Build a passive income stream by investing in profitable boxes

publication date: Dec 7, 2009
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author/source: Guest article by Platinum Property Partners
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The founders of Platinum Property Partners spent many years refining - and subsequently franchised – a system for generating significant monthly cashflow from investing in a specific type of buy to let property.  They believe making the best returns in 2010 is going to be all about investing in ‘profitable boxes’, underpinned by sound business fundamentals.

The property investment sector has had its ups and downs over the last couple of years and many landlords and investors have been forced out of the market by a lack of cashflow, capital and equity.  However, PPP – the world’s first property investment franchise, which was founded in mid-2007, just before the start of the credit crunch – has grown quickly through this property market downturn, with 45 Franchise Partners recruited to date, and more high net worth individuals waiting to join.  By investing wisely, following PPP’s proven core business model and with the right expert advice, FPs have continued to expand their portfolios and make profit through the recession. 

More than ten years of rapidly increasing values from the mid-1990s lulled homeowners and investors whose properties were mortgaged into a false sense of security, and too many aspiring investors were fed the dream that with little or no experience, money or time, they could get very rich through property, relying entirely on the rising market.  The ease with which people could re-mortgage and release equity led to a dependence on capital appreciation to supplement incomes and help service property debt and maintenance costs – a situation that was unrealistic and clearly unsustainable.

The ‘Holy Grail’ of Business
Approached correctly, however, the beauty of property as a wealth creation vehicle is that not only are you investing in tangible assets which will certainly appreciate over time, but you can refurbish and let them out in such a way that the rental income not only covers the mortgage, utility bills and maintenance costs, but also gives a significant positive cashflow.  Ensuring you have something that is generating a healthy monthly profit allows you to ride any market correction, because even if the property’s value has fallen in the short-term, it is still providing you with an income.  PPP’s Franchise Partners are seeing returns of £1,000+ pre-tax profit per month, per property, even allowing for void periods, and their portfolios are perfectly fulfilling the criteria for what is considered ‘the holy grail of business’: sustainable and profitable business growth with an appreciating underlying asset base. 

This kind of cash-positive investing starts with the principle that an investment property is essentially a money-making box.  How much profit you make in the short and long term simply depends on what you do with the box: what you buy, how you divide up the space inside and how you tenant and manage that space.  Too many people still run into difficulty because they have been blinded by a low asking price, attractive sales particulars and promises of future capital growth or rental demand, and they have forgotten the fundamental rule: start with the profit and then find the property to fit.

Getting in shape for maximising profits
You need to have tools in place for accurately assessing the demand in your area; the capability to analyse the financial criteria and understand exactly what elements your ‘box’ needs to have in order to provide the level of profit you want or need.  You need to know how to attract the right tenants and have cost effective, proven systems for managing both the tenants and the property itself, including understanding all the costs and potential variables that could affect your profit.  This way, you can plan for a worst-case scenario and protect any downside.  You also need to observe the basic principles that underlie any business, and these are all things that PPP helps its Franchise Partners understand and achieve. 

Before starting out, you need to find out what kind of entrepreneur you are and what your attitude is towards wealth, risk and debt accumulation, because property investment isn’t for everyone.    Decide what KPIs are important to you, understand how to measure them, and make sure you have excellent administration systems in place.  You must have good ethics and integrity in your dealings if you want to enjoy long-term success; you need to be a people person - certainly in the property business - and you have to keep learning.  As the old adage goes, ‘you don’t know what you don’t know’, and particularly in an ever-changing market like property, it’s vital that you seek out successful people at the top of their game to help fast-track your own success.  And, importantly, give something back – whether it’s money, knowledge and skills or just time. 

The beauty of a franchise is it is a proven, documented business model, and PPP’s is one where the operations side can be fairly easily handed over to a property manager, thereby making the income stream from rental profit virtually passive.  The aim is that within 3 years all Franchise Partners should be working almost exclusively on their business, rather than in it.

Beating the market
Professional property investing is not simply about buying houses, putting a tenant in and relying on the market to deliver a return.  Anyone can buy a property and wait for its value to go up in line with the market; the skill is in 'beating' the market and bettering those returns. 

A good example of this is a Leicester-based Franchise Partner who bought a former nursing home in Spring 2008 when it was only worth £225,000.  He spent £60,000 refurbishing it so that he could let out individual rooms to working professionals and it now delivers  over £4,000 a month in rental income, giving a pre-tax profit of over £2,500.  In comparison, an investor letting this out on a single tenancy agreement could expect rent of around £1,000 a month.   The property has recently been re-valued at £335,000 - that’s an increase in asset value of £110,000 – and it's happened during a recession.  The market-leading profits the property is generating means it can be valued on a part-commercial basis; if it were to be sold as a family home its market value would be around £50,000-£70,000 less.

With the current shortage of affordable housing and tightened lending criteria, there is considerable demand in most towns and cities across the UK for this kind of house share accommodation for young working adults, and the beauty of property is that it is a box that can be adapted to provide different kinds of accommodation if and when required.  The latest figures from the Office of National Statistics indicate that by 2033 there will be around 6 million more over-65s, so it’s no joke to suggest that in the future there may be a need for HMOs or bedsits for the older generation.  The government simply cannot afford to provide sufficient new housing to satisfy the demand, so much of the supply will have to come from the private rented sector.

Maximising profit and establishing a good stream of passive income from property is a simple concept to understand, but not an easy strategy to implement.  You need to affiliate yourself with experts who have proven themselves over time and who have a vested interest in ensuring your property business is profitable both today and in the future.  For smart property investors who surround themselves with the right professionals and firmly believe you don’t get something for nothing, 2010 is going to be another superb year!

For more information and to find out more about PPP’s ‘Discovery Days’ visit www.platinumpropertypartners.net or call 0845 293 2877 and speak to one of the team.


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