Property and economic update

January continued the current static trend in the property market. The Nationwide house price survey indicates that prices across the country rose an average of 0.4%, slightly up on last month. Alex Bannister, Nationwide's group economist comments: "Since last summer the focus of homeowners and would be homeowners concern appears to have shifted from 'how high interest rates will rise' to the future direction of house prices….with prices having been broadly stable for six months and the market nearing the end of the usual seasonal lull, there are indications that sentiment may be about to turn more positive".

The Halifax has indicated an average price rise of 1.1% during January. Halifax figures show that house prices during 2004 rose by 15.1%, however only 2.8% of this occurred during the second half of the year. In contrast, the Hometrack January survey reports a fall in prices of 0.4% on average for January, although several regions have seen a small increase. John Wriglesworth, Hometrack's housing economist comments: "House price decreases have been less than previous months, but it isn't until June that we are likely to see a recovery with house prices moving upwards".

There is also growing evidence to suggest that interest rates have now peaked and that we are likely to see rates decrease during the course of the year. Martin Ellis, Chief economist of Bank of Scotland / Halifax comments: "The softening in economic activity, the continuing low level of inflation and the slowdown in consumer spending and house price growth, are expected to provide the Bank of England with the scope to reduce rates by half a percentage point in 2005 to end the year at 4.25%".

New pension rules a boom for buy-to-let

Savers are expected to stock-pile up to £11 billion in their pension funds over the coming months, ready to buy property when new tax perks come into force next year. From April 2006, investors will be able to buy residential property, such as holiday homes and buy-to-lets, with a personal pension. The property would therefore be free from tax on rental income and capital gains.

It will be possible to put both new and existing properties in a pension, and savers who contribute to their pension schemes in order to buy property will get tax relief on the money. To give you an idea of what to expect, the government pays 22p for every 78p that you invest, taking the total contribution to 100p. Higher rate tax payers get a further 18p through their tax return. So someone who wants to purchase a £100,000 property would need to contribute only £78,000. Higher rate tax payers would get a further handout of £18,000.

Once a property is in your pension, the rent will have to be reinvested in the fund and used to pay off any mortgage, but it will be free from income tax at 40%, assuming you are a higher rate tax payer. Any capital gains when you sell will also escape tax, however, you will not be able to access the cash until the age of 50, rising to 55 from 2010, when you can take 25% of your pension fund as a tax free lump sum and use the rest to provide a taxable income.

It is widely believed that this new 'flood' of money into the property market can only serve to increase demand and push up prices, and will make property investment even more attractive.

Achieving Your Dreams by Jim Rohn

While most people spend most of their lives struggling to earn a living, a much smaller number seem to have everything going their way. Instead of just earning a living, the smaller group is busily working at building and enjoying a fortune. Everything just seems to work out for them. And here sits the much larger group, wondering how life can be so unfair, so complicated and unjust. What's the major difference between the little group with so much and the larger group with so little?

Despite all of the factors that affect our lives - like the kind of parents we have, the schools we attended, the part of the country we grew up in - none has as much potential power for affecting our futures as our ability to dream.

Dreams are a projection of the kind of life you want to lead. Dreams can drive you. Dreams can make you skip over obstacles. When you allow your dreams to pull you, they unleash a creative force that can overpower any obstacle in your path. To unleash this power, though, your dreams must be well defined. A fuzzy future has little pulling power. Well-defined dreams are not fuzzy. Wishes are fuzzy. To really achieve your dreams, to really have your future plans pull you forward, your dreams must be vivid.

If you've ever hiked a fourteen thousand-foot peak in the Rocky Mountains, one thought has surely come to mind "How did the settlers of this country do it?" How did they get from the East Coast to the West Coast? Carrying one day's supply of food and water is hard enough. Can you imagine hauling all of your worldly goods with you... mile after mile, day after day, month after month? These people had big dreams. They had ambition. They didn't focus on the hardship of getting up the mountain.

In their minds, they were already on the other side - their bodies just hadn't gotten them there yet! Despite all of their pains and struggles, all of the births and deaths along the way, those who made it to the other side had a single vision: to reach the land of continuous sunshine and extraordinary wealth. To start over where anything and everything was possible. Their dreams were stronger than the obstacles in their way.

You've got to be a dreamer. You've got to envision the future. You've got to see California while you're climbing fourteen thousand-foot peaks. You've got to see the finish line while you're running the race. You've got to hear the cheers when you're in the middle of a monster project. And you've got to be willing to put yourself through the paces of doing the uncomfortable until it becomes comfortable. Because that's how you realise your dreams.

"Let others lead small lives, but not you. Let others argue over small things, but not you. Let others cry over small hurts, but not you. Let others leave their future in someone else's hands, but not you." - Jim Rohn Author and speaker

"Learn to enjoy every minute of your life. Be happy now. Don't wait for something outside of yourself to make you happy in the future. Think how really precious is the time you have to spend, whether it's at work or with your family. Every minute should be enjoyed and savored." - Earl Nightingale 1921 - 1989 Radio announcer and Author

Cash flow or capital gain?

There has been a war going on out there between the two camps of property experts since day one of property investment: Cash Flow vs Capital Gain.

Let's start with some arguments in favour of the Capital Gain:

The table shows the purchase of a £300,000 property and its net worth over a 20 year period in Cash Flow and Capital Gain categories. The following parameters have been included in the calculations:

• No borrowings.
• Surplus cash flow after paying tax will be reinvested to get a 10% per annum return.
• Every time we have surplus cash flow, either through rent or re-investment, we'll be paying 30% income tax (obviously this could be more or less depending on income).
• Net Worth is calculated assuming Capital Gain Tax and Income Tax are both paid.

It's obvious that a typical Capital Gain property will build more net worth for an investor than a typical Cash Flow property after a few years of holding. Some property investors argue that how can an asset increase in value if there is little cash flow? The answer is that there are plenty of investments that don't generate a cash flow but increase in value, such as paintings, a vacant block of land, etc.

Some people might say that you need income to service debt, if you keep building net worth with little income, how can you borrow more money? The answer is that high net worth individuals never have a problem borrowing money, there are lenders that will lend you the money as long as you have asset (called asset lend or equity based lending). Think of it this way: if your future income (you think you might still have) can service debt, why can't you mentally put aside a lump sum of money (you definitely know you already have as part of your net worth) from the beginning to service the debt?

Although well selected residential properties have demonstrated an average 10% compound growth in the last few decades through a few property cycles, it still doesn't seem to convince some investors that well selected properties will continue their historical performance. For most people, the threat of the disaster seems to be more real than the disaster itself.

So what's good about Cash Flow property then?
Cash flow property puts money in your pocket from day one! The feeling of making some money sometimes is more important than the actual amount you're making. We have experienced first hand a lot of property investors who just couldn't comprehend that losing cash flow can build more net worth over the longer term. Some would argue that the capital gain might never come and that money in my pocket today, as little as it might be, is better than tomorrow.

Most people who invest in cash flow properties do so for the following reasons:

• Concern that capital gain might never be there - I will at least hang on to my cash flow.
  
• Lack of sufficient finance resource to cover negative cash flow for a few years until it turns neutral.
  
• The thought of negative cash flow makes me sick - I might not live to enjoy my wealth.
  
• Believe only income can service debt - can't get used to the idea of debt servicing debt.
  
• I feel good about seeing some money coming in at the end of each month.
  
• I just want to have passive income, what's the good of high net worth? - don't believe that there are ways net worth can be converted into cash flow.
  
• I want to get in Cash Flow properties while the yield is exceptionally high, and hopefully enough people will come to the area to buy up the price so that I can get out with my Capital Gain. In other words, I'm using Cash Flow as an illusion to make my Capital Gain!

Anyone with the above psychology and financial position really has two options: one is to invest in Cash Flow property, the other is not to invest at all. Capital Gain property is definitely not suitable for them.

Cash Flow properties have lower risk, but also lower return, this strategy has a much wider appeal to the general investors market. It doesn't take much knowledge & psychology to interpret the rental income, as long as you don't buy properties that will need a lot of repairs, you can comfortably enjoy the cash flow every month.

We all started investing for passive income that we can retire on one day, building immediate cash flow is an obvious way to get there, and building net worth first is just another less obvious way.

It is not a case of which strategy is better, but which strategy fits your current psychology & financial position the best.

"You don't get to choose how you're going to die, or when. You can decide how you're going to live now." - Joan Baez Singer/Songwriter

"It is a lesson which all history teaches wise men, to put trust in ideas, and not in circumstances." - Ralph Waldo Emerson 1803-1882, Poet and Essayist

Why you should get a new mortgage right now!

It's a buyers' market right now, but spare a thought for your poor mortgage lender. We've already heard about what a miserable Christmas some retailers appear to have had but it seems it may well be a long, cold, lonely winter for your mortgage lender as well. Apparently not enough borrowers/potential borrowers are walking through their doors.

OK, so you would need a heart of stone not to giggle but what it does mean is that there are more deals (low-cost mortgages and remortgages) available than there are buyers (people like you and me). So look out for some juicy mortgage bargains. There are two key reasons that mortgage lenders have not been getting as much business as they would like recently.

1. The number of new mortgages being taken out is falling
Figures out this week show mortgage approvals down for the sixth month in a row in November and at their lowest level since September 1995. At 77,000, they were just fractionally above the key 75,000 a month level. Mortgage approvals have been below 75,000 in only 13 months out of the last 18 years.

2. Other mortgage business is also falling
And its not just new mortgage business that has slowed down. The Bank of England's numbers also show mortgage equity withdrawal falling - fewer of us remortgaging and extending our debt - for the third successive quarter in a row in the three months to September last year. That means a bleak midwinter for mortgage lenders unless they can persuade us that their wares are attractive enough for us. And to do that they'll need to be offering us some great deals.

Bargains a-plenty
The market is likely to be even more competitive because some lenders are returning after a two-month absence. They voluntarily curtailed their lending in the last quarter of 2004 because they were putting their house in order before (and after) October 31 - the day when mortgages became regulated by the Financial Services Authority. These lenders decided to shy away from marketing new deals while they were busy sorting out legal compliance issues. Their plan was always to come back aggressively in the new year with some bargain deals to tempt us.

If you already have a mortgage, it's time to remortgage
In the past couple of years people have been remortgaging to take advantage of a house price boom to afford a new car/extension/holiday/general good time (delete as appropriate). This year remortgage activity should rise to a new peak while mortgage equity withdrawal continues to fall. In other words we won't be remortgaging to borrow more, we will be remortgaging to borrow more intelligently, sensibly and above all, we may hope, more cheaply!

Our in house mortgage consultants have access to the very best offers currently available. Why not give Daryl or Andrew a call on 01252 737575 to see if you could save money.

Five-point plan to remortgaging

Remortgaging is a good way to escape high variable or fixed rates and take advantage of some of the current fixed rate or discounted mortgages, which have much lower rates. It is also a great way to raise funds for the purchase of an investment property. If you have owned your property for several years it could be worth much more that your outstanding debt. By taking out a new mortgage, you can release money.

Are you unsure if remortgaging is right for you? Our five-point plan will help you make up your mind.

1. Write to your existing lender and ask for a written redemption statement. This will indicate the exact out-standing balance of your loan and will show any penalties or fees for redeeming your mortgage.
2. Calculate what the legal fees involved will be. These will vary according to the value of the property and the solicitor used.
3. Look at the new mortgage offer, including the small print, and ask for a written statement of what your new repayments will be, showing any discounts and all the costs that will be incurred, such as the MIG premium and arrangement fee.
4. Work out how much you will save each month by subtracting the repayment for the new loan from the old repayment - don't forget to take the standard variable rate that the new loan will revert to into consideration as well, particularly if the discounted or fixed rate applies only for a brief period.
5. Compare the costs with the savings - but don't forget that the costs will be payable up front while the savings will accrue over a period of time.

What's available?

We currently have the following investment opportunities.

• Parkside Gardens, Ayresome Green Lane, Middlesbrough
• Springfields, Brook Street, Preston
• Marco Island, Huntingdon Street, Nottingham
• Kingston Quay, Glasgow
• Waterfield Mill, Balme Road, Cleckheaton
• The GM Building, Fore Hamlet, Ipswich
• Vulcan Works, Pollard Street, Manchester

Please go to www.propertyforlife.com/discount_prop.php for full details and look out for more great opportunities coming soon!

Recent events

We recently started offering property in Florida and the Caribbean in association with our partner Brookes and Company. During January we ran a series of lunchtime and evening presentations in various locations and the response from our investors has been tremendous. Those people who attended were provided with a full buffet meal with Wine and had the opportunity to talk to us in a relaxed and informal environment. More of these events will be planned for the coming months, so if you are interested in attending one of these sessions, keep a look out for your email invitation.

Upcoming events

The Homebuyer Show - 25th - 27th February - Excel exhibition centre, London docklands.
We will again be exhibiting at the homebuyer show so come along to stand number 651 and say hello. David will be presenting on each of the 3 days as part of the exhibition seminar programme, so if you are interested to hear what he says go along to one, you can book online at the web link shown below. The times are:

Friday 25th - 11.00 - Seminar room 5
Saturday 26th - 11.30 - Seminar room 1
Sunday 27th - 10.45 - Seminar room 2

We have secured a number of complimentary show tickets for our members, if you would like one please register at www.homebuyer.co.uk/register.asp using our promotional code PFL651.

We look forward to seeing you there.

Completions

Congratulations to those investors who have completed on their properties at The Maples in Whitham, Thames View in Purfleet and Duke Street in Leicester. All of these high quality developments are in excellent rental locations and each was purchased with a substantial discount resulting in instant equity. These apartments will prove to be great investments and we wish those people who invested in them the very best of luck.

If you would like to join them take a look at our property pages at www.propertyforlife.com/discount_prop.php where you will find plenty of fantastic investment opportunities.

Make some extra money?

The 'Property for Life' referral programme is a great way to make extra money. Take a look at the table below to see just how much. If you know of anyone who is interested in purchasing investment property why not refer them to us. It's simple, if they buy you make money, and the more they buy the more money you make. Take a look at our website for full details www.propertyforlife.com/tellafriend.htm

Back issues

Remember, you can read any of our back issues by following this link to our web site www.propertyforlife.com. If you missed one, or you want to read that really interesting article but can't remember where you put it, you will find it all here.