Stop worrying about the wrong things (and start worrying about this)

0:02Rob Dix:Hey everyone, it's Rob B here with Rob D and you are listening to the Property Podcast. There are things that are holding investors back that absolutely shouldn't be. But there's also a list of things that you should be concerned about as a property investor and some people aren't. So we're going to go through both lists today to make sure you're not wasting your time worrying about the wrong things and putting your focus on the things that really matter.

0:31Rob Bence:welcome to the property podcast thank you for joining us in case you don't know we run a business that buys more than 100 million pounds worth of property every single year for our clients you can find out more about that at propertyhub.net invest and as a result of doing that we and our team hear all the worries that investors have and so this episode we'll be splitting out those that actually matter from those that don't all of that coming up so it's

0:52Rob Dix:time for our news story of the week now and this news story has probably gone under the radar for you because there's a lot happening in the world right now but we still want to bring you the industry news and keep you on top of what is happening in the world of property and this week we need to bring you up to speed on what John Lewis have done or to better phrase it are not doing because you may remember a few years ago to some fanfare John Lewis announced that they were going into the world of build to rent so not just satisfied with owning an upmarket supermarket and some wonderful stores, they decided they wanted to provide homes as well.

1:30Rob Dix:But Rob, it seems after all the noise and fanfare, not a lot has actually happened and may not happen ever at all.

1:35Rob Bence:Yeah, to my great disappointment, because living literally inside of John Lewis was my middle class dream. But sadly, it looks like it's not going to happen because they have scrapped plans to build a thousand rental homes, according to a story in The Guardian. And that was meant to be the first thousand of 10 ,000. But now, like you said, there's doubts about whether any of it is going to happen. What appears to be the case is that they had partnered with, Aberdeen, who are a big asset management firm, to raise some of the funds for this venture, and they've not had a lot of interest. And what the John Lewis spokesman has said is that we made this decision in a very different financial environment, with more stable investment returns, lower borrowing costs, and more affordable costs to build homes.

2:11Rob Bence:He goes on to say, unfortunately, the current climate, higher interest rate, inflationary pressures, and a more cautious property market means the model no longer meets the partnership's investment criteria. So that's bad news for me, Rob, bad news for John Lewis, and bad news for the government as well because remember built to rent is completely new supply it's not just stock shifting between owner occupiers and investors this is new stock that would not otherwise exist and if companies of this size and strength can't make it work that's not looking good for the

2:37Rob Dix:government's plans it's not but it's not just john lewis since interest rates have gone up a lot of built to rent operators have pulled away from the market and particularly away from this what you would call secondary towns and cities so there was a time when they would build and commit to anywhere pretty much but now they are being super fussy because there's a lot less players in the market what's going to be interesting to follow is with interest rates on a downward trend now whether they will return to the market my guess is yes but it's not like flicking a switch remember john lewis made this announcement a few years ago and actually haven't delivered a single thing yet so if everyone comes back to the market and says we're back in you still got to get those funds up and running, then decide which projects you're going to invest in, and then those projects be built out.

3:23Rob Dix:So even if interest rates were cut dramatically this year and borrowing costs suddenly made sense for this sector, it would be quite a few years before the stock hits the market again. So it's a really interesting story and we'll absolutely keep you updated on this as more is announced. But the real time to come back to this is when interest rates have come down a bit further to see who's entering back into the market and what their plans are. And of course on the Prophecy Podcast. We'll keep you updated on all these type of things. And make sure you join us next week where we have the market update, where we'll tackle everything that's going on in our industry and sometimes and beyond.

3:57Rob Dix:So make sure you're there bright and early next Thursday for next week's episode.

4:00Rob Bence:We've been doing this for a long time and we must have spoken to hundreds, if not thousands of investors over the time we've been doing this podcast. And from those conversations we've had, from the questions we get into Ask Rob and Rob, we know that investors have worries. And that's normal. You're investing a lot of money in a single asset. And if you're doing it for the first time in particular, it's scary. Worrying is normal. The problem is that in our experience, most investors are misdirecting their worry. They're losing sleep over things that really don't matter. And at the same time, ignoring things that they should actually be thinking about a lot more.

4:35Rob Bence:So in this episode, Rob, we're going to try and set people straight. We're going to run through the things that investors should not be worrying about anymore and point them towards the things that really are worth thinking about.

4:44Rob Dix:Yes, this might be one of those episodes that if you get worried about your portfolio from time to time or a particular investment you've got, you might want to bookmark and come back to. There are things that you should be worrying about and paying a lot of attention, which we'll come to. But let's start with the things that really are taking up too much of your headspace that really shouldn't be. And the first one, I see this so often, is the first year's numbers. So what do I mean by that? when you get a new investment property, people obsess about its performance at the very, very beginning and can write an investment off that could be absolutely fantastic in the early days because it's not started as strongly as they hoped.

5:26So for example, when you get a new

5:29Rob Dix:investment property, you're almost certainly going to have a void period at the beginning. You're going to get the property ready for rent. You're going to market it. It will take time. there might be some competition on the market and normally you see the first time you get a tenant into an investment property it takes a bit longer because in the future you have notice of when your tenant's going to leave so you can prepare the property for your next tenant and advertise it in advance but it's a lot more difficult to do that when you're buying an investment property because you haven't got the keys yet you can't get in you can't get a tenant ready so there's that longer void period that tends to happen at the beginning and this seems to stress a lot of investors out, but they shouldn't be.

6:09Rob Dix:And something I always say to these investors is when you look at this investment in 10 years time, will you be worried that it took you six to eight weeks to let this property out? No, the answer is no. But it feels like a big, huge thing at the beginning of your investment because you've just committed to it. Emotionally, you've gone into this deal. Mentally, you've committed everything. You've put a large chunk of money in. So all those emotions are there and you want it to be perfect. And you might have a partner that you've convinced or taken on the journey with you that you said this is going to be great and you feel under pressure for it to perform from day one.

6:44Rob Dix:But that is the wrong expectation because it almost certainly will not happen that way. And that is one way people misjudge an investment. Happens a lot, so that's why we've started with that. But it's not just a void period rob people get really really hung up on the numbers of the first year as well like the

7:04Rob Bence:yield for example yeah you see this a lot so maybe you thought you're going to get a thousand pounds in rent but actually the first couple of offers you get are at 950 pounds it's like what i thought i was going to get a thousand pounds but again in the long term it just doesn't matter often especially if you're buying in a block where lots are completing at the same time there's going to be more competition that first year than there will be in future years and also black markets do weird things. Depending on the location, there are times of year when the market's a bit quieter than other times.

7:31Rob Bence:If you happen to complete at that time, then you might be coming into a softer market. It doesn't make any difference to how your investment is going to perform over the long term. You're also highly likely to have unexpected expenses. Even if you've done a complete refurb yourself and you think that everything's perfect, someone is going to move in and they're going to spot something you've missed. So you probably will have more maintenance in that first year. But oh no, this is more than I had in my spreadsheet. It doesn't matter. Put it all together and your first year is going to be your worst year it rhymes so you know it's true but it's true you've got to zoom out and think longer term rob and put it all into perspective like you said

8:02Rob Dix:and there's another mistake with yields that we'll talk about in a moment but before we get to that though let's move on to another thing that people worry about which is timing the market perfectly this is the biggest excuse or story that people use to comfort themselves for why they haven't invested yet. Oh, I won't now because I'm filling a reason. So it could be an economic event. It could be an interest rate rise or cut, whatever, fill in the blank. There's always something going on in the world that will give you a perfectly good reason not to invest. People may believe, oh, the market's going down.

8:42Rob Dix:So I'm going to wait another six months for that to happen. It might happen but it might go up those things happen I've had that very thing happen to me with shares where I've gone oh I'll wait till it hits this price even though the value was quite good and it didn't get as low as I wanted and then it's rocketed up since so I've seen the value in an investment but because I waited for that perfect opportunity I didn't get any opportunity and people do this with property all the time there's a golden rule that time in the market always beats trying to time the market. And it's a golden rule for a reason, because it's true and it makes sense.

9:20Rob Dix:It doesn't matter if you buy now and the market dips 4%. Because again, go forward 10 years, that 4 % will be a blip in your story. It does not matter. You're still going to get rent coming in. You're still going to be making a profit month in, month out. So don't worry if the market even dips a bit after you've purchased. Just look at the market conditions today. Look at the deal opportunities that you have and go, is this a great deal in front of me? Is this going to be a great deal in 10 years time? Not six months time or 12 months time. Will this be a deal, an investment that I'm really happy with in 10 years time?

9:58Rob Dix:That's how you should frame this.

10:00Rob Bence:Yeah, you said it, Rob. There was something that could affect property prices. But again, the solution is the same as it was before. Zoom out to the big picture. Let's move on to our next one, which is another biggie. It's another one that we've talked about before. People worry about having mortgage debt at all. People would rather buy with cash. I think there are a lot of investors, the majority of investors, see a mortgage as a compromise. If they had the cash, they would buy with cash. But no, a mortgage is virtually the entire point of investing in property. Now, of course, that's not saying leverage yourself up to the eyeballs, take a load of risk, be making a loss each month and hope the capital growth will bail you out?

10:37Rob Bence:Absolutely not. But a sensible use of leverage is the big reason for investing in property rather than anything else. Because again, we've said it before, but it's super important. If you look at the long-term performance of property and the stock market, they're really not that different. So given that you could invest in the stock market and get roughly the same return for less effort and better tax treatment, why would you not just do that? Well, the answer is that thanks to a mortgage, you can buy three your times more property than you would stocks and therefore obviously they're going to do better and that's a mindset shift i think is so important to make because there is no absolute number of too much mortgage debt and having your mortgage debt stay the same year after year after year not paying it down is not a problem it's actually helping you out as long as you're making a profit each month you've got a margin of safety and there's no point at which you're forced to sell as long as you're resilient and nothing's going to force you to sell at the wrong time then mortgage debt is yes something to take seriously but definitely not something to worry

11:35Rob Dix:about next on the list of things that people worry about is the collection of things around new build properties now at property of invest we do new build properties as well as properties that have been built it's just properties that are in really good condition but because part of the portfolio mix that we acquire for our investors is new build we see a lot of mistakes being made there or a lot of things being worried about that really shouldn't be and this is an opportunity to address that first one is plot selection when we make an investment it could be 50 60 units from a developer which then means that our investors have a choice of plots now the amount of time you should take picking your plot should be short because the reason why is you're not going to live in it and somebody else will and your subjective views on what makes a nice place to live in is going to be different to someone else so sometimes it might be the floor that it's on if it's an apartment or if it's a house what way the garden is facing or the size of the garden some people think oh i want the biggest garden but a tenant might not want to look after that garden you've got to remember that you are not living in this property and i've got a prime example of this because I've made this very mistake myself many, many years ago.

12:54Rob Dix:It was when I had the opportunity to pick an apartment in Leeds because I had the pleasure of being able to go first to pick. I did. And I spent a stupid amount of time picking that plot, hours upon hours. And many people will know me that I do like to research things, but I'm also capable of making a quick decision. And this is one of those times where I really shouldn't have spent so much time researching because I picked what I believe to be the plum plot, the best unit available in this block because I had first pick. So when it came to completion, understandably being a so-called expert expected my property to let first.

13:33Rob Dix:So the first block got let, not mine. The first half got let, still not mine. Another block got let, still not mine. Mine was in the last 20 % to get let. There was me, a supposed expert, picking a unit that I'd spent hours selecting, and it was one of the last to let in that block. I've never spent that sort of time again. In fact, now I asked the Property Hub Invest team which one I should take, because it's a waste of time. They've looked at it, they'll give me some advice, they might give me a couple to pick from, and I'll just go with it, because it does not make sense to spend time emotionally feeling your way through a plot selection list to go oh this is going to be the best unit because the bit after because is your preference not the market's preference and you may feel you'll be able to assess the market better than others but just be for the person who wants the large garden there's somebody who wants a smaller garden for the person who wants to be high up there's somebody who wants to be low down there's a huge tenant market out there and you do not need perfection you just need to get a great deal because the difference you're picking at that level is marginal what's more important is the deal a really good deal is the area a really good area the plot selection is a marginal decision

14:53Rob Bence:yeah there's so much randomness in property as well but you can have the property that's overlooking the bin store rather than with a beautiful view but you just happen to get the world's best tenant moves in there and stays there for 10 years you just don't know and so that's why it's just not really worth worrying about but that's not the only thing when it comes to new builds that people worry about too much.

15:11Rob Dix:Yes, another one that happens a lot actually, but I think it's just a lack of knowledge so it can be quickly addressed here, is that people get concerned when there's a snagging list when you complete on a new build. A snagging list is a list of faults with the property when you complete. So it may be the door is chipped, the tap is a bit loose, the grouting on one of the tiles is messy. It's a list that will be given to you. Now, when you get this list, if you have a list of snags, you have not been unlucky. You've just gone through buying a property because those snags are normal. I've never seen a property complete without a snagging list.

15:50Rob Dix:It's part of the process. Now, if you've never done a new build property, you might be thinking, wait a minute, so I buy new builds and I get an imperfect property. No, what will happen is that snag list will then be addressed by the developer. if you're buying yourself then you can liaise with them and dove through those snags and get them to complete it or if you buy with someone like property of invest we'll do that on your behalf but the point is it's normal but i think because it's something that's not really talked about a lot when people experience it for the first time they're caught off guard on the surprise but it's normal so that's another thing that people worry about a bigger one though that is another huge mistake like plot selection is yield selection so people pick their plots and they might go out and going for this one over that one because it's southwest facing over northwest facing wherever as i said that's a mistake but the other mistake that people make is they don't even look at the plots at all which is fine but then they'll look at the yield and they'll go wait a minute, this property here has a 5.9 % yield and this one has a 6.2 % yield.

16:59Rob Dix:I'm going to pick the 6.2%. That's daft. So let's say the difference of that is£50 a month. Now, at£50 a month, you might be thinking, well, yeah, of course I want that extra£50 a month. Across a year, that's£600. But let's be real, is£600 a year going to change your life? No. But I've seen people go, oh, I want the 6.2%. And when that's no longer available and they've been offered the 5.9, they've turned it down. And Don, I don't want to go into it anymore. That is crazy. If you have done the research, looked to say, okay, this is a great area. This is a great development. This is a great investments but then you've sacrificed the ability to invest because you wanted the best yielding property in that list that is nuts because the amount you've just cost yourself by not investing and maybe waiting another six months or maybe you never end up investing is huge that is criminal you think you are doing well by not sacrificing the 50 pounds a month and you're sticking to your principles and that's the one I want, but you've just cost yourself so, so much more.

18:13Rob Dix:If you had a£200 ,000 property and the market just grew by 1%, that's£2 ,000 in capital growth. 1 % is way below average. We've had a lot of bad years recently, but we've still done better than 1 % and that's not accounting for leverage or the rental profit you would have got as well. But not being in the market because you wanted the very best yield, you've earned zero. So it is absolutely nuts to me that people get so wound up and obsessed with picking something because it's got the very best yield in a development or block when for a marginal difference they can still get in i bring it up because it happens and it's something that is a bit nuts something else rob that people will look for as well and they will be looking for a

18:59Rob Bence:long time is the perfect investment yes i think sometimes this is an excuse if we're honest because investing is uncomfortable it is scary and if you can always find a reason to say no then it means that you don't have to go through that discomfort but it could also be just having the bar set way too high it was europe who said this many many years ago but it continues to be true today if you're looking for perfect you'll be looking forever there is no such thing as the perfect deal there is such a thing as very good and very good is great but what people do is that they will pass over very good because it's not perfect whereas in reality you're always going to be compromising somewhere and there's always going to be some potential concern and again just like we're talking about before if you keep passing over very good looking for perfect how much have you cost yourself how much risk are you actually taking by staying out of the market for all this time while you're looking for something that will never arrive and again it's really difficult because something else that we say is you've got to be picky.

19:57Rob Bence:You need to look at a lot of properties. You need to be getting yourself a deal. And that is true as well. I think on the whole, people should probably be looking at and offering on and rejecting a lot more properties than they are. You do see a lot of times when people will go and review three properties and then end up buying one of them. That might not be enough. But at the same time, you see people go the other way and keep on passing up opportunity after opportunity because there's some kind of compromise or there's some kind of very minor concern. But you do have to find that sweet spot in the middle.

20:25Rob Bence:Because again, bring it back to the big picture and will it matter in 10 years? If you make an absolute dog of an investment, if you buy something in a bad area where there's no demand, where it's falling apart and there's going to be constant maintenance, and yes, I have done this and so I know it's true, that will matter in 10 years. So don't do that. But at the same time, what's the difference between an investment that performs pretty well and an investment that is absolutely stellar. It's not going to be that big over 10 years. And obviously, you'd make the incredible investment if you could.

20:54Rob Bence:But no one can do that every time. And the crazy thing is, a lot of the time when I look at my portfolio, the ones that I thought would be absolutely unbelievable have turned out to be, yeah, pretty good. And the ones that I thought were just okay have gone on to be the best performers. So you can't even predict it in advance anyway, or at least I can't. And I supposedly do this for a living. So looking for perfection really is a trap because it holds you back from taking action.

21:19Rob Dix:So there you have it. You've got a list of things there that many investors, a lot of investors worry about. And think about it. Which of those have you worried about in the past or even worried about today? Start striking those off your list because that list we've just given you are things not to worry about is from a lot of experience and a lot of personal mistakes. We've learned the hard way or we've seen other investors learn the hard way and we can bring you those lessons. There are things that you should be worried about as a property investor and hopefully these ones are obvious to you but we'll quickly run through them so you can spend, if you like, losing sleep some time, losing sleep over these things if you've got any of these wrong.

22:02Rob Dix:So let's give you a quick list of things that really should be top of mind when investing and potentially worrying about if you haven't got it right. So first is lack of cash reserves. You do not want to invest in a deal every single penny you've got because when you invest, we've already talked about, you'll expect a void period, you'll expect things to go wrong, your first year numbers will be a disappointment if you've ever invested in property before and you don't have that experience. So with all that in mind, there's going to be hidden costs at play. You've got£100 ,000 to invest and the deal you go into has taken every single penny of that£100 ,000 and then suddenly there's an unexpected bill of 5 ,000 what are you going to do so you always should have a cash pot a reserve a rainy day fund if you like to help with your investments if something goes wrong it doesn't need to be a huge pot but the pot does need to exist

22:55Rob Bence:yep that's a big one and another one which i have been guilty of in the past is not worrying enough about whether you're charging the right rent and this has become a real theme over the last few years for various reasons, but it's always been the case. Supposedly, investors are greedy, they're rinsing tenants for everything they can get. In reality, yes, I'm sure some people do do that, but a far bigger proportion of investors let the rent stay where it is, while market rents keep on drifting upwards. And it's understandable why they do that. They're making enough, it's fine, they don't want to lose a tenant, don't want to have an awkward conversation.

23:27Rob Bence:But the trouble is, five years later, this huge gap has opened up, which then gets very difficult to fill because it seems like a huge leap for the tenant to make. And now it's even worse because with the Renters Rights Act coming in it's going to be possible for tenants to challenge rent increases. And even if your rent increase is totally reasonable because all you're doing is pulling it back up to where it should have been after multiple years, the fact that the jump is so big makes it far more likely that the increase is going to be challenged. So once the Renters Rights Act comes in you'll have the ability to increase the rent once per year and this is something that you should be spending some time on.