Brett Alegre-Wood's Blog

One of the largest websites of Free property investment education in the UK and Australia. Main focus is on New build and Off plan education.

Adventures in property refurbishment

Currently 5/5 stars.
1
2
3
4
5

Saturday, November 07, 2009

Hey guys,

Just thought I would tell you a couple of stories about some of my experiences in property refurbishments. The first is the story of a mate of Simon and me, the second unfortunately is my own story and the third is an unfortunate client of another property investment company.

Before I get into the intricacies of these let me explain why I am writing about property refurbishments.

It’s simply because people often compare new builds versus refurbs or second hand property. Comparing apples with apples is great but comparing apples and oranges while using the apple’s criteria is a disaster waiting to happen.

Many of you may not know but I didn’t start in new build properties.

I started buying second hand properties and doing them up before selling or remortgaging them. At the time it was the best thing for me, I had heaps of time and little capital. I was willing to pick up a paint brush, dig a hole, punch through a wall and build a fence.

For the most part it was a great strategy at the time, but one that I would only go back to again if I had to.

You see, after my first few properties I began turning into a smarter investor – the kind of investor who’s time is more important. I had enough money to pay other people to do things for me and most of all I had a life outside of my renovations.

That’s how I moved into new build property.

It was easy. I didn’t have to spend a great deal of time and despite the main criticism which was they were overpriced I found that I was a good negotiator and therefore could buy them at a great price.

I rarely had problems because the property was new and the tenants tended to be better.

Understand that I’m not trying to sell you you the virtues of new build. Indeed, I am living proof that new build works just like any strategy, but only if you understand how to do it properly.

Ok, so here’s the first story…

Simon and I had a aussie mate, Steve who earned £120k per year as a consultant. He decided to go into property development so he began the research phase which ended up being 3 months. This is quite a normal amount of time to invest to find the right deals and build the right relationships.

Three months in and countless hours later he ended up finding two deals in the same week. Great he thought, I’ll do both. And so begun a 6 month refurbishment project on each flat. He was smart enough to hire a team of Aussies and Kiwis to do the work for him, but even so, he pretty much spent the entire 6 months full time on-site. That’s right – he took a sabatical from his job to do the refurbishments.

At the end we went for beers. He was over the moon about turning a profit of just over £70,000 for the 6 months work, and as the beers flowed and we spoke more frankly and realised just how much time he had put into the project he began to realise (with a little bit of help from Simon and I) that even though the two projects that made him £70,000, he had actually foregone £60,000 income along with countless evenings, weekends, added stress from working with tradesmen and the stress of selling the property.

You see he fell into the biggest trap of property refurbishments, the one that they never tell you on the television shows.

It’s simply that you never value your own time.

Steve could have earned £60,000 in a relatively stress-free way in his normal job. Was the extra £10,000 he made worth the extra time? That’s for you to decide, but let’s just say that Steve hasn’t done another renovation after learning this valuable lesson.

So remember always factor in the cost of your time in the job before you get excited about the returns.

The second story.

Once, I bought a bargain. Worst house in the best street on the waterfront in the Gold Coast, Australia. The deal was such that I couldn’t lose. Yep – it was run down. Sure the pool was full of creatures from the black lagoon, but it was cheap and I had just made some good money from a previous deal so it meant I wouldn’t have to do everything myself – I could hire tradesmen.

Now don’t think for a minute that a tradesman in the UK is any different fron a tradesman in Australia. They all turn up late (if at all) and lack the ability to take responsibility for their stuff ups. It seems to be coded into trademen DNA.

Anyway, I scheduled all the works to take place over a 6 week period. Apart from a pontoon on the water nothing had to be built – it was mainly costmetic stuff that needed doing. So I thought to myself that I could take my previous profits and have the house looking ship shape in no time.

Day one began fine: the foreman and his team showed up. No surprise considering I was paying them the initial 30% up front. All seemed good they begun cleaning out heaps of rubbish. “Great”, I thought to myself and headed off to work to return later.

I arrived at about 2pm to see how my new home was looking, and no-one was there. To my surprise, the property was also left open!

I waited… And waited… And waited… In fact I waited 3 days before they returned.

Their excuse was they were just finishing off a previous job and that they would be onsite full time now and that the 6 week deadline was still fine.

After two half-days of work over 2 and half weeks, I sacked them. It also took me 2 months to get my money back and at one point I was physically threatened to get lost “or else”.

It doesn’t end there, the next guy I dealt with was a similar story, he would arrange to be at the house at 7am but wouldn’t arrive until 10am, always stating he had another quote or to see a client. This guy was a little better but still unreliable.

Can you spot the two lessons in this story?

The first is it ended up taking double the time and double the cost.

This is what I normally suggest people think about with a project. Can you afford double the time and double the cost? If not then seriously consider if it’s the right project for you.

People always deny that it could ever get this bad. Don’t forget that even the best tradesmen advise a 10% contingency, and that’s before they come to you trying to upgrade you to the gold taps.

Trust me – it’s amazing how easy it is to blow a budget!

Every “horror story” television show starts the same: “they started out with a estimate of £5000″, and we all know how they end.

The second part of this lesson is underestimating the time it will take.

Investors always underestimate the time it takes to sell a property once it’s done. And even if you aren’t intending to sell, it only takes one tradesman to let you down, one delivery not to arrive and it throws the entire project back a week or four.

The second lesson is that if you are to do these renovations and refurbishments without stress you need to have a team of experienced tradesman around you. This can take some time to find and the truth is that you can never set and forget your project. You need to be on hand at every stage along the way.

So you need to build a team based on performance but always stay on top of their work.

Third story.

This is unfortunate story, but it’s a common outcome in refurbishments that a client doesn’t manage property or have another company manage for them.

In this story, the client paid £30,000 to purchase a run down below market value property on the condition that a “carefully selected” company will renovate the property after the purchase, leaving it ‘as new’ condition.

The problem is that there’s renovation and there’s renovation.

Which is the kind my client received? Unfortunately, the kind when corners are cut, finished are poor, and things are generally badly completed and not of the quality you would expect.

The property had damp that wasn’t solved, just painted over. When it rained the roof would leak. The radiators were barely screwed into the wall and after 3 months the only thing keeping them on the wall was the main oil pipe. Not exactly safe. The snagging list grew and eventually my client paid a professional snagging company to do a report but it was of no use. The company that had been carefully selected didn’t want to know about the problems.

In the end the tenant moved out which, on the positive side, allowed all of the issues to be fixed up but only after an extra £5,000.

The lesson is if you directly aren’t supervising the renovation or refurbishment, be very careful! It’s far too easy to have people take the short cuts. Then the short cuts become YOUR problem and can cost you an arm and a leg.

If you are thinking of refurbs or renovation then make sure to consider these things. They might just save you a whole load of time and frayed emotions.

But if you want the easy road, just choose new build. It’s a easy as a simple phone call with one of my team. Call us on 0207 812 1255.

Live with passion,

Brett Alegre-Wood

“Quantitative Easing” now, may mean inflation later...

Currently 3.2/5 stars.
1
2
3
4
5

Tuesday, February 24, 2009

Hey guys,

This is just a quick blog that to express my concern that some investors feel they are out of the high interest rate danger zone. This is not the case — you need to be aware that rates can easily jump back up.

Yes, low interest rates have been great for most people’s portfolios. In my case I have stopped having to fund my portfolio and am now making money a profit each month which I can tell you is a great feeling. But it’s not a permanent arrangement.

Let me explain…

The Bank of England has pretty much used up the value of dropping interest rates so quickly. It hasn’t resulted in a hoped-for turnaround and it’s commonly believed that it won’t safe us from a deepening recession either. So the government has to turn to other forms of stimulus — the main one being something called quantitative easing. In lay person’s terms it means printing more money.

But they don’t actually print more money…

If the government starts the quantitative easing process they don’t print more bank notes. What they do is borrow money through offering Treasury Bills (effectively taking on more debt) which is injected back into the economy. In the USA they are planning of splitting it two ways: tax cuts of 36% to individuals and government spending (normally in capital works and social programs) 64%. This money paid to families (tax cuts), and suppliers (construction workers etc) re-enters the economy at some point.

So the essence of QE is that all this extra money floating in the economy starts to stimulate the economy and the government gets about 60% of it back through taxes and other means.

The lag effect…

The problem with all action like this is that you get a lag effect, which means that the money being paid out doesn’t hit the streets for some time. The construction projects don’t finish straight away, etc. The recovery period can take months if not years.

The danger of inflation…

The problem created by QE is more money in the economy lessens its value, so it therefore buys less over time, and therefore we all need to earn more in order to keep up. This means wages, prices, everything begins to rise. And presto: we have inflation. And once we have inflation then the Bank of England will need to respond by raising interest rates which obviously will mean we pay more for our mortgages as investors.

Now I don’t think this will be a problem in 2009, but I do think 2010 or 2011 could see rates rising. It’s not certain when it’s going to happen, but it will, so you had better be prepared — especially if the economy starts to bounce back quickly.

Mortgage Costs Averaging…

The solution to all of this is to count all your mortgages as being at 6% interest rates or thereabouts and be putting the extra money you are making aside into your provision account, so that when rates to head back up you are sitting on a nice little buffer.

So, to sum up — this is not the time to be celebrating you survived high interest rates. That time is coming very soon. For now though, this the time to consolidate and prepare for the coming boom. It might be 2, 3 or even 4 years away but just as you can trust human nature (or human greed) you can trust that we’ll have another boom.

I have raised a lot of questions here, probably more than I have answered! Naturally, if you’d like to talk to the team about how the coming 2 years are going to affect your portfolio, don’t hesitate to give us a call on 0207 812 1255 and they will be happy to guide you in the correct direction.

Live with passion,

Brett Alegre-Wood

Developers 'Out of Stock' and 'Out of Options'...

Currently 0/5 stars.
1
2
3
4
5

Wednesday, February 11, 2009

Hey guys,

Well it appears that we’ve reached the tipping point in the property market.

Developers out of stock…

A number of our developers are now completely out of stock. This is not an isolated case — many of our developers are at critically low levels or have simply run out. The means that everything they sell will need to be built and in most cases they will only build once they have an exchange in place. It further reinforces my theory that we’ve “turned the corner” in terms of property prices at the middle and lower end of the market.

Developers out of options…

Adding to the out of stock challenge, many developers are now at the point where they must gain permission from their funders (the banks) before they can sell property at the type of discounts that we are asking for. In a lot of cases these funders are not allowing the developers to sell these properties - rather - they’re making them look for higher offers. Valuers are still being extremely cautious though, because properties are still being down-valued more than any realistic market drops. This has worked in our investors’ favour so far, but it’s now gotten to the point where we’re at the absolute minimum. Developers are preferring to sell direct than to do a deal that would see them losing huge amounts of money.

The off plan solution…

The solution to the lack of available and suitable stock is to turn to off-plan. That’s where you buy a property before it’s built. In most cases developers need exchanges in place before the banks will lend them the money to actually build the property, so to get sales they are talking with companies like ours to get the first 10% or 20% of each development sold.

As an incentive to these initial investors they will be offering some great discounts off the current values. This is your next opportunity - one that will become more and more available over the next 2, 3 even 5 years.

Looking at all of these factors and the monthly increase last month in HBOS figures by 1.9% it all leads to good news for those investors that bought over the past 6 months and even better news into the future.

Live with passion,

Brett Alegre-Wood

What does a Ninetendo DS and property investing have in common?

Currently 4.285714/5 stars.
1
2
3
4
5

Friday, January 02, 2009

Life is like a video game in some respects!!!

Arlene bought me a Nintendo game for my DS for christmas, so I sat down tonight and started one of the games that came with it — one of those lateral thinking games that gets more and more complex at each level.

When I first started I was terrible — the first level must have taken me 15 minutes — but about 3 hours into the game I am about to start level 37.

Now obviously, if you’d put me on level 37 straight up I’d have had no chance of completing it.

In fact I’d probably have put the game down and never picked it up again.

But because I started on level 1 and worked up through each level gradually, each level was only a little harder than the next. By the time I got to Level 37, it was tough, but totally possible to complete.

So, my point: property investment is no different to this.

Everyone I know started at level 1 and worked their way up to 37 (and beyond!) at their own pace. Sure — some people never got past level 3. And others got up to level 15 before needing to stop and catch their breath. The important thing to realize is that everyone needed to work through each level.

Property investing is the same — you master one level before you move to the next. Never compare yourself to the person next to you and wonder how they made it so far. Be assured that at some point that they were in your position, thinking ‘level 37? No way!‘

Sometimes, all it takes to reach that next level is a bit of support and education, and that’s where we excel. Our education is free and we offer great tools to help you reach the next levels of the property investment game. In fact, it’s all available on our site after you sign up.

Alternately, if you’d like to speak with one of our team about your current position, or just would like some impartial advice on your property portfolio, then give us a call on 0207 812 1255 and we’ll be happy to help out.

Live with passion,

Brett Alegre-Wood

Brett Alegre-Wood

Recent Posts by Brett Alegre-Wood

Subjects Covered by Brett Alegre-Wood

Brett Alegre-Wood's Blog

Adventures in property refurbishment

“Quantitative Easing” now, may mean inflation later...

Developers 'Out of Stock' and 'Out of Options'...

What does a Ninetendo DS and property investing have in common?

Bookmark This Page

Tag, share or bookmark this page: