Transcription
When should you sell your investment property? I think this is a really reasonable question with everything that's been happening in the change of government, renters right out, Section 24, EPC changes, and every other change the government seems to throw at us over the last 5 to 10 years. I think it's sensible to ask, should I sell my property portfolio?
Over the last 10 years, I've transacted on around 2,000 property deals. I'm not afraid to say I've actually sold some of them. Now, some of them have been really thought-out, well-made decisions, and some of them were frankly stupid. I wish I could go back in time and change it. And what I want to show you is the exact conditions that you might actually consider selling, but ultimately stop you making the fatal mistake of selling the wrong property at the wrong time.
So, let's start with the personal situation. There's only three personal situations that I can think of where it would maybe be the right time to sell. Number one is if you're of an age where you're towards the end, if you like, of your work career, and maybe you want to free up those funds to enjoy life, and maybe you're not thinking about legacy. Maybe you don't have kids or a charity or anyone to hand over the properties to, or is there much point keeping a portfolio of properties that actually you could just sell off, pay a bit of capital gains tax on, and then spend and have some fun with. That's number one.
Number two is financial difficulties. Now, financial difficulties are quite situational. It could be, "Actually, I'm really struggling for money and I've got 50 grand equity in this property and I could really use that right now." Or it could be a financial situation where you need that cash lump sum in order to do something with it, whatever that is in your life. And it could be a health situation or anything else. But ultimately, needing the finances is a key one. Now, I'm hoping this isn't happening for you because really we should only be investing money in property that we know is there for long term because as we both know property isn't particularly liquid in that way.
And number three reason is you own property in your personal name. So you you may be in the situation where you bought property back in the day before the famous section 24 tax came in and it made sense owning it in your personal name. Now, if you don't have a way of incorporating, i.e. getting those properties into a limited company, you really can be hit with a lot of personal tax and honestly, I think there is a situation where let's say I was 40 years old or 50 years old even and I own property in my personal name and there's no tax efficient way of incorporating those for whatever reason, genuinely, I would consider selling them off, paying a bit of capital gains tax, getting that money into a limited business and starting again. As horrible as it is doing that, sometimes in life we need to take a step backwards in order to take a step forward. So those are the three personal reasons where I might consider selling.
So what I really want to break down now is the deal specific reasons you might want to exit, the mistakes that we often make. I know I certainly have, right? Now, before I go into this, there's a lot of information I'm going to share, the target criteria that we go through at Aspire in my business, but also to support you with this, I've got a free download below which is the buy-to-let bundle where if you're investing in property, you want to make sure you're investing in great deals. So I've got all of the tools that we use internally for our my own investments and our investors investments so you can click the link in the description, download them. I know you'll find them really valuable.
Target criteria. It's taken us about decade to get this together. It's our trademark system at Aspire where we go through this, a simple checklist really with a load of information to stop us needing to be in the situation where you might need to sell. First of all, type of property. If I owned a leasehold flat, I would sell it. I would. Now, this is a personal choice, of course, but the numbers just don't stack. Caveat to that, I do own some blocks of apartments. So, I own a block of 20 where they are flats, apartments, but I also own the freehold. Now, the reason for that is with a freehold, I actually own it. One of the key benefits of owning residential real estate in the UK is owning the bloody ground. You know, they're not building more of it. We're a small island. But a flat where I'm having to pay ground rent, service charge, and somebody else owns the land, it just doesn't appeal to me, and capital growth is frankly terrible. And by the way, if you haven't figured this out yet, that's where you're really going to make your money. So, type of property is really key. Two to four-bed houses. One beds, six beds, five beds, they're gone. And especially flats.
Next is the area. So, this is the A part of target. Area for me is one of the most important functions of investing in property. And the reason for that is the asset is bricks and mortar. Why does a three-bed semi-detached in Yorkshire cost 150 grand, but the exact property in central London might cost 4 million pounds? Quite literally, for the same house. Well, it's because of the area. And the area is absolutely everything, and I'll detail that in a second. But if I invest in the wrong area, it's not going to magically become amazing. Let me give you an example. I bought around 23 properties in the northeast in one of those mining villages, and they were about 50 grand properties. The problem is, 10 years ago, they were 50 grand properties. 10 years later, quite literally right now, they're 50 grand properties, or maybe 55,000 pound properties. They are not great investments. Now, let me tell you why. When property is that cheap, they stay cheap for two reasons. Number one, it's really hard to get mortgages on them. And then because of that, you have reason number two. Let's say you live local and that's the only reason maybe you would buy there, right? If you're not an investor, can't leverage as an investor, then you live there. You want to do it. Now you're Assume you're a local that has saved up 40, 50,000 pounds because you can't get a mortgage in Eden to buy this thing cash. How many of them have got themselves in a situation where they can spend 40, 50 grand and then want to stay in the location where properties are 40, 50 grand. In my experience, it's just not the case. And so what they'd rather do is go and get a 120 grand, 140 grand property in the northeast, which is a really nice area in comparison, being blunt about it, and that's where the capital growth happens. And so if you found yourself in that unfortunate situation that I have and you're aware enough to leave the ego at home and go, "I made a mistake. I bought in the wrong area. This is not going to go up in time. Cut your losses and move on."
Next is regeneration. Regeneration is I want to make sure that there's infrastructure going into play. Ultimately, I think of this as a customer. You know, if I've got a customer that wants to live in a location, what's going on around it? And so I'm looking for roads, hospitals, and investment going in. And you can go on the government website right now, look at your local council, and see what money they're plowing back into it. So I invest in key red regeneration zones.
Next is growth. I want to make sure there's historic growth. You know, the great thing about property is the data behind it. We've been measuring since the Doomsday books in 1086. It's almost a thousand years of data since Cromwell decided we wanted to get a measure on it. And so I'm going to use that data and I fully understand that the past doesn't guarantee the future, but it is a good indication. Use the data available and make sure that there is historic growth to indicate that's going to continue in the future.
The next thing is E in the target, which is existing. I only invest in existing properties. Um never invest in off-plan. If you have, this is going to sound horrible, but cut your losses. And trust me, I've been around many people that have put 30, 40 grand deposits 3 years ago, only to find out the property's finally finished, they try and get a mortgage, and shock, horror, it's not worth anywhere near what they thought it would be worth. Walk away. I know it's horrible walking I cannot imagine walking away from 30 grand, but what you need to realize is by buying that off-plan, you're not recuperating the 30 grand. You're buying at the current market value, which is below what you thought, and then it's going to go down another 10% over the next 18 months, cuz that's what new builds do. So, I only invest in existing properties 10 years or older, because it's had its time to depreciate, and then it's stabilized in the market and going back up.
And then finally, tenant types. You know, we we target typically working professionals and young family, and that all indicates growth and a longevity in the customer that I'm going to have in the tenant. Sometimes, I've invested in properties where I didn't look at the data well enough, and after 2, 3 years, it's just I get a tenant in, they don't pay, they leave, they damage it on the way out, then I try and get another tenant after spending 5, 6 grand tarting it back up again, and then the cycle repeats, and at a certain point you have to go, I've bought the wrong property in the wrong area, and that's the reason I'm attracted to this tenant type. And so, sometimes it's cutting your losses, and I've done it. I've lost money exiting on a property, but I promise you the time and energy that you're spending on that, it is an absolute drain on your resources that you can put to better use. So, the key thing with target criteria is every reason that I've told you that you would get rid of a property, you can focus on what makes it a great property, so you never come up against that situation.
Just before I wrap up this video, I want to tell you some of the wrong reasons that I see people selling their property. I'm like, "Oh, I wish you just held your nerve." Number one, market uncertainty. Change creates chaos, creates fluctuations. And when there's a news that comes out, a new government, new legislation, whatever it is, causes a bit of a ripple and you go, "Oh my god, there's fear in the market." And I want you to remember Warren Buffett's quote, "Get fearful when others are greedy and greedy when others are fearful." So many people panic when there's market uncertainty. They go, "Oh my god, should we get out?" It's like, "This market, property, has lasted over a thousand years worth of data of going up. There has never been a 10-year period ever where it's gone down. Lean into the positive."
Number two, a better return elsewhere. Um, that's where I picked up some of my best return that deals, if I'm honest. That's crazy, isn't it? My best deals I've ever bought is buying them from other investors that wanted to exit this opportunity really quickly to then put money in other things. And that's included a bigger development opportunities, stocks and shares, they've got a tip that's come through, Bitcoin, all of those sort of things. And the reality is, you're picking something where you know the data is good. It supports making a great investment. And then you want to sell that to put it into something new. The reality is, if the opportunity you have is that great, you'll be able to raise money against it. Don't exit a great gold opportunity for the proverbial diamond that could come up.
Next is negative cash flow. Uh, I have, I'd probably say about 10% of my property portfolio doesn't cash flow positively after the management, the maintenance, everything like that. And that might sound crazy. So, hold on a second. You own rental properties, but you don't make a profit on a monthly basis. No. Some of the strongest capital growth areas operate at that level. But, what if I told you that in those same areas, I've refinanced 5 years later and pulled out north of 70,000 pound just from owning the property. So, I've had 5 years of, say, losing two grand a year to refinance and make 70 tax-free money. And so, I look at a property holistically from rent and capital growth to look at the overall net wealth improvement over a 5- and 10-year period. Just because it's in negative cashflow does not mean it's a bad property.
And finally, legislation change. If there's one thing I can guarantee you is that restrictions and government legislation will only get worse. Think of every rule that's coming from a speed limit to when to cross a road. All of those rules have come into place because somebody did something to neglect a softer legislation. And so, whether that's section 24, whether it's the Renters Right Act, EPC changes, anything like that, there's always going to become more legislation. Now, the fact that will always be true is it was so much easier 10 years ago. Yes, and you'll be saying that in 10 years. But, one thing's never going to change. No matter what happens in the market, legislation, the economy, whether it's Labour, Conservatives, or any other government coming in, people will always want a roof over their head, and people will always be willing to pay the market rate.
As long as you follow this target criteria, you'll be in a really good place, and make sure you're taking advantage of all of the resources in the Buy-to-Let Bundle. It's exactly what we use internally, and we've done over 2,000 transactions largely based on the tools and techniques that are involved in that bundle. Let me know in the comments if there's anything missing you think could add even more value and we'll get that added in as well. And by the way, a nice additional bonus for you is if you download that bundle, you'll get a call from the team to see if we can help you build your portfolio to get the right properties. So, if you liked what you've just listened to and you want to see more content like this, make sure to subscribe and hit the notification bell and I'll see you in the next video.