Guy Mark Tibbert
BOE Interest rates now at 0.5%
If you aren't buying now, I suspect you never will.
Property investment is a curious beast - and the truth is, nobody really knows what is going to happen next.
I certainly don't.
The difference with me, is that (a) I don't pretend to know what will happen next, (b) I don't much care and (c) I get on and invest anyway.
Irresponsible? Haphazard? Chancy?
Well, there are many "tricks" in property investment, but one of the most important ones is:
"Make sure you can earn money if prices go up and make sure you can earn money if prices go down".
So that's nice and simple then.
Well basically, if you can master that, you can indeed call yourself a property investor - as opposed to a property speculator - which is perhaps a more appropriate name if the temporary (even mid term) price of property doesn't head in the direction you want it to.
Sadly, most people with a passing interest in property investment get their information from (wait for it) the newspapers! Yep, journalists who typically earn about £22,000 per annum (before tax) and struggle to keep *1* house running - are pretending that they are a property expert.
It's actually quite funny when you think about it.
We have journalists who have forecasted over a dozen of the last two recessions, endless "house price crashes" while property soars in value and complete nitwits that urge people to sell up and rent for a while while house prices crash.
I can't say I have a problem with this of course, from a purely selfish point of view, I love having lots of people wanting to rent, makes my life really simple.
Getting back to how you make money in good times and bad (or good times and good times):-
When property prices are increasing, it is usually not too hard to remove a little equity to play with - either to invest or just have some fun with. Providing the rent easily covers the cost of the mortgage, who cares? Irresponsible? No, not really, but you have to bear with me for a bit for an explanation.
Ok, so what happens when the property price falls (I guess it might drop a little one day before surging on ever upwards - this is the way property prices have always been in the past). Well of course if you are a buy 2 let landlord, then the first thing that happens is precisely bugger-all. Nothing. Nada. Zilch. My tenants keep paying their rent, I keep using some of that to pay the mortgage. I have absolutely no intention of selling anything - so why do I care if my portfolio has dropped £10,000 this month?
**Update** Well yep, since I wrote this, prices have indeed dropped - but only for artificial reasons - namely the "Credit Crunch", at the moment, house prices are suffering because people are desperate to sell (why? - interest rates back down to their lowest for decades) and as so few people are able to get a mortgage, they are pushing house prices down. The moment mortgages become more easily available, how long do you think it will be before those bargains are snapped up?
The truth of course is that "nothing happens" isn't quite true. I actually get moist with excitement dear reader. Truly, I do.
You see, OTHER people suddenly panic when the house prices wobble - which is a bit silly because they have always wobbled a bit in the past - and will always wobble in the future. Anyways up, they evidently don't like wobbles. So they put their house on the market. AND, to be really decent about it, they drop the price by even more than the value has fallen to try and "get out quick" - perhaps egged on by another one of the £22,000 per annum journalists writing from his / her rented house. mentioning no names, but Merryn Somerset-Web who rents her home whilst dishing out property investment advice for the sake of argument........
The result? Cheapo property on the market - FAB time to buy - and buy as much as humanly possible. If you can get a distressed seller (needs to stop reading those damned property sections) who offers you 15% below market value, then you are laughing all the way to the bank. With a quick bit of back2back re-mortgaging, you end up effectively with an 85% mortgage with no deposit needed - AND the ability to make a few thousand in your back pocket the moment house prices start to move in their regular and predictable direction. Bonus.
As if that wasn't enough, the guy who sold the house to you for a silly price now needs somewhere to rent! If you have a little look about at the moment you will find the estate agents have slowed right down - but letting agents are doing a roaring trade. So much demand for rented property (assuming you have bought somewhere with at least SOMETHING going for it) now that there is getting to be a bit of a shortage for really good deals - so guess what is happening to the rental levels? I'll give you a clue, there is a shortage of rental property and people don't have much choice unless they want to buy a tent.
Rental income goes up - nearly 5% rise in rental values in ONE MONTH in Nottingham in Nov 2007. That's not bad news is it if you have some property there.
So what, is this page all about?
Oddly enough, it isn't about me saying I know all the answers (I don't) but I *DO* know that with a bit of common sense, you can make sure you can win whether the market is on the up or on the down. In fact the only time I get miffed is when house prices just linger in the same place - like a slightly damp fart.
** Update ** Well property prices are fab at the moment, if you target developers who are about to go to the wall, discounts of upto 30% of FMV can be had - IF you can swing the mortgage. The same is also true of private sales - a house that was around £105,000 a few months ago was sitting at £69,950 earlier today. If I can find a way to swing another mortgage I will offer £62,500 and see what the answer is. If they don't accept it now, they probably will next month when prices dip again. That perhaps sounds horribly mean, selfish and evil. It isn't. Ultimately if someone doesn't step in and buy it, it will end up at auction where they WILL get less. Lastly, it is my understanding that this is the mortgage company selling, not the previous tenant - so if anyone is being hammered on price, it is now the bank.
What is IS about is trying to get one or two people I know to STOP listening to utter cretins in the newspapers for their property investment advice - and to either speak to people who actually BUY property instead of trying to write about it - or simply get on with the job and buy something. An EXCELLENT time to buy - but unless you actually **DO** something, bugger all will actually happen. Some folks are always "nearly ready" to invest - but just want to check something else out first.
Due diligence is good - and vital - but once you know the deal stacks up and is a good buy. Buy it.
Stop piddling about like an old woman
The phrase "Paralysis by analysis" is an old one - but once which describes superbly what stops many investors in their tracks.
Either take the plunge or find another way to make your millions - perhaps saving £50,000 per annum for the next 20 years will get you the first one. I'm not that patient - but you might be.
Here's a little chart showing how different housing markets are handled by different people, "Joe Public" here is a typical "wannabe first time buyer"
There is NEVER a bad time to buy the right property for the right price.
Prices dipping once in a while are a GOOD thing - it drives up your rental income.
It is possible to get into buy2let with NO money at all - but it is EASY with around £5,000 - £10,000
You can make money when the market goes up - and perhaps even more when it goes down.
Never Sell - unless it is to support buying yet more property or some other "master plan"
Even a bad buy will come good if you can wait a little while as property prices and rental value increase
Don't be afraid to pay a mortgage fee - you can get some good deals if you shop around.
A mortgage early redemption penalty which only applies during the cheap period is NOT a problem is it?!
Unless you cannot invest money to make money, then you will be wanting an interest-only mortgage.
So, do I walk the walk as well as "talk the talk"?
I have only been in property investment for a couple of years - so my portfolio is still fairly modest but does include property in Wellingborough, Egham, Birmingham, Nottingham and Liverpool. Next time the party bore tells you anything other than "Now is a great time to buy" - then ask him what his property portfolio is worth? If it is worth seven figures or more, listen to him, he might know what he is talking about - if not, smile sweetly and walk on by.
Then go home and resolve to buy something within the next 4 weeks.
If you know me well, I will give you as much free support as I reasonably can - if you want it that is.
When I first wrote this, house prices were on the up, now house prices have dropped significantly due to the "credit crunch" - but I stand by everything I have said (and you will see no selective editing which for some odd reason other folks have felt the need to do). Do I still think property is a good deal? what about the loss of equity I have suffered? Well yes I think property is still a good deal - now even more than ever before. Buy Buy Buy. Have I lost any equity? Yep - you bet, tens of thousands in the last couple of months. do I care? Hardly. it was only a figure on paper. Nothing has changed. Once the credit crunch is over and banks are keen to lend again (if they don't lend they go bust - they WILL lend again) prices will very quickly make up for lost time - and then some. Developers have stopped building, immigration keeps on going - and although houses are presently cheap - there is a bigger shortage of them than ever before - and its getting worse each day! Look at what matters in this game:-
1. Can you afford the mortgage? Well as of today (mid October), interest rates are down to 4.5% with a view to further reductions. Yes, mortgages are fine thanks.
2. Is the rental income ok? You bet. rental income has increased more in the last few months than in the last three years in may part of the country.
3. Are then enough tenants? Yes - immigration, birth rate and failing house building programs make sure there is NO shortage of tenants for sensibly priced housing.
If I don't know you from Adam, I might still answer the odd specific question if I can for you. Though as I say - I don't claim to know anything - and certainly cannot predict interest rates, house price movement (other than "overall upwards") - I just manage to make money whatever the market is doing. If I can help you do the same, then that's grand isn't it. Oh, and mine's a pint of bitter if I help you get your first investment property sorted.
If you were one of the people a few months ago that refused to buy - because you "knew" there was going to be a crash - then are you buying now? Or are you now waiting to see if things get better? how will you know when the right time to buy is? Will you miss the boat (again) and suddenly decide that as house prices have started to go back up - you will wait for the next crash? Just make sure you haven't subconsciously already made sure that there is NEVER a right time to buy for you - many have and they really are convinced they are just "waiting for the right time to buy" - yet they cannot tell you what would make it BE the right time to buy.