Time to Invest?
Ajay Ahuja is one of the leading authors on buy-to-let in the UK having produced a series of books on the subject including the Buy-to-let Bible.
Ajay is famed for his evangelical belief in the value of property investment. His take is that he’s made a fortune out of buy-to-let and so why can’t everybody else do the same? Property Hawk gives readers a chance to see what he thinks about investing in the current market and why he still believes property investment makes sense, share his tips by joining his investor newsletter.
As a professional landlord of 200 properties the question I am getting posed to me more often than not is:
“Is now the time to buy?”
Now my answer depends heavily on who is asking me. They usually fall in to one of four categories:
- First time buyer
- The opportunist
- The novice investor
- The serious investor
The First Time Buyer – Answer: Yes
The first time buyer should always buy when it is cheaper than renting. A first time buyer can get a residential mortgage at least a 15% deposit and get rates sub 5% APR. This will render most areas cheaper to buy than rent. So basic mathematics apply. If you want to save money then buy!
The Opportunist – Answer: I don’t know
The opportunist wants to make a quick buck. They want to buy and then sell in a short period of time. This involves speculation.
This is the game I NEVER get in to as you need luck on your side. You can speculate at best 6 months ahead in the property game but that is about it. After that all you have is lady luck on your side.
So if you are going to ask me where I think property prices are going to be at a date greater than 6 months from now and if it is worth buying to make a quick profit then I have no idea. I do not think anyone does!
The Novice Investor – Answer: Depends
If you are not an opportunist but are seriously considering whether to invest in property then it does really depend. It depends on YOU! If you are willing to work hard and take a sensible view on building yourself a property pension or cash flow positive portfolio then yes it is the right time to buy.
The current yields you can get across the UK are seriously tempting and you are not having to invest so far afield as Scotland! So get yourself some education by investing in a few books and get hunting!
If however you are thinking that investing in a portfolio is a passive investment and a sure fire way to get rich then think again. You need to mature your thinking, be willing to invest in yourself by educating yourself and have a target of what you want to achieve from property.
The Serious Investor – Answer: Always!
Now a serious investor would only be asking me this question out of curiousity as they will already know the answer.
It is always a good time to invest. This is because the serious investor is in it for the long term.
Professional investors may not realise all the reasons why, but I am sure if they read this they cannot disagree. The reasons why property is the number on investment compared to other investments is:
1. The income is recurring
There is no need to find new customers, new products new suppliers or anything like that. Once a tenant moves in the income just keeps on coming in. It is the ultimate repeat business model. Your tenant will give you money on a regular basis at a frequency you dictate. How nice is that?
2. The income is inflation proof
Rent is correlated to wages which is correlated to inflation. So rent is effectively indexed linked so it can never devalue. If you buy a property out of the major cities the rent you will receive will survive any inflationary forces because as a rule people spend around one third of their disposable income on living costs which includes rent.
I have excluded major cities like London as these will depend heavily on the job situation in the area which is subject to global forces. I personally avoid such cities as it is almost like investing in commercial property!
3. The investment is easily understood
We all grew up in one so how difficult can it be? There is nothing that tests you more than just basic common sense. This is one of the most appealing things about property. It is easy!
4. The income is recession proof
If your tenant loses their job the government steps in and pays the rent. I have not seen any decline in my rent collection over the 6 months of recession. We all need somewhere to live and whether the tenant pays it or the government pays it makes no difference to me nor any other landlord.
5. The investment is geared
Personally this is my favourite. I started with only £500 and now I own a portfolio worth £15m. I did this by borrowing. The only way I could of ever acquired this wealth is from property.
Let me explain. I bought my first property in 1996 with £500 and borrowed £49,500. Over a 10 year period the property rose to £150,000. If I were to sell the property I would cash in £100,000 from my £500 investment for my 10 years of investing.
Now if I had invested in the stock market all I could have invested is my £500. So over a 10 year period my investment would be worth …….. erm £500. This is because the stock market has not grown over the 10 years and I have not been able to borrow to make the investment.
So compare £100,000 from property to £500 from the stock market. I know which one I would choose.
6. Demand for property exceeds supply
In 1801 the population of the UK was 10 million. In 1901 it was 37 million. In 2001 it was 57m. Today approximately 60 million.
Immigration is not an issue. The problem is people are creating more people. Couple this with people living longer and you can soon see we are heading for a serious housing shortage in years to come. It has been highlighted in the 2020 report commissioned by the government where we need 200,000 homes to be built. Last year we only built 60,000. this year is going to be even worse!