The best way to build a property portfolio - YPCtv Education

Uploaded by yourpropertyclub on 11.07.2011

bjbj Hey guys, Brette Alegre-Wood here, author of The 3+1 Plan, and chairman of YPC group,
where we help you to build a thriving property portfolio so you can live the lifestyle you
ve always dreamed of, but in such a way that you re not creating a 2nd job, or actually
working yourself into an early grave. So what I wanted to today, was just, we ve been running
the webinars for a while and we ve compiled hundreds of questions that you guys been asking,
so I want to take those, and what I ve done is I ve broken them down into a number of
really key questions that most of you guys are repeatedly asking and what I ve done is
I want to present them to you so you get that level of education. I ve always been a massive,
massive supporter of free education, so that s what I want to do for you guys today, is
really give you what most people out there are concerned about in the market now about
property investment, about strategies, about structures, about all sorts of things, the
questions that you guys have been asking. It s not now me telling you what you should
be thinking, it s you guys actually feeding back and I love that about the social media
and I love that about webinars. So sit back, relax, and let s get started. One of my favorite
subjects is building people s portfolios. You find as an estate agent, and when I first
started out I was an estate agent, and you re selling one home to one person and then
you probably didn t see them again. Maybe they would come back and buy another one if
they were going to move or something, but realistically, you put a lot of energy and
a lot of emotion into helping get their perfect property. But the thing I love about what
I do now is that actually don t really get emotional about the property, and I don t
actually have much emotion about the properties that we re selling, but what we do is we actually
build people s portfolios. This question is probably one of the ones that I most enjoy
dealing with and I most enjoy seeing the evolution over time happen. We have some of our clients,
our biggest client has 17 properties right now and they ve been working with us for about
6 years now. We ve got fairly sizable portfolios across there and we ve got people with one
property as well. The building of the portfolio is really the thing that I m most passionate
about because over those 17 properties, I ve seen that husband and wife change as people
and change their fortune, change the way that they view their pension. So one property is
never enough anymore, you ve got to build a portfolio. So how do you do that? The question
is, How do I build my portfolio safely? m going to deal with building the portfolio
first and then I ll add the Safet , Safely on the end because I think it s one of these
things where it s actually very easy to build a portfolio. If you, and I ve seen people
build up portfolios of 20, 30, 50 properties, but then they ve lost them. They haven t been
able to hold them. So the question is not about, necessary, how to build up the portfolio.
That s a pretty easy thing to do. It s about how to build it up safely. And we ll deal
with the safely bit first so I want to show you how to build, then we ll come back and
we ll talk about how to actually build it up. s a really simple process and with property
there s not too much complexity about it. There is a lot of people involved and a lot
of emotions and a lot of various stake-holders, if you like, and because of that you ve got
to have really clear lines of communication, otherwise things fall over and things happen.
For the most part, one of the reasons why we work with teams of people that we ve worked
with for ages is because we know them, we communicate well with them, we know the jobs
they do, and that s really essential. If you re going to build a portfolio, a large portfolio,
you want to have a solicitor you use, you want to have a broker you use, you want to
have a sourcing company. You want to have all these people that you know and you trust
rather than just trying to find people every time fresh and that s one of the key things
to building a portfolio. That s probably talking about the Safely bit of it. So how do you
build it? Pretty simple. Depending on how much capital you ve got, income you ve got,
let s say to start off you build one you can buy, enough money to buy one property. I always
say if you look at the property here, you see these little things drawn out. Each one
of these is a 2-year period because what I do, I break my portfolio building and my portfolio
management down into 2-year blocks. Two years is key because, for me, 2 years is far enough
out that I can t just grab it and reach it, but it s also not so far out that s what s
going to happen is I don t even think about it, because there s a danger in putting something
so far out that you just go on with something else. So 2 years, I find, is a really good
measure, and especially when you think about mortgages, 2-year fixed mortgages and things
like that, it s a really good time-frame to build your property portfolio too. It also
means that if you re looking at it and coming back and reviewing every 2 years, then actually,
you re not going to miss too much opportunity. The property cycle moves in very slow and
pre-determined cycles and because of that, you can take advantage of those cycles. So,
let s have a look here. So we ve bought our first property. Not only have we bought it,
we ve cash flowed it for 2 years. Now let s just say that, for this particular property,
that we ve spend all our money. We haven t got any other spare equity. We ve put aside
the cash flow in a provision account so we re safely doing it but the important thing
is that we ve got that first property. Now how are we going to make it? Either we re
going to make money off the rent, so off the yield, that gives us if we ve got a high-yield,
that gives us money back in our pocket that we can put back in the property once it builds
up. Or we ve got income, we ve got a high income, disposable income. We put that disposable
income. Or the other way is, what we need to do, is we need to wait for the property
to go up in value. Now there is another way and the other way is we sell this property,
take the profit, and put it into the next one. The problem I see with that is property
is a relatively illiquid asset. And because of that it actually cost 5% approximately,
and this a rule of thumb, 5% to get into a property, 5% to get out. So if you re going
to buy and sell, buy and sell, buy and sell, every single time you re going to lose 5%
which really you don t have to because what you can do it buy and remortgage so as this
property goes up in value, what we want to do is go back to the mortgage company, whether
it be the one we re with at the moment, or a new one, whoever s got the best deal obviously,
and you use a mortgage broker to find that out, and take that money out. Now that we
ve got this equity from this one, we can then, and we ve still kept this property, and this
is the important thing, because we want to build a portfolio. If we sell that, then we
re back at square one and all we re doing is where now that prices have gone up, we
re buying into a market that is higher, and we re, it s costing us 5% to get out and 5%
to get back in, so it s a 10% net cost, if you like, and we re still with one property.
So we use the equity from this one and we roll that equity through a remortgage into
this one. So we ve now got 2 properties, but the important thing is we need to cash flow
this property for the next 2 years, as well as this one. So now what we re doing, and
assuming we ve got no other money and there s not money from the rent coming in so we
can t buy any, so we wait around, look, it may not be 2 years. It may be 18 months, it
may be, whenever you can get that equity and through using that portfolio manager you re
going to find pretty quickly that actually you ve got that equity, you can access it,
let s go for it. So here you ve got the 2 properties. Let s say they both go up in value.
In actual fact, this one s gone up. Let s say this time, this 2-year cycle, this one
just sat around and did nothing. But this one went up. We take the money from that one
and then we roll it into another one here. And let s say this one did nothing again,
the area is a bit shady or whatever, or it s getting regenerated. This one goes up again,
this one does nothing. Then we take the equity from this one and we basically roll this into
the next one. And let s say now all these properties go up, this one we buy goes down,
roll it in that one. So the whole idea behind this is quite simply that we take the equity
from this one and roll into this one. The equity from both those and roll in that one.
The equity from those ones to roll into that one and it s like, what do they call it, a
snowball rolling down the mountain. Now the interesting this is as this goes it gets quicker.
So you ll find you get one, and then it may be 2 years, or even 3 years before you can
get another one, Safely. Then it might be 2 years this time, Safely. Then it might be
18 months, Safely. Then it might be 6 months. If the market takes off, you can find that
every 6 months you can go back to your finance company and give them a further advance. And
as much as some of you might be saying there, banks aren t lending and they re going to
subdue them, they won t. The first chance they get to go free-lending again, they ll
do it. I remember being in a conversation with, and I was about, it was in the 80 s,
the early 80 s, and I was probably 14 or 15. I remember having a conversation with, and
I don t even know the guy, I can t remember who it was, but I knew he was a multi-millionaire.
I was looking at this guy going, Wow, that s a multi-millionaire and back then that was
a lot of money, multi-millionares, and I remember him saying to me, he remember back into the
previous boom and we were right in the middle of a recession at that stage and he said,
lending had subdued, and he said basically he remembers when lending was crap, come bad,
and then it come good again, then it went bad, and that s what lending does, it subdues
and goes out, so don t worry about the lending and that side right now. So in principle that
s all we re doing. And working with a portfolio manager and as you build your emotional intelligence,
and as you get better at this and understand strategy, you re going to know which properties
you can remortgage, when you can remortgage them, how much you can take out safely , and
you re just rolling. And eventually, now that s how you build the portfolio up. Now let
s come to the safely bit because I ve sort of already alluded a lot to it. If you re
going to build this safely, you ve got to make sure you ve got make sure you ve got
these 2-year cash flow periods. So even if you re going to buy these 3 properties, the
fact is you ve got to make sure you ve got enough to cash flow these. And we use things
called mortgage cost, calculations called mortgage cost averaging. It s basically, I
stole it from dollar costs averaging and turned it around, so it s a term I made up, and effectively
what that is I assume that in the UK, every time I do a mortgage, it s going to cost me
6%. Now if I do that across my whole portfolio, then I can see and I don t need to worry about
fluctuations in the market because the interest rates are going to fluctuate up and down around
that 6%. Now right now we re very low which is great because what I should be doing is
thinking that 6% mortgage cost averaging, 3.5%, let s say, pay-rate, so this extra bit
I can be putting aside, so when interest rates do rise and they go above that 6%, I can then
draw on that money. What it means is I can safely grow my portfolio and it tells me a
good speed to grow at. The problem with most people, and look, there s 5 gurus that are
no longer out there. All of them had 15 million, 80 properties, this and that and all the hype
and BS and all of them had build up their portfolios over a very short period of time
and what they had effectively done is that hadn t cash flowed this whole thing. They
literally just bought and bought and bought and bought and they figured that prices would
continue to go up forever. They don t. They work in a cycle. That continues today. And
that s where you ve got to be very careful about people saying they ve got 15 million
worth of property because half the time they haven t and the other half the time is they
ve done it very quickly and that s a scary situation. And certainly as interest rates
rise, you ll find that a lot of those people go very silent including their companies may
fall over and they may disappear to Cypress of Dubai or any number of countries that I
ve heard these guys have to move to. Back to Australia, in fact, one of them. In fact
two of them have gone back to Australia, that s quite embarrassing, isn t it? At this point
I hold up my British passport. So guys, the whole thing with this is how to build this
safely is all about cash flow. A lack of capital to buy more property is just frustrating.
A lack of cash flow to hold your portfolio, that s just plain dangerous. That will send
you off into a world of bankruptcy, repossession, all these sort of things, very quickly; a
lot quicker than any frustration about not having enough capital to buy this deal or
that. So guys, I think that s a really important lesson there. It s very easy to look at this
and do this and certainly right now the market is pretty flat, but as the market picks up,
you ll see how quickly this can come about and if you understand this, you can use it
to your advantage because these periods here, may not end up being 2 years at some point,
they may be 6 months, 3 months, because if you ve got 10 properties, you ll be remortgaging
one this month, that one next month, that one next month, and 10 months has gone by
before you get back to that one and go, well, it s gone up again. So it steamrolls and it
happens very quickly when it does happen, so that s why all of my investors right now
are saying, Get in, get prepared, get ready for it. Even if you re just starting out,
even if you ve got no properties right now, get the first property. Because what that
s going to do is deal with a lot of the emotions, so when the market does take off, you re sitting
in the driver s seat. m sure you found that information really valuable. The first step
really now is you need to get a plan. You need to actually work out exactly how you
re going to put this in place. So what I encourage you to do is come in and sit down with us,
talk to us, grab a coffee with us, and what we can do is we can start mapping out what
your plan is. But more importantly, not just give you a written bit of paper that says,
Go a buy a property, or Do this. We can talk about structure, strategy, processes, procedures.
We can talk about all the things you need to put into that plan. We can talk about why
you want to achieve this, what you re actually looking to do about this. We can talk about
where you re starting from. What sort of limitations, what sort of emotional barriers you re going
to face. But more importantly, we can talk about how you re going to get there. And with
those 3 elements, you ve got yourself a really powerful plan. Then the next thing is the
motivation and the action. Nothing happens without actions, and this is where the team
can help you do this. In fact we can do it for you if that s what you want. So I encourage
you to come in and meet with us, grab a coffee or tea if you drink it, and really just sit
down and get that out. One of the things you re going to find about the way we approach
this is that most companies in this industry, what they ll do is they will try and just
sell you into a property. The first phone call you make to them, guaranteed, you re
going to get sold a property. You re going to find we don t do that. What we want to
make sure is you get that plan in place, you get all the emotional things sorted out and
you re aware of those. And you really get a feel for who you re going to be working
with. Relationship is what it s all about. It s not just flog lots of property because
I m going to tell you it takes about 3 months to buy a property, but you re going to own
that property for 5, 10 years, maybe, so it s really important that you put a structure,
a strategy in place, a plan, and follow that plan. Because otherwise what s going to happen
is you can grow your portfolio very quickly but then if you re not aware of market cycles
and all these sort of things, interest rates rising, inflation and all those, what s going
to happen is you re going to be put at risk down the track. It may look good now, but
the market changes and then all the sudden, all of your weaknesses in the portfolio you
ve built are going to be displayed. So getting a plan is going to enable you to get rid of
that totally. Guys, I m looking forward to meeting you real soon at either one of our
webinars or perhaps a seminar, or if you come to one of our office around the world. Have
a great day and remember, live with passion. h}T- h}T- h}T- :poe# [Content_Types].xml Iw},
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