3 How Landlords Can 3x Returns By Knowing Their Tenants
Transcript
00:00All these landlords are bailing out, right?
00:02Everybody's trying to get off the Titanic to get one of the dinghies that are left.
00:05Now, here's what's happened.
00:06Not only do we collect three times more net money in the pocket of the landlord, right?
00:11Why does a kamikaze wear a helmet?
00:16Hey, Nathan!
00:17The guy that turns ideas into business empires!
00:21How are you going, business legend?
00:23G'day, Rick, you innovative, disruptive property guru.
00:31Alrighty, we're back again, Rick, for some more exciting business of property.
00:36Well, let me tell you, it's going to take you back a little bit, right?
00:39Because guess what?
00:40We're seeing this real crisis in the United Kingdom right now with landlords, right?
00:43They're being absolutely penalised like in all directions.
00:46But here's what's really exciting.
00:48I'm going to ask you a question.
00:49Why do you think people in England are landlords?
00:52Why are they?
00:53Originally, to make you a bit of money.
00:55Bit of money, okay.
00:56What you're saying is they don't want to be landlords.
00:59They just want a vehicle by which they can make money.
01:02I like the sound of that.
01:03Okay.
01:04Therefore, really, what we're saying is, we've talked about this before, the process, right?
01:07They want to be a landlord, not because they want to be a landlord.
01:10They just want a process by which they think it's going to be easy to make money.
01:14But here's the thing.
01:15Right now, they're using what's called an AST, right?
01:18A rental contract to put people in a house.
01:21But when you use an AST and you put a rental agreement to put people in a house,
01:26now the governments have brought all sorts of new rules and programs.
01:30And what it does, it's absolutely kicked in the teeth the profitability of being a landlord, right?
01:37Here's the bit.
01:39Most people are going, it's no longer profitable to be a landlord.
01:43Let's no longer be a landlord.
01:45But what they should really be saying to themselves is, I still want to make money.
01:49I just need to change the vehicle that I'm driving.
01:52So we've still got to eat.
01:54But if this kind of car no longer works, why don't we just change cars rather than stopping eating?
02:01Can I just say something there, Rick?
02:03Because that springs up in the business world.
02:07I always say the quality of our life is determined by the quality of the questions that we ask.
02:14So if we want a better outcome, we need to have a better question up front.
02:19So I think that relates to exactly what you're talking about.
02:22Landlords want money.
02:24They want a passive cash flow income.
02:27It's not working anymore.
02:29So what is the question that we need to be asking right now?
02:33Yeah, correct.
02:34So that's it.
02:35So when I say to landlords, what is it you actually want?
02:37They actually say what you said.
02:39They want money, peace of mind, passive income, plus, plus.
02:42In actual fact, none of them say, I really want tenants and I really want an AST.
02:47They want the benefit of the tenant and the benefit of the AST.
02:51But when that vehicle gets so penalised that it's no longer a good vehicle in order to go to market,
02:57maybe we need to change the car in which we drive.
03:00Oh, I like the sound of that.
03:02I like where you're going.
03:03Keep going.
03:04Tell me more.
03:05Okay, so here's the deal.
03:06So what if we did this?
03:08What if we still wanted to make money out of the property, but we wanted to reduce all the overheads, all the expenses?
03:16Just imagine I had a system, right, where we no longer had to pay repairs on property, no longer had to pay expenses,
03:22no longer had to pay repairs, no longer had to pay government fees, charges, taxes, energy sophisticates, any of this stuff.
03:30In actual fact, we pay absolutely nothing.
03:32It's a little bit like a bank.
03:33When a bank lends you money to buy a house, okay, and you're living in the house and have all that crap going on, what does the bank pay?
03:41Not too much.
03:42They do have their hand out most of the time.
03:44Yeah.
03:45What if we changed the positioning where you're a landlord where you just have your hand out most of the time and pay nothing?
03:50Yep.
03:51I like the sound of that.
03:52Carry on.
03:53Okay.
03:54Let's say you're in a house and you're paying nothing, right?
03:56You've just got your hand out.
03:57You're down at the beach paying you nothing.
03:58Is it fair enough to say that when people pay the bank, most people pay the bank electronically, the bank just receives the money?
04:04Yep.
04:05Every month?
04:06Yep.
04:07They don't have to do too much, do they?
04:08Nope.
04:09What if we could employ the same system for landlords?
04:12By the time the landlord has to take into consideration voids, repairs, energy certificates, insurance, all these expenses, out of a thousand management fees, out of a thousand a month, how much do you reckon the landlord ends up with?
04:28Not a lot.
04:29There's not much left in most situations.
04:31Yeah.
04:32Right.
04:33Well, what if the guy who was paying a grand meant that the guy at the other end, the landlord, got pretty much the whole grand?
04:41That would be a nice scenario to be able to achieve.
04:44Okay.
04:45So here's my point.
04:46Would the cash flow now go up on the property?
04:48Sure would.
04:49If the landlord's making more cash, now the landlord's making three times more money, what can he now do that he couldn't do before?
04:57Everything.
04:58Correct.
04:59Life will change.
05:00Yeah.
05:01Life will change.
05:02That's right.
05:03Not only more peace of mind, but now he could probably buy more properties because he could show to a bank or a financial institution he's worth more money.
05:09Love it.
05:10So here's a concept.
05:12All we have to do is change the system under which the guy lives inside the house, and it moves us into a different piece of legislation outside this landlord-tenant legislation, and all the rules that apply under tenant-landlord no longer apply.
05:30Nothing.
05:31Nada.
05:32Zip.
05:33Let's say this guy's in my house, and I'm going to exaggerate this to make the point.
05:37And I say, listen, you're in my house, and would you like sometime over the next 100 or 200 years, would you like the opportunity to buy my house sometime over the next 100 or 200 years, right?
05:50Okay.
05:51Do you reckon there's some guy that, given the opportunity, that instead of paying dead rent, so he's no longer paying dead rent, but the rent could go towards owning this house sometime in the future, but the money goes towards owning the house rather than being dead rent.
06:06What percentage of tenants do you think would prefer that?
06:08Particularly right now in the UK and actually all around the world, the offer would be phenomenal because no one has hostability in the rental market.
06:17Everyone is, you know, all the landlords are selling, and rents are going through the roof.
06:23So that would be a phenomenal solution.
06:26So I've always found whenever you say to a tenant, let me ask you something, this rent you're paying every week, would you rather be the dead rent going to the garbage can or go towards owning the house?
06:34Give it a perfect world, give it a choice, what would you like?
06:36They'll always say 100% of the time, go towards buying a house.
06:39They may never buy the house, but the fact that the paperwork reflects that they're buying the house, but they may never buy the house, but the fact that the paperwork reflects that they're buying the house changes the legislation, changes all the paperwork and the systems for the guy living in that house, which means no longer.
06:55Does the landlord have to pay all those expenses and taxes?
06:59And now what happens is the landlord has shifted back to a position like a bank who's just collecting money from the guy living in the house.
07:07And as we know, like with the banks, who now pays all the expenses on the house?
07:11Yeah, right.
07:12The person moving in, right?
07:14There we go.
07:15So the guy now we've shifted.
07:18What we've done is we've pulled all the profit, right?
07:21In return, we basically said the guy in the house, in order for you to achieve the dream, if you want it sometime in the future, the dream of high ownership in return for that, you take on all the responsibilities of that, I'll just sit back and collect my money.
07:32Now, here's what's happened.
07:34Not only do we collect three times more net money in the pocket of the landlord, and I'm going to suggest to you that once the landlord's getting three times more money, he ain't going anywhere.
07:44Well, also, he doesn't need all these management companies and repairs.
07:48None of that applies.
07:49Now, here's the other thing that's sexy.
07:51Let's say you have a contract and the guy's paying you money every month, right?
07:55Because the paperwork's different, it has a different sense of value.
07:58So all financial institutions lend you much more money on contracted income than they do on rental income.
08:05Right.
08:06Lovely.
08:07So therefore, not only can you buy a lot more assets, but because you've got income coming to you on contracted income and not on rental income, you can put it as secure.
08:16You can use it for better security to buy more toys, trinkets, businesses.
08:20Lovely.
08:21So I reckon one of the questions out there, Rick, around the fact that we can navigate around some of the existing paperwork and how much freedom does that actually give you?
08:32What can you do?
08:33What are the benefits there of doing that?
08:35From the landlord's point of view or the guy in the house?
08:37From the landlord or, yeah, the landlord or the investor's perspective, if we can do that for—
08:44Okay, well, first of all, here's all the things that can disappear that are no longer needed.
08:48Once you've changed the facilities under which the guy's in the house, okay, what we've got is a few things that are happening.
08:54First of all, I no longer need a management company, right?
08:59Like, for instance, do banks have a management company or do you just pay the money straight into a bank account electronically?
09:05You don't need a management company because you're not doing repairs or anything like this, right?
09:08So you don't need a management company.
09:09That's about 10% you can get rid of.
09:11All the expenses and other stuff on the property, you don't look after that anymore.
09:17The guy living in the house looks after all this stuff.
09:20So it gives the landlord guy massive peace of mind.
09:23It makes it easier for him to own properties in different parts of the world because now he's just getting income streams, right?
09:31Remember, he's in control of the property, not in charge of the property.
09:34So in that case, as an investor, for example, I have a property in London that about last week we took the tenant to court,
09:47and that tenant has so many freaking rights under their existing paperwork that it's near impossible for us to put the rent up
09:59because we just went to court on that, and it's near impossible for us to actually get the tenant out.
10:05And that, funny enough, that tenant has been advised by a government agency not to pay the rent and just to make token payments anytime they feel like it,
10:14which is just mind-blowing for a landlord to have to go through that crap.
10:19It's just mind-blowing.
10:20Your system for navigating—
10:23Well, it's not my system.
10:24It was created in 1677 by the Act of Parliament in the United Kingdom.
10:28It's been there.
10:29It's just most people don't use it.
10:31Wasn't that you back then creating that system, back in the 16th century?
10:35Yeah, but I didn't know.
10:36All I did was dust it off the books.
10:37I didn't actually crowd it.
10:38Here's what I did.
10:39I bothered to read the books that no one else reads, dusted off the books, went down to Section Volume 14, Article 13, Paragraph 1,
10:46that was written several hundred years ago and said, can we do this?
10:50Now, people always start saying no until they've read the book.
10:53Then they read the book.
10:54They go, oh, yes, you can.
10:55We just haven't done it this way.
10:56Do you understand?
10:57So issues that exist with tenants, sticking tenants in now, what can we do to supersede that?
11:05Ten times easier.
11:06So it's not there on ASTs, on a mortgage instrument, but it's more rigid.
11:10The reason why it's so rigid, if it was not, no bank would lend money to anybody in the United Kingdom,
11:16and it'd be as sucking sound as all foreign capital would leave England and go to Dubai, which is probably going anyway.
11:23But the point is this.
11:24You can't mess around with international money.
11:27International money needs to know that if it's going to invest in businesses and buildings,
11:31if the people don't pay, they can get their money back out very fast, cleanly, efficiently,
11:36without magistrates saying, oh, we're just going to put this off for another two or three years.
11:40Do you understand?
11:41So this system is very cut and dry.
11:44That is so attractive.
11:46I feel that'll be pretty attractive for so many landlords out there now.
11:50Yeah.
11:51These are the people who've got to get their head around.
11:53A bank might take nine months to move someone out of a property, but it doesn't need to take nine months.
11:59Banks do that because it's PR.
12:01That's PR.
12:02It's got to look good in the eyes of the public.
12:04If you actually look at the law and say, what is the timeframe it takes to get someone out on a piece of property,
12:11on a defaulted payment, not an AST, not a rental payment, there is a process.
12:16You just follow that process.
12:18What you're going to find is the process.
12:21But something else you're going to find that's really fascinating is when people move into a house as a tenant,
12:28in their mind, who owns the house?
12:31You or the landlord?
12:32The landlord.
12:33Right.
12:34So therefore, you don't really care if you don't pay the rent.
12:36So now you're living in a house and you've been making these payments, but you're buying into your own house.
12:41Now you've got a wife and two kids.
12:42You're buying your own house and you want to say to your wife, babe,
12:45I'm thinking about not paying next month's house that we're buying into right now.
12:48Let's just go and live on the street.
12:50What do you reckon the wife says?
12:51Probably a bit of a clip around the ears.
12:54Correct.
12:55Yeah.
12:56So the default rate is like incredibly small.
12:58Whereas you might get 10% of tenants default, you might get quarter of 1% of people.
13:03And people always pay you big buckets of money to move in.
13:06So let's say a guy that moves in or had a property, they might pay you one month's rent or two months' rent.
13:13Well, a guy that moves into a house that he's buying, very, very easy.
13:1710 grand, 20 grand.
13:18It's serious money.
13:19Excellent.
13:20Gives you a bit of a buffer to play with, doesn't it?
13:22Yeah.
13:23Well, I've just, look, I've been going back 40 years.
13:25I think I've only had two defaults, one in the United States, one in Australia.
13:28That was it.
13:29People just don't default.
13:31As a rule, people don't default on their own houses.
13:33But by the same token, I don't put unemployed people in houses either.
13:37But then again, when you put tenants in a house, you should see that the people have the ability to pay the rent.
13:42Yeah.
13:43So when you put them in this way, but here's the thing.
13:46You still get the same cash flow.
13:48You actually probably three times the amount of cash flow.
13:50Sometimes people say to me, and I can understand that landlord's going to go, yeah, but you don't get any capital growth.
13:56And the capital growth is something you might give away, but then I can put contracts.
14:01So I can do a shared capital growth with the guy in the house.
14:04I can share that, but that's the slip clause.
14:06But at the end of the day, sometimes some people say, do you know what?
14:09I'd rather harvest my benefits for this property now, earn three times as much money and travel the world with my wife flying first class every year for the rest of my life, rather than living in misery and know that when I'm 75 years old, I've made all that capital growth.
14:23Funny story about actually Rick, one of the properties that we did or back in 2010, 2011, I think it was near one of the airports in London.
14:33We looked after this seller.
14:36He was actually going back to Australia and he wanted out and he had three different mortgages or loans secured against the property.
14:46One I think was for a car from memory and there was two other ones.
14:50And we said, look, we'll just take care of it all.
14:52We'll just babysit that mortgage and all those payments.
14:55We'll just step in there and you can get on the next plane and we'll take care of everything.
15:01We did that and we started looking after the property and then we decided we'd get a tenant buyer come in and they came in.
15:11They made payments on the property.
15:13They took care of all the maintenance, all the expenses.
15:16This was over about a four year period.
15:20And we had some little encouragements, a four year five on there so that he could get out of the system and cash us out and we'd get the back end chunk of the cash.
15:30And funny, you know, in relation to capital gains that we were talking about.
15:35So five years came and he wasn't in the position to vacate, get his own mortgage to cash us out.
15:41So we said, oh, no worries, just do another year, do another year, do another year.
15:44Got to year eight and he said, really sorry, I don't, I'm not, I don't want this deal.
15:49And we said, okay, no problem.
15:52What do you want to do?
15:53And he said, look, just take the property back.
15:56So we said, oh, okay, all right, if you insist.
15:59And so we took this property back.
16:01We got these massive capital gains.
16:03We paid down the mortgage over that eight year period.
16:06Property prices have gone through the roof.
16:08I don't understand why some people do what they do.
16:11But at the end of the day, the solution was we got all the capital gains and literally made a couple of hundred thousand out of that one.
16:19It was phenomenal.
16:20Why does a kamikaze wear a helmet?
16:22I don't get it.
16:23In fact, they live in the world and people aren't logical.
16:26People are emotional, right?
16:27One of the things you've done, when you put people in a house, they're in on a contract, right?
16:32Five, six, seven, eight years, they want to pay you off, right?
16:35They can refinance and remortgage off a contract, but they can't offer rental agreement.
16:39So if I put your tenant in there and I want to sell the property, I've got, I can't sell to the tenant because if he's going to go and get a loan, it's a massive exercise of him to go and get a loan.
16:49But if it's remortgaged off the fact he's been paying me for seven years off an existing license contract from a lender, it's just a refinance.
16:58The paperwork's a lot less.
16:59It's easier.
17:00It varies from bank to bank.
17:02But just to move that guy and pay me out is a lot quicker, easier if he's been on a different paperwork system rather than on an AST rental agreement, right?
17:13I'll tell you what, I love this.
17:14I was back there, what was it, about 30 years ago and I was living in the U.S.
17:18Got these rental properties.
17:19And while I was away, there I am trying to live in different countries around the world and I'm being eaten alive by management fees, tenants not paying the rent, pay bills, overheads, this, that fee.
17:30And eventually it was a guy said to me, he said, Rick, put on a 30-year, 40-year contract, right?
17:34And suddenly, and I did that.
17:36And magically, now I was back eating in five-star restaurants, traveling in first class, traveling the world, never, ever heard from any of these people.
17:45You just don't hear from people, right?
17:46I mean, let me ask you something.
17:47How often does Mr. Smith ring the bank to speak to the bank manager and a mortgage just go, hi, I'm just calling to say hi?
17:53You don't.
17:54Banks never hear from people.
17:55So you just never hear from people.
17:56And the only time you're ever going to hear from people is when they're going to call you up and they're going to go, oh, we want to sell the house to somebody else or pay you off or something like that, right?
18:05But I'll tell you what, talk about an absolute booster in your arm for your lifestyle increase.
18:11And overnight, all these people are losing money.
18:13All these landlords are bailing out, right?
18:15Everybody's trying to get off the Titanic to get one of the dinghies that are left, right?
18:19And they're all losing profits, losing their pay, everybody's getting out.
18:22But it's not that they're landlording.
18:24It's just they're in the wrong vehicle.
18:26So the UK landlords right now, there's no question, we're all struggling.
18:30There's, you know, rates have gone up, interest rates have gone up.
18:34All the rules, you know, the non-claimable interest payments, absolutely crazy what's going on out there.
18:41So you've got some now that are sort of, we're going to share those, more and more of those over the next coming podcast, right?
18:50Yeah, you've got to remember, there's just different sections of legislation in all countries.
18:54In all the world, you have different sections of legislation and different rules apply to different sections of legislation.
19:02Therefore, what you do is you just go and operate under a more favourable section of the legislation.
19:08We just got to get solutions.
19:10I mean, if you, the definition of insanity is repeating the same thing and expecting a different outcome.
19:16Right, and experience is what you get when you don't get what you want.
19:20Love it.
19:22You know, learn from the learning curves of those sort of.
19:26That's awesome.
19:27Well, I think a nice little nugget, nuggets in there for the landlords.
19:32And I think we'll be providing a lot more of those sort of ideas as we go.
19:36Well, there we go.
19:37Yeah.
19:38And it just makes people, if it just does nothing else but make people sit back and go, yeah, you're right.
19:41I want the cash out of this puppy.
19:43Excellent.
19:44Thank you Tom.
19:45See you soon buddy.
19:46Bye.
19:47Bye.
19:48Bye.
19:49Bye.
19:50Bye.
19:51Bye.
19:52Bye.
19:53Bye.
19:54Bye.
19:55Bye.