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WHEN TO INVEST? The Credit Crunch and World Wide Recession During this uncertain period is it the right time to be investing in property, or the time to be hiding under the duvet with your cash under the mattress, following months of falling property price from early 2008 we have now seen several consecutive small prices rises, according to the Nationwide, so prices in many areas are on then turn. Well, with property prices at 10-20% lower than at the peak in 2007 and interest rates at just 0.5%, we genuinely believe anyone with funds available and good credit should be making hay right now as the opportunities are better than they have been for 20 years! We are finding properties at up to 30% less than the peak in 2007. Investors are Buying NOW Yields are at their highest since the late 90's and there are some genuinely strong investment opportunities everywhere you look! While many people shy away from the markets right now as they have a lack of knowledge, courage or basic understanding of what makes a good investment, the professional investors are descending like vultures and snapping up the bargains that will give them huge returns over the next 5-10 years. While some less experienced investors may sit on the sidelines waiting because they think prices will drop further, think again, experienced investors are buying now at prices well below today's values - which are around 10% below last year's in many places. Of course it would be foolish to ignore the doom mongers in the media at this time. There are obviously serious problems in the world banking sector as a consequence of irresponsible lending by some banks, mainly in the USA. This has led to ‘the credit crunch’ and has affecting confidence in the housing market, which has result in falling property prices at least for the time being. One successful investor commented the other day: ''Guys, the time is NOW to fill or boot'' A marvelous, eloquent quote! See our 'Jargon A-Z' tab link at side of page for an explanation of certain terms we use or click here Link to Jargon Motivated Sellers The media love these ‘gloom & doom stories’ they have been itching for 2 or 3 years to report ‘property price crash imminent’. This may not be the best time to be a property developer in the UK, but as actual housing sales have slowed in many areas and repossessions are rising, plenty of ‘Motivated Seller’ are emerging. Consequently, fewer buyers are chasing available property. There is now more choice and less competition for available property, but there are signs that things are turning and we may be seeing a recovery if the pundits are correct. It’s too easy to talk ourselves into nothing at all when things get a bit tough. Warren Buffet once said, ‘be fearful when others are greedy and be greedy only when others are fearful.’ There are potentially lots of bargain properties available, so if you’re ready to invest, THIS IS A GREAT TIME TO BE A LANDLORD, and will continue to be so!
Rents are Rising We can help you to find property that could yield profits of more that 10% per year on your investment. RENTS ARE RISING. During the last quarter of 2010 rentals rose 4%, according to ‘Paragon Mortgages’. If you take a long term view you will be investing your money into the only investment sector that is certain to grow over time namely PROPERTY. According to ‘HBOS’ figures since 1984 property prices have risen an incredible 600%. Massively, outperforming shares and other saving vehicles.
Lending Available
With interest rates dropping to record lows, this is fantastic news instantly for those on tracker and variable rate mortgages. For every 1% reduction in the rate there is a saving of about £83 per month on a £100K mortgage. Lenders are now offering buy to let rates below 5% again, and we don't expect them to rise in 2011. With the return of 80% LTV for good yielding properties - lenders quite rightly are concentrating on lending against properties that provide a good rental return i.e. can service the debt comfortably. There may be a smaller number of mortgage products around, but there is money available. We have lenders who could offer you up to 75% ‘loan to value’ at rates from just 3.99%.
Irrespective of what the media says, we can even find funding for clients with poor credit records although the rates are high at present, 8-10%. Lenders have to lend, they are businesses, generally PLC’s and they have to continually grow their companies to keep shareholders happy and keep people in employment.
By using 'creative financing methods' it is even possible to obtain 100% 'No Money Down' (NMD) mortgages for our clients. This may sound like a risky approach especially if prices fall, but as long as you buy 25-30% 'Below Market Value' and the rental covers 125% of the mortgage payment then we feel that this is a sound strategy to build a portfolio using little of your own money. The most you would have to put into a deal is £4500 to cover all fees for solicitors, valuation & mortgage set up. In addition to NMD deals we are using 'Lease Options' to acquire properties for our investors for just £1.00!! This is a very exciting new avenue for property investors. By negotiating a lease option with a seller, the seller agrees to give you the option to buy the property at an agreed price in the future. Additionally, it allows you to take control of a property, let it out to a third party, make improvement and eventually assign it to another buyer. Lease options are very flexible; you can agree whatever suits the seller and yourself. We realize this is a pretty hard concept to get your head round and there are many questions you may have. But we will show you how to buy a property for £1.00.
More Tenants
This is the best reason to get involved now: With the huge rise in property prices over the past few years more people are renting than ever before. According to the latest housing statistics from the UK Government, 2.5 million households live in private rental accommodation and the number is climbing. Renting looks a cheap option for many, compared to house ownership. In fact tenants now pay about one third less than the mortgage repayments on the same property.
Tenants Waiting
In cities all over the U.K. the student population has risen massively over the past 10 years. In Nottingham alone there are 30,000 students looking for accommodation every year. Properties aimed at the student market can produce a 15% yield, but requires ‘hands on’ management. We are currently focusing on Mid Wales where we run our own lettings business and there is a good demand for rented property, unlike many other areas in the UK where there is a glut of property to let.
Many young working people cannot afford to buy and in some areas there is serious competing for limited, quality accommodation. The most recent survey from the ‘National Center for Social Research’ showed that the proportion of people aged 25-34 who are owner occupiers had fallen, with renting becoming more common among this age group. We can help you find property with excellent rental returns as well as the necessary funding.
Some Economies are Growing
It’s important to research the facts properly and look at every angle. You rarely get a balanced story in the media. The facts regarding the world economy are that the UK and most of the rest of the World, have seen the longest period of growth ever, over the past 15 years. Most individuals are substantially better off in real terms than they were 20 years ago. Some Eastern European & most Asian economies have seen growing at around 5% per annum over the past years, but every country has suffered in the world downturn.
In the UK, even though unemployment is rising, more people are employed than ever before.
Interest rates are now the lowest they have ever been. Currently the base rate is 0.5% (June 2011) unlike the early 1990’s when they hit up to 15%.
Housing Shortfalls
Additionally, there is huge demand for new housing in the UK. It is predicted that there will be a shortfall for many years to come as our population grows. Gordon Browns target of building three million new homes by 2020 will never be met! And the new goverment have just halfed the budget of social housing, so its up to private to take up the slack. Developers need to build 240,000 homes a year to meet Gordon Browns target; only 170,000 were completed in 2007. 2010/11 will be even worse. In Eastern European the housing problem is magnified many times. As these economies continue to grow and a new Middle Class emerges, they will be looking for and will continue to want new, modern housing.
Rising World Prices
Every week we are offered fantastic deals in emerging Cities and Holiday resorts across the globe where property prices are increasing every year. Globally prices rose a staggering 8.2% in the 3rdquarter of 2007 according to ‘Knight Frank’ (the international estate agent). Typically 60-80% mortgages are available in many of these new emerging countries. With interest rates similar to the UK, rental incomes from year round letting in a local market should easily cover the repayments, as well as see your investment grow in value due to continually rising property prices, once the recover arrives. OUR UK INVESTMENT STRATEGY The Long Term Approach. Firstly, we take a long term approach to investing in property, especially at this time in the UK. Having never been convinced ourselves about investing our money in pensions and with interest rates at an all time low, savers now must be desperately looking for other ways to secure an income. We view our property portfolio as an immediate and guaranteed income for the future. We view any capital appreciation is a bonus, probably for our children to enjoy one day. The great thing about owning property is that it is tangible you can actually see what you own. Our long term plan is to hold onto all of our UK property and if need be sell one or two of them to clear the mortgages as the 15-20 year agreements end, leaving us mortgage free when we reach retirement. ‘Warren Buffet’ (the 5th richest man in the world, allegedly worth $52 billion), is famous for being a long-term player. He eschews short-term strategies and his record is exemplary over decades. Getting the Finance Right. Secondly, as the majority of us will need to raise a mortgage, which is no bad thing, we should always try and use other people’s money to generate profits. The finance structure has to be right, with a number of factors coming together. By using ‘leverage’ to maximize returns, as well as focusing on ‘Hi-Yielding’ properties that deliver ‘Cash Flow Positive’ incomes and producing a minimum of 6% ‘gross yield’ 5% ‘net’, additionally with strong capital growth potential. With the recent fall in property prices combined with record low interest rates we aim to achieve yields of 7- 10% on new acquisitions in 2010. By getting into the market now you could see your portfolio double in value in 10 years time. There is a tab link at the side of the page to 'A-Z Jargon' which is useful to read to understand some of these expressions Creative Finance. Lenders have tightening their belts in the light of the 'credit crunch' and we have seen an end to the 'normal' 90-125% mortgages. Currently, Buy-To-Let lenders are typically offering 75% mortgages at 5-6% interest. We imagine that ‘Interest Only’ mortgages will continue to be the main choice for property investors for the forcible future. Typical, current rates are about 5% (Nov 10) normally 3% over the banks base rate. Sensibly, we would suggest putting down roughly a 25% deposit and raising no more than 75% mortgages. However, if we can acquire a property for you at well 'Below Market Value' and importantly the rental income covers the mortgage by 125%approximatly, then by using 'Creative Funding' it is possible to raise 100% 'NO Money Down Finance' at competitive rates and we will help you do it. If you do need to raise a deposit, there are a number of ways and again we can show you how. Below Market Value.
Additionally, we are now using 'Lease Option' to acquire properties. This is a very useful and flexible method of acquiring a property without having to put any money into a deal. We are certain that this will become a major part of our strategy for the future. What Property? We have never been convinced or even tempted to buy into the flashy city centre apartments phenomenon that many people believe constitutes Buy-to-Let in its entirety. These kinds of properties are generally in over priced and over supplied areas offering little chance of any kind of return. In fact, due to the rise in property values over the past few years the vast majority of new builds and traditional homes in popular areas, may be great to live in but don't offer a sensible return for independent landlords. Buying the right kind of property that someone wants to live in and located in an undervalued area, is one of our most important strategies. We have generally sought out property in areas where property prices are lower than in the rest of the country, but where rental demand is strong. Believe it or not there is little difference between the rental achieved for a 2 bedroom flat in the suburbs of Birmingham and the same in a small town in Wales. However, the purchase price of the properties is significantly different! Undervalued Areas. There are still many areas in the country where properties prices are relatively low compared to the rest of the country. Scotland is a good example of this where prices are 26% lower than the average UK price, but prices have risen in recent years, 13% in 2007 according to 'Bank of Scotland'. You can still buy a 2-bedroom terrace house in South Wales for £50-60K and achieve a 7-10% gross yield. The national average is only 4% G.Y. In Nottingham it is possible to buy a 4 bedroom town house for well under £100K.
In addition to this it’s useful to consider the average house price to income ratio, which is now 9. Suggesting that a large chunk of the country is overvalued, but there are some areas well undervalued, some as low as 4-5 times on the HIP ratio, so it makes sense to target these areas. They should prove to be excellent investments as there are clearly undervalued. We steer clear of areas were the house prices are greater than 7 times the local salary. The average UK house price is currently around £160K. Taking into account the average wage of £24K, this would rule out properties higher than £165K, so areas with house prices stating at around £80K offer the best opportunities. These are the places worth concentrating on, in our opinion but it’s important to be sure that there is a good demand for lettings and the supply is fairly constrained. Don’t be put of by the distances from where you are based. The most successful property investors have a spread of investments all over the globe. More importantly, there are lots of good letting & management agencies all over the country who we can recommend and who could manage a property for you, if you or we can’t. Better Value for Money. Single flats and terrace houses make up the bulk of most investors portfolio’s as they are easier to obtain to obtain finance for. However, part of our strategy has been to buy property that does or has the potential to provide more than one letting unit included, e.g. One large house which could convert into several units, a shop with a flat above or large terrace type properties that can provide several bed-sit type units. Typically, a 4 bedroom terrace can be let to 5 students. You generally get a lot of floor space for your money with these types of properties. They are often run down, but with a bit of money spent on them they provide a much better return than just one dwelling. One of our criteria has always been if the property would cost you more to rebuild than you are paying for it, then you cannot go wrong.
Some lenders are now offering specially tailored mortgages for these types of properties. These properties may not be your ideal place to live in yourself, but there is a steady supply of tenants in full time employment and carefully vetted students, who will generally take care of your property, but are priced out of the housing market, who want solid, sensible and affordable rental accommodation that professional landlords have been good at providing and this has always been an important factor. Exit Strategy. Finally, it’s important to have a sensible ‘Exit Strategy’ the most important questions we ask ourselves before buying is: Are there enough of the right people looking to rent in the area and is anyone likely to buy the property off us in the future? If you find this interesting and would like to find out more, please fill in our 'enquiry form' Click Here A Brief Summary of our UK Strategy
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Contact our friendly team for more information on any deals, please call
Office tel: 01654 712470
Iain: 07976983438
Scott: 07843092006
email: info@1-world-properties.co.uk
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