Place Investing - The Art Of The Deal

How conditions have changed from the initial days of buy for you to let. The market has matured, investors have come and no longer, and in particular, the way in which people invest has changed greatly.

Only a few years ago, then focus seemed to be on "The art form of the deal". You know, a decent return on investment, or a good produce. Things seem to have changed now to "how a whole lot is it, and do I need a deposit", and there are a flurry of deals available out there.

The "No money along deal" is now the holy grail for many property investors, distinct from the old fashioned way of making sure that the rent covers the particular mortgage each and every month. I know I sound a bit old-fashioned, but at 34, I wouldn't say so. Just simply an investor with experience, who has seen enough buyers buy below their "perceived" market value, only to often lose the property, or sell it at a loss later on, for the reason that thought it was a short cut to success (There seriously isn't one by the way, despite what many property clubs will probably infer, at least not in my experience).

Originally, The Art form of The Deal I refer to was about the rental source of income, less the mortgage costs and any other fees, as well as whatever was left should have been profit at the end of month.

The profit was then multiplied by 12 (as in the months of the year), and divided through my initial investment. This is your Return on Investment (ROI). I thought this was the way in which you could compare one property deal, against a second deal especially at different rental values.

For example , is actually a property purchased at £150k with a rent of £650, as good as a deal at £95k and a rental importance of £425. Do you know the answer? Well you need to know what typically the service charge is on each one, then add in the place management charges. Then you can do your comparison. Usually, oahu is the lower price properties that give a better return on investment. An added bonus of any lower priced property is also the fact that you don't need to pay stamp challange.

As well as having a better return on investment, having two smaller real estate rather than one big property helps with void periods. Should one of your two smaller properties are empty, therefore its only a 50% void. But having the one substantial property empty means 100% void.

In fact , when you're starting out in property investing, there's a line of thought the fact that suggests you should only buy properties under the £120k make in order to avoid stamp duty, and to spread the risk across a number of properties, which takes advantage of a better Return, less chances in terms of voids, less up front costs (although you will have only two mortgage fees, and two sets of solicitors fees).

I think buying a property at £220k as your first of all property is potentially "property investing suicide" and you really need to cut your teeth on something a little bit less high risk, without all the massive upfront costs that come with such a pricey property (and potential mortgage commitments)

But the main reason the reason I think that the Art of The Deal has changed, will be that these days its not about doing the maths on the deal, its about the discount you get from the creator so that you don't need to put down a deposit.

While this might appear to be a good idea, in practice it can mean a lot of similar properties handing in at the same time, all with lower rental valuations, and a future loss of anywhere upto £250 per month. Incidentally, it is common for rental valuations to be low on new changes, due to normal supply and demand, but not when you have previously paid over the odds for a property just to get a basically no money down deal.

That said, not all no money downward, off-plan investments, are the bad deals. Some of them do build up, but you need to do your research. For example , why buy a city center brand new off-plan property, with no previous history of space leases, when you can buy a 2 bed back to back (or couple of of them) and know that the property has been there a century, its already got history of being rented in the geographic area.

Of course you could say that you have guarantees for the first number of years that the white goods (fridges, dishwashers, etc). But who sometimes isn't the case (as my tenants in one regarding my Brand new Manchester properties discovered when they were placed without a shower for 6 weeks).

But do you achieve the maths? Do you know whether it's a good deal or not.

This is exactly why I think that The Art of The Deal has changed.

I can quote an example. I spoke with an investor recently what person had purchased a property off plan from a property finding company. The property was valued at £140, 000 by your RICS approved valuer. The property however was purchased just for £150, 000, less a 15% discount, and the landlord didn't have the funds available to fund the rest of the property, so the person was going to lose the £3, 000 deposit he had paid out to reserve it.

The property itself didn't stack up sometimes, as it's a one bed and the rental value for this is £550 per month. The problem here is that the property just simply doesn't stack up, the rent wont cover the property loan, and it seems to be all about getting a discount on the purchase price. "But you make money when you buy property" said the landlord.

Im afraid that's too much Rich Dad, Poor Pop, the book that launched a thousand investors, which really does quite rightly state that you make money when you buy.

However context is incorrect. What Robert Kiyosaki meant was basically that you negotiate well in order to secure a discount, not even that you purchase an already inflated property at a lower price just so that you don't have to put any deposit in.

It will be by the way, still possible to buy a discounted property, nevertheless make a decent return, but if you don't know how to find out your house property is a good purchase compared to another property, then you will make mistakes and this may cost you dearly.

The bottom series on this is, is simply that if you can work out how to worth one property against another, then you can do a direct contrast and make sure that you reduce the chances of buying a property that may be too expensive, or not cover its costs.