Earlier this week I had a debate with one of our investors – or rather, someone we source for.
He buys himself – we just find and secure the property. He buys. He refurbishes and he manages his tenants.
It all started when I said we would not touch anything less than a positively cash flowing property of £250p/m minimum … he raised his eyebrows and said no chance!
Although we source for him, we have two opposing strategies.
He’s an experienced investor and has several properties. All standard buy to let in the area we focus on. All let, some paid off and some with very little outstanding mortgages.
He buys and pays down the mortgage on each property. Builds another pot and goes again…. he’s keeping his pot for the end.
Obviously, he has patience but keeps asking, how can I do this faster….
When I explain - he only seems to understand ‘his way’. I believe it comes down to his belief on ownership.
We had a lengthy debate on different strategies, but mostly the difference between the strategies each of us are working with. Neither strategy is right or wrong – at the end of the day, he’s started and has a property portfolio. That’s more than most others.
He has a 10-year plan – he wants to retire and wants a property portfolio to sustain him during retirement.
We talked cash flow, recycling cash, houses, tenants and control/ ownership.
His issue with using our strategy is that we would never own the house. With his, he owned it outright.
Whereas we focus on cash flow, getting out money out and repeating he focuses on repaying his mortgage and paying the house off. As our finance guy mentioned, “this is a London model” … we’re not sure how or why he refers to it as this, however that same strategy works in Northern Ireland. It works in Scotland…. It works most places. However, for it to work you need several things.
Our investors strategy, prior to us had been finding property on market for as cheap as possible, and as he would say – “putting in a cheeky offer” – if accepted; he would invest his pot. Every penny. Using a repayment mortgage and using his rental returns, he then started paying off the mortgage while managing tenants himself.
At the end, he generates between £100 and £180p/m positive cash flow.
In all honesty, he has a few houses and a few pots – he has a nice nest egg. However – it’s taken him several years.
The decision on strategy is a balance. You need to understand what you want and by when, at CDPG - its the first thing we do, we try to understand what it is our investors want.
So, in summary, he invests as much money as possible to reduce his mortgage payment and generates between £100 and £180 after bills.
He manages tenants – will not touch a HMO or anything other than a standard buy to let as the thought of dealing with multiple tenants is his worst nightmare.
We follow a slightly different strategy to him – we want to control, not own.
Up to a point there is a similarity in both strategies. Although we like cheap property – our interest is ‘best value’.
We search for property on and off market. When we find something - whether below market value (BMV – for another day), in poor condition or scope to add value, we pay what is required to secure the property.
Our primary focus is getting that money out as early as possible. Recycling.
The difference between us and our investor? We want our pot now – not later.
When we buy ‘right’ at a certain price - we have locked in value, when we refurb or carry out works – we are adding value.
When we refinance, we are realising the increase there and then.
This means – we get to use that pot again and again….
In an ideal scenario we are getting all, or as much of our money out on refinance or within a short period of time thereafter. As we have no money tied up in the property the return on investment is greater – done right, it can be infinite.
Getting the pot now allows us to repeat and grow quicker now rather than waiting for later, this allows us and our investors to build our portfolio at greater speed,
Increasing monthly cash flow and reducing risk.
.......We also talked about the supply and demand of the local housing market… another area where we have different opinions, but that’s for another day
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