two properties, with a total value of approaching £800,000. His brother said it was pure luck that his property investments had outperformed the market. David knew he had picked the best places to invest in property UK.
His cash flow was still positive. Not only this, but he’d managed to save quite a sizeable contingency fund. If interest rates went north, or one of his properties sat empty for a few months, he would have no problem sustaining his two-property portfolio.
The third property is the clincher
David had taken another year or two before he stepped into the property market a third time. This time the investment didn’t perform quite so well. At least not in the first couple of years. By the time that he completed his third off-plan purchase, its value had fallen by around 5%. But it rented quickly, and he was only marginally in negative cash flow.
The income from his other two properties, together with his contingency fund, saw him through the rough patch. A couple of years after he had made his third property investment, all three properties were in positive cash flow territory. And it just got better from there, despite a big recession.
David’s hours were cut at work. So was the interest rate on his buy-to-let mortgages. As his wages fell, his rental income rose. During a recession, he found himself in a position of not having to work. His rental income was working a treat: a third to pay the mortgages, a third for tax, and a third to maintain his lifestyle.
A property portfolio that changes the lives of future generations
When they compared their property portfolios, Danny and David’s outcomes were markedly different. Danny had done well with his single property. Gross profit and an income of around £2,000 per month are not to be sniffed at.
David had followed a 3+1 Plan investment strategy. He had mortgages totalling around £1 million. His mortgage repayments were £3,500 per month. His gross rental income had reached £140,000 a year. After all his costs, property management fees, and landlord insurances, David was now earning almost £50,000 per year from three investment properties.
Like his auntie had done, David made use of some great financial advice. He took out life insurance policies to cover any inheritance tax liabilities. Were he to die, his three investment properties would be left to his wife and children. Each would have a property worth an average of £900,000. Each property would produce a gross rental income of around £45,000.
Now that’s not just a life-changing investment. The 3+1 Plan has the potential to change the lives of your future generations.
Life-changing property investment strategy
The first property investment is never the complete answer. Danny had done well from his single property investment, but his brother had hit the ball out the park.
David had used his first investment as a stepping stone at the beginning of the long game of property investment. He’d realised that, with a focused strategy and conservative mindset, he could build a profitable and sustainable property portfolio that could make all his dreams come true, and deliver life-changing wealth that would allow him to retire way before his time. Better still, when the time comes, it will deliver life-changing wealth to his children, too.
Contact one of our team of property investment consultants today on +44 (0)207 923 6100, and put the foundations in place for a lifetime of profitable property investing. A meeting with one of our consultants is your opportunity to discover how off-plan property investment and the 3+1 Plan could bring you financial freedom way ahead of time.
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