Your HMO Expert - HMO Property Investing » Property Investing

Recession-Proof Cashflow Strategies

Matthew Moody — Wed, 03 Nov 2010 19:14:27 +0000

In today’s market with capital values plummeting and costs seemingly doubling over night, it is crucial that you implement cashflow strategies into your portfolio.

But what is cashflow and how does it impact me?

At its very basic, cashflow is the money that you have left after all of your income has come in and all of your expenses have gone out. It can be very easy to overlook when things are doing well – but when they aren’t, it’s crucial that you focus on ensuring a positive return at the end of every month.

Cashflow Strategy 1: Rent Your Properties

This strategy is very simple but you’d be surprised at how many landlords allow one of their properties to become vacant. This may even be you – do you have one, two or more vacant properties right now draining your cashflow?

If so; your immediate priority should be to get this rented – even if you have to take a short-term hit. By this I mean, if you have lower the rent below what you really want in order to get your property filled – then do it. I’ve taken hits of £50 to £200 on a month sometimes to get a property full but this short-term approach will ultimately serve you well as the added cashflow (even if it is slightly negative) will ensure that the portfolio as a whole should be cashflow positive.

Top Tip: A lot of landlords now are using the Local Housing Allowance to boost rents because often, they will pay more than a private tenant – such is the demand for social housing now.

Cashflow Strategy 2: Manage Your Expenses

This one is crucial and could make or break you very quic

Every expense needs to be justifiable and beneficial to your long-term aims. It is also worth reviewing all major expenses at least quarterly to investigate what you can reduce.

So, perhaps your long-term aim is to buy 3 properties this year but so far, you’ve only bought one but you’ve been to 4 networking sessions a month. STOP!

Networking is highly beneficial but it needs to be tempered with the right objectives – for instance, I generally allow around £100 in expenses for every networking meeting I attend outside of my immediate local area (20 miles or less) because this is the true cost after mileage, parking, subsistence, networking fee, drinks and kebab on the way home. You get the picture.

So far this year, I’ve saved over £250 per month by switching my utilities to Utility Warehouse; £50 in subscriptions I never used and another £150 through cutting out some networking sessions/meetings that were not productive.

Top Tip: Set a target for yourself of £100 savings and see how easy it is to reach this figure.

Cashflow Strategy 3: Lease Options

This is another way in which you can release additional cash flow from your properties.

The brilliance of this strategy is that the tenant you are appealing to is somebody that ultimately wishes to purchase the property from you. They are highly unlikely to default, they’ll normally pay over market rent plus they’ll give you a nice deposit of 3-5% of the purchase value when they move in and they’ll pay around 20% every month in additional rent payments towards their deposit.

That attached to their longer-than average tenure (so no voids) together with their willingness to look after and maintain their new home means that this strategy is already starting to be implemented by many savvy investors.

Why This Strategy?

Larger Deposit

Above Market Rent

20% Additional Rent Payments Towards Deposit

Long-Term Tenants

Top Tip: Advertise for Rent to Own clients FIRST before going and purchasing a house. This way, you are secure in the knowledge that you have a number of leads that you can offer the property to.

Cashflow Strategy 4: Mixing It Up

Look at ways in which you can mix up the rental income from a particular property that you own or are considering buying. You don’t just have to have one income coming in per property – you could generate multiple incomes from residential and commercial clients.

You can make substantial returns from small shops with flats above them, dividing a larger property into flats, getting planning permission for a corner plot build, renting out garages or parking spaces, providing corporate or short term lets – the list is endless. You just need to sit down and think of some ideas outside of the box.

Here’s one I am currently trailing which is working great. I own a lot of large detached houses with garages. I’ve been renting these out successfully for the last couple of years for people who want to store a classic car, a sought-after motorbike or just general household junk. I’m getting £20 to £40 per month for each garage – it’s not a huge amount but I’ve just increased my yield by up to £480 per year!

Top Tip: Look at any unused space in your property or garden and figure out what you can use it for. We’re considering turning an old out-building into a small flat at the moment.

Cashflow Strategy 5: Sourcing

This is for a time-rich person who can go out there and start doing some deals.

Perhaps you haven’t got the funds to buy right now; perhaps you’ve got a good marketing system going and too many leads to know what to do with them, perhaps you want to build some cash up before you get investing yourself. Either way, sourcing property for other buyers is big business.

You can do this in a number of ways:

Sell on unqualified leads

Sell on telephone qualified leads

Qualify and Package a deal

Package a deal with “lock-in” agreements and financing

All of these will give you varying levels of fees from £50 up to 3% of the property’s value at the top end. It’s possible to make a very good living just sourcing and passing through deals to other clients.

Top Tip: Focus on one particular type of sourcing and become very good at that. A niche market will always outperform a broad market so keep it focused and the customers will come.

Cashflow Strategy 6: HMO’s

For me, the holy grail of property investing and where the real cashflow returns are always made.

Take a property and rent it out by the room to young professionals. You can expect to double or triple your yield instantly and the good thing is you can even do this on small 3 bed houses.

Let’s look at an example:

3 bed end terrace worth £125,000 with 3 bedrooms (2 doubles, 1 single) and 2 reception rooms.

What I would do is rent out four rooms, keep one aside as a communal area and take rental income of £1472 to £1645 per calendar month. Take approximately £100 per month per tenant on bills and on an average 85% gearing, your monthly cashflow would be £497 to £670 per calendar month!

A lot of people believe that its hassle to run HMO’s and I have two comments on this.

Firstly, is it worth the hassle to take a 3 bed terrace from a 5% to a 16% yield? I think so.

Secondly, it does take some time and effort to set up in the beginning but once you have a HMO running, it’s no more than a couple of hours per week per house.

Top Tip: Buy a 2-storey property with 4 bedrooms and 2 reception rooms giving you 5 bedrooms to play with for less than £200,000 and you will make at least £500 per month minimum.

Summary

Property investors are not having the best of times at the moment. There’s a lot of negative press, lenders are running scared and the testing times are set to continue.

However, if you can manage to work on your cashflow in the next 12 months and keep your properties ticking over, then by the time of the next property boom, you’ll be a very wealthy player.

In the words of Jerry Maguire “show me the money” and the cashflow will keep you going.

Show Me The Money

Matthew Moody — Mon, 23 Aug 2010 19:56:18 +0000

I love this clip and I think anybody serious about property should love it too.

After all, what is anybody in property investing for - unless they want a little piece of the pie.

We don't go through all the heartache, the blood, the sweat, the tears, the disgruntled tenant, the broken toilet, the boiler and central heating going on a saturday night in december, the kitchen flooding, the non-paying obtuse tenant, the tax return, the worry, the stress, I could go on and on and on...

No, we don't go through all of this for the good of our health.

We do it so that one day we can see the money (cashflow) coming trickling through, then roaring through.

Of course, if you have HMO's, you're pretty much going to see this roaring cashflow straight away - but always remember to keep some in reserve for a rainy day (!).

Enjoy this classic clip and make sure that you ask somebody everyday to "show me the money".

2010 Jedi Wars

Matthew Moody — Fri, 11 Dec 2009 19:55:57 +0000

2010 will be a tumultuous year for us and if you’re not prepared; you’ll end up a victim.

In Star Wars; the reason the Jedi were wiped out is because they weren’t prepared! And your Jedi type will impact your future prosperity.

Experts such as Harrison, Kiyosaki and Trump are predicting the great depression of 2010; something none of us have ever experienced before.

So, what powers of the force do you need to win in 2010?

Force #1: Wealth profile
Just like the Jedi’s had teachers, diplomats, leaders, traders; you need to understand your wealth profile too.

You need to understand what your wealth profile is and how this differs to others in your team; then find the missing people to ensure you have a successful team – and not fail like 90% of other businesses.

There are two tools you need to understand what your wealth profile is.
1) Your Wealth Dynamics profile from world-renowned wealth creation specialist Roger Hamilton. In a very simple 15-20 minute online exercise, you can identify once and for all what your wealth profile is and what you need to do in order to build your wealth.

Get your Wealth Dynamics profile at http://tinyurl.com/wealthdynamic

2) Stanford Knight has identified 20 key competencies that a property business requires to operate at the optimum level. These have been collated through our years of experience in the property arena and are essential to ensuring that your property business succeeds. This is normally part of our acclaimed Strategic Needs Analysis consultation retailing at £197.00.

We’re going to give you free access to the Key Competency part of the SNA once you’ve completed your Wealth Dynamics profile. We can then drill down into exactly what help you need in 2010.

Once you’ve completed both of these tasks, you’ll know more about how you can generate wealth than 90% of the investors out there. Period.

Force #2: Business Systems
My speciality is in creating systems that work. And then fine-tuning them. And then making them even better. Unless you want another job, then this is the only way to create a long-term sustainable property business.

So, how do you go about making this work for you?

Simple, you use a Mechanic to design your Systems for you. If you’ve completed your Wealth Dynamics profile, you’ll understand what I mean. If you haven’t, then you won’t…

If you haven’t got a Mechanic in your team, then I suggest that you find one or outsource the system-building side of the business to specialists such as Stanford Knight.

If you want to try building your own system, then the first place to begin is with your organization chart. If you haven’t got one, then sketch out all the positions that would be required to run your business in 5 to 10 years from now.

Think about the different facets that make up a business:
• Marketing
• Systems
• Finance
• Information Technology
• Operations
• Human Resources

Create your organization plan and then slot everybody that is currently working in your organization into all of the slots. You may find that it’s a shock that you feature in a lot of the positions!

But now you’ve realised this, you can then create systems and processes that will assist you in creating a business that can run without you.

Force #3: Focus
Having the right plan comes from having your primary aim buttoned down. If you don’t know what your true purpose is on this planet, then try reading authors such as Michael E. Gerber, Timothy Ferris, Jack Canfield or Mark Victor Hansen for inspiration.

This is having your big dream down on paper; it’s understanding what you wish to be remembered for when you’re long gone. Take some time out to meditate and ponder upon this and identify exactly where you are going.

You’ll then be able to create a long-term 10-20 year master plan from this. Once you’ve completed this, then you can drill down into the detailed goals for this year.

This very detailed goal planning session allows you to then FOCUS on taking action and making these goals work for you. But what happens when your mind starts wondering, when life gets in the way and you find that you are not meeting your targets?

Generally, that’s because your primary aim is not congruent with your goals. You’ll probably find that you are not getting up in the morning raring to go and achieve something BIG today.

That’s why it’s so important to take the time out to identify your primary aim.

Force #4: Community
If you’ve identified your Wealth Profile, understand how your business needs to be structured and resonate with your Primary Aim, then you’re ready to go. Well done!

But how do you keep the momentum going when you’re out there on your own?

You basically need to be part of a larger community of like-minded people.
A community that will nurture encourage and support you. A community that will hold you accountable to your goals and help you when the going gets tough.

But this isn’t for everybody. This is only for people who are serious about achieving their goals. This is for people who can commit to a monthly meeting with people who will be looking out for your success as well as holding you to account. This is for people who want to carry on learning from top experts actually out there walking the walk and not just talking the talks. This is for people who want to develop their own personal Business Plan and actually see it delivered.

Launching nationally in 2010 is the Stanford Knight Wealth Association and this is your invite to join with us to create a sustainable long-term property business with established experts and support mechanism.

To apply for membership, go to http://stanfordknight.com/wealthassociation.html

As the great Yoda once said “Do or do not... there is no try.”

Obi-Wan Moody

Changing your mindset = improving your cashflow

Matthew Moody — Fri, 07 Aug 2009 13:12:36 +0000

15 months ago the property market was a different place.

Whilst the Northern Rock fiasco had rocked the financial sector and sowed the seeds of doubt over cross-collaterization loans and sub-prime mortgage swaps; the main buy-to-let lenders were still happy lending on good solid property deals. That coupled with general optimism in the market that we could ride out the crisis and get back to a solid footing meant that some investors were taking greater risks than perhaps was necessary when considering a long-term strategic investment plan.

Around this time, I had about £0.85 million pounds worth of deals that were sewn up that would have yielded in excess of £1,500 cashflow per month after all costs. Then rumours started to circulate; the banks were finding it tough, they didn’t have the money to lend, they needed to tighten criteria to only lend to “responsible” borrowers (although who knows what a bank terms a “responsible borrower” given their past exhuberence in lending to every man and his dog) and to add fuel to the fire, surveyors were being warned about over-valuing property as it may come back to bite them.

Sadly, one by one by one, the deals started to fold. One was an administrative error by my broker which ended in the offer being withdrawn; one was a solicitor misunderstanding the terms of the deal; one was a surveyor who refused to increase his rental figures despite AST proof and being 25 miles out of area. It was painful, it was costly and the opportunity cost probably runs into tens of thousands if not hundreds of thousands in the long-term.

One did complete based on a refurbishment model which actually was ready within 6 weeks but by that time, the market had completely changed again.

Mortgage Express had ceased all instant remortgages; most lenders now asked for 6 months minimum before remortgage (even if you had added thousands in value by refurbishing a property), lenders now wanted to fine-toothcomb applications and surveys to make sure they were not being exposed, surveyors were automatically down-valuing 10%, available mortgage products dropped by 50%, mortgage brokers didn’t know WHAT was going on; new “no money down” schemes were popping up everywhere; the list went on and on and on.

So, what does this mean for you and me 15 months on?

1) No money down is dead (see July’s YPN article)

2) Lenders want to lend to borrowers who can prove income and deposit

3) LTV’s are down to 70% on average with discounts averaging through now at 25%-30%

4) The amateur investors have left the market

5) Development and refurbishment finance is practically non-existent but with significant conditions attached

6) Lenders are still charging around 6% interest in real terms with arrangement fees and exit penalties increasing significantly

7) Cash is being held within the banking system but not released to the general market

8) Surveyors are routinely down-valuing any private sales by 10-2%

9) The latest craze is buying houses for a £1 but you’re not buying, you’re “controlling” and it only works on some deals

10) Everyone is jittery and nobody really knows what is going to happen

Now that we’ve tackled these issues and got them out in the open, then what can we do to carry on growing our businesses?

There is only one way – and that’s to change our mindset + look elsewhere.

This is what I started doing back in January of this year. I was fed up of the constant battle to get deals through, valuations to stack and lenders who treated me like a second-class citizen. I knew there must be a better way but where was it and how did I find it?

The answer dropped into my lap one day from a contact of mine who had properties for sale in Michigan in the U.S.A. On paper, the deals seemed too good to be true with $50,000 houses renting for $800+ per month. I knew I had to get out there and do some due diligence.

Several trips later, several thousand pounds of research invested and with a much better understanding of the USA market, I drew several conclusions that I want to share with you.

1) There are lenders who wish to lend to non-US nationals rather than Americans

2) Self-certification is still possible

3) Deposit and closing costs can generally be covered through a variety of methods

4) There are thousands of deals for the taking

5) Cashflow is between $100 to $200 per month from off-the-shelf packages

6) There are certain tax and occupancy benefits to owning through a US corporation

7) The US market is about 2 years ahead of where we are today in the UK – both from a property fall-out and a lending-freeze perspective

8) Tenant laws are far stricter in the US which allows for fewer voids and damage

9) It is far easier for a UK national to buy in the USA than it is over here – bizarre!

10) It is possible to extract some cash on some deals and get all of your costs covered in year 1

So for now, I’ve refocused my energies and time on purchasing properties within the US. Despite the distance, it’s no different to me than the properties I own in Yorkshire which are a 300 mile trip from my house. I haven’t visited them in years and the letting agents manage any issues for me.

It’s a curious thing property investing but I would recommend that you take a look at your current strategy and ask yourself truthfully; are you doing as well as you’d like to – and is there another way?

I did this 7 months ago and decided that the better way was to carry on investing in cashflow positive properties where I could attain finance with lenders who wanted to work with me.

Due to the buying power our group now has in the USA, we are able to offer ready-made portfolios of 5 units for £3,000 and a $million-dollar value portfolio for just £7,500 with all costs covered in year one and a cashback bonus. For more details and to register your interest, go to www.stanfordknight.com/usadeal.html.

A Property Investors Guide to the Credit Crunch (pt1)

Matthew Moody — Wed, 05 Aug 2009 09:16:20 +0000

So, is now the best time to buy an investment property or not?

Its an interesting question that many property investors ask me when I am out and about speaking at events around the country and one which is not easy to answer.

Firstly, is it the right time to buy?

We need to look at the value of housing stock in the UK to understand whether now is the right time.

The rocketing drop-off in house prices appears to be slowing down with indices such as Halifax, Nationwide and Land Registry showing a flattening off and in some cases, small decreases in localised area pricing.

So, buying today is like buying at 2004 prices - a good healthy margin of 15-20% depending on where you buy will be in your property from Day 1. However, bear in mind Fred Harrison's remarks in "Boom Bust" as he predicts a 2010 depression so prices may go down even further.

However, if you buy with your discount already locked in by negotiating a further discount off the already discounted prices, then you are locking in any future falls through negotiating when you buy to get the best possible price.

Secondly, how can you finance your property.

Well if you have equity in your portfolio or main residential home, then now is perhaps the time to consider releasing it to pick up the property bargains that are about. Even just last week, I saw a 3 bed maisonette in Kent for under £40,000 - a bargain when considering rents were £600+ pcm.

If you've downsized and have a pot to play with, then spreading your cash amongst several different properties is a good safe strategy - particularly if you are playing with the reposession and auction market where bargains can be found but a little bit of renovation work may be needed to ensure you get the maximum rent for your cash.

If you are in the position where you don't have a huge amount of funds available, then getting a buy-to-let mortgage may be difficult. Property finance has become more tricky and lenders have tightened up criteria and are actively looking for a higher profile of investor to lend to.

LTV's are currently running at 70% with the highest being 75% although from only one lender, chances of getting one are slim. At the same time, arrangement fees have jumped up with 1%-3% now commonplace whilst interest rates do not appear to be that overly generous given the very low Bank of England base rate at 0.5% and the LIBOR (London Interbank Offered Rate) being at a very low 0.876 over the last 3 months. Expect to see the average hovering around 4% still.

Thirdly, where do you buy?

Its all too easy to buy in a location you don't know because you are attracted by cheap prices.

Don't!

Unless you are already an experienced landlord and you have a particular strategy (for instance, I am buying in the USA right now as part of my overall property-banking strategy to build up both cash and capital appreciation over there), then I would recommend buying in areas where you are familiar with the rental market, the local business set-up, the transport links and most importantly the do-go and don't-go areas that every town has.

Also be aware of the particular market you are focused on and cater for this. Make sure your rents are not too high compared with your competition and focus upon getting properties let - not kept empty.

I know of landlords who have handed properties over to agents and they are still empty 6 months later.

Don't fall into this trap; there are generally only 3 reasons a property will not let:

the price is too high

the property is not appropriately targetted at your audience and/or requires refurbishment to convert prospective viewers into tenants

the property is in the wrong area

Do it the right way and you can beat the credit crunch.

In part 2, we'll be looking at how to make sure you've got the right tenant for your property, managing your portfolio and also abiding by the regulations that are out there now. Stay tuned.

If you haven't subscribed to my most excellent 10-part free ecourse on "Building Your Own HMO Property Business The Right Way", then please go right now to the top-right hand side of the page and sign-up. I guarantee you'll be happy with the ecourse and it will get you started right away.

Is No Money Down Dead?

Matthew Moody — Wed, 17 Jun 2009 14:48:49 +0000

Provocative? Crazy? True? False? Not sure?

Let me tell you – the landscape for property investing has changed beyond all recognition in the last 18 months. Back then, anybody with a pulse could roll along, choose a nice cashback deal, find a liberal lender, buy the property and get a nice cheque in return.

Never mind that:

· The cash was a loan!

· The property did not cashflow and every month needed supporting

· The cash had already been spent on a holiday to Benidorm!

· Often, the proper due diligence was not done and the investor ended up with a real dog!

This wasn’t and isn’t property investing – its property speculation or worse – gambling.

Only last night I was talking with Martyn Roberts (BBC’s “Homes Under The Hammer” property expert) who was telling me about investors he meets on his programme who ignore his advice and still buy a dud. Martyn is a professional investor and has been involved in hundreds of property sales – why would you not take his advice? The guy that bought a bungalow £50,000 over market value at auction thinking it was a house didn’t and now has a problem. And Martin even advised him not to buy this but he did - and thinks he got a good deal. Another guy wanted to buy a property for his son, so he turned up to an auction, bought something and then found out that because there is a big difference between an N1 and an N2 postcode (or may'be it was somewhere else in London - I forget), he had paid £50,000 more than he should have done! That coupled to the fact that his son didn't want to live there made it a bad deal - or did it? Nope, the buyer thought he had got a good deal and was going to refurbish it and then try to sell it.... Wonders never cease.

Don’t get me wrong; you can still invest in property and release capital – but you need to have a plan to utilise this money correctly. On a daily basis, I see so-called deals with discounts of 30%, 35% or even 40% off what – a list price, a real price or a RICS valuation?

Given that surveyors have been instructed to down-value by 10% in the general market, any so-called discount needs to take this off right away. And if its a private sale, surveyors are viewing these with a great deal of suspicion and down-valuing these as well by 10-20%!

But what about the experts who help us?

People are chasing a dream which property gurus seems content to sell you but are they truly walking the walk or just talking the talk?

Does anybody tell you what to do with the property once you’ve bought it…?

The time for amateur investors chasing no-money-down deals is over.

Just look at what’s happening with the government schemes for landlord registration, more red-tape and regulations, tighter control over lending and requirements for landlords to attend training and certification – where are you going to position yourself to succeed in the future and who are you going to associate with?

The questions you need to ask yourself are:

· What is my primary aim and objectives for my business?

OK, so you know you're in property but what is your ultimate primary aim? Do you want to be the next Donald Trump? Do you want to live in an island in the Carribean (incidentally, anybody see that one in Montserrett for sale for $400,000 last night?). May'be you want to earn enough to pay for the kids schooling? May'be you want to retire to the south of france in 10 years time and run a guest-house! I don't know what you want but you need to start here.

· What skills and experience do I need?

This is going to be really useful for you when approaching banks, joint venture partners and other industry professionals. Get your CV in order so that you understand it, create a biography if it makes sense for you and then start identifying how to use this past experience in your property business.

· What core competencies should a property investor have – and how do I rate myself against them?

· How am I managing my time?

Lots and lots. We've identified at least 20 key skills that you'll need as a property investor. These range from financial management to selling to marketing. Some can be outsourced, some can be shared but you need to understand what your KEY skills are and how these compliment the people you are working with.

Big one this! You need to do a time and motion study for the next 7 days, cluster your time into sections such as negotiating deals, researching deals, portfolio management, marketing, family time, watching tv etc. Then tot it up and look at the percentages - there's a fine line between what you think you're doing and what you should be doing.

· What is my current situation – and what are my future goals?

The main one to start focusing your mind right now! Look at where you are today from a portfolio value and cashflow perspective. Then look at where you want to get to and how you can break this down? It helps if you split it into categories such as single let, HMO's, land, development etc.

What if you need more help!?

It’s my mission to bring the worlds of business and property together and help investors everywhere to build a profitable property business. As part of our service, we can provide a Strategic Needs Analysis review of your current business to help you understand where you need to change and where the quick-wins as well as the more mid-to-long-term strategic objectives lay.

If you want to be part of a business-minded community that just happens to be in property, then make sure you keep an eye out for our new Millennia Mastermind £=mm2 coming soon..