Case Study - Balls Of Steel!

Sent in by Diane Lance (ex Money Gym Platinum Club Member)


Note from Nicola: The community aspect of The Money Gym club is the hidden jewel in the crown of our membership site. You can usually make contact with any of our experts and ask their opinion of your own specific circumstances. Diane contributes a lot to the group, and has been very active developing the website for her new holiday cottage in Cornwall (her first property investment) hence Maria knows her well and was willing to help her out with some valuable free advice. Advice which turns out to be worth nearly a million pounds over the next 4-6 years.....

Here's Diane's Story:

Reproduced with kind permission of Diane Lance and Maria Davies:


Hi Maria,

I wonder if I might ask your opinion, as a (fellow Money Gym Club member) and lady who has "done" property for many years?
 
We are just about to do a let to buy on our family house in Brighton. We are purchasing a new family home in Lewes, which will need some work (notably loft conversion) so that it is big enough and comfortable enough to accommodate the 4 of us.
 
When I realised it might be feasible for us to move without selling the house in Brighton, I was very excited. But since then I have agonised over the fact that our monthly outgoings will be high on the new house - close to the wire vs income each month - (we are taking 85% mortgage), our savings will be consumed and we still don't quite have enough in the pot to do the loft conversion (I am estimating we are about £10K short, which I am thinking we could put on a 0% credit card for a while).
 
Do you think the short term cash flow concerns will be worth it in the longer term?  At my age (47) I don't want to be completely skint, I don't want to work for ever and I don't want to take uneccessary risks. I am scared we're going to have a completely horrible year racking up money on credit cards and that it will all crash and burn around us.
 
Am I just going through the "out of comfort zone" feelings or am I doing something completely foolish? You must have done scary deals in your time, how did you make the short term cashflow work?
 
I can provide specific figures if you need them, but would appreciate whatever advice/ experience you can provide. As always, happy to give something in return, maybe we could make this into an article for your
website?
 
Much Love,
Diane

http://www.CottageHolidayInCornwall.co.uk  
+44 (0) 1273 383569


Maria's Reply:

Hi Diane,

I know this scenario so well as I've been faced with similar so many times.

You can take the easy option and sell and be comfortable, which is also the short term view, or you can adjust to make some sacrifice and take the longer term view.

If you consider that the Brighton property will have doubled in value in 10 years time, what will you have made? And what will that translate to year-on-year? Then consider whether the sacrifice is worth it?

You're also thinking that you don't want to be going from a position of comfort to struggling and the older we get the less inclined we are to want to bother with any struggle, we get used to the comfort and security. But think how long you might have a struggle? Not very long in the greater scheme of things. After doing the loft, can you remortgage so you can repay the credit cards and get back on an even keel? Over time, rents will go up and values will certainly go up, but in keeping Brighton, you're not in it for the rent, you're in it for the growth.

Here's an example: right now I have the option of either selling or keeping a property worth around £495K. If I keep it, the rent will not cover the mortgage, there will be a shortfall of about £600 a month. 

If this situation remains for 10 years, I will have spent £72,000 subsidising it, BUT, if it takes 10 years for the property to double in value (right now, it's taking just over 4 years in the South East, 6.2 years countrywide), I will have made an additional £495K, less the £72K spent in rent subsidy = £423K profit, £42,300 a year (a decent gross salary?). Even if I never rent it and just continue paying £2100 mortgage payments each month over 10 years, I will have expended £252,000 so I'll still have made £243K.

My advice is to take a long-term view and consider whether the end result will be worth the sacrifice. And, yes, you are going through this because you have the option of pushing your comfort zone (hence the use of the word "comfortable" so often in this discussion). 

If we're not scared, we're not growing and if it's not scary, it's not worthwhile - that's my motto. But I know our "scariness muscles" get lazy over time.  Maybe time to get them pumping iron again.

I think you know the answer yourself, but just want to hear it repeated back to you :-)

Good luck.
Love,
M.x

Find Maria at:

The business opportunity of the decade:
http://www.agelnow.com
Presenting for Profit, free regular tips at:
http://www.laddersofsuccess.com
The Property Resource Website for Women:
http://www.womeninpropertyinvestment.com


Then I got this email from Diane:

Hi Nicola,

Just thought you'd like to know I've taken the plunge and I am buying a new family home in Lewes, and I'm going to rent out my property in Brighton. 

A scary prospect for me as money is going to be tight for a while. I bounced my fears off to our very own Maria Davies and she came back with some wise words - I've copied the email trail below and wondered if any of your clients (or ezine?) would benefit from them as many people must go through the same feelings and fears. 

I've come a long way since we first made contact in July 2005, you told me then I could be financially free with a bit of work and bottle but at the time it was too new and I didn't have the b*lls to do it. 

Well, if this new deal all works out then we will own about £920K worth of property, two thirds of which is self- financing. If we can get through the short term cash flow issues then I'm hoping in a few years' time we should be very comfortable.

I hope the story is of interest.

Happy Easter, Love,
Diane


*Note from Nicola: If property does what the people in the know predict it will, then Diane stands to make nearly a million pounds, without working, tax free, in the next 4-6 years. They should be very comfortable indeed!*