More and more big names are becoming credit crunch casualties. This article explores the reasons why notable names in the property business have gone into administration.
At the end of April 2008 Inside Track went bust. This shocked some people, but it was no surprise to many others it was always destined to happen because their methods of investing were not sustainable. However, what many people didn’t realise was that Inside track was only the education arm of the business and other parts of the business continued. Recently, another part of their business (Instant Access Properties) went into administration.
Instant Access Properties, was the buying arm of the organisation and the education you got from Inside track would naturally steer you towards using Instant Access Properties to help you to start off your property portfolio.
Many of the properties on offer where off-plan city centre apartments which where sold in bulk to its members; for a long time, I have written about the perils of buying these sorts of properties. Yet, the lure of “supposed” big discounts, was too much for many property investors (or would be property investors) to resist.
It has been rumoured that Inside Track’s founder Jim Moore may have stepped in to rescue Instant access Properties from administration and that he is considering trading as Instant Access Properties Global (IAP Global).
Another high-profile credit crunch casualty is Anthea Turner’s Husband Grant Bovey. Grant has given his property company – Imagine Homes – back to the bank. Imagine Homes was once Britain’s largest buy to let business, but in a fall from grace, it has now been taken over by HBOS.
According to www.thisismoney.co.uk a source said the following was the reason Grant gave the company to the bank, “It was for strategic reasons, giving the new company a clean piece of paper to go forward. It is unbelievable what has happened to the buy-to-let sector and this had to be done to protect the brand.’”
Why Have These Big Names Become Casualties of the Credit Crunch
The facts are that the property market has been doing well for several years and many companies where born out of a profitable rising property market. Companies like Instant Access Properties, who dealt largely with bulk off plan properties, where always going to struggle when the property market faltered. I have often warned against the dangers of investing in this way , this type of strategy was always to risky, as well as detailing the right time to buy off plan properties.
Imagine Homes, may have been different from Instant Access Properties but it was still built on shaky ground that was reliant on developing and a rising market. These companies might have continued for longer, but the reason “seemingly” rich high turnover companies like Imagine Homes and Instant Access Properties have become credit crunch casualties is because the market has changed more rapidly than most people, even the experts, expected.
However, it isn’t just big names that have become credit crunch casualties. Everyday property investors are being forced to hand back their property to the bank. Some of these investors have build up portfolios of tens and in some cases hundreds properties.
Other investors, are being forced to top up short falls in the cash flow on their properties, with their own cash, to the tune of hundreds and even thousands of pounds a month because the rents simply are not covering the mortgage and running expenses. For most of these investors, topping up their portfolio in this way is simply not sustainable for much longer. The likelihood is that we will continue to see property struggling for a number of months to come. In terms of property investors going bust and having to give properties back to the bank, the worst is probably still to come.
The biggest reason the average property investor is facing difficulty at the moment is because they didn’t buy correctly in the first place. I have watched countless investors make questionable decisions over the last few years. They have been lured into the dream of huge capital appreciation gains without taken into account what would happen if the property market crashed; (or as some would say – corrected itself.)
For a long time, I have preached the mantra that the safest form of residential property investing is to view capital appreciation as a bonus rather than the goal. Positive cash flow is what will see you through and long-term capital appreciation is a nice bit of icing on the cake (and a very big bit at that.)
But in their quest for quick cash, to many have been seduced by individuals and companies selling them the capital appreciation dream.
Yes, you should aim to buy in locations with good capital appreciation potential, but you also need to aim at buying properties that are self sustaining that you don’t have to keep topping up each month. This isn’t necessarily easy, which is exactly why many choose to go for the quick gain, capital appreciation dream; however, there are strategies to help you to buy correctly and at the right price.
What Can Property Investors do to Survive in the Current Economic Climate?
Is selling a good idea in the current property market? While most would say a no to that question, I am a firm believer in every situation needs to be looked at and assessed individually. Yes, there are some universal rules to property investing that it would be wise to follow, but as Captain Barbossa said to Elizabeth Swann in the Pirates of the Caribbean, these rules “…are more of what you call guidelines than actual rules.”
If you have a portfolio of ten properties and you are able to sell two of them at a profit and know that by doing so it will help you have enough cash to help you to keep the other eight properties, then selling those two might be the right thing to do.
There are many other variables to take into consideration, but basically if it is a choice between all the properties being repossessed or selling a couple to help sustain the others, then in most cases, what do you think the wise choice would be?
The first thing you have to do is analyse your portfolio. Look at where you can make the biggest gains by changing a few things that will have massive impact. If you have one property that hasn’t had a tenant in for six months, and it is costing you £1000 a month to keep it, then why don’t you consider dropping the rent to attract some attention and get it rented out?
At least then you might be dealing with a short fall of just a couple of hundred pounds a month, instead of £1000, this could easily be the difference between you being able to survive the next few months and you joining the ranks of credit crunch casualties yourself. You can always raise the rent in the future.
The most important thing for property investors, who are going through a difficult time, to do is to learn from their mistakes. This can be an incredible learning experience, or it can be a nightmare. Even if it turns out that you cannot stop the bank from taking over your property portfolio, if you have learned important lessons, it could stand you in good stead for the future.
After all, there are still many things you can do to make money from property even if you don’t own any yourself and even if you have a bad credit rating.**Nothing on this website should be confused with financial or legal advice. If you need this, or any other type of advice, please seek the help of a competent professional. In addition, because real estate laws change all the time and differ from state to state, and even city to city in the same state, everything in these pages should be considered general marketing advice and ideas. Please see link to full Disclaimer at the bottom of this page.