This has to rank as one of the most common questions that I am asked. Now, I have made no secret of the fact that all my portfolio is within an hour drive of where I live (and most of it within 15 minutes.)

However, given I was asked the question so much, I thought that I should get up to speed on some of the most popular overseas investment locations, Cyprus and the USA.

In June, I went on the Invest In The States course run by Ayshe Kadir.

In this article, I am going to talk about the USA rather than Cyprus.

The reason that I chose Ayshe and her course is that she is first and foremost a property investor (who happens to enjoy training people.) I have a concern about courses run by people without any real expeirience, or good presenters who present material written by others. In this case, no problems - Ayshe has been a landlord in the UK for many years, and has been investing in the States for several years. Everything she teaches is based on her own experience, not just a re-hash of a book.

As we all know, it IS possible to source properties below market value in the UK, by concentrating on finding people who value a sale quickly more than they value the best possible price. However, as we also know in the UK, it can be time-consuming to find these people.

In the USA, however, the information about people who are behind on their mortgages and therefore facing repossession is regarded not as private, but as public information. This does not mean that it is free, but there are places where it can be bought very cost- effectively.

This difference, and this alone, makes a huge difference to the investor. Anyone going into the course with a UK-leafletting mindset will be pleasently surprised at how that step can be bypassed.

Ayshe teaches not only how to find this information, but how then to make use of it and convert those leads into sales. While some of the techniques she uses are similar to those that I teach in my negotiation course, and others are similar to those that Parmdeep Vadesha and Glenn Armstrong teach on their BMV courses, there are others that are peculiar to UK people investing in the US.

The course is both detailed and interactive - rather than using a pre-canned set of Powerpoints, Ayshe looked at a live lead she had just receive by email, then went through the process of getting more information, obtaining comparable pricing, and preparing for the initial contact.

Rather than having a live conversation with a vendor in the course, though, she played a pre-recorded conversation with one from whom she had bought a property the previous month. This added to the atmosphere (though with a thick southern drawl, was hard to follow at times when played back to the room.)

The material for the one-day course I attended was on finding and negotiating with pre-foreclosure vendors in the States. Ayshe also runs other courses on Tax Liens, Tax Deeds, and Deed Trading.

In addition to the course itself, Ayshe includes a very comprehensive manual which not only reviews the principles and practices she teaches, but also gives in-detail assessments of many different areas within the States from an investor's perspective.

I started out somewhat sceptical about the concept of investing in the States, and after the day am very much more positive. I have not (yet) bought there, but feel rather more confident about my ability to do so now.

I also persuaded Ayshe to give me a quick interview, which I recorded and is now available here.

So, the key question - do I recommend the course?

Only to certain people:

• If you are COMMITTED to investing in the States, then this is the best resource I have yet come across, and I would recommend it without hesitation.
• If you are CONSIDERING investing in the States, then I would recommend you go to one of the preview Seminars that Ayshe runs. These cost about ten pounds each, and will give you about an hour basic training, followed by some more nformation about the course.

To get more details of the course, or the preview seminars, look at Ayshe's site

Declaration: I receive a small commission if you go on the full course as a result of following the link above! I do not receive anything if you go on the preview seminar and decide that the course is not for you.

You have got to flinch visibly, or you have got to GASP audibly over the phone. You have got to do everything that you can to make the other person feel uncomfortable, that you do not like their figure.

At my seminars I explain that I am about to try and sell them something. Now the price I ask is probably a little more than they are likely to want to pay. (I do however point out that if anyone is stupid enough to agree to my asking price, that I have witnesses in the room.) The purpose of this set-up is not to try and rip them off by asking far, far too much, it is to get them practising the Flinch and GASP. It has got to be practiced so often that it becomes automatic.

I make the offer to those assembled:

My drinking glass, and it is not just any old drinking glass but the one I am using at that moment, exclusively filled with the local tap water, with maybe a hint of lemon for flavour. Remember the longer that they leave it the lower the water level gets as I take a drink; so the quicker they agree to the deal the more they are going to get. This glass ... with the water is available to them for ... ONLY ... £169.00

GASP

They are very good at flinching when I offer them something £168 more than it is worth.

But most of us are probably fairly bad at flinching when someone is offering you a property at £20,000 more than it is worth. Which would you rather do, pay twenty grand too much for something or £150 too much for something?

We have all heard the statistics: 70% of the impression you get is from how I stand and my gestures, 20% is the tonality of my voice, only 10% is from the actual words used. On the phone you only have the 30% that is audible to go on so you have to make sure that it has all the impact you can muster. You have to make sure that you come up with some noise that is automatic, and is authentically "you".

For example those with an American accent (you know who you are, Kim!) might use the words, "You have got to be kidding me," in a surprised tone. Anything which the other party will think is straight from the gut and think, "my goodness, she has reacted badly."

You have got to flinch whenever an Estate Agent mentions a figure. You have got to flinch whenever a vendor mentions a figure. BUT if you are only doing it with property it means that it won’t be automatic enough. You have got to learn to flinch at car salesmen. You have got to learn to flinch at the checkout price in the supermarket. You have got to flinch at the monitor when you are shopping at amazon.co.uk.

Do this at websites to practice the reflex. Has Amazon ever taken a penny off my shopping cart total because I have flinched at the monitor? NO. Has getting so good at flinching at prices saved me tens to hundreds of thousand pounds over the last ten years? Yes, absolutely!

OK - not that long ago, and actually close to home, but here is a true story.

The year is 1994. A young landlord (for this is what Property Investors used to be called) is looking for his first property. He has thought about rental demand, and knows what he is looking for, so he goes into several estate agents on the High Street.

He pays just under forty thousand pound. A tenant moves in immediately. In the first year, the property just about washes its face (covers its costs), but then next year our hero puts up the rent, and it starts to bring in cash.

Ten years later, the property is worth well over one hundred thousand pound, and is generating three hundred pounds per month in positive cashflow.

Now the same story, twelve years later. A young property investor (for this is what Landlords now call themselves) is keen to find some rental property. She too has thought about rental demand, and knows what she is looking for, and decides that estate agents are not the answer, but instead she should print out about ten thousand leaflets, and get them distributed locally.

She has been on many training courses, and learnt that estate agents cause problems, buy the best properties for themselves, and add costs for investors.

Now, make no mistake. All these things she believes are SOMETIMES true. Some estate agents do, indeed, snap up the best properties for themselves. Some do tell buyers not to accept low offers. Some do treat potential buyers as if they were some irritation... and these are not estate agents worth dealing with.

However, there are estate agents out there who WILL allow the good below market value deals to go to investors WITHOUT betraying their clients.

A good estate agent will know they have a motivated vendor and seek the best terms, in money, speed and security for them, and not focus on the single dimension of price. Obviously, over ninety per cent of vendors just want to focus on price, and the estate agent will do this for them - it is the others that make the investor their money.

Please, do not mistake me here. I am NOT saying that you should abandon your leaflets and local adverts, and personal contacts, and word-of-mouth referral fees...

... but I am saying that, as an investor you should not cut yourself off from ANY potential source of deals.

So yes, I do continue to build relationships with estate agents, and I do continue to leaflet. I would no more consider dropping one than dropping the other.

This came very clear to me a couple of weeks ago, when I went on a one-day training course given by Glenn Armstrong. He is one of the two people I consider to be the UKs leaders on leafletting. (The other is, of course, Parmdeep Vadesha.)

However, Glenn said, even on that course, that some of his leads come from estate agents.

Once you have a process in place to give good service to motivated vendors you find, and are able to solve their problems in a way that leaves you a profit, then does it really matter where the leads come from?

... interest rates are going to go up later in the year...

Quite how the staff member in question knew this was not clear to me!

The UK Base Rate is set by the Monetary Policy Committee (MPC) of the Bank of England. The Bank of England was, until a few years ago, controlled by the Government, but Gordon Brown made it fully independant. It now has a mandate to control overall levels of inflation within the economy, and is not so subject to a knee-jerk political agenda.

Unlike central banks in some other countries, the MPC does NOT publish what it is going to do in avdance. Instead, the MPC meets monthly, and takes a vote on what to do with base rates, and any changes come into affect immediately.

As such, talk about what is going to happen is at best speculation, and at worst wishful thinking.

What has changed is that the MPC have adopted a subtly different approach over the last 24 months or so. In the past they would only publish the minutes of their meetings, and avoid speculation on what might happen.

In the last couple of years, the so-called soft approach has taken hold. Bank Officials are more willing to make statements about what they would need to do if does not change.

So, anyone who says that they KNOW what is going to happen to interest rates is, well, wrong!

The something, however, brings me to the second important point about interest rates. They are a broad tool which affects everything in the economy.

If interest rates go up, it puts downwards pressure on house prices (because mortgages cost more), downward pressure on consumer spending (because credit card bills cost more), but upward pressure on the strength of Sterling...

... when UK interest rates are higher, overseas investors can get a better return by depositing their money in the UK, so buy more pounds, selling Euros / Dollars / Dirhams / Whatever.

As more people want to buy pounds, the exchange rate changes so that a pound buys more Euros / Dollars / etc.

This is good for folk who live in Britain and want to buy goods imported from overseas, since it now costs fewer pounds to buy a 100-dollar item.

This is, however, bad for folk who work in Britain and want to sell their goods and services to people overseas (ie exporters). They find it harder to compete against overseas companies since their cost bases are typically set in Sterling. (Very few UK employees have a Euro or dollar salary, for example.)

So, if moving the interest rates has a complex knock on effect in many areas, the MPC does not do it lightly.

House prices are one area among many which must be taken into account, but the myth that the MPC sets interest rates to manage house prices is only slightly true...

I happen to believe that, at some point later this year, there WILL be a small move upwards.... but I strongly caution you to give my opinion in this matter next to no weighting!

The question for the investor is what can be done to protect against upwards moves. The answer is, of course, fixed rate mortgages. While the rate you have to pay now is slightly higher than a variable rate, you can lock in your payments for a fixed term - typically 2,3 or 5 years though longer fixed rates are available.

The downside of a fixed rate mortgage is, of course, that if interest rates go DOWN, then you are locked in to the higher rate. There is no free ride, after all.

Which you should do depends, of course, on your personal circumstances, and is another reason why you should find a good Indpendant Financial Advisor (IFA).

However, if your IFA tells you that they KNOW that interest rates are GOING TO GO UP (or, for that matter, down), then I would suggest that you run away, fast.

On the 23rd May, a group of leading doctors and scientists wrote an open letter to NHS trusts asking them to stop spending money on homeopathy.

In the media frenzy that surrounded this, there were the inevitable results - firstly a bunch of reporters who decided that homeopathy was too difficult a word, and that they should instead report about Alternative and Complementary therapies.

The second result was a whole bunch of phone-ins on local radio, full of people whose personally experience had proved that such therapies work.

If I can briefly outline why the established scientific profession is very dubious of such proof, it will, I hope, cast some interesting light on many of the things we hear about property.

The logic runs as follows...

Rather than talk specifically about any particular type of treatment, I am going to invent a marvellous new cure called Wibble Therapy.

The believer says something like:

My aunt / brother / cat was sick for 6 months, and doctors were not able to help. After 6 months, (s)he tried Wibble Therapy, and then got better.

The aunt or brother (and sometimes, it appears, cat) phone in to say that this is a true story. All their friends and relations know how much they had suffered for the six months until they had Wibble therapy.

The Wibble Therapist is then interviewed as an expert, and explains that he or she has used Wibble Therapy in tens of cases, and had many great results.

Then the bad scientist steps in:

The bad scientist notes, therefore that Wibble Therapy is 80 per cent effective (which is a lot better than much conventional medicine.)

Then the good scientist steps in:

The good scientist looks at the same figures that the bad scientist did, but also looks at what is called a control group.

That is to say that that good scientist looks at 100 people who had the disease for six months, and then received Wibble Therapy... ... but also looks at 100 people who had the disease for six months and DID NOT have Wibble Therapy.

The good scientist notes that, yes, in those who had Wibble Therapy after six months, there was an 80 per cent recovery rate... ... but will also discover that in those that DID NOT have Wibble Therapy, the recovery rate was X.

If it turns out that X was, say, 40 per cent, then we have good evidence that Wibble Therapy works.

If, however, it turns out that X was pretty much 80 per cent, then actually, it looks as if Wibble Therapy did not make any difference at all...

... except to the 80 people who have had it, and swear by it...

... and will spend the next 40 years arguing, loudly, that it is fantastic, and should be made available free of charge on the NHS.

What has this got to do with Property Investment?

Well, one of the things I teach on my Property Negotiation course is that you should never offer the asking price (because of the phsychological effect doing so has on the vendor.)

One of the questions I am inevitably asked goes along the lines of

I once missed out on a deal which I would have got if I had offered the asking price.... I could have bought that house for 60k, and now it is worth 200k... is this not bad advice?

This is Wibble Believer, thinking, and the only way to answer it is with another question:

Firstly, how do you know what WOULD have happened?

If you HAD offered the asking price, maybe someone would have come along the next day and gazumped you. It is impossible to tell what might have happened, only what DID happen.

Good evidence is not based on looking at a single case, but on looking at large numbers of cases, and seeing what happened when you DID do something, and how that compared to when you DID NOT do that something.

The reason that I teach that opening by offering the asking price is a bad idea is that it is something I have tested properly, and researched (ie - paid attention to the testing by other people) in detail.

The other point worth making is that, if you have been looking at so few deals, that one missed deal some years ago looms large... then you are not looking at anything like enough deals.

The serious property investors I know report figures along the lines of 1 in 20 for the ratio between those properties they view and those they end up buying. The ratios for those they rule out after just a phone conversation, and do not even waste time viewing are often much higher.

If you are only looking at a couple of deals a month, then the problem is not your negotiation style!

By the way, if you are interested in rigorous review of different treatments, then have a look at the University of Oxford Bandolier site

... while they are not impressed with homeopathy, they have come down very strongly in favour of the use of honey to treat wounds!

In the stock market, you have no operational control of the company (unless you are at the level where you can buy into a position of power, which either means having a LOT of money, or sticking with very small companies.) It is worth noting that the most famous stock-market investor in the world - Warren Buffet - has a long track record of not just buying stocks, but buying CONTROL of companies, so that he can leave in place good management aimed at meeting his long-term objectives.

In pensions, one of the traditional problems has been the need to buy annuities.

When I read the article below on the website of my accountant - Mike Lewis - I tore up my notes on annuities and emailed him asking whether I could reproduce his article instead! Fortunately he agreed.

With property, I have control over two critical things:

• When (whether) I buy
• When (whether) I sell

By simply being prepared to walk away from a potential purchase, I have avoided many deals that looked OK, and concentrated on the few that looked outstanding.

What I have discovered over the last 15 years is that I did not actually need a very big portfolio to become financially free. What I did need to do was ensure that everything I bought put a good amount of money into my pocket at the end of each month.

Buying property (on anything else) on the HOPE that it will go up in value is not, in my book, investment. It is speculation. There is nothing wrong with doing a bit of speculation - but please never confuse it with investment.

Anyway - enough from me - over to Mike.

At the moment you have to buy an annuity with your pension fund by the time you are 75.

I have had the feeling they are poor value for a long time but recently I worked out how I thought the fund would be diminished with age after you bought an annuity and the insurance company had to manage the fund to pay you an income.

So I looked up the life expectancy of a 65 year old male on the Government Actuarial Stastistical Table. It says that a 65 year old male could expect to live another 16 years.

Then I looked up some annuity rates and found that a 65 year old male could get an annuity rate of 7.2%.

Suppose you have a fund of £100,000. This buys you an annuity of £7,200 a year.

The insurance company now has your £100,000 and it can invest that money. It should be able to manage an income of 4.5% by investing in long term gilts.

So in the first year it should be able to earn £4,500 on your money and pay you £7,000. At the end of one year there is £97,300 left.

The question is, how much money is left after 16 years when, on average, all the males who bought a pension at age 65 are dead? OK some will live longer but some will die sooner. 16 years is the average.

The answer I get is nearly £39,000. That's nearly 40% of the original fund! So basically, on average, the insurance company gets to trouser 40% of the pension fund of a man who buys an annuity at age 65.

Well I'm stunned by that. So stunned I wonder if I've made a mistake. How can it be that so much of the fund remains for the insurance company. I know they have costs but it can't cost that much to maintain a pension fund. Once it's set up all they have to do is pay a monthly pension by standing order and bank the interest cheques they get. I bet that is paid electronically as well. The only other thing I can think of is to check up you are still alive so they know when they can trouser your money.

• Mike Lewis, Chartered Accountant
• www.mikelewis.co.uk
• reproduced by permission

I am NOT a tax specialist - so I asked my friend Nick Braun, who runs the Tax Cafe, to come up with a Top Ten of Tax Tips for property investors.

Here is his answer:

1.Interest

Whether your interest is tax deductible or not depends on the use to which your money is put. Contrary to popular belief, it does not matter on which property the loan is secured.

If Robert borrows £25,000 by re-mortgaging his home and uses the money as a deposit on a buy-to-let flat he can claim the interest because it is being used for business purposes.

And here’s an interesting tax tip. If you intend to put your former home into your property letting business, consider re-mortgaging it before you do. All the interest will probably be tax deductible.

For example, let’s say Robert’s brother Vincent has a property worth £500,000 and an outstanding mortgage of £200,000. He remortgages the property and raises £250,000 which he uses to buy a new home.

He now starts to rent out his £500,000 property. The entire interest payable on the whole of Vincent’s £450,000 mortgage will be allowable as a tax deduction.

2.Repairs & Maintenance

I could write pages about this so here’s a quickie: Did you know that you can make provision for certain future costs, that you have not yet actually incurred, and still claim a tax deduction? The key requirement is that you are legally obliged to incur the expenditure.

Let’s say Kylie owns three flats in Hutchence Towers. In February 2006 she receives a statutory notice telling her and other owners to carry out roof repairs. On 4th April 2006 a quotation from a local builder is approved and Kylie’s share of the cost is £3,000.

Kylie can make a provision for her £3,000 share of the cost in her accounts for the year ended 5th April 2006, even though the work has not even started yet.

3.Motor Expenses

The cost of running one or more cars used in your property business can be claimed as a business expense. Generally, the vehicle will have some private non-business use, so an appropriate proportion should be claimed.

The appropriate proportion will vary from investor to investor but could be in the range 25% to 50%.

4.Office Costs

Most investors do their admin at home and can therefore claim a proportion of their household bills. Generally the proportion used is based on the number of rooms, excluding bathrooms and kitchens.

Let’s say Gerald runs his property business from a small room in his house. The house also contains a living room, a kitchen, a bathroom and two bedrooms. Gerald’s house therefore has four rooms which count for this calculation.

He can therefore claim one quarter of his bills as a business expense. Expenses which can be claimed include gas and electricity, council tax, repairs to the property and insurance.

5.Travel & Subsistence

Travel costs incurred visiting your existing properties or scouting for new ones should be claimable. If your trip requires an overnight stay you will also be able to claim hotel costs and meals in restaurants.

However, these costs will only be allowable if your trip is purely for business purposes. If you travel to Brighton to view some properties, the fact that you spend a spare hour sunbathing does not alter the fact that this was a business trip.

If you take the whole family to Brighton for a week and spend just one afternoon viewing properties, the whole trip will be private and not allowable for tax purposes.

6.Training & Research

Many investors spend a lot of money on seminars, courses, books and magazines. The rule is that expenses incurred in updating or expanding existing areas of knowledge may be claimed but any costs relating to entirely new areas of knowledge are a personal capital expense.

This can be a difficult distinction to draw, however in most cases property research expenses should be tax deductible.

7.Furnished Lettings

Most landlords rent out their properties fully furnished. You can claim either the ‘wear and tear allowance’ or ‘renewal and replacement expenditure’. There isn’t enough space here to go into details, however most people are better off with the wear and tear allowance. This generally allows you to claim 10% of your rents as a tax deduction.

8.Legal & Professional Fees

Fees incurred buying a property cannot be claimed against your income tax – they are generally only allowed as a capital gains tax deduction when you eventually sell your property. Costs incurred year in, year out in earning rental profits can be claimed, for example the cost of preparing leases, collecting debts and preparing your tax return.

9. Pre-Trading Expenditure

You may incur some expenses before you even start to rent out any properties. Those incurred within seven years before the commencement of your business may still be allowable if they would normally be tax deductible. In such cases, the expenses may be claimed as if they were incurred on the first day of the business.

10. Rental Losses

All your UK property lettings are treated as a single UK property business. Hence, the loss on any one property is automatically set off against profits on others. Any overall loss cannot generally be set off against your other income but will be carried forward and set off against future rental profits. Losses arising on furnished holiday lettings may, however, be set off against other income and can sometimes lead to useful tax repayments.

More information on all the deductions you can claim as a property investor and lots of other property tax tips are available in the book How to Avoid Property Tax

Given that I consider CCR to be the single most important financial ratio in assessing a property deal, I think that I had better clear up any confusion.

Those of you who have downloaded my presentation will be glad to know that the calculations I am doing are the same - think of this newsletter as an explanation of, and expansion of, slides 9 to 13.

Gross Yield is a simple ratio. The only things that matter are the income (rent) that a property will generate, and the purchase price of the property. (Actually, things get more complex after a few years when the price of the property you paid is different to its current value, but for the moment, we will concentrate on the yield at time of purchase.)

Gross Yield is simply the rent divided by the purchase price. Let us imagine a property let out with no voids at 800 per month, and that cost us 160,000. The annual rent is 12 * 800 = 9600. So the yield is 9600 / 160,000 = 6 per cent.

Net yield is slightly more complex. It takes into account expenses APART from interest. So, to take the example further, the expenses might be:

• letting agents commission of 10 per cent plus vat of the rent
• insurance
• CORGI certificate
• maintenance

At this point, I will also make the figures more realistic by assuming that the property is empty for 2 weeks of the year between tenants. (With good research beforehand, you should not have voids this high, but with poor reserach it is possible to have months of voids!)

The rent for the year will therefore be 9232.

• The agents commission would be 1085 including VAT
• Insurance might be 200
• A CORGI certificate might cost 50
• Maintenance might come to 400 over the year

So the total expenses related to letting the property are 1735.

Subtracting this from the rent gives a net income before interest charges of 7497.

The net yield is this net income divided by the purchase price, so 7497 / 160000 = 4.7%

Cash on Cash Return is a more complex figure, and takes into account how the deal is financed.

We look at the net cash flow, after interest payments, and divide that by the amount of CASH we put into the deal.

Sticking with our 160,000 house, let us assume that we are paying a deposit of 15 per cent = 24,000.

In addition we need to add in the other costs of buying the house, perhaps 700 in legal fees, and 1600 in SDLT (Stamp Duty Land Tax.)

This means that we are putting 24,000 + 700 + 1,600 = 26,300 cash into the deal.

The fact we have put in a 15 per cent deposit means that we are borrowing 85 per cent of the purchase price. This comes out to a mortgage of 136,000. Assuming that we borrowed this money at 6 per cent interest, we would be paying interest of 8160 a year.

This gives us a problem. We are only receiving 7497 cash a year after costs, so after the interest as well, the property is costing us 663 a year, so the cashflow is actually negative!

The CCR is this -663 cashflow, divided by the 26,300 cash we put into the deal.

The CCR is therefore -2.5 per cent. Therefore, this purchase would only make sense if firstly you happened to believe that the market would rise fast, and second you were prepared to gamble on that belief!

See the November 04 newsletter about prediction, prophecy and gambling.

To acheive a CCR of 20 per cent, which is my hurdle rate (the target I set myself), you would need to achieve rent of 1500 per month on the 160,000 property...

... or buy the property that let for 800 per month for only 80,000.

Which strikes me as quite difficult. The good news is that there is a solution. The bad news is that the solution will have to wait for the next newsletter.

The article is still available here so I am not going to go back over the same ground.

However, I do want to respond to some of the questions that I have been asked since writing that article on the subject of investment strategy for different times in the market cycle.

The strategy that brought great paper wealth to many people in the late 90s was simple - Buy Leveraged Assets In A Rising Market.

This is not a new strategy, the great so-called merchant barons of the 19th Century United States did exactly this - borrowed money, invested in a fast rising market - and watched the value of their investment far outpace the interest they had to pay to their lenders.

I personally do not believe that we are in a fast rising property market in the UK at the moment, so the question becomes whether that strategy is still a certain path to riches. In my experience, it is not. In a falling market, high leverage translates to maginified LOSSES rather than magnified gains. In a static market, the question becomes one of cashflow and timing.

One of the most important investor controls is that of being in control of WHEN you dispose of an asset. One of my ongoing concerns about putting property into a pension fund, is that I would be seeking concrete assurance that on my 65th (or whatever) birthday, I would not suddenly be forced to sell up my portfolio to buy annuities (in the way that stock market pension plans force purchase of annunities under the current rules.) The danger is that a forced sale might come about at the same time as some 2035 crash. (If it is hard to predict whether the market will go up or down in 2006, think about how much harder to work out where in the cycle we will be in 2035.)

Apart from regulatory issues, what else might force a sale? The two easy answers are either a cash crunch, or a mortgage lender.

Property investment should only ever be part of a larger financial plan. A key part, in my view, of any such plan, involves having enough cash to live on for at least 6 months, and ideally 12, if my other income were to stop. In the case of the Property Investor who has only a few properties, then this cash buffer should contain enough to pay the investment interest if the property were to become empty at the same time - consider the case of the Rover employee who bought a property and let it to a colleague. In one foul swoop, he or she would have lost their job, and their tenant would have lost their ability to pay the rent.

For those with larger portfolios, then a cash buffer suitable for paying SOME of the rents, on the basis that it is most unlikely, with a diversified property portfolio, that all your tenants would hit problems at the same time.

The slightly more insidious problem is that, buried in the small print of many mortgages, is a clause that says that, were the market to crash, the lender could demand a partial repayment of the borrowing EVEN IF the mortgage were being paid reliably on time! Ouch. It is more likely that lenders would crack down on those borrowers who are over-extended in terms of Loan to Value, than those who have good equity in their portfolios and have not remortgaged once too often.

The focus, therefore, has to be on keeping up the mortgage payments, so that you never get into the situation where you have to sell because you need to raise cash in a hurry. This means buying for Cashflow, rather than in the hope of capital appreciation.

Do investments that will generate positive cashflow exist? Absolutely.

Do all properties advertised for sale stack up on a cashflow basis. No.

I have long maintained that property investment involved putting in effort. Ten years ago the time-consuming thing was finding finance. Buy to Let loans have made that much easier - now the time-consuming thing for the Property Investor is finding the deals that stack up.

After all, if a property is putting five hundred quid into your pocket each month, and putting that money into your pocket is the reason you bought it, because it meets your financial goals, does it really exactly what the market value would be if you sold it?

Viewed in those terms, it made a lot of sense to really hone my skill as a negotiator, so that I can drive down the last thousand here, and the last thousand there.

The good news is that there are some basic things that we can do to negotiate prices that are very quick to learn. (Remember, just because it is quick to learn, does not make it easy to do, hence a bit of practice is worthwhile.)

The key point to remember about buying property is that you are not particularly interested in the property! What you are looking to buy is a future net income stream - this is very obvious when you are buying for Buy To Let, but equally try for Buy To Sell, although the future income stream there happens all in one go when you sell, rather than monthly over many years when you rent out.

As such, the focus should be NOT on the price of the house you are buying, but on the net cashflow the deal will generate. This means that things like asking buyers to give you a cashback (because up front cashflow is an issue for you), or asking buyers to redecorate to your specification rather than reducing the price (so the cost of the redecoration is mortgageable) can become things to ask for.

Many buyers will, however, only really negotiate on a single variable - the price you will pay on completion day. The comment about buying a future income stream still holds, though. Do your sums - at all times, the choice you should be making is between A: buying at a price which will make you a profit, or B: walking away from the deal. This is why I am not too worried about Market Value issues - either the deal stacks up in cashflow terms, or it does not, and whether this means I buy at 20 per cent below market value, or whether I pay full market value is sort of immaterial. I would rather pay full market value for a property that will put money in my pocket each month than get a 20 per cent saving on something unlettable that will bleed me dry for the next 10 years!

Let us suppose, for the sake of the later examples, that you know from the cashflow projections that you will only make cashflow if you buy at £180,000 or below.

The second key point to remember is that, if you are buying through an estate agent, the estate agent is the paid agent for the VENDOR. They are not there to get YOU a good deal, nor are they even there to get everyone a fair deal - they are there to get the best deal possible for the vendor. That having been said, estate agents are human - towards the end of the month, a flagging negotiator with a sales target may be more motivated to hit that target by making sure the sale goes through, than to actually eke out the last thousand pounds for their client.

The third key point is that your initial offer should always be incredibly low, since it sets up the right expectation in the mind of the vendor. If the vendor is asking £200,000, then by all means offer £160,000. That way, if you settle on £180,000, the vendor feels that they have haggled you up as much as you had haggled them down. If you start by offering £190,000, then you miss the opportunity to settle on £180,000 (and thus, to make a profitable investment in cash flow terms.)

The key strategy you can use in negotiating is getting the vendor to invest what I call emotional time. This plays up to human nature, the more effort a vendor has put into thinking about selling to you, and working with your offers, the more inclined that vendor will be to see the deal go through (assuming that there are no better offers on the table today). The reason for this is that the vendor, having gone through the stress of negotiating with you, wants to avoid you dropping out, and having to go through the stress all over again with the next potential purchaser. As such, you want to make sure that the vendor spends a long period of time haggling with you, not just back and forth in the space of 15 minutes.

This means that, whenever you put a figure to a vendor or an estate agent, you should then keep quiet, and see what the response is. The normal tendancy is to rush on, and blurt out something to justify your figure, but the best thing is to wait and see.

Normally, the vendor will come back with a counter-offer. Suppose that the asking price was £200,000, and you offered £160,000. The vendor may immediately come back and change the asking price to £190,000. [More about what that signals in a moment.]

On the other hand, when the vendor puts a counter-offer in to you, you should never respond immediately except to express surprise at how high the price being asked is, and to say that you need more time. The reasons you give for asking for more time are varied, and are there to sound plausible. The REAL reason you ask for more time is to get the vendor to invest their emotional time. So, say that the counter-offer is not something you can agree to, but give one of the following reasons for needing to go and think:

• The Re-run the Figures technique. A credible reason for needing more time is that you need to revisit the cashflow projection based on paying a bit more for the property. It also gives you a solid reason for coming back with a lower new offer - that the numbers only stack up there.
• The Ask the Wife technique. Obviously, if you are not married, or of the wrong gender and sexual orientation to have a wife, then you can substitute husband, boyfriend, girlfriend, or the catch-all term partner. Partner is not a bad term to use, since it can mean business partner when you want it to.
• The Other Opportunities technique. You say that you are not sure, and would have to compare paying their price to other opportunities you have for your investment funds. Effectively, it is the same as re-run the figures, but with the added advantage that you re-inforce in the mind of the vendor that their property is only one among several you might buy.

You should leave it as long as possible before making your new offer, NOT within 10 minutes, but ideally half a day later (especially if you are claiming to be putting lots of work or discussion into the new price.)

When you come back with a new offer, then it should only be a SMALL increase on your last offer. Otherwise it looks as if you had just made a stupidly low offer to try your luck. (OK - this may be true, but you do not want to be obvious about it!) If the asking price was £200,000, and you offered £160,000, and the vendor revised the asking price to £190,000, it signals to you that they have a LOT of manouvering room. If, on the other hand, they only reduce the asking price to £198,000, it means that either they do not have room to move (in which case, you can stop wasting your time now) or that they are also a skilled negotiator (in which case, you need to be sure of your own skill levels.)

Correspondingly, your new offer should not make big jumps, because you send the same signals. Imagine that the pricing has gone

• asking 200k
• offer 160k (low offer to frame expectations)
• asking 190k (big drop, signalling a lot of room)
• new offer - what???

The ideal is only a few thousand more - perhaps £162,500. Couple this with a show of having put in effort to move this much, and again, see what happens.

You may need to repeat the process a few times. It may be that you end up on an asking price of £185,000 and an offer price of £175,000.

The final technique is to handle splitting the difference. Firstly, you should never offer to do this, since whoever makes the offer normally loses.

Instead, you wait till the other person makes the offer - in this case by reducing the asking price to £180,000 and offering to split the difference. The response is that you can not offer more than £178,000, and ask the vendor whether they are really going to lose the deal for a mere £2,000. Remember, you know that you CAN buy at £180,000, but the extra £2,000 is pure profit.

Now for the sting in the tail. You should expect, if you are doing your investing properly to NOT get to agreement on most of the deals you look at. You are trying to find the few people who value the things you can offer (speed of transaction, security) more than the extra headline price that the non-professional buyer can offer if you give them long enough.

If you end up buying every property you offer on it means one thing - you are offering, and paying, too much! So learn to handle rejection, rejection simply means that you are filtering out the poor deals effectively!

In order to deliver on this promise, you need the right team in place, and the right paperwork in place. I intend to talk about building your team in a future newsletter, but for today we have the joy of administration.

When prices are booming, lenders are desparate to lend money, and willing to sometimes turn a blind eye to the odd lapse in paperwork. Once prices look like stabilising, or there is a rumour of a price decline, then lenders typically over-react by asking for more and more backup information to support your loan application.

For the experienced investor this is seldom, if ever, a problem, since after a few properties, we end up setting up more formal filing systems. For the new investor, however, it can come as a sudden shock to be asked to produce odd bits of paperwork that, in the past, might have been thrown (or shredded.)

While the list below is not exhaustive, if you are intending to apply for finance, you should ensure that you have the following to hand before you go to see your mortgage broker:

• Two years worth of bank statements (most lenders will only ask for 3-6 months, but sometimes lenders ask for more.) These bank statements should show an income to match the income you claim to have (!) and proof that you have made payments on your existing mortgage(s) without problems.
• Mortgage statements on your own house for the last two years. Again some lenders may ask for a rather shorter time period, but some ask for more paperwork, and the requirements for paperwork are only going up at the moment.
• At least 3 months worth of payslips from the same employer, and the P60 from your last tax year. In addition, some lenders may wish for a letter from your employer outlining what income is guaranteed, and what is subject to performance (either yours, or your employers), and confirming that you are not under threat of redundancy.
• If you are self-employed, or own a material percentage of the company that employs you, then you may need to provide accounts for the last two years, together with details of your accountant (who then may, or may not actually be approached to verify that the accounts you are producing have indeed been seen by them.)
• If you already own investment property, mortgage statements for each investment property for the last two years.
• If you currently have tenanted property, copies of the Assured Shorthold Tenancy (AST) agreements for each property, showing that your tenants have valid contracts.
• Your passport. Anti-money-laundering legislation is one of those things that imposes a burden on all of us. It is not uncommon to be asked to provide a passport by not only your solicitor, but your mortgage broker and even your estate agent (if you are using one) these days.

Now for some good news. If you do not have all of these documents, then it is still possible to get an investment loan. However, you MUST tell your mortgage broker if you have problems producing any of these, or if producing any of these is likely to highlight credit problems in the past. Your broker, assuming he or she is any good, will normall be able to find a lender and loan to fit your circumstances, but there is little they can do if you apply for a loan for which you do not qualify, and are then turned down.

The other reason that you need good paperwork is at this time of year, when the investor turns to Tax Returns. The law changed a few years ago - the burden is no longer on the Inland Revenue to determine whether you need to submit a tax return - it is on you. If you receive any income from property, then you should assume that a tax return is something you will need to fill in.

The good news is that they are not as bad as one might fear! Compared to Company Tax Returns, personal returns are relatively straightforward. For the last few years, mine has taken less than an hour to complete once I have the figures together - and this means keeping my paperwork up to date.

You may still choose to have an accountant or other professional fill in your tax return for you - if nothing else, your accountant should be able to advise on which expenses can be claimed, and what allowances you should be taking advantage of. Even if they are filling in you tax return, however, you still need to be able to produce the underlying figures.

Once you let property, then you need to keep a track of both income and expenses, and, vitally, keep receipts for any expenses you have incurred.

My own filing system is relatively bulky - for each property, I have several suspension files:

• one for income, which broadly holds statements of rent receipts, and ASTs.
• one for the mortgage lender, which includes mortgage statements, plus all the paperwork concerning the loan such as terms and conditions, and a photocopy of the loan application.
• one for service charges and ground rent statements (obviously, only for leasehold properties.)
• one for other expenses, which broadly contains receipts for everything from CORGI certificates through cans of paint, replacement loo seats, handyman bills, and the other minor items I buy in the course of keeping my portfolio looking attractive and able to command top rent.
• one for miscellaneous, which holds all the paperwork concerned with owning the property, as opposed to letting the property - all the letters from the solicitor about the purchase, plus these days legal documents as a result of lenders dematerialising (this is a technical term for them deciding that YOU should store deeds rather than them paying for storage themselves.)

In addition, I have a file for each bank account, so that I have many years worth of statements to hand.

It may seem like overkill to have half a dozen files when you only have one property, and everything fits into a single cardboard box! Over the years, however, I have had no regrets about setting up a more comprehensive filing system, because I know that whenever I am asked for a piece of paper, I have it to hand.

When paperwork drops through the door, I either put it in a TO DO tray, or a TO FILE tray, depending on whether any immediate action is required.

For the TO FILE items, I strongly recommend that for your first few years as an investor, you actually file them yourself - not because putting paper into trays is a good use of your time, but because it helps you keep up to date with what your properties are making and costing. After the first few years, you should have developed your own intuition (another word for skill gained through experience and practice), and can hire an administrator to do things like filing and letters for you. I now employ someone for ten hours a month (two Saturday mornings), which is plenty to ensure that my portfolio is perfectly filed, and everything is to hand, as well as having someone who can generally sort out problems, and do things like pop out to Staples for office supplies and the like. (As an aside, the Really Useful Boxes from Staples, particularly the 35 litre ones act as wonderful filing cabinets, for a fraction of the price of real filing cabinets.)

It may seem a very tedious subject for the newsletter, but it is a subject you need to get right. The best time to sort out you filing is NOW, not when your mortgage broker phones up to say that the lender needs to see a statement from 15 months ago that you have now lost!

One final recommendation - if ever you hand over ORIGINAL documents to a lender or mortgage broker, then ask them to sign a receipt that itemises exactly what they have taken, AND take photocopies of all the documents before you let go of the originals.

The reason for stressing this is that I once had a call from a lender who had asked to see two years statements from each property I owned, plus two years from my personal bank accounts, and had refused to accept photo copies. The call was to apologise that the lender had lost them! I explained that having originals was vital to my business, as the lender would agree, that each duplicate issued by my bank or other lenders would cost typically 20 pounds, and that I would therefore be issuing a small claims court claim against them for 20 pounds times 96 statements - that is to say for just under two thousand pounds. I reminded them that their representative had signed a receipt for all the documents. Mysteriously, within 90 minutes, I had a phone call back sayng that the documents had been located.

The term refers to buying a property for less than it is worth.

When people hear this, they normally respond in one of two ways. Either they think this is an excellent idea, and start looking for the best techniques to buy BMV, or they express a complete disbelief that any one would sell up for less than their property was worth. Both of these viewpoints has a lot of merit.

Like all property buzzwords, there is a lot of real insight in the term, and a lot of mis-information that has spun up around it as people try to take advantage of the desire for BMV.

Let us start with the good news. BMV does exist.

Now for the bad news. Most so-called BMV deals confuse a discount from asking price with a discount from true market value.

So, why would anyone sell at below the true market value of their property? It all hinges of what we tend to mean by Market Value.

In shares, the market value of a share is established by, well, the market. You can go to your broker and ask him or her to buy 100 BP shares, and he or she will give you a price. This is possible because BP shares are liquid, fungible, and transparant.

Liquid means that a market exists for them. Which is to say that at any time, some people are willing to buy BP shares, provided the price is right, and others are willing to sell them, provided the price is right. Of course, different people have different ideas of what the right price is for buying and selling, and the prices move up when more people want to buy and are willing to pay a bit more than previously, and fewer people are willing to sell at the previous price. As the buyers offer more, the sellers decide that selling would be a good idea after all, and the price moves up.

Fungible means that the two shares are identical. If I have 100 BP shares that I am willing to sell, and my brother has 100 BP shares that he is willing to sell, then the ONLY thing that will help you determine who to buy from is which of us will sell at the lower price. There is no particular benefit to having my shares rather than his, because in terms of what benefit they give, they are identical.

Transparant means that everyone in the market can see the prices at which everyone else is willing to buy, and willing to sell, and the prices at which they are actually buying and selling live.

For assets like properties, none of these conditions applies.

Properties are illiquid, in that there is no guaranteed buyer for a property, even if the price is low. Nor is there a guaranteed seller for the property you want, no matter how much you may be prepared to offer. Two flats in the same block are not actually identical - one may have a different floor, or aspect, or decor. Finally, there is no immediate visibility of every property for sale, even if you visit every estate agent in the town, someone may be trying to sell privately, or willing to sell but not yet advertising, and property sale prices are not available for some while after sales have gone through.

As such, it is impossible to tell PRECISELY what the market value of a property is at the time you are making an offer. At best, you can get a general idea of what other properties are selling for by asking what other offers have been made, but this is where the number one mistake is made. Many, many, people confuse ASKING price with MARKET price. Getting a discount on ASKING price is NOT the same as buying below market value.

The next mistake that people make is by assuming that because they have got a further discount because the property was in poor condition, this represents a BMV purchase. Again, this is a mistake. A property in poor condition has a lower market value, reflecting the fact that whoever buys it will need to spend money and time sorting out the problems.

So, does BMV actually exist, and if so, who would sell?

The answer is that BMV has nothing to do with the property, and everything to do with the vendor.

This is because, as an investment purchaser, you are offering the vendor three things.

• - MONEY
• - SPEED
• - SECURITY

Money is obvious - it is what most people focus on in the sale of a property.

Speed and Security are where investment purchasers can find an edge.

If you were selling your house, and the estate agent said that there had been two offers, which would you choose?

• - OFFER A, for 165k, from Mrs J, an investment purchaser, who had the deposit funds in cash, and a broker lined up confirming that the mortgage offer would go through in 28 days.
• - OFFER B, for 175k, from Mr K, who lives in a smaller house the other side of town, and has just agreed to put his own house on the market to raise the funds to buy yours.

The answer depends on your circumstances. If you have put up your house for sale, working on the theory that once it was sold, you would go and live with your parents, and then start looking for a new place, you might be tempted to wait and see whether Mr K was able to sell his house quickly, because the extra 10k potentially made a difference.

If, however, you had already made an offer for your dream house a few weeks ago, and the vendors were saying that if you did not exchange soon they would re-advertise, and the lower offer from Mrs J was enough to give you the funds you needed, then you might be tempted by OFFER B.

In my experience, over ninety per cent of vendors will hold out for the higher offer, and be in a position where the extra money is worth waiting for. However, in a very small number of cases, the vendor is looking for the speed of sale, rather than the extra cash. The trick to buying BMV is identifying these vendors.

There are all kinds of techniques for trying to discover this, from simply asking, through leaflet drops, through simply making very low offers, and seeing whether there is any interest.

If you look here you will see a link to the free course from Parmdeep Vadesha. Deep is, in my view, the UK expert on buying BMV. His free course is well worth a look, and if his writing style appeals, then consider his paid-for course as well. Alternatively, Deep regularly comes to the PNC events, so check when he is next due to speak to hear him live.

It is risky starting out as a landlord

- my mum, 1992

It is an understandable sentiment, particularly given that, at the time, we had just seen a major housing crash, and many people had gone into negative equity.

It is also a very, very, true statement, and one I have never lost site of.

Please realise, however, that my mum was NOT telling me not to be a landlord. My entire family have always been very supportive of what ever I have wanted to do. The comment was, however, making sure that I knew that it was not a one way street of easy money for little effort.

There are a few things we can do about risks however, and the most important by far is to understand them, and this means research.

The biggest mistake that I have seen new landlords make in getting started is that the start by going to the estate agents! Again, do not misunderstand me, I have bought the vast majority of my portfolio through estate agents, and have ample evidence that this can be a really profitable way to proceed. However, they are not the place to start.

Property investment / being a landlord is a BUSINESS. Running a succesful business means figuring out what customers actually want, and then looking at how best to provide it to them (in a way that gives a surplus.)

The way you can start figuring out what your customers want is by realising that your TENANTS ARE YOUR CUSTOMERS. The people who know most about what tenants want are the people who spend most time talking to tenants about what they want - that is to say, the letting agents

If I am considering a new purchase, the first visit I make, every time, is to the local letting agent to see what is in demand. When you make this visit, you have to be careful that the agent understands that you are trying to work out what types of properties in which roads, with which features let year in, year out, NOT what they have just had a one-off potential tenant come in and ask for. The ideal rental property is the one where the letting agent will have a drawer full of potential tenants to show round, and when you come in with the keys, she will just start making calls to book appointments. That bypasses the expensive business of booking advertising for your property, and if you can make your property more profitable to the letting agent, that will make them keener to do a good job, and look after you, long-term, as a landlord.

Obviously, you do not just want to talk to a single letting agent, ideally you should talk to at least three BEFORE you start visiting the estate agents.

This means that, once you go into the estate agents office, you know exactly what you are looking for. Estate agents are not your agents as a buyer - they are the paid agents of the VENDOR. Their obligation is to get the best deal for the vendor, not the most profitable investment for you, so there is no point going in and asking questions like "what is your best investment property?"

Instead, you want to be asking questions like "do you have any X-bedroom houses / flats in roads A, B or C?" This is a good way to use estate agents, and make sure that they are working to your agenda, not their own.

So, if local research on current tenant demand is a starting point, what comes next? Local research on what the job market is doing.

At the end of the day, tenants who are earning more pay more rent. It really is that simple. Hence you need to look not just at what local rents are now, but whether there is any risk that lots of tenants might lose their jobs at the same time... which is another way of asking how tied to a single employer the area is.

Everyone in their 30s or older remembers what happened to mining towns, or steel-working towns in the 1980s. No amount of union activism or militancy could change the underlying economics that the same goods were available, overseas, for a fraction of the price, either because there were easier-to-extract reserves of natural resources, or because there were labour forces who were willing to work for a tiny fraction of UK wages, even a tiny fraction of UK minimum wages.

In the 1990s, we saw the same begin to happen with call centres.

In the 2000s, we are beginning to see the same happen to other professional support functions, like IT Departments, or Finance Departments. The good news about these, for the landlord at least, is that while a single company may be a major employer in an area, there are relatively few areas where the IT Department is the major employer. (However, the recent IBM announcement may end up affecting many people in Portsmouth.)

There are also towns where large finance companies dominate the local labour market - one only has to think about Norwich (Norwich Union) or Horsham (Royal and Sun Alliance). These companies may not currently being displacing large numbers of jobs to cheap labour countries, but you can be certain that their Boards are being pressured to cut costs by their owners. (And, after a recent car crash, I can confirm that Norwich Union manage the entire insurance claims process, very politely and efficiently, out of Mumbai.)

The more complex and sophisticated a local economy is, the less impact that a single employer or even industry can have on the labour market. This is why I, personally, am still bullish about the long-term future of London, and would rather invest in metropolitan areas than small towns where a single employer dominates. I have no local knowledge about house prices in Yeovil, but I suspect that they have underperformed the rest of the South West since Screwfix shut down their distribution centre there and set up a new one in the Midlands.

Once you have begun to think about the risks, you can start plotting potential investments on a graph - along one scale is the return - the yield. Along the other scale is some assesment of the likely risk. In traditional investment, this graph, known as an efficient frontier, tends to be a curve that shows all the low-risk investments (Government bonds and so on) having a much lower return than high-risk investments (dot com shares?) In a field like this, you can pretty much choose the level of risk you want to accept, and then take up an investment to match your appetite to risk.

In property investment, however, very few small investors consider the risk profile of an investment in any structured way. As a result of this, risks do not get "bid out", and rather than a curve you get a scatter of investments. It may be that that high-yield property is indeed a low-risk, or medium-risk investment, in which case it is a better buy than a low-yielder. On the other hand, it may be that there are a whole bunch of extra risks to it that mean that, while it has a good-looking yield number, it would not be as straightforward as the more run-of-the-mill, lower yielding mid-terrace house (or whatever is the most demanded property in your area.)

To summarise, you do not need to be overly scientific about risk analysis in property. If, however, you even spend half an hour sitting down with a piece of paper and asking how your potential purchases compare to each other in risk terms as well as yield terms, you will be doing a lot more than most new landlords.

Which you choose will depend on your personal circumstances, your timescale for investment, and your exit strategy, and it is an area where professional advice is certainly needed. I am not a Financial Advisor, and strongly recommend that you go and see one before buying any mortgage.

However, it is worth noting that the majority of professional investors choose interest only loans for their investment properties for a number of reasons.

Let us start by a quick review of the two basic types of loan.

An interest-only loan is where the lender charges interest on your borrowings, and you make a monthly payment to cover that interest but no more. If you have borrowed £100,000 and paying interest at 6%, then your payments will be £6,000 a year, or £500 a month. At the end of 25 years, you will still owe the lender the full £100,000.

A repayment loan is where the lender charges interest on your borrowings, and you make a monthly payment to cover that interest plus pay back part of the borrowings. These payments are normally arranged to be constant over the period of the loan. The balance, however, gradually reduces, so in the first few years, most of the monthly payment is covering the mortgage, with only a little capital paid off, wheras towards the end there is relatively little interest, and more capital paid off. The good news is that, at the end of 25 years, our borrower would have paid off all of his or her £100,000. However, instead of paying £500 per month, they would have been paying £650.

This brings us to advantage number 1 of the interest-only loan. In the early years of a property investment, cash-flow is typically tight. The extra £150 a month in the investors bank account may be utterly critical.

Advantage number 2 of the interest-only loan is the way that tax is calculated. One of the things that you can offset against rent is the interest paid on your loan. You cannot offset the capital- repayment part of the mortgage. The trouble with a repayment loan is that the amount of interest you pay is gradually reducing. In our example above, our borrower, in year 10 (assuming no refinancing) would be paying over £1,250 less in interest, so (for a higher rate taxpayer) would be paying over £500 more in tax. The effect of this tax on cashflow would mean that instead of having £150 less each month, they had £190 less each month.

For these two reasons, cash-flow, and taxation, most landlords choose to finance their properties with interest-only loans.

However, the question still remains - how will this interest-only borrower come up with the cash to pay off the full balance in 25 years time. This is where it is important to consider exit strategies right at the beginning. There are a number of possibilities.

Firstly,the landlord might simply decide to sell up at that point. What will our property, worth £100,000 in 2005, be worth in 2030? It is impossible to predict, however, consider that, 25 years ago, a three bedroom house near me might have cost £10,000. The same house might now be worth £200,000. Of course, no-one is predicting that inflation will go back up to the levels we had in the 80s, but equally, it is hard to believe that it will consistently stay at about 1-3 per cent for the next 25 years. Assuming that the £100,000 property only doubled in value over 25 years, then there would be a capital gain of £100,000, so a capital gains tax liability of between 15-30k depending on whether there were single or joint owners, and whether they had already used their CGT allowances in the year of sale (and assuming that they had held it long enough to qualify for taper relief.) Even after paying this, the proceeds from the sale would still give between 170-185k, which would pay off the 100k borrowing, leaving 70-85k in cash.

Secondly, at some point between now at 2030, the landlord might decide that the market was high and decide to sell out to take advantage of such a peak. It is impossible to predict now when such a peak might come, but it is not outside the bounds of possibility to imagine that, say, there might be a 2024 housing boom, which pushed the property up to £300,000, before falling back to £200,000 by 2030.

Thirdly, and most likely, at some point between now and 2030, our landlord will re-finance the property to take out more cash to use as a deposit on their next investment. At that point, the 25 year clock will start again, and the problem will be deferred.

Now, let us come back to flexible loans, and see whether they might have a place in the life of the landlord.

A flexible loan is a special type of repayment loan, with some extra features, which may or may not be useful. The general idea is that the lender calculates the interest on a daily basis rather than a yearly basis, and allows overpayments with drawdown. This is to say that, if our borrower is feeling flush in February, they can overpay by £100, and do the same throughout the year until November, by which time they will have overpaid £1,000. Then Christmas comes and they draw back that £1,000 to buy themselves a plasma telly. The advantage of this overpayment compared to simply stuffing the money into a deposit account is twofold. Firstly, while the deposit account might pay them 2-3% on their money, the overpayment on the mortgage loan would save them 6%. Secondly, if you earn interest, you pay tax on that interest. If you save interest by overpaying, then there is no particular tax to pay simply because you have not paid as much interest as you would have done otherwise!

For these two reasons, for those who are in a position to make regular overpayments, flexible mortgages have become popular.

However, for the landlord, there is a further wrinkle to do with tax.

Now, remember I am not an accountant, and this is my understanding - but if you overpay on an investment loan, and subsequently withdraw the money to buy the aforementioned plasma telly, then the Inland Revenue can say that this withdrawal is a NEW borrowing, and that the investment loan had been PERMANENTLY reduced by the amount of the overpayment. Thus, the interest that you can offset against tax is permanently reduced. This is both incredibly difficult to calculate and potentially an area that could waste a lot of time arguing with the revenue.

So, it might seem like the disadvantages of a flexible loan outweight the advantages the landlord. Well, yes, and no. I have certainly taken the view that, for my investment loans, I have standard interest- only loans.

However, on my PPR, I have a flexible loan. That means that, when I am saving for a deposit, I can earn (save!) the higher rather of interest that the mortgage company charges me for my house, and do so tax free, but write a cheque out of that account whenever I buy a property or pay a tax bill. While most people in paid jobs have a relatively constant cashflow, maybe affected by summer holidays and Christmas, the property investor can have many tens of thousands of pounds come in for a few months, before being spent again. For example, if I sold a property now, I would know how much capital gains tax would become due next January, and use the flexible loan as a place to store the cash needed for that tax bill. Alternatively, if I sold a property at the end of April, the tax bill would only sort itself out in January 2007. Having a tax-efficient, interest-bearing (saving!) place to store that cash for 20 months is a low-risk alternative to re-investing in a short-term project.

For three years, I worked in the construction arm of a major oil company, where I was responsible for IT across Europe for a new joint venture. The joint venture had a simple, focussed vision - to reduce the cost of building petrol stations in Europe by 40% without compromising on quality or safety. It took just over 2 years to acheive this, and ended up saving the company $200m during that period (compared to the previous cost of building petrol stations), and set a new benchmark for cost reduction for the next five years.

Now, it is most unlikely that anyone reading this newsletter (apart from me) will ever be involved in building a petrol station in their lives. To me, however, it demonstrated very clearly that a simple, focussed, well-communicated vision can drive performance that is outstanding in any area I can imagine.

The joint venture in question had about 250 people working for it, in 17 countries. It is fair to say that a large proportion of them had been involved in building petrol stations for many, many year, and already thought that they did an excellent job of it. It was, for many people, hard to believe that savings of 10% would be possible, let alone the 40% that was a target. However, at the core of the organisation was a small group of visionaries who not only believed that it was possible, but dedicated every minute of every day to focussing on the thing that would be required to deliver those hundreds of millions of dollars of savings.

Over the first year, a key target was to spread the message, and spread the enthusiasm and belief that we could make the savings. As the first countries began to hit interim goals - 10% saving, 20% saving, 30% saving, the rest of the countries began to ask two important questions - how did they do that? and how can I do that?

In the context of a large organisation, the company then did a very, very, clever thing. It made the bonuses of the country managers only partially dependant on the performance of their own teams, and partly dependant on the performance of the joint venture as a whole. Suddenly, everyone was motivated not just to ask for help, but to offer that help.

If we sweep aside the technical detail of what was done, we can see an underlying process. It is not a complex process, and it is exactly the same one that allowed me, in my investing career, to get to the stage where I could give up full-time work at the age of 32.

1: Have a clear vision of where you want to be.

Whether it is saving 40% a year in an area of your business, or building a passive income of £10,000 per month, you need to understand what you are trying to acheive. Otherwise, it is impossible to tell whether a particular action or investment will support that or hinder that.

Make the vision demanding, make the vision motivate you. It is just as hard work to aim for a 10% saving as to aim for a 40% one.

Visualise in detail

2: From that vision, set some goals.

Those goals can give you clear things to aim for. The subconcious is a surprisingly powerful thing, and will answer pretty much any question you set it. If you ask how to make more money, it will tell you to get a paper round. If you ask it how to build £100,000 of equity, it will give a different answer.

3: From those goals, set a strategy.

My own wealth strategy has been primarily around Buy To Let. However, I needed to break that down into a set of annual, monthly, weekly and daily action plans to achieve those goals. Most people do not plan to fail, but most people fail to plan.

4: Take action.

There is phrase for a well-intentioned goal that is not then acted upon - the phrase is New Year Resolution. We all know that planning on its own is not enough. There need to be action, and, ideally massive focussed action. This is why setting a clear vision of what you want to achieve helps - it motivates you to make that phone call or view that property. A phone call that you can see as the next step on that path to your Lotus Esprit, or your Bently Turbo R is far, far easier to make.

5: Keep on course.

The way that a missile keeps on course is not to point at a target and just go for it. The way that a missile keeps on course is to constantly receive information about where it is, and where it is heading, and what needs changing. Be prepared to accept that your initial strategy can be improved upon, and that taking in more information to make better decisions is a sign of success, not a sign of failure.

The Money Illusion is something that these professional investors assume, sometimes correctly, that we property investors do not understand. For those who have not come across the term, let me start with a definition (from www.amosweb.com). Again, to explain the terms, a nominal price is the price measured in pounds. A real price is the price that you get if you take into account inflation, and the fact that a pound today buys less than it did a while ago.

The erroneous perception that a change in nominal wages or income [or, house prices - yourpropertyexpert.com] results in an equal change in real wages or income. Money illusion occurs due to a difference between the actual prices and perceived prices. In particular, people usually have better information about nominal wages or income received than the prices paid for goods and services. For example, a worker might receive a 10 percent increase in nominal wages view this as a 10 percent increase in real wages (and living standard) by failing to recognize that the price level in the economy has also increased by 10 percent.

Now, how does this pertain to house prices, and in particular, how can we use this information to make money?

It is my belief, based on past evidence, that in the long term, house prices go up in line with average earnings. Which is to say that, in real terms, house prices do not actually go up. However, overlaid on this general increase is a very wide curve that goes up and down wildly with very little predictability. However, putting aside questions of timing, over the long term, house prices stay constant in real terms. Scarey stuff.

Suppose I buy a flat for 100,000. At the time, a washing machine costs 200. This means that a flat is worth 500 washing machines. Let us now wait a few years... I am not attempting to predict how many... but at some time in the future the same flat will be worth 200,000, a doubling in price. What we would expect, however, is that the washing machine now cost 400. So the flat is still only worth 500 washing machines, despite the fact that in nominal terms, it has doubled in value.

Now, it may be that washing machines are a bad example, since it may be that some technological innovation means that they come down in price. However, I find that it's easier to pick a concrete example of something that has a price, rather than use a waffly term about broad baskets of goods. Maybe a better example would be a Mars bar. At 50p, a 100,000 flat buys 200,000 of them. In the future it is easy to believe that Mars bars will be a pound - it does not seem so long ago that they were 10p, not 50p.

Armed with this set of expectations, we can now proceed to make (real) money, but using leverage. (And I will stick with washing machines.)

Suppose that, in order to buy the 100,000 flat, I put in down a deposit of 20,000 (which is to say, 100 washing machines). Thus the lender has advanced me 80,000 (which is to say, 400 washing machines) - at the 200 per washing machine price.

Roll forward in time again, so that the flat is now selling for 200,000, and washing machines are selling for 400.

The assumption that many investors fall into is thinking that their stake has gone up from 20,000 to 120,000 (ie - the 200k that the flat is now worth, minus the 80k they still owe the bank), and thus believe that they have multiplied their wealth six-fold.

In fact, that 120,000 is only worth half what it used to be - that 120,000 will only buy 300 washing machines. Which is to say that their wealth has gone up three-fold, not six-fold.

Two lessons to learn from all this:

• be careful when looking at how much money has supposedly been made. Particularly in periods of high inflation, the gains may not be as great as the raw numbers might make you think.
• even despite this stuff about money illusions, the long-term investor still makes money PROVIDED that the rent in the mean time has covered the rent and other expenses.

Even better, what all this ignores is that, provided a property is just cashflow-positive, or even cashflow neutral at time of purchase, then inflation will gradually increase the rent income, without increasing the interest payments. So after this time, the property can be generating substantial cashflow to the investor as well as being a capital asset. The stock market types tend to forget how much higher the cash yields of rent are compared to the paltry dividends that most stock investments gain.

The general theme is one of simplification. However, it is already clear that there are some circumstances in which people will gain under the new rules, and some in which they will lose. The good news is that there are things that can be done now, before A-day, to safeguard some aspects of your pension if it turns out you are better off than the current rules. The bad news is that, if you are one of those people, you have to act before A-day, to take advantage of some of these safeguards.

This means talking to a pensions adviser.

I am not a pensions adviser, so all I can do is give my take, the take of an investor, on what the new rules might mean. Investing is, in my experience, an individual sport. However, like most individual sports, the best results go to those who not only practice most, but use the best professionals to help them learn. In the case of pensions, this is perhaps even more true than for traditional property investment.

Under the new rules, there are going to be different calculations for how much you can invest in a pension each year (and retain the tax advantages). For the year 2006 to 2007, this will be 215k but there will still be a cap based on relevant earnings. The more annoying cap is that the total value of the fund will have a new, so-called lifetime cap, which will initially be 1.5million. If the value of your pension fund goes over that, you might end up paying tax at a marginal rate of 55 per cent to get the surplus back. I must stress that if you already have a fund approaching that limit, you need to talk to a pensions adviser NOW, well before A-day, about what can be done get the existing fund protected.

There are some new rules coming about using something called an Alternative Secured Income instead of an annuity when you reach the age when your pension starts paying you, rather than you paying it. This is the area where I see the most possible benefit to the property investor, but also the area in which I think there is most uncertainty about what the government will allow, and what they will not. Certainly, the requirement to buy annuities at the moment is, in my personal view, a huge downside of the current pensions structure, and one of the things that led me into property as an alternative back when I was in my early 20s.

The rules are also changing about what property can be held in a fund. In additional to commercial property, which can currently be held, it will become possible to hold investment residential property. Therefore, it should become possible to start investing in BTLs out of your pre-tax income. However, the rules about gearing are also due to change. At present, a fund can borrow up to 75 per cent of the value of the property it is buying (albeit only for commercial property.) Under the new rules, there will be a cap based on 50 per cent, of the value of the fund, NOT of the value of the purchase. This will, in many cases, give less scope for leverage than the current rules. So, if you are thinking of investing in commercial property in your pension fund, it may be easier in some circumstances to do so before A-day rather than after. Again, this is yet another area where a professional pensions adviser will be able to help.

In summary, it feels as if I have just written an advert for the pensions advisory profession! I do strongly recommend that you find good professional advisers, and pensions experts are an important part of that team if you are considering using your pension fund as a vehicle for buying property in a tax-efficient way. However, I should stress that not every pensions adviser will have any knowledge of property investment. As ever, you need to shop around for the best advice, but equally as ever, understanding some of the basics BEFORE you go to meet with your advisers is always worthwhile.

At the moment, I can see little evidence to support the claim that, but lots of evidence that some organisations are trying their hardest to SELL commercial property deals to individual investors.

After many questions about this, I thought it was worth a quick refresher on the advantages and disadvantages of commercial property. First the good news:

Firstly, commercial property can, with the right tenant, be much less work for the landlord. Not only do many commercial leases require tenants to take care of minor maintenance issues, but those tenants are far more motivated to deal with those minor issues. Faded paintwork at home might mean a call to the landlord. Faded paintwork in a shop or office will send the wrong signals to the tenants own customers, and therefore tenants are more likely to get out the paintbrush and keep everything looking smart.

Secondly, the actual terms of a commercial lease are far more important. If a commercial tenant is late a week with the rent, and the lease stipulates that this invokes a penalty of two weeks rent, then that penalty is likely to be binding. A week delay in residential rent is most unlikely to get any such claim past a court.

Now the bad news:

Property is inherently an asset that only makes great returns when leveraged. It is far harder to get high loans to value on commercial property than residential, and those loans often come at an interest premium over residential, buy to let, loans.

Finding tenants can be much harder work. When all is said and done, most empty flats and houses are empty for one reason - the asking rent is too high. A reduction in rent normally leads to a tenant being found and at least some income. By comparison, there are numerous empty offices, not because the rent is too high, but because there are so few commercial tenants wanting that type of space. After all, a third-floor space laid out as a laboratory space in a science park will only attract a certain type of business.

As a result of this, commercial property is often valued using techniques such as Discounted Cash Flow (DCF), in which the most important things to know are the current rent being paid, the length of lease remaining, and the type of tenant. Two shops with identical floor areas, next to each other, might go for wildly different prices if one is let to a large retailer, on a 21-year lease, and the other is let to an independant startup, on a short term contract (or worse, standing empty.)

Finally, do not get lulled by how wonderful a commercial building looks. This is dangerous enough in residential investment, but can be fatal in commercial investment. Just because a building is fitted out as a carrier-grade data hosting centre does not mean it will be easy to find a tenant (data hosting centres worldwide are running at about 70 per cent vacancy rates.) Just because a building is new, clean, and full of modern fittings does not mean that local businesses will pay a premium for such a building.

I should state, for the record, that my own portfolio does not contain any commercial property. At the moment, I am finding that there are still such good returns to be made in residential that I do not need to take on the extra risks of investing in areas in which I have not done the same amount of research.

As misrepresentations go, the headline was fairly impressive.

Firstly, it was a comment not on the predictions that Morgan Stanley had made, but on the predictions that the IMF had made, which Morgan Stanley used as an example, and then said they did not agree with.

Secondly, the IMF report did not actually say that prices would fall either - instead it said that it is very hard to predict what house prices would do, but instead used the mathematical concept of confidence. The mathematical term confidence is easy to understand. Imagine you flipped a coin 10 times. It is impossible to predict how many heads, and how many tails you would get - but it is possible to say how likely it would be for you to get 10 heads out of 10 flips. The answer is rougly one in a thousand, which is to say that if you flipped a coin ten times before breakfast each morning, you would flip ten heads about once every three years.

Probability runs the sums forwards - you ask a question about something that might happen, and try to work out how likely it is... statistics runs the sums backwards - you say that you want to be 95% certain of something, and then ask how specific you have to be.

What the IMF report had said was that in order to make a prediction with 95% confidence, it could not be precise at all. In order to be that confident it was right, it could only make the a statement that prices would range between 20% lower and 20% higher than they are at the moment.

You would never have guessed at THAT from the headline.

To complete the story, the Morgan Stanley economists were a little more precise - their own models have a 95% confidence that prices will range between 10% lower and 10% higher.

Apart from learning not to believe headlines, what can we pick up from this as investors? Well, firstly that the best, most professional, thoughtful and rigorous economists on the planet are say that it is too hard to predict what prices will do over the next couple of years...

... but so many armchair investors believe that they KNOW what house prices will do.

I have far more respect for the IMF and Morgan Stanley economists who admit that the problem is complex than I do for the armchair investors who tell me exactly what prices are going to do over the next few years.

What we actually know is that, over the long term, house prices broadly go up in line with inflation, and over the short and medium terms, they vary wildly up and down with no detectable logic.

The moral of this story is not that you should never buy property in the hope that prices will go up over the next few years. The moral is that you should understand what you are doing - and be aware that a purchase in the hope that prices will go up over the next few years is a gamble, not an investment.

The idea, however, that we have to own our own homes may not be something that stands up to close scrutiny. For many people, it is true that home ownership would be the long-term cost-effective way to live, but not for everyone. While the recent housing boom has meant that the vast majority of people who did manage to buy over the last 5-10 years have done well, the equations change if you assume a flat market going forward for the next few years.

Here are a few groups of people who may be better off renting:

Firstly, those who are only going to be in an area for 6-12. The claim that by renting you are paying the mortgage of your land- lord is true, but by buying you are paying for the Mondeo of your estate agent, and the BMW of your solicitor. If you are only planning to live somewhere for 6-12 months, then paying the equivalent of two months rent in stamp duty, one months in legal costs, and three months in estate agency commission adds up to big costs quite apart from the mortgage.

Secondly, those who are expecting their income to rise sharply over the next few years. The same arguments apply. In the past, it was sensible to buy, let your home appreciate, and then sell to fund a deposit. Now, if the home stays at the same value, then there is no extra deposit building up, and the fees + rent vs. mortgage costs sums need careful looking at.

Thirdly, those with uncertain jobs. (Remember that I speak as someone who was made redundant twice in the last 5 years.) The advantage of renting, particularly on short-term contracts, is that it is easy to pack up, and move. In an ideal world, this is a move to a new town, where a new job starts, but if financial problems run on for longer, then moving back with the parents, at any age, is something that more and more people have to do. When you are facing financial problems, being able to avoid the uncertainty of a house sale, when a mortgage is eating you alive, can be a great comfort.

Renting used to be the choice of either the very high-end, or the low-end. It used to either signify that you were a high-powered international executive, parachuted into some overseas operation to sort things out, or that you couldn't afford to get onto the property ladder. Now it has become the social norm for the young professional... and the young professionals I know do not see it as in any way a stigma, but a lifestyle choice.

All this bodes well for the future supply of tenants!

On another level, however, it places great strain on the economy as a far greater proportion of the population will live for much longer after they cease employment. For example, someone retiring today will probably live for 10-20 years, wheras someone who retired 25 years ago probably lived for 5-10 years for then.

The immediate impact is that state-funded pension schemes are going to come under much more pressure. I include schemes like the minimum income guarantee in this, not just the state pension.

As more voters are retired, the political pressure to abandon prudence in favour of generosity, without thought to how it's ultimately funded will increase. Many people will, alas, fall for whichever party promises to put more money in their pockets, without considering where that money comes from. The best case is that this will work itself out naturally, the worst case is that this will put the government into a financial crisis at some point around 2020-2030.

The overall mindset that we need to provide for ourselves in retirement, rather than expecting that the state will be able to do so is critical. I believe that everyone currently in their 20s and 30s should plan their futures on the assumption that the state pension will not be able to contribute anything to them.

Property is, obviously, a long-term path to wealth creation, not a get-rich-quick scheme. Investors should be looking for properties that will generate both long-term capital growth, and positive cashflow. A small positive cashflow now can easily turn into a torrent, given 25 years of inflation to fuel the growth.

It is my view that the limiting factor to housing developments is not investment capital, nor production capability. Instead, it is supply of suitable land.

Successive governments have renewed planning policies that, with minor changes, have upheld the principle that control of what is built is a function that belongs jointly with the landowner and government, rather than with the landowner alone. This function controls not only the safety and detail of construction of buildings (the Building Regs), but a planning politic on the type of construction that will be allowed in different areas.

(In a few extreme cases, it belongs with government alone, but the number and value of compulsary purchase orders has declined dramatically over the past 40 years, and now are mainly reserved for major projects such as rail links and airports.)

The number one issue facing many builders, particuarly smaller builders is, as a consequence of this regulatory framework, the acquisition of a landbank with appropriate planning permissions.

Typically, once smaller builders acquire land, they attempt to revise the planning permissions to construct the most profitable property they can build.

Where planning permission is avaialble, this often tends to be starter homes or flats. It is typically more profitable to build a block of 8 flats than to build 2 4-bedroom houses on a single plot.

The question is then who buys these? The normal answer is - whoever will pay the most for them.

Essentially, there are two groups of people buying residential property - those who are buying to live there, and those buying to invest. Some classes of property will appeal to those who want a second home, or a retirement home, or some other specialist residence.

However, the rent/purchase price curves in most areas typically give the highest return on capital to the smaller properties. As such, the canny investor will buy 2 2-bed flats rather than 1 4-bed house for the same price, because the combined rental on the two flats will be higher than the single rental on the house.

As we have seen above, the developer has, say, a choice of building 8 flats or 2 houses. His profit will be higher if he builds the flats...

... which are exactly what are appealing to the investors.

Now, whether there is long-term demand for these properties is another question. The whole Manchester saga over the last 2 years has shown what can happen when too many builders build for too many investors who chase too few tenants.

The moral of this story...

... buy where there is real, sustained, rental demand

The alternative asset market notwithstanding, I believe that, for most investors, the only two asset classes that are real alternatives are bonds and stocks. (For the record, I own two classic British sports cars, one of which is currently probably worth 20% more than I paid for it, but I don't delude myself that these are assets - they are simply good toys - and I certainly can't bring myself to sell them.)

Over the few months, I've been facing some tough decisions about my own portfolio, and the conclusion that I've come to is that property is a good long-term asset, but much of the market may well be overpriced at the moment.

The fact that the market is currently overpriced, however, does NOT mean that I'm not buying. It does mean, though, that it takes a lot longer to find the right investments than it did a couple of years ago, since a far higher proportion of properties do not meet my investment criteria.

One of the historical reasons that property has been cited as good for investors is that of leverage - namely that a bank would lend 5 to 6 times as much as the investor had to put up, provided it was secured against both property and income. I do not believe that this is a compelling class advantage, simply because the derivatives markets have evolved from simply risk-hedging options into complex investment types, where the net effect is that an investor's initial investment can be leveraged, in fact to rather high multiples than an 85% LTV mortgage.

So, why do I think that, structurally, property is a good asset class?

1: Innefficiency of the market.

For any given bond or stock, there is a centralised market. Any broker is typically able to execute a transaction on behalf of an investor at a market price which is visible to other investors both before and after the trade. (The exceptions of ultra-small cap stocks where the market is too small to have regular trades, and arbitage opportunities where a single stock is traded on fractionally different prices on different markets are so complex/risky that they are unlikely to be an investment option for most people considering buy to let.)

In the case of property, however, there is no centralised market available to match all purchasers to all vendors. Instead individual properties are marketed through multiple channels (vendor newpaper ads, the internet, different estate agents, either on sole- or multiple- agency deals.) This, in conjunction with the non-price-disclosure legislation makes it very difficult for either a potential purchaser or vendor to determine accurate comparators to with accuracy of more than 5-10 percent.

Likewise, the willingness of a vendor to accept an offer on a marketed property is very much more complex than a vendor who executes a sell order on a stock. The vendor may take into account personal circumstances, and even subjective prejudices, in determining what bid to accept. For the inexperienced purchaser, or the purchaser emotionally committed to a particular property, this has major downsides. To the experienced property investor, able to detach his/her feelings from the deal, and willing to walk away from any deal what doesn't meet their criteria, this gives a window of opportunity.

2: Similarity of prices within a sector.

Despite what I said in point one, there are some overall similarities within a sector (geographical region / house size.) For example, a two bedroom house on the Maidenbower estate in Crawley will currently sell for between £160k-£180 depending on vendor circumstances, purchaser circumstances, micro-location, and facilities (whether it has an en-suite bathroom and/or a garage.) So a purchaser who bought such a property in 2001 for £135k can currently consider a safe profit of at least £25k before taxes and transaction costs.

By comparison, a purchaser who bought £135k of stocks within a market sector, say Retail, in October 2001, could have seen a variety of outcomes. For example, someone who bought Woolworths Group at 30p in October 2001 will be pleased to see it at 46p today - a nice 50% gain. Wheras someone who bought bought Dixons Group at the same time will have paid 175p, but now only see the shares trading at 144p - an 18% fall.

This tracking of house prices means that the pricing is relatively more predictable on a macro-economic level than those of an individual stock. Of course, the stock-market enthusiasts will counter that the same £135k invested in property could have bought an index tracker, however long-term options buying over a market index has not proved a repeatably succesful strategy.

3: Potential for improvement.

Once an investor has bought stock in a company, there is little the investor can do to increase the value of those shares. It is doubtful that even the richest investors could buy enough of a FTSE-100 company's product to materially influence its share price. Indeed, at that level, insider information legislation makes it very hard to influence the share price legally, even if one had the means.

By comparison, there typically are alternatives open to property investor. Something as simple as a couple of days and a hundred pounds spent on paint can lift a house, and, even if not affecting its resale value, make it much easier to let. Replacing carpet with wood, or laminate with carpet, or simply fitting brighter halogen bulbs for viewings can likewise make a property more appealing for relatively little outlay. Not only is this cheap, it is legal.

4: Cash yields.

Many of today's mature stock-market investors were brought up with markets where dividend yields were higher than bond yields. This has not been the case widely (if at all) in the market for many years. By comparison, BTL property can generate better cash yields than most common stocks, and equally better than investment-grade bonds.

5: Government planning policy.

Population is increasing faster than the number of houses, over a long term. Planning policy in the UK (unlike that in much of continental Europe) is weighted in favour of doing nothing. For the same reasons that Charles de Gaulle airport will become larger than Heathrow in passenger numbers within the next 5 years, it is most unlikely that more houses will be built than people coming into certain regions. This is, of course, due to an artificially limited supply of housing stock, through the planning process, but this is an artificial limitation that all parties have committed to retaining.

CAVEAT EMPTOR - simply because an asset class contains some advantages (assuming you agree with some of what I've written), does NOT mean that every deal you will be offered is sensible. There are many pitfalls in property investing, not least sifting the genuinely good deal from that which the salesman sincerely believes is good, but doesn't prove to be bad until a year later (think off plan investments where large numbers of properties have been released at the same time, forcing market rents much lower than they were at the time everyone did their dilligence.)