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Are you in Property or in Money?

This is a question I ask clients when I first meet them to understand their motivation in getting in touch. Usually it draws a blank coupled with a glance towards the door. I then explain that it is a simple question and one that very quickly gets to the bottom of why they want to buy another property. Are they doing it because they are convinced of the long term fundamentals of property and are looking to hold it, or because they want to refurbish and sell it, to flip, or to sell in the near future? If it is the former, they are in or want to be in property, if it is the latter they are only using property as the vehicle to get money.⁣

Investment Banks are primarily in money. They cash out their position at the end of the trade, they may be almost instant arbitrage type opportunities or longer term holds, but they will cash out once their prediction is realised i.e. stock goes up, or down if shorted. Few investors actually believe truly in the stock they are holding, but Warren Buffett is a good example (I Just read the Snowman – great read!) of someone who is in stocks, or in companies. He sees it as an investment in that company and its long term fundamentals – he has held shares for decades. He invests in his investments and keeps doing so because he believes in them.⁣

It is important before setting out on a property journey to understand where you are. Neither are wrong, or right for that matter and it can be both or neither and you can of course have a dual strategy, which is what I personally believe in. McDonalds are to a large extent a property company that uses burgers as a vehicle to get occupancy on their real estate sites, but they have to make money from the burgers as well.⁣

I have some friends who do rent-2-rent, subletting in old language. They achieve great cash flow and many see themselves as being in property, which they are, but in reality they are only using it as a vehicle to make cash flow. They benefit from the increase in rents over time, but most likely will have to pay higher rents in return to achieve these.⁣

I went full time into property because I believe I am in property. I believe in the long term fundamentals and see property as any other physical commodity, it has value, you can touch it and there will always be a need for it. Since we came off the gold standard and moved to a fiat type currency – one that is not pegged to anything physical so just floats, tied to other floating things – we have seen constant inflation. Our Keynesian western economics relies on inflation. We all know with reasonable certainty that a cappuccino that costs £3 today will probably cost £6 in 10-20 years time. The other way of looking at it is that if you had sold the cappuccino and held the money, you would only then be able to buy half a cappuccino. Property generally outperforms the markets, which is not really a good thing, but it does not need to, it just needs to keep up with it and hold its value. Stocks and shares may rise or fall, companies come and go. Property stays. The great thing about it is that it pays really well along the way!⁣⁣
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