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Property Investment in the Credit Crunch
It has been very interesting to see the different reactions from investors to the credit crunch and subsequent reduction in available finance available to property buyers – which has had a knock on effect on house prices.
We are seeing investors generally falling into two camps – those that see this very positively – the Can do-ers, and those that have decided it is a good time to sit back and do very little – the Can’t do-ers.
The investors with clear goals and “Can Do” attitudes are getting on with it and seeing things in a very positive light. It is well acknowledged that in the UK it is a buyers’ market – and this is offering some terrific opportunities. The key is understanding what makes a good deal – whether it is offering a high rental yield, low money down, undervalue, or in area showing strong capital growth – and what fits in with your personal strategy.
It is important to remember not all property deals will suit all investors ie one may be most interested in rental return, whereas someone else may be more interested in low money down. However all investors will want to buy a property that over the mid term is going to go up in value – and so it is important to choose property that has a good chance of doing this.
While some investors have seen their local areas slow down – they have then realised there are some fantastic opportunities worldwide – and some economies such as Czech Republic or Albania growing far quicker, and property markets at a completely different stage of the cycle offering huge returns.
I am pretty clear on my thoughts on the UK market – based on current interest rates, and current salaries in the UK – with an average salary of around £21,000 – house prices up to £100,000 have a very good chance of rising in value over the next 5 years – as they are very affordable – so for me these are the logical markets to target – and they have done very well over the last 5 years, and will do over the next 5 years. With the average house price in the UK being over £190,000, then I would have thought most of the UK is over valued – and so the average property may well drop or at least be fairly flat for the next few years – which is why it is important not to target the average property!
The key though is my viewpoint hasn’t changed all of a sudden – and has been based on the same economic principles that have done me well over the last 7 years. This is apparent with most investors who continue to do very well – they have not varied their viewpoints too much, but have been able to adapt with the times and changes. For instance when borrowing rates went up recently, and more than expected – you had to adapt accordingly either by increasing rents, which has happened in many areas of the country – or by looking for higher yielding properties in the first place when buying, or putting in a lower bid to cover increased borrowing costs.
What has been very good for investors in the right areas is that the sellers, who may well have a very good value property in the first place ie under £80,000 also read the same papers, watch the same news and listen to estate agents – and have felt under pressure to also reduce their asking prices! This has been very good for buyers – as even though these properties are already undervalued – the sellers have been influenced by the media and are willing to take reductions in price – this can be used to our advantage! As I have said in the past – securing a £200,000 property at 15% below the asking price is hugely different to securing a £80,000 property 15% below the asking price – as with the lower priced property you will see a far stronger %age return on investment over the next 5 years.
So there are so many good reasons to ramp up your investments at this stage – and many investors are. It will depend on your own personal belief levels, and confidence. It is no surprise when we do our workshops that those with clear, written goals are the ones who are achieving the most. At our most recent one in Manchester, was a lady who has bought 30 properties this year – she has a strong Can Do attitude and has gone out there and done it.
Most investors are naturally Can Do people – which is what separates them from everyone else in the first place – but beware you do not become a Can’t Do-er if you want to achieve your goals!
Cant do-ers
What makes a Can’t do-er? Usually it will be someone who has got into investing as it sounded good at the time – but probably was not mentally prepared, or had all the skills and knowledge required initially to invest successfully, or has a poor peer group, who are very negative.
At the first sign of trouble, they have used this as an excuse to get out of property, or scale back their initial plans. Unfortunately most people have a lot of negative influences around them – family and friends are usually the worst! Partly they want to protect you (although they are unclear what they are protecting you from), and partly they are scared you are going to go and do something outside the norm and be successful – and leave them behind.
Many potential investors, or actual investors, go into investing without a clear focus, mindset and strategy – and then get put off immediately something goes wrong, or something unexpected happens.
It is like running any business, you must be prepared to deal with different consequences – both good and bad. In buy to let, you will at times have an issue with a tenant, or a managing agent – and you will see some properties perform less well as expected, just as you will see some properties perform brilliantly – this is no different to every day life and business.
It is always frustrating to see people give up in life too easily when they set goals eg getting fit, losing weight, or buying 10 investment properties – but then again for the rest of us it means there is more opportunity!
In life to get the rewards of success it will always take hard work but it will be well worth it – it amuses to me to see resentment of film or sports stars earning a lot of money – why resent that? These talented individuals are at the top of their game and bring pleasure to millions – and so are worth every penny. Likewise in property – those that are doing the best will be the investors working the hardest on their strategy, and staying focussed to hit their investing goals.
Fortunately the vast majority of property investors are Can do’ers, and this has always been a big attraction for me – ie investors can bounce off each other, and encourage each other. Generally investors know why they are investing and why property investing is the best way to build up mid term wealth for almost all individuals. That is why every year in the Sunday Times rich list in the UK – the biggest %age of people in there will have made their money in property and this will continue year on year – as investors will continue to look for new opportunities.
Yes at times, you need to tweak your strategy ie look outside your home town, and consider Overseas, fast moving property markets – but the key is to remember whatever the newspapers tell you this year successful property investors will again do very well – and property markets around the world will continue to rise in value with double digit growth – which when leveraged will give phenomenal returns.
If you would like to discuss your strategy, or need to re-focus on what are trying to achieve, why not have a chat with one of our Portfolio Development Managers – and see how they have helped investors go from 0-10 properties in a very short space of time, or helped investors re-align their strategy with the current market conditions.
About the Author
Alan Forsyth runs the two websites at Property Investment Tips and Property Investment Deals. He sends out weekly newsletters to over 8000 subscribers - sign up for free at both sites. His company is one of the largest sourcing companies in the UK, and he is considered an expert on UK and Overseas property markets. He writes for several property magazines and gives free consultations to investors.
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