How I maximise the returns on my liquidity fund (cash in the bank)

In January 2008 I refinanced my entire portfolio in line with my ongoing strategy.  There was an opportunity to release equity and I took it.

That left me with cash in the bank to ensure that my 20% liquidity strategy was maintained.

I had no idea at that time that bank base rates would plummet from 5% to 0.5% and stay there for so long.  In reality, within a few months interest rates started to rise as many of my loans were LIBOR linked.  Property prices also started to slide and as more and more lenders pulled out of the market it was inevitable that the lack of mortgage finance would force prices down even further.  Some would say this was very worrying times but I remembered a phrase I learned 23 years ago from my first mentor.  “Pessimists see the difficulty in every opportunity but optimists see the opportunity in every difficulty”.

For me the opportunity was at auctions.  Repossession rates had increased and as people couldn’t get money as easily there were less bidders in the auction rooms.  Lots of repossessed properties placed in the auctions by frightened lenders who just needed to dump properties and recover what they could was the opportunity I was looking for. Less bidders made it even easier for me to snap up bargains.

I very quickly devised a solid ‘due diligence’ process and worked very closely with my brother who is a builder.  We had a crash course on what to look out for in auction packs from our solicitor.  My brother visited every property we intended to bid on to give it the once over.  We went into the auctions knowing exactly what numbers worked for us having completed full due diligence.  Sometimes we bid on as many as 30 properties in a month and didn’t buy anything.  We refined the process so that we didn’t need to visit the auctions any more and we could bid online.  We also developed very close working relationships with the auctioneers and their assistants.  We did more deals after the auctions than during the bidding.  Sometimes we got lucky and purchased three properties from just one auction.

Cash in the bank enabled us to do this.  Our modernisation process is very efficient and we can completely gut and refurb a house with 2 to 4 weeks depending on size.  Most properties were let within a week of refurb as we marketed them heavily from the day the hammer went down.  We showed tenants around during the refurb process and showed them pictures of previous work.  We then scheduled an open day for the day after expected completion of works for all the potential tenants who had viewed the properties.  This certainly kept our refurb teams on their toes.  There’s nothing better than a deadline to motivate people to get finished if they want to move onto the next project!

I then refinanced all of my money, and often a bit more, back out of the properties.  No tricks, no gimmicks!  I’m fortunate enough to work with a private bank who don’t impose the six month remortgage rule so that’s meant I’ve been able to complete 14 deals in the last 18 months.  Had I be tied to dealing with the mainstream BTL lenders I would not have made such fast progress but that wouldn’t have stopped me, I would simply have done things slower.

The net result is that I’ve now got 14 more properties, all with 30% equity in them at today’s values.  I’ve also substantially improved my rental cashflow and I’ve got more cash in the bank than I started with.

Number of properties owned is vanity, rental profits are sanity but for me, cash in the bank is reality.  My model has worked, it’s still working and when I find something better I’ll be happy to share that with you too.  There are plenty of good deals to go around!  All I ask in return is that you share too.  Share your experiences and your comments on this Blog and share this Blog with your peers.

FOOTNOTE as it’s very topical on the internet forums right now:

I could have continued to transact No Money Down deals but the mortgage lenders made it very clear that they didn’t want that business any more.  Previously, some of them had been hungry for it.  Many landlords clung onto the NMD business model and sought more and more ways to come up with creative financing schemes so they didn’t have to give it up.  I couldn’t see a future in that.  If lenders want to kill off a business model they will do it.  Additionally, as the creative financing schemes became more and more creative it didn’t take a rocket scientist to work out that the schemes were in fact designed to obtain mortgages by deception.  I wanted no part of that.  I looked at Sandwich Lease Options but I saw those as a reputational risk ticking time bomb.  To this day I still haven’t seen any paperwork that any solicitor in his right mind would advise either the existing owner or tenant to sign.  In my opinion these schemes are fraught with risks for all parties.

To learn more about my property investment strategy please read the following posts in this order:

1. The Roots of my Property Investment Strategy
2. What you shouldn’t do with your buy to let mortgage
3. (You are Here) | How I maximise the returns on my liquidity fund (cash in the bank)
4. Sell or hold after completing a refurbishment?
5. Buy to let strategy – in this article Mark Alexander explains the 20% liquidity reserve rule of thumb
6. What’s more important, cashflow or liquidity? Mark Alexander reports
7. Is your property portfolio ownership structure optimised to enable you to pay the minimum amount of CGT, income tax and IHT?
8. The history of No Money Down and Instant Remortgages since 1992
9. How I minimise rental voids
10. How I choose my tenants
11. How I minimise property management issues
12. Are YOUR tenants YOUR best ambassadors
13. Due Diligence
14. My 1000^th post on my favourite property forum
15. Property management advice
16. Property investment advice

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