At the end of my chat with Richard, he kindly offered to answer the questions I didn’t have time to ask him on the day:
What would you advise an expat looking to get started in building a property portfolio?
Start with why! I have so many people come to me and say something along the lines of 'which is the best property strategy to follow?' That's the wrong question to ask at the beginning. I always encourage people to first ask themselves 'why am I looking to invest?' and 'what do you want out of life in general terms? The answer to these first two questions often boils down to seeking some kind of improvement in circumstances or relates to one of financial, time or location freedom. Myself and Julie Talbot, an expat/travelling investor, happened to write an article for YPN magazine on this topic, which will land in the next issue. There is a follow up also planned. People can either subscribe to the magazine or they can get access to all of my personal articles by asking Karen to be added to the YPN subscription list as above.
Then, you can start to drill down by asking the 'how much' and 'by when questions'. Follow this up with 'in what way is it important to me', 'what resources and skills do I have or have access to', and finally, 'what are my non-negotiable items or things that I cannot compromise on, or am not prepared to do?'
Specifically for an expat looking to get started, all of the above PLUS two additional big ones. Make sure you put in place some mechanism to a) have your own 'eyes and ears' on your portfolio along with b) trustworthy 'boots on the ground'. There's a few ways to tackle both of these must haves, including partnership, employing/contracting an independent or working with outsourced agents and service providers.
What does the word risk mean to you?
Risk, as with beauty, is in the eye of the beholder! To me, risk is about aligning our investments returns and objectives to our risk profile or appetite. This is because there is almost always a trade-off to be had between risk and return...as well as security for that matter. For me specifically, it's also about risk control and management, risk mitigation and risk recourse.
Our 'risk profile' or 'risk appetite' is often heard spoken of in financial circles, so more info could be obtained from advisers or sources around this topic. I guess people should consider their risk profile on a scale of 1-5, where 1 is completely risk-averse and 5 is highly speculative and adventurous. Let's put some meat on to that scoring bone, consider that a 5 could imply targeting high returns in the full knowledge that in doing so, there is a real chance of not only a loss/reduction in returns (i.e. interest, dividends, profits, etc.) but also a very real prospect of the partial or total loss of your original capital as well. Contrast this to someone scoring a 1, who might want some pretty strong assurances that they will at least get every penny of their original capital back and this is the most important thing to them above their investment returns.
Personally speaking, when starting out, I had a pretty adventurous attitude to risk, possibly scoring a 4 back them However, in reality, I also had little to lose, seeking quite an upturn in my fortunes and return expectations as the trade-off. As is often the case, our attitude to risk can and does shift over time. These days, I am less adventurous than I was. I would probably score myself with maybe a 2.5 overall, although I now have a more balanced investment portfolio, which allows me to allocate different segments to different types of investment risk/return ratios. I want my core investments to be a 1-2 but still have some at the 3 level and the odd small part of my portfolio in the 4-5 category. However, I deliberately restrict the highest risk investments to 5% to 10% of my portfolio now.
In property, there is usually the physical asset of the property itself and so many people will be focused on who has the rights over the property under certain circumstances. However, all is not as clear and straightforward as it might appear here! I go into quite a lot of detail about risk, return and security in my latest book, The Complete Guide to Property Finance (unashamed plug!). However, I am prepared to pull together a small extract and summary around this for your listeners, if they would like that? Equally, a while ago, I did also prepare some material around what I call, Making Your Portfolio Bulletproof. If your listeners would like copies of these resources kindly ask them to drop an email to Karen, my assistant email@example.com and ask for Expat Property Bulletproofing and Risk Summary and we will send them a copy of that.
In terms of risk control and management, risk mitigation and risk recourse, there's much that could be said, although let's keep it short and simple as follows:
Risk control and management to me is about our PERSONAL ability to control or manage what happens with our investments. Very often, we have 'external agents' that either directly or indirectly influence or control the outcome of our investments. We simply can't hope to control everything and everyone, so this is a case of identifying what we can control and manage and then take active steps to ensure we do. One very practical way that I like to do this in practice is by always looking to add value to my investments in a way that I can directly control or at least try to anyway. Forcing the discount, forcing the appreciation and/or forcing the yield are some of my go-to methods of doing this. Keep in mind that it's easier to have a little bit of each, rather than a great big dollop of a single one of these 3Fs, however.
Risk mitigation could get us covering a lot of ground but is best summarised as undertaking due diligence on your investments and investment partners, documenting things in the most appropriate manner and then having a mechanism to check on things along the way. The term 'trust but verify' is one well-coined term that I tend to use in this area.
Risk recourse basically means having a view of your options should things go wrong! Things like the first two points are the building blocks here. Then it's a case of knowing what you can do to recover your investment in the worst case scenario. This might include things like legal charges or similar over a specific asset, guarantees, warning and/or alert systems and as a very last resort, litigation rights. However, it's fair to say that if you need to consider some sort of legal recourse or litigation, then the chances of full recovery are likely to be diminished in many cases. Litigation also has more than one 'cost'. There is the financial loss, the enforcement cost, the cost of time lost and the also personal cost to consider. Finally, there is sometimes more formal protection here, although less likely with property investment. This might include the FSCS Compensation Scheme for bank balances, for example.
There is much I could add when it comes to risk but the most important thing is to a) understand your own attitude to risk to align our investment strategy to this and b) to accept that there are NO guarantees on life and definitely not in property investing!
Can you tell us a little more about Property Deal Tips?
Easy one this, it was a service that we used to offer to help people find decent on-market property deals, although we no longer do this now.
What advice would you give to this email I received from a listener: I have been trying to refinance my London property to release equity and reinvest into more but it's not been that straightforward. Currently waiting on a broker to see if he has any options for me, so far it's looking like 5-6% interest rates!
This one is not my speciality, so I will simply say...make sure you engage a good, specialist mortgage broker with actual knowledge of working with lenders that support an overseas-based investor.