Our 700th episode special!

0:02Hey everyone, Rob B here with Rob D and you are listening to episode 700 of the Property Podcast. Yes, this is our 700th episode. So how are we going to celebrate? Are we going to talk about ourselves for 30 minutes? We'd love to, but we know you won't listen. So we're going to give us something far more valuable. We have taken what we believe are the seven laws of property investment in the last 700 episodes. Each and every one of these laws is not optional. If you fail to do one, you will fail in property investment. But we're going to deliver it to you. You can save it and refer back to it.

0:39It's going to be one of those episodes.

0:47Welcome to the Property Podcast. Thank you for joining us. In case you don't know, we run a business that arranges more than£100 million worth of property deals for our clients every year. You can find out about that at propertyhub.net slash invest. And as a result of having been doing that for 13, 14 years, long time, and publishing 700 episodes of this podcast, we have identified the absolute key. We have distilled everything you need to know to succeed in property down to just seven laws. And we're going to share all of those with you in just a moment. It's time for our new story of the week.

1:17And this week, we keep you updated on all things Renters' Rights Act because we have a special milestone. We've done 100 days, Rob, but there's been an interesting news story this week about pets. And no, this has not become the wildlife podcast I'm going to show you. Pets, when it comes to your tenants wanting pets in their properties. Yes, and one of the things that landlords were worried about before Renters' Rights came into effect was that suddenly your property would be teeming with cats, dogs, hamsters, and goodness knows what else. There wouldn't be a damn thing you could do about it because if tenants would have the right to request a pet and the presumption is that you would say yes you would need a defensible reason to say no so far that appears not to have been the case according to this survey 93 percent of landlords have had no formal pet request since the renters rights act came in about 100 days ago and i suspect that a part of that is like yep the hype was overdone and people were exaggerating what the effect could be but also i think a big part of it is a just lack of awareness.

2:16The last survey I saw, well over half of tenants had not even heard of the Renters' Rights Act, had no idea what it meant, what it allowed them to do and what had changed. So it's entirely possible that as the month and the years roll on and the knowledge of how tenancies now work become more widespread, you might start to see more requests. But Rob, something else that has happened, as reported by the Telegraph, is that rents seem to have increased. And this isn't necessarily, oh, all the landlords are quitting, it's pushing up rents forever type story but it's to do with the fact that you now can't accept any bids above the asking rent so a natural move is to increase the asking rent and be willing to accept something below it and one agency rob quoted in this story says that there's been a 36 year-on-year increase in landlords increasing their initial rents some pitching five to ten percent above what they actually expect to achieve so it's interesting previously you've had a rent you'd normally get round about what you asked for sometimes you even get a bit more but now we've got almost an offers up to kind of system and this is one of the most notable things to come out the first 100 days of the renters rights act yes it's been 100 days and that what you said there rob doesn't surprise me you know if you give it a little bit of thought when you lay out okay here's the new rules what could happen what has happened isn't surprising is it good for tenants can be debated either way i guess because you could say well at least they're not getting to bidding wars anymore but now there's lots of properties out there that may never have got into a bidding war and are going to be listed at higher prices than before it seems that it's certainly sharp in the senses of landlords in the market and what they're pricing those homes at and that's not it there's quite a bit it's happened in the first hundred days it's not been the doomsday scenario for landlords that many people expected And we covered this in great detail in Property Pulse last Friday.

4:09So all Property Pulse readers, if you haven't read that yet, please do. Although we can see by the open rate, the vast majority of you open it very, very quickly, which is very pleasing to see. And a quick note, if you've not signed up for Property Pulse yet and you're listening to this podcast, we'll just put it down to a moment of badness that can be addressed right now. Go to propertyhub.net forward slash pulse. Go on. propertyhub.net forward slash pulse, pop your email in and get the best weekly newsletter delivered to your inbox each and every Friday, where we go deep on these topics and you can learn so much more.

4:46So go and do that now. Can you believe it is episode 700 of the property podcast. So today we're talking about 700 things you must understand about property. No, we're not, that'd be overkill. We're going to talk about seven, seven laws of property. If you were to take just seven things from all of the previous 700 episodes, more than a decade that we've been doing this podcast what should they be i'd like to think rob we've delivered more than seven things of value but he in all those episodes but these are true laws right these are the things that have standed the test of time that haven't changed in all those episodes that everybody needs to put front and center of their mind when they invest and i think when we go through this list some people will be all over some of them but perhaps forgotten about others i know for example the seventh one won't be something that people are doing automatically and even in the first one which we're about to touch on how powerful that is even though we go on about it all the time so let's start cracking through this list well let's and this first one is something that i'd say we've become more and more strident about as time has gone on it's something that we have talked about since the very first episode.

5:56But over the years, we have not relaxed on this. We have got more and more determined that law one is you must use leverage. That's something we never used to say quite in that kind of way, Rob. It was, oh yeah, leverage is really good and here's why it's powerful. But now I think, no, no, if you don't use leverage, it's just not worth it. It is not worth it. Why would you consider property without leverage? Well, let's look at it. Let's not just go, oh, Rob and Rob say it. Let's look at it. What's the return that you can get on property right now. Well, actually, it's not too bad. Gross yields are 6-7%.

6:24Your net yield might be 4 or 5. That's competitive with a bank, right? It's probably a little bit more than you would get in the bank. A few years ago, though, the returns you would get from property were less than what you'd get in a bank. So at different points in time, you'd get more from a bank. Right now property would give you slightly more. But leaving money in the bank is no effort. Creating, building, running a property portfolio, even if it's one property, is a lot more work than leaving money in the bank. So for that slight increase you can get right now, it's just not worth it for the effort.

7:02It is not worth it. Property investment without leverage is not worth it. But with leverage, it's spectacular. With leverage, it's a no-brainer. And let's give you an example. Let's say you had a property and you buy it for 100 ,000. Not many properties these days you can buy for that, but it's just simple numbers. So you spend the 100 ,000, you put your savings in and that's the property you get. And I know some people will be going, what about costs? Yes, they exist, but let's just keep this really simple. So that's option A. Option B is using that 100 ,000 and using it as a deposit and then buying£400 ,000 properties or one property worth£400 ,000 because you're putting£100 ,000 down and that's 25 % deposit and then you're able to get 75 % of the money from the bank.

7:53That's leverage. A mortgage is leverage. That's what we mean by that. So that means you've got a portfolio worth£400 ,000. Again, there are costs but let's keep it simple. So if you don't leverage, it's 100 ,000. If you do leverage, it's 400. Now, a small number of you may be thinking, well, I'll get more rent on the 100 ,000 because I've got no mortgage. Yes, that is true. You will make a little bit more that way. Although even with the mortgages on the 400 ,000, you're still making a profit. So that leverage is being paid by someone else. Now, let's fast forward into the future. When the property market has gone up by 25%, which will happen at some point, whether it's 5, 10 years down the line, doesn't matter.

8:36That 100 ,000 portfolio is now worth 125 ,000. Marvelous. You've made 25 ,000 and you've earned a rental return. Great. But if you've leveraged, that 400 ,000 pound portfolio is now worth 500 ,000 pounds. So you've had an increase of 100 ,000 pounds. Your portfolio has gone up by 25 % as well, But because the number you start with is bigger, the number you get is bigger. And that's£100 ,000. So you've made£25 ,000 versus£100 ,000 in capital uplift. And you started with the same amount of money. £25 ,000 versus£100 ,000. That's massive. That's a big, big difference. And that is why you must leverage.

9:23Because like we keep saying, Rob, it's just not worth it if you don't. No, I find property interesting. I've been interested enough to podcast about it for more than 10 years. If I can make the same money with no hassle and no risk in the bank or no hassle and less risk in the stock market, well, I'd do that. But as you've said, Rob, leverage completely changes the game as it would because you can buy three or four times more of it by using someone else's money. So the returns you end up making are just not even close. And as part of it, I think it's worth giving a quick shout out to inflation.

9:52Oh, good old mate inflation. You've got to do it. You've got to do it because you're assuming property prices are going to go up. Yeah, you are assuming property prices are going to go up, but not because property always gets more expensive and is getting less and less affordable. It's actually got more affordable over the recent years. But property will, over the long term, always go up because everything always goes up because of inflation. And we won't go off on a big one about it now, but something we've talked about extensively in the past and something that I've talked about in my book, The Price of Money, is that you have to have inflation.

10:20Governments must have inflation. There is no version of a functioning world from where we're starting today where you don't have inflation. They will do whatever they need to to make it happen. And we can look at another really quick example to show just how powerful it is. So let's assume you have inflation running at just 2%, which is what it's supposed to be. It's almost always higher. But even if it is just at that 2 % target and property just goes up in line with it, it doesn't do anything special at all. Then if you put in a£50 ,000 deposit on a£200 ,000 property, you have doubled your money in 10 years just with two percent inflation nothing more property not doing anything above that not buying any good area not adding any value and not even counting the rent that you receive for the whole of that 10 years that is for me rob the purest example of the power of using leverage and as part of that taking advantage of inflation but of course i'm talking about 10 years it is a long process and that links into law number two the second law and for us it absolutely is a law, you've got to be in property for the long term because you just don't know what's going to happen.

11:22The last few years have been a prime example of that. The market's been flat in real terms with inflation. You could say it's actually fallen. Yes, rents have gone up, so there's been upside there. And right now, buying is amazing in terms of the opportunities. But holding during the last few years hasn't been spectacular. But if you then go back 10 years, even though it's been one of the worst decades for property, we've still seen growth. We've still seen really good returns if you've leveraged. And the longer you go back, 20, it gets better again. 30, spectacular. The longer you go, the better it gets.

11:58So even if you have a bad decade, and I think a decade or more is classed as long term, you'll still do incredibly well from property investment, incredibly well. But you have to go in for the long term, because if you're approaching property as a quick win game you're probably going to fail now is it possible can you win quick in property yes you can but you need a lot of skill and a lot of luck and a lot of experience as well to know what you're doing and some people will try and tell you that they can sell you that experience but you don't have the skill still that sharing that experience won't be enough and you still will need a tremendous amount of luck.

12:40Rob and I have been investing for a long, long time, longer than the 700 episodes that we've done. And have we been able to win quick at property in that period? No. And I'd like to think we know what we're doing. Have we made mistakes? Loads of them. That's the experience part. But the point I'm making is overall we've done very, very well even with mistakes within our portfolios because we've giving it time. Time in property helps eradicate those mistakes. Time may change your view on an investment you made. You may be a year into a buy select you've purchased and be thinking, oh, that's not the best.

13:19I wasn't done as well as I'd hoped. Don't judge it after a year. Judge it after 10. Time in property is so important. Whatever your strategy, the only one it doesn't work for is flips. But flips in the short term are super, super risky, particularly in this market. incredibly hard to execute in this market. But if you play the long game, if you go long term, the chances are you will be very successful in property. You mentioned something in there, which I think is really important, which is that because it's a long term game, that you really must not judge in the short term and you must not extrapolate from your first year in property because your first year in property will be the worst.

13:57I think it's something that's really hard for people mentally because getting into property in the first place is hard. So to get to the point of being a property investor, you have saved up a substantial amount of money. You've gone through, hopefully, a substantial amount of research and work and thought. And you finally get to this rarefied position that not many people ever achieve of being a property investor. And I've gone through all that six months, a year in, your life is probably no better, possibly slightly worse, because now you've got something else to manage. Hopefully it's not much, but there's something else.

14:27There's something else you need to keep an eye on. You've got something else that letters keep coming through your door about. and you haven't had any growth you can measure yet and there's a strong chance that your property has actually disappointed you a little bit you may not have achieved the rent that you thought you would to start with because the first year the first rent is often the most tricky you may have had expenses that you weren't expecting because again when you rent out a property for the first time there's probably things that you just hadn't thought about or that you weren't aware of when you bought all of this has already bitten you and you haven't had the upside yet so that's why this is such an important second law to be aware of because you need to realise, okay, this is normal.

15:01That's okay. I haven't done anything wrong. And basically withhold judgment completely for as long as you possibly can. If you can go five years without even thinking about it, fantastic. Because then when you have a look, you go, oh, wow, great. Look at what this has done. Look at how my equity has grown. Look at how much rental income is in the bank. Oh, I can actually pull some equity out and buy another one now. That is really the only sane way to think about property. And Rob, that links into law number three, which is really what keeps you in the game for all this time, which is that every property must pay you to hold it.

15:30And I think, Rob, there are two things you have to hold in mind at the same time here, being that rental income alone will not make you wealthy. But at the same time, you very much must have rental profit. And if that sounds like it's in conflict, then it really shouldn't. No. And the great thing about this law is it's easy to enact in this current market because the yields are so good. it's really hard to find a property that doesn't pay for itself and give you money in your pocket each and every month. There's so many reasons for doing it because one, why would you do it if you're not getting a return?

16:01Two, there's always going to be things that go wrong that you're paying for and building up a surplus is absolutely worthwhile. And I'd say third as well, it can help build that portfolio or finance a lifestyle that you're after. It depends what you do with those funds can be deployed in different ways, but they should be deployed. That's the thing. Once you've got that reserve parts to cover expenses then you should be deploying that money one way or another whether it's fancying your lifestyle or building your portfolio further but this is a law and the reason we bring it and and make sure it's etched in your brains for when this happens because i've seen it happen before that when the property market booms people start to buy for growth and it's very very tempting and perhaps maybe everyone who's listening to this podcast isn't in that place because if you're interested now when sentiment is low and if property is not sexy then you get it right you truly get what property investment's about but a lot of people will come to the market when the property market starts booming it's gonna be marvelous for our download numbers but what will happen is some of those people will start buying for growth because you'll be making tremendous returns through growth when capital growth is kicking on they're the people who will lose and they're the people who'll be exiting the market and they're the people you'll be buying from when they're selling at a reduced price or maybe they've been repossessed altogether not nice but it will happen so it's an important law a law that i think all our podcast listeners will be absolutely adhering to but just keep it in mind don't follow that herd when it happens because it will happen again at some point.

17:41Okay, law number four. And this is something that we have spoken about from the very beginning of the podcast, which is fundamentals. Fundamentals drive everything. What do we mean when we say fundamentals? We mean the things people care about, which is employment, transport links, and leisure. You want somewhere where it's nice to live, where there are things to do, where there are jobs, and where you can get to those jobs. It really is pretty simple. So if you want a good investment, buy where the fundamentals are good. and even better by where the fundamentals are improving so that's why regeneration is such a strong signal so take manchester as your classic example of this manchester city center has undergone absolutely massive regeneration as a result that's pulled in employers loads of big employers relocated to manchester therefore lots of people want to move to manchester or stay in manchester after they've been studying whereas previously they wouldn't have done and of course that pushes up rents and it pushes up property prices and it improves the leisure offering because suddenly there's a critical mass of people to support the coffee shops, the gyms, whatever else it is that you want.

18:41And I think, Rob, this is one of the observations that's allowed us to be very accurate with the predictions that we've made at the start of every year about which cities, which areas are going to grow the fastest. Because if you've got an area where the fundamentals are good and improving, and yet prices are relatively low, affordability is good, well then of course property prices are going to go up. They are. I think if you were going to play the property podcast bingo for the words that we use most on the podcast, fundamentals would absolutely be on there. And for good reason. Without fundamentals, you just will fail.

19:15People will be attracted to properties that seem like a really good deal. But the reason they are a good deal is because it's lacking in the fundamentals. You might be able to get a great yield in certain parts of the country, incredible returns, but the capital growth won't follow because of the fundamentals. and capital growth is the game as we've talked about already. Capital growth holding for the long term and reaping those rewards is huge. If you're buying the average area in the UK you will do quite well but for every average area there's an above average area and a below average area and it's actually super simple to pick the above average areas.

19:52You look at areas with brilliant fundamentals but the yields are really good as well and when the two combine then you're like wait a minute this is value and there's value here so therefore the capital growth will come at some point might not be year one or two but eventually it will come because the value here is insane for the amounts of fundamentals in place and that's one of the ways you can pick areas that do above average but if your portfolio is full of above average the returns that you make versus the average investor are huge and exaggerated even further against the people who buy in the below average areas so everything we've talked about so far sounds pretty easy we've just talked about how relatively simple it is to find a strong investment area and find somewhere that's going to outperform the average.

20:35Then we said that all you've got to do is hold on to it for a long time and you'll end up doing really well just because of the effect of inflation and the use of leverage. So why do people so often find it so hard? Well it's because they're not obeying rule number five which is follow the data and ignore the noise. And for me this is absolutely critical because what you need to realize is that most people's common sense and the general prevailing vibe will lead you the wrong way all the time when everyone's feeling great about property we saw it post covid in about 2021 we saw it in the run-up to the financial crisis in 2006 2007 when everyone's feeling really good about property it's not because they suddenly have a deep appreciation for the rules we've just been through no it's because they're getting carried away and they're speculating and it's not going to end well so if you follow the hype at that point all right if you've followed some of the other rules and you're doing it for the long term and you'll probably be all right at the end but it's going to be uncomfortable and you might end up going backwards for a while but right now we're in the opposite position for that everyone is super negative about property no one it seems as the slightest bit of interest and again that leads you completely the wrong way because you can switch off to property just when the numbers are at their best and there are way more opportunities around that are easier for you to access so if you completely ignore what your friends are saying and what the headlines are saying and you're just plugged into a few pretty simple pieces of data about what's happening with supply and wages and transactions and rental demand then you will end up making far better decisions and getting far better results but of all of these rob i think this is probably the hardest law to follow because fundamentally in human psychology when it comes to investing people want to follow the crowd people only want to buy something when the price is going up and everyone else wants it.

22:20That applies in property, it applies to the stock market, it applies to Bitcoin, it applies to anything you can imagine. So it's an extremely difficult mindset to break out of, but very profitable if you can. Super profitable if you can. And once you break out of it, it's empowering because the results are quick to see. You get a great deal. That's the result of this type of market. You assess the market value and through effort you can get yourself an incredible deal. I directly apply this strategy to shares as well. Anytime I buy is when I feel there's been some negative sentiments around a particular stock or sector that seems irrational to the fundamentals of play.

23:00That's when I will go in not when Tesla's at a seven million times multiple or wherever it's at. That's not what you do and logically it all makes sense but emotionally it's super hard to do. But what will help you and keep you on the right path is the sixth law which is having goals and then second a strategy. Knowing what you want, why you're doing this and getting laser clear on that is ridiculously powerful yet so many people do not do it. I think most people if asked would say I've got a goal. Think about yourself right now. Do you have a goal in property? You've got a yes But is it a good goal?

23:40Is it a goal that is very easy to understand that whether you've succeeded or not? And if the goal doesn't have numbers attached, the answer is no, you don't have a good goal. You need to be able to say, from my property portfolio, I want it to do this thing. And the thing being the number, whether it's an income amount, an equity amount, the number doesn't matter too much, but having the number is critical. and then once you've got that number you can then build that strategy you can't do it the other way around you have to have the number first and then you build that strategy out and the great thing is once you've got the number and then a bit of self-awareness around your life what's possible your skills your starting place in terms of budget then that strategy starts to form itself anyway and the path forward is the strategy and when the market noise is extremely positive extremely negative or somewhere in between it doesn't matter because you've locked onto that goal you've got your strategy you're following it day in day out month in month out year in year out and sometimes you need to treat the strategy rob and i've both done that over the years and we've documented it as well but the point is you'll make far better decisions and be less emotional when making those decisions if you have your goal and you have your strategy.

25:01Okay, there is one more law. And this is probably what's made the biggest change for me since we started the podcast all those years ago, which is act like the CEO. Because this is something that most people don't do. And I very much did not do. The default when you get into property is to just do everything yourself. You're not just making an investment. You're also buying yourself a pretty annoying, stressful, low paid part time job. And one where the hours are completely unpredictable. You have no idea when you're suddenly going to have to leap into action and sort something out. It's probably going to be when you're on holiday that washing machine is going to break or a tenant's going to give notice.

25:34Something is going to happen. And when I started, I was absolutely no different because it's what property is like. It goes with the territory. But as time has gone on, I've realised it doesn't have to be that way. And in fact, it shouldn't be that way. I'm not saying you can't be hands-on if you've got special skills. So if you are amazing at refurbs, then fair enough. That's an advantage you should be using. If you're an architect and you can add value to properties in a way no one else can, great, do that. But putting that aside, taking the case of just renting out a property and collecting the income for the long term, then you really should only be doing three things.

26:06You should be setting the strategy, setting the goal, like we just talked about. You should be pulling in the cash that allows you to build your portfolio. And that'll be from your job, whatever it is that you do now that brings in the money that allowed you to invest in the first place. Keep doing that and build the team that does the rest. and after I finally realized that is an option at all and that's what you should be doing I've ended up in a position now where my portfolio is a lot bigger than it was when we started the podcast and I'm spending way less time on it I'm spending less than an hour a month on my portfolio because I've put a few simple things in place that allows me to keep the focus in just those three areas and I think Rob it's not just me I think the way that property has gone over the years more and more people are coming into property as an investment thinking more consciously about this kind of thing but this is still a lesson that i want everyone to take to heart because if property is a hassle and you're spending all your time running around doing random 20 pound an hour kind of jobs then you're not going to stay in it for the years you're not going to grow your portfolio as far or as fast as you could and you're not going to get all those benefits that we've talked about absolutely rob you need those systems and you need to outsource and you can feel guilt when you do that because you feel like you should be doing that role but it's not efficient and you're not serving yourself all your goals when you do that.

27:21So those are the seven laws and they're not laws that we've just come up with on the hoof. They're laws that we have developed over 700 episodes of this podcast. And this is what you get when you really do distill everything down to its essence. If you do these seven things, even if you get a whole bunch of other stuff wrong, then you're probably going to do really well. If you do a whole load of other stuff really well, but you ignore just one of these, then you're probably going to be disappointed. So what I would encourage you to do is do an audit. Audit your own property business, your own property strategy against these seven laws.

27:53Which are you currently not investing in accordance with? I'd say one that almost everyone could learn something from is number seven, act like a CEO. There's probably something you can do to take a job off your plate and spend more time on what you should really be doing that does make a difference to your property business. But there may be other things as well. Maybe you're being held back at the moment by all the negative noise. Maybe you're investing wherever it's convenient, not wherever the fundamentals are pointing you. Or maybe you're fearful of leverage or you haven't fully understood the benefits.

28:19So your money could be working hard there. My advice is don't just take the last 20, 25 minutes as entertainment, but spend a bit of time thinking, how am I stacking up against each of these laws? Where could I make a change? Where could I make an improvement? Because these are the most important things. And therefore, if you can improve just slightly at just one of these, it can make an enormous difference to your portfolio. so rob that's a lot that's a lot of distilled knowledge that's a serious but potentially very impactful bit of homework i hope you've got something a bit lighter for us for hub extra maybe uh it can be lighter or you can be inspired and feel like you want to take on the world afterwards what am i referring to oh it's a documentary and i need to thank a lot of people so i won't name anyone individually but i know a lot of people have recommended this to me if you're listening thank you i had to watch it just because just so many people said rob this is the type of thing i think you would enjoy and they were absolutely right the documentary on netflix is called rafa and it's about rafa nadal and you don't need to be a tennis fan i'm a casual tennis fan i might watch a bit of wimbledon i don't really watch any of the other grand slams but i've got appreciation for the sport and this documentary is so well put together it is not surface level.

29:34It really gets under the skin of Rafa Nadal and what it takes to be elite in your chosen discipline. And I truly mean elite. This man was elite at what he did. For many years, he was the best in the world. For many years, he battled with some of the greatest players of a generation in their chosen sport. The mindset, the dedication, the grit, the determination, the setbacks after setbacks it's not just success it's so many setbacks that he had to work through and go through the complexities of his personality and the type of person he has to be to perform at this level the childhood he had honestly this stuff is inspiring and i love this type of stuff it's like when you get a great book and you get to truly understand what it takes to be a high performance individual and so much out there now is surface level it's glossed PR but this isn't it really isn't it shows him for all his greatness and all his flaws and the first episode if you listen to this is okay I don't want you to go into this and watch the first episode and go why was he so passionate about this get to the second episode and then you'll thank me it's just beautifully put together I've been inspired by this I love it when there's something raw and true about an individual who's performed at the very best and you can learn from that person you don't have to copy them but you can learn you can be inspired i absolutely was inspired absolutely loved it well you got me inspired now thank you i'll go and check that out i do not have much interest in tennis so i probably would have passed that by so i'm glad you recommended it and it reminds me of the andre agassi autobiography open which both of us read and loved many years ago again even if you're not a tennis fan just such an interesting look into the psychology and the challenges and what it takes to be at the very top of such a competitive field well that is us done for this week thank you so much for listening hope you found it useful hope you go away and do something with it and we'll be back next week to do it again episode 701 we will see you then bye bye