Why Property Investing is for me…
In my second (of potentially more blog posts!) I’d like to enlarge on why I chose property investing as a means to generate an income and build a business.
Firstly, I wanted to say a big thank you for all of the fantastic feedback and direct messages I received on the back of my 1st blog (No Regrets) – I’m glad my story seemed to resonate with a lot of you.
Since the last post we’ve been busy submitting planning applications, cracking on with the current refurbishments and working towards exchange and completion on two more properties. These projects, together with the others in the pipeline will eventually see me go a long way towards replacing my old salary. In No Regrets I spoke about my WHY and driving force – repaying the faith shown in me by my family, but, intentionally I didn’t enlarge on why I chose property as a means to create future wealth and provide an income.
Being a balding, ginger 47 year-old, I definitely benefitted from being a child of my time, like many of my peers (although I appreciate not all of my peers are ginger!), in that I was able to buy property in my mid-20s and reap the rewards from doing so. Today “Generation Rent” is not so fortunate and it seems that the age at which they’ll be able to eventually buy their 1st home is getting later and later. Now, whilst I can’t directly influence this worrying trend, I can at least help by doing my bit to improve standards within the private rental sector (PRS).
Many landlords, but not all by any stretch of the imagination, are rightly chastised for providing sub-standard homes for their tenants. Our mission at Parris Property is to provide ‘best-in-town’ rental accommodation for professional house-sharers. Not only does this mission reflect our values, but it also makes business sense. By providing large, comfortable, newly-refurbished properties with well-appointed social spaces/kitchens and en-suite bedrooms, we’ll experience few void periods, less tenant churn and happier tenants. I’m able to draw upon my time in media providing client-led solutions; this has enabled me to see tenants as customers and individuals, rather than a means to pay the mortgage, traditionally the way landlords would have viewed tenants in the past.
We’re starting out in property at a time of increasing regulations, mandatory licensing and higher barriers to entry (all much-needed and bona-fide requirements in our opinion) which will see many existing landlords starting to sell-up. This rush to exit will further be amplified throughout 2018 and into 2019 (especially once income tax returns have been filed in Jan ‘19). At this point, many accidental landlords and portfolio landlords who have owned property in their own names, with the aid of a mortgage will start to feel the increasing impact of the changing tax regulations, known as clause 24 – essentially landlords will be taxed on turnover not profit. Check out this informative article for a more detailed explanation:
www.telegraph.co.uk/property/buy/buy-to-let-calculator-how-will-new-tax-reduce-your-profit.
So the double whammy of increasing regulations and tax changes will see many traditional landlords looking to sell-up in the coming months. Conversely, this presents a big opportunity for those looking to invest in property in a professional manner. By starting out now, we view the barriers to entry and increasing legislation as simply as the costs of doing business that should be factored in to our calculations as routine. We buy property in the name of our limited company, Parris Property, not in our own names, which allows us to still claim the ‘mortgage relief’ as a taxable cost.
Currently we are focused on providing best-in-town co-living houses (known as HMOs or Houses of Multiple Occupation amongst the property community). According to the latest Complex Buy to Let Index, published by Mortgages for Business, HMOs produced average yields of 8.9% last year, the highest of all buy-to-let property types. I can honestly say hand on heart, that we’re seeing much higher returns than the national average; not because we’re charging exorbitant rents for cruddy housing but because we bought the right properties at a good price, refurbishing to a high standard, in turn allowing us to charge above market rents for market leading accommodation. This is the model that many educated, professional investors are following, resulting in improved standards within the PRS over time.
"In order to give us the best possible chance of creating a successful property business, we take run of the mill rental/commercial properties and convert them into top-end professional lets. We try to minimise many of the risks by following the golden rules outlined by Simon Zutshi in his best-selling book, Property Magic:"
- buying property where we can add value – with a combination of our own and investor funds
- buying for cash-flow - capital appreciation is a bonus not a given
- buying for the long-term - negates impact of short-term house price fluctuations
- buying in an area of high rental demand – and provide ‘best-in-town’ accommodation
- ensure we have a cash buffer in place to deal with any maintenance issues – avoid the downward spiral of lost tenants/lost rent/lack of income to fix problems and attract new tenants…
Once we've added value, after completing the refurb and tenanting the property, we’ll secure a mortgage (75% LTV) and use these funds to first pay investors back, then ourselves. This cycle takes approximately 10-12 months.
Whilst none of this is rocket science, one does need to remain focused and driven. As I mentioned in my previous blog, I’m really enjoying the challenge of building my own business and feeling like we’re making a difference. We’ve recently set out our 1 year, 3 year and 5 year goals, that not only take into account our business objectives and targets (annual revenue, value of portfolio & annual growth) but more personal goals such as running a sub 1hr 35 min half marathon, spending 30 days abroad with the family and creating domestic harmony in the home by building a home-office in the garden! All this is supplemented with a healthy dose of guilt – I often refer to my post-it note “what would it mean if I didn’t achieve this?” stuck above my desk.
Most people simply won’t have the motivation or put the effort in to change their situation, but I know that with focus, commitment, as well as an element of common-sense and a spattering of business acumen, anyone can build an income from property (or embark on their own chosen route). I’ve said it before - I’m not there yet and I’ve got another 18 months to go before I can truly say I’m not missing those quarterly bonuses - but I do know that if I can give it a go, anyone can.
Do ping me if you like to talk in more detail about the challenges you’re facing if you’re considering a career change. Alternatively, if you’re interested to keep a closer track of our property progress, then please follow our FB page (facebook.com/parrisproperty).
I’m always looking for cracking off-market commercial to residential opportunities and investor money (subject to HNWI status) so if you know of any suitable developments or of anyone that may be keen to see a better return on their savings, please do share my details. That’s all for now folks – Lord only knows what I’m going to write about next time!
Simon Podd, Parris Property
Generating Significant Returns for Investors
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