The Four-Part mini-course on Below Market Value is now available on the main site

Between October and December last year, I ran a four-part mini-course about buying UK property Below Market Value.

For the last six months, this has only been available to my newsletter subscribers.

However, the course is now available on yourpropertyexpert.com – obviously, newsletter subscribers still have several months head start on the newer content.

The newsletter complements this blog and the negotiation course, despite the fact that both are free – this blog is a relatively “quick” collection of thoughts, as I have them. The newsletter is a more “considered” set of things – a lot more time goes into each issue. The free mini-course on property negotiation is both more detailed, and more limited in subject area – again, the newsletter and the mini-course complement each other!

It’s a buyers’ market?

I was speaking at an event a couple of weeks ago, and someone asked a question.

“How can I get a property cheaply when there are 5 buyers for every seller?”

I was faced with two different approaches to answering the question:

• Tell them that the “buyers to sellers” argument was flawed
• Tell them the “buyers to sellers” argument was irrelevant

On the day, I took the second approach:

It doesn’t matter that there were a lot of buyers out there – if the vendor is holding out for the best price, it doesn’t matter whether there is one buyer prepared to pay more than you, or fifty – they will get a higher price than you’re prepared to pay.

On the other hand, if the vendor is wanting a sale very fast and you can offer that, then it doesn’t matter whether there is one other buyer who would take 8 weeks to complete, or fifty – none of them will be fast enough…

… or if the vendor wants to sell and rent-back from you, it doesn’t matter if there are 50 other people who would like to buy the house to become their home.

The key to buying Below Market Value (BMV) is that you have to find vendors whose situation means that they are looking for something other than the best price, and then be flexible enough to offer that.

As for the “buyers to sellers ratio” – that’s fundamentally flawed – by definition there is one buyer per seller (co-buying excepted of course, but co-selling often comes up particularly in divorces).

Counting potential buyers is fraught with problems, since it’s not a “number” – it’s a “function”. The “input variable” to the function is the “price desired.” Namely, in my street, there is a six-bed house for sale with an asking price of £485k. At that price, it will take a couple of months to sell, since there aren’t many buyers wanting houses that big who are prepared to pay “market value”.

Were the vendors in a hurry, and to drop the price to £385k, then there would be a queue of people down the road, and they’d have to make viewings a tickets-only event – heh, at that price, I’d consider buying myself and flipping…

… but it’s not on at £385k, it’s on at a fair market value, with a vendor under no time pressure. So, I won’t be buying today…

How long will your tenant live?

I had a question from one of my mentoring clients today, which brought up an important point.

Without going into any of the details, he had been approached (in response to one of his leaflets) by a retired home-owner, who was interested in selling on his house at a reasonable discount to market value, thus releasing some equity.

All good so far – however, the home-owner wanted to carry on living in the house, and wanted to be guaranteed a tenancy for the rest of his life.

These kind of deals are often known as “reversionary” deals – in which much of the “benefit” of the property only reverts to the investor after something else has happened – notably the death of someone.

However, for my mentee, the question that needed answering in order to do a proper analysis of the investment was “how long will he probably live?”[BTW - the current age of the tenant is something I'm going to change from the actual case, to protect everyone.]

This is something that’s easy to miscalculate – it’s an easy to make the error that “the average life expectancy is 76 – this chap is 72, therefore, we’d expect him to live another 4 years.

Buzz – incorrect.

The 76-year average takes into account EVERYONE, including those who died before they reached adulthood, or in their 30s, or whatever. We know that the 72 year-old wasn’t one of these people.

In fact, what we need to use is something called “conditional probability”. This is the probability that “something will happen” once we already know that “something else has happened”. In this case, we already know that the guy has lived to 72 years of age… so the question is “what is the average life expectancy for a 72 year old.”

Fortunately, we don’t need to work this out – there’s a website called the GAD, which is a UK Government website, that has done all the projections for us. In fact, the average UK 72 year-old has another TWELVE years of life ahead of them.

If you are considering these types of investment, then it’s vital to understand this – rather than (on average) getting such an investment payout in four years, you’d actually (on average) have to wait three times as long.

Oh, and personally, I don’t have any reversionary investments, not because they don’t make money, but because I never want to be in the position where I might be sitting around wishing for someone to die!

Repossession and Foreclosure UK – three myths and misunderstandings

Every so often, at a Property Networking event, I have someone come up to me and tell me that they are “interested in foreclosures”.

This normally indicates to me one thing – that they have been reading American books on property investment. In the UK, the law is quite different, and notably more on the side of “looking after the average person who falls behind on their mortgage” and less on the side of “whatever the contract said.”

The first thing to be aware of is that repossessions and foreclosures are different things.

• In a UK repossession, the mortgage company “take back” the house, sell it, use the proceeds to pay off the amounts owed to them, and then send the balance to the borrower. The old duty to take “reasonable care to ensure…. the best price that can reasonably be obtained” has been slightly modified in the Building Societies Act 1997 to “take reasonable precautions to obtain the true market value of the motgaged property. It is normal, though NOT needed, for the mortgage company to get a Court Order to get a repossesion. The mortgage company does NOT have to sell the property via an auction – indeed, the Courts have recognised that this may well not be the best way to obtain the true market value.
• In a foreclosure, by comparison, the mortgage company “take back” the house, sell it, and keep the entire proceeds. This is only possible as the result of a Court Order, and it’s nigh on unheard of for courts to grant this these days – normally they only ever grant repossession orders.

 

The second is that the big “hand the keys back myth” is just a myth.

• If you are behind on your mortgage payments, you cannot just “hand back the keys” and have the clock stop on the interest payments.
  
  
• A mate of mine was once a branch manager at a building society – on the day he took over the branch, he was shown a drawer containing about half-a-dozen sets of keys from people who had just brought them back, believing that this would stop interest accruing. I’ve no idea why this myth still abounds!

For the investor, the first two mean that, unlike in the US, it is very unusual for an investor to get a good deal simply by finding out which properties have been repossessed, and then buying them up cheap from the mortgage company for cash in hand.

The big market opportunities that do exist are finding people who MIGHT be repossessed, and negotiating deals with them that leave them better off than they might be if the repossession went through.

Get your foot on the ladder, son – ahem!

“Get your foot on the ladder, son” is one of those phrases used by parents.

It roughly translates in one of two ways, depending on the parent.

• You’re now 35, and you’re still living at home, and frankly we want the room back

OR

• House prices are always going up, so it’s always sensible to buy now rather than waiting.

The first of these has a certain charm. I lived back with my parents for a couple of years after University, and it wasn’t entirely comfortable for anyone. On the plus side, it was cheap, on the minus side it was restrictive.

The second of these is the one that causes problems. Well-meaning relatives, or friends, who aren’t an expert in property, but who give well-meaning advice.

Getting your foot on the ladder is something that makes sense if prices are shooting up, but can cause problems if prices go down… and there will be another crash.

I’m not saying that there will be a crash this year, or in 2007, or 2008… I honestly have no idea when it will be. However, I do believe that there will be one at some point. This is because there are only two things I can possibly believe.

• This government has finally put an end to boom and bust so well that, irrespective of what happens in the rest of the world, and who wins the next election, the economy is so sound that there will never be another declin

OR

• There will, at some point, be another crash.

Make no mistake – crashes are painful. I bought a flat in 1994, for just under £40,000. The person I bought it from had bought in 1989, for just over £50,000. Scale up those figures to today’s prices, and you may find today’s buyer at £250,000 becomes 2010’s forced seller who is only able to get £200,000.

There are only two ways to avoid being burnt in a crash. Either you don’t buy at all (in which case you miss out on the upside as well as the downside, and over the long term, there has been a lot more upside.) Or you make sure that you buy intelligently.

There are two planks to buying intelligently.

Firstly, finding something now that, even if the markets do go down, will still leave you in pocket. This is the core of BMV (Below Market Value) investing, and good negotiation skills are a key part of that.

Secondly, buying something that has positive cashflow, so even if prices do go down, then the asset will still be generating you an income.
Property has tremendous upsides as an investment, but don’t let anyone tell you that there is no downside!

Course Review – Invest in the States (Ayshe Kadir)

Should I invest overseas?

This has to rank as one of the most common questions that I am asked. Now, I have made no secret of the fact that all my portfolio is within an hour drive of where I live (and most of it within 15 minutes.)

However, given I was asked the question so much, I thought that I should get up to speed on some of the most popular overseas
investment locations, Cyprus and the USA.

In June, I went on the Invest In The States course run by Ayshe Kadir.

The reason that I chose Ayshe and her course is that she is first and foremost a property investor (who happens to enjoy training people.) I have a concern about courses run by people without any real expeirience, or good presenters who present material written by others. In this case, no problems – Ayshe has been a landlord in the UK for many years, and has been investing in the States for several years. Everything she teaches is based on her own experience, not just a re-hash of a book.

As we all know, it IS possible to source properties below market value in the UK, by concentrating on finding people who value a sale quickly more than they value the best possible price. However, as we also know in the UK, it can be time-consuming to find these people.

In the USA, however, the information about people who are behind on their mortgages and therefore facing repossession is regarded not as private, but as public information. This does not mean that it is free, but there are places where it can be bought very cost-effectively.

This difference, and this alone, makes a huge difference to the investor. Anyone going into the course with a UK-leafletting mindset will be pleasently surprised at how that step can be bypassed.

Ayshe teaches not only how to find this information, but how then to make use of it and convert those leads into sales. While some of the techniques she uses are similar to those that I teach in my negotiation course, and others are similar to those that Parmdeep Vadesha and Glenn Armstrong teach on their BMV courses, there are others that are peculiar to UK people investing in the US.

The course is both detailed and interactive – rather than using a pre-canned set of Powerpoints, Ayshe looked at a live lead she had just receive by email, then went through the process of getting more information, obtaining comparable pricing, and preparing for the initial contact.

Rather than having a live conversation with a vendor in the course, though, she played a pre-recorded conversation with one from whom she had bought a property the previous month. This added to the atmosphere (though with a thick southern drawl, was hard to follow at times when played back to the room.)

The material for the one-day course I attended was on finding and negotiating with pre-foreclosure vendors in the States. Ayshe also runs other courses on Tax Liens, Tax Deeds, and Deed Trading.

In addition to the course itself, Ayshe includes a very comprehensive manual which not only reviews the principles and practices she teaches, but also gives in-detail assessments of many different areas within the States from an investor’s perspective.

I started out somewhat sceptical about the concept of investing in the States, and after the day am very much more positive. I have not (yet) bought there, but feel rather more confident about my ability to do so now.

I also persuaded Ayshe to give me a quick interview, which I recorded and is now available here.

So, the key question – do I recommend the course?

Only to certain people:

• If you are committed to investing in the States, then this is the best resource I have yet come across, and I would recommend it without hesitation.
• If you are considering investing in the States, then I would recommend you go to one of the preview Seminars that Ayshe runs. These cost about ten pounds each, and will give you about an hour basic training, followed by some more nformation about the course.

To get more details of the course, or the preview seminars, look at Ayshe’s site

Declaration: I receive a small commission if you go on the full course as a result of following the link above! I do not receive anything if you go on the preview seminar and decide that the course is not for you.

Course review – Glenn Armstrong

If you have been to any Property Networking events recently, then you may have come across Glenn Armstrong.

Glenn’s background is as a businessman and entrepeneur – in which he’s been very succesful. However, a few years ago, he turned to property, and applied his skills and drive to build a huge portfolio very quickly. (Over 60 properties in 2 years.)
The secret to his success was his use of creative Below Market Value techniques – ways of identifying vendors who value things other than the highest headline price, and then coming up with creative solutions to give them what they want or need.

I’ve used BMV techniques myself (and written about them on the yourpropertyexpert.com free newsletter), however, Glenn has done a lot of work putting together a one day training course based around his own experience of what has worked, and what hasn’t. I went along to the course a couple of months ago.

Glenn is based in Milton Keynes, and the course I attended was based there, so relatively good transport links. The “amenity factors” were well done – a good hotel, big enough training room (for about 25 attendees) and good quality food and drinks both in the morning and at lunch.

However, it’s the content that drives people to training courses, not the food – and this is where Glenn excels.

Some property training is presented by “salesmen” who are great at standing up in front of the room, but have no real experience of the material, so aren’t always that hot when it comes to questions. Glenn is presenting HIS material, based on HIS experience, and the depth of knowledge shows.

There have been some criticisms (not from me) that buying BMV only works “if you take advantage of people”. Glenn clearly demonstrates on the course that the only way to complete deals is to concentrate on helping people. Whether that means driving to court with them, or paying their legal bills, or negotiating with credit card companies on their behalf.

At £500 the course isn’t cheap, but compared to some (US) courses that sell at 10-40 times that amount, it looks reasonable.

Likewise, if you end up learning a technique that will shave an extra £10,000 off your next purchase, then £500 feels a tiny amount to spend.

Of course, going on the course won’t make you succesful in buying BMV (any more than going on my course will make you a good negotiator.) The only thing that will do that is practice – but if you’re serious about moving into property investment, and are prepared to treat it as a business rather than as a hobby, then investing a day of your life in finding out WHAT you need to do makes sense.

• Book Glenn’s course

Estate Agents – fishing in the right pond?

A long time ago in a Galaxy far far away…

OK – not _that_ long ago, and actually close to home, but here is a true story.

The year is 1994. A young landlord (for this is what Property Investors used to be called) is looking for his first property. He has thought about rental demand, and knows what he is looking for, so he goes into several estate agents on the High Street.

He pays just under forty thousand pound. A tenant moves in immediately. In the first year, the property just about washes its face (covers its costs), but then next year our hero puts up the rent, and it starts to bring in cash.

Ten years later, the property is worth well over one hundred thousand pound, and is generating three hundred pounds per month in positive cashflow.

Now the same story, twelve years later. A young property investor for this is what Landlords now call themselves) is keen to find some rental property. She too has thought about rental demand, and knows what she is looking for, and decides that estate agents are not the answer, but instead she should print out about ten thousand leaflets, and get them distributed locally.

She has been on many training courses, and learnt that “estate agents cause problems, buy the best properties for themselves, and add costs for investors.”

Now, make no mistake. All these things she believes are sometimes true. Some estate agents do, indeed, snap up the best properties for themselves. Some do tell buyers not to accept low offers. Some do treat potential buyers as if they were some irritation… and these are not estate agents worth dealing with.

However, there are estate agents out there who will allow the good below market value deals to go to investors without betraying their clients.

A good estate agent will know they have a motivated vendor and seek the best terms, in money, speed and security for them, and not
focus on the single dimension of price. Obviously, over ninety per cent of vendors just want to focus on price, and the estate agent will do this for them – it is the others that make the investor their money.

Please, do not mistake me here. I am not saying that you should abandon your leaflets and local adverts, and personal contacts, and word-of-mouth referral fees…

… but I am saying that, as an investor you should not cut yourself off from any potential source of deals.

So yes, I do continue to build relationships with estate agents, and
I do continue to leaflet. I would no more consider dropping one than
dropping the other.

This came very clear to me a couple of weeks ago, when I went on a
one-day training course given by Glenn Armstrong. He is one of the
two people I consider to be the UKs leaders on leafletting. (The
other is, of course, Parmdeep Vadesha.)

However, Glenn said, even on that course, that some of his leads
come from estate agents.

Once you have a process in place to give good service to motivated
vendors you find, and are able to solve their problems in a way that
leaves you a profit, then does it really matter where the leads
come from?