For ‘Andy Shaw’ Read ‘Richard Branson’

Can you remember the last time you heard news that left you with your mouth open? A Jerry Springer moment. Your sister just admitted she sleeps with her horse, sort of shock revelation.

There were no relatives or animals involved, but last Tuesday I read a blog that left me staring at my computer screen with my mouth open. Literally. The news was that two of the highest-profile players in residential property investment in this country are to be declared bankrupt before Christmas. Their names are Andy Shaw and Greg Ballard. Their company is Passive Investments. You can even find an old blog directing you from my site to theirs.

I have read varying estimates of Andy Shaw’s personal wealth that fall between £30 million and £70 million. Whatever the truth, it was a lot of money, all made since he and Greg changed direction from running a double glazing company at the start of the decade and moved into residential property investment.

For those of you who have never heard of any of the names in this story, imagine that you have just read news that Richard Branson is about to go bust. And Virgin will be sold off by the end of the year. You would read on, wouldn’t you? Can that be true? Good grief. In BTL investment circles, Andy Shaw’s demise is the equivalent. The higher they fly, the further there is to fall - and the bigger the crowd of onlookers.

I deliberately stated that the two partners were ‘high-profile’ rather than ’successful’. There are probably more successful investors operating below our radar, but Messers Ballard, Shaw and Passive Investments are very public. Any of you who ever searched for property investment services available on the Interweb will have found them very quickly. At the time of writing, you still can. Much of the wealth was generated by book, DVD and seminar sales via sophisticated Internet Marketing.

I once did the same search and, to cut quite a long story short, eventually met both Andy and Greg then attended one of their seminars. I was offering my day-job communications services because while the content of their promotions was excellent, their presentation style was not doing them justice. It needed a serious overhaul which I offered to undertake. They were polite and jovial, bought me lunch, invited me to a seminar, but ultimately didn’t listen to much of what I offered so we parted company. However, that brief experience gave me a closer insight into their way of doing business and I was sceptical.

Please don’t deduce from that comment that I want to be associated withthe tawdry collection of hyenas now clogging forums with ‘told-you-so’ snipings as they rush in to bite a mouthful of flesh off the carcass. Some of them barely literate, using the space to spit bile in the faces of two gentlemen who have helped to make a lot of people very wealthy during the better years. Yes they have flown too close to the sun and are now about to hit the ground - and it was self imposed by somewhat dubious business dealings which I am certainly not defending - but some of the attacks that they are now suffering speak volumes about the forum-cloggers’ jealous bitterness while adding nothing to the debate.

If you have read this far even though the story means nothing to you personally, I thank you. So I should respond by drawing any lessons that could impact on your life and your investment plans.

Remember that I read this last Tuesday, the day after I wrote my last weekly blog in which I was reflecting on the debacle in Dubai. They have an uncanny similarity, don’t they? High-flyers not watching their instruments. So mesmerised by the view from on high that they took their eyes off the indicators signalling danger ahead. The main difference between the two stories is that Messers Ballard and Shaw operated very close to home. Geographically and systematically. Their domestic operations were nearly all on the south coast in and around Worthing, Shoreham and Brighton. The stats that they would have been reading; the numbers that they would have been crunching; and the properties that they would have been targeting could have been the same as yours. The very same, in some cases.

And the original system for investing in residential property in the UK that Andy Shaw developed, was extremely similar to mine - or should that be the other way around? Except mine takes account of the factors prevailing during the credit crunch.

So here is the lesson for today:

They were right. Their system was right. Their investments were right. Everything that they were doing was right.

Have you got that?

They were buying shrewdly, building value into their portfolio and remortgaging within safe margins to draw down tax-free cash. Nothing wrong with that. A good business model……until they lost their way. The problems were accelerated elsewhere in their organisation. From all the bad karma on blogs and web forums at the moment, it seems that they started to abuse their clients’ trust and cash a couple of years ago. They probably moved money where it should not have been to plug some holes as they opened. They broke their own rules about safety margins and most critically, they assumed the good times would always roll. Big mistake.

That’s a lesson to us all. But one important factor that should assure any one of us who has bought property well during the last two years and those of you who are about to buy - you are investing at the bottom of a financial trough - unlike our two anti heroes who bought at what turned out to be close to a peak on the graph.

Prices are not about to drop as they have between summer 2007 and spring 2009. That time frame and that drop in value of the Ballard Shaw portfolio was the main contributory factor in their demise. You, my friends and members, will not know such a correction for years. By that time of course, there is every chance that you will have forgotten this isolated lesson and be on the same flight of fancy with no reference to your instruments, but right now, you can assure yourself that my system, your investment and the UK residential property market are all as safe as houses (so to speak).

Have a good week y’all.

John