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The size of the prize!

I want to try and double my rental income from our two holiday homes. And I don’t want it to remain a hope or a fantasy; I want to try and make it real. Is it possible? I don’t know. Can I go even further and triple revenues? I don’t know but I will find out. It’s going to be challenging, but I have a dream and I have realised the size of the prize.

You see, when I started to think about it we haven’t been looking at our vacation houses in the right way. I am sure that we are not alone in investing in property for the property’s sake and then looking at ways for it to pay for itself – or to use the London vernacular – for it to “wash its face”. Our objective was/is for the rental income to cover the mortgage costs so that we can increase our property portfolio and have assets to sell for our retirement dream. I know of friends who have made similar investments; looking to the long term, expecting small returns along the way and not really expending to much thought about their investment or what it could be.

But there are massive flaws in this model. First of all property prices really do go up and down; and even fall through the floor like they did here in Ireland. Timing is key, and we don’t want to be retiring, and looking to sell, during a downturn. Secondly, the mortgage costs seem to work on the reverse axis to property valuations, they go up just as valuations go down. Thirdly, rental prices are diminished in property downturns. The net result is that it can be hard work just to get the property to wash its face and then you might find that your resale value is less than you hoped.

This challenge has forced me to a rethink.

First of all, when do we want to sell the property portfolio? Well the answer to that is not when the mortgages are paid, but when the value is maximum. When will that be? I don’t know but I need to be prepared for that to be within the next 5 years, even if we choose to wait longer.

Secondly, we are throwing away value if we simply look to sell the properties. As properties they have a market value based on size, location and facilities. We have some control over this, but market conditions will form the quantum of the value. However, if I succeed to maxing the revenues (maybe even tripling revenues), and I followed the path I have outlined (documenting and explaining how it done etc..) I will have developed a business. My rental business will have a value based on its sustained profitability, and the whole package of property and rental incomes will be worth somewhat more than the property on its own. Indeed it might even be possible to sell the rental business without selling the properties, leasing them to the new managers!

What I have realised (latterly) is that driving my rental income substantially upwards will not only double my rental income for years to come, it will drive up the valuation of my rental property portfolio. On a quick fag packet calculation, if doubling my rental revenue for 10 years brings in 150,000 in extra income. I expect the entire return from success in this challenge to be over 250,000! Am I motivated? Oh yes, this really is worth my time!

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