Property Advice – Be Careful Who You Listen To

One of the reasons I'm doing this is because over the last 10 years in the UK, the property market's pretty much boomed. It's been very easy to invest in property and make money, but we know the property market doesn't always go up. Sometimes the market goes up, sometimes it comes down. There are lots of people popping up, calling themselves property coaches, property mentors, and that's fine, that's really good, there's lots of choice for people. The problem is many of these people have only been investing themselves maybe five or six years and have only been teaching other people for one or two years; they've only been doing it in a boom market. Over the last 25 years, I've seen the market boom, crash, boom again, crash, and I really understand what happens in a property cycle and how you need to adapt your strategies to take account of the property market. So first of all, with property changes, be careful to understand how long have they been investing. What's their track record? Have they got many successful clients that you can learn from and just check them out? That's the first thing.

The other thing that's a hidden danger when it comes to learning from other people or getting advice from other people is that there are certain experts, people you would think know what they're talking about, that may not give you correct information for your property investing. For example when I bought my second property, my first investment property, I bought a house in 1995 and I stayed there for a number of years. In 1998 I bought another house and when I moved into that, and I turned my first property into a student HMO property. I had a financial advisor from the bank I banked with at the time and he was one of the top financial advisors in the whole of the Midlands area. My bank manager, when you knew who your bank manager was, had said to me "Simon, do you want to have a chat with a financial advisor?”. I had some money in my business bank account because I had a part-time business running student nightclub events. I wasn't spending much of my salary because I had my tenants covering my bills. So I had quite a bit of money, I decided to buy another property and so my bank said, "Yeah, we'll send this guy around." This guy came out, he was a really nice guy, we sat on the sofa in my home, and he helped me with my pension and some insurance, things I didn't have in place. Then we got to talking about property and I told him I really wanted to buy a new property to move into. Now this financial advisor, a guy called Kevin, assumed I was going to sell the first property to buy the next property. That's what a lot of people do when they move up the ladder to a bigger house; they sell the first one to give them a deposit to buy the next one. I didn't need to do that because I had money in the bank that I could use for a deposit to buy the second house. When I explained to Kevin that I wasn't going to sell the first one, I was going to hold onto it, rent it out to students, and that I was going to move into the next one with my friends, he said to me "Well, that sounds awfully risky to me."

Now I must admit at the time I was maybe 28 and this guy, who was much older than me and one of the top financial advisors, was telling me how risky it was renting this house out. I must admit it kind of stopped me in my tracks for a day or two and I had a few sleepless nights. I thought "Well, maybe I shouldn't, maybe I should just buy this house and sell the first one and pay down the mortgage, have a nice low mortgage," because I'd have more money and that's a good thing to do, right? We all know that we're told that debt is a bad thing and you should pay down your mortgages. So I really wrestled with this.

What I remembered was I'd met my student landlord, the landlord who owned the property that I lived in when I was a student. He lived on a massive house on one of the poshest roads in Birmingham called Farquhar Road and he had a huge house. I remember asking him, as a kind of a cheeky 19 year old, when we first moved into the rental property "Excuse me, I hope you don't mind me asking you, what do you do for a living?" And he said, "Well, I used to be a solicitor, but I'm now just a full time landlord." I didn't really know what that meant at the time but when we were living in his house, he came around a couple of times, I had a cup of tea with him one afternoon and he explained that he had all these properties and that they had done very well for him and his family. I think something went off in my head, and I thought ‘Yeah, maybe I want to do that one day.’ I think that's where I got the idea of buying these properties from. Yet this financial advisor, who you think would know, was saying that's really risky.

When I look back now I realised that was my first lesson, that you need to be very careful who you take advice from. Now Kevin was a lovely guy, really smart, very successful in what he did, but guess what? He didn't know about property investing because he didn't have any property investments. He only had the one property and that was his home. It was a nice big home, he was successful, but he didn't know what he was doing. He was extending his experience into an area he didn't really know about. I want to warn you because you might have some professional advisors. Accountants, solicitors, who are all very clever people and they want the best for you. They want to protect you and they might advise you against doing certain things because they're trying to "protect you," but actually it's coming from a lack of experience. So I would always ask someone who’s giving you property advice, "Well, can I ask you, are you an investor yourself? How many properties do you have?." In fact the number of properties is not as important as what they actually do for you. I would rather have 10 properties that give me a really good income than 100 properties that are only just covering their costs. So the number of property is not important, but what your properties do for you.

Unless someone has rental properties and they know what you're trying to do, they're never really going to understand where you're coming from or what you're trying to achieve. So when you put your power team together, your advisors, your mortgage broker, your solicitor, ideally you want people who are actively investing in property themselves so they really understand it. We've had estate agents, mortgage brokers, chartered surveyors, builders, all of whom are expert in their relevant fields, come onto my Property Mastermind Programme and they've been blown away by what we’ve taught them because it's outside of their area of expertise.

Let me give you another example. So an ex-girlfriend of mine had a property in London that she'd lived in for a number of years. She then went and lived overseas, she worked overseas, and so she rented the property out. When she came back to the UK, she decided she didn't want to live in London, her parents were based in Nottingham. We met, I was based in Birmingham, so she moved into Birmingham and we eventually moved in together. She decided to sell that property so that if we were going to buy a house together, she could put some money in as a deposit with the money I was putting in, which is great. She put the property on the market and sold very quickly. Her accountant had his own practise, it was a one man band, he did it all himself, but he was a former tax inspector for the government for HMRC. So you’d think, a tax inspector for HMRC, he's going to know all about taxes. She sold her property and when you sell a property, if it's your own home, there's no capital gains tax. But because she had moved out and rented it out for a while, there was some capital gains tax to pay. He contacted her and said, "Well yes, there's four and 1/2 thousand pounds of tax to pay on this property.” I looked at it and ran the numbers, and I've spent a good amount of time and money educating myself about property tax because when you make lots of money, you want to legally minimise the tax you pay as that's what all rich people do. We'll use the tax laws to our advantage. So I'd studied this and I understood it and she told me the figures. I thought, "No, I think that's wrong. I think there are certain allowances you can use where you don't have to pay any tax." I said, "Oh, I'll ask my accountant."

She said to her accountant, "Well my boyfriend thinks, that what you've calculated for the tax is wrong," he said, "Don't be silly. You know, I've been doing this 20 years my math is right." He came back to me and I thought, "Okay, well maybe I've got it wrong, because I make mistakes sometimes." I looked up my books where I've got some information about this and checked and thought “Oh no, no, I'm pretty sure that because she lived in this house, it wasn't just a rental, there's some personal landlord relief she can get.” We went back to the guy and he said, "I've never heard of that." He said, "I've looked on HMRC website, I can't find anything about it." And he was right, on HRMC website there was nothing about it. So I thought, "Maybe I'm wrong." Then I went and asked a property tax expert I know. He said, "No, no, you're absolutely right Simon." We went back to this accountant and he said, "Let me ask around," he asked around he came back to us and said, "You know what? You're right, I've been an HMRC tax inspector for 20 years, I'd never heard about this thing," because he wasn't a property tax specialist. He said, "You're right, actually there's no tax to pay." So my ex-partner would have the paid four and a half thousand pounds in tax that her accountant said she had to pay, because he wasn't a property specialist. So getting property specialists around you, people who really understand this feeling, that's their specialty, that's what you need to do to be a successful investor.