If I could pass along just one lesson on investing in the UK, it would be...
Hey guys,
I had the most wonderful experience today... English High Tea at the Dorchester in London!
Now I am not here to tell you about my 4 hour lesson in English heritage, but I thought it was important that I tell you about one of the conversations I had with Lenza Breytenbach (my solicitor) over tea.
I was telling her that if I could pass on just one lesson in investing in the UK, it would be this:
NEVER Believe the rent you are told you will receive!!!
Let me say that again:- Never believe the rent you are told you will receive from a property company, a valuer, a lettings agent, in fact no-one. Absolutely no-one!!!
So what does this mean?
The UK industry is rife with stories of investors who have bought property on the promise of inflated and unattainable rents, every week I read stories about people who can no longer afford to fund the shortfalls given the current interest rates.
In fact interest rates are not the real problem. The real problem is the blatant lies that many companies are telling about expected rentals that will be achieved. Blantant lies to make that commission, to make the deal seem more attractive than it is. Blantant lies that says that a property will be cash flow positive when in fact it will be £300 a month negative. Blatant lies that are putting so many people's futures in danger and their current lifestyles at risk.
Never believe the rent you are told you will receive is more than just a warning. It's a motto, a creed that you should live by. You will need to do one of two things. First of all understand my priniciple of the 2 rents of property. Once you understand this you will at least have some protection against the bulls*&t some of these companies will try and feed you.
The next thing you need to know is how to work out the Realistic Market Rental.
Selling up - Managing down
Back when I first learned to sell property as an estate agent l remember sitting in the training room and being taught about over selling up to get the business then managing the client's expectations down. It is one of those tricks of the trade that has stuck with me throughout my life. I call it "Sell up, manage down" and it works well to help you find out the realistic market rent of a property.
Imagine you're a landlord. Obviously you want the best rent possible on your property, so the good salesperson that I am (and knowing that all the other agents want your business), I may tell a little white lie and overstate the rent I really think you will acheive. In doing so I now look really really good compared to the other agents trying to get your business.
Basically l am going to sell you on the highest amount l possibly can within the limits of my ethics and possiblity. Now assuming all other things being equal which agent will you choose? The one that is offering you the highest rent of course...
So now that l have your business what do l do? Piece by piece, meeting by meeting, I manage downwards your expectations of the rent you'll receive. l'll repeatedly, but very mildly, attack your property, the area, the current market and of course l would build up the competition. "My goodness there are some good properties compared to yours on the market."
The key to this is gently gently, softly softly. If you jump in a hot bath, you'd jump straight back out. But if you ease in bit by bit, you'll be in there in no time.
So how does an agent use this tool against you?
Quite simply if they realistically expect you to receive £550 per month they'll sell you on £700 per month and then try to drop your expectations each time you meet. It never ceases to amaze me how many times we reject an offer of £500 in week one but in week four we accept £510.
The only accurate way to combat this is by conducting your own full due diligence.
Turn it around to your favour! Sell down, manage up!
The agent may sell up and manage down but they play the opposite game when it comes to having a tenant on the phone. Here they play the sell down manage up game. Quite simply they will sell the appointment using the cheapest property and then once they have you they will manage you up. The result is you spend the maximum you could afford.
What is important to understand is that somewhere between the "Sell Up, Manage Down" and the "Sell Down Manage Up" figures, you'll find your realistic market rental.
So let's illustrate the strategy...
I call the agent from a landlord's perspective and get quoted £750 per month (sell up). I then call back as a tenant and get told £600-£650 (sell down). So, I'll expect that somewhere between £750 and £600 should be my realistic market rent. If you then use the £600 for your cash flow, you'll never go wrong!
Live with passion,
Brett Wood
PS. If you have fallen foul of unethical practices of these companies and need some direction then give my team a call.
PPS. Just a quick plug for us. At YPC we guarantee that the rent we say is the rent you will receive otherwise we will pay you the difference guaranteed. Check out the details here.