Next i read a book called,
'The 3 + 1 PLAN'
By Brett Alegre-Wood
In a nutshell Brett talks about how 'Property is the new pension'.
And how to achieve financial freedom with just 4 properties!
The 3 + 1 plan is basically you live in the '1' and you own 3 other properties that you rent out and live off the income after tax and deductions etc.
He mentions near the start the five traditional ways of planning for the future:
1 - Pension plans
2 - Stock market portfolio
3 - Saving plans
4 - Investment in new businesses
5 - Property
Pension plans
He says the success of your pension fund depends on two things, the state of the stock market and the efficiency of the people who are investing your money. Both points i agree with here. Yes you get a little lump sum at the start BUT then you only get it in dribs and drabs and you might die before you get it all anyway! surely when you retire thats the time they use to say go and do what you wanted, travel to places etc But with dribs and drabs.... ain't gonna happen. so for me becoming financially free spending my money on a pension is A NO.
Saving Plans
He says, 'as i write this in the summer of 2009, it is difficult to find safe savings plans that pay a net 4%, while inflation on food alone is 6%. Saving money each year is, of course, good for all of us, if only because it puts our money out of temptation's way for a year or so, but it is not going to make you rich.'
I agree i used to think save, and put money in the bank, but apart from ISAS, inflation will always OUT do your savings account, so putting money or holding money in banks doesn't give you the best bang for your buck so to speak and for me isn't worth the time.
Stock Market,
As he points out 'the stock market is a very sophisticated market which most of us do not understand, where insiders in the city are always ahead of you and you can buy at the wrong time and lose heavily.' Tho he makes a good point, whether this does happen i'd like to say it doesn't or couldn't as that would be seen as 'inside trading' but i wouldn't be surprised!
Investment in a Business,
Can be very profitable, but again you need to know about business to invest in businesses, something i'm lacking! So for me this isn't quite for me ..... yet!
Property,
Here says property is the only answer, and the key word which Rich Dad - Robert Kiyosaki used 'LEVERAGE' property is the only avenue you can put up 10,20,30% and a bank or lender will put up the rest! In stocks if you want £10,000 worth of shares, then you have to put up £10,000 if you want to put £10,000 into a retirement plan you might be lucky and get your employer to match it BUT again you won't get it back in one go, or you might die before you even get it! For me property is the big stand out! again the word 'LEVERAGE' brings the point home to me, why make things harder!
He says to get into property you need roughly £20,000 and this book was written a few years ago so that figure would be more now! Which is completely out my price range!
Another point he makes is:
'Assume that you earn £40,000 per year income and have bought 3+1 properties at around £200,000 each. If you were working, you would be paying around 33% tax on the £40,000 - about £13,200'
This point is the basis for a chart of numbers he goes on to make, but i know for a fact that earning a salary of £40,000 the tax on that is 40% at least! so you wouldn't be getting tax £13,200 it would be higher. Now this is nit picking but it annoyed me some reason. Tho his point he's trying to make (Getting properties and the rent paying the mortgage and a bit left over for maintance and insurance and what it leaves you times 3 this figure if more than your job! is pardon the pun - JOB COMPLETE kinda thing.
My Highlights:
- This confirms the remark made by the famous Robert Kiyosaki, of 'Rich Dad, Poor Dad' fame, that the rich may make their money from shares or businesses, but, whatever its source, they hold their wealth in property.
- In the UK, as in Australia, the average person spends one third of their income on taxes, another third on living and the final third on rent or mortgage payments.
- So what type of properties should you buy? You will generally buy a similar type of property that you would live in yourself.
- Focus on having a small portfolio, and you will very quickly realise how easy this plan is to achieve. Once you own three properties, owning seven, ten or even fifteen, is not that much more of a step!
- For me, The 3+1 Plan is not something that i would ever use to retire early; I simply use it as an emotional pillow. You see, now that I have achieved the plan, I can rest every night in the knowledge that if I weren't enjoying what I do, I would have the freedom to choose something else.
- I find that when most people start to build a portfolio, they uncover a massive control issue. This is something that you will have to overcome if you want to build a portfolio. In my experience, the biggest issue you will face in your portfolio is letting go of control.
- Just wait until your first remortgage: it might only be for £20,000, but when you add the actual hours you worked on that property, you will wonder why you didn't start years ago.
- Property is a slow-moving wealth vehicle. The important thing to remember is that everything happens slowly.
- Raising The Capital:
1- Using your savings
2- Using existing equity by remortgaging
3- Borrowing from friends and family
4- Borrowing from other places
- The most important word in property 'LEVERAGE'
- OPT and OPM (Other People's Time and Other People's Money)
- Achieving the maximum leverage is very important if you want to buy more properties.
- One of the biggest lessons you can learn in property is that the real money in property is in the holding
- There are two primary reasons that we buy property, The first is for capital growth and this is essential, so that as inflation degrades the value of our investments, the capital growth will ensure that they remain equal of above the rate of inflation (traditionally property has done this). The second is to create a cash flow to fund our lifestyles.
- It only takes one missed mortgage payment to stuff up your credit rating and stop al chance of achieving the 3+1 Plan (Or at least delaying it).
- There are three factors to take into account when calculating your cash flow:
1- Your income
2- The property's income (After expenses)
3- The principle of trading capital for cash flow
- Remember: Building a portfolio should give you more enjoyment of life, not less.
- In the UK it it less and less likely that you will have a cash flow positive property unless you are buying a low-value property. The basic point is this:
Your portfolio is unlikely to fund itself from the beginning. To do that, you would need to put a massive deposit on each property, which would burn up capital very quickly limiting the size and speed of growth of your portfolio.
- In some city centre locations you may have to provide furniture. As always, do your due diligence and be flexible to change: the object is to get the property let quickly. Consider that an average futniture pack costs you £2,500 for a two-bedroom apartment.
- Monthly mortgage payement - I only ever choose interest-only payments.
- Total monthly profit / shortfall - This is the amount of total profit / shortfall per month. As an average, in the UK it will range somewhere between £500 profit through to £500 shortfall per property.
- Most people are primarily motivated by two things: the desire
to increase pleasure and, the desire to avoid pain.
- FOUR portfolio building strategies:
1. 7-10 Strategy (Buy 7-10 properties and hold them for 7-10 years)
2. 1-2 Stop strategy (Buy a couple of properties and stop investing)
3. 5 and HOLD strategy (Build your portfolio to FIVE and hold off investing further)
4. The question mark strategy (How many properties do you need to fund your lifestyle)
- A little saying i have always remembered on how to be successful:
step 1 - Learn how to do the right thing.
step 2 - Do the right thing
step 3 - Repeat step 2 until it isn't the right thing anymore, then return to step 1.
- Remember, it's all about
Set and Forget. The better you
Set your portfolio up, the more you can
Forget the portfolio on an ongoing basis.
- Your 3+1 Plan will give you the pension you wanted, buy achieving 5+ properties tends to open your eyes to the lifestyle possibilities. It's also about the time when you stop talking in terms of
how many properties you own and start talking about
how much they are worth.
- Investment Properties, You should never pay your mortgage down on these, and you should always opt for interest only. That way your mortgage balance will stay the same throughout, but your value will double, effectively cutting your mortgage in half or more. (on 7-10 plan)
- The simple way of explaining a quite intricate set of dynamics
is that is shoots up, stagnates and then shoots up again.
- There are four phases:
1. Steady / Watch Cash Flow
2. Stagnate / Buy
3. Galloping / Buy / Remortgage
4. Galloping / Restructuring
- I remember Peter saying that you can make the most money in property when prices are going down. He went on to say that this was not because the prices were actually going down, but because everyone was talking about them going down. My experience has been the same.
- Lack of cash flow will cause your property to be repossessed, but a lack of capital or negative equity will simply stop you from buying more.
- The goal of investing in property is to make money, lots of money, to ease the stress of day - to - day life. The essence of achieving this is actually very simple, and it just needs you to follow some or all of these straightforward strategies.
1. Buy property and flip it
2. Buy, complete and sell
3. Buy, complete, let and hold
- It is vital that you realise that you are an investor not a landlord.
- Strategies for second hang property:
1. Buy, hold and let
2. Buy, renovate and sell
3. Buy, renovate, let and hold
- The most important strategy to be aware of at all time is never to buy above or even at the true value of a property. Astute property investors understand that the best profit is made when you purchase. (though the story of his Newcastle flat making a loss every month contradicts this but thats just me being 'mean' and this point i think is absolutely spot on)
- Whatever you do, do not listen to estate agents who tell you to 'buy now and wait for it to go up,' that 'it's a hotspot,' or that it has 'huge potential'. Make sure you have an
independent valuation performed by a reputable company and then negotiate a discount off this value.
If you cannot get a discount, then do not buy.
- One of the best financial traits of an investment company is their ability to negotiate discounts on bulk purchases. Much the as going to a supermarket, you get a special discount when you buy bulk. It's exactly the same principle in property.
If you walk in off the street, I always assume that you can negotiate at least 5% discount off any individual property, but a company can negotiate a 12% discount off the asking price of a property because they have reserved 10 units. In some cases discounts can be between 5% and 35%, depending on the market.
- Should you buy from a property investment company? Personally, i've only ever bought through this type of company.
- I no longer worry about running out of money or hanging around for my next pay check. Something changed in my life. I moved from living pay check to pay check to living a life by design. 'By Design' i mean 'My design'.
- If you are living pay check to pay check, then you need to do something different, change something.
The definition of stupidity is doing the same thing over and over and expecting a different result.
- The one thing I learned through running hundreds of seminars and consulting sessions is this:
The people who get what they want are the people that know what they want.
- You may not want to fly helicopters, but i challenge you to pick your ONE BIG THING this year and achieve it. It may even be buying your first property!
Think back to last year.
What did you really achieve? Was it just another year in your calendar, or did it see you doing something amazing? Maybe you did. If so, that's fantastic!
But yesterday is the past and, as they say,
'When your past is more exciting than your future, you're a has-been!'
- How do you achieve this ONE BIG THING? Simply work backwards from the goal and focus on doing the little things.
- I have a saying that i use with all of my investors.
'If you don't have a purpose, someone will give you theirs!'
Things i'm taking from this book:
- This book makes property seem so simple, whereas i'd love it to be as simple as it sounds, i'm not that naive. However this has lit the fire inside me to pursue property! and the letting side of it, with the principle of rent covering mortgage and build up whats left after expenses to look into more properties.
- For me this book reads and should have a statement or a footnote at the start that says 'This book is only useful if
1) You already have your own house with a mortgage that you can re-mortage and get some equity out
2) You earn between £30-40,000 per year!
As throughout the book he talks about examples like 'i released £70,000 to invest into another....' But i was left thinking.....
If i were to use an analogy of a baby going through the generations....
- crawling - walking - runnning - sprinting
This book is designed and aimed at people who are walking - running
(So if like me your not IN THE PROPERTY GAME don't start here, we need to start off crawling)
- History shows house prices have double every 10-15 years! so if i could get the right property, and can rent it out covering the mortgage and leaving me positive cash flow! Not only would that be a winner, but then also having the capital appreciation on top would be a bonus!
- My property portfolio would be run by me and the budget controlled by me, and not handed over to a stranger to play with.
- When a property sells all profits come directly to ME, after tax and not dribbled to me like a retirement plan!
- You can get FAR MORE out than you put out with LEVERAGE! 20-30% in and get a bank or lender to put up 70% (The problem is getting that 20-30%)
- A great insight sometimes not believable BUT the spine of the book does ring true for me anyway and if i were to rate this out of 5 stars it would get a solid 4.5!!
You can buy this book here:
amazon.co.uk
Get the book free from here:
http://www.3plus1planbook.com/free/
Check out brett here:
youtube
Check out the website here:
http://www.ypc-group.com
Portfolio Management System:
www.ezytracproperty.com (for 3 or more properties)
