PropertyInvesting.net: Property Investment Special Reports

136: Goal setting, planning, values, drivers and trends

06-03-2007

PropertyInvesting.net team

 

We hope this special report helps you in goal setting, planning, identifying trends, considering your values and motivating you to watch your pennies and make serious money.

 

 

Goal setting, planning

 

Set Yourself a Goal

 

Decide what you want in life, whether it be financial, lifestyle, work related etc, and make it a goal. Write the goal down – and put a date to it. You need to refer to it regularly to help you remember what you are striving for. Make a plan to achieve the goal, and monitor your progress towards this goal using measurable criteria.  Some examples of goals are:

 

• Have a net worth of USD 4 million by 2010
• Have enough income to have the freedom to leave my job by 2009
• Own 10 profitable properties by 2008 in the Manchester area
• Have a net income of 60,000 USD/year and net worth of 2 million USD by 2010
• Be the largest buy-to-let investor living in my town by 2010 in property net worth terms
• Provide financial security and freedom for myself and my family by 2006

 

After you have set your goal, you need to make a plan to achieve it.

 

 

Make a Plan

Get a plan! It is extremely important after developing your goal to put your ideas and plans down on paper, otherwise they will be forgotten and the value of your thoughts and ideas will be lost. When you put things on paper, you can go back and fine tune, modify and build on them. Words become reality. It’s  best to create your own property business plan – everything from strengths, weaknesses, opportunity, threats, to where you would most like to live (this could be in three places – one place for each season!), how your skills match your interests, business ideas, investment economics, trends etc. Set a target for say 2010 – which involves an amount of net wealth – and a plan to get there. If you follow this plan you’ll likely achieve it or close to it. If you have no plan – get one – fast! Why? We’ll ask a few questions and it may become obvious:

 

• What will your pension be?
• Are you sure it will be worth anything by the time you retire?
• When will you retire?
• Do you think there is a chance the retirement age will increase?
• How long will people live in 30 years time and how much will you need to fund the later years of your life? (Note: 30 years at £30,000 per year is £900,000 after tax!)
• Are you going to work at your current job for the next 10-20 years? If not, what will you do instead?
• What happens if your company tells you tomorrow they do not need you any more?
• What happens if you get ill and have pay for treatment privately?
• Do you want to live in the area you are currently living in for the next 10-20 years?
• If not, where do you want to live? How much will this cost? Can you afford this yet?

 

The simple fact is that most people haven’t a clue what they will be doing in 20 years time and have done very little financial planning - they live from day-to-day, year-to-year. They barely give it any thought. Most people do not have a pension plan. Time passes by. Things move on, changes take place, and we often don’t change with the times. We don’t realise that the world we live in is changing around us – it just creeps up. We put things off until the next day – we procrastinate – we are in denial that there is an issue – “let’s leave it until tomorrow”. We’ll now be provocative and try and change the paradigm, to get you thinking – all of the below may come true by 2020 (these build from the trends described on this website) - this is a selection to get you thinking:

 

 

What Potential Scenarios Do I Need To Consider When Making My Plan?

 

• Retirement age increased to 70
• State pension reduces to 50% of current value
• Stock market crashes (Dow at 7000, FTSE at 3500 and never recovers) – no capital equity markets needed any more since companies are so efficient at making good profits they do not need the capital injections – the best companies go private, many bought out by directors or wealthy families
• The best people bail out of large companies into private equity funded companies, making publicly traded capital equity markets almost redundant – due to shareholder pressures/hassle and pressure on salaries from shareholders
• The aging “baby boomer” population starts mass withdrawal of equity funds for retirement from 2008 onwards, leading to a stock market crash in 2010
• House prices in retirement centres (on coasts) double (again) in UK and USA, as environmental constraints stifle further building – people prefer to either live in city pied de terre apartments, city town houses or holiday home on the coast – typical large middle range suburban houses become far less popular, especially inland in cold climates
• People head to coastal and/or holiday destination or culturally progressive cities to retire.
• People commute from southern Spain to London as more business is done virtually using the latest technology
• Energy prices double by 2010 as gas and oil as demand for hydrocarbons expands from booming Indian and Chinese economies.
• Most high tech services outsourced to India and China 
• Divide between the “haves” and “have nots” gets bigger
• Africa and Middle East continue to struggle economically as population increases and oil not enough to support demographic growth – some family run oligarchic regimes collapse 
• Massive expansion of the wellness industry – selling health, anti-aging and fitness – worth 1 Trillion Euro by 2010 in Europe (Note: value was only 200 million Euro in 2004).
• UK and US economies motor on because immigration means working population younger, vibrant and mobile – meanwhile, Germany and Italy suffer economically because of low birth rates and stagnating elderly workforce (similar to Japans stagnation from 1990 to 2003).
• Regulation by governments of developed countries will dictate that 50% of all vehicles by 2020 will be powered by alternative fuel sources (e.g. hydrogen, electricity, battery)
• There we be a doubling of air travel and a 50% increase in vehicles from current levels

 

Okay, just a few scenarios – however, any one or more of these happening can cause a big economic impact for you, hamper you retirement plans, particularly if you do not plan to mitigate risks and get the time of investments or actions wrong. Proper consideration could give you an opportunity to invest in high growth areas and sectors.

 

Is Property Investment Consistent With My Values?

 

We would recommend you take a piece of paper and describing your values.  We find the people most successful in property investment – are action focused, enjoy making money, work hard, are independent, like freedom, are self motivating, and comfortable taking on risk – being good at planning and seeing trends also helps. If you either like to shy away from taking risks, or making significant money is not consistent with your values, then property investment is probably not for you.

 

When you see a good deal, you should get excited. When you talk to fellow investors about ideas to generate returns, you should all get excited. This buzz is what makes it such a pleasure. The hard slog of doing the paperwork, research and managing issues is far easier if you get closure on the process of setting a goal, planning investment, actioning the plan and then see the financial gains from this hard work. So if you like collective corporate life, with a secure job, minimal perceived risk, less control, someone else making decisions for you and working to established rules, then property investment is probably not for you. If you have a strong social value to want to help poorer people, then I suggest getting involved in affordable housing investment – help people with lower wages purchase their own homes. If you like helping tenants, then buy-to-let could be right up your street. If you want to help rural job creation, then property investment, building, renovation in rural areas could be consistent with your values.  If you want to make maximum returns whilst helping corporate city workers, then high-end buy-to-let and/or off-plan could work for you. If you like cars then buying, selling and renting garages could be for you! If you really want to make money in property investing, the most important thing is to be action focussed – “just do it” – start – start small, and learn from your experiences. You “must” start, action and keep moving forwards.

 

Watch the Pennies

If you save $5 a day for the next 50 years and invest it in a 12% return investment (average stock market return over the last 50 years), it will be worth $1 million by 2053 – you will be a millionaire. To become successful financially, you have to:

 

• Save, then promptly
• Invest savings wisely

 

The simple fact is, most people spend exactly what they earn. A soon as they earn more, they spend more. Commonly known as the “rat-race”. The harder you work, the more your expenses, the more you need that next big pay rise and promotion and so on. These people can never get ahead financially because their liabilities are the same as their assets. They have little or no net worth – they may only have liabilities (bad debit, tax, credit card bills). Expensive cars, expensive houses, expensive holidays, only one income from being an employee – of a company that can fire them the next day. You HAVE to first reduce expenditure, then use these proceeds to invest, preferably by leveraging your cash and investing in low risk, high return investments. That’s the great thing about property. If we put down a 10% deposit on a £200,000 house, and the price goes up 10% in the first year, you have made 100% return on equity. Then you can re-mortgage, to release the £20,000 gained value, and buy another £200,000 property. Then if the price goes up another 10% you make £40,000, usually almost tax free, mostly using other people’s money. Even if the prices do not go up, if you manage to pick a property for 10% below market value (maybe the property just needs a good decoration, or some simple work done to it, or has a distressed seller) you can get a 100% return in a few months if you view enough properties and put many low offers in and see the right opportunity.

 

Some Simple Tips to Save Money for Investment:

 

·         Do your own home decoration and improvements

·         Cycle or walk to work

·         Buy food in bulk from a wholesaler

·         Resole your shoes

·         Repair broken furniture

·         Clean carpets instead of replacing them

·         Go for low cost holidays to cheap destinations

·         Do not buy branded clothes, unless they are top quality and will last for years

·         Buy second hand cars (at least 3 years old)

·         If you have two cars, get rid of one and get some exercise instead

·         Do not eat out unless it’s a special occasion – invite your friends over instead

·         Turn off the lights, conserve heat, wear a thick jumper in the winter

·         Book plane tickets early over the internet to get the best deals

·         Don’t carry a lot of cash around

·         Cut up your credit cards – if not, at least always pay your credit card bills on time

·         Don’t get into an overdraft situation

·         Avoid the shops – go for a walk in the park instead

·         Make your kids earn their pocket money (good practice)

·         Take lunch to work, take a shorter break and get home half an hour earlier

·         Stay with friends or family instead of in a hotel when on business trips or holiday

·         Borrow a friend or family house for your next holiday – do a swap

·         Write a shopping list before going shopping, and stick to it

·         Rationalise your savings account, life insurance, endowments policies to release extra funds for higher return investments

·         Sell under-performing mutual funds and endowments schemes

·         Keep a track of tax deductible items

·         Always submit your travel expenses – deduct against tax where possible

·         Avoid catching taxis – walk, cycle or go by public transport instead

·         Avoid excessive business travel – teleconference, videoconference or email instead

·         Make sure your house is properly insulated – particularly the ceilings/roof space, windows and doors

·         Replace all light bulbs with long-life ultra-low wattage bulbs

·         Move to a smaller lower maintenance house, rent out the larger one

·         Avoid high / excessive school fees

·         Stay healthy and avoid medical fees by eating healthily and getting exercise

·         Look after you teeth – they are expensive!

·         Avoid expensive long commutes to work – consider downshifting to a cheaper location where you would have a higher disposable income and better prospects

·         Avoid office and commuting costs by working from home

·         Be proud of saving money and being frugal – do not let colleagues and friends persuade you otherwise – remember most people living on the Indian subcontinent live off about $30 a month

·         Spend quality time with your family – on cheap activities like playing in the park, playing games or socialising

·         Avoid expensive lunches and evening meals with colleagues and friends – only eat out on special occasions

·         Avoid speeding and parking tickets!

·         Stop drinking and smoking

·         Buy a book on investing and improve your financially knowledge and skills

·         Aim to accumulate vast wealth then give much of it away to the needy – the charities of your choice “enjoy making it, giving it away”.  

 

Please take this advice very seriously – if you scoff at the idea of saving money to invest, then you will never become wealthy. Whatever we see with the retired folk today, don’t think it’s going to be so easy in the future. The retired population will double in the next 40 years, the stock market will likely crash when people start pulling on their mutual funds (peaking in 2016 in the USA) – don’t expect you can bag what you’ve gained so far. You have to accumulate as much net worth as possible before it’s too late. Don’t start thinking about this when you’re 50 – you need many years of a good run to accumulate enough to live comfortably if you are to retire at 60 and live until 90. Note: 30 years @ £30,000 a year expenses is £900,000 after tax each (without retirement home or healthcare/hospital fees). Don’t sell yourself short. Be proactive, Start saving and investing wisely - now.

 

There is a strong correlation between being frugal and being a millionaire. Most millionaires are rather private, frugal, unassuming people that have built excessive wealth through proper management of their expenses. On the whole, they are not the stereotypical flash Porsche driver that goes on exotic skiing holidays and shops in the West End

 

Advice on investing

Our general advice on investing is:

 

·         If you do not have the skills yourself and do not think you can develop them, find yourself a trusted financial advisor

·         In any case find yourself a good accountant and solicitor

·         Be very careful about your own financial knowledge – assume you are not knowledgeable – ask lots of questions, learn as much as you can

·         Always keep a track of your cashflow – your statement of how much money is coming in and going out each month and what the totals and projections in the next few days, weeks and months are

·         Make a list of your assets (things with value, income) and your liabilities (things that cost to keep, expenses) and evaluate your net worth – work on increasing your assets, reducing your liabilities and increasing your income and positive cashflow

·         Invest as much of your spare income as you can safely

·         Use property investments to leverage your capital and shelter against high rate taxes

·         Invest for the medium-long term

·         Never pay too much for anything – always be prepared to “walk” from a deal

·         Always try and negotiate the price down

·         Remember you win or lose when you purchase something – make sure you get as low a price as possible to give yourself a good “safety margin” in case prices drop 

·         Look for distressed sales – “motivated sellers” – and make use of low offers in the hope someone accepts

·         Never fully trust a financial adviser that takes a commission on the purchase or sale of your equity

·         Avoid the emotion and hype of the market – generally when people are most depressed about a market, this is the time to buy, when they are most bullish, this is the time to sell

·         Never buy into a dying industry – as Warren Buffet (the world’s most famous and successful investor) says, “if you put an excellent manager in charge of the best company in a dog industry, he will still fail. Such an industry is like a used cigar butt – it never gets any better!”

 

Financial investing is a bit of a minefield – you basically have to find someone you trust if you cannot do certain tasks yourself (if you do not have the skill, knowledge or nerve). If you cannot handle managing the risk, another option is to buy a tracker fund, which on average does better than fund managers – and you’ll pay far less commission.

 

 

Best Property Buys.

 

This table shows the best options for buying below market value property to give yourself a good “safety margin”:

 

·         Auctions

·         Repossessions

·         Known divorce cases 

·         Sitting tenant landlords

·         Above commercial premises in towns

·         Speculate - offers on land at end of garden

·         Talk to planners for latest information

·         Look for empty houses and make speculative offers

·         Review maps and walk/cycle areas for ideas

·         Railway land - seek plots

 

Value Generating Potential of Home Improvements

 

The table shows the best options to create property value at fairly low cost

 

Top Value Adding Improvements

• Garage
• Off street parking
• Garden
• Central Heating
• Bathroom
• Kitchen
• Decorating
• Loft conversion (done properly at low cost) in the right area
• Cellar conversion (done properly) in the right area
• Garden shed
• Adding a bathroom or shower room in the right type of property

 

Bottom Value Destroying Improvements

• Swimming pool
• Stone cladding
• Digging up drive or parking to make into lawn/garden 
•  Converting a garage into a room
• Converting a 2^nd bathroom into a single bedroom
• Taking out a bath from the bathroom

 

Top Value Adding Opportunities for Large Luxury houses

• Tennis court
•  Helicopter landing pad – an “H” painted onto the lawn

 

 

 

 

 

 

 

 

 

 

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