Soundbite Episode – I have over £250,000 to invest in property, it should be easy right?

Have money, make money…it’s easy right? Well, maybe it’s not quite that straightforward, but it will certainly open up a different set of opportunities when compared to not having a large sum to invest. Today, we shall consider how we could go about property investing with a starting investment fund of £250,000 or significantly more. I may even talk you out of investing in property altogether…listen in to find out why a property investor on a property podcast might do that…

Resources mentioned

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Today’s must do’s

If you have a starting investment pot of £250,000 or significantly more, then consider which strategies outlined in today’s show may suit your personal situation the best. If you want to discuss some of the possibilities in more detail, then just get in touch.

Please continue to send in your thoughts and ideas for content and themes that would fit into the ‘New Beginnings’ brief that I outlined for my upcoming YPN column: admin@thepropertyvoice.net

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Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com in case you would like to get yourself a copy to accompany this series

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Transcription of the show

Hello and welcome to another edition of The Property Voice Podcast, my name is Richard Brown and as always it is a pleasure to have you join me again on the show today.

As you know, we have been running a mini-series that answers the question…I have £xk to invest in property, what should I do?

Today, we shall consider how we could answer that question where X is greater than £250,000…it may even be a 7-digit number.

This may sound like things are going to be easy…but is it as straightforward as: have money, make money?

Let’s find out…

Property Chatter

I am constantly hearing from people looking to make a start or change direction in property. Some of these people have some money behind them already, many do not. Occasionally, I hear from people that have rather a lot of money available to invest in property that have acquired this in a different way.

No, I am not talking about cash in suitcases dirty linen to clean and here…I won’t have any of that kind of thing I can tell you!

Often, people with a reasonable sum of money available and seeking information on how best to invest it have acquired such sums in a variety of very legitimate ways, such as:

• An inheritance, trust or gift of some description
• Business sale or profits
• Disposal of valuable assets, such as other property, shares or if you are very lucky a rare painting found in the attic!
• Bonuses and share options from employment
• Diligent savings and investment in other areas
• And so on…

Many people have seen and heard of the potential to earn reasonable sums of money from an asset that many people at least understand a little bit…property. We do all have to live somewhere and so we are very familiar with property as an asset…as opposed to a commodity derivative, currency trading and spread betting or the vagaries of large company accounting practices…such as Enron or BHS say.

There are some very good reasons why property is appealing as an asset class, such as land being a scarce resource, the ability to leveraging up our purchasing power, the opportunity to enjoy both capital gains and income and of course the long-term benefit of compound growth.

So, it makes sense to at least consider property investing if we have a significant amount of funds available to invest. As to whether we should put it all on black and invest the lot in property…I am not so certain that would be the best thing to do…which may come as a surprise to hear on a property podcast from a property investor!

Personally, not all of my investments are in property, I have some money invested in other assets as well as part of a diversified approach to investment. However, rather than entering into the realms of financial advice…I won’t do that and instead suggest that a conversation with an experienced wealth manager could be a useful thing to do as well.

With the financial advice wealth warning out of the way and assuming I have not instantly talked you our of investing in property…what can we do with a chunky amount of change of the order of £250k, £500k, £1m…or more?

I am going to start by saying exactly what I have said to people with lesser sums of money available to them…start with knowing what you want to achieve (the why and what) before deciding on the strategy (the how).

Knowing what we want and when we want it is crucial to understand before we do anything else.

We should therefore start with goals and purpose and then consider strategy later on.

OK, so having put you off with the threat of speaking to a financial advisor of some description and even stashing at least part of your cash into other investment vehicles and asset classes…let’s have a look at what we could potentially do in property with a starting fund of at least £250,000.

Here are just 8 potential strategy ideas to consider:

1. The safe as houses no debt income-protection model

Yes, this is the buy one property with cash and enjoy the rental income at an annual gross return of 5% to 7% from a single let property typically. Every £250,000 would generate around £15,000 per year in gross income when buying property with cash. If you are looking for a steady income, with a low risk profile, then this may be the perfect plan as I said before with the modest sized pot of around £150,000. You may not really care what happens to house prices and instead just rely on the income, which barring an Armageddon event is likely to be pretty reliable I would suggest. As a side note, in the event of Armageddon, we probably have bigger concerns…like survival to worry about! Any capital growth on top of the income would probably be a bonus to enjoy one day or possibly a legacy to leave behind instead.

If we select a good location with a low maintenance property, it should be fairly worry free to manage too. It’s almost set and forget.

This is a fairly secure way of protecting your capital position whilst enjoying a modest income from day one.

I guess the only problem with this is…when £15k income for every £250k in your investment fund is simply not enough. After all, the average income in the UK is around double this now and this ignores a degree of lifestyle and luxury spend that many of us would welcome and appreciate of course.

2. The steady long-term debt pay-down model

This is a variation on the safe as houses model, only this time we buy several properties with a repayment mortgage and just wait until they are repaid or alternatively throw all of our net rental profits at one property to pay the debt down to more quickly.

This would allow us to leverage the value of our starting fund up to something like £1m for every £250k in cash we begin with and so enjoy the rental income and capital growth on a much larger sized investment fund.

It is a long-term strategy to fully realise the income, but ignoring inflation, once the mortgages are cleared that initial £250k should generate the equivalent of around £60k per year as a gross income, which sounds a lot better than £15k doesn’t it?

The more risk averse can sleep easier by limiting the level of borrowing to a comfortable level.

3. The higher income property investment model

This is a variation on the safe as houses model, only this time we buy properties that lend themselves to higher income returns instead.

Whilst it comes with more management and often relies on understanding a different type of rental model, strategies such as HMOs, serviced accommodation and holiday lets are such examples.

As I mentioned, the top line rental income is often potentially higher, however, the key success criteria in all of these higher-income models is the occupancy rate and as such it starts to change the model away from a standard BTL one, into more of a hotel-type model the further away from a long-term AST we go.

Different rules and regulations come into play, as do other barriers to entry and potential threats, so it is not just a case of listing a property on Airbnb and getting rich Your browser does not support the audio element.