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Property Investment: Advanced Principles
On-line content taken from the Provestor eBook presented in periodic serialized weekly format.
Terms and conditions - legal disclaimer.
Posted 26th November 2007
Part Two
The Opportunity
Over recent years it has become increasingly difficult for the one-man band, or the
‘Entrepreneur’ to find a viable business, which works. The world is a small place and true
‘get rich quick’ businesses seem to elude most of us for a variety of reasons.
Franchises can work, but many of the ‘sure-fire’ winners such as MacDonald’s require up-front funding which would leave most of us gasping for breath.
Network Marketing can work, even if 95% of people who have tried it would disagree.
Networking is a business which is good for those who are ‘in at the start’ and go on to see
their monthly pay cheques rise for seemingly little effort of their own and a HUGE AMOUNT
of effort on the behalf of those below them.
This first part of this course could go into great detail exploring the reasons why many
opportunities are simply not viable for most of us, but let’s leave it with the two examples
above which probably sum up the reason you are on this course -
- No Deposit Property Buying. DOES NOT need up-front funding, and
- No Deposit Property Buying, does not care who started first, as
you will see.
We already stated, how the world is now a small place. In its simplest form that statement
could be turned on its’ head and reworded something along the lines of...’the World isn’t
getting any bigger’...and it is for that very reason that property must be one of the surest
ways to build a prosperous business. If the world is not getting any bigger, then
land becomes one of the most valuable commodities in the world.
In its simplest form what this means is that the value of land MUST increase over time not just
MUST - but HAS - year after year - decade after decade. While stock markets have gone up, then
down, then up again most small time speculators keep moving their money from one stock to another
in a frantic attempt to find the perfect investment ... when in reality the perfect investment lies in
the very place in which they live - their property
Think about the first house that you lived in when you were small growing up with your family. What
was it worth then? What is it worth now? Let’s say that you had owned 20 houses like the one that
you grew up in and that you could sell them now - what would you be worth?
Is Buying No Deposit Property An Easy Task?
NO.
BUT, in saying that it is certainly NO HARDER than the effort most people put in working a 40-hour
week. In many ways buying property using none of your own money is FAR EASIER than working a
40-hour week, but the point must be made at the very outset that buying property using none of
your own money requires skill, knowledge - and EFFORT.
If you think that you are going to be able to get rich just by reading this training manual then you are
wrong - If you are not prepared to do what you are about to learn then in 12 months time your
income will be just about what it is now...
A little knowledge can be a dangerous thing...
It has been said that if you give a million pounds to man with no understanding of
money then there is a high chance that he will lose ALL of the money in a
relatively short space of time. Equally it has been said that a man with
KNOWLEDGE who has had a million pounds before and lost it has a very high chance
of making it again starting with NOTHING other than his KNOWLEDGE.
If you do not agree with that last statement then check out the autobiography of some of the
world’s richest men and women - start with Donald Trump and make your own conclusions.
This training course is no different, you must read all the
manual and listen carefully to all of the course content,
especially the case studies. These are invaluable to your future
success.
Let’s make a simple choice...
Let’s say that we gave you £100,000 and told you to go and put yourself together a
property portfolio of houses valued at £100,000 THE CONVENTIONAL way.
Each property would need £15,000-£20,000 put down to fund the deposit, legal fees,
stamp duty etc. etc. Bear in mind you would have NO KNOWLEDGE of no money down deals.
After you had spent your £100,000 chances are that you would have a portfolio of 5 houses
... very good ... BUT ... No money in the bank!
Now the alternative to this is NO MONEY DOWN - so for each £100,000 property
you successfully negotiate to buy, the £15,000 - £20,000 deposit IS NOT paid by you.
Building your portfolio this way would give you the same five houses - valued at a total of
£500,000. Each one would have 15%-20% equity in them from day one - or a total of
£75,000 - £100,000 - PLUS your original £100,000 is still in the bank ...
(possibly less closing costs).
The simple fact is that this is a choice that is open to you. All you have to decide is whether or not
you are prepared to take the No’s before you get to the Yes’s that will make you smile all the way to
the bank! If you are then this might be the best business you have ever come across.
You really are standing at a crossroads - it is like having the funding to buy that elusive
MacDonald’s franchise AND be at the top of the biggest network in the world at the same time... the
question is - HOW BADLY DO YOU WANT IT?
As interest rates keep being cut due to the state of the World economy, opportunities to make money
out of property just get better and better. It is not too many years since mortgage rates were
double digit.
If you remember those times then you will also remember that property prices did not come down -
in fact they have only had one period in the last thirty years where they have come down ... only to
quickly go back to where they were previously and make new highs.
The reason that property prices did not slow down when mortgage rates were in double figures is
something that to some people appears baffling, when in reality is quite easy to understand.
As rates remained higher so did the return on investments ... in other words if you had money in the
bank,,,, although you may have been paying 14% interest on your mortgage, your savings were
actually increasing at more or less the same rate - so one cancelled the other out.
Your property therefore was not really affected by economic conditions such as mortgage rates or
the world economy, your property was affected by one thing and one thing only ... property
prices will always rise due to the fact that land is in short supply - and getting
shorter by the day.
What if the market keeps moving up?
If the market keeps moving in the direction that it has been for the last few years then your
investment portfolio is a gold mine. If this is the case then we will show you how to tap into the
equity in your property TAX FREE potentially giving you an income for life!
What happens if the market drops?
Well in a market such as we have been for a while now where prices have risen quite sharply, there
WILL inevitably come a time when the market becomes jittery. It is at this time - even BEFORE
prices start to drop that opportunities start to appear around every corner.
People become very nervous about the possibility of their investment going down as well as the
possibility of losing any/all of their equity. No deposit deals are therefore even more readily
available.
In a nervous market ‘no deposit buyers’ are always one step ahead of the game, as you will soon see.
Your properties will have a minimum of 15% equity in them the day that you collect the keys -
therefore in the very unlikely event that the market reverses on you, there is a very high chance
that you will still be able to sell your property for more than you paid for it. (It must be stressed
however that this is the very worse case scenario).
Another reason why we never worry about declining markets is due to the fact that if prices drop
then people start to sell - if people start to sell and move out of private accommodation then the
rental market increases, thereby giving you a bigger return on your rentals.
So, you already have picked up that there are a number of angles to play the property market ‘no
money down’.
Not just is the increase in equity and the readily available equity in your portfolio
important, so is the income that comes OVER AND ABOVE the mortgage on your properties.
As a general rule of thumb (which will be discussed in great detail) each of your properties
should be able to command a monthly rent equal to AT LEAST £220 (or the equivalent in
Europe) over and above the mortgage payment ... thereby even if the market remains static
you still have a monthly income ... (starting to twig how attractive this business can be?)
The Facts
Reading information such as this is the simplest way to get into this business, however the hard
facts about what happens with property are confirmed by the banks.
Let’s look at what The Halifax Bank has to say about the property market ... they stated that in November
2006 the average house price in the United Kingdom stood at a whopping £180,000
What is the average today?
Most banks today will return you less than 3% PER YEAR on money deposited in your account ... however in just May 2003 ALONE house prices in the UK increased by 1.5% ... over
the rolling twelve months they have gone up an astonishing 22.7%. They stated...
‘The housing market continues to be strong, with prices in the first five months of 2003
increasing at an average monthly rate of 1.39o’, above the long-term historical trend.
Any concerns about the medium term prospects for property entrepreneurs was possibly addressed
by the following statement...
“The fundamentals underpinning the housing market remain in place – good labour
market conditions and low interest rates are supportive of housing demand. The number
of people in employment, a key factor driving housing demand according to our research,
increased by 47,000 between the final quarter of 2002 and the first three months of
2003. There appears to be little prospect of a sharp reversal in either employment levels
or interest rates in the foreseeable future. “
So as you can see, participating in the business opportunity of property investment has to be the
most sensible decision you have ever made. The business is a sound and works whether the
conventional or no money down way.
Traditional Business
Legal Status
New businesses normally choose from three types of legal status: sole trader, partnership and
limited company. Choosing which will be best for you means taking into account many factors,
including your own personal circumstances and the image you desire for your business.
Sole Trader
A sole trader (or sole proprietor) is a business in which one person is the owner. Operating like this
takes away most of the formalities of establishing a company. The business can still employ other
people.
Sole traders take all of the risks and all of the profits. Generally, they will take money out of the
business - referred to as ‘drawings’ - regularly throughout the year, although in fact all profit is
theirs and will be taxed.
A sole trader is what is known as an ‘unincorporated’ business. That means that all responsibility
for the business and its debts lies with the owner. Liability is also unlimited, so if the business does
badly, his or her home and personal assets are at risk.
Partnership
The Partnership Act 1890 defines a partnership as ‘the relationship which subsists between
persons carrying on a business in common with a view of profit’. Partnerships may employ other
people, but cannot normally have more than 20 partners. (Professional partnerships such as
accountants and solicitors are exceptions to this rule.)
As a general rule, profit (income less expenses) is considered to be divided equally between the
partners, who are then assessed for income tax according to their personal circumstances.
Pick your partners carefully, if you choose this business type. As is the case with sole traders,
partnerships have ‘unlimited liability’, and partners are regarded as being liable both ‘jointly and
severally’. That is, all partners may be held responsible for one partner’s actions, and personal
assets may be seized to pay off business debts
Incorporation (Ltd.)
A company is a legal body in its own right. A small company is usually ‘private’, in which case it
includes the word ‘limited’ in its name and must have at least one shareholder, at least one director
and a company secretary. (Public limited companies include ‘plc’ in their name.) The main advantage
of trading as a company is limited liability (limited to the initial cost of the shares). However,
directors of new companies will almost certainly have to give personal guarantees to banks if
seeking loans. Another advantage of the company having a separate legal identity is that it allows
the company to continue trading despite the death or resignation of a member.
However, trading as a company brings with it a number of duties and requirements. Documents must
be submitted to the Registrar of Companies, and you will be required to produce accounts and to file
an annual report.
It is normally a good idea for new businesses to start as sole traders or partnerships. Such a
business can always become a company at a later date, perhaps if turnover reaches a level where a
company would experience tax advantages. However, it is much more difficult to revert from
company status once established.
Other business types
Co-operatives
A co-operative is owned and run jointly by its members, all of whom share equal status. Each owns
an equal share and has an equal voice in the business. Outsiders may not own a share.
A co-operative will use its profit as a bonus for members, for the good of the community, or retain
it in the business for expansion.
Co-operatives enjoy limited liability, although to get bank loans personal guarantees may be
required. Since outsiders may not hold shares, co-operatives cannot raise equity finance, except to
the limit of what each member can invest personally.
If you are interested in the principles of a co-operative but are unsure about establishing such an
organisation, there is no reason why you could not start trading as a partnership, but adhere to co-operative principles and practices.
Franchises
Buying a franchise gives you the right to sell a company’s goods or services in a particular area.
Popular examples of franchises include Prontaprint, Fastframe and McDonald’s. Statistically,
franchises have a high success rate because the business is founded upon a tried and tested idea
backed up by professional knowledge.
Intellectual property
The term ‘intellectual property’ (IP) protects ownership of the creativity and innovation of
individuals. In other words, they can be ‘owned’ in the same way as physical property.
In common also with physical property, the owner has the right to benefit from ownership.
Consequently, IP rights can be bought, sold, hired or licensed. Unlike physical property, however, it
is very easy for others to steal or make unauthorised use of another person’s IP. This might be done
deliberately, perhaps by copying a CD or video, or accidentally, perhaps by catching a painting in
the background of a photograph.
The four main types of IP are patents, copyright, design and trademarks.
Patents
A patent allows an inventor exclusive rights to use, import, or sell an invention. A UK patent only
gives these rights within the UK, and for a maximum of 20 years. Patents may also be applied for in
other countries. To qualify, an invention must be new and involve an inventive step not obvious to
someone even with knowledge in that particular field. Inventions must be physical things that can be
made or used in some kind of industry.
Copyright
Copyright protection is automatic on creation of a ‘work’, without registration. Examples of ‘works’
include novels, computer software or pieces of music. It is a good idea to prove ownership of
copyright by recorded evidence; for example, by posting a copy of the work to yourself and lodging
the unopened, postmarked proof with a solicitor or bank. Copyright does not protect such things as
ideas or names.
Copyright for literary, dramatic, musical and artistic works lasts for 70 years after the
author’s death. This emphasises the importance of having some kind of recorded proof.
Copyright material is generally the result of intellectual effort or creativity and is easy for
others to exploit without protection. If work is produced for a business by staff or others,
then ownership must be clarified within the relevant contract.
Design
A design refers to the appearance of a part or the whole of a product. In the UK, designs are
protected by three legal rights: registered designs, unregistered design right, and artistic
copyright.
Design registration can only protect truly aesthetic, unique designs that do not impede
competition. The protection allows the owner a monopoly to commercially exploit any article
to which the design has been applied within the UK. Design registration is in addition to any
automatic design right or copyright protection that may exist.
Trademarks
A trademark is a sign that can be used to identify the goods and services of a particular trader
and so distinguish them from those of another trader.
Trademarks include logos and slogans and sometimes sound, although in the UK, a trademark
must be able to be represented graphically in order that it may be registered.
Please Note: Some installments are quite short, while some are quite long like this second section, as the eBook does not divide into neat, equal chunks.
Check back in a week for the next installment - 'Tax'
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