LANDLORDS SHOULD START BUYING
Should landlords start buying more property?
Is it a good time for landlords to buy property? With the ‘credit crunch’, global economic jitters and general media ‘stir up’ of a property price crash are there actual property investment opportunities out there or should landlords be wary of setting themselves up for a property price fall.
David Lawrenson is a London based property investor and buy-to-let expert. In his article below he sets out why the current down turn could be just the time for landlords to buy investment property.
If I had a pound for every time in the last two weeks some journalist or other contact said to me “Ooh dear, buy to let looks in for a bit of a fall now,” I’d have, er…. about £21. Well, sorry folks but actually this year is the best time for the last 6 years to buy property to let. Every experienced residential property investor knows that you make a lot of the money in property when you buy. So when you buy, you have to buy cheaply. When property prices are booming like they were in 2004 to 2006, vendors will not listen to offers and it will be a struggle to get value. However, in the current market, with vendors struggling financially, you CAN buy cheaply because vendors will listen to offers. And this scenario is made all the more attractive to property buyers because the credit crunch means there is a real dearth of buyers, especially first time buyers. This is because of two things. Either buyers believe all the guff in the press about a huge imminent house price fall and choose to stay on the sidelines or they simply don’t have access to mortgages.
Where do professional landlords go to access their buy-to-let insurance?
The smart investors have built up cash piles which mean they can access at least 20% of a property’s value – and they can get good mortgages deals too. They also know that the tenant pool has just got bigger and will continue to do so because all those buyers who are too scared to enter the market and all those who can’t get a mortgage will have to live somewhere. So, they are going to have to rent! This will further push up rents which have been increasing by almost 19% over the last year.
It’s tough and I feel sorry for the first time buyers, but that’s the economy folks. And it’s brutal. Now, I have to say, here that I don’t think the property crash will be that severe (though in the Me-too-Identikit Buy-to-Let-Ghetto-Flats which were flogged years ago to hapless novice investors it will be hard – very hard indeed)
In most other places, I don’t think prices will fall far or for too long because interest on mortgages expressed as a % of average incomes (the affordability argument) is not that stretched. Yes really! Right now mortgage interest payments are gobbling up about 18.5% of peoples’ incomes. This is above – but not much above – the long run average according to the council of mortgage lender’s stats. And even though they are a shade above the long run mean, with earnings still going up at over 4%, this figure will soon come down to about 15% and buying a property will start to look very cheap again. And finally, as we get wealthier, surely it should not be a surprise that people choose to spend a higher % of their income on property.
Why not? After all, clothes, CDs, computers, cars are all cheaper today than they have ever been -leaving more to spend on property. So, whatever the stats say, I think it is perfectly possible for a wealthier economy to live with spending more of its income on property. If by 2010, we look back and the year of 2008 did not turn out to be a ‘belter’ of a time to buy property to let, then I’ll buy a big round of drinks and cook a great meal at my house for all the journalists who say otherwise.
Landlords do you want to know how you identify motivated sellers?
If you are thinking of buying property remember the 3 pillars of buy-to-let