I’m going to make no bones about it. This blueprint is about property business opportunities.
But before you think I’ve gone stark raving bonkers in the current property market, I haven’t. A recession can be a good time, even a great time, to get involved in property. If you know how.
Why you should be considering property business opportunities right now
Before I get into my 7 opportunities, let’s quickly run through a few reasons why property is looking interesting right now.
House prices have fallen over the last couple of years. After skyrocketing to the point where many buyers were locked out of the market they’re now starting to look affordable again.
There’s massive pent-up demand. Hundreds of thousands of people want and need to move. For work, for family, for personal reasons. But haven’t been able to over the last couple of years. That demand can’t be bottled up forever.
Interest rates are low. For those who can get a mortgage, or who already have one, it’s cheaper to borrow than it’s ever been.
And this is what’s really important about low interest rates: Not only is it cheap to borrow but serious investors who have cash to spend aren’t getting a very good return on leaving money in the bank. So they’re looking at putting it into property where it can make a much better return.
You see, as many property experts will tell you, this is where the property opportunities really are in 2011 – making money by catering for cash-rich investors, rather than owner-occupiers.
No capital, no problem!
I can hear you saying that property’s a non-starter because it’s very difficult to get a mortgage at the moment. While that’s true it needn’t stop you making money in property. You see, the shortage of mortgage finance has prompted investors to be much more creative in finding ways to finance their projects. If you know about these financing methods you can lock into them too. Plus, many property projects do not need you to raise any capital at all. You can operate as an agent. More details coming up.
Here are some creative ways of finding finance for property projects:
Form a syndicate. Syndicates are great for property, because they spread the risk. If you have a small amount of cash which isn’t enough to buy a property on its own then club together with other people. For example, 10 or 20 people each with £5,000 would have a pot of £50,000 or £100,000 – enough for a small project. Each investor shares in the profits (and spreads the risk) in the same proportion to their investment.
Private mortgages. You can set up a mortgage agreement with anyone, not just a bank. This method has been used for years in countries that don’t have a proper mortgage system and will work just the same here. With this method, you could also pay the seller for their property in installments. You can have whatever interest rate and repayment term you like.
Try a site like Zopa to find a private loan or mortgage: uk.zopa.com
Joint ventures. With the property owner. Say, for example, you want to renovate property but don’t have the money to buy it. A property owner has a property but they know nothing about renovation. Do a deal to work together on the project and share the profits. You gain if the market rises, but limit your losses if the market falls.
Lease options. Well known in the financial world and can be applied to shares, land or property. You negotiate with a seller to have the option to buy their property for an agreed price after an agreed period, say 3-6 years. In the meantime you pay rent for it. You usually pay a small premium for the option. But you don’t have to exercise it if the market declines.
Private mortgages, joint ventures and lease options are great for a recession, when there are lots of properties for sale that owners can’t sell.
Tip. If you’re interested in these creative financing options let me know and I’ll point you in the direction of more information. I’d also recommend you take individual legal advice on setting up deals with partners.
Solving the mortgage problem. By the way, if you do want to raise mortgage finance to invest in property I’d suggest that you use a good broker to shop round for you rather than just going to banks and building societies direct. They often know about ways to raise finance when the big banks and building societies say no.
When using a broker ask whether they are paid by commission from the lender, or whether they charge a fee for their service.
So on with the projects I think you ought to look at…
Property Opportunity #1: Here’s how to avoid the mistakes made by others and make money from buy to let…
Buy to let was one of those property projects that boomed before the recession. But then everything changed. Property prices rose, a glut of rental properties developed as everyone was doing buy to let, rents plummeted, so yields (return on capital) went south. Thousands and thousands of people lost money.
Now the maths has changed again, meaning buy to let is being “reborn”. Property prices have fallen in lots of areas, while rents have stayed steady or risen. There’s a healthy demand for rental property from people who can’t get a mortgage, who want to rent a place to live.
And here’s what you need to know: Today’s buy to letters are buying for income, NOT capital growth as in the past. And the numbers can really add up.
Do the maths and see for yourself. In many places in the country (although certainly not in prime locations in London!) it’s now possible to buy a three bedroom house for £60,000. Yet if it has good letting potential it could rent for £500 a month. That’s a 10% yield, as investors call it – which is better than any bank.
Try this simple technique to spot deals: Go to a property portal like Zoopla. Search for property for sale and property to let in any given area. Check prices. Check rents. You will be able to spot places where’s there’s good potential (and where there isn’t).
Tip. If you can’t get or don’t want to take out a mortgage consider forming an investment syndicate to buy property to let.
These are the three most important secrets of buy to let:
• Sourcing property well below market value is important to make this work. Buy from auctions or from below market value agents – NEVER buy at the estate agent’s “window price”.
• Type and location is all important. Make sure it is a place people will want to rent, as not all cheap property is well located. Check with local letting agents to see if there is a good demand for property to rent and double-check what a realistic rent is.
Prefer small properties in established residential areas. Steer clear from city living in most cases.
• Do the maths. Work out reasonable monthly rent, multiply it by 12 and divide into it the purchase price. This gives you the yield. A yield of 5-6%+ is good, 10% or more is excellent.
• Hands-on management is better than handing it over to a letting agent. You can improve yields by 15% this way.
Tip. Look at buying commercial property to let, especially shops. Commercial tenants are responsible for all repairs and maintenance so there’s hardly any management to do. Shops let to independent retailers (not big chains) can yield 10%+.
Property Opportunity #2: Start a property sourcing service and cash in on cash-rich, time-poor investors
This is a really good property project for right now that does not need any capital investment whatsoever, and does not need you to buy any property. Instead, you offer a sourcing service to cash-rich investors who are looking to buy.
At the moment, professional investors are buying more property than private owners looking for a place to live. That opens up a new opportunity that didn’t really exist before the recession.
You see, wealthy investors are cash-rich and time-poor. They don’t have time to scour the property ads, auction listings, or walk the streets looking for good investment opportunities. So you could offer a property sourcing service, sending timely reports on property investment opportunities direct to them.
You can offer this service direct to landlords and investors. Contact landlords’ associations. Ask accountants, lawyers and financial advisers if they will introduce you to their wealthy clients. Advertise in property publications.
Tip. If you live in a city (especially London) pitch your service at wealthy foreign investors.
Once you have found customers, here’s how this service works: Fill in a briefing form with details of what kinds of properties they are looking to buy. Location? Flat or house? Or commercial property? Price range and yield? Development potential?
Scour every possible source of property for sale you can find. This is work you can do in the evenings and weekends. Newspapers. Property portals. Estate agents. Auction listings. If you want to, tour the streets looking for “for sale” signs. Leaflet drop to owners of suitable properties and ask them to contact you if they are interested in selling.
Now, at the end of every month (or week if preferred) compile a personalised property report for each investor. Cut and paste. Include details of the properties you have found, photographs and maps. Include local market information, you can find this on UpMyStreet.com. Send it off to your customer by mail or email. Essentially you’re doing the legwork for them, creating a tailor-made portfolio of properties that meet their investment criteria.
There are two ways you can charge for your property sourcing service: Either charge a fixed monthly fee. Anything from £100 to £500 wouldn’t be out of the way for cash-rich investors. Or ask for a commission (say 0.5%) on any properties they buy. (Long term this is likely to be much more profitable but it may take some time to build up a revenue stream.)
Alternative idea. You could also compile a monthly newsletter providing details of all properties for sale in your local area. Sell it to investors on a subscription basis.
Property Opportunity #3: Magically increase the value of a plot by 20, 30 or 50 times and then claim a slice for yourself
One area of property that tends to weather a recession well is land. Land is limited in supply and always sought after by developers. In fact, they tend to buy much MORE land in a slump when it is cheap and “land bank” it for when things pick up.
Here’s a way you can cash in on the interest in land. And it’s another way you can get involved without any capital. It’s land development.
Here’s how it works: A basic premise of the property business is that land without planning permission to build on is worth relatively little. Land with planning permission to build on is worth a lot more… often 20, 30 or 50 times more!
So here’s the opportunity: Look for plots of land that might be suitable for building houses on. Apply for planning permission to build on them. Then resell the land for its much higher “developable” value.
You do not actually need to own or buy the land to operate this project, although you can if you have the finance available. Instead, set up a joint venture with the owner, or enter into a lease option.
First, look for suitable building plots. For example: Pieces of wasteland. Large gardens or corner plots with scope for building. Fields or paddocks within a town or village. Car parks. Garage blocks. Redundant commercial land such as filling stations and pubs. There are LOADS of these available cheaply in a recession.
Now check with the local council. See what the local planning policy is, i.e., whether it’s possible permission would be given to build houses on the land. (Any local planning department will give you a “yeah” or “nay” opinion for free.) NB. Several councils are releasing land from “green belt” over the next couple of years. If the situation looks favourable approach the land owner. Put a proposition to them: If we can increase the value of your land by 20/30/50 or so times by obtaining planning permission for it would you give us 10% of the increased value when it is sold? Not all will agree of course, but in a recession people are more interested in opportunities like this than ever before.
Now apply for outline planning permission to build houses on the land. (NB. The owner pays the application fees, not you. Make this clear to them when setting up the deal.)
If permission is not granted you have lost little. If it is, there could be a sizable increase in the value of the land, which you would be entitled to 10% of. If you wish, you can also offer a service in finding a buyer for the land – send details of your plot to builders, developers and investors.
Tip. You may be fortunate and secure an immediate sale of a plot. But this is a great medium-term or “pension pot” opportunity. Let’s say the owner holds on to the land and doesn’t sell for five or 10 years (or longer). The recession should be over by then, property prices could be booming again, and you’ll still be entitled to 10% of the increased sale price. (NB. Planning permission needs to be renewed every three years.)
Property Opportunity #4: Profit from property renovation with someone else paying for it!
This is a project you need to get on to right away. With government cuts, it might not be available long term.
As you might know, property renovation has been a proven way to make money from property for decades. But in today’s market you can’t assume that rising prices will help you sell a renovated property for more. Today’s entrepreneurs need to be more creative about doing it.
Well here are two ways you can renovate a property and get the government to pay for some or even all of it!
In a recession there is a shortage of affordable houses and flats. This opportunity locks into that very nicely. Here are two government-subsidised renovation schemes:
Empty Property Grants. These aim to get privately-owned properties occupied again. The grant is for half of the cost of the work up to a maximum of £17,000 per unit of accommodation provided, i.e., a house split into two flats could get £34,000.
There are a few strings to this grant: The owner must let the property for at least two years to a tenant nominated by the local authority. They must continue to own the property for 10 years, although they can do what they like with it after two years.
What will be funded? Repairs and/or improvements necessary to convert empty properties into habitable units, which meet both planning and building regulation requirements. This scheme is discretionary and dependent on the refurbishment costs.
Contact your local council to check availability. Empty Property Grants are given to owners of properties empty for one year or longer. Grants are also given to first-time buyers and to owner occupiers who need to move into larger accommodation as their property has become overcrowded. Again, the property needs to have been vacant for more than one year and be in need of repair.
Here’s a handy site for more info. Homes From Empty Homes
Flats Over Shops Grant. Some local authorities also have grants to encourage residential accommodation in town centres. This is done by offering money towards the cost of converting space over shop premises into flats, the so-called Living Over The Shop or LOTS scheme. A typical example of this sort of grant would be 50% of the cost up to a maximum of £15,000. (The flat usually has to be held for a minimum period of time.) Also, it’s possible for the owner to get a 100% tax allowance (the Flat Conversion Allowance or FCA) on the cost of converting redundant space over shops into flats for letting. So the conversion could, in some circumstances, cost them nothing. A reduction in the VAT rate to 5% on conversion costs is also possible.
Contact your local council to check availability. The person claiming the allowance would also be best advised to check with an accountant first.
You can take advantage of this scheme if you are a property owner yourself or just the occupier, maybe on a lease option. Or set up a syndicate. If not, consider a joint venture with a property owner. Approach owners of shops with empty space above and negotiate a fee or commission for arranging everything for them.
Property Opportunity #5: “Steal” yourself a house for £5,000 in the international property market…
The property market might be sickly in the UK. But it’s much worse in some foreign countries. With this opportunity you can actually become a property owner for as little as £5,000 and up. (And because it’s abroad you can cash in without everyone at home hating you!)
You can use your property for yourself, perhaps even live in it if you wish, let it for holidays, rent it out to a tenant and earn thousands of pounds in rent each year or simply hold on to it for years and sell it for much more if prices pick up.
Where? The recession has affected the USA property market much more than in the UK. There, the vast number of properties that have been repossessed by banks, the vast number of hard-up sellers, the lack of property finance and the scarcity of buyers mean you really can buy a distressed property as cheaply as this.
In some cases you can buy more cheaply. Houses have sold for $1 in some cases. A £5,000 property is perfectly possible. If you can run to £10,000 or £20,000 then a 3/4 bed detached house with a garden could be within your reach too.
Good places to look include Michigan, California and, especially, Florida. The market in these places has suffered badly in the recession. But, on the plus side, people in these places still need a place to live so the rental market is booming if you want to let out your investment and generate an income.
To make it easier, there are some UK-based agencies who handle USA distressed property. Here are a few you can try (prices and availability will vary): Colossal Property Investments, Assetz USA, Property 4 Peanuts.
Of course, a cheap property abroad is a higher risk kind of investment. But sit tight and wait for the market to recover and it could turn into a nice nest egg. Other opportunities. The current political problems in Tunisia and Egypt have brought a halt to foreigners buying property there, and it’s likely prices will tumble. If you have confidence in these historically stable countries they can offer more opportunities to buy abroad cheaply.
Or consider up-and-coming countries. Many of these are in a similar position to the UK 25 years ago – prices are low and the economies are starting to take off. Many experts believe they’re at the beginning of a property boom, not in the middle of a bust. Look at Brazil and Turkey.
Property Opportunity #6: Don’t buy but bet. Perfect if you’re convinced property prices are heading down the toilet…
You’ve probably heard of spread betting but you might not know that you can now spread bet on future house prices.
This is ideal if you like gambling and property, but don’t actually want to invest money in property. It can also be used to “hedge” investments in real property. The current volatile market – with some people predicting house prices will rise and others predicting they will fall – bodes well for spread betting.
There are several advantages to spread betting the housing market rather than directly investing in it: There’s no need to put up the full value of your bet, no red tape, and no stamp duty or capital gains tax to pay.
So how does it work? IG Index is the main spread betting index offering betting on movements in house prices. Their bets are based on the Halifax House Price Index, a well-established indicator of the UK housing market. They offer bets on the average house price for the UK as a whole, with prices offered on the nearest four quarters. Prices are given in points per £1,000. You simply buy if you think the average price is set to rise or sell if you think it will fall.
Here’s another good thing about spread betting on property: There is masses of information out there on the Internet and – unlike most forms of betting – most of it is FREE. The Telegraph website is a great starting point.
Take time to study the market and paper trade before risking any money.
Here’s an example from IG Index of a house price spread bet: It is 1 September – the UK housing market is rising, and you believe it is set to continue doing so. The price for the March monthly survey (in £1,000s) is 163.5-165.5. As you believe house prices will continue to rise, you decide to “buy” £1,000 per point at 165.5.
You are right, and the Halifax House Price Index figures continue to rise. In December Halifax gives the average UK house price at £168,763, and on 2 December the quote for March is 168.7-170.7. You are unsure whether the rise will continue and decide to play it safe, “selling” £1,000 per point at 168.7 to close.
The result: Closing level 168.7. Opening level 165.5. Difference 3.2. Profit = 3.2 x £1,000 = £3,200.
(Remember, of course, one of the risks of spread betting: If the market had moved against you, you may have lost more than your initial deposit.)
Property Opportunity #7: Property care. A hands-off property opportunity for hands-on people
This is a very easy one if you are practical, but don’t actually want to get financially involved in the property market at all. There is absolutely zero risk or money needed.
You don’t need me to tell you that there are a lot of empty properties around at the moment. Some of these are houses that have been repossessed. In other cases, their owners have had to move for work, yet have been unable to sell the property.
That leaves the owners with a problem: Who will care for their empty property and keep it well presented when prospective buyers come to view? Who will keep it secure – what about the risk of burglaries and squatters? Who will forward the post and bills?
All these problems offer a good opportunity to start a property care agency looking after empty properties. It could make a good part-time or even full-time business.
To find potential customers: Contact estate agents. Ask them to introduce your property care service to owners. (They will also benefit from your service by ensuring properties are looked after for viewings.) Mailshot empty properties in the hope your mailshot will reach the owner. Also contact asset management companies. (These are companies who manage repossessed properties for banks and building societies.)
What services to offer: What you include in your service will depend on what you want to offer, and what your customer wants. Services might include: Key holding. Weekly visit to check clean/tidy/secure. Gardening. Emergency call outs – handling break- ins/vandalism/burst pipes, etc. Cleaning, to ensure property looks attractive to viewers. Conducting supervised viewings. Mail forwarding. Arranging for bills to be paid, etc. You can also offer a service for empty commercial properties.
Charge for this service according to what you are required to do. Anything from £20 to £75 per week wouldn’t be unreasonable. You could easily care for 10 properties a week (£200 to £750 a week) and it would still be a part-time business.
One useful spin-off of this business is that it could, of course, identify properties suitable for your other projects, e.g., property sourcing, land development or buy to let.