The 50 K challenge | Money Matters | Touchstone Education


(upbeat dance music) – Hello, Paul here, I hope
you are doing very well. What I want to share with you today is the 50,000 pound challenge. Before I do that, I wanna
ask you this question. Is inflation good or bad? Now, I’m gonna bet that
almost every single one of you just said, oh no inflation’s bad, because we’re taught it’s bad. The Bank of England is, or
the Monetary Policy Committee and the government and
everybody, the system wants to keep inflation low because they say it’s
good for the economy. Well I say, it depends what you’re doing. So, is inflation good or bad, specifically if you’re a property investor? What does inflation do to the
value of houses over time? Sends them up. So, I’m 54, when I was 18 I bought my first flat in London for 9000 pounds. When I bought my first flat
in London for 9000 pounds, 36 years ago, and then I watched that flat over the next 36 years, I can tell you that one just three doors away from it just sold for 265,000 pounds, so over 34 years, it’s gone up in value from, let’s call it 10
grand to make it easy, to quarter of a million pounds. So it’s gone up by a factor
of 25 times in 30 odd years. So I know that house
prices double in value every seven to 10 years, why? ‘Cause I’ve seen it
happen to some of my own. And at the same time, what
do we do when we buy houses? Well, most of the money that we use is somebody else’s,
’cause we take a mortgage. What does inflation do to the value of that mortgage over time? It sends it down. So, you’ve got a double impact going on here due to inflation. You’ve got the value of the house going up because of inflation, and you’ve got the value of the money that you’ve borrowed
that you’ve got to pay back pushing the value of the mortgage down. So, the more and more
the house value goes up, and the more and more and more the mortgage value goes down, means the gap in the middle,
more and more money is for you. I would say to you, contrary to anything you’ve previously been told, inflation is actually good. That’s the first thing I
want to share with you. Okay now, let’s roll the
clock forward a little bit, and let’s pretend that you’re
in a fortunate position where you’ve got 50,000 pounds. I don’t know, you’ve had an inheritance, you’ve had some redundancy, you’ve saved up and some financial
plan has just come in, and for whatever reason you’ve
ended up with 50,000 pounds. Now, maybe you’ve already
got 50,000 pounds. Maybe you’d like 50,000
pounds one day, I don’t know. But for the purposes
of the next 10 minutes, you’ve got 50,000 pounds, okay? I wanna put to you two options, and then I want to compare them. Here’s option one, you
stick it in the bank. Let’s say, you put your 50,000 pounds in the bank for 10 years. If you put your 50,000 pounds in the bank for 10 years,
what’s gonna happen? Well, at the moment, go and
Google it or you know, whatever. Inflation for the last few years has been an average of 3%, so the value of your money when
it comes to buying things is going down by 3% a year. On the other hand, you’re
earning some interest. Well, again, Google it. The best rate you’re
gonna find for savings for 50,000 pounds is round about 1%. So, if the value of your money is getting destroyed by inflation
at the rate of 3% a year, but your value of your money is going up by 1% a year, well that means, the net impact three minus
three, plus one is minus two. So you’re losing, your money is losing 2% of its value every year. Let’s say that carries on for 10 years. Well, 2% a year for 10 years is 20%. I know I’m slightly over simplifying it, but you get the point. So, in real terms if you
started off with 50,000 pounds, 10 years later, in real
terms that same 50,000 pounds is only gonna be worth 40,000 pounds, because you’ve lost 20% of the value because there’s 10 years of inflation being higher than the interest rate. And that’s what’s happening to
so many people at the moment, and so many people are
looking for a different way to actually make their money worth more as opposed to, put it in the
bank and it gets worth less. Gone are the days where you could make money from just having money. You need to do something with it. So, if you’re gonna do something
with it, what could you do? Well, option two, you could go and stick it into a house, you
can go and buy a house. Now, the average property
in the UK at the moment is worth round about
quarter of a million pounds. So, with your 50,000 pounds deposit cash, you could go and buy a 250,000 property. Again, go and Google it. You can easily get an
80% buy=to=let mortgage. So, for the purpose of this example, for the purpose of this demonstration, your 50,000 has now
not gone into the bank, it’s gone into a house as a deposit. So, you now own a quarter
of a million pound house as a buy-to-let, you’ve put your 50,000 pounds in as a deposit, and the rest of the money, the mortgage, you’ve borrowed as interest only. Let’s say you do that
for 10 years as well, because I want like for like comparison. So, 10 years later what’s happening? Well, during those 10
years, you’ve actually got a tenant in there
paying you some rent. Now, after you’ve paid your mortgage, and paid your letting
fees and paid for a bit of voids and maintenance and whatever, the average buy-to-let profit per month, ’cause this is an average house, the average buy-to-let profit per month is 250 pounds, so you return 250 pounds. If you multiply that up
by 12 months in the year, that’s 3000 pounds a year,
and even that’s not bad that’s 3000 pounds a year on 50,000 pounds if you do get your calculator
out, that’s 6%, 6% interest. So, if you want 6% interest
on your money, fantastic, because your 50,000 pound deposit is bringing you, after
everything, 3000 pounds a year. So let’s do that for 10 years, that’s obviously 30,000 pounds. But, more importantly, the property doubles in value every seven to 10 years. So, in 10 years time,
the property’s probably gonna be, not the 250
that you bought it for, it’s gonna be closer to the half million that it’s gonna be worth
in 7 to 10 years time. But let’s say 10 years time. But your mortgage is still 200,000 pounds. It’s less than that in real terms, but it’s still 200,000 pounds in cash. So, that means your equity,
your money in the property has gone up from 50,000
pounds to 300,000 pounds. Everyone following me? So, your half million pound property where the mortgage has stayed the same, but the value has doubled, has just earned you quarter of a million pounds. And, on top of that, you’ve got your 30,000 pounds of rent
that you’ve had as profit. Now, let’s be really
miserable and let’s put an inflation adjustment on
what you’ve just earned. Well, if you do the same calculations that I did on the previous example, that’s gonna be about a
15,000 pounds adjustment. So, you’ve got your 30,000 pounds of rent, 3000 pounds a year, you’ve got your 300,000 pounds of equity in the property, and I’m gonna make a
15,000 pound adjustment. So, in real terms your 50,000
pounds that you started with, 10 years later is worth 315,000 pounds. You’ve multiplied it by
more than a factor of six. And of course, you could remortgage it, pull some money out, and
go and buy some more. How many could you buy? Well, you could pull out 200, 300,000, whatever, however you
wanted to structure it, and you could go and
buy several more houses. So not only did your 50,000 pounds become 300,000 plus pounds, that then gives you the war chest to remortgage and go and buy even more. So in another 10 years
time, you haven’t got one house anymore, you’ve
now maybe got three and each one of those three is giving you hundreds of thousands of
pounds every 10 years. So, let’s just summarize that, as we draw this little section to a close. You could start with 50,000 pounds, you could stick it in the bank, or you could stick it in a house. 10 years later, your 50,000 pounds in the bank is worth 40,000 pounds. 10 years later, you stick it in the house, it’s worth 315,000 pounds. Now, ultimately it’s your choice. If you’ve liked this short video, please literally like it, and share it with two of your friends,
I’d love you to do that. Just share it with two of
your friends, colleagues, work mates, family, loved ones whatever because I wanna get the word out there, that you don’t have to
lose money on your money. That’s number one. Please like and share. Number two, for these short snappy Money Matters, because
money really does matter, it really does matter, sessions the first session of every month we’re gonna be doing a Q and A. We’re gonna be doing your
money questions answered. So, if you’ve got a particular
question about money, anything to do with money or property and you want me to answer it, and you want us to address it with a panel of experts that we’ve got at our disposal, please put the question below, and we’re gonna chose the most
interesting of those questions. The most interesting of those questions to answer in the first
edition every month. I hope you’ve enjoyed this short video, I hope you’ve enjoyed the Money
Matters lessons within it. Don’t forget, please
like, share and subscribe. If you wanna make sure you
never ever miss another Money Matters ever again, please subscribe to the YouTube channel and you’re gonna get
advanced notification, you’re gonna get the minute it goes live, the system will tell ya. Alright, you’ve been wonderful, I’ve been Paul, see you
on the next Money Matters. Bye bye for now. (electronic music)

10 thoughts on “The 50 K challenge | Money Matters | Touchstone Education”

  1. Hi Paul
    I have investors who want to do joint venture Investment. I have seen your video where you invested JV money in to HMO and effectively took all money out and reinvested to build portfolio. We are based in London and I think this strategy does not work area as HMO yield will not that much on the basis of which we can take all money out. Could you please let me know that how to build the portfolio with investor money and which areas that strategy will work. Thank you

  2. Hi Paul,
    Great content and valuable video, thank you so much!… I am 50. How can I grow my pension pot knowing that my pension provider doesn’t allow me to partially transfer it?

  3. Hi Paul.
    Great video from you and straight to the point.
    My question is this, what is the best tax efficient way to pay oneself via a LLP and Ltd set up. Thanks in advance.

  4. £40K through inflation prone saving, meaning the property method shows over an 8 X mutiplier. Impressive !

  5. This was all good before the tax rules changed, buy to let domestic is now fucked and clever money doesn't invest in it any more. commercial property is a different thing.

  6. I got $30,000 just now successfully through my paypal account from this great hacker +1 256 667 0055 his honest and trustworthy work with him.

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