Is there any such thing as an "armchair investor" and if there was, would you want to be one .... ?

[Vanessa]

I am just wondering what the Tribes' thoughts are on the term "armchair investor".

I must admit, I find it very perplexing.

I strongly believe that the best person to look after my money and my financial future is the person I see in the mirror, not a third party with a sales agenda.

I cannot understand the concept of sitting back and letting someone else take all the responsibility for my money, my investment decisions, and my financial future - no matter how trustworthy that person might seem.

I actually want to roll up my sleeves and get my hands dirty. I want to strive to understand my investments from every angle. I want to take responsibility for how my money is spent. I want to be on the "factory floor" dealing with the everyday running of the business so that I can grow my skills and knowledge.

If I invest my time and diligence in my property business, then there is hopefully far less chance of it going wrong than just taking someone else's word for it.

Maybe armchair investors sitting back in their armchairs calling themselves "investors" are really "armchair speculators on a third party's ability to make the right buying decisions for them".

Property is not a case of "one size fits all". If you don't want to roll your sleeves up and get your hands dirty, then maybe you shouldn't get involved at all ... ?

If you think of yourself as an "armchair investor", maybe that allows you to feel very disconnected from your property business? If you are not in the thick of it, then there's a strong possibility it will go off the rails.

Passive Investments, Grant Bovey's Imagine Homes, and Instant Access Properties are three high profile companies who have proved that the "armchair investor" concept is a recipe for disaster.

Yes, I can understand that if you are cash rich but time poor you might like a bit of help and support. That is understandable. However, to absolve yourself of all responsibility and "just sign papers", which I have heard someone say recently, is a complete anathema to me personally.

What do others think?

[Brian Heath]

How can one be an investor if one is sitting in an armchair? I know 'armchair' is used metaphorically here; but the two attitudes of mind are poles apart from each other.

One will receives rewards, or loses, I believe, according to the degree of positivity/passivity which one has adopted as an attitude towards the use of money,

The whole concept of investment is to act positively to gain an increase in one's wealth resources from the use of what resources one has. How one sets about this has now been pretty well defined by Robert Kyosaki (in his book, 'Rich Dad, Poor Dad') as 'financial intelligence'. Lack of this, to my mind, is, by and large, some combination of innocence, ignorance, complacency, foolishness and gambling - usually compounded by degrees of fear, cowardice, pig-headedness, obstinacy, fantasy, and defensive self-preservation. There are positive motivational forces at work otherwise, of course.

Notwithstanding any of this, to passively hand over one's financial future to someone else is intrinsically foolish, unless based on genuine mutual and compatible trust - and even then one should be wise and circumspect, open and clear, about what one is doing, and exactly what the entrustment is. In other words, this is a personal matter.

If you take the example of a modern celebrity who rockets to fame and riches. This will in most cases have occurred not because they have an entrepreneurial mind, but because they have talent. Very early in their development, they will, as sure as eggs are eggs, have acquired a mentor and/or manager/agent/financial/advisor, to whom they passively hand over control of their financial affairs. Our talented person will want his wealth 'invested' - not because he/she is an investor/entrepreneur, but simply because they want to have the satisfaction of knowing their wealth is both safe, and increasing somewhat, as it 'should'. They are passive investors - and to some degree (according to personality), armchair investors.

Now take the example of a venture capitalist: someone who invests in businesses in order to maximise yield from his capital. Here is the archetypical investor. They will very actively - even acutely - examine a potential use of their funds from all angles, to minimise risk and maximise gain.

Those who have outrightly negative attitudes towards money do not really come into our consideration here, as I see it. Vanessa's point, I think, is that the concept of a passive attitude towards investment is anachronism - a contradiction in terms.

I agree.

However if one builds and establishes an environment of true and genuine mutual trust then 'win-win' can truly result - and commendably so, because not everyone is or should necessarily be an investor. It's OK to delegate responsibility.

Am I alone in this viewpoint?

Brian

[REI]

Armchair investing the the dominant way to invest in almost all asset classes. You pool your funds with other investors and the professionals manage the investment. Stocks, bonds, wine, art, gems, property.

Ultimately the performance of the investment is up to the greater market (if you buy an index) or to the skill of the investment management (fund manager).

One can invest in a number of REITs or other property structures. Owning shares in Land Securities or British Land has been a successful way for many investors who want exposure to the commercial sector and who want to be more passive (time or skill gaps). There are ups and downs like most investments so there are periods to be out of the market or averaging down.

A forum of active investors is going to have a strong bias towards active investing. We are also focused on investments that rarely fit a passive model. Legal, regulatory and structural reasons.

Many people are better at their day job that they are at managing their investments. Buffett claims that most people who are in the stock market should just buy an index as they lack the skills and time necessary to do better than the index. Hence there is ample room for the passive investor.

John Corey
Follow me on Twitter -> www.twitter.com/john_corey
www.ChelseaPrivateEquity.com/blog

[Wasim]

Hi

I think it depends on the investment. As John says if its Stocks and Shares then armchair investment is good for most people. The tables of figures in the Times or on Bloomberg look like my old Matrix Screensaver.

Property Investment however, i feel is a hands on game. To make money at it you have to be in at the deep end. Sourcing Deals, Negotiating, Handling Objections, Striking A Deal, Sorting The Finance, Buying The Property, Refurbishing and finally Managing The Property.

Over a period of time you will get better at the process and will learn to streamline it and make it work for you. Its in our nature to learn and adapt to new situations.

Saying that if someone really wants to sit in the drivers seat but have their car controlled remotely then thats upto them. I suppose in that respect alot of us are fortunate that we want to do this all ourselves. Some people probably dont have the time or the know how or even the confidence to do this. We are all different at the end of the day. Atleast they understand that the Property Market is the best place for their money.

Regards

Wasim

[Graham Turrell]

My 2c worth. In broad agreement with REI. Passive investment is pure investment, rolling up the sleeves is a "job". Both are equally valid, depending on the level of time & money available to the investor. Both are obviously available through the asset class of real estate. My big concern has always been where our dear friends the "property clubs" sold (and yes, still continue to sell) UK buy-to-let residential property as "armchair" or passive investments (in some cases still for no money of course as well as no effort). Unlike buying into say a REIT, a BTL investment is a long term proposition: one cannot for example quickly switch into commercial property ownership when markets or sentiment might indicate a turn. But more importantly, selling the dream of becoming an armchair landlord was IMO the Great Deception: with the team of letting agents, EPC inspectors, gas safely inspectors, insurers, lenders, furnishers, cleaners etc etc. someone has to run the show (and more often than not sort out the mess-ups that inevitably follow). Every new landlord sold the idea of armchair buy-to-let investing has had to come to terms with the fact that it ain't that simple. At best, one would sit at the desk solving the latest crisis over the phone. Given the heavy amount of time commitment actually needed to be a responsible landlord, perhaps the armchair needs to be replaced with the commode...

Follow me on Twitter -> www.twitter.com/Graham_Turrell
www.highground.net

[Roberta Ward]

One thing that people tend to forget when going in to these types of 'armchair' deals with portfolio builders is that the company setting up the deals will usually state that their time commitment for management of the investment is 2 years ( or less in some cases).

Well that's all fine, but what happens after the two years are up and you have a small portfolio of maybe 10 houses ( not necessarily anywhere near where you live) all with minimal cash flow that needs managing? Who will manage it then? Do you know where to start? Do you have builders/ plumbers legal stuff in place to take it on? What if the company who set it up goes bust in the meantime?

As with any property investment the EXIT strategy is as important as the entry. This is the key factor that most new investors forget-no matter how involved they are. Property is a job, just like any other-it's just a bit more flexible if you do it right.

Roberta
http://www.mypropertymentor.co.uk

Graham Turrell said:

My 2c worth. In broad agreement with REI. Passive investment is pure investment, rolling up the sleeves is a "job". Both are equally valid, depending on the level of time & money available to the investor. Both are obviously available through the asset class of real estate. My big concern has always been where our dear friends the "property clubs" sold (and yes, still continue to sell) UK buy-to-let residential property as "armchair" or passive investments (in some cases still for no money of course as well as no effort). Unlike buying into say a REIT, a BTL investment is a long term proposition: one cannot for example quickly switch into commercial property ownership when markets or sentiment might indicate a turn. But more importantly, selling the dream of becoming an armchair landlord was IMO the Great Deception: with the team of letting agents, EPC inspectors, gas safely inspectors, insurers, lenders, furnishers, cleaners etc etc. someone has to run the show (and more often than not sort out the mess-ups that inevitably follow). Every new landlord sold the idea of armchair buy-to-let investing has had to come to terms with the fact that it ain't that simple. At best, one would sit at the desk solving the latest crisis over the phone. Given the heavy amount of time commitment actually needed to be a responsible landlord, perhaps the armchair needs to be replaced with the commode...

Follow me on Twitter -> www.twitter.com/Graham_Turrell
www.highground.net

[REI]

Picking up on Roberta's question (what happens after the initial guarantee)...

1. You need to run the numbers. It could be a great deal or it could be a nightmare that is being pushed into the future. Is the deal a deal that you would do if there was no guarantee? How does the guarantee change the equation (shifting time but for what real purpose)?

2. There are passive programs that are just that, passive. A deal where a passive investor is putting in the cash and the active investor is putting in the time plus expertise. In these sorts of deals the partnership (JV) tends to last for the life of the investment.

When setting up such a deal you have to anticipate divorce, death, change in financial circumstances and other things. The investment is likely to be very illiquid. Hence the money investor needs to realize that it could be a long time before they can get all their money out. The active investor has to be committed to running the investment for years to come even if the deal is not a great deal when the dust settles (markets change).

John Corey
Follow me on Twitter -> www.twitter.com/john_corey
www.ChelseaPrivateEquity.com/blog

[Wasim]

Hi

The only challenge i have after reading John's post, is that whats happens on the death of one party...sorry to have to bring this up. If the Mortgage is in the passive investors name, will the active investor have his interest covered in anyway? If so how would he do this without putting a charge on the property? Im assuming the investor will not have the mortgage in his name anyway so i wont ask what happens to the Passive Investor if the Active Investor passes away.

Personally i think people enter into a JV situation without considering the implications if one person died.

Regards

Wasim

[REI]

Wasim,

As I noted and as you are confirming you must plan for some ugly exits (death, divorce, etc). Stuff happens in real life. There should be a plan to cover the more common events. It could even make sense to have insurance for a possible death or buy out agreements for other situations.

Like any small business with multiple principals or partner, you have to plan for the unexpected.

John Corey
Follow me on Twitter -> www.twitter.com/john_corey
www.ChelseaPrivateEquity.com/blog

[Vanessa]

There is also the issue of these portfolio building companies charging huge fees UPFRONT. A well known one springs to mind that charges nearly £40K upfront, for six years "management" that is non-refundable under any circumstances.

What happens if they go bust and leave you with a bunch of negative equity, negative cash flow properties that you have no inkling of how to deal with - if they even bought you any at all ... ?

A little while back, I met a lovely sweet couple who had won the lottery. They were salt of the earth type people and they bought a portfolio of 40 properties with their money, through an armchair investor company.

All seemed okay at first, and then the cracks started to appear. The company went bust and disappeared with loads of their money. They found out that they had paid over market value for their properties, none of which were rented or refurbished (as was promised) and they had infact been paid back some of their own money as "rent". When they went to see the properties, they were horrified. Many of them were uninhabitable. They were devasted. Needless to say, they don't want anything further to do with property "investment".

The company were "so nice" while taking the money off them, but suddenly became hard to contact and did not reply to emails. An all too familiar story ... ?

[Wasim]

Hi Vanessa

The challenge you have with these companies is that there seems to be no way of carrying out any real Due Diligence.

However, as a starter here a few things i would do, and i am sure that this list can be added to, and i hope it will as it will make my due diligence process better.

If the company is offering ANY financial services check with:

1. The FSA (http://www.fsa.gov.uk/register ) and search their register...for example here is the link to a search for my Mortgage Company: SEARCH RESULTS...Not sure how long this wil work for so do a search for Greenlight Mortgage Services. Mine is the non-limited company.

If the company does not appear on the FSA register, call the FSA and get them to check their register.

2. Call the OFT (Office of fair trading) and see if they have a consumer credit licence - tel consumer helpline on 08454 04 05 06. All businesses offering any type of credit facilities MUST have a Consumer Credit Licence...most people think this only applies if you are arranging finance of less than £25k. This is correct but no Financial Institute will deal with you directly if you do not have one in place...in fact if my memory serves me well you need it to register with the FSA.

However, as its my money and im careful where i invest, if they do not appear on the FSA register then i dont usually go to step 2..i just will not deal with them. How can you rely on any investment advice from anyone who will not or cannot get a licence from the FSA. Just shows that they are unfit and not proper. The FSA look to see if you are Fit and Proper to provide investment advice.

Remember these processes are in place to help you succeed and not to impede.

What else would you do to evaluate a company?

Regards

Wasim

[Wasim]

Hi

Just remembered Nicks comments at the weekend re the power of Google and the Tail.

These days you could search Google for info on the company and see what other people have to say about them. Also Tweet the question and post on Facebook. There will always be someone in a similar position to you and hopefully someone who could provide feedback on the co.

regards

Wasim

[REI]

Wasim,

Concerning FSA registration.

Not all companies need to be registered. Do you know what the test is or under what conditions a company is required to register?

John Corey
Follow me on Twitter -> www.twitter.com/john_corey
www.ChelseaPrivateEquity.com/blog

Wasim said:

Hi Vanessa

The challenge you have with these companies is that there seems to be no way of carrying out any real Due Diligence.

However, as a starter here a few things i would do, and i am sure that this list can be added to, and i hope it will as it will make my due diligence process better.

If the company is offering ANY financial services check with:

1. The FSA (http://www.fsa.gov.uk/register ) and search their register...for example here is the link to a search for my Mortgage Company: SEARCH RESULTS...Not sure how long this wil work for so do a search for Greenlight Mortgage Services. Mine is the non-limited company.

If the company does not appear on the FSA register, call the FSA and get them to check their register.

2. Call the OFT (Office of fair trading) and see if they have a consumer credit licence - tel consumer helpline on 08454 04 05 06. All businesses offering any type of credit facilities MUST have a Consumer Credit Licence...most people think this only applies if you are arranging finance of less than £25k. This is correct but no Financial Institute will deal with you directly if you do not have one in place...in fact if my memory serves me well you need it to register with the FSA.

However, as its my money and im careful where i invest, if they do not appear on the FSA register then i dont usually go to step 2..i just will not deal with them. How can you rely on any investment advice from anyone who will not or cannot get a licence from the FSA. Just shows that they are unfit and not proper. The FSA look to see if you are Fit and Proper to provide investment advice.

Remember these processes are in place to help you succeed and not to impede.

What else would you do to evaluate a company?

Regards

Wasim