In this episode, I'm going to talk all about ethical win-Win Property investing. What is it? Why should you be using it? How do you do it? I'm going to give you a recent case study of one of our Mastermind students and also I'm going to give you a heads up of a certain type of property situation that you'll find in the current market right now that I believe you should look for.
What is Ethical Property Investing? Well, if you've listened to my podcast and read my book, property Magic, you'll know one of my favourite ways of finding great deals is looking for motivated sellers. Instead of looking for properties, I look for properties for sale where the seller might be motivated. What that means is they have some sort of property problem. Now I'm not talking about trying to find people who've got a problem and trying to take advantage of that. In fact, completely the opposite. I'm talking about finding people who've got a problem and because they have a problem, they're going to be more motivated in terms of the amount they'll accept for that property or the terms of the sale for that property.
want to find an ethical win-win solution that's good for them and also good for me. Now it's important when you find a motivator seller to ask them lots of great questions to really understand what's the true problem, what's going on and what's important for them. And once you understand what's important for them and what they're trying to achieve, you can hopefully find a good solution that's going to work for them and obviously work for you. So it's really important you've got a really good toolkit of different solutions you can use in different situations. If you go into every property negotiation with just one tool, well that's probably not going to work. You need this complete toolkit of different strategies. That's why a lot of people come on our three day Mastermind accelerator, which teaches you all of the strategies from our year long mastermind in just three days. If you haven't done that programme, I really recommend you look into it.
Ethical Investing With Motivated Sellers
You look for someone who's got a property problem. A good way of finding property deals is obviously getting online looking for ties listed with estate agents, or you can go direct to vendor for properties that are off market.
I want to give you a little bit of a case study about one of my recent masterminders who've just followed exactly what we taught how to do and I'll talk about the deal and how it's structured and see how she's done this amazing deal.
Mastermind 33 Student - Samantha
Samantha is on our Mastermind 33 programme and she's been very successful finding deals online, already listed for sale. She uses some software called Property Filter, which is excellent software that we buy for all the people who are on our mastermind programme or who are doing our 12 month coaching. It's a great way to find deals. The software is designed based on the learnings from our three day mastermind accelerator to look for motivated sellers. So it looks on all the different property portals and it finds properties that have, for example, been sold and the sale's fallen through, or maybe they're selling the property for less than they originally bought it for, or maybe they have listed it for sale and also for rent. So all these different circumstances where they're struggling to sell this property and they're obviously going to be motivated and open to a slightly creative solution.
Samantha's has been able to achieve a number of deals in her 12 month programme. Actually she's about, I think seven months, eight months through the programme. Now she's already done a few deals and this is the latest deal that she did in November, 2022. And I'm telling you about this particular deal because it was a deal that she found this deal, she spoke to the owner and the deal was signed and sealed. She had the keys in her hands within a couple of weeks.
So the strategy that she was using is a very quick strategy. She also didn't need to go through the process of her getting a mortgage, which can take months and months. Samantha didn't need to put a big deposit in. So let me explain the scenario. So she found this property that was listed on the market for sale and also for rent.
She wanted to view the property and was able to look around the property when the owner was there, it was a former rental property and she met the landlord. The owner had owned the property for 20 plus years. He'd rented it out, he'd had a tenant in there on a very low rent. Now if you know anything about property, you'll know that rents have shot up massively over the last few years and many existing landlords are not getting the maximum rent they could. You'll also know over the last 20 property year, 20 years or so, property prices have doubled and doubled again.
So this landlord bought this property many years ago and he recognised that actually he wasn't getting the full market rent and he recognised the market had gone up significantly. He thought what he wanted to do was when the current tenant moved out, which they did recently, he decided to completely refurbish the property, get it back up to full spec and then put it on the market to sell. That's exactly because he put a lot of money into the property, which he had, he was prepared to do. He wanted to maximise the sale price, which many people do where they're selling property and he'd put it on the market and it just wasn't selling. As you know, property market generally is coming down in most areas. It's hard to sell property, particularly if you're trying to trying to get the full market price. So after a while of not selling it, he decided to put it on the market for rent. Now the original rent he was getting was only £700 and this was a four bedroom property in Manchester so well below market rent. He wanted to get a lot more rent and it's when it was on for sale and for rent, that's when Samantha spotted this property.
She reached out to the owner, she went and had a look and she said to the, look, I'd love to buy this property, but actually I'll be interested in renting it in the meantime before I buy. The landlord had been achieving £700 pounds in rent previously. He had put the rent up to £1400 pounds, which given what the property was, that was a very fair market rent for this property as a single let property. So Samantha said, well, I'd like to take it on and I'll give you the full market rent. The landlord was very happy because he was making a lot more rent than he was making previously, and she agreed to buy it for pretty much the market price.
Now he'd put it on the market for 270, She negotiated a bit of a discount down to 250, which was still a good price of him, more than he would get if he sold it in the market right now and a lot more than he'd originally bought it for 20 years ago. So in other words, this landlord has got Samantha taking his property on giving him a guaranteed rental income, no voids, no hassle, no management costs. So he's making his 1400 pounds every single month. He's only got a very small mortgage on the property.
He's making lots of profit on that and he's got pretty much the full market price. But Samantha's used a tool we teach called a purchase lease option. It's where she controls the property for the next five years. She can buy anytime in that five year period. And she's fixed the price today at 250,000 pounds. Now that's probably what it's worth. Maybe it's worth slightly more than that. She's got a slight discount on it. But the whole point is today's full price might well be a discounted price in the future when prices go up. I believe we've got a little way for prices to come down still probably into 2024. Then we'll see property prices start to up maybe even by the end of 24.
So in five years time, that property will probably worth more than £250,000. But that's the price at which Samantha can buy the property and in the meantime she's going to rent it out a service accommodation.
"So the strategy that she was using is a very quick strategy. She also didn't need to go through the process of her getting a mortgage, which can take months and months."
Using a Lease Option To Control Property
Now she's already got some service accommodation units. That's where you've rented property, very much short term. She knows exactly what she's doing with that particular strategy. She's just used a purchase lease option to control it. And the important point I wanted to get here was that this is a property that's just been completely refurbed. She needs to spend not a single penny on refurbishment. She doesn't need to put a deposit in. She's paying a pound to get this option. All she's paying for is her legal costs of probably about 1500 pounds for the contract. You must make sure when you do things like options, you do it through solicitors. This can be a challenge sometimes because many solicitors don't understand what a purchase this option is. So you've got to use the right power team and she's then renting it out in service accommodation.
This property, which she doesn't own, which she doesn't have a mortgage on, which she doesn't have to put a deposit into, is going to make about 2000 pounds profit every single month. Let me say that again. 2000 pounds profit a month, about 24,000 pounds a year over the five years. This one deal is to be worth about 120,000 pounds of profit to her. Now obviously she has to pay tax on that, plus there's the potential of some capital growth on that property over the next five years. Now, if she doesn't want to buy that property, she doesn't have to buy that property. She can walk away if she wants. That's the benefit of an option. However she wants to buy, she might even buy before three years because what she's paying to the landlord each month for 1400 is actually more than it would cost her on a mortgage. So what she's going to do, she's going to operate the property for a period of time, use that profit as the deposit to actually buy the property, then buy it with a normal mortgage and reduce the amount she's paying on a monthly basis and thus increase the amount she's making of monthly profit. So this is a textbook purchase lease option.
She's found someone who's motivated, it was found by looking for property that was on the market for sale and for rent. So that means that they want to sell the property, but don't want to hold it long term, but is intending to rent in the meantime until he sells. And that's exactly what she's doing with a purchase lease option.
Cash Flow and Return on Investment (ROI)
Lease options don't work in every circumstance. They only work where someone doesn't need the money from the sale now. So you really need a full toolkit. And if you haven't done my three day mastermind accelerator where we teach all the strategies for my year long mastermind programme, I highly recommend you look into that. You can contact my office for full details about that residential training, which you do it in small groups, up to 50 people. We only do it six times a year. If people are interested in our mastermind, no one can just pay to do Mastermind. We want 'em to do our three day accelerator first just to make sure that Mastermind is right for them. 'cause there's a big commitment of time and money to do Mastermind. With that in mind, actually, we currently have a scholarship, which we're offering one lucky person who enters scholarship is going to win a fully paid place on the next mastermind programme, which starts in April, 2024. So hopefully if you're on my database, you would've had some emails about that. You definitely want to watch the scholarship webinar to find out how to enter that scholarship. And as well as the first prize, there's also 30 other runner up prizes, some of which are discounted tickets to our mastermind accelerator or discounted tickets to our three day strategy implementation live, which is coming up this month. So lots for you to check out, lots of resources to help you.
The final thing I want to say is I believe there are going to be lots of landlords who are in a similar situation, landlords who've had really good capital growth over last, over the last 10, 20 years, they're thinking about selling some of their properties just because of the market conditions, because of all the new regulations coming in because of the, the challenges of taxation, et cetera. So lots of retiring landlords in the market at the moment. Some of those landlords are selling the properties as they are. So there's an opportunity for you to add value to the property through refurbishment. But some landlords recognise they're going to get a better price if they do the refurbishment themselves. So I think you'll find some properties on the market that are fully refurbed, maybe for sale, they were owned by a landlord. Now if they're up for sale and for rent, they might be very open to a purchase this option, even if they're not on the market for rent at the moment. If it's a nice completely refurbished property, they're trying to get the full price, they're going to struggle to sell it at the full price.
In the current market conditions, you could suggest you would like to buy it, you'd like to give them the full market price, but would they be interested in renting it to you in the meantime, for a good fair market rent with no management fees, no maintenance, no hassle. And for some landlords that might be very attractive, they probably don't need the money now, which are on the main criteria when you're looking for people who might want to do purchase these options.
So my recommendation is get out in the market, look for properties, speak to a state agent. Look, have you got any properties where landlords are selling and they've just completely refurbished their properties? So it's ready to go. If you ask for those kind of properties, I think you'll find some of them. And not all of them will want to do options, but if you position it in the right way, some of them might be very open to doing purchase these options.
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