How not to make a million in a year
‘Get rich quick’
I recently made the mistake of sending off for some details on an auction publication called Property Auction News. The result is that I have appeared to have got on every ‘how to make a million’ / ‘get rich quick’ ‘I made £70,000 in a fortnight’ mailing list known to man.
Apparently it’s possible to make a fortune in everything from investing in number plates to trading in rubber futures. Anything with the signature envelope and; they come in all sorts of guises goes straight in the bin. Frankly, anybody that tries to tell me how good an investment turns me off it straight away. Why?
- If it’s so good why tell me about it, surely you would want it all to yourself.
- If somebody is telling me about it, then they are on the make; why pay a commission to the salesman when you can go direct to the seller and pay less.
‘No pain no gain’
This brings me on to the existence of a number of schemes specifically aimed at first time investors which promise to give you a 1 million pound portfolio in 9 months and make you a property millionaire in an instant. The concept is exactly the same. These schemes offer to help novice investors through the process of building a portfolio. This involves them sourcing property for you. The big sales pitch from these companies is that by signing up with them they will take care of all the setting up. What they are not so keen to tell you is that they stand to make money out of selling the property to you. They do this by taking a commission, often 1-2% of the purchase price as an introducers’ fee. Then there is the mortgage should you require finance, they will also take a share of the commission from the mortgage broker. The chances are that the properties being sold are ‘off plan’ (not built) and are sold with a discount. This discount is often illusionary in that the 15% reduction is only made on a property that is 25% overpriced to start with (see Hawkeye article 11.08.06 When Is a Sale Not a Sale? ).
In summary, anybody that offers to take the pain out of the process will charge you a hefty premium. At the same time they will probably do it less well and with less attention to detail than you would do yourself, simply because it’s not them that’s saddled with the investment at the end of it.
How not to make a million
Here at Property Hawk we are keen to tell you how you wont make a million in 9 months. But what we can do is help you build and manage a sustainable portfolio over the long-term. I was out at my local landlords ‘Xmas Do’ a few days ago with some serious experienced landlords. Amongst these ‘hard-bitten’ investors there was nothing but scorn for these ‘get rich schemes’. This was only matched by the levels of incredulity for the investors who pour their money into them. I will let you into a secret on what are the two most important aspects of any approach that will create a successful portfolio. They are:
I was talking to one investor at the Xmas Party who had collected a number of investments as he had moved around the country, buying properties in the places he had lived and worked. He was still buying, but only when he found the right property at the right price. His technique was to view a couple of properties each weekend and then make ‘silly’ offers. If the vendor accepted he had a bargain and the basis for a dam good long-term investment. If not he was happy to walk away and wait! Property is like any investment, don’t buy because you want to invest, buy because it’s a good investment. You need the patience of a fisherman ‘tickling trout’ but also before you strike you need to have done your research.
Any investor should know the market that they are investing in like the ‘back of their hand’. The demand for property, the type of property needed, where there are shortages. All this can be ascertained by talking to local agents as well as watching assiduously how quickly properties let. You can do this through monitoring to let boards and the press. Equally, if not more vital is that you should know the supply situation. There has been an explosion in recent years of new build accommodation, often in or near city centres. Much has this has been bought by novice investors that have been promised unrealistic rents by the sales staff and are now all trying to attract tenants in a saturated market. Equally, student areas are also suffering with the arrival of large purpose built student blocks. All this means that it’s more important than ever to be sure that you will be able to achieve the rent levels you need and be able to let your property quickly to avoid the painful ‘void’ periods.
One thing that you can always rely on is that Property Hawk will tell you – how you won’t get rich quick and how you won’t make a million out of property in 9 months!
Property Hawk- serious about long-term property investing