It's gonna take money, a whole lot of spending money

This morning whilst I was in the car I was listening to George Harrison's song 'I've got my mind set on you'. It made me think how apt this song is if you are developing a high-end HMO! You certainly DO need your mind set on it if you're gonna do it right!

A tale of sweet teeth

When I was a child in the mid seventies, I remember being given 5p a day to buy sweets from the corner shop on my way home from school. And oh the choice was overwhelming! A packet of Spangles or Chewits? 2oz of Rhubarb and custard or a handful of blackjacks? If I saved up for a couple of days I could even afford a whole pack of Opal Fruits (remember them) or a Texan bar! The stressful existence of an eight year old consisted of these tough daily decisions which I must say I handled with aplomb and mastery. Unfortunately for me, my dentist has since been able to retire early to Florida because of all those personal challenges I faced in Cecil Road's sweet shop.

Now, you can't even buy half-penny chews. The 1/2p coin was taken out of circulation in 1984 because it was worthless. Soon I expect pennies will be history and 2ps - well! Those large circular brownish and oft terribly grubby tender will no doubt soon be relegated to the pages of Wikipedia history.

And why? All because of that nasty invisible force that we struggle to control (no not self discipline at the sweet counter) - INFLATION. Remember what 10p bought you 40 years ago (ok 20 or even ten if you insist on reminding me how young you are to my aged experience). Prices have risen, costs have increased = all because the pound is not worth today what it was a few years ago.

Recent discussions about UK debt and rising house prices all highlight the tremendous amount of public (and personal) debt that we as a nation now owe. (http://www.debtbombshell.com/ , http://www.ukpublicspending.co.uk/uk_national_debt_chart.html)

However, there is less discussion about the underlying rate of inflation, and the effects of QE which are bound at some point to filter through (even if right now much of that money is being held in banks to capitalise their assets).  For those of us involved in property, understanding the effects of inflation long term are significant. In fact they are mind blowing!

I went to a property investing seminar recently which examined the long term effects of inflation on house prices and mortgages, and the powerful correlation between holding property long term, and having debt secured against it (i.e. in the form of a mortgage).  So, just as you can no longer buy a 10p packet of chews, you can no longer buy an average property in the UK for £100,000. In fact, in 1984 if you bought a property for £100,000 it would now be worth a staggering £272,000. It would have grown by 2.5 times (and that's calculated simply on inflation figures - it does not take into count the overall market effects).

What if you had taken out an interest-only mortgage of say £90,000 then? Well, you would have paid monthly amounts to maintain the interest payments, but in comparison to the value of the house, the debt would now be 33% of the value of the property as opposed to 90% of the value as it was then. Give it some more time and 90k will be an average annual salary - it wont seem like the mind-bending sum of money it felt like when the mortgage was taken out in 1984.

Interestingly, house prices rise despite inflation, and the following graph shows REAL house price growth with the effects of inflation removed:

But although the value has risen, the debt has remained constant. And of course, over time, the debt effectively loses value (George Osborne knows this and is keeping very quiet about it). The fear is that as inflation rises, so too does interest rates. THAT's another story for another time.

The conclusion is, had I stockpiled my penny chews and perhaps taken out a small loan from a willing joint venture partner to fund the undertaking, not only could I have made a small fortune from the rising price of vintage confectionery, I could have profited handsomely because of the inflation on the debt reducing year by year.

And how might I spend that money? Well, just ask my dentist (when I saw his fees I did think I'd chosen the wrong profession).

That's what I call SWEET!

A VERY useful list of websites

A few weeks ago I posted the beginnings of a list of useful websites ... (and no, I don't mean Next Directory or Facebook)...I'm talking about property related ones. The very forward-thinking guys at Progressive Property have done me a great favour and produced a list of their own which I have reproduced here for your reading pleasure!

Sold Prices
Simply enter a post-code in the above & see what properties sold and for what, and you can even narrow the search by house age, style and see a map.
www.nethouseprices.com

Similar to the above, but instead gives coloured-coded Google maps which highlights the streets that fetch the most. Great for 'getting the spread' & finding cheap properties on good streets.
www.houseprices.co.uk

Most on-line portals go back as far as 2000-ish but Ourproperty stretches back to 1995. It's free but you need to register.
www.ourproperty.co.uk

Match Sold Prices to Property Ads

Zoopla's powerful tool matches up sold prices with old property ads, including photos, description & asking prices. Hit the Values section, search for an area & click the red H's for historic listings.
www.zoopla.co.uk

Search for a price comp report on RM to see sold prices & details of how many beds. You may be able to unearth the full listings by Googling the road name, as many sites scrape RM's data & leave it up for years.
www.rightmove.com

Want to get an overview of your goldmine area?
The following tools will help show you how many properties are changing hands in your area & how much for.
Land registry [LR]
LR collects official house price data on real sales, recording every residence sold. It's HPI gives average prices by country & region, breaking them down into different property types. Be careful as the data is three months out of date, but a very useful tool.
You can download national and regional price data for different property types since 1952, as well as more detailed analysis.

Ballpark house price valuations
There are several free online tools to value a property. Mark says they can be a long way off; for official valuations, speak with agents & use LR sold prices.
Zoopla – for a bespoke valuation Type in a post-code & it will give you a rough indication of sales prices for that area. Select a property in a street & get a bespoke online valuation based on previous sales & market climate.

For a more detailed second opinion Slightly quicker & easier to work through & asks fewer questions. You can get an upper & lower valuation for a given property, but Mark say's PPA is more likely to over-value properties.
www.propertypriceadvice.co.uk

Want an estimated price range? This simply asks for your postcode & no of bedrooms so it is hardly a conclusive study! A nice addition is Google Earth snap of the property. You can pay for a detailed valuation, but as the accuracy is still questionable, stick with the freebies!
www.mouseprice.com

Nationwide – Find a home's value based on its sale price This tool is designed for people to put in their property's price when they bought it & work out what it's worth now. This tool is useful in it can give an idea of how house price fluctuations affect value. BTW Mark says "Take the results with a shovel of salt. Don't just rely on the figures given – treat it as a fun investigation, nothing more."
www.nationwide.co.uk

Monitor house price trends
Housepricecrash -Get a feel on housing market forecasts
Check out what the pundits predict. This site has a pro-property agenda. It collects stats from LR, the Financial Times & Hometrack to number crunch house price trends.

Find local asking prices
Rightmove [RM]
The godfather of home sites -RM is the best place to compare homes on the market. With a plethora of props up for grabs, it plots listings on Google map for ease 

For best results, turbo charge RM with Property-bee, which is an ingenious Firefox add-on, [on steroids] to see how sellers have altered listings & dropped prices.

This site includes reams of data alongside the listings, including how the asking price compares with others in the town & postcode.
A great way to compare gross yields. It also allows you to click on homes' 'price histories' to see how the asking price has shifted.
www.home.co.uk

Monitor house prices on the go
Rightmove
Iphone App This uses GPS technology to pinpoint houses for sale & even where you are standing. Click 'get my current location' & it shows a list of pads up for grabs! Finding the spread just got easier 
Search Rightmove in an APP search

Uncover Rightmove ads' secret histories
This free add on for web browser Firefox is super-fast! It works with property listings on RM to show you how sellers alter their listings, crucially, price cuts. It allows you to see when the seller put the property up for sale; each time they cut the price & by how much; & if it was taken off the market & put back on. These are all useful bargaining chips in purchase negotiations.
www.property-bee.com

Monitor dropped asking prices
This shows which properties in an area have recently dropped their asking prices & by how much. Simply type in a postcode to see who's have having trouble offloading their house & what percentage they've trimmed the price by.
www.propertysnake.co.uk

Look for repo'd properties
Ei Group
It is very possible to pick up a repo or distressed-sale properties at up to 30% below market value. For those willing to put in the work on research & repairs, these can most certainly, represent some of the best buys on the market.
 

PINs and needles

The other night I attended our local PIN meeting where we listened to an inspiring presentation by Kevin Wright. He was illuminating the benefits and strategies of using bridging finance to develop properties. It was all fascinating and mind-blowing as is quite usual at PIN meetings, where you learn of the amazing and incredible stories of other people and their achievements with property.

Something I can only hope to emulate in time...

I can't believe it is over a month since I wrote the above paragraph! Since then I have attended another PIN meeting when some equally inspiring stories were told. It has made me reflect that much of the success in developing property comes when you have mind over matter - that is to say, if you don't mind, it don't matter.

Of course saying to yourself 'it don't matter' is not easy when you are down to your last tenner, cos all of your hard earned cash is flowing into the latest property project. Nor is it easy to say 'it don't matter' when you have a sudden turnaround in tenants; or when you've been so busy dealing with the day to day that you've lost an eye on the bigger picture. And yes all of the above has happened to me!

I love the quote that Rob Moore (founder of Progressive Property) uses in his book 'Multiple Streams of Property Income' : "You have to work hard to get rich enough not to have to work hard" (Richard Templar)

I sat down last night and re-wrote my goals for 2014 with regard to property development. If I am going to achieve them (some were pretty stretching let me tell you) I know I am going to have to have 'mind over matter'! For me, that is 80% of the work of property investing. Having a mindset that enables you to look above the day to day disasters, problems and issues and know that in the long run, you will be building something of worth, something that brings a residual income and ultimately freedom. Of course, it also means working really hard - but for a short sustained burst of time. Once I have reached my first goal (that is to enable both myself and my DH to be free from the need for external employment) then I will ease up a bit - well for a while anyway.

So the formula seems to include 1) HARD WORK FOR A PERIOD OF TIME, 2) KEEP FOCUSED ON YOUR GOALS 3) PERSIST EVEN WHEN YOU WANT TO GIVE UP 4) NEVER GIVE UP.

And if that IS the magic formula, only one of them relates to what you DO - the other four are all about what you THINK.

But it feels like walking on PINS and NEEDLES sometimes...

Standing on the shoulders of giants

please don't lego me just yet ...

Just noticed on one of my weekly property internet trawls that Direct Line have launched a 'Landlord Knowledge Centre'. Having clicked through to it, there are a number of options from which to choose such as 'rental trends'; 'staying in control' and 'maximising income'. Yup, interesting and useful AND quite wide-ranging too. So far, so good.

The two articles I have downloaded are written by the same woman, Kate Faulkner, who seems to know her stuff on property, except that in her article 'Invest Alone or via a Property Investment Company' she states

'BEWARE
- ‘Below market value’ deals rarely stack up
- Many strategies are not tried and tested under the law
- Some might even be considered mortgage fraud'

yet in her article 'Where do you find BMV deals?' she concludes with a list of suggestions as to HOW to find and BUY BMV deals :

'• Be prepared to dedicate time to finding BMVs
• Build a good local network of property professionals to secure below market value ‘leads’
• Set up a system so you can analyse quickly whether a property will ‘stack up’ as an investment
• Always be respectful of people’s circumstances – they’re only selling at a discount because they HAVE to
• Be ethical – don’t take excessive advantage
• Never buy without a good RICS surveyor who will work with you'

So Ms Faulkner, which is it? I must admit, I sense a dilemma for Direct Line here! They want to reach out to the property investor who is prepared to use creative and unusual (and TOTALLY LEGAL) strategies to help sellers. But they also want to make the inexperienced investor highly wary and fearful of this way of doing business using an unknown company through which to get the deals.

The problem is, there are lots of different views out there about risk. Only YOU can decide what kinds of risk you are prepared to take, with how much of your own money, using strategies that you are willing to implement. Getting direct advice is always a good idea when it comes to property, but think about WHO is giving it to you. WHAT is their motivation, and HOW their approach has influenced them. If you are not convinced by their experience, expertise or proof, and you feel that their approach will not achieve what you want, then AVOID.

Remember what Isaac Newton said 'If I have seen a little further it is by standing on the shoulders of Giants'. 

Stand on the shoulders of property giants - watch, read, listen learn. Take direct advice, but take it direct from someone you trust and whose experience and achievements speak for themselves. 

Property Investors Do It Diligently

When considering buying a house that's not in a place you know really well, it's important that you do what's called due diligence - checking out all the statistics, information and facts about the property before you take the plunge and buy it. As well as the usual external and internal housing checklists, you also need to find out a whole load of other details about the property such as facts about the local area, the rental market and certain housing statistics.

What are the local crime stats? What are other properties selling (or sold) for? What is a realistic rental income for the area? What are the local industries? What kind of tenants am I likely to find renting round here? (All these facts feed into the speed at which you'll rent the house, the amount you can charge, and the type of tenant you'll attract).

If you're planning on buying a property to rent to families, are there schools in the vicinity? If you want to rent to young commuters, are there good public transport options available locally? Finding out the answers to many of these questions takes a significant amount of research time, although desk research using the internet is pretty accurate and extremely easy. Sadly, the wonderfully named' UpMyStreet.co.uk' is no more ('UpYours.co.uk has replaced it).

So what are the tools to use if you need to carry out due diligence? I find that Google's streetview is invaluable when assessing the real look of a house from the outside. MOST of the UK seems to have been photographed now, except for the odd Welsh Methodist Chapel that has fallen into disrepair and is situated 3 miles up a dirt track atop a hill.

The benefit of streetview is that you are not seeing the property from an estate agent's rose-tinted camera lens, which is able to make even a 2-bed backstreet slum-like dive appear to have 'loads of character' and 'vintage qualities' on the details. Ironically those Methodist chapels really do have loads of character and vintage qualities. Just that they're too far up the vertical incline for the google cameraman to reach, and they are rarely on the open market as estate agents tend to send them straight to auction.

Zoopla is also a great website for researching sold house prices. A good way of comparing whether the asking price of the property you're interested in is realistic. And if you're interested (ok take that as a polite way of saying nosey) in finding out what local problems might be in that neck of the woods, try Fix My Street - a really delightfully amusing website at which you can while away the hours reading the plights and complaints of local residents. As an example of just how serious things have become in the town in which I live, the top two complaints in order of magnitude are listed as 'Pothole Hell' and 'Doggy Doo'.  Definitely first world problems.

Another site which claims to be 'the only site that helps with property planning to enable you plan your property purchase from end to end with all the relevant information sources in one convenient place' is Property Notepad. It lists many of the most useful websites you'll need, to find a property, assess its potential, and sort out your finances.

Of course there are MANY MORE sites too - let me know which ones you find the most useful and I'll post them here!

So duly do your diligence and you'll find that the results of your investigations will massively help you make the right decisions about property.

System addict

Man realising what his business has been missing

Do you remember that Five Star song 'System Addict'  from the eighties?! (Showing my age aren't I?) I used to think they were saying 'Systematic'. And it's this phrase that is now beginning to regularly run round my mind when I consider what I need to do to create a business that will work smoothly and cost-effectively.

If you look at any well-run business, there is a system in place. It may be hamburgers, clothes, cars or paint - whatever the product, if the business is to be successful, you must develop a system to ensure the fastest and most effective way of getting the product into the customers hands, and getting the customer's money into your hands!

Although property is not exactly a commodity, nor is it a product, I still consider what I'm doing to be developing a business. There is a transaction between myself and the tenants; there is a contract; there are responsibilities on either side. If I am professional, organised, law-abiding, ethical and also nice (a four-letter word not often used by tenants) then I know that I am presenting the business in the right way. After all, in sales you learn that 'people buy people first'. Right now, I am the face of my business. So I need tenants to 'buy me' first.

After that though, there needs to be a system to underpin all that I'm doing. Otherwise paperwork will get lost, deposits won't be filed on time and in the right place (the DPS) and I won't know when rents are due and tenancies have elapsed. Without these important pieces of information logged and routinised (is that a word?) I could easily miss vital actions such as chasing rent arrears or repaying deposits.

I am NOT someone who a) enjoys creating systems (nor is very good at it either - probably because I don't like it) and b) is very good at sticking to systems (it all seems so repetitive and frankly, dull). But I know that right now, just like cleaning my teeth twice a day, I have to develop workable and effective systems to make this business effective. So, Five Star - I doubt I'll ever be a SYSTEM ADDICT - but perhaps I can be a bit more SYSTEMATIC.

(Another helpful article can be found here: http://www.boxtheorygold.com/blog/bid/18628/Six-Qualities-of-Highly-Effective-Business-Systems)

Comparing estate agents in your area

A natty little piece of information that might save you quite a bit of time if you are trying to compare local estate agents, can be found on www.home.co.uk

If you go to the website you will see at the bottom of the front page a link that takes you to a
'Directory of Estate Agents'.

This link takes you to another page that allows you to search by local area, county and town. You will then be presented with a list of agents in your area. This is a search for agents in Crewe:

You can then click on any estate agent and it will give you an overview of the activity of that agent. In order to drill down even further, scroll down to the bottom of the individual estate agent's page and you will see a link to Estate Agent Portfolio Analysis for *name of estate agent. If you click on this link you will then be taken to a page full of wonderful charts and statistics about that estate agent. Here is one for Bridgfords in Crewe:

Estate Agent Portfolio Analysis for Bridgfords (Crewe) (full page)


This is a screen shot of the page (-by the way, this is only half the information as I had to do a screen shot and couldn't fit it all on the screen)!

 A VERY useful tool!

Five little words

There are certain phrases in life that carry significant meaning even if the words contained within them are very simple. 'That costs an arm and a leg!'.'Well, it's back to square one'. 'Hey it's a piece of cake'! 

All are phrases that I have used about property over the last few years no doubt. Particularly the first two. In fact I don't think I have ever used the last one except by way of referral to a literal piece of cake. Usually at the point when I had said the first two phrases rather too often for my liking. Which of course led to a cake eating incident to cheer myself up. 

However, I now have another deeply meaningful and suggestive phrase to add to my repertoire, and it's one that I am hoping to employ rather more frequently than I have in the past! The phrase was not difficult to learn, and in face it emerged from a FANTASTIC three day Property Mastermind Accelerator course I attended last week in Birmingham with Simon Zutshi.

The course was totally inspirational, motivational and conversational. I learned SO much new stuff about property investing that I'd only barely touched on before and now I'm fired up to start doing some much more lucrative and possibly less stressful (please God) deals in the future. I was introduced to a brilliant group of other like-minded people, who equally want to develop property to enable them to meet their goals. We laughed together, cried together and ate together, and when you've done that for three days with a group  of people you've never met before, it is amazing how deep connections are formed. There were some there who had no property investment experience, and others who had already done quite a lot with property in various ways. But we were all there to learn, and our enthusiasm meant that we maintained the energy and learning for the three solid (and fairly intensive) days. 

A really striking element of the three days was the level of discussion and support that we all gleaned from each other. Just talking with so many different people about their experiences and what they thought about what they'd done was so helpful and allowed me to put some of my doubts and weariness into perspective. Some had regrets - well we learned that there's no point having regrets, they just hold you back. Some had fear (False Expectations Appearing Real), and we learned that they were just that! Some had doubts about their ability to do anything, and again, these were addressed and dealt with. 

We were given some incredible tools to use to employ in our investing strategies and these were covered in as much depth as was needed to allow everyone to understand them fully before we moved on. There were some great examples of deals that people had done and the sheer ability of those in the room was staggering!

We did also eat rather too much cake, and thanks to Gregg from Cadbury's (aka Willy Wonka) far too much chocolate too. In fact when Simon first started writing on the flipchart as he turned his back on the audience, I was half expecting to see the word 'choclit' appear under the heading 'Cravings'. But then I remembered we were on a property course. 

You will definitely get used to eating dust if you are a property developer

I was amazed at the amount of information we received; the huge file of handouts and further information, the additional guest presentations and also the incredibly valuable contacts. But I think in the end it will be the simple yet hugely powerful five word phrase that we learnt, that might just turn out to be the most important aspect of the course. It was a phrase that Simon Zutshi himself embodies in his work and passion to teach others about property, and one which you can probably never use too often:

'How can I help you?' 

Because ultimately, property is not just about bricks and mortar, it's about people. 

And we're off!

My bag is nearly packed, my suitcase is just about closed. No, I haven't decided that Andy's geekery is too much for me to take. I'm actually off for a bit of investing indulgence as I leave tomorrow morning for a three day intensive course about property investment.  I must admit to feeling a mixture of excitement, nervousness, and wonderment - who will be there? What will we discuss? Will I feel totally out of my depth and wish I had concentrated more on maths at school? Particularly when the training moves on to an analysis of interest rate percentage points, calculations of Return on Investment (ROI - I know that one!), or mortgage amortisation comparisons?

Hm. Calculator where are you when I need you?  

I'm optimistic though that this three-day residential Property Investors Network 'Property Mastermind Accelerator' programme down in Birmingham will help me learn something more about property. It all looks amazing - although I expect it to be very tiring too. There are so many ins and outs to investing in property and it seems that you need to be able to use a number of different strategies to be successful. I think I have learnt some new things in the last couple of years but need to stretch myself again. I am anticipating something good meeting other property investors and finding out about their stories and backgrounds. 

In the meantime while I'm gone, would you like a sneaky peak at how the house is coming along? I was amazed today to show two people round who dropped in on spec, tiptoeing over the rubbish piled in the front yard, wiping their feet from the dust and debris, to let me know they would like to rent a room!

Here you go ...

Attic room (blinds not in situ yet)

Stairs to attic

Landing

Ensuite

Other view of ensuite

Upstairs front bedroom

Upstairs middle bedroom

Upstairs middle bedroom with view of ensuite door!

Shower room

Downstairs front room 

Kitchen

Downstairs middle room

Downstairs middle room (the red room)!

Hallway into property

There are lots of little jobs still to do - pictures and mirrors need putting up, the built in wardrobes need shelves adding to them, there is a lock on the bathroom door that needs fitting, the blinds need putting up in the attic, kitchen and shower room etc etc.

But we are certainly making progress. Can't wait to show you when it's all totally finished!

Hitting 'the wall'

Long distance runners sometimes talk about the time in a race when their legs suddenly just seem to stop working. The muscles clench and tense as their legs turn in equal amounts to wood and jelly. Nothing makes them go anymore. The spring has finally unwound and there is no more energy or capacity to do any more. The brain has disconnected from the body and it is as if there is absolutely NOTHING left to give. This is not a brick wall that is 'theoretically' difficult, it is one that is literally and physically difficult.

But amazingly about an hour later, those same marathon runners pass the finish line. Running, walking or stumbling (as I would be), that white line is passed. Someone thrusts an energy drink into a weak and limping hand and hugs a space blanket round those tense and tired shoulders. Then slowly the euphoria of the achievement dawns on the runner. They made it! They did it! And in what time!

Perhaps in every long race in life we hit that wall. And I did last week. I was totally at my wits' end. A property we had viewed in January, which we subsequently made an offer on, and worked on really hard to buy (there were many issues that we had to overcome to get this far) fell through on Wednesday. Not only had we put in a lot of hard work, there was also the solicitors' time (which we paid for), the structural reports, the mortgage company's time - which all amounted to nothing.

After weeks of oscillation, the mortgage company pulled the plug on the offer and decided that they needed to instate a full retainer in order to ensure that basic upgrades were completed. However, their requirements were so totally unrealistic that after much consideration I decided we had to withdraw. We had explained from the start that this house needed a LOT of work. It was a project! It was a development that needed re-wiring, some plumbing, redecoration, a new bathroom and kitchen. Lots of re-plastering, quite a bit of building work, and yes something that your usual house buyer would not even pick up the bargepole of let alone use the bargepole to touch it. I had not left any detail undisclosed. I was constantly told that the mortgage would not be a problem. That is until three days before completion! A phonecall in the middle of my unremarkable and plaster-dusted morning announced the decision. Final. Decided. Certain. That was it - no mortgage, no property purchase. Four months of completely wasted effort, time and expense.

 After talking to the estate agent, she told me this wasn't the only time recently that a similar situation had occurred to another developer, where initially the bank were all hearts and flowers 'yes sir, how much sir, three bags full sir'. And as the time neared for completion and the hand-over of the said mortgage monies became a reality, the tone changed to 'how much sir? really sir? for THAT property sir?'. It seems that still the power lies well and truly in the hands of the financiers.

And at that point I just felt totally deflated. I began to question my plans, my hopes, my dreams. What's the point of all this property development? Why do it? It's painful, tiring, stressful, nerve-wracking, expensive, worrying, and demanding. I began to ask myself whether I had the skills, the ability, the knowledge to do this stuff well. Maybe I am not cut out to be a property developer and I need to lower my expectations. Perhaps I have too much to learn. And even when you have bought a property that seems to offer potential (as we have in Crewe) what you previously believed to be a gold mine, is actually a money pit. No progress apart from a total drain on finances seems to be occurring. It is so slow and unseen. It is dirty, dusty and raw. Every which way you turn there is mess, chaos and cost.

Yup, I hit the wall you might say.

But I still carry on.

I haven't quite crossed my own white line yet - the finishing one I mean. But when that day appears I can tell you that I am well and truly going to enjoy the hug of congratulations (even if only from my hubbie) and the warmth of the euphoria of completing such a housing marathon this year. And the energy drink? Well I have to admit that I suspect it will be SLIGHTLY stronger than a Lucozade Sport.

Bank of Mum and Dad

I was fascinated and a little perturbed to read an article in today's Daily Telegraph about the number of 18 - 30 year olds who rely heavily on their parents for financial help and also for simple decision-making [Recession has turned ‘Blair’s children’ into a ‘Peter Pan generation’(Daily Telegraph, 6th May 2013)]. Although it can't be surprising that Generation X need financial support to get on the housing ladder, or help to put down a deposit on a rental property, not having the ability to take responsibility for other areas of their life is actually quite worrying.

In their book The Millionaire Next Door: The Surprising Secrets of America's Wealthy (1996) Thomas J. Stanley and William D. Danko expose the truth about the way that self-made millionaires run their lives. Far from having lavish lifestyles and buying expensive cars, or indulging in goods of ostentation (always wanted to put that word in my blog), these PAWs (prodigious accumulators of wealth) save regularly, invest consistently and never spend more than they earn. This allows them to make the most of the spare cash they do have in building something for the future (something more than bricks and mortar perhaps)! Amongst the many traits of the individuals studied was the willingness to suffer hardship, discomfort and poverty in order to remain fully independent adults and NOT rely on the bank of mum and dad for handouts - EVER. This built a determination in these self-made millionaires to be economically independent, come what may, and to be enterprising and frugal. Over time, their approach paid off and they ended up being very rich indeed.

The authors discuss the growing tendency of parents in America to fund their adult children almost continually even after they have left home, calling it  'Economic Outpatient Care', by giving gifts of money and offering financial support. The authors' research clearly demonstrates how this affects those on the receiving end of EOC. The authors discuss the impact of this ongoing 'drip, drip, drip' effect of monetary gifts, and expose the problems that it is storing up for America's future economy.

Before I tell you the results, which of these statements do you think most closely describes the most common effect of EOC on the adult children who receive these monetary gifts?

1. As a result of the financial assistance, the offspring become completely financially independent, thus taking responsibility for their lives and demonstrating much greater enterprise so they are not reliant upon anyone for further help.

2. As a result of the financial assistance, the offspring become slowly more and more accustomed to 'hand-outs' (willingly or begrudgingly given by parents) and less likely to ever take full responsibility for managing their finances - indeed eventually seeing it as a necessity.

3. As a result of financial assistance, the offspring themselves become generous with others, and utilise the financial support from their parents to enable them to become philanthropic and charitable for the good of the wider community.

So - which one do you think MOST closely describes the MOST common effect of economic outpatient care? 

The answer is number 2. In fact over time, offspring who receive EOC seem to be unable to function without it. They become dependent on the extra financial help from their parents, and never take responsibility for their own finances! [It would be great if the answer was number 3, however this is the least likely outcome as these offspring actually become more profligate over time and completely unable to stick to a budget. Therefore giving to someone else is usually out of the question].

The article in The Telegraph would seem to bear this out - that parents are unable to raise their children to be independent (perhaps they secretly don't want them to be) and to take responsibility for their lives (a much more worrying trend).  Clearly this situation has massive implications for families across the country. And of course, in part it all depends what kind of society and families we want to have. I however, want to raise children who are proud of their own achievements, determined to be responsible and independent. I don't want them to be reliant on us as parents to prop them up when they experience hard times, and in so doing I am hopeful that they will be more successful than us! You have probably heard the wise saying 'necessity is the mother of invention' and surely your own life bears testimony to great results borne out of testing times.

We need to trust that we have raised our children to be resourceful, intelligent and able - what we must NOT do is remove from them the other key ingredient that will fuel their success - motivation!

HMO update

Things are getting increasingly close to lift off in our large HMO!

Here are the latest pictures of all the work that's been done - I can't wait til it's all finished now!

The new kitchen tiling and lighting

Downstairs back bedroom (just love those curtains!)

The new corridor downstairs (fire safe and acoustically sound -haha) 

Completed plastering in downstairs front bedroom (nice matress eh?)

Upstairs middle bedroom

New towel rail in main shower room

En-suite to upstairs middle bedroom

Floor in ensuite and towel rail

Upstairs front bedroom, plastered and ready for decoration and carpets

Shower in upstairs front ensuite

Toilet and towel rail in upstairs front ensuite. 

Carpets are ordered, curtains on their way, furniture needs to be arranged! Painting taking place as I write... not long to go before the 'To Rent' adverts are out!

Fringe benefits

Today I had a great chat with my hairdresser .. let's just call her B for short. She is a wonderful young woman, with two kids, a great hubby to whom she is happily married, and they have a lovely house. BUT we got talking a while ago and she opened up to me about the fact that all their income goes on servicing their debt. Mortgage debt, credit card debt, car loan debt etc etc.

Now I'm not saying that this is in any way unusual in the UK today. Many of my friends as I have discovered are on interest-only mortgages. In order to afford a home suitable for bringing up a family, sometimes that's the route you have to take.

But as B said to me, they have absolutely NO capital in anything. They have no money in the house as it has depreciated in value since they bought it five years ago. Their cars are a constant source of financial pain; their credit cards are maxed out; and they have no savings.

As we got talking I realised that she was a bright woman who understood the long-term implications of their situation, and recognised that as she got older she and her husband would not be having the kind of retirement they dreamed about - UNLESS they did something to change course NOW.

The first thing I suggested was that she read Robert Kiyosaki's 'Rich Dad, Poor Dad'. A GREAT book for anyone wanting to change their financial course in life. A few days later she texted me to say she had bought the Kindle version and was avidly chomping her way through it (not literally I hasten to add -  it's digestible but not edible)!

So when we met today I was interested to know just how she'd been getting on. Clearly the messages within the book had struck a chord and many changes had taken place in their lives since I last saw her.

1. They have changed their cars to pay off the loans completely and bought two much smaller, more economical cars. They no longer have car loans, AND they are saving money on fuel.

2. B has taken on some extra work (just a day a week). Although she has to pay for one day's extra childcare, the income she gets is going directly to paying off the credit card loan, which she thinks will in the long term be much better for her children and she makes enough to cover the childcare and make a profit.  (In September her son will qualify for 15 hours free childcare a week so that will also reduce their outgoings).

3. They have created a monthly budget which they stick to come hell or high water. As she said to me 'I used to think frugal people were so irritating - now I understand how exciting it is to find a bargain'!

4. They are looking around at better mortgage deals and looking to swap round their credit cards so that they can pay off more of the capital and pay less interest. (A great website to get started is http://www.moneysavingexpert.com/)

I was SO proud of her! She has

• believed in herself and the ability to change
• created a plan
• taken action
• been disciplined and stuck to it

Soon - she will start to see results!

I was so impressed with B - not only is she a great hairdresser, but she is starting to prove that no matter how much or little you have, you can CUT out excess, SNIP away at debt, SHAVE out unnecessary expenditure and ensure FRINGE benefits for life. There's no doubt that GROWTH will follow!

[Groans all round : ) ]

Immigration, communication and realisation!

One of our smaller - might I say 'bijou' - properties, is currently rented by a lovely Polish family. They are clean, considerate and polite. They always pay their rent on time and they have been extremely easy to deal with over the three years that they have lived there. That is, except for one embarrassing problem -we just can't understand what they say!

Over time, I have managed to work out the reason for the odd phonecall or other, when a word like 'boiler' or 'carpet' or 'garden' has appeared in their stilted English conversation. The rest of the chat has been pure guess work, but obviously we haven't been far off, as whatever the problem was seems to have been addressed, and all is quiet again.

It must have been just as difficult and frustrating for them as for us, dealing with an inept landlady who cannot speak a word of Polish. But over time we have muddled along and all has been good.

A couple of weeks ago they gave us their notice to leave the property so I advertised the house and within hours had a stream of messages from people wanting to look round. One call I had was from a lady who had an unusual accent (perhaps Eastern European) and we arranged a viewing for the following day. As soon as we met and she started to talk, I knew she was Polish (although she did have a much greater command of English than our other tenant) and I guessed she would immediately like the property (which she did).

What I wasn't expecting though, was that on entering the house she recognised the current tenant and a string of animated conversation flowed forth between them, complete with excited gesticulations and facial expressions. The communication between them was highly entertaining, especially so as I had absolutely no idea what they were talking about! Suddenly I realised how it must feel to be on the other side. Not knowing the language, not understanding the subtle cultural differences, not being able to pick up on the nuances of meaning conveyed through spoken language. It was both interesting and worrying at the same time.

I thought to myself : 'what is the current tenant saying to this prospective new tenant'? Hoping desperately she wasn't saying something awful about us as landlords! Actually, my fears were quickly allayed as I was told in no uncertain terms 'You have been excellent landlords'! As I stood there, glowing somewhat in praise, I was suddenly struck by her own confidence in speaking English that had clearly improved over the few years living here in the UK.

It must have felt very strange when she first came to the UK to make for her and her family a brand new life here. I bet there were times when she felt lonely, homesick and nervous. I could of course go on here about how important it is at a time like that to have quality housing etc etc. But actually I really want to make the point that it took her a great deal of courage and faith to immigrate here and yet I baulk at the slightest project hiccup!

I have the benefit of a wide network, good contacts, a reasonable command of English (less so the local dialect admittedly!), strong links with the community and a knowledge of where to go should I need information or advice. She had none of these, and yet bravely made the move. It's true, communication takes many forms and in this instance I can say that I definitely heard a great lesson about courage in the face of nerves that no words could convey.

Networking

This last month has been exceptionally busy for me in many ways. As well as developing a large property locally, which we bought in December, we are buying another large Victorian property not too far away to develop as an HMO as well. We sold  the other property (mentioned in my 'Selling houses' blog post ) and are awaiting the proceeds from that sale!

Getting into the HMO (house of multiple occupation) territory has been, well, I'll call it interesting! We have encountered shocked building regulators, stunned planners, taken aback developers and perturbed builders. Many trying to dissuade us from our intended course of action. Admittedly, they have reacted this way because we have literally stumbled upon problem after problem, and our ignorance in this field has been evident! However, what I have learnt from the process so far has been much greater than if I'd just read about it in a book.

Kitchen into extension

Extension - in its raw state!

Original kitchen

Newly built stairs to loft extension

One of the new en-suite shower rooms

New door frame for fire doors - it will be attached to a wall eventually!

First look at the Velux windows

Looking down from the loft

I can quote the acoustic tolerances in decibels needed for a registered HMO; list the fire safety requirements and necessary wall linings; tell you the various laws and policies that govern HMO development; and give you the low down on information repositories. What I can't tell you is where to get the mettle to do it.

Because believe you me, you need mettle in this business. Although I had quite a bit of experience as a 'landlady' I had little as a developer. I had dipped my toe in the HMO water and found it to be tantalising, so we decided to take the plunge! But the development of a seven bedroom HMO is a project on another level!! Having support from others around you who do believe in you and will encourage you is absolutely vital, as is networking with others who have trodden the path before.

We recently attended a PIN meeting in Stoke which was highly valuable and I would thoroughly recommend it. Check out Property Tribes forum too - a lot of worthwhile contacts and experienced landlords and investors post there.

Developing your network takes some time and effort, although I can't complain about the oft-used venues for such rendezvous (delightful coffee shops, tea rooms and charming hotels being my faves)! You will find that far from creating competitors you will develop friendships, and in hard times it's these folk who will be your most valued supporters.