We’re officially in a recession, the weather has finally turned cold and the promise of a visit from the big fat man with the long white beard is growing tantalisingly close. Only 20 or so Christmas Jumper days/office parties/hangovers to go and the big day shall be upon us. If we can afford to keep the lights on and the boiler lit long enough, it should be a welcome break in the drudgery of another grey and miserable Great British winter.
If you’re selling a property then you’ll want to get a deal done before Christmas because the statistics are real; valuations are coming down, punters are sitting tight, mortgage finance is harder to come by than it was and is certainly more expensive. Lenders have become, far more stringent in their affordability testing eliminating a portion of would-be purchasers. The rest are playing the waiting game.
Hangover
And before we can sing Auld Lang Syne, January will be upon us. The hangover month where traditionally little happens because the virtuous among us are too busy harping on about veganism and sobriety to anyone who’ll listen long enough. Meanwhile, the rest of us are attending spin classes 5 days a week in a futile attempt to reverse the effects of time and Christmas pudding. Obviously, the very same people will revert to a standard diet of Chateaubriand, Malbec and Netflix by Valentine’s Day, rebalancing the scale of normality for another year.
Around the same time, Brits will be gritting their teeth awaiting the dreaded Christmas credit card bill, and for the self-employed among us remember that tax doesn’t have to be taxing, but the irksome timing of it usually means that it is.
Recovery
It’s not all doom and gloom of course. Because all the above adds up to a property market with fewer customers and lower property prices. The laws of supply and demand come into effect and the result plays perfectly into the hands of the investor looking for a January sale of the bricks-and-mortar variety. So, if you have the cash to invest, your timing is perfect and it’s about to pay dividends.
In the last few weeks alone, I have had the pleasure of viewing cold grotty properties across the South-East, the Midlands and South Wales. Some property investment clients send me house-hunting for them and some feel comforted when I’m in attendance on viewings. For me, it provides a unique opportunity to take the temperature of a market that is on the back foot. More and more I’m hearing agents utter the three magic little words that have eluded investors for so long:
Make an offer
I always warn my investor students about the dangers of buying high, avoiding bidding wars and god forbid they attend an open day. I firmly believe that your profit is baked in on the day you buy, not on the day you sell.
Purchase price is everything. Buy high and you’ll miss out on profit and equity, both of which contribute to the future growth of your portfolio. In these uncertain times, you can go lower than you thought. Christmas is a psychological checkpoint and the closer you get to it the lower a vendor’s expectations become. Pick three properties that need some refurbishment work and start shooting low. You’ll find the legs of the weakest one will fold quickly in the next two weeks.
Getting mortgage finance is a bit more expensive and may be a bit harder than it was, but if all your ducks are in a row, you’ll have few issues. Don’t bid on properties unless you have the finance (and your business plan) in place or you’ll end up in a pickle and chasing your tail. You’ll just piss off the professionals around you while you dilly-dally about trying to get everyone else to sort out your self-inflicted issues.
Get the structure right
If you plan on buying a few properties and making a proper go of it, then you will almost certainly need to invest through an SPV (Special Purpose Vehicle). No, this isn’t a Land Rover with knobbly tyres, it’s a limited company purely for your property investments and nothing else. Set up a bank account and lend the fledgling company at least enough cash for your first deposit and disbursements.
If you’re the adventurous type, ask your mortgage broker about tracker and discounted rates without early redemption penalties. You will find rates starting with a 3, so definitely worth looking at what is available while interest rates are still doing The Caterpillar. For the more straight-laced, you can pick up a fairly decent 2-year fix for 5.29%. Although watch the fees, because right now they can get tastier than a pint of Baileys.
For the refurbishment work, only use the people you can trust. Everyone knows a decorator, a carpet fitter and a plumber. They are your three new best friends so look after them. Over Christmas beers, ask them to recommend an electrician and a window fitter.
The work you do and the finish you get will determine the quality of the tenant that comes sniffing. You want decent tenants paying top market rent, so you must ensure that the property is of sufficient standard. A good way to assess this is to say to yourself: If the shit hit the fan, could I live here? If the answer is yes, you have done your job - well done.
Cashflow baby
Maximising your profit is a direct result of buying and refurbishing the property for as little as possible, using the lowest cost finance and renting it out at its top market value. Using your SPV you will be able to trickle the deposit monies back to yourself from the cash flow the property makes.
If the property nets you £500 a month and you need £5,000 a month to live comfortably, then congratulations: You are 10% of the way to becoming financially free. Just another 9 to go. Make sure you’re young, work hard and remain laser-focused on the result. Soon(ish) enough you’ll be ticking them off one by one until you get there.
Tigers
Don’t forget to ignore Karen in Compliance and Keith in Accounts who will warn you about the great dangers of investing. They want your life to be as miserable as theirs. Now is a GREAT time to invest.
Remember, you’re a tiger, and tigers get what they want. Happy Christmas you filthy animal.
