The Real Interest Rate Is…

A real interest rate is an interest rate that has been adjusted to include the effects of inflation to reflect the real cost of funds to the borrower and the real yield to the lender or to an investor. Inflation reduces your purchasing power over time.

So any cash hoarders who like to keep it under the mattress, be aware that this time next year, your cash will be worth less and will get you less.

Another example of poor personal finance

After some lucky breaks at work, I built up around £70,000 in Premium bonds. We are going to say that I had it in there for 3 years. My interest rate worked out at about 0.5%. If the inflation rate was 3% during this period, it means the money was losing value at a rate of 2.5% per year.

In real terms after 1 year it was worth £68,250.

After 2 years, it was worth £66,543.

At the end of 3 years, I am down to 64,880.

This was at a time when personal finance wasn’t a priority. I was still chasing the pot at the end of the rainbow with my Premium Bonds, Lottery tickets and football bets.

We can use property to emphasise the point. Let us say I am a landlord with 2 properties and I have them both on interest only mortgages.

I have put them on interest only because I want the security of the cash flow just in case and I also want the option of paying a big chunk off the mortgage in a couple of years time. In this scenario I don’t need the money and am going to put it into a savings account with an interest rate of 1%.

The cash flow pcm is £200 on each property and £400 in total. This gives me a total of £4800 per year.

This is a good amount to save but what I am missing in this instance is the effect of inflation. I am happy with my £4800 but if we use the inflation rate above (3%) my savings are going to lose value over time.

In just 1 year our money is now worth £4704 due to the real interest rate (1% – 3% makes a real interest rate of -2%). After 5 years this negative compound interest would reduce the value to £4338.

Personally I would pay this off the mortgages at the end of each year. That means you have some cash flow as a back up during the year but once you are confident you don’t need it, look to reduce the mortgage.

If you are in a situation like this don’t put the profits into a 1% savings account for years when you don’t need the cash flow on a monthly basis. You are also getting charged 3% interest on your interest only mortgage so that is another reason to reduce the mortgage down as opposed to leaving it in a 1% savings account.

Another option would be to invest in an Index fund through an ISA. I am convinced you can get 7-8% if you invest long-term. My Life strategy 80/20-index fund is 14.5% up after 12 months.

This will go up and down as markets go through periods of uncertainty and then rise on periods of promise and confidence. What I am trying to say is that you really need to be aware of interest rates and don’t settle for 1% or less.

If you are aware of interest rates you have a chance of understanding real inflation and how it can eat away at your hard earned savings.

Here is an example of how poor I have been at personal finance. During the period I had premium bonds, for 2 years in a row I took a loan out to pay my tax bill for my Limited Company.

So I am earning 0.5% from the Premium Bonds and then end up with a £20,000 loan with an interest rate of 6.8%. I didn’t have a clue about interest rates; I just had tunnel vision as I actually thought I had a chance of winning £1,000,000 from the Premium Bonds.

Please don’t make the same mistakes as I have made and get to a point were you fully understand interest rates and real interest rates. Governments printing more and more money (QE) are likely to increase inflation to dangerous levels over the next few years and we all need to be on the ball!!!

Learn to use Debt and Taxes

This week I’ve had a lesson in how to look at the bigger picture. The lesson came from Robert Kiyoaski via Youtube.

What I now realise is that there is an old out dated way to earn money and look after your personal finances. With things moving so fast and information coming at us from every angle, there is also a new way of looking after your personal finances.

Old way

Get an education (preferably a Degree), get a good job, work hard, pay your mortgage off, and retire with a big fat pension.

New way

Invest in self-education, self-development, personal finance, financial literacy, business, accounting and investing.

The industrial age is finished but many people treat their personal finance like it isn’t. The industrial age of a stable job for life and large pensions no longer applies in today’s information age.

To start heading in the right direction, you have to spend less than you earn and invest the rest. Then it is a case of determining what it is you want to invest in.

Robert Kiyosaki is one of the most respected and successful non-fiction authors in the world and has sold millions of books.

In his books, his concepts come from his Rich Dad. His Rich Dad was actually his best friend’s Dad who made millions through business and investing.

He refers to his actual Dad as Poor Dad. His Poor Dad was a successful employee in terms of seniority and position but ultimately ended up broke because he was always working for someone else.

If you read any of his books he will talk in depth about business and investing. He talks about inflation, the dangers of being employees or self-employed and the flaws of the education system and many more subjects relating to money.

When you listen to him speak he is quite blunt and to the point. He is getting on (73 years-old) and he has no filter at all as he says it how he sees it.

The Bigger Picture

‘Rich vs Poor Mindset’ Robert Kiyosaki (Youtube)

  • RK – Don’t save money when they are printing trillions of dollars (Quantitative Easing). The Government in the UK is doing exactly the same and although I agree with what they are doing to get the economy moving, we have to start looking into inflation and how it will affect our personal finances.
  • RK – Look beyond steady pay employee mindset. He talks about this constantly in his books, as the way to make money work for you is to be in business or to be an investor.
  • RK – Being an Entrepreneur is about mindset, skillset and rules. He goes on to say that having to succeed in business when you have nothing will make you hungrier, smarter and is a test of your character. When I was renovating rental number 4 in 2019 with no job and £15,000 into a £25,000 overdraft it was definitely character building!
  • RK – You have got to get to a place where you are comfortable with failure. This is hard but I think that if you start getting comfortable with failure, it is a game changer.
  • RK – He encourages the listener not to get out of debt, but to get into debt. This is when it is time to start looking at the bigger picture. It is about learning to use other people’s money to make shrewd investments. It could be using a loan from the bank to buy a house or even borrow money from friends and family to start a business.
  • RK – World changed in 1971, when President Nixon took America off the Gold Standard. Money then became debt. He stresses the importance of using debt and taxes to your advantage. Basically, use leverage (loans, credit cards etc) to buy assets and learn to become tax efficient.
  • RK – High-paying job is an obsolete idea. I have earned good money in the past and it hasn’t really got me anywhere. This was because I was poor with money. I spent what I earned and pretty much lived month to month.
  • RK – No such thing as a bad economy. The question is what is your internal economy? The poor person with a poor personal economy will always see a bad external economy. The rich person with a rich internal economy will always make money. If the person with the right mindset around money fail’s they learn and keep going and become smarter and better.
  • RK – Weak internal mindset – they are afraid of what happens and it generally happens. He is stressing how important it is to get our head right when it comes to your personal finance.

To summarise, RK is telling us to get our Money IQ (Intelligent Quotient) right and our Money EQ (Emotional Quotient) right. Money IQ and Money EQ are terms that come from Ken Honda’s excellent book ‘Happy Money.’

Money IQ is important and in this case, is about learning to become tax efficient and how to use debt to your advantage.

Money EQ is VERY important and is about having a growth mindset. It is having a strong internal dialogue and knowing with certainty that you will get your personal finances in order. Or to go a couple of steps further and tell yourself that you will get your FI in the next few years and you absolutely refuse to work in a means to an end job into your 50s and 60s.

Money Mindset

Let me tell you about two different people with two totally different mindsets. One is Rob Moore (who is a property millionaire) and the other is Peter Duffy (me, who is definitely not a property millionaire).

We both started investing in property around the same time. In saying that, I might have even started a few years earlier than Rob. That is where the similarities end unfortunately for me.

Rob is one of the UK’s top non-fiction authors – 8 books published.

Rob became a millionaire at 30 having been an artist £50k in debt 5 years before

Rob built the UK’s largest training property company Progressive Property that won business of the year in 2016.

Rob broke 3 public speaking world records (an international key note speaker).

Rob co-owns or manages 850 tenants in his property portfolio and Progressive Lets Agency.

The list goes on. Let’s just say that for the last 15 years (approximate) Rob has been doing REALLY well!

Pete has done none of the above. In fact, just a few years ago I had 3 rentals and was about £50,000 in negative equity.

In 2008/2009 when the financial crisis came along, I used this as an excuse and became really negative about property. This started 10 years of me being a dark cloud about money and negative towards the property market – especially my 3 rentals.

Rob on the other hand, used it as an opportunity to push on and become a property millionaire. He made a few mistakes but the point is that he stuck with it and pushed through his early failures and became very successful.

You might think I’m bitter by mentioning Rob’s success but this couldn’t be further from the truth. I love a success story and I look up to Rob and his story shows an aspiring property investor like me that anything is possible.

About 2 years ago I had finally got to a point where I was no longer willing to be a dark cloud over my work and money situation. If I continued down the path I was on I knew I was heading for more uncertainty and anxiety around my money situation and I didn’t want my negative emotions affecting my family.

It is fair to say, I forced myself to be happy. And I can honestly say that since immersing myself into self-development, I am happy with the now and am very excited for the future.

I have got a better relationship with money. I can’t quite put into words how this has happened I just know I have. Slowly but surely the self development material is rubbing off on me.

I know money doesn’t guarantee happiness. We have all heard of celebrities who seemingly have it all and still can’t find happiness. But what I can say with certainty is it will help me do the things I love and a by-product of this is that it will make me happier.

In almost 2 years of self-development I haven’t really achieved that much to be honest. I have bought x1 more rental property and have had my Life strategy 80 20 (Stocks and Shares Investment that tracks the markets) fund for a little over 12 months.

This isn’t something I am dwelling on because I know that I am pushing hard to make investing my full time job. Even with setbacks, I have managed to stay positive. I know that all my efforts will be worth it as I learn and continue to progress towards my FI.

Since purchasing rental number 4, 18 months ago, I have been to over 100 viewings in my local area. I have made bids on over 30 properties. One or two have been accepted but have fell through for one reason or another.

This is all part of the game. The books that I have been reading have definitely helped my mindset. What I have been told and what I am starting to realize is that whatever it is you are trying to achieve, someone somewhere has already done it.

I am not the only one who has been slow at getting their next property. After reading over 75 books in 18 months, I feel like I am on the right path. With a little momentum I will start getting a few breaks and my current number of 4 rentals in 18 years will massively improve.

You see if I go back to my old negative habits, I will end up in another 10 years being 47 with 4 rentals in 28 years. I will have spent far too much time working away from home and I will know exactly what to expect of the remaining years of my working life.

But I refuse to be pulled in to my old negative habits, I will stay positive and who knows I might just end up like Rob Moore.

What I can tell you, is that I now believe anything is possible with a positive mindset. You can either come out of COVID-19 like Peter Duffy came out of the financial crisis of 2008/2009.  I was negative about work, property and money in general. Or you can come out of it like Rob Moore who came out of that crisis a property millionaire.

Purchase Option Agreement for Tired Landlords

Section 24 is something that all Landlords should be aware of as it could have huge tax implications. If you are a higher rate taxpayer, you will pay more tax. In some cases the 40% tax that is now charged will reduce profits by 50%.

Prior to this inconvenient piece of legislation, landlords were only taxed on profits gained from rental income. Now the tax is based on the entire rental income. So you receive £500 pcm, you deduct your expenses and you get taxed on the remaining sum.

After expenses this £500 pcm could drop to £400 pcm. So let us say you are a higher rate taxpayer, you will be charged 40% of £400, which is £160. So after expenses and tax you are left with £240 of the rent money. If for example your mortgage is £350, you are out of pocket by £110.

Section 24 has been introduced gradually over the last few years but the new measures have fully taken effect from April 2020. Many landlords will either find a way to become more tax efficient (buy properties via Limited Company) or will want to sell up.

I am one of the landlords who have decided to become tax efficient and start buying through a Limited company.

A big problem for many landlords, who are looking to grow their portfolio, is that eventually they are likely to run out of money. Even with a modest purchase price of £80,000, you are still looking at around £25,000. This takes into account the 25% deposit, legal fees (stamp duty etc) and any remedial works that are required.

You might be lucky and have £50,000 ready to put down. Not many potential landlords will be able to reach into their back pocket and produce £25,000 time and time again.

That is 2 rentals and you are stopped in your tracks. If you are serious about growing your portfolio, this is the point when it is time to get creative.

A couple of days ago I watched my very 1st webinar. A well-known property investor called Simon Zutshi was the man delivering the free training and I took some good points out of it. I knew there would be a sales pitch at the end but I managed to resist the mastermind training. The training worth £36,000 (or there about) that you can get right now for £1500 plus VAT.


If you buy the training in the next 10 minutes you will receive Si’s additional free expert/mastermind training, worth £999 plus VAT, for free. Now I enjoyed the webinar (I like anything that’s free) and Si comes across really well. His book (Property Magic) is one of the better property books as well if that is what you are into.

But please, please don’t spoil the webinar with some horrendous sales pitch at the end. Maybe I am being too cynical but I honestly think you can learn what you need to know from free sources (or relatively cheap) like webinars, you tube videos, podcasts, blogs and a property book or two.

Get out there and mix with property investors at network events. Please don’t get pulled into spending thousands of pounds on training that you can get for free. It would probably be worth it if you got one-on-one training with Si but it isn’t happening.

Anyway I’ll give you a brief summary of what I learned about a creative property buying strategy.

If you are wanting to buy rental properties but have ran out of money, or have little capital to start with, a potential option is an option.

The two option arrangements discussed where Purchase Option (PO) and Purchase Lease Option (PLO). The PO is when you are looking to purchase Buy-to-Lets and the PLO is when you are looking to make more cashflow and go with a HMO or Serviced Accommodation.

As my preferred strategy is currently single buy-to-let’s I was only really listening to the PO information.

PO Main points

  • Right to buy but no obligation to purchase
  • Agree to buy within a certain time – usually 3 or 5 years but it can be anytime really
  • Again there is no obligation to purchase and you can pass it on to another investor at the end of the agreed time period
  • The agreed price is fixed
  • The Buyer benefits from potential cash flow if they can find a tenant – if the property does not have a tenant for a period the buyer is responsible for the mortgage and council tax so there is an element of risk

Benefits for Buyer

  • Property management experience – as you take over the management on the agreed start date
  • Cash flow
  • Potential equity growth
  • No large deposits at this stage – you can save for the deposit and utilize the cashflow to help boost the savings

Benefits for Seller

  • Less hassle
  • Full asking price – not likely under current market conditions
  • If you are looking to sell a portfolio or part of a portfolio the sales can be scheduled to reduce Capital Gains Tax (CGT)

This isn’t for everyone. It isn’t for a landlord looking to sell his portfolio and needs the money now. It is for the Landlord who doesn’t need the money and wants less hassle. He or she might want to retire to Spain and live a stress less life in the Sun.

Si is adamant that there is a big property crash around the corner because of the after effects of COVID-19. The Bank of England is apparently predicting a 16% fall in prices. With this in mind, the PO might be worth considering for Landlords who have simply had enough and are now looking for a suitable exit strategy.

Seen as though I want to do property full time, I am going to attempt to speak with landlords who have had enough. I am ready to manage a large portfolio and this strategy might be my way to get into property full time.

One thing I would add is that you will need a specialist solicitor and an estate agent who is clued up with regards to PO deals. This is all explained in the £1500 training that Si was offering but I will figure it out for less than £1500.

If I manage to do a PO deal in the next few months, I will write a blog about it and let anyone know the relevant information for free. If you follow me on this blog, I will also answer any questions you may have on the subject or any other property subject I can help with.

Latest property news

On a separate (positive) note for anyone interested in buying rentals, Rishi Sunak has implemented a stamp duty ‘holiday’. If I go and buy my 5th rental for £80,000 I won’t have to pay 3% on stamp duty. This will save me £2400 and this could go towards my next rental purchase or pay the legals for my 1st PO.

This incentive for buyers in the UK will remain in-place until March 31st, 2021.

Through word of mouth and social media, I am going to put it out there that I am willing to speak to landlords who are looking for a suitable exit strategy. For a deal that is structured to suit both parties.

So if you are reading this blog and know a landlord, mention this blog and see if I can help them out. You might be helping me out and a friend out or even a friend of a friend.

And as I stumble my way through PO deals (if I do any), the added bonus is that all my mistakes and lessons learned will be passed on via DUFF MONEY.

When it rains it pours

The last 6 weeks have been quite negative in terms of spending money on my rentals. Not only that, I have had a few bills that needed trimming.

Like the house insurance that I have avoided for years, regularly going through my bank statements has been something I have avoided. I have sort of had an idea of what is going out but not really.  

Again, this is not good enough and this complacent attitude towards my personal finances has cost me.

The Sky bill that I thought was around £100 had crept up to £140. So I have got a reduction with a better deal and to get it further down, I have even cancelled the Sports package. The bill is now at £82 pcm so that is a decent saving per month.

If I want to watch the football, I will have to drag my tight ass down to my Mam’s or when the pubs properly open, I can go and watch the games in the local club (if Mrs Duffy lets me…).

A few years ago when I started to watch the UFC I decided to get BT Sport at £10 pcm. In 4 years, I have watched 3 Connor Mcgregor fights and have hardly viewed the channel.

What makes it worse is that this subscription had gone up to £30 pcm. So them 3 fights that probably lasted 30 minutes in total, have cost me £1440. It is clear that I am very consistent with my poor personal finance.

Over the last few weeks, I have been all over my bank statements and made all the necessary changes. This is another piece of the puzzle towards finally getting my financial house in order.

It has been 6 weeks since coming home from Oman. After 11 weeks in the desert, coming home was brilliant and it felt like the best Christmas ever coming home to my little squad. What wasn’t brilliant was spending more money on boilers.

When it rains it pours comes to mind, as I have had to pay for x3 new boilers over the last 6 months. Two of those have been replaced in the last 6 weeks.

That is £4500 spent on boilers in a very short space of time. This was an inconvenience but luckily I didn’t allow the dark cloud to appear and drag me down.

No self-pity, no feeling negative towards my rentals. I can now happily accept that this is part of being a landlord. Sometimes things go wrong and need replacing and as the Landlord it is my responsibility to sort problems out for my tenants.

What I am slowly starting to realise as I get a little bit older and a little bit wiser, is that everything is about perspective. My new perspective is that I feel lucky to be a Landlord. My new perspective is that I want to provide a service to my tenants as well as making a regular monthly income. I am more than happy to do what I can for my tenants (within reason) and would love to be a property investor / landlord full time.

Within reason means I am still not willing to wipe a tenants ass. I know what I am legally responsible for and keeping things right at my end is no issue.

I will replace a boiler (or three boilers) without hesitation. Or make sure the Electrical installation is safe and meet’s the necessary British standards. What I won’t do is go round to unblock a toilet when there is a 99% chance of it being blocked by wet wipes or kitchen roll.

The way I am psychologically is a big step in the right direction from where I was 2-3 years ago. I was a miserable 35 year old and this sort of thing would have brought a dark cloud and my usual anxiety over money. I am nowhere near where I want to be but I feel I am starting to head in the right direction.

My relationship with money has improved massively and this has helped reduce my anxiety around my money work situation.

A couple of the podcasts I have listened to lately feature Ken Honda who refers to himself as the little happy millionaire. Ken talks a lot about money EQ.

Money EQ is a reflection of your personal beliefs and thoughts about money. Your emptions when you think about money. Your emotions when you think about money. And how your subconscious mind makes financial decisions on autopilot.

Although my emotions are improving, I know I can always improve, as being a stress head, a little bit negative and anxious over money are traits I have really struggled to move past. Or as my 8-year old put’s it, “you are a ginger, bald, tall and depressed man.”

‘Happy Money’ is one of Ken Honda’s many books on finance and this is going to be my next book. With a bit of luck, it will improve my emotions and my relationship with money further still.