With so many investment strategies out there how do I know which one is the best, should I go for Lease options, HMOs, LHA properties, SARB, flipping properties, RMDs?

You will have undoubtedly been to all the seminars, spoken to all the experts selling their unique workshops, spoken to countless fellow investors and some of you will still be confused as to which way to invest.

I’m going to give you my opinions as to the pros and cons regarding the most common investments strategies that are being promoted as the next best thing. Some you will agree with, some you won’t, the point is to at least have an opinion about them which will help you choose investment strategy.

I want to get you out of being a seminar junkie!!!! I don’t want you to be one of those people that spend literally tens of thousand of pounds going on courses, learning about everything to do with property and yet have never bought a house. This year I’ve made a real effort of networking around the country (doing at least one a week) and it has amazed me as to the amount of investors who fall into this category. Theory is great but without putting it into practice its useless and your property investor dream is over before it has began.

I must stress that I have used each strategy below and have found the niche that I feel most comfortable with but you do not have to stick to one strategy, there is no hard and fast rule that says “I can’t use lease options because I buy HMO’s” each strategy has its good AND bad points and where you are at that time of your life will also affect you.

Lease Options

Pros – Great if you have little money and want to secure a property

Cons – Not every vendor understands them and many sales fall through because of this

You never really own the property

HMO’s

Pros – Great cash flow if managed right

Cons – Can be a huge capital outlay

Sale and Rent Backs

Pros – Great discounts

Cons – Legislative nightmare

LHA

Pros – Great cash flow and yields

Cons – Can be very difficult if not managed right

RMD

Pros – Very little work for investor to do

Cons – Too many poor sourcers and finders ripping off investors

Flipping properties

Pros – Great potential profits in short space of time

Cons – Mortgage problems, Hard to finance, 6 month rule, CGT

You can use each and any strategy you wish, I’ve chronicled my investment life cycle into three stages and have just started my fourth

2004 – 2006

When I started in property investment 5 ½ years ago I wanted 3 bedroom houses in the middle of my town because I thought they would rent out easy, I’d have no trouble, and capital appreciation would be great. I was working another 2 jobs, my daughter had just been born, so I didn’t want the hassle that I thought would come with different types of properties.

2006-2008

Then when I packed in my job and became a “professional investor” I needed cash flow, so using Mortgage Express I bought very cheap, high yielding LHA style properties in less desirable parts of the town and local villages. As I was hands on I could control the properties better. The results were astounding. I was financially free within a year

2008-2009

When I decided to set up my other business’s I didn’t have to time to look after my properties myself, so my staff looked after them (better than I ever did) but it allowed me to sit back and look at what I wanted from my portfolio. Although there is nothing wrong with the strategy I had used, I wanted to diversify and try something else. So I tried lease options and HMO’s. They both have their good and bad points, HMO’s are great cash producers but capital intensive whilst lease options are very inexpensive but the rewards are not as great.

2009-Present

I’ve bought an old building and have turned it into a mini business centre for our business and for other start up business’s. It has certainly been a learning curve, but the advantage of this commercial venture is that once we have let out the remaining rooms (75% pre let) we will be not only be rent free but also making profit. The remortgage or exit strategy of commercial is easier than residential also, with lenders not being as controlling or apprehensive about lending.

So what’s the answer?

There is no defined answer, that’s the point. No one strategy is better than the others. We will all come across investors who have had good and bad experiences with some or all of the strategies. The way forward is to actually pick on that suits your needs and circumstances, but actually go for it. Don’t be a spectator, get in the game.

If you would like to ask John a question click here

This really depends on the strategy of the individual. Sourcing companies can free up your time immensely so that you can get on with the day job, they are for some investors a necessity, especially for those who are just starting out and rely on these companies for advice and guidance.

Sourcing companies are also needed for investors who live out of the area and have no intention of carrying out high levels of due diligence. If you want high yielding, low priced properties then the North tends to be the place to look and for some southern investors they would rather rely on the experience and knowledge of experts in that area.

There has been a lot of bad press recently about sourcing companies and the services (or lack of them) that they offer, however as with all unregulated business’s you will find that there will be a small minority that have the cowboy attitude and don’t care who they rip off, but I must say that most do have integrity and work with the investor to find their preferred outcome. I would strongly recommend that you carry out due diligence on the sourcing company as you would with any property deal. Ask other investors, have they used them before, did they deliver on what they promised, have they got a refund policy and ALWAYS read their terms and conditions and then read them again. Too many times when something goes wrong with the deal for whatever reason, the investor demands his money back and the sourcing companies refuses. You need to be clear on the options you have should a deal not go the way you planned – Do I get a refund or is the fee re-credited to another deal? This promotes bad feeling amongst investors and sourcing companies and let’s faces it, this industry needs all the help we can get right now.

Why not use an estate agent instead?

An estate agent acts in the best interest of the seller regardless of what they might tell you. Their job is to get the highest prices possible as most charge a percentage as a commission.

Most Estate Agents are not aware of the creative finance that investors use these days and I have had many debates myself with agents as to the legal status of these deals. A little bit of knowledge is a dangerous thing and this is true with Estate agents. They are not investors and mostly deal with residential properties so therefore have no need for creative financing.

By going direct to estate agents you also have the problem of trying to get the property valued as high as possible. We all know that private sales are easier to get valued higher which is the point of the creative financing system.

Have they sourced the deal themselves?

There have been too many investors who have had their fingers burnt by companies who have not sourced the deals themselves and given what they thought was true information as to the letting potential, valuation, area etc but in actual fact the figures were highly exaggerated and they were left with poor properties in areas they knew nothing about.

How the deal was sourced? Was it from you directly? Do you have approved sourcers? How long has the deal been available? All these questions should be asked and can build up a clearer picture as to the people you’re dealing with and to the quality of properties they offer.

Does the sourcing company provide a letting service?

If the sourcing company provides a letting service or works in conjunction with a local letting agent then they are obviously backing up what they promote. It also takes away the potential problem of the sourcing company being able to wash their hands of the deal after it has gone through. There are sourcers who are motivated by the size of the fee they will receive and do not have the best interest of the investor. By offering a letting service this reduces that risk; it also offers the complete service for the investor, one less thing to worry about.

Be aware of the sourcing companies who think of quantity over quality and continually bombard you with properties. As every one knows sourcing is not a quick or easy process. In order to find the property, carry out due diligence, negotiate the price, package the property it can take quite a considerable time. So don’t be sucked in by sourcing companies who have different deals from all corners of the UK on a weekly basis, it would be impossible to carry out all the due diligence required even if there were more than one approved party involved.

10 Questions to ask

1. How long have you been in trading as a sourcing company? (Search on Companies house)
2. Do you source the properties yourselves, if not who do you use?
3. How long have you used them and what is your relationship with them?
4. What sort of due diligence have you carried out?
5. Is there a RICS valuation?
6. Do you have any local knowledge of the area?
7. What are your terms and conditions?
8. What is your refund policy?
9. Do you provide a lettings service?
10. How long has the deal been on the market for?

By choosing the right sourcing company it can make property investing so much easier and dare I say it, enjoyable even in these uncertain times. By following the above advice, you are more likely to achieve your property investing goals; sourcing companies will work for you if you are willing to work with them.

If you would like to ask John a question click here

When I started property investing 5 years ago I did it the old fashioned way, released money from my home, bought a couple of terraced properties, waited for them to increase in value and then remortgage. Then around 2 ½ years ago I stumbled on No Money Down or NMD. I thought all my Christmas’s had come at once. I couldn’t believe that you could buy property this way. There had to be a catch! But there wasn’t, I just kept buying and before you knew it I’d bought 35 houses within a year.

Then the unthinkable happened, the credit crunch and the demise of Mortgage Express, I was devastated. What I thought was my god given right to buy properties in this way, was snatched away from me, just as I was planning my early retirement (I was only 29 at the time)

Saint

There’s a saying up North, “Owt for Nowt” and not a truer word can be said of NMD. Its only human nature that if we can gain a lot, by not putting much in, we’ll take it.

Myself and my family have done pretty well from NMD so I have to support the idea. Although most of my NMD were done through Mortgage Express and not through creative financing that may or not be ethical.

Sinner

For me NMD has caused a lot of problems for investors. I feel that it has brainwashed investors into thinking this is the only way to purchase investment property and that putting partial or full deposits into a deal is a sin. However for new investors, this is all they know.

My concern is that investors are missing out on great deals because of the mentality that is forced upon us by the property media.

I recently had an investor turn down a deal that produced £305 positive cash flow per month because he had to put 5k into the deal (including ALL fees).

He was a wealthy investor and cash rich, he was just of the opinion that if NMD exist then he’s not going to buy properties any other way.

Now 3 or 4 years ago before NMD, if you were offered a 14.7% yielding property at 15 – 20 % below market value, you would have snapped their hand off and paid the full deposit. Now investors have the mindset that if in order to purchase property all they are prepared to spend is a few hundred pounds or even want cash back.

Don’t get me wrong, if you haven’t got the money you simply haven’t got it, and NMD is the only option you have to purchase properties. However if you haven’t got any cash, should you really be in property investing?

What happens if major repairs are needed or if the tenant decides not to pay? How will you cash flow the situation if you have no savings, you can’t just say ‘I’ll cross that bridge when I come to it’ that’s not responsible investing.

Is it Ethical?

This really is a grey area and I can’t reach a definitive conclusion on this topic in only a few short paragraphs, but I’ll certainly try my best.

Ethics is defined as ‘being in accordance with the accepted principles of right and wrong that govern the conduct of a profession’

Now your solicitor or conveyancer might agree with what your doing, your accountant say its okay and you obviously think its fine, but does your mortgage company? Of course not, hence having to use designated solicitors and all this cloak and dagger stuff. Has any one been totally upfront and honest with the mortgage companies and still been allowed to buy properties in this way? I doubt it. Therefore how can we claim we are being completely ethical if we’re not being honest?

Now before you all start calling me Judas or traitor, I must re-iterate I’m a fan of NMD and as long as it’s legal, I’ll continue to purchase properties in this way. I’m just open minded and not blinded by the media.

I am of the opinion that NMD was good while it lasted and have certainly served its purpose over the last few years, but like all good things it must come to an end. Over the next few years we will see a clamp down, in various forms on the NMD and the return to deposit purchasing. We just need to be more open to the concept that our cash might not go as far as it once did.

“The secret of success in life is for a man to be ready for his opportunity when it comes.”

Benjamin Disraeli

If you would like to ask John a question click here