alternative lifestyle london is born out of one investor’s question: ‘Then what?’
You have worked a few years, acted responsibly and saved and you have options. You don’t want to carry on on the treadmill, and if you had your time again, you would do things differently, the benefit of hindsight is a wonderful thing, but it tastes bittersweet. It turns out, in this post 4HWW era (https://fourhourworkweek.com/), you don’t need a lot of money to do what you want to do. You do not need the £1M to live a millionaire’s lifestyle; just a spirit of adventure, creative mindset and an opportunistic eye.
There are several ways to solve the problem of income to allow more flexible lifestyling.
- Digital Nomad. Have a sympathetic employer and a very flexible working arrangement. Case in point was Alex Steeno who gave a short talk in the first a.l.l. meeting. Alex’s forward thinking company allows total flexibility in location so that he is free to travel and therefore as long as he has internet access he can work from anywhere in the world which enables him to spend a month in a country and then move on.
- Be your own boss. The 4HWW formulated this well, essentially, build a business which can be streamlined, automated and outsourced so that you take yourself out the loop. Voila, a passive income.
- Composite, flexi-time or seasonal working. Having different incomes from part-time work, projects or working part of the year
- Investing for income. Not a.l.l. people have money to invest, but if you do and you are working full time, then have you considered that your life could be transformed through using your nest egg to invest for income now?
Lets look at Option 4. investing for income
Cryptocurrencies like Bitcoin are highly volatile and in light of recent losses those warning of a bubble certainly seem to have a point. If regulation comes in, which certainly looks likely, the gains will be less dramatic in the future. Meanwhile, the stock market provides low returns and the property market has a lot of issues at the moment. With U.K. interest rates at an historic low, creating income streams is a challenge Before attempting to solve this, it is important to acknowledge what these challenges are. What follows are thoughts following experience of twenty years plus in property investing (U.K.) initially in London then in the North. This is about being real so there is no fake gloss on it. We will return to investing later, but this post is there to pose the problem. If you have a take on this, either a solution or want to give your own experience please feel free to comment or message us.
a.l.l. that’s wrong with property
The benefits of investing in property are in the leverage of the bank’s money through mortgages which enables you to use your money to get 4x its value in investment. If the rental yields are high, this increases the return on your investment (ROI). For example, a 2 bed house in Southampton bought with a 6% return is now producing an 11% ROI due to zero service charges, low agency management costs and ultra-low mortgage deal. Fully managed, it produces zero hassle and is always fully let. It’s a dream idyllic investment that works and does what it says on the tin.
Venturing further, up North, where a lot of Londoners are putting their money, there are seemingly high yield areas like Doncaster, that promise above 10% yields (and therefore 25-30% ROIs once levered with bank money) which are fraught with problems including managing maintenance issues remotely and void periods.
The UK Buy To Let market (BTL) is going through massive change. The government appears to have it in for landlords and whichever government gets in power it does not look set to get easier. The regulations are going to get a lot tougher for landlords and rights of tenants and rent hike limitations expected. The automatic 10% income offset for repairs and maintenance was taken away. Tax changes have meant that for high income earners, it no longer pays to have property in your personal name because the mortgage interest is no longer tax deductible (this is being introduced over a four year period) so it is possible to pay more in tax than you are earning in profit! The stamp duty hike April ’16 added 3% onto all residential property investments. Buying in a limited company does enable mortgage interest to be deducted before tax, however, typically mortgage lenders charge more for mortgages bought through companies.
Brexit (and the economic downturn) produces three MAJOR issues with property. The first is that foreign investors are not going to put money in a falling London property market. Investing off-plan, once a no-brainer now carries huge risks, which could be a blog on its own but to sum up, when buying a property that will complete in a couple of years time, you put a deposit down now and exchange tying you into the deal. Problems include:-
- Risk that the mortgage rules have changed or mortgages are no longer available
- Big developments flooding the market making it difficult to let and reducing the value of the asset rendering the whole exercise pointless at the least and at the worst, leaving you with a burden that cannot easily be re-assigned and an impossible task of completing on a property that does not stack up to the banks.
Secondly, uncontrolled immigration, the very thing which Brexit aims to solve, is the lifeblood of high yielding properties up North (where Londoners are turning their attention). The reduced value of the pound is a deterrent for Eastern Europeans to come and work in the UK and send their money back home. This makes void periods more likely eating into rental profits.
Note this isn’t a political article, we are not concerned with the politics of being a landlord but the bottom line figures. Property in a sense is a ‘black box’ which in the past has proven highly lucrative and very easy to profit from. Now, one needs to get in the black box and understand much more about it.
The third issue is the unknown effects of Brexit on specific markets. Again, take the impact of financial passporting on the City of London. It is one thing to assume that people will always want to rent in London, but what happens to rental areas affected by thousands of job losses when the banks shed their services.
e.g. We know of people who lost £150k in off-plan investments in the Royal Wharf development which was hailed as the third financial centre in London. Did the investment from China materialise? The billions assumed at the time it got the go ahead? (We suspect not).
There are a whole bunch of property models which are the subject of PIN (Property Investor Network) meetings up and down the country and property webinars that include serviced accommodation, HMOs (houses of multiple occupation), BMV (buying below market value) and JV’ing (joint venturing, using other people’s money). The problem for alternative lifestylers is that these all require time and effort and whilst they may work they just replace one job for another and are certainly not a get rich quick scheme.
This is why a lot of landlords have fallen out of love with property. However, therein might be an opportunity. In a weak market, there will be bargains to be had, BMV deals perhaps, but it definitely isn’t for the feint hearted!