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Guide to Property Investment in 2012 and how you can profit in this market By The Award-Winning Platinum Portfolio Builder Learn why, where and how smart investors are working with professional property experts to safeguard their future and pension provisions in 2012 and beyond Written By Nick Carlile, Founder A PROPERTY INVESTMENT STRATEGY THAT ACTUALLY DELIVERS
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PPB Guide to Property Investment in 2012 V9

Oct 23, 2016

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Page 1: PPB Guide to Property Investment in 2012 V9

Guide to Property Investment in 2012 and how you can profit in this market

By The Award-Winning Platinum Portfolio Builder

Learn why, where and how smart investors are working with professional property experts to safeguard their future and pension provisions in 2012 and beyond

Written By Nick Carlile, Founder

A PROPERTY INVESTMENT STRATEGY

THAT ACTUALLY DELIVERS

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Platinum Portfolio Builder Telephone: 01226 732606 www.platinumportfoliobuilder.co.uk

While every attempt has been made to verify information contained in this guide, neither the author nor participants in the content assume any responsibility for errors, omissions or accuracies. The advice given here is general educational advice and is not advice of any other

entity or business associates of the author. An individual or entity is urged to seek independent advice before taking any financial decisions based on information in this guide. Any slights of people or organisations is unintentional; the services of a property qualified professional

should be sought by the reader for any legal, financial or tax advice.

The author specifically disclaims responsibility for any liability, loss or risk – personal or otherwise – which has occurred as the direct result of the publication of this guide. Neither the author nor the publisher shall be liable for damages arising herein.

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Platinum Portfolio Builder Telephone: 01226 732606 www.platinumportfoliobuilder.co.uk

A PROPERTY INVESTMENT STRATEGY

THAT ACTUALLY DELIVERS

Contents

Foreword by Philip Easter FCCA Client and now Chairman of Platinum Portfolio Builder

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About The Author and Platinum Portfolio Builder 5

Section One: Property Prices

The History of Successful Property Investment 7

What Factors Caused Property Prices to Increase up to 2007? 9

What Factors Caused Property Prices to Decrease from 2007? 13

What Happened to Property Prices in 2009? 15

What Happened to Property Prices in 2010 and 2011? 16

The Inevitable Boom and Bust of the UK Property Market 17

Section Two: Investment Strategies for 2012 and Beyond

Why Invest in Property? 22

The Five Fundamental Principles of Property Investing 29

Professional Investment Strategy: The PPB Strategy 30

Section Three: What to Do Next?

The Platinum Portfolio Builder Guide to Property Investment 41

Want to Know More about Platinum Portfolio Builder? 44

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Platinum Portfolio Builder Telephone: 01226 732606 www.platinumportfoliobuilder.co.uk

Foreword by Philip Easter FCCA Client and now Chairman of Platinum Portfolio Builder Welcome to the 2012 edition of Platinum Portfolio Builder’s professional Guide to Property Investing. This guide is written by the founder, Nick Carlile, whom I first met when a colleague and leading UK franchise lawyer made me aware of the award-winning Platinum Portfolio Builder opportunity. Having enjoyed a long career as a Board level Executive with Aviva plc, working with the Group’s plc Board, key shareholders and investors to optimise the value of the worldwide Group, I was looking to build a personal portfolio of business investments and interests that I could invest in for my future and that of my family. With a love of property and having experienced considerable personal success in my own property investments over the years, the Platinum proposition quickly began to stand out for me, for the following reasons:

The opportunity that Platinum Portfolio Builder provides as an alternative pension provision strategy, which compliments my existing provision

The quality and professionalism of the people – in particular, the complimentary skill sets demonstrated by Nick Carlile and the Platinum Portfolio Builder team

The passive nature of the Platinum Portfolio Builder model, which allows me to concentrate on other interests

The opportunity to take advantage of the prime conditions in the property market now

The opportunity to deploy surplus capital in a way that is very cleverly leveraged

The ability to add a property diversification to my pension provision This guide contains Platinum Portfolio Builder’s review of the recent history of the UK property market and projections for the future, based on Nick’s own experience and expertise, together with first-class independent market analysis. It also gives you more details about the Platinum Portfolio Builder proposition, and how it is best placed to guide you in your next property investment venture. Enjoy the read!

Philip Philip Easter FCCA

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A PROPERTY INVESTMENT STRATEGY

THAT ACTUALLY DELIVERS

About The Author and Platinum Portfolio Builder This essential investors’ guide is written by Nick Carlile, the Founder of Platinum Portfolio Builder and an investor since the age of 19. Says Nick, “I love investing in property - for me, it’s the best investment I can make. It’s something I understand, it’s tangible and, whatever happens, unlike many other forms of investment, property always retains an intrinsic value.” Nick is a qualified Quantity Surveyor, who has worked in the property construction and investment industry since the age of 16. His skills lay in being able to identify, manage and overcome the risk of investing in large-scale UK and international property projects and he has headed a number of such projects alongside investing in safe, solid and sustainable housing stock in the UK. It is this safe and solid housing that is at the core of what Platinum Portfolio Builder does. Nick developed and now manages the business, which is based in South Yorkshire, along with his team of expert property professionals. Platinum Portfolio Builder is for those who don’t have either the time, skill or desire to be active in property but who still want to create or diversify an investment portfolio. It allows passive investors to have a UK property portfolio built and managed on their behalf by an experienced, knowledgeable team. There are also additional joint venture opportunities, where clients can partner with Platinum Portfolio Builder on an entirely passive basis. The business has in-house teams of expert buyers, project managers, builders and letting agents. They buy discounted property, using their extensive knowledge and contacts, to secure an instant profit for clients. The properties are then let and managed for clients on an ongoing basis, until such time as they want to sell them and cash in their profits. Platinum Portfolio Builder only buys properties where they can achieve a minimum discount of 25% against an independent RICS valuation. Last year, an average discount of 26% was achieved for the benefit of clients. They work with clients who have between £75,000 and £1,000,000 to invest and can offer great returns.

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Platinum Portfolio Builder Telephone: 01226 732606 www.platinumportfoliobuilder.co.uk

At a time when many people are unhappy with the poor returns, high fees and uncertainty associated with traditional investments and pensions, Platinum Portfolio Builder only uses proven business models to consistently achieve great returns and security through intelligent property investment. Platinum Portfolio Builder works responsibly and with integrity in all areas of business, and dedicates a significant portion of its time and profits to charitable causes, both in the UK and overseas. We hope you find this information useful. Kind Regards,

Nick Carlile Founder and Managing Director

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A PROPERTY INVESTMENT STRATEGY

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Section One: Property Prices If you want to be a successful investor, then it is important to understand why people have invested in property for decades and what factors cause property prices to rise and to fall. It is also crucial that you understand why it has been said that over 90% of people’s wealth in the world has either been made or is held in property.

Over 90% of the world’s wealth is made or held in property

The History of Successful Property Investment People have been making money out of land and property for decades. However, this type of investment was initially reserved for royalty and nobility, and mass home ownership in the UK only began after the Second World War. In 1953, for example, only 32% of people in the UK owned their home, whereas today home ownership has more than doubled, to nearly 69%. In contrast, in 1991, fewer than 6% of people lived in the private rented sector, whereas today it is at its highest level: nearly 15%. In the last 60 years property has helped make many people wealthy, whether they are property investors or not. The first generation of home owners from the Second World War started to leave homes which were owned outright to their children. These children moved into the properties, rented them out, or sold them. Secondly, buy-to-let mortgages, introduced in 1995, have enabled people to purchase more than one property and now there are over 1.5 million buy-to-let mortgages across the UK (source: CML). The Government’s Survey of English Housing for the period 2008/9, reported 14.6 million homes to be owner-occupied with just over three million private renters (up from the previous year). There are estimated to be around 1.2 million landlords in the UK at present. “Individuals that can continue to buy with confidence, irrespective of the current market cycle, need to aim to either purchase properties at least 25% below their surveyed value that make a reasonable profit, or secure properties that deliver a substantial, positive rental income, so the property investment is not only self-funding, but also delivers on-going monthly profits,” Sarah Walker, former presenter of the BBC’s ‘To Buy or Not to Buy’ programme.

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This general growth in property wealth, coupled with rising wages and a continued shortage of the right properties in the right locations, has led to dramatic increases in the value of property since the 1970s, as the Real House Prices chart on this page shows. Over the past 50 years, on average, the UK market has doubled in value around every seven or eight years. Although many appear to be shocked at the drop in property prices in 2008, experienced property investors knew it was coming and either stopped buying, bought at a calculated discount or purchased because there was a further compelling reason to buy. This chart clearly shows that property prices move up and down cyclically, just as economies do. These peaks and troughs typically occur every ten to twenty years. The key to being a successful property investor is to invest using a proven and robust strategy that will achieve your objectives in the right way for the market conditions. Working with experts who understand how to track and evaluate the causes of these peaks and troughs, and understand how to make money, irrespective of what the market is doing, will greatly enhance your chances of success. “Ask yourself if you want to be a gambler or an investor – many don’t know the difference. By following a proven system you can make the transition from gambler to investor,” Nick Carlile.

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Average House Prices

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A PROPERTY INVESTMENT STRATEGY

THAT ACTUALLY DELIVERS

What Factors Caused Property Prices to Increase up to 2007? Up until 2000, demand for property typically fell when the average house price rose above three to three and half times someone’s yearly income. For example, if the average income was £20,000 and the average house price increased beyond £60,000 to £70,000, the demand dropped back and prices would follow, until people could afford to buy again. However, various factors caused house prices to continue rising over and above this average from 2000 to 2007. These factors include: Shortage of Properties The UK population has been growing, year on year, especially in terms of single and small households. There are many reasons for this, including: couples getting married later and living on their own for longer; an increase in the number of split/divorced households; people living longer, and the inward migration of people from EU countries, such as the influx of Polish people across the UK in 2004. In the meantime, despite the resulting need for over 240,000 new properties to be built in the UK every year, this target has been missed by a long way. In the last 3 years, only around 90,000 to 130,000 new homes have been provided per annum.

The current building rate is 90,000 homes per year, against a target of 240,000

It was in the interest of UK property developers to build only the most profitable homes, such as 1, 2 and 3 bedroom city centre flats or expensive large homes, rather than the type of housing stock that was required. A shortage of the right properties in the right locations meant that demand for properties usually outstripped supply, adding to the rise in property prices. Historically Low Interest Rates In the early 1990s, the property market correction in the UK was partly caused by a massive rise in interest rates to as much as 16%. From 2000, interest rates have been historically low, hovering around 5-7% and making the average mortgage payment a lot more affordable, fuelling house price growth even further. Lending Not Based on ‘Affordability’ Historically, lenders allowed you to borrow either 2.5 times joint salaries or 3.5 times one salary to purchase a home and really examined the affordability of the mortgage for borrowers.

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However, lenders recognised that some people had higher disposable incomes than others, despite being on the same salary. For example, those with a household income of £50,000 and no children could afford higher mortgage payments than those with two children to look after. During the boom times, lenders increased the multiples, relaxed the affordability criteria and increased the amount that they would lend. In some cases this was as much as seven times the yearly income, which meant that people could afford to carry on paying ever-increasing prices. Then came the self-certified mortgages, where a lender would allow you to state your income without it being checked. Surely they knew that many people would stretch the truth, bend the rules and, in some cases, lie about their incomes. This led to many people upsizing their property purchases due to the availability of easy credit.

Surely the lenders knew that many people would stretch the truth, bend the rules and, in some cases,

lie about their incomes

Although these lending practices didn’t cause a house price bubble, it did take away one of the reasons that might have stopped property prices rising so quickly. First Time Buyers, who, historically, might not have been eligible for a higher mortgage, could now continue to afford properties, even when they were much higher than three and a half times their income. Gifted Deposits As property prices rose, even with mortgages based on affordability, the inability to find a large deposit would have stopped the market rising too quickly and prevented buyers from offering more and more for properties. However, this didn’t happen in many cases, for two key reasons:

Firstly, many parents and grandparents that had made a lot of money from their own home, lent or ‘gifted’ the money for a deposit to their children so they could carry on buying.

Secondly, developers often used ‘gifted deposits’ of up to 15% to attract buyers. Although, from 2004, the Financial Services Authority rules limited gifted deposits to 5% of the purchase price, developers still found ways around the rules which would allow them to give more. There were cases of First Time Buyers and novice property investors being offered up to 20% deposits and some developers even threw in legal fees, stamp duty costs and any surveyors’ fees. In other words, every barrier to entry or way for the market to naturally correct itself was removed.

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A PROPERTY INVESTMENT STRATEGY

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These practices helped to create a whole band of novice investors who bought overpriced properties from developers, because they were ‘free’ – i.e. they didn’t have to put any of their own money into the property. Sound too good to be true? “The biggest winners of UK city centre flat developments were the developers and property investment companies who initially made a fortune; the losers were - and are - novice investors, many of whom are in serious financial difficulty and are only being saved by the current low interest rates,” Sarah Walker, former presenter of the BBC’s ‘To Buy or Not to Buy’ programme. Irresponsible Lending Now that they were into what appeared to be an ever-increasing property price market, lenders wanted to carry on growing and delivering higher and higher profits. Some did this by lending on a ‘self-certification’ basis, where the buyer didn’t have to prove their income; others did it by securitizing mortgages, or using a combination of the two. This meant that, all too often, they were lending to people with low or no income and a poor financial history who would have been rejected just a few years earlier. These are the ‘sub-prime’ mortgages we hear so much about. The lenders that took part in this activity did so because they had planned not to hold the mortgages for long: they repackaged sub-prime mortgages and sold them on to another institution, with a supposedly ‘highly secure’ investment rating. GMAC, the finance arm of General Motors, was a classic example of this. Between 2005 and 2007, almost anyone could get a 95% mortgage with GMAC and, as only one in ten mortgage applications was investigated in full; it was easy to pass their scoring system. GMAC then sold on their sub-prime mortgages to companies such as Mortgage Express. Northern Rock thought prices would continue to rise, and nearly a third of their mortgage book was based on 125% mortgages. It was inevitable that these companies would be hard hit when people started to default, and it was this kind of irresponsible lending that led to the credit crunch. We often hear at the moment that finance is tough to get. This tends to be stated by people who used to tap into the free-flowing easy credit that the lenders offered. When you come from a culture of easy money, self-certified mortgages, seven times earning to lending ratios and ‘free’ property, it’s no wonder that things now seem tough. We continue to be able to secure finance for our clients, although mortgage applications typically take a little longer and the lenders ask more questions. This is simply good lending practice, where many of the timeless and recently forgotten principles and rules have been reinstated. In these times, lenders will lend to good credit scoring clients who invest into solid property investments.

In these times, lenders will lend to good credit scoring clients who invest into solid property investments

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The Buy-to-Let Brigade In the early 2000’s, following the introduction of buy-to-let mortgages in 1995, companies started to market and sell property education seminars and, subsequently, investments to an eager public. People living in nice homes, in nice areas, started to be bombarded with direct mail, inviting them to a free two-hour property investment seminar. At the same time, there was an explosion of property TV shows like ‘Property Ladder’ and ‘Homes Under the Hammer’, and a huge growth in property investment books, magazines and weekend newspaper supplements. All of this media exposure, combined with slick marketing, attracted people who were concerned about a lack of pension provision and those that wanted to be a ‘millionaire in minutes’. And so the buy-to-let boom began! Finance became easy to obtain, investment properties were offered with a supposed 15% or greater discount and the dinner table conversation of choice was property investment. The property companies wanted to find ways of making more and more money, so, when natural price growth started slowing, they began to artificially inflate prices, creating a huge bubble for buy-to-let investors. The most prolific company of this era was Inside Track. They primarily sold city centre flats to investors and, in 2004, proudly announced that they were responsible for buying over 8% of ALL new build city centre apartments in England. These were then sold to investors who were so dazzled by the figures that they rarely did any research of their own, not even visiting the properties or the area in which they were buying. Sadly, it was these kinds of properties that were hardest hit by the price falls. In many of these developments, over 90% of the flats were sold to investors. When these all came to the market at the same time, it created massive competition from these novice investors, who all wanted to sell for quick profit or rent to a willing tenant. Imagine 400 apartments in the same area coming onto the rental market on the same day – what would that do to the rental prices? In many cases, novice investors bought these types of properties with the intention of making a quick profit. While many did in the early days, in the mid to late 2000’s the prices bombed and others were left holding a massive mortgage and still competing with many other investors. Although this created problems for many investors, it also created opportunities for others to buy at significantly reduced prices, as illustrated below. In 2007, a site of over 40 properties was being marketed (and some sold) at highly inflated prices. This was a site of apartments and 3 bed town houses in Yorkshire, where we buy for our clients.

2 bed flats were being marketed and sold for around £100,000 An independent surveyor valued them at £85,000 We bought 5 for our clients at a price of just £60,000 That’s a genuine discount from current market prices of over 29%

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A PROPERTY INVESTMENT STRATEGY

THAT ACTUALLY DELIVERS

On the same site: 3 bed town houses were being marketed and sold for around £120,000-£130,000 An independent surveyor valued them at £110,000 We bought 5 for our clients at a price of just £78,000 That’s a genuine discount from current market prices of 29%

“The ‘noughties’ will be remembered as the decade when property investment became the ‘get rich quick scheme’ for the masses and poor investment decisions and lack of due diligence meant tens of thousands of people lost their money,” Nick Carlile. Confidence That Property Prices Would Rise As property prices increased rapidly, people’s confidence that they would continue to rise increased. As they continued to buy, it became a self-fulfilling prophecy. Their confidence was the only thing driving the market up and, as a vicious spiral emerged, it gave the final boost to creating the biggest housing price bubble we have ever seen. Unfortunately, you didn’t need to be a genius to realise that the market would eventually crash. Fuelled by greed, some very impressive marketing and the desperation to not miss out, many gambled (not invested) on the market and lost!

What Factors Caused Property Prices to Decrease from 2007? In basic terms, house prices fall when there are more sellers than buyers for a property. It’s a bit more complex than that, but it certainly isn’t rocket science. This can happen to any property at any time, irrespective of what’s happening in the wider market. Indeed, prices for one property that is in high demand can increase, while at the same time, prices for another less popular property can fall. In short, this is what started to happen in 2007. In some areas, the sheer volume of new property stock coming onto the market (such as city centre flats) meant that demand was matched and then overtaken by supply. So many developers were selling town and city centre apartments that the market became flooded and there were simply not enough buyers for the units. This oversupply of property further increased with the first ‘failed’ introduction of the Home Information Pack (HIP) in June 2007. Many homeowners who were thinking about selling in the next six months decided to put their properties on the market right away to avoid paying for a HIP, leading to supply overtaking demand in the resale property market across the UK. Where there was still a shortage of certain types of properties, this increased supply was soaked up, but in other areas prices started to stagnate. As people couldn’t sell, they were forced to drop their asking price and reports of the housing market slowdown started to hit the media.

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Then things really started to change. The Northern Rock crisis kicked in during August 2007 and by September it was apparent that we were in a serious credit crunch, which meant good value mortgages started to disappear. This, coupled with rumours of a ‘pending house price crash’, meant that the vast majority of buyers either couldn’t purchase or decided to hold off. In the last three months of 2007, things went from bad to worse, as there was more news of doom and gloom and a liquidity crisis emerged. Large price increases on utility bills, petrol and diesel and - for the first time in ten years - food, put more of a squeeze on household income. As the number of potential buyers in the market dropped further, developers were the first to feel the impact of the fall in demand. Those who wanted to buy couldn’t secure a mortgage, rising household costs had reduced affordability for many people, and buyers’ confidence was low. By March 2008, developers and estate agents realised transactions had halved. Six months later there was a backlog of properties for sale. Those happy and able to purchase did so from motivated sellers who agreed to sell at reduced prices. These falls in transaction values were reflected in property price reports and the media continued to broadcast the bad news, reducing buyers’ confidence even more. During August 2008, rumours started that Stamp Duty was to be suspended. Buyers held off, causing sellers to drop their prices even further during that month. Although the eventual raising of the Stamp Duty bottom threshold triggered some increased purchases in October, the financial crisis had hit hard, with even those who wanted to buy struggling to raise a 20%+ deposit. First Time Buyers and highly geared or cash poor buy-to-let investors were left high and dry with hardly any lending products available and generally high interest rates. Prices continued to fall.

“Buy when others are selling and sell when others are buying” Warren Buffett, the second richest man in the world (you would think he knows his stuff)

The quote above from Warren Buffett demonstrates what is happening now. Because almost all of the novice investors and gamblers have disappeared from the property market, now is a great time to buy. They have been scared off by the apparent lack of finance, uncertainty, and scaremongery in the press. It is without a doubt the best time that I can remember to buy property – and I've been buying since 1993! The novice investors and gamblers will be back in a few years though, driving up the prices and helping to create yet another boom that will eventually lead to the inevitable bust. This may be another 15-20 year cycle before we are back into another property market correction, and therefore it’s the property that you buy now and sell in years to come that will increase your financial security significantly.

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What Happened to Property Prices in 2009? Many so-called property ‘gurus’ – especially economic forecasters – predicted further falls of up to 30% in 2009. Our forecast was much more accurate as our ‘on the ground’ experience and in-depth understanding of the statistics meant we could more or less forecast that demand and supply was starting to match, and we were right! Buyers who had held off moving in 2008 started to realise that:

Properties previously for sale were being taken off the market

Some properties that had been for sale for a while were now selling

They could save on stamp duty if buying between £125,000 and £175,000

Property prices had fallen enough for people to be able to afford certain property types and in areas previously out of their reach

For new build buyers, instead of having a plethora of properties to choose from, as there had been in 2008, developers were hardly building at all. In fact, the industry only built around 90,000 units in 2009, versus in excess of 200,000 over previous years. Demand remained high (in comparison to 2008) for the rest of 2009 and, as supply had fallen so much and there was more encouraging news about the economy picking up, property prices started to stagnate and even show small rises against the previous year. Nevertheless, prices didn’t rise everywhere and in areas where prices had increased year on year, they only recovered half of the falls experienced from 2007 heights. “Novice investors and most First Time Buyers in 2009 were swayed by the media. When the media reported prices rising, novice buyers believed the market had bottomed out, so, in fear of prices rising out of their reach again, they starting buying and didn’t negotiate as hard. This, coupled with a lack of property supply meant finding properties below market value in the second half of 2009 was only really possible for professional investors,” Nick Carlile. From a property investment perspective, this meant that the first half of 2009 – during which very few people were buying personal homes – offered great opportunities for acquiring property below its surveyed value. However, because the media were ‘talking up’ the property market and stock was so low, sourcing properties at low prices became very difficult. In the property industry this meant several prominent property investment companies that promised people bargain properties went bust, as they couldn’t deliver – many taking people’s hard-earned cash with them!

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What Happened to Property Prices in 2010 and 2011? Many of the doom and gloom forecasters who were ‘disappointed’ that the predicted falls didn’t happen in 2009, continued to predict that more falls would take place in 2010/2011. With the market being so fragile and erratic, we prepared our 2011 strategy based on three different scenarios: Scenario One: Property Prices Falling 10% or More The properties in our portfolios are typically 2 and 3 bedroom family houses which are bought at 25% or more below market value and rented to tenants. Whilst these properties were bought at a discount, in the short term, capital growth is less important to us than ensuring the properties truly are assets and servicing their own debt. Our strategy therefore was (and still is) to:

1. Create cashflow positive investments that are safe and secure

2. Purchase properties that we are confident will have grown significantly in value in five or more years

3. Utilise investment funds that could be used for other retirement planning and put this into property Even if property prices fell by more than 10%, the properties in our group portfolio have proved such a safe investment that there would be no need to consider selling. Negative equity is only a real issue if you are forced to sell, so as long as a property remains profitable and is continuing to give returns as expected, the capital value – certainly in the short to medium term – is not of major concern. For us, what happened to rental prices was more important. Unfortunately, these are rarely reported by the media but, looking at the figures across our clients’ portfolios, the quality of our accommodation, and our understanding of what was happening in the rental market; we rightly predicted that rental prices for Platinum Portfolio Builder properties would remain stable. They did, with many even rising in some areas. Scenario Two: Property Prices Rising by 5% or More If prices had risen in 2011, the value of our property portfolio would also have grown but, as our core investment strategy is to generate long-term pension provision, we would have viewed any short-term capital growth as a bonus, not a necessity. What capital growth allows us to do is recycle some or all of our invested capital by re-mortgaging properties that we have owned for more than six months*. We would then be able to reinvest the money in more income-generating deals. *Following the credit crunch – to prevent amateur property investors from being allowed to buy properties, immediately re-value them, take out equity and then buy more properties, putting in little or none of their own money – the ‘six month mortgage rule’ was reinforced. This is a rule to protect YOU, so, although some property investment clubs offer ‘work-arounds’, you should be aware that the vast majority of these strategies are illegal. We have consulted a number of top lawyers on the subject and have yet to find one who would be prepared to defend any of these ‘no money down’ deal structures.

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“To be a true property investor you have to play the long game. Property is not a get rich quick scheme – it’s a get very rich steadily scheme”

Nick Carlile – Founder of Platinum Portfolio Builder

Scenario Three: Property Prices Staying the Same Of the three scenarios moving forward we felt the most likely was that, nationally, property prices would stay the same through 2011, unless there were more economic shocks to hit the UK or worldwide economy. What actually happened was the media reported property prices growing for the first half of the year, when, in reality, prices hardly rose at all in most areas. It was just that the ‘year on year’ figures showed prices in 2011 to have been up by 10% or even 20% higher compared with 2010, but that was from a very low transaction base and still 10% behind the heights of 2008. By the summer, though, the same surveys showed prices were on a par with the previous year. This led the media to start reporting that the market was falling. The truth is that the growth year on year was falling, not the current prices – up to that point, they had been relatively stagnant. However, once the media starts reporting the property market ‘is slowing’ or ‘prices are falling’, there is an immediate knock-on effect and the bulk of buyers hang back and delay offers. Motivated sellers then drop their prices, so it becomes a self-perpetuating truth! For everyday sellers this is a tough time. As mortgage lending continues to be restricted, people who want to buy find it tough to raise the deposit and secure an affordable mortgage, so prices have to drop to secure the few buyers who are willing to proceed. From an investor’s perspective, and as history has shown to us, when the market is in this state it is a great time to buy for the medium to long term. As professional investors, with the addition of an extremely powerful network of investors, we are always confident that we can make money in any market. So instead of worrying about what’s happening with the property market today, we continue to concentrate on our robust investment strategies that have been proven to continue to work in a rising AND falling market, while providing a solid basis for future growth. This allows us to focus on the boom that will inevitably come again.

The Inevitable Boom and Bust of the UK Property Market Whilst we can’t predict the future with 100% certainty, we can look at the previous cycles of boom and bust that have existed for years with house prices in the UK - and I'm pleased to say that it appears this boom and bust culture is here to stay!

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It’s pleasing because it allows you to learn from the past and invest for the future. This statement comes with a number of caveats, not least The Five Fundamental Principles of Property Investing, which are explained later in this guide.

When we talk about boom and bust, what we actually mean is boom and correction. The correction is often absolutely vital to bring back some order from

the stupidity that ensues throughout the periods of bust.

There are lots of reasons - including political, economic and psychological - that mean booms and busts will continue to happen and the inevitable cycle of price rises and falls will continue. These include: Governments Are Only Certain To Be in Power for a 4-5 Year Term This isn’t a political soapbox, but the truth is that Governments come to power for a term of 4-5 years. Yes, they can be re-elected but the short-term nature of their current term of office determines many of their policies and how they make their decisions. Many of the decisions that they take, particularly in the later years of their term, are focused on winning votes and not necessarily doing the right thing for the long-term good of the country. Take the current Government for example. They are proposing to sell off more council housing stock in a ‘Right To Buy’ scheme similar to the one that contributed massively to the property boom in the Thatcher years. As with everything, there are positives and negatives to this. On the positive side:

This is a vote winner for the Government as it will benefit one of the society sectors who traditionally vote

It will allow more people in the UK to become homeowners, thus increasing their overall financial security

It will kick-start the housing market on the first and second rungs of the ladder

Whilst there are rules governing when these properties can be re-sold, some will inevitably find their way to the market in the future at affordable prices

It will improve confidence within the overall economy

It will give the Government a much-needed short-term cash injection

There are currently around 5 million people that need affordable housing in the UK. By selling off more of its stock, the Government won’t be able to provide this. This figure will surely rise through the life of this policy, which will be a positive for the professional landlord who can provide this type of accommodation. Platinum Portfolio Builder buys affordable housing in areas where the demand for affordable housing is high. For example, in one of our investment towns - Barnsley in South Yorkshire - there is currently a six-year waiting list for affordable housing through the local authority, with around 9,000 people on it.

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On the negative side:

The Government is selling off assets for short-term gain. This money is unlikely to be reinvested, rather than being swallowed up by the huge national debts.

In the last round of Right To Buy, many people were offered their homes at discounts of up to 45%. This can’t be a good thing for the Government to be a motivated seller.

There are currently around 5 million people that need affordable housing in the UK. By selling off more of its stock, the Government won’t be able to provide this. As stated above, this is only a positive for the professional landlord who can provide it.

The Media The UK obsession with property ownership is driven on a daily basis by the media and their obsession with falling and rising house prices. ‘Steady 5% Growth in House Prices’ is not a headline that sells newspapers and catches your attention on the news. The media have to work increasingly hard for our attention and unfortunately that means more extreme headlines. It is my belief that there is a whole section of property investors/gamblers that take their advice from journalists about when is a good time to invest. Barring a few exceptions, the media is not a good source of investment advice, and you should always invest with sound fundamentals in mind. You can find The Five Fundamental Principles of Property Investing in Section Two of this guide. The UK Obsession With Property Ownership It is a fact that the UK is obsessed with property ownership. We are not like the Germans and other countries that typically rent property, rather than buy it. It’s engrained within us: “An Englishman’s home is his castle”. Almost everyone has their own examples of properties that they know have significantly grown in value over the medium to long term. This is often their own home, their parent’s or some other relative’s home. We all have a subconscious seed that has been planted to make us know that, on some level, property is a safe and reliable medium to long-term investment option. Add into the mix the constant media attention, TV programmes and education on the subject and our property obsession is here to stay. Greed and Fear These are two of the most powerful reasons why people buy anything. Coupled with the media, many people make their investment decisions based on the thought that they can either make a quick profit or that they may lose a lot of money. In any economy, and in all sectors, you will always have the pioneers and the followers. The pioneers are the ones that enter a market when everyone is fearful and stick around until after the followers (or the masses) have entered and driven prices upwards. The pioneers are the ones that many talk about after the event with phrases like: “I wish I’d invested when he/she did”.

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The followers push up the prices driven by their fear of missing out on what others have already gained. Whilst the property market booms tend to last for 3-4 times longer than the busts, it is important to enter the market when others are fearful and to leave when the masses have entered and before the inevitable bust comes again. Boom and Bust is here to stay I remember investing in 1993, and when I look back I sometimes wonder what would have happened if I had known then what I know now. I would certainly have bought a lot more property and not sold any of it. We’ve now come full circle in the cycle and the same opportunities exist now as did back then. Yes, of course prices are higher now than they were in the early 1990’s, but prices in the early 1990’s were higher than they were in the previous cycle of the mid 1970’s and we still went through another boom (and then bust). And yes, of course this recession is different from the one in the early 1990’s, but the recession of the early 1990’s was different from the one of the mid 1970’s and we still went through another boom (and then bust). This stage of the cycle we are in now is very similar to that period and I've learned a lot more since then. We are buying more aggressively now than we have ever done for ourselves and our Platinum Portfolio Builder clients. With this strategy we never forget The Five Fundamental Principles of Property Investing (detailed in Section Two) which bolster this strategy and provide safety nets to ensure that we maximise profits. Previous Boom and Bust and the “It’ll Never Happen Again” Brigade After every bust there is a whole band of people that say things like, “I told you it couldn’t last”, “what goes up... must come down” and, “I was right not to get involved”. In my experience, these people thrive on negativity and the fact that their own predictions were ultimately right. Let me give you an example. There is one very well-known economist who, in almost every year of the boom from 1993 to 2007, predicted that the property market would crash again and the ever-increasing property prices couldn’t possibly last. When the crash came, he wrote a highly self-promoting article with the theme of ‘I told you so’. Now, of course he was right, eventually, but if he had simply stopped to look around during the 14 years of boom and invested, then he may have benefitted - as millions did - from the inevitability of the cycle. The key to any prediction is, of course, timing, and it is my belief that we will go through a series of booms and busts for decades to come. At this point in time we are hearing the “it’ll never happen again” brigade chant louder than ever before. It may help to compare the last two cycles, to see what happened in brief, and to remember that this brigade were out in force in each of these cycles too, with their mantra of “it’ll never happen again”. We define a cycle as a period when house prices go from the bottom of the market to the peak, and then through a bust or correction period back to the bottom again before the next cycle starts.

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Cycle one ran from 1973 to 1992, as follows:

A boom period of 16 years of growth, from 1973 to 1989

Prices during this period went from £9,767 to £61,495 – a total of a 530% gain

In simple maths this was a 33% per annum average gain

Then the bust/correction came, which ran from 1990 to 1992

Prices in this period went from £61,495 to £50,168 – a total of an 18% fall

Then cycle two started and ran from 1993 to the present day, as follows:

A boom period of 14 years of growth, from 1993 to 2007

Prices in this period went from £50,168 to £183,959 – a total of a 266% gain

In simple maths this was around a 19% per annum gain

Then the bust/correction came, which many believe that we are currently in

o Official figures show a price fall of around 15% - 20% in the year 2008

o Official figures also show slight gains in years 2009-2011 It’s worth remembering that the “it’ll never happen again” brigade was out in force in the early 1990’s, following the crash of 1990-1992. Let’s be realistic; when you’ve enjoyed 16 years of growth of over 500%, a correction for 3 years of around 18% is not a crash! Whilst these people are out there chanting “it’ll never happen again”, many smart, sophisticated, well-informed professionals are out there quietly buying at significant discounts and holding out for the medium to long term, ready for the inevitable cycle of boom that is around the corner. However, it is clear that at the moment there is still some uncertainty within the property market. The apparent lack of finance and the lower number of willing buyers is stifling the market, although this is not having the expected effect of reducing prices much further. This is because there are actually a lot fewer sellers out there at present. One reason for this is that many are benefitting from extremely low interest rates that they have on tracker mortgages. If they were to move, they would pay significantly higher interest rates. Also, the cost of moving mortgages is high in terms of fees. Many people are simply resigned to the fact that they will not move for a while. This creates opportunities for buyers to profit significantly from a major lack of competition!

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Section Two: Investment Strategies for 2012 and Beyond

Why Invest in Property? There are various choices when it comes to making investments, such as shares/equities, commodities, bonds and other financial products. For many, property is an easier way to invest money because you have a level of understanding about how the process works. You can see what you are buying and, compared to other asset classes, property is not as volatile over time. For example, although the press have reported property values falling by up to 20% through the credit crunch, what they fail to report is that from 2000 to October 2009, property prices rose by well over 100%. If you exclude new build properties, that figure is even higher. So, even though prices appear to have bottomed out, if you invested in 2000 you would have effectively enjoyed an 8-10% annualized return over the last 9 years. However, property investors who borrowed effectively would have made even more due to the main reason that property is such a unique wealth creation vehicle – leverage. Leverage When buying property as an investment, professionals aim to invest as little in deposit funds as possible. This is because they understand and utilise the power of gearing, or leverage. Since the credit crunch, a typical deposit on a buy-to-let property would equate to 25% of the purchase price. The remaining 75% would be provided by a bank or building society by way of a mortgage. By borrowing the remaining cash needed to purchase, you can dramatically increase the return on your initial investment (primarily the deposit) in the long term, assuming, of course, the property grows in value.

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How Leverage Works To illustrate the power of leverage we will assume that you have £50,000 cash. We will use an annualized capital growth rate of just 5%: Option 1: Invest your £50,000 in a property without the power of leverage: Property purchase price £50,000 After 10 years’ growth at 5% per annum: Property value £81,445 Gain / profit £31,445 Amount invested £50,000 Return on investment 63% over 10 years Return on investment 6.3% per annum Option 2: Invest your £50,000 and utilise the power of leverage to buy a property worth £200,000. You would invest £50,000 of your cash, and borrow £150,000 from the bank: Property purchase price £200,000 After 10 years’ growth at 5% per annum: Property value £325,779 Gain / profit £125,779 Amount invested £50,000 Return on investment 252% over 10 years Return on investment 25% per annum Footnotes: For simplicity we have excluded the costs of purchase, i.e. stamp duty, legal costs and so on. We have shown return on investment as a simple linear calculation. To more accurately show return, an Internal Rate of Return or IRR calculation can be adopted. We have also used a compound growth rate of 5% per annum.

In the above ‘Option 2’ example, the reason you have been able to make a significantly higher return than in ‘Option 1’ by utilising the same amount of capital, is because you have been able to buy an asset worth four times as much as the capital you’ve invested and therefore the benefit is four times greater.

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In no other investment will a bank lend you up to 75% of the capital that you need to invest. This is one of the main reasons why it’s been said that 90% of the world’s wealth is made or held in property: no other asset class allows you to borrow to invest in this way. Whilst you have to consider the fact that you will have finance on the properties, if you remember the third fundamental principle of property investing – always ensure that the property is cashflow positive - then your gains will be exponentially multiplied.

Leverage is one of the main reasons why property has outperformed other asset classes over the years

Most financial investments generate some income from dividends or company profits. However, with property it is possible to apply a specialised rental strategy that can generate a positive cashflow, far in excess of the cost of servicing the mortgage and other expenses. In this situation, not only does the tenant pay for the costs of running your investment, but they can help you generate great rental income profits that you benefit from every month. Capital Growth As we have already discussed, property prices have grown in the past and they will continue to grow in the future. We have already shown that capital growth, combined with leverage (or gearing) on a property, can massively compound investment growth, but you must take a medium to long-term view – five years or more. As we stated before, everyone has their own examples of properties that they know have grown significantly in value over the medium to long term. This is often their own home, their parent’s or some other relative’s home. This has planted a subconscious seed that makes us know, on some level, property is a safe and reliable medium to long-term investment. Forced Appreciation In addition to reaping the benefit of leverage, it is also possible to ‘force’ a property’s capital appreciation by adding value. That might include buying a property and selling some of the land to build another, creating more bedrooms as a loft conversion or extension or, more simply, undertaking cost-effective refurbishment.

Within Platinum Portfolio Builder we typically add £2 for every £1 spent on refurbishment

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This is how I got started back in 1993. I bought a very modest 3 bedroom terrace house for £27,500 and spent about £4,000 refurbishing it. I then sold it for £35,000. Not a massive profit, but for someone on a wage of just £9,000 at the time, it was a good addition to my income. This also gave me more money to do the same again, this time buying a house for £50,000, refurbishing it for around £6,000 and selling it for £65,000. The process was repeated when we moved to another house on the street – buying for £65,000, spending around £7,000 on refurbishment and then selling for £90,000. This process of buying cheaply, adding value and selling for a good profit is a timeless strategy that continues to work in any market. Professional investors will always recover many times what they spend on a refurbishment because they know how to identify properties with ‘potential’, what to do and how to do it on time and on budget. Within Platinum Portfolio Builder we typically add £2 for every £1 spent on refurbishment. Buying Property at a Discount Unlike equities, where the price you buy a share for is fixed by the market at that time, properties do not have a fixed value and can be bought below their ‘real’ market value. The market value of a property is essentially determined by what someone is willing and able to offer, and what a seller is willing and able to sell at. To identify this value, you use an independent surveyor and find comparable evidence which shows the price similar properties have recently sold for. Most people in the property investment industry use the term ‘Below Market Value’ (BMV) when talking about properties they’ve acquired at a discount. Platinum Portfolio Builder has coined the term ‘Below Surveyed Value’ as this is a more robust metric to use. Whereas ’Market Value’ is a subjective concept, ‘Surveyed Value’ is something specific and tangible. One surveyor’s valuation can still differ from another’s, but this is often the value on which a mortgage lender will base their loan to you. We use independent RICS (Royal Institution of Chartered Surveyors) surveyors to confirm the value of a property. This way, our partners and clients have confidence in the discounts they are achieving, and we are always open to clients obtaining their own valuations. Professional investors are able to source and negotiate to purchase properties at 25%+ below their market and surveyed value. These properties aren’t easy to find, but as long as someone is under time pressure to sell and this is greater than their need to maximise the price of the property, then the strategy works. What’s important is to ensure that this is done ethically, so it’s a win-win for both seller and investor. We buy many deals which are ‘off market’ because we focus on a specific area and a specific type of property. Many agents, vendors, developers, and receivers pass deals to us because they know that we can complete the deal very quickly and that we have clients who are ready to proceed with the purchase. Our proven track record of buying property since 1993 is also invaluable. Tax Benefits Property tax can be complicated. You are not taxed based on the physical property investment, but more on your investment intentions, such as being a property developer or trader. For example, the current tax for property investors means that anyone who is a 40% tax payer can benefit from a flat rate tax of only 28% on any capital growth received when a buy-to-let property is sold.

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This is provided the property is acquired and run as an investment rather than as a trade. Anyone buying and selling property straight away will be classed as a trader and will therefore be subject to income tax, or, if done through a company, corporation tax and then dividend or income tax to get the money out of the company. If you buy property and hold it for rental, the rental income is taxed as income tax. When you sell the property you will then pay Capital Gains Tax at a rate of 28%. We often make the ‘joke’ that we have two rules in property: Rule number 1: Never sell property

Rule number 2: Don’t forget rule number 1 Not the best joke in the world, I know, but there is a serious point to this, which I'll explain below. Before I do, let me say that everyone has a different strategy and reason for investing in property. This reason is unique to you and it is critical that you are clear what this is, to ensure that you invest in the most efficient manner. It’s also worth stating that you should never let the tax tail wag the dog – i.e. the tax saving defining your entire strategy. Anyway, back to the never sell idea. Let’s assume that you have a property which was bought for a total cost, including refurbishment, of £100,000 and is now worth £180,000. Don’t worry how the £80,000 profit was generated at this stage, let’s just assume that it was a good deal and you have added value through clever refurbishment. Let’s examine the two options of selling to get your profit, and refinancing to release the equity:

As you can see from the comparison above, you can often produce more cash from refinance than you can from selling the property. There will have to be the consideration of the increased mortgage in option 2 and the impact that this will have on the cashflow of the property. However, option 2 is often the best choice as you will still own the asset, which should appreciate in value over the medium to long term. You should also benefit from the cashflow generated by the property over the long term.

a Value of property 180,000£ a Value of property 180,000£

b Total cost of property 100,000£ b Total cost of property 100,000£

c Sale costs for agent @ 2% 3,600£ c Total equity in the property (a-b) 80,000£

d Sale costs for lawyer 1,000£ d Refinance to release equity 75%

e Total profit (a-b-c-d) 75,400£ i Net cash in your pocket 60,000£

f Less capital gains tax allowance 10,100£

g Taxable profit (e-f) 65,300£

h Tax payable @ 28% (g * 28%) 18,284£

i Net cash in your pocket (e-h) 57,116£

Option 1

Sell the property

Option 2

Refinance the property

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Many people will tell you that the cash released in option 2 is tax free. It’s not tax free, but rather tax deferred, with the tax being deferred until you sell the property. Just imagine what happens if you never sell the property… you never pay the tax. Within Platinum Portfolio Builder we have used a number of different tax structures and strategies to legally minimize a property investor’s tax bill. From a personal perspective, we find people invest in property because they can:

Build a business that they can run with their partner and/or children

Operate from home without having to pay for premises or staff

Generate income all year round

Be successful during a recession

Create financial freedom from a desirable lifestyle business

Enjoy working in an exciting, challenging and rewarding industry …providing the right property is bought and the rent maximized. Over the last two decades, we have been gaining experience of property investment (both good and bad) that has enabled us to create, develop, test and refine robust property investment strategies. We believe that what we have developed takes best advantage of the current climate, with an eye to the medium and long term. Understanding and Defining Key Financial Indicators (KFIs) One of the key aspects to creating successful property investment strategies is by understanding the often complex Key Financial Indicators. The two most quoted KFIs are ‘capital growth’ and ‘gross rental yields’, but we think it is also vital that you understand a further one: ‘return on investment’. Capital growth is where you purchase an asset (property) at one price, for example £200,000, and sell it at higher price, say £364,000. The capital growth is the difference between the sold and bought price = £164,000.

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Gross rental yields can be calculated in different ways, but we calculate them as follows: Annual Gross Rental Income

Purchase price of the property This measure is used by many investors to analyse buy-to-let property and provides a useful guide, but not one that we rely on when comparing investments. The reason is that it doesn’t take into account the impact of leverage, nor does it allow you to compare your investment returns over time against other property investments that may deliver better cash and profit return. The other key missing factor is the cost of refurbishment and acquisition, which is not typically included in the purchase price of the property. Return on Investment (ROI) is what we consider to be the main KFI that you should use to analyse property investments. ROI measures what returns you get from the capital you have invested into a property. In simple terms, imagine you invest £100,000 in a bank and receive 3% annual interest (before tax). We would calculate this as a 3% ROI, by dividing the interest earned by the capital invested: £3,000/£100,000 = 3%. With buy-to-let property, if you invest the same £100,000 in property worth £200,000, which delivers a gross profit from rental income (i.e. rental income minus costs) of £8,000; your ROI would be 8%: £8,000/£100,000 The reason you can secure this increased ROI is because you have bought an asset worth double your initial investment. The more you can safely borrow against your capital, the more you can benefit from the powerful effect of leveraging. This increased annual return is another reason why the power of leverage is such an important benefit in property investment; one which is rarely available with other forms of investment. The Safer Alternative to a Traditional Pension – in our opinion It is my firm belief that property can provide the safest medium to long-term alternative to a traditional pension. It is with this in mind that we are currently writing our next book, entitled, ‘Your Property Pension’, which will explain this theory in detail. The book is based on two things in which I strongly believe, and for which significant evidence is available:

1. That the traditional pension system is fundamentally broken:

The multi-billion pound public and private pensions deficit

The pitiful state pension

Unfair pension reforms

High fees which are not linked to performance

Mis-selling

Fraud

People simply taking out more than they pay in

…these are all major issues which contribute to a broken system

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2. Property has outperformed other asset classes over the years. Just buying ONE more property in your lifetime could dramatically change your retirement provisions.

To receive your FREE copy of the book, simply go to the website www.yourpropertypension.co.uk or contact us on 01226 732606 and we will send the book to you as soon as it is available. Now, it’s unfair to say that all pensions are bad and that you shouldn’t have a traditional pension, but the rules of the game are changing massively against your favour and are set to get worse. With the recent announcement by Shell that they were scrapping their final salary pension scheme, this means that there are now NO companies in the FTSE 100 offering this type of scheme. Further changes and reforms are certainly on the way and I believe that it is within everyone’s power and obligation to plan for their own retirement. Property is a great way to do this.

The Five Fundamental Principles of Property Investing What many people seem to forget is that the fundamental principles never change over time – that’s why they are fundamental principles! Whenever I've lost money in property it’s when I've forgotten or ignored these principles. Looking back and analysing what went wrong usually reveals that I was too quick to chase a deal at the expense of careful analysis and ignored these fundamental principles. By definition, these principles are timeless and apply to almost every type of property deal. In the current climate they are even more important than before and if you follow them, you should be successful. Of course, there are other aspects to successful property investing, but these are a good place to start. Whilst they might seem simple, they are not necessarily easy to adopt.

1. Always buy at a discount

2. Always add value

3. Ensure that the property is cashflow positive

4. Always invest for the medium to long term

5. Stack the odds in your favour These five fundamental principles are the backbone of what Platinum Portfolio Builder does on a day to day basis. The specific strategy of Platinum Portfolio Builder is discussed in the next section and incorporates all five of these fundamental principles to deliver exceptional returns for our clients.

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Professional Investment Strategy: The PPB Strategy We firmly believe that 2012 and the immediate following years will present a great opportunity to secure properties at significantly reduced prices. We still don’t know what the full impact of the Government spending cuts will be, but the immediate impact will be to stop people from buying and encourage them to rent. If there is a ‘double dip’, then anyone new to property investment needs to make sure that they have the knowledge, skills, professional advisors, systems, strategies and support network in place to maximize returns and mitigate risks. In our view, due to the constantly changing economy and property market, the days of the amateur investor are long gone. Consequently, whilst in this next section we will explain our investment strategies as clearly as possible, we would discourage you from trying to carry them out alone. Although the concepts are fairly easy to understand, implementing them successfully requires a sophisticated approach and all our investments are subject to an enormous amount of detailed research, analysis and expertise, throughout the process. The Platinum Portfolio Builder investment strategy combines The Five Fundamental Principles of Property Investing to create a market-leading strategy that is the best way to capitalise on the opportunities that are currently available in today’s market. 1. Always Buy at a Discount The property investment community has been buzzing with the ‘mantra’ of buying properties ‘below market value’ (BMV) for a number of years now. As we’ve already mentioned, we personally talk about buying property ‘below surveyed value’ and define BSV as making a purchase that is at least 25% less than the value that a Royal Institution of Chartered Surveyors (RICS) qualified surveyor has placed on the property. For example, if a property is on the market for £110,000, is valued by a RICS surveyor at £100,000 and you then buy it at £75,000, we would consider that a BSV purchase. Right now, professional investors everywhere are talking about this strategy and trying to secure properties with these kinds of up-front discounts. Some will be successful, some won’t, and we strongly suggest that you seek professional help from those that have years of experience at buying below true market value. The key thing to remember is that if you can buy with this level of discount, you are essentially securing equity on a purchase, rather than the ‘buy and hope’ strategy which relies solely on capital growth. If the property market does decline further, buying with a 25% or greater discount means you are very well insulated against further falls. Bear in mind that buying below surveyed value is easier when the media is talking about the market ‘falling’, as opposed to ‘market recovery.’ It is also much easier to buy when others are fearful and not buying, as there is much less competition. The process of understanding a BSV strategy is simple enough, but it is the actual practicality of finding suitable properties and sellers, doing accurate analysis, negotiating with the vendors and structuring appropriate financing techniques that can be difficult to get right.

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Before you even begin to think about buying BSV, would you be happy to sell your property for 25% below its surveyed value? Probably not! However, people sell BSV for many reasons. Many still have decent equity in the property but can’t release it due to the lack of buyers, the speed at which they want to sell and some other factors. To give you an insight of where we secure deals from, here is a list of some recent purchases and the reasons that we were able to secure these deals:

An inherited property where the vendors simply wanted to release their inheritance as quickly as

possible without having to deal with an estate agent.

A call from an agent who had visited a potential vendor, who had a personal reason for wanting to sell quickly and was willing to accept a discounted price. The agent called us and a deal was done within 24 hours, prior to the property even being listed with the agent. This happens a lot because of the contacts that we have and the proven track record within our chosen area.

A vendor wishing to step up in the market. We bought their property, which was worth £100,000, for £70,000. Although they had reduced the price of their property, they were then in a position of not having a chain behind them and were able to negotiate hard on a property that was worth £230,000, securing it for just £195,000. This meant that the discount they had given us was more than recovered in their purchase. We even helped them with their purchase negotiation.

A vendor who had lost their job and couldn’t afford to pay the mortgage was being chased by the lender for missed payments. This was a win-win situation, as it stopped the vendor from being repossessed and meant they maintained a good credit rating for the future.

A developer who had come to the end of his site and wanted to sell his units as soon as possible. We bought 5 brand new units, which were valued at £125,000, for just £90,000 each.

A receiver that had taken possession of a complicated deal. It was complicated because the developer had gone bust on the site prior to 3 houses being completed. The units were un-mortgageable because they didn’t have kitchens and some other work needed completing. The structural engineer was also owed money by the developer and had not given the final structural warranty. This meant that the units had to be bought for cash and, as a result, many other potential buyers had been put off. We negotiated hard and secured all 3 units for a total of £112,000. With the completion works the total cost came to £135,000 – £45,000 each. With an end value of £85,000 each, the units represent one of our best deals at a superb 47% discount – well done to the Platinum Portfolio Builder team!

For people in these situations, selling to a property investor can be an ideal solution, allowing them to sell the property and release spare equity and, in some cases, stay in their home by renting from the new landlord. This is called ‘sale and rent back’, which is now regulated by the FSA and has specific conditions under which it can be done. To get BSV right, it is essential to create a win-win situation, and understand the vendor’s needs. Remember – no one should ever force a seller into accepting a low price. It must be their choice and when the time pressure is greater than the money pressure, creating a win-win solution for both parties makes BSV a viable option.

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In many cases, we also offer alternative solutions to the vendors, which can include:

Selling the property with another agent. As we know the best agents in town, it is often the case that the property could actually be sold if the agent was changed. As with every profession, not all agents are equal and it can often be the fault of the agent that the property hasn’t sold.

Debt counselling. For some vendors, the sale of their property is not the best solution and in many cases we will refer them to our debt counsellors that we know can help. Whilst this doesn’t directly benefit our business, it often pays us back ten-fold through referrals and the outstanding reputation that we have in our sector.

Lease options. There has been much hype around lease options in the past few years and the truth is that they only work for a handful of vendors. They can, however, work where a vendor simply wants to move the cost of the mortgage or finance away from themselves, but is not prepared to accept a heavily discounted price for the property. The best example of this type of deal was The Old Post Office, which was a deal that I did for myself back in 2009. The Old Post Office in Barnsley had been developed and converted into 9 studios and 1 bed apartments by a developer, who then struggled to sell the units for the asking price of £90,000 each (£810,000 in total). The truth is that the price was slightly high and we obtained a RICS valuation of £75,000 each (£675,000 in total). The main reason for the lack of buyers was that mortgage lenders had completely lost their appetite for apartment schemes. Even though this was a conversion and not a new build, prospective buyers struggled to get finance. The developer did not want to rent the units, and was not too keen to sell the units at a full discount of 25%, which would have been £56,250 each or £506,000 for all of them, when taken against our independent survey. The solution was for us to meet somewhere in the middle and we agreed a lease option for the entire development on the following terms:

An option to purchase the units for a price of £600,000, payable within 5 years We lease the properties from the developer for rental of £32,000 per annum. The rental income is

around £40,000 per annum, so will generate a reasonable margin

Note that this is an option to purchase, not an obligation, which means that we can buy if we want to, but don’t have to. This essentially gives us a hedge against what we believe the market will do within those 5 years. Just 2% per annum growth will give a value of £745,000 at the end of 5 years. This is a true win-win deal because:

The vendor gets £600,000 for his property instead of our BSV offer of £506,000, albeit in 5 years

Above: The Old Post Office in Barnsley

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The vendor is released from the property and doesn’t have to worry about renting it out, as this is not his area of expertise

We make a gain on the property from rentals for a period of 5 years We have the option to buy the property in 5 years, should we wish to, and the numbers stack up

A BSV Case Study: John Wass wanted to invest passively in below market value properties that would supplement his existing income and provide further pension provision. The four properties that Platinum Portfolio Builder sourced for John were successfully renovated and let to tenants without him having to deal with the process himself. John has already benefited from excellent equity, has now recycled almost all of his capital originally invested and the properties are delivering positive cashflow. He is currently having his next portfolio built.

John’s first four properties are shown above. They have a combined value of £414,000 with equity of over £111,000

2. Always Add Value ‘Always add value’ stretches further than just the practicalities of adding value to the property. It includes adding value when you meet vendors, agents and anyone else involved in the process. The reason many clients choose to work with Platinum Portfolio Builder is that we add value to their investments through our experience, contacts, knowledge, buying power and wide expertise.

Value after refurbishment 95,000£

Purchase price 68,000£

Purchase costs 1,605£

Refurbishment 810£

Total cost 70,415£

Instant equity 24,585£

Discount 25.88%

Peartree Orchard - 2 bed mid-terraced

insert photo here

Value after refurbishment 119,000£

Purchase price 80,000£

Purchase costs 1,799£

Refurbishment 347£

Total cost 82,146£

Instant equity 36,854£

Discount 30.97%

Higham Common Lane - 3 bed bungalow

insert photo here

Value after refurbishment 115,000£

Purchase price 77,000£

Purchase costs 700£

Refurbishment 8,400£

Total cost 86,100£

Instant equity 28,900£

Discount 25.13%

Wharncliffe - 2 bed semi detached

insert photo here

Value after refurbishment 85,000£

Purchase price 50,000£

Purchase costs 1,500£

Refurbishment 12,178£

Total cost 63,678£

Instant equity 21,322£

Discount 25.08%

Oak Street - 3 bed semi detached

insert photo here

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To look at the obvious area of adding value to a property, Platinum Portfolio Builder carries out refurbishments in an extremely cost-effective manner. We buy materials in bulk and drive a hard bargain with material suppliers that want our business. This does not always mean that we are driving the price down; in fact, in some instances we add value to the refurb in other ways. An example of this would be that in recent months we have secured a five-year parts and labour warranty on all new boilers that are installed, instead of the usual 1-2 years. We always use a similar specification, which means we can carry out the refurbishments in record time and for the minimum cost. A typical refurbishment for us would include the following items, costing between £8,000 and £12,000:

Rewiring New heating system Replastering

New joinery works New kitchen New bathroom

Full decoration New floor coverings

Most people would spend almost double what we do and take twice as long. By getting the balance right between spending just enough to get top market rent and lower voids, and not overspending, we add the most value to any property. Every £1 that we spend typically adds between £1.50 and £2 to the value of the property.

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Below are some examples of the before and after refurbishments we have done:

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3. Ensure That the Property is Cashflow Positive This is critical to ensure that you don’t become one of the ‘buy and hope’ investors. Whilst our main strategy is to buy discounted properties to ensure that you have instant equity and a safer alternative to traditional pensions, we also ensure that the properties which we do buy are cashflow positive. It is also critical that you don’t kid yourself when you do the numbers and that you take into account all of the costs that are known. You should then make an allowance for voids and maintenance, which will inevitably happen at some point. Below is an example of a property that we purchased recently, showing the cashflow after all costs and a healthy allowance of 10% for voids and maintenance. Remember also that this property was purchased at a discount of 26%, which secured instant equity of over £23,000 for our client.

There are some points to note about the above figures:

The rental income is a conservative figure. We will often offer our properties for slightly lower rent (maybe 3-5% less) than our competition to ensure that they are filled quickly. Coupled with the fact that our properties are refurbished to an extremely high standard, this is almost always achievable. We can then tease up the rent once we find a good tenant that we want to stay. Remember this: if you spend one month finding a tenant; that equates to 8% of your rental income gone for that year, plus you will have the costs of council tax, gas, water and electricity bills and the risk of an empty property.

The mortgage is based on a fixed-rate mortgage for a 5-year period

Lettings and management is based on an all-inclusive rate and looks like 12%. It’s actually 10% plus VAT.

Insurance provides a great saving for our clients, as we insure all our properties under a single policy. The policy is robust and is underwritten by a leading UK insurance provider.

Gas testing is an essential legal requirement and we arrange this for our clients

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Voids allowance of 5% is a robust average across our portfolio. The quality of the properties that we buy, the refurbishment standard, plus a waiting list of 9,000 people in the area who are waiting for affordable housing make our overall voids figure around 3%.

Maintenance will always occur but, because we refurbish to a high standard and we secure a 5-year parts and labour warranty on all new boilers, this is reduced. We also work with a number of builders who carry out lots of refurbishment work and will carry out small repairs on properties without charge. Our Contracts Manager who looks after the refurbishment and maintenance is also handy with a screwdriver!

4. Always Invest For the Medium to Long Term This is essential, as we discussed in the section about the inevitable boom and bust. If you have observed the first three fundamental principles, then you are in great shape to do this. The truth is that no one can predict what will happen to the UK market in the short term. In the event that you find yourself in need of selling quickly, then the fundamental principles of always buying at a discount and adding value will give you some scope in your asking price to offer a discount to any incoming buyer and allow you to sell quickly. 5. Stack the Odds in Your Favour This is a really important point to consider at this stage – what type of property will you invest into? We buy safe, solid and reliable 2 and 3 bedroom houses, simply because they appeal to a wide choice of buyers. Whilst the list below is a little simplistic (most of the best ideas are) and doesn’t apply to every area of the UK, it has some timeless values that you should consider. Just compare a 3 bedroom house with a garden and dining room to a 2 bedroom apartment:

Both properties would probably appeal to First Time Buyers in equal measure

The 3 bed house would appeal to more young couples considering starting a family

The 3 bed house would appeal to more family buyers with children

The apartment would appeal to more young professional buyers who work hard and play hard

The 3 bed house would appeal to more growing families

The 3 bed house would appeal to more retiring people and those that are downsizing As stated before, the list above is a little simplistic but the point is that you stack the odds in your favour much more with a 3 bed house than you do with a 2 bed apartment. Often, in many areas, 3 bed houses can be bought for the same price as apartments, especially if you go a little way out of town and city centres and into the suburbs. In most cases, the rental yield is much higher on a house and you won’t have the added costs of ground rent and the uncertainty of service charges.

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Other ways to stack the odds in your favour include:

The first four fundamental principles of investing will give you safety and security in your investment

Areas of significant investment. The areas in which we invest have significant inward investment and are sandwiched between two of the Government’s Local Enterprise Partnerships. These are areas that have been designated by the Government and are designed to drive sustainable local economic growth and create the conditions for private sector job growth in their communities.

Affordable areas. Particularly with the current economic climate this is particularly important. We buy in an area of the UK that is sandwiched between two large cities. To the South is Sheffield and, although it’s only 30 minutes away, it’s an average of 31% more expensive. To the North is Leeds and, again, only 30 minutes away but an average of 40% more expensive.

High tenant demand means that the properties which you buy will generate profit on a monthly basis and are less likely to become void and therefore cost you your hard-earned cash. We rent around half of our properties to Local Housing Allowance tenants (the old housing benefit) and in one area there is a waiting list of 9,000 people that are looking to rent affordable housing

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Platinum Portfolio Builder Platinum Portfolio Builder has developed an investment offering that allows clients to leverage not only their money, but also our wealth of expertise in sourcing properties at between 25% and 40% below their current market value (as verified by a RICS surveyor). Platinum Portfolio Builder builds and manages property portfolios for people who want to invest in property but who don’t have the time, knowledge or skill to do it themselves. We only buy properties where we can achieve a minimum discount of 25% below an independent RICS valuation. Last year, an average discount of 26% was achieved for the benefit of clients. Our clients are those who have between £75,000 and £1,000,000 to invest. We have in-house teams of expert buyers, project managers, builders and letting agents and we buy discounted property using extensive knowledge and contacts that secure an instant profit for clients. The properties are then let and managed for clients on an ongoing basis until they want to sell them and cash in their profits. We recognise that many people are unhappy with the poor returns, high fees and uncertainty associated with traditional investments and pensions. Our proven models of property investment achieve market-leading returns and security through intelligent property investment. Our portfolios are currently built in South Yorkshire, focusing primarily on the area halfway between Leeds and Sheffield, where the Founder, Nick Carlile, worked for many years as a quantity surveyor and project manager. He has also bought, sold and rented out properties in this area since 1993. It is a market that he knows particularly well and one where he and his team have built solid relationships with estate agents, developers and other experts who source properties for Platinum Portfolio Builder. Teams of tradesmen and property, legal and financial professionals all enable Platinum Portfolio Builder to take advantage of the very best opportunities and structure great deals. “Having invested in property as a ‘side-line’ for more than a decade, I only realised how little I really knew about the property business after meeting and learning from Nick and the Platinum Portfolio Builder team. Platinum Portfolio Builder has a wonderful strategy to leverage the resources of time and money and enables me to spend every valuable day with my 6-year-old son, while building for my family’s future,” Gerry Scannell, Client of Platinum Portfolio Builder.

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Section Three: What to Do Next For many investors, 2012 will be a deciding year as to whether or not they are going to be successful over the next ten years and beyond. For those of you who haven’t yet started to invest, now is the time that you should make the decision about whether to take the plunge. We spent a lot of time in 2011 making money from property and intend to do the same again in 2012 and beyond. Hopefully this guide will have been helpful in showing you what can be achieved by working with a network of professional investors, rather than investing on your own. Whoever you invest with, make sure you follow our seven-step guide to ensure that your investments are safe and secure.

The Platinum Portfolio Builder Guide to Property Investment When we work with individuals, we meet and discuss the following points on a one to one basis. It is important to know where you are now, before you start planning the next stage of your journey. It is also a fact that greater knowledge and understanding helps minimise your risk, so you should factor some form of personal and business education and development into your plans. Step One: Work Out Your Investment Objectives How much money do you want to make and by when? Why do you want to invest in property – what will it give you? Step Two: Invest Alone or With Experts? It’s a good idea to work out whether you want to ‘go it alone’ and build and manage a portfolio yourself, or whether you want to take professional, expert advice. You might have to pay for it, but as long as it delivers better returns than you can secure on your own, it’s worth investigating. In this scenario you should look at the value that you are getting as well as the cost. Step Three: How Much Can You Invest? Work out how much money you have to invest and review your finances. What cash do you have? What equity do you have in your home? What are your other investments delivering to you, and could you get a better return with property investments? Step Four: What Level of Risk Are You Comfortable With? Some people are happy to invest everything that they have into one project, whereas others prefer to balance the risk by having a spread of different investments. It is important to understand what level of risk you are willing to take, so that you can determine what property investments are best suited to you. It is critical, however, not to be put off by the apparent riskiness of property investment that many advisors will talk to you about.

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To my mind, the two main risks in property are:

1. A property market crash or correction. This is only an issue if you are forced to sell at the wrong time. If you remember The Five Fundamental Principles of Property Investing and ensure that the property is cashflow positive, you can ride out any correction until the inevitable boom comes round again.

2. Interest rate rises. One thing that is absolutely certain is that interest rates will rise again. What we don’t know is when or by how much. What we are clear about, though, is that the margin the banks are making is probably as high as it’s ever been. The difference between the base rate and the cost of borrowing is excessive. This should mean that as the base rate rises, the banks maintain the cost of borrowing at current levels for some time. In simple terms, the best way to mitigate this risk is to look into taking a fixed-rate mortgage. Yes, you will pay a higher rate in the initial stages than with a variable rate, but the risk is eliminated for the period of the fixed rate.

There are other risks to consider, such as lettings and management and tenant issues, refurbishment overspends, legal issues, property maintenance, legislation, rent arrears and so on. We simply don’t consider these as risks because they are all within our control in the main, and we have expertise and experience in dealing with them. Risks can be mitigated greatly by following in the footsteps of other professional investors and using tried, tested and proven investment strategies. Step Five: How Long Do You Want to Invest For? Property investment shouldn’t be seen as a ‘get rich quick’ scheme. Any money and time that you invest should be for a minimum of five years and ideally ten or more, depending on market conditions. It’s the properties that you buy now and in the next 3-5 years that could be the source of great wealth for you in years to come. Step Six: How Much Should You Invest? Many people are keen to invest in property but nervous about whether it will deliver or not. When deciding on how much to invest, it is important to understand how much risk you are prepared to take and this will depend on two things:

How safe are the investments that you are considering?

The level of experience and knowledge that you or in your investment partners have, in relation to the investment strategies you will be working with

Typically, clients who work with Platinum Portfolio Builder secure their investment monies from:

Inheritance they have received that they want to grow

Sale of, or profits from a successful business

Savings or other investments

Equity from their own home or other investment property

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Many people have been brought up with the philosophy of “work hard at school/college/university to get good qualifications, so that you can get a high paying job and pay off your mortgage as soon as possible”. Whilst there is nothing inherently wrong with this approach, it flies in the face of how professional investors and successful entrepreneurs operate. If you have paid off your mortgage(s) or you have substantial equity in your own home, you are presented with an unbelievable opportunity. You should be able to set up a ‘drawdown’ facility, which allows you to withdraw equity on an ‘as needed’ basis. As long as you are making a better return than the cost of borrowing – which, as has been illustrated in this guide, is very achievable – then it makes complete sense to consider this option. For example, if you could borrow money at 5% interest per annum and make 25%, why wouldn’t you do it? Remember that, while it may feel risky, if you do it right you are simply dividing the equity from one house between many others and making a higher return. Once you have the understanding and confidence that this can really work, it is a logical step to take. It’s just that for some people, it can take a little while to become emotionally accustomed to the concept. Step Seven: Visit the People and/or Investment Location This is so simple that it needs no further explanation, other than to say it’s astounding how many people don’t! Just ask yourself, would you buy a car or even a new suit or dress without seeing it? Yet many people buy property without taking the time to visit the people and the locations involved.

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Want to Know More about Platinum Portfolio Builder? We hope that this property investment guide has been interesting and useful to you, and that it has inspired you to consider wisely investing in property. You can find out more about us by: Visiting our website: www.platinumportfoliobuilder.co.uk

Calling our office on: 01226 732606

Emailing us on: [email protected] You should never invest in property unless you have visited the area/property itself and we believe that you should never invest in a property company unless you have spoken to and met the owners! We have a varied programme of events across the UK throughout 2012 and we would be delighted to spend time helping you with your property investment plans and goals.

If you have at least £75,000 in equity and/or liquid funds and you want to fast-track your success in property investing, then you may qualify as a Platinum Portfolio Builder client. If you’re serious about property investment as a route to financial freedom, call us on 01226 732606 and speak to one of the team. Platinum Portfolio Builder is a passive investment opportunity. The team specialises in building buy-to-let property portfolios for clients using a tried and tested model that produces extremely reliable results. For an initial investment, the Portfolio Builder team sources, refurbishes, lets and manages buy-to-let property portfolios on behalf of clients who are looking for a secure alternative to more traditional pension provision.

If you would like to discuss your property investment, call us on 01226 732606, to discuss with one of our team or to arrange a visit to see for yourself what we do and how we do it.

Platinum Portfolio Bulder has won a number of Awards including: Compare the Financial Markets – Most Innovative UK Property Investment 2012

OPP – Award for Excellence 2011