A Property Investors Guide to the Credit Crunch (pt1)
5 August 2009
2 Comments
So, is now the best time to buy an investment property or not?
Its an interesting question that many property investors ask me when I am out and about speaking at events around the country and one which is not easy to answer.
Firstly, is it the right time to buy?
We need to look at the value of housing stock in the UK to understand whether now is the right time.
The rocketing drop-off in house prices appears to be slowing down with indices such as Halifax, Nationwide and Land Registry showing a flattening off and in some cases, small decreases in localised area pricing.
So, buying today is like buying at 2004 prices - a good healthy margin of 15-20% depending on where you buy will be in your property from Day 1. However, bear in mind Fred Harrison's remarks in "Boom Bust" as he predicts a 2010 depression so prices may go down even further.
However, if you buy with your discount already locked in by negotiating a further discount off the already discounted prices, then you are locking in any future falls through negotiating when you buy to get the best possible price.
Secondly, how can you finance your property.
Well if you have equity in your portfolio or main residential home, then now is perhaps the time to consider releasing it to pick up the property bargains that are about. Even just last week, I saw a 3 bed maisonette in Kent for under £40,000 - a bargain when considering rents were £600+ pcm.
If you've downsized and have a pot to play with, then spreading your cash amongst several different properties is a good safe strategy - particularly if you are playing with the reposession and auction market where bargains can be found but a little bit of renovation work may be needed to ensure you get the maximum rent for your cash.
If you are in the position where you don't have a huge amount of funds available, then getting a buy-to-let mortgage may be difficult. Property finance has become more tricky and lenders have tightened up criteria and are actively looking for a higher profile of investor to lend to.
LTV's are currently running at 70% with the highest being 75% although from only one lender, chances of getting one are slim. At the same time, arrangement fees have jumped up with 1%-3% now commonplace whilst interest rates do not appear to be that overly generous given the very low Bank of England base rate at 0.5% and the LIBOR (London Interbank Offered Rate) being at a very low 0.876 over the last 3 months. Expect to see the average hovering around 4% still.
Thirdly, where do you buy?
Its all too easy to buy in a location you don't know because you are attracted by cheap prices.
Don't!
Unless you are already an experienced landlord and you have a particular strategy (for instance, I am buying in the USA right now as part of my overall property-banking strategy to build up both cash and capital appreciation over there), then I would recommend buying in areas where you are familiar with the rental market, the local business set-up, the transport links and most importantly the do-go and don't-go areas that every town has.
Also be aware of the particular market you are focused on and cater for this. Make sure your rents are not too high compared with your competition and focus upon getting properties let - not kept empty.
I know of landlords who have handed properties over to agents and they are still empty 6 months later.
Don't fall into this trap; there are generally only 3 reasons a property will not let:
Do it the right way and you can beat the credit crunch.
In part 2, we'll be looking at how to make sure you've got the right tenant for your property, managing your portfolio and also abiding by the regulations that are out there now. Stay tuned.
If you haven't subscribed to my most excellent 10-part free ecourse on "Building Your Own HMO Property Business The Right Way", then please go right now to the top-right hand side of the page and sign-up. I guarantee you'll be happy with the ecourse and it will get you started right away.
Its an interesting question that many property investors ask me when I am out and about speaking at events around the country and one which is not easy to answer.
Firstly, is it the right time to buy?
We need to look at the value of housing stock in the UK to understand whether now is the right time.
The rocketing drop-off in house prices appears to be slowing down with indices such as Halifax, Nationwide and Land Registry showing a flattening off and in some cases, small decreases in localised area pricing.
So, buying today is like buying at 2004 prices - a good healthy margin of 15-20% depending on where you buy will be in your property from Day 1. However, bear in mind Fred Harrison's remarks in "Boom Bust" as he predicts a 2010 depression so prices may go down even further.
However, if you buy with your discount already locked in by negotiating a further discount off the already discounted prices, then you are locking in any future falls through negotiating when you buy to get the best possible price.
Secondly, how can you finance your property.
Well if you have equity in your portfolio or main residential home, then now is perhaps the time to consider releasing it to pick up the property bargains that are about. Even just last week, I saw a 3 bed maisonette in Kent for under £40,000 - a bargain when considering rents were £600+ pcm.
If you've downsized and have a pot to play with, then spreading your cash amongst several different properties is a good safe strategy - particularly if you are playing with the reposession and auction market where bargains can be found but a little bit of renovation work may be needed to ensure you get the maximum rent for your cash.
If you are in the position where you don't have a huge amount of funds available, then getting a buy-to-let mortgage may be difficult. Property finance has become more tricky and lenders have tightened up criteria and are actively looking for a higher profile of investor to lend to.
LTV's are currently running at 70% with the highest being 75% although from only one lender, chances of getting one are slim. At the same time, arrangement fees have jumped up with 1%-3% now commonplace whilst interest rates do not appear to be that overly generous given the very low Bank of England base rate at 0.5% and the LIBOR (London Interbank Offered Rate) being at a very low 0.876 over the last 3 months. Expect to see the average hovering around 4% still.
Thirdly, where do you buy?
Its all too easy to buy in a location you don't know because you are attracted by cheap prices.
Don't!
Unless you are already an experienced landlord and you have a particular strategy (for instance, I am buying in the USA right now as part of my overall property-banking strategy to build up both cash and capital appreciation over there), then I would recommend buying in areas where you are familiar with the rental market, the local business set-up, the transport links and most importantly the do-go and don't-go areas that every town has.
Also be aware of the particular market you are focused on and cater for this. Make sure your rents are not too high compared with your competition and focus upon getting properties let - not kept empty.
I know of landlords who have handed properties over to agents and they are still empty 6 months later.
Don't fall into this trap; there are generally only 3 reasons a property will not let:
- the price is too high
- the property is not appropriately targetted at your audience and/or requires refurbishment to convert prospective viewers into tenants
- the property is in the wrong area
Do it the right way and you can beat the credit crunch.
In part 2, we'll be looking at how to make sure you've got the right tenant for your property, managing your portfolio and also abiding by the regulations that are out there now. Stay tuned.
If you haven't subscribed to my most excellent 10-part free ecourse on "Building Your Own HMO Property Business The Right Way", then please go right now to the top-right hand side of the page and sign-up. I guarantee you'll be happy with the ecourse and it will get you started right away.
Do you have any idea what Banks are happy to finance HMO’s?
It seems to change daily. Suggest you try your normal broker. Natwest seem to be in the market but depends which area you’re in.
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