Some of you may not know but we are on the process of expanding YPC into Australia and New Zealand. This has meant Simon and I have been investing many long hours late into the night to setup and run the Aussie/Kiwi side of the business.

Anyway it’s coming along and we expect by October we will be up and running.

Anyway I just finished a phone interview with an Aussie reporter who wanted my opinion on how to survive the economic downturn. As I spoke I wrote a few notes on what I was saying so I thought I would give you the benefit as well as the Aussies, which incidentally are in exactly the same boat as the UK at the moment, except their interest rates are about 9%-10% and rising.

Anyway here are some of my notes, I intend to write another guide about this with a lot more detail but I thought it important to get it out rather than waiting.

So the ten survival tactics are:

1. Read beyond the headlines

For every dramatic sensational headline you see in the newspaper on the radio or TV make sure that you read the whole thing. More often than not the headline will be ‘Prices drop 30%’ but once you read the text it will say ‘if this continues, if it gets as bad as the nineties’ or one the many permutations of this scaremongering headlines.

There is always a perfect and plausible fundamental explanation as to why it probably won’t happen.

Remember the headlines are there to attract your attention and the negative ’sky is falling in’ sells better than the ‘everything is fine’ headline. It’s just plain old boring human nature at work – Pain sells better than pleasure.

2. Take a long slow breath

Before you run off and slit your wrist just simply take a deep breath and ask yourself ‘How does this really impact me?’ You may be pleasantly surprised to find that most of the doom and gloom doesn’t actually really concern you. Try NOT reading the papers or watching the news for a week. If by the end of the week you are still alive and well then hopefully you have seen how little effect of the negative press really has on your life. If the sky has fallen in then I guess I was wrong! Although I think we both know what the result will be after a week.

Remember whatever happens take a long slow breath and get on with your life.

3. Remember that statistics are based on averages.

That 7% drop that everyone is talking about, of course it is in your street, in fact they are talking about your house aren’t they? It never ceases to amaze me at how humans can take a general statement and personalise it to our lives. Again its just plain human nature. The flip side of this is the human ability to detach. We are so very good at believing it’s someone else’s house not ours.

The bottom line with all of these negative statements is that they are based on averages. Read into them a little more and you might find that your house is not an average house, that your street is not the average street.

4. The 7-10 year cycle always has a downturn.

The shock!!! The horror!!! ‘The property market is having a downturn, why it’s never done that before!’ Well that is not since the last cycle. You guessed it, it has all happened before.

For some strange reason we all act surprised when the property market downturns. Let’s be absolutely clear, the cycle will always have a downturn, always… The reason is simple! Greed… We all get far too greedy and eventually this greed has to be paid for. Again it’s just the basics of human nature and human nature hasn’t changed for thousands of years.

So when you read the paper next week (that’s after your weeks break and the sky hasn’t fallen in) understand that this downturn is as much a part of the process as the boom years, which incidentally come hot on the heels of the down turn.

5. Cash flow is king

If you have the cash to see you through this downturn then you can sit back and forget about Mervyn King, forget about Gordon Brown (I think he still runs the country although I haven’t heard from him for about a year.) You can even forget about the value of your house because with cash flow all things are minor and insignificant.

If you don’t have it or its limited then closely follow it, track it and make sure that you act sooner than later to secure it.

6. Know your indexes

HBOS, Nationwide, land registry, RICS, CML, Rightmove, Findaproperty they all track different data to give them a picture of what the trends are.

RICS will tell you what things are valuing at, CML will tell you what’s happening with mortgages, Land registry will provide the gross prices of property.

They all use different data to produce a different result. Make sure that you compare apples for apples! Let’s face it journalists trying to get your attention will use the data from one index today and then the data from another tomorrow. This is why house prices can be falling and going up at the same time. It’s all about the indexes they are choosing to use.

7. What is an economist!

An economist is a highly academic professional who understands the relationship of things within a political, social and economic framework. They study in detail the relationships between interest rates, wages, unemployment, government spending, consumer sentiment, share prices, consumer debt, consumer spending, household incomes, the economic cycle, exchange rates, foreign debt, and about 1000 other variables.

Based on their understanding of these things they make judgement calls about various things that affect their jobs. You see very few economists that are quoted in the press are actually totally independent. Most work for banks and financial institutions who have hired them to interpret all of the economic, political and social data and make predictions about it.

Now as humans we will always attract that which we are seeking (it’s called the law of attraction) so if you are working for a bank you will attract the data (or ’spin’ the data) which supports your cause and therefore present this angle on things.

This can mean that using the same data you can get different results. The question is what data you believe. This is one of the reasons I have become very experienced in interpreting economic data. My school economics and accounting teachers would be proud to know that these are the two subjects from school that I use most in life.

8. Know your product or trust your broker…

I cannot stress enough about the relationships that you must build and nurture. The better your relationships, the better the advice you will receive and the more certain you will be throughout this period of ‘uncertainty’. I say that word ‘uncertainty’ like this because if you have done everything I have said in my blogs you will have absolute certainty and the uncertainty won’t exist.

The point is that building this relationship will enable you to be certain about the products on offer and therefore you can make fully informed decisions throughout this period.

So many people are concerned in the 6 months leading up to a remortgage because they are hearing the negative and pessimistic news but not checking the reality. Speak to your broker and rest easy and if it will save you the sleepless nights remortgage early to secure your cash flow.

9. Take action early, stress later

Following on from the last point, if you are not passing my ‘Sleep Test’ that’s the one where ‘if you don’t sleep a full night of restful and meaningful sleep waking up refreshed and enlivened then you either need to stop drinking so many coffees or you need to take some action.’ The earlier the better.

Let me make myself absolutely clear…

If you aren’t sleeping because you are worrying then you had better take some action as early as possible. If you then find out that there is nothing you can do at the moment then stop stressing, set a definite date to follow up and forget about it. Now we both know that the game of property is an emotional one so I would be stupid to believe that you are going to full forget so this is where my next point comes in.

10. Who do you call, mentors

So you read the headline and all the text, you took a long slow deep breath, you realised that the statistics are all based on average and you aren’t the average, you know that every cycle has a downturn, you treat your cash flow as king, you understand and can read the various indexes, you know that economists just play with models and data and come up with different results from the same data, you trust your broker BUT you still think its all turning from bad to worse. It’s time to call someone and the ghost busters aren’t going to help you with this one.

These are the times when you need to have mentors that you trust who can direct your attention and your actions towards solutions, not emotions. Call them, sit with them and get very clear about what you options are.

I spend hours and hours every week developing clear strategies with people, giving them certainty and allowing them to pass the sleep test. It’s amazing the difference an unemotional, detached, fresh pair of eyes can have on the situation.

As always the team is here to guide you to solutions, Simon and I have years of experience with hundreds of clients. We are here, regardless of whether you have bought, are in a position to buy or whether you are just sleeping a little uneasy. Feel free to call us on 0207 812 1255 or directly on our mobiles.

Live with Passion,

Brett Alegre-Wood

PS. I hope you all picked up on the amount that human nature has to play in the economic downturn and in fact every aspect of life. Human nature is very predictable and therefore you can apply these lessons and make quite accurate decisions based upon it.

Just wanted to update you on the current happenings within the new build market.

The Council for Mortgage Lenders (CML), Royal Institute of Chartered Surveyors (RICS) and the various National House builders have been working on a new scheme to ensure the integrity of new build properties. This is primarily aimed at creating full disclosure of all incentives attached with a sale and ensuring that lenders can have confidence that the price that is being paid is the price being paid.

It’s a welcome change to an industry that has been very attractive to many slippery sharks. Especially the past few months in which I can name 15 companies that have gone bust or shut up shop.

The actual details of the New build disclosure form which must be completed by the sellers solicitor and given to the valuer who will then pass it onto the buyers solicitor will be released in early August. The form will consist of 12 questions providing full disclosure.

I have said it before but I am really happy with the direction and speed at which the UK is adapting the many changes that are needed to protect buyers (and lenders) from potential fraud and deceit.

I will keep you informed of the changes as they happen but it looks like it could be a disappointing summer for many of the slippery and shaddy characters in our industry.

Live with passion,

Brett Alegre-Wood

Some of you may be facing the stark reality of an upcoming remortgage even though your loan to value or rental calculations are clearly nowhere near where they need to be to secure the same amount of mortgage as you had before.

I don’t think anyone could have (and I am yet to find anyone that did) predict the full extent of the credit crunch and its effect on mortgages. I must admit that I had to eat humble pie with James my Property Director who I told we would always be able to get 85% mortgages. Well we are down to 75%.

Now let me qualify this, firstly 75% mortgages are for new build and recently renovated properties — not second hand. If you have owned your property for at least two years you will avoid the whole ‘new build’ loan to value of 75% and stay around the 80%.

Secondly if you own a house rather than a flat you are also in a better position, in fact you can still access an 85% mortgage (So technically I was right James).

The real problem if you have held the property for a couple of years will not really be the valuation on the property but the rents. The rental calculations being applied by most if not all lenders are quite horrific but you can still work with them.

As always you need to do your due diligence and you need a mortgage broker that will package and also do the necessary research that is required to succeed in this market. You will need to get your rents up as high as possible and the best way to do this is to research comparables in the area. In particular the comparables need to be in the surrounding half mile of your property and you will need at least three of them.

I use two main websites to start my searching, right move and find a property.

Unfortunately and this will have the biggest effect on your cash flow; most of your refinances will be from a low rate to a high rate, in fact some of my own standard variable rates are not that much worse than if I remortgaged and paid a huge arrangement fee. So on some of my properties I am actually wearing the standard variable so that when the market does change I can jump on it.

The lesson is and always will be: Be massively aware of your cash flow.

So what can you do about it?

My main solution is get in early or wait it out, if you have to remortgage before October 2008 then just get it done now and sleep easy. If it’s between October 2008 and March 2009 then I would wait for a bit longer. Finally if it’s after March 2009 then don’t worry I believe that lending will be back in full swing by then. Yes, I do believe that 85% mortgages will be returning to the market. Obviously this is my opinion so you will have to do your due diligence and make up your own mind about this.

I have been saying it from the start of the credit crunch - first the banks need confidence, then they will begin being competitive.

In any case my team are here to help you out and we are more than happy to refer you to one of our brokers who can help out with a remortgage.

Live with passion,

Brett Alegre-Wood

Been spending a lot of time talking about inflation and the effect it will have on the economic downturn that the world is presently experiencing.

Firstly let me say that all of my property contacts around the world; Aussie, South Africa, Kiwi (that’s New Zealand), Dubai, Spain, US and Singapore are all saying the same things. Things are ‘off the boil’ but all of them including the US are saying that things are not as bad as they thought they could have gotten and all are predicting recovery in the next 18 months - 2 years.

OK so onto Inflation because I had one of the investors that I was chatting to yesterday saying that it doesn’t matter that inflation was high because it is only food and fuel and not the consumer spending on the high street. So that won’t mean interest rates need to increase.

I hate to say but this is a very limited view of the effects of inflation. You see the fear is that if fuel and food prices are increasing this in turn means that the delivery companies will need to increase prices to keep profit margins. Of course they will pass this onto say the prices on the High St who are ordering their stock (which has also gone up because of the costs of the raw food product.)

This means that you and I are going to pay more of our wages into the High St thereby causing inflation on the High St.

In the medium term this will put pressure on wages (wage inflation) which will further add to the inflation rate and mean that the Bank of England will have no choice but to put up interest rates.

Personally, I think the long term prospects are very positive, we simply are not building enough properties to meet the demand. The target was around 250,000 per year (Barker Report 2002) but this year they are saying about 110,000 and next year 100,000. This point above all else will prohibit prices dropping massively.

So if people are telling you that inflation is not an issue, well I can see their perspective but I also think there are huge risks of inflation getting out of control.

Live with passion,

Brett Alegre-Wood

Had a great question the yesterday from one of my old investors.

“Brett, I just read Robert Kiyosaki’s Rich Dad, Poor Dad’s Cash Flow Quadrant and just wanted to know if this is why you say cash flow rather than just income or rent?”

Funnily enough, I know a little bit about this topic because I have met Robert Kiyosaki a number of times in Australia where I used to work with him during his seminars.

Anyway in short my using the word ‘cash flow’ hasn’t got a lot to do with Rich Dad, Poor Dad although I truly love his concepts and learnt a lot from Roberts philosophies.

Let’s start by explaining my understanding of “Income”. I believe income is the money you earn from a job, it normally comes in at regular intervals and is normally just enough to keep to feed and clothed with a few glimpses of lifestyle. Let’s face it, the very word JOB is an acronym of ‘Just Over Broke’. Not really something that inspires a passionate and enthusiastic attitude to life.

It also really only considers one side of equation

- The input side.

Cash flow says so much more about your financial situation. Cash flow is about both sides of the equation the inputs (or rents) and the outputs (or expenses).

Imagine that you have property that has a rent or income of £500 per month. If all you considered was this side then you might think you are in a great situation. £500 income per month from a property is great but it’s only half the story because let’s now consider the mortgage payments of £450.

You are probably thinking great £50 profit a month, wow I have a ‘cash flow’ positive property.

Cash Flow Positive… hmmm maybe not!
This is the mistake that so many investors make. It’s far from ‘cash flow’ positive because once you must allow or provide for things like letting agents fees, service charges, insurances, void periods, maintenance, renovations etc. You may well find that your cash flow positive property is actually a black hole of despair.

Only once you add all the expenses side of the investment will you truly get a sense of the real cash flow of the property.

Now I introduced a new concept of Allowances or Provisioning in the previous paragraph. This simply means that rather than thinking that my cash flow is positive each month and then being surprised when a bill comes in that I haven’t allowed for. I simply add up the total of all the bills over the period (it could be a year, a decade although I choose 2 years.) Then I apportion the total expense over a monthly or two year period.

Now I mentioned two years, for those of you that know me you will see that I am passionate about my “Two Year Cash Flow rule“.

So let’s say that your service charge was £1200 per year. You will simply divide £1200 divided by 12 months so your provision or allowance would be £100 per month or using my two year cash flow rule, you would allow £2400 over two years.

The £2400 should be put into your high interest provision account or flexible offset mortgage. You should put this aside upfront when you buy or review the property so that when the bill comes in you have the money to immediately write a cheque and pay it.

So before you fall into the trap of thinking that your property is cash flow positive each month, think about if you have allowed for all of the expenses side of the cash flow equation rather than just considering the Income or Rent versus the mortgage payment.

Live with passion,

Brett Alegre-Wood

PS: Just received the first proofing copies of the book. I can tell you it’s definitely one of the most rewarding things I have ever done. More on this soon.