{ in·deed·a·bly }

adverb: to competently express interest, surprise, disbelief, or contempt

Monopoly money

A disparate group of successful middle-aged men sat around an open-plan office doing not very much. Their cosmopolitan visage would have made for a classic stock photo of the modern workplace. Over store-bought sandwiches, they traded good-natured insults about sporting teams and shared dreams of forthcoming family holidays. The destination didn’t matter, anywhere but here.

These were not world-beaters.

None were destined for greatness or senior management. None harboured any desire to be.

They had reached that career sweet spot where relatively low responsibility levels intersect with relatively high remuneration. Enabling lives largely free from corporate politics and presenteeism.

They were good, but not great, at what they did. Through some combination of fortune and foresight, they had acquired in-demand skills which enabled them to find freelance roles earning low six-figures.

Once, that may have sounded like a lot of money. No longer. Not within commuting distance of the City. Comfortable, without being minted. Affording a modestly wealthy lifestyle, with little danger of being mistaken for rich.

Many, but not all, were migrants. Bulgaria. China. India. Nigeria. Spain. Educated at home, before seeking their fortunes abroad. Arriving in London while young and responsibility free. Long before marriage, mortgage, and school fees clipped their wings and dictated their decision-making.

Inheritance, or the bank of Mum and Dad, had contributed to the fortunes of a few. Two sides of the same generational wealth coin, the only real difference being timing. We can’t choose where we start in life, but for good or ill that hand we are dealt is a huge factor in determining where we are likely to finish. Something worth pondering for those raising their children in a locale of limited options and narrow horizons: generational opportunity.

The topic of conversation randomly shifted to property.

Not the usual griping about mortgage interest rates, school catchment areas, or home renovations. No, this time around the group started discussing the game of investing in property.

This was surprising for several reasons. Property investing in the UK tends to be a bit like masturbation or being a Freemason. A private deed, one rarely discussed in public. There are exceptions of course, often in the form of self-aggrandising blowhards who drive around in little red sportscars and date girls half their age.

One of the group voiced a complaint about eye-watering professional financial service fees.

First having been steered down the path of tax efficiency. Then steered away from the dual risks of personal liability and cross-collateralisation. Now he found himself the sole director and majority shareholder of a complex web of holding companies, each containing a single highly leveraged residential property.

Those holding companies were collectively serviced by his own property management company, creating an endless shell game of billing himself and paying himself to bamboozle the taxman.

Which made him sound like a modern-day Rich Uncle Milburn Pennybags, of Monopoly fame. Except he owned just a handful of properties. “Cheap” purchases in high-yielding low growth markets, the sorts of locales where nobody with other options would voluntarily choose to live.

On paper, the structure should legally avoid thousands in income tax that would otherwise be due.

Of course, that was before each entity incurred thousands per year in accounting and legal fees. Solving the tax problem via other means, by diverting the high yield into the accountant’s pocket. Not the outcome the investor had been anticipating.

Not to be outdone, another member of the group grumbled of having “invested” a five-figure sum on a residential property investment training course hosted by an ageing television personality.

A week spent sardined in the conference room of a cheap airport hotel next to a busy motorway. Eating service station sandwiches. Drinking instant coffee. Being brainwashed with grand tales about endless rivers of passive income and easy riches.

The course boldly concluded with the statement that if the approach worked, it would be because of the expert tuition they had received. Failure would be down to the student’s lack of belief or unwillingness to take action. Heads I win, tails you lose.

Keen to put the lessons into practice, the ambitious investor had teamed up with a friend to purchase a large rambling house from a deceased estate located on the outskirts of a faded city far from hope.

Enthusiasm, begging, and outright bribery eventually secured planning approval to convert the property into a couple of dozen studio apartments. It is amazing what can be achieved with a pair of premier league season tickets.

Single bed. Bar fridge with a toaster oven precariously balanced on top. Wall-mounted fold-down table and two fold-up chairs. A “wet room” in the corner, consisting of a toilet beneath a showerhead, enclosed by a plastic shower curtain. The faint aroma of mould, nylon carpet, and quiet desperation.

Suitable for use as a brothel, halfway house, or student dormitory.

About halfway through the project, the builder (who had been highly recommended by the property course promoter) pocketed their advance payment and promptly declared bankruptcy. A week later, the builder was back in business trading under a new limited liability company, driving the same van and using the same tools. The investor was still fruitlessly pursuing him through the courts in an attempt to recover their money.

Finding another builder willing to take over the job was difficult.

Finding one willing to sign compliance certificates covering the work of the original tradesman proved to be as easy as winning the lottery.

At least this vignette had a happy ending. The school of hard knocks taught the amateur investor some valuable lessons. He didn’t make any money, but managed to exit with injuries to his pride exceeding those to his wallet. Since then, he had successfully completed a handful of smaller-scale conversions of dilapidated family homes into group houses targeting teachers, nurses, and other low-income earners.

A third man lamented the travails of dealing with property insurers.

Faulty underfloor heating had led to major water damage, requiring the replacement of everything below window height in one of his properties. The idea of enclosing heated water pipes, with a useful life of just 25 years, inside a cement slab seems far less sensible when something goes wrong and any repair involves a jackhammer and new flooring.

Ten months later, the insurer finally finished dithering. The repair was estimated to take between four and six months, but wouldn’t commence for another two months due to a shortage of tradespeople. All told, that would make for an 18-month void period, during which the property was uninhabitable yet still incurring mortgage payments.

Collectively, the small group of office workers appeared to own in the region of 50 doors.

They each owned multiple investment properties.

They all followed the same basic model of buying highly leveraged properties within limited company ownership wrappers to minimise tax, while using interest-only loans to maximise cash flow.

They viewed the debt in much the same way a national government does, a cost of doing business. A liability to be endlessly refinanced rather than ever repaid, at least not while they owned the property. All the while inflation, the inverse of compounding returns, steadily erodes the value of those borrowings.

Most of them had transitioned from naïvely investing in new build flats, with high service charges and endless build quality issues, to single-family residences.

The more enterprising had graduated to operating HMOs (what the English call group houses).

Only a few had levelled up to commercial properties. However, the slow painful death of the local high street combined with the post-COVID reticence to return to the office, made for a higher-risk higher-reward play that had burnt fingers and bruised egos.

All were terrified of rising interest rates. Rents could only be raised so high before the pool of available tenants could no longer afford them. Beyond that point, the landlords found themselves subsidising their tenant’s living costs. A dubious option in a high capital growth locale perhaps, but a non-starter in the high-yield low-growth markets they played in.

It was fascinating to listen to the way changes in government tax and social policies had influenced their behaviours and decision-making.

Occasionally having the intended effect.

More often, on the advice of their professional advisors, inspiring elaborate acrobatics to dive through loop holes or dance around new regulatory hurdles. Tax was a financial friction to be deferred or avoided wherever possible.

None of the group anticipated much in the way of rising property prices in the medium term. Perhaps keeping up with inflation, perhaps not even that. The theories that led to this conclusion were many and varied. Running the gamut from poor economic growth prospects, unfavourable immigration policies, and burdensome anticompetitive regulatory regimes.

Several were in the process of offloading their property portfolios. Seeking to extract equity and free up funds, in anticipation of migrating abroad in search of a more promising future for their school-aged children. England had been good to them financially, however those now planning an exit felt the ride on the gravy train had been fun while it lasted.

Canada was a popular destination of choice, following their recent immigration rules relaxation.

The eldest in the group was planning to relocate to a life of remote working from Tenerife, which would transition into retirement once  corporate clients no longer wished to buy the services he was selling.

Only a couple were keen to further expand their portfolios.

That expansion was focussed on improving return on equity, rather than adding more doors to their property portfolio.

Seeking fewer investments to manage, but ensuring those retained were of the higher quality and higher return variety. Hoping that quality would help them more comfortably ride the property market rollercoaster as the long running boom runs out of momentum.

It was interesting to hear the different views and approaches. They were different to mine, but then viewing the world through an alternative lens every now and again can be enlightening. Challenging preconceptions. Exposing blind spots. Occasionally, teaching something new.

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  1. Steveark 19 February 2023

    The article was well written yet it left me with sympathy for a group of strangers that seem to be living lives that are less than rich.There jobs were just so so, rather than engaging and entertaining. Their investments were big time sucks with mediocre returns. Their future seems to be anywhere but here. None of that sounds like the recipe for living a full life. And they are among the world’s highest earners. I suppose that is the human condition for many if not most, but my life feels so much brighter and better than that.

    • {in·deed·a·bly} 20 February 2023 — Post author

      Thanks Steveark.

      There is a common trap where people set their living costs at the edge of their earnings (e.g. choosing a house price budget based on maximum borrowing capacity). That leads to money becoming the determining factor in most of their life choices, such as career choice and the number of children they decide to have.

      This can lead to a life spent shackled to the hamster wheel. Needing to live within a viable commute of a junior level job promising glittering career prospects, then having to earn ever more to pay for more as their family expands and their housing needs expand with it… group house to flat to house. The longer they stay, the deeper the family’s roots in their community (schools etc), and the harder it becomes to relocate someplace cheaper and reset the financial baseline.

      I think there are far more people working jobs for the money than those pursuing their calling or prioritising satisfying vocation (teaching, nursing, police, science, etc) over affording family lifestyle.

      Based on our past conversations, it sounds like you managed to enjoy the best of both worlds. A high paying job in a low cost of living location, while doing a series of roles you found both stimulating and rewarding. In my experience each of those things in isolating is rare, managing to do them all at once is winning life’s lottery. Well played sir!

  2. Gentleman's Family Finances 19 February 2023

    “They had reached that career sweet spot where relatively low responsibility levels intersect with relatively high remuneration”

    Sounds like me! – although I’m anti-property as an investment (in that I think the gains are historic and the future may mean large leveraged losses).

    It is funny how leveraged ownership of single or a few properties is very common for hoards of middle class people (whole stocks and shares are something of a taboo)

    Great article (as always)

    • {in·deed·a·bly} 20 February 2023 — Post author

      Thanks GFF. There is a lot to be said for being a somewhat detached independent freelancer. Turn up, do the job, and leave it all behind at the end of the day. No performance appraisal theatre, no corporate politics, and no having to ask for permission to take time off. That said, there is also no pension, health insurance, or paid annual leave… unless the freelancer pays for it themselves!

      I think the choice of property over stocks default for a certain cadre of investors is a combination of familiarity (bricks and mortar etc) and leverage. The cycle tends to be slower and there are no margin calls, the difference between a sedate ferris wheel and a rollercoaster ride.

  3. Nick @ TotalBalance.blog 21 February 2023

    You sure have an eclectic hang-out circle 🙂
    So I’m curious: what did you learn from this “encounter”? (You alluded to the fact that you might have learned something new at the end of the article).
    I’m only asking out of genuine interest to understand how you choose your investments. I imagine you are not the high-yield low growth kind of guy, but I could be wrong of course… 🙂

    On a completely unrelated note: is it intentional that you allow people to read the entire post in the “new post” email that we receive? (Cause then you won’t be able to see how many people actually read it, as they do not need to visit the site to read the entire post).

    • {in·deed·a·bly} 21 February 2023 — Post author

      Thanks Nick.

      Workplaces are a bit like the school classrooms of old. Enforced socialisation with a random selection of people, typically from similar socio-economic profile. Like the kids from school, when we leave we’ll never see or think about 99% of our former work colleagues again (nor they us). Eclectic is a great term to describe the random assortment!

      So I’m curious: what did you learn from this “encounter”?

      It was interesting because in my bubble, many of the “smart” money folks have been steadily unwinding their UK property portfolios for several years. A combination of tax and increasing regulation have made landlording steadily less rewarding, while a dubious macroeconomic outlook has many wondering whether higher returns might not be found abroad.

      So to meet a group who was still largely “all in” on real estate was a refreshing change of perspective. Granted, they too were concerned about headwinds and wondering if the best part of the medium term cyclical capital growth wasn’t already priced in.

      The learning was mostly a concern for those who were heavily leveraged, a lever many pulled while borrowed money was free and rental returns were negligible. All these guys were sitting on short term fixed interest rates, which would shoot up when the honeymoon period finished. Their model of endlessly refinancing onto another low rate doesn’t work so well now that interest rates have risen from virtually nothing to 4% and counting.

      That will see their financing costs more than double, turning marginally cashflow positive investments into expensive black holes.

      Scale that problem (refinancing every 2-5 years is a common pattern of behaviour in the UK property market) across the whole economy, and more than a few people are going to be experiencing mortgage distress.

      Which in turn leads to belt tightening, reducing discretionary spending, which has knock on implications for future economic growth.

      It also suggests a period approaching where instead of there being a very competitive property market as has been the case until recently, the balance may shift more towards buyers as the volume of properties listed for sale increases should disgruntled investors and distressed home owners decide to cash in their properties. Great if you’re cashed up and looking for a bargain purchase. Less great if you need to sell at the same time as everyone else, and the law of supply and demand turns against you.

      On a completely unrelated note: is it intentional that you allow people to read the entire post in the “new post” email that we receive?

      Yes. I mostly write for me. It’s lovely if others read and enjoy my ramblings, but I don’t much care about clicks and page views. Indeedably’s RSS feed and the email subscription both publish the full content of my stories intentionally: less friction for the reader. I never bothered setting up affiliate sales or hosting adverts, the readership was never likely to be large enough to warrant the effort. Somewhat ironically the goal of this occasionally personal finance related site isn’t to make money!

  4. David Andrews 22 February 2023

    Almost free money was going to end at some point, I suspect the speed that it ended has caught quite a few people out.

    Combine that with an increasing backlash to the “rentier classes” and some property “owners” are going to have issues. Even if a property is entirely mortgage free the margins can be perilously thin.

    One experience with a problematic tenant can wipe out a couple of years of returns.

    Mr Gove and his Renter Reform Bill will bring even more potential issues. Meanwhile property prices will likely stagnate so landlords will not be saved be increases in the underlying property.

    I’ve always been a big advocate of living below your earnings. Of course, I’ve missed out on fine dining, multiple 5 star holidays, ever more complicate cars. However, I much prefer knowing that I have more ownership over my own time than my liabilities do.

    • {in·deed·a·bly} 22 February 2023 — Post author

      Thanks David.

      at some point” is key, it eventually took 14 years before things reverted to the mean. The outcome was inevitable, but I doubt many called the timing. 14 years is a long time, more than half a typical mortgage term. The opportunity cost of sitting out that once in a lifetime period of “free” money would have been absolutely huge, but only visible in hindsight.

      I agree with the living within your means sentiment, might not make you filthy rich, but certainly reduces the stress levels to make for a more enjoyable ride.

  5. Hague 1 March 2023

    Property investing in the UK tends to be a bit like masturbation or being a Freemason. A private deed, one rarely discussed in public.

    Funny how experiences differ. In my experience it’s the precise opposite. Property investment is the only personal finance matter acceptable to be discussed in public.

    Never heard a bloke in the pub banging on about which broker he users for a SIPP. 🙂

    • {in·deed·a·bly} 1 March 2023 — Post author

      Thanks Hague. Maybe you’re hanging out in the wrong pubs? I’m sure you’d hear broker talk at one of weenie’s Manchester FIRE meetups! 😉

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