This is a question that is asked a lot at the moment. Investing in properties can be an expensive endeavour and it is not to be taken lightly. This article seeks to answer the above question once and for all.
Okay, let’s cut to the chase. The answer to the above question is (drum roll please) – It depends. There you go, that’s it, you can stop reading now – still here? Well let’s explore what’s happening at the moment to the UK economy and dig a little deeper so that things become clear.
Over the last few months many lenders have made it increasingly difficult for new entrants to break into the buy to let market. The credit crunch has hit lenders hard and in response they have hit the buy to let investor harder.
Banks don’t trust each other and therefore are not freely lending money to each other; this is having a knock on affect on their lending to the general public and investors.
The number of mortgage products available has decreased by almost 75% since April 2007. Significant players like mortgage express have pulled key products leaving many buy to let landlords wondering whether investing in properties is wise at the moment and how to make their next property purchase stack up.
Every Tom, Dick and Harry seems to be claiming that they can be the solution to the property investor’s financial problems and that they can still offer products like instant remortgaging. Investors have become weary of these deals and promises because they know some of these deals maybe boarding on the fringes of what is lawful.
What are Some of the Negatives in the Current Market?
- Obtaining profitable finance has become an issue for many investors.
- Surveyors are nervous and are playing it cautiously with their valuations; hence your properties are more likely to get down valued leaving some of your capital in the property. This is making investing in properties less and less attractive to UK property investors.
- Developers are running out of money and some off-plan properties aren’t even coming to completion. They are being left deserted as developers run out of cash because the deposits from buyers have stopped coming in.
What are Some of the Positives in the Current Market?
- Far less competition for buying properties since many owner occupiers and investors are staying away from the market at the moment.
- Rents are steadily on the increase.
- If things continue, many locations and properties where the figures didn’t stack up one year ago are now going to be looking attractive.
- The prices of properties are decreasing, which is helping to push yields and positive cash flow up.
So, in conclusion:
Who should Still be Investing in Properties at the Moment?
Well it depends on what your strategy is. Are you a buy to let investor who is in this for the long run? Can you handle the negative comments in the media and not have a heart attack every time you hear the words “Property Market Crash. ”
If you answered yes to both these questions, then you should still be investing in properties. However, you should be analysing your strategy, as it might need tweaking in the current market conditions.
By following the 7 guidelines below you stand more of a chance of building a robust portfolio at this time.
- Focus on buying for more than 25% BMV. If you can get 30% and above this would be even better.
- Focus on buying lower value properties with good rental yields and positive cash flow.
- Stay away from anything off plan, or anything that it is difficult to get comparisons for.
- Don’t buy properties that are way beyond the affordability of the locals.
- Don’t release equity and put it all straight into your next purchase, begin to build up a bit of a cash reserve to help you weather any storms if things get any worse.
- Look at the long-term property trends and cater to those. For example, consider hitting the one and two bedroom property market since there is becoming more and more of a need for smaller family homes. This is because divorce rates and family break ups are increasing, resulting in family units getting smaller and smaller.
- NEVER, miss a mortgage payment. At the moment if you miss a mortgage payment on any of your properties, you are probably going to decrease your financial options even further. Lenders are being more stringent with applicants than they used to be and the odd blemish on your credit file that you might have been able to get away with before may now stop some of your mortgage applications in their tracks.
If your strategy is one of buying and selling whether that be developing or trading, these are potentially lean times. You will have to be ruthless with both your budgets and the properties you buy. You are going to have to know your potential customers and research what sorts of properties are still selling in your area.
Speak to your local estate agents, they might surprise you by telling you that there is still a demand from first time buyers for two bedroom flats in your area, or that Bungalows are still in demand. Analyse what they say and match that against the overall trend for the area over the last few years. If you do still decide to buy and sell property make sure it is the type of properties that are still selling and selling well in your target area.
You, have to be looking at maximising your return. Buy properties where you are able to simply and easily rearrange the internal structure. Doing things such as moving internal walls around to create added value such as an additional bedroom, could be crucial at the moment. Do everything you can to entice the buyer. Advertising that you will pay stamp duty and all legal fees, can be the difference between success and failure in the current market place.
Now is the time when the professional property investors show their true colours. Anyone can make money in a fast rising market. However, it is when things turn sour and begin to get more difficult that the real test of business acumen comes into play.
These are exciting times for the business savvy investor. They are buying properties and the portfolios of other investors at knock down prices.
For the positive thinking property investor, now is a great time to learn. For the next couple of years you probably won’t be able to complacently buy a property anywhere in the country and just expect it to rise in value. Now is the time when you have to learn your craft properly.
For the investors that understand the property and financial markets and learn how to work with them in any and all conditions, the next few years promise to be times of learning and expansion, not contraction. Yes there are difficult times ahead, but out of huge challenges can come tremendous growth.
If you have hit an impasse, use all your powers to work out how to push through it. Maybe you need to learn a new skill such as lease options, sale and rent backs or investing abroad. Be adaptable, be resourceful, ask questions, learn from others, do joint ventures, make up your mind to push forward not go backwards.
This is when the men get separated from the boys, the novice investors from the professionals and tomorrows property multimillionaires from the “I could have been somebody” crowd.**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.