What makes a good investment deal?

For those who are new to property investment it is important to realise that there are several factors that can make a good deal or not. Learning to recognise these factors takes research, education and experience. Here's a good formula to determine whether a potential property purchase is a good deal. It's a simple acronym called C.L.E.A.R.

Cash flow
"Will this property provide a good income?" Well, that depends on a lot of factors, such as the strength of the local rental market, the interest rate on the financing, and how much of a deposit you make (conversely how much you borrow).

Now, of course, whether the property will provide income to you begs the question of whether income is important to you. Is it? Do you earn other income? Do you need more income now, or is future equity growth more important? There's no right answer to these questions, but are all factors to consider when looking at a potential purchase.

Leverage
Leverage is the use of borrowed money to maximize the return on your investment. This is important for investors because the less cash you have to put into each property investment the higher your return on investment will be (assuming the properties increase in value). If the property has a reasonable yield then the rental should be able to cover most if not all of the interest payments. Obviously you need to be aware of the cash flow considerations in taking on more debt in that you need to have cash reserves on hand to meet any potential shortfall that may occur.

Leverage if used properly is one of the greatest tools available to the property investor. Using borrowed money to fund investments in appreciating property can take the returns into over 100% per annum! Try getting those returns from any high street bank on your deposits.

Equity
Does the property you are purchasing have equity? Buying into equity can take a number of forms, such as from a buying at a discount or buying a repossessed property cheap at auction. There are many ways to create equity such as through your own renovations on a property which increases its value by more than the cost of the renovations. But buying into equity if you can is the quickest and easiest way to build wealth quickly.

To do this find a motivated seller who wants out of his property and is willing to give up his equity for less than full value. If you can't do this, then buy a property that needs small amounts of cosmetic work that is inexpensive to do but can create value.

Appreciation
Buying property in an area that is rapidly appreciating can help catapult your wealth very quickly. However if you buy properties without equity or cash flow and solely for short-term appreciation, it is more risky because your timing must be right. Get the timing wrong and may face difficulty selling (if that is your strategy).

Buying for moderate, long-term (10 to 20 years) appreciation is safer and easier. Look at long-term regional and city-wide trends to pick areas that will hold their values and grow at a reasonable pace. Combine this tactic with reasonable cash flow and buying into equity, and you will be a smart investor.

Risk
Risk is a consideration that too few investors consider. Now ask yourself, "What if my assumptions are wrong?" In other words, do you have a "plan B"? If you bought for appreciation and the property did not appreciate in value, can you still rent out the property and cover most of your costs?

If you buy with an variable rate loan and the rates go up, will this put pressure on my cash flow? If you have a few vacancies, can you handle the negative cash flow or will it break the bank for you? Expect the best, but prepare for the worst. And remember, whenever you look at a property to purchase, think CLEAR: Cash flow, leverage, equity, appreciation, and risk.

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The Billionaire's strategy for success by Brian Tracy

John Paul Getty became a multi billionaire by practicing a few basic principles of risk-taking and reward throughout his life.

This is a great article to show you his key insight to risk reduction and success and how you can apply it to any decision you have to make. It also introduces a series of additional ideas that can help you to make better decisions and reduce the risks associated with success.

How to assess a decision
Whenever John Paul Getty was considering a business decision, he would ask, "What's the worst possible thing that could happen in this situation?"

Then, when he was clear about the worst possible outcome, he focused all his attention on making sure that it didn't happen.

You should apply this technique to every risk situation or investment you ever make.

The billionaire's strategy for success
Remember Murphy's Law: "Whatever can go wrong will go wrong." There are several secondary laws to Murphy's Law, such as "Whatever can go wrong will go wrong at the worst possible time" and "Of all the things that can go wrong, the most expensive thing will go wrong at the worst possible time."

Another sub law is "Everything takes longer than your best calculation." In advising businesspeople, I suggest that they take their very best estimate of break-even for any business venture and then triple it to arrive at a more realistic number. Whenever businesspeople follow this advice, they are amazed to find that, in spite of their best initial calculations, it indeed takes about three times longer than they thought it would to start making money.

Always add a fudge factor
Another sub law is "Everything costs more than you can possibly anticipate in advance." In minimising risk in any venture, always add a "fudge factor" to account for the degree of uncertainty. Whenever I do a business plan, I always add 20 percent to the total of all costs that I can identify, to come up with the probable cost. Anything less than this, whether in business or your personal life, is likely to be an exercise in self-delusion and open you up for some unhappy surprises.

Once you have identified the worst possible things that could go wrong, make a list of everything that you could do to offset these negative factors. Engage in what is called "crisis anticipation." Look down the road, into the future, and imagine every possible crisis that could arise as the result of changing external circumstances.



Be intensely realistic
Men and women who have achieved a high level of success are intensely realistic. They do not put their trust in luck. They carefully calculate every possible risk, and then think about what they would do should it occur. They always have a backup plan in case things do not go as they wish them to. They have a "Plan B" and options to that plan that take all kinds of variables into consideration.

Do the things you fear
One of the very best ways to develop your ability to take intelligent risks is to consciously and deliberately do the things you fear, one step at a time.

A very good way to overcome the fear of risk taking is to set clear, written, measurable goals for yourself, and then to review those goals regularly.

When you have clear goals and plans, and you continually work on them and evaluate your progress each day, you will see what you're doing right and how you could improve your performance. You'll feel more competent and capable and better about yourself. You'll become more thoughtful and reflective and willing to take on even greater challenges. And your likelihood of success will become greater and greater.

Action exercises
Now, here are three steps you can take immediately to put these ideas into action.

First, take any worry situation in your life today and ask, "What is the worst possible thing that could happen?" Then go to work to make sure it doesn't occur.

Second, look into the future in your life and determine the worst things that could happen. Engage in "crisis anticipation" regularly and continually be taking steps to guard against them.

Third, work from clear, written goals and detailed plans. Review them regularly. Consider alternatives and always look for ways to increase the likelihood of your success.


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"The majority of men meet with failure because of their lack of persistence in creating new plans to take the place of those which fail." - Napoleon Hill, 1883-1970, Author

"Failure will never overtake me if my determination to succeed is strong enough." - Og Mandino 1923-1996, Author and Speaker



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Why use a property manager?

Most experienced property investors use property managers. Why? Because they make you money.

Property management isn't just about collecting rent. It's about ensuring your property is always rented, ensuring you have the best possible tenants, and ensuring you're getting the best possible rent. It's about keeping the property well maintained, tracking expenses and income, and dealing with the legalities of leases and the rights of tenants.

This is what property managers do. It's their core business and for a landlord, the benefits are significant.

Save time
The most obvious benefit is time saving. You don't have to spend an hour or so each week looking after the rental property, making phone calls, placing ads, interviewing prospective tenants, speaking to solicitors, speaking to your tenants, collecting rent, organising tradesmen and so on. How much could you earn in that hour if you were focusing on your work rather than chasing your tail?

Know Your Rental Property Market
Property investment is a business. To succeed in business, you need to know your market. Property managers make their living out of knowing the rental marketplace. They know how much your property is worth and who'll want it. They know the best ways to reach the market and they have the resources to do it. A property manager with some real marketing experience can earn you thousands every year, just with an intelligent marketing campaign.

Know Your Rental Property Rights
Rental legislation is constantly changing. It's important that you know your rights as well as the rights of your tenants. But most people don't even know where to start looking. Property managers work with tenancy legislation every day. They know all the ins and outs, as well as the pitfalls and loopholes. They're experienced in all aspects of lease negotiation – from bond to maintenance agreements to eviction. Most importantly, they'll protect your rights as a landlord.

Get Good Tenants to Rent your Property
Most good tenants will only rent through property managers. The whole process is much more streamlined and convenient. Payments can be made electronically, their questions can be answered quickly, and everything can be done during business hours.

The opposite is true of bad tenants. They target privately managed rentals, because that's generally all they can get. Property managers chase down and validate every reference, and they get to know problem tenants. They do everything possible to provide you with a hassle-free investment because they know the eviction process is every landlord's worst fear. You can't just kick someone out without notice. The whole process can take months.

But if you're unlucky enough to end up with a problematic tenant, a property manager will manage the whole eviction process – including all dealings with the problem tenant.

Undoubtedly, you can juggle all of these elements yourself, and you'll save yourself a small management fee… But what's the cost? Do you want to work for your investment or do you want it working for you?


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"Don't be afraid if things seem difficult in the beginning. That's only the initial impression. The important thing is not to retreat; you have to master yourself." - Olga Korbut, Gymnast - Four Time Olympic Gold Medalist

"People who consider themselves victims of their circumstances will always remain victims unless they develop a greater vision for their lives." - Stedman Graham, Speaker, Author and Educator

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Mortgage approvals take off

More mortgages were approved for house purchase in December than any month since May 2004, the Bank of England has revealed. In total, 122,000 mortgages were approved during the month, an increase of more than a quarter since late 2004.

The Bank's statistics on mortgage approvals coincide with evidence of a pick up in house price inflation in January from the Nationwide. Credit card debt and loans rose by £0.8bn in December, the Bank added.

A rise in mortgage approvals is usually seen as a sign of a strengthening housing market. Mortgage approvals rose throughout the latter part of 2005, with experts citing August's cut in interest rates as the reason.

The number of approvals rose 6,000 between November and December but at 122,000 still have some way to go to reach the peak seen at the back end of 2003. "The main message here is the unremitting strength of the mortgage market," Philip Shaw, chief economist at Investec, said. Mr Shaw added that a stronger housing market "reduces the likelihood of a rate cut over the next few months."

Earlier on Tuesday, the Nationwide building society had said that UK house prices made a "strong start" to 2006, rising by 1.4% in January - the biggest monthly increase since July 2004.
Despite the run-up to Christmas being a busy time for shoppers, credit card debt hardly grew at all in December, the Bank's figures showed, compared with a £0.3bn increase the previous month. But unsecured debt rose by £0.8bn during December, largely because of borrowing through personal loans and overdrafts.

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Need mortgage advice?

Maybe you're thinking of buying an investment property, or you need to release funds tied up as equity in your house. Perhaps you just want to find the best mortgage rate for your own individual circumstances and cut your mortgage payments. Why not call our mortgage department today? Our resident mortgage advisers will give you the best possible advice to suit your requirements. Call them today on 0870 1670996.
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What's available?

We currently have the following investment opportunities.


Marco Maison, Nottingham
The Leadworks, Chester
Marco Island, Nottingham
The Verandah Resort, Antigua

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

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Upcoming events

Over the coming months we will be attending several exhibitions in addition to our ongoing Property Academy programme. If you would like to attend a property academy session please call Laura on our 01252 737575 or email laura@propertyforlife.com stating which session you would like to attend and how many places you require.


February 18th 2006 – PFL Property Investment Academy – The Coppid Beech Hotel, Bracknell.

March 17th-19th 2006 – The Homebuyer Show – Excel Exhibition Centre, London

For further information regarding the Property Investor Academy Programme please follow the link www.propertyforlife.com/whyinvest/education.html

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Do you fancy a spending spree at one of the UK's leading department stores?

The new look Property for Life referral programme can offer you just that.

All you need to do is tell an interested friend about Property for Life and you could soon have a minimum of £250 in gift vouchers to spend in any John Lewis or Waitrose store.

Quite simply, for each person introduced by you who then purchases a property through us you will receive a cool £250 in John Lewis gift vouchers. If they purchase more than one property you will receive £250 in gift vouchers for each property they purchase. You could soon be well on your way to that spending spree.

Remember, the more people you introduce the more chance you have of grabbing at least £250. So why not tell your friends and family about Property for Life? Make sure they register on-line at www.propertyforlife.com/register/ and select the recommendation option at the end of the form and include your name in the 'other' box.

Please note that the referral programme is on a per property not a per person basis.

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