nick says...: House Price Index

Interesting this!. What, at the front end of his piece may put a chill down the spine only ends on a positive note. Fact: there has been rather too much speculative purchasing of property - (consumers buying up property without any knowledge of why! In other words they have been sold a dream NOT reality).

If you had taken this view a couple of years ago, the economics of the time would have supported you. In other words you could have gone right out of the way to get it wrong, and still made some money!. However, in todays market conditions, lack of due-diligence is extremely dangerous.

As a property investment public speaker of a number of years, you can imagine how many people I have spoken to and it never ceases to amaze me that lack of basic business knowledge they have. More over, how many people reading this now would ever sign up to a liability worth, lets say, £200K without seeing it and/or doing any form of homework on it?... the answer is more shocking than you will give it credit for... too many.

Example:
I have a 1 bed flat in Highbury (Central London). It's what I call a microflat - being only 300 sq. ft. I bought it 3.5 years ago for £140K apparently its now worth in excess of £230K according local estate agents. (This has actually proven to be the case when checking comparable Land Registry data) however my instinct tells me this might be "a bit toppy". This little gem has made me some serious capital appreciation, plus I get nearly £300 per month positive cash-flow and its never been empty.

Comparable.
Last year we went to view another 1bed flat not so far away. Very similar size, however, it was a dog's dinner! The walls went in at funny angles (put it this way, you would be hard pushed to get your shoulders in to the corner to paint it!) The balcony overlooked the bin-store, there was no parking spaces, the bedroom would have taken a double bed but that would have been it, I think you know where we are going with this. Yet the property was sold to a chap OVER THE PHONE for £250K!!! There is no way that flat is worth that and still no way its going to rent without a serious subsidy and/or putting in an enormous deposit.

These trusting and naive people are the ones that will fall into difficulties in the coming months and these are the very same people that the media will latch on-to and shout "the crash is coming"!

The term crash is for the media and they have their guns cocked and aimed at naive people who buy property without doing their homework.

The bottom line is this: Even if property de-values by 10% it will only wipe out the last year's growth. It will take a Herculean effort to de-value property to the extent that it will have a major effect on all of us, and based on the fact that the economy is quite buoyant things would appear to be stable.

On a side note, all this posturing on what property prices are doing does have an effect on the local markets.

This quote I got from a chap called Ed Bowsher who writes for the Motley Fool, he says I'm confident that the boom is over. Firstly what a horrid thing to say! That's like saying "I'm confident that during this war lots of people will die!!" Secondly, however, there is no doubt partially he is right but all this means to me is it's blue cross day in property, there's a sale on lets go and buy as much as we can and while we're at it lets get some cracking mortgage products because lenders are motivated to do so.

The problem I have with "pundits" from sites like The Motley Fool (incidentally I really don't have a problem with the site, just some of the one-sided comments) is their agenda, which would appear to be more about being right than offering genuine advice. Saying I'm confident the boom is over is telling us that he wants to be right otherwise he would have said "According to our research the market would, on the surface, appear to be slowing down".

However, I like doom mongers who predict crashes and bubbles bursting because all they do is make it easier for more sophisticated investors like me and you.

Here's a real, live example for you. I have just bought a 4 bed town house valued at £350K with a NO MONEY DOWN STRUCTURE which gives me £250 per month positive cash-flow. I've yet to complete on it and I already have tenants lining up. All from doing my homework and taking advantage of the current market conditions.... I'll have four of them please!

You should be doing this too.

What happens in the US has a nasty habit of washing up on these shores six to 12 months later. On this rule of thumb, should we be bracing ourselves for a repeat performance of the US housing market slump?

Already there are some unnerving straws in the wind. With affordability more stretched than ever and the effect of five interest rate rises in a year beginning to bite, most indices have begun to slow markedly. Land Registry figures published yesterday show prices rising in July by a barely perceptible 0.1 per cent. In Wales, Yorkshire and the West Midlands, prices are falling. Averaged out across the country, the number of new buyer enquiries has fallen for eight months in a row while the amount of unsold stock on estate agents' books has risen every month since March. For the first time in ages, it looks as if supply is outstripping demand. First-time buyers have virtually withdrawn from the market altogether.

House prices have been rising much more rapidly in the UK than they have in the US over the past 10 years, while, as a multiple of earnings, UK housing is now way more overvalued than it was in the US at the peak. UK interest rates are much higher than they were, the cost of servicing mortgages as a percentage of disposable income is also back to record levels, and household debt as a multiple of disposable income is now higher on average than it is in the US. Virtually all these indicators would lead you to believe that, never mind the US, it should be the UK which is crashing first.

The standard argument for explaining these differences rests on the UK's acute shortage of supply, particularly in the planning-constrained regions of London and the South-east. In the US, there is still a virtually unlimited supply of cheap land on which to build new housing. This leads to repeated booms and busts in the construction sector, as supply is increased until such a point that it swamps demand. Planning restrictions prevent this from happening in the UK.

So long as the economy holds good, pressure of demand on supply should ensure UK housing continues to command a premium. A steady increase in the number of households because of immigration, family breakdown and more people wanting to live alone â has further reinforced the pressure of demand on limited supply.

Yet even in London, the se characteristics cannot entirely explain the hyperinflation in house prices of recent years. If they could, you would expect rents to be rising in line with prices. They have not, which suggests powerfully a high degree of speculative activity that must eventually result in a shakeout. Dig beneath the surface of the national statistics, and it is immediately apparent they are distorted out of all proportion by London and the more desirable housing of southern England. These prices have in turn been heavily influenced by foreign and City money.

The latter of these booms is for the time being over. The crisis in credit will blow the froth off not just financial markets but the London housing market too. If the excess in financial markets is in retreat, the number of foreigners wanting to buy a London property may also begin to ease.

What has shocked observers of the US scene is that the fall in house prices seems this time to be a pretty much nationwide phenomenon. The US has traditionally been a collection of local housing markets which when aggregated rarely shows an overall decline, even at times of general economic recession. According to the latest S & P/Case-Shiller House Price Index, only a few boom cities such as Seattle have escaped the mayhem this time around.

The same is likely to apply to Britain as prices adjust to more normalised levels. In the past year in particular, prices have become completely mad. A reality check is overdue. Even with relatively illiquid assets such as housing, markets rarely correct in the benign fashion pundits predict by flat-lining for a number of years. A sharp setback in prices is the more probable outcome.

Quite how painful this is going to prove is nonetheless open to question. Even a correction of as much as 10 per cent in prices would do little more than wipe out the gains of the past 12 months. Only those who have bought at the very top are going to be affected by that, and they can presumably afford to take the hit. Or can they? Experience from the US suggests lenders are about to discover the hard way that quite a few of their new mortgage-holders can't afford what they've bought.

If the global property boom is drawing to a close, does that mean all asset prices are due a pounding? Not necessarily. The corporate sector of the economy remains generally sound. Most balance sheets are strong, profits are buoyant and for most companies prospects remain good, supported by robust growth in the developing world. A return to more normalised patterns of saving, in preference to bunging everything into property and consumption, may in time lend renewed support to equity prices.

Posted at 11:55 AM in Buy to let mortgage, House Price Index, Investment, Investment property, Uk mortgage, UK Property | Permalink | Comments (1) | TrackBack (0)

August 23, 2007

House price index August 2007

Click Here for House price index August 2007

Nick Says...

Click on the above for the latest House Price Index, courtesy of Rightmove.

Posted at 03:02 PM in House Price Index | Permalink | Comments (0) | TrackBack (0)

July 24, 2007

House price index July 2007

Click Here for House price index July 2007

Nick Says...

Click on the above for the latest House Price Index, courtesy of Rightmove.

Posted at 10:37 AM in House Price Index | Permalink | Comments (0) | TrackBack (0)

July 13, 2007

Investor Blueprint

Nick Says...

I thought I would share this with you, I wrote this late last year but have been saying it for years.

Investor Blueprint


Getting Started: First of all, understand the four most important concepts in property investment: Leverage Cash-flow Mindset Other people’s money Leverage To use a small amount of money to control a large amount of money/asset. Cash-flow The amounts of cash being received and spent by an investor during a defined period of time, sometimes tied to a specific project. In property investment, cash-flow is king, as it will stop you moving forward if your cash-flow is not managed appropriately. You should also aim to build up positive cash flow from your first investment onwards. When your passive income is more than your monthly expenses, you have achieved financial freedom! Mindset. A fixed mental attitude or disposition that pre-determines a person’s responses to, and interpretations of, situations. In property investment, you need to programme your mind for success by thinking outside the box, acting decisively, and networking with, and learning from, other like-minded individuals. You also need to recognize opportunities when they arise, and constantly take action to drive things forward. For recommended reading see our bookstore Click here Other People’s Money Banks are some of the wealthiest institutions in the world. They take your money, lend in out to someone else, and charge them interest. Why not do the same?! Use the bank’s money (mortgage) to buy an investment property. Other people’s money. Use tenants’ money (rent) to pay the mortgage. Other people’s money. The true way to massive wealth is to use other people’s money to take control of appreciating assets and make you money! It’s pure genius. There are a number of ways you can start investing in property - it just depends on your current financial position, your personal goals, and your attitude to risk. You see what I recognised is that I had a secret financial weapon at my disposal - EQUITY. (Equity is the difference between the value of a property and the amount of the mortgage secured on it). Let’s think about equity for a second. What does it do for us? We’re all aware that it’s a security blanket, and I’m of the same view myself. The reality is it’s doing absolutely nothing. It’s a bit like sitting on a gold mine without mining the gold! Your mortgage is like a shovel to get at this gold, so all those people who think it’s smart to pay off your mortgage are not making the most of their own home to use the equity in it to grow more assets. You also have access to another powerful financial tool – LEVERAGE. I was sitting on a property that I bought 10 years ago for £70,000 and now it’s worth £260,000. That means I had equity worth £190,000. What I did was leverage money out of my own home by re-mortgaging and withdrawing tax free cash - money that went on to fund £3.5 million worth of property. With property, it only takes a small amount of money to control a large asset. Let me explain. I think it’s fair to say that if you buy £100,000 worth of stocks and shares, it will probably cost you around £100,000. It’s also fair to say that you could buy a £100,000 property with a £10,000 deposit. Consider the maths. If your shares go up by £10,000 in a year you’ve made 10%. However, if your property goes up by £10,000, you’ve made 100%! It’s not rocket science. All I did was take a small amount of money out of my equity, and that’s now controlling £3.5 million worth of property. That’s the power of leverage! Those who lack courage will always find a philosophy to justify it. I’m glad I didn’t listen to the doom-mongers, and there are plenty of them about! On further questioning of these people, you invariably find that they do not actually own any property! There’s been media hype about house prices leveling off or falling for the last decade. In 1995, The Guardian announced the housing market was in ‘a deep crisis.’ In 1997 the Daily Mail shouted ‘It’s official! The London house price boom is over.’ Yet here we are in 2007, and prices are still rising! Just recently the National Housing Federation issued a report suggesting that property prices were going to rise by 40% over the next six years. Research from Halifax Building Society shows that property prices have doubled, or even tripled, in the past 10 years. Just consider where your investment could potentially be in 10 years time! And the icing on the cake? With escalating house prices pushing buyers out of the market and increasing numbers of singles and families looking to rent, the rental market is expected to grow by 40% by 2012. Who are these people going to rent from? It could be you! You can’t buy property in the past, and you can’t buy property in the future. There’s only one time to buy it – NOW! I’ve never been one to say that anything is written in stone or guaranteed. However, what I will say is that if you do intend to go down the route of using property as an investment vehicle, then the sensible thing to do is surround yourself with like-minded people and expertise to ensure you move forward successfully. Get the right information from the right source, someone who is actually making a success of investing in property! That’s why we chose to come up with 4wallsandaceiling.com. We appreciate the value of education and that investing in property is not about owning a second home, it’s a state of mind – it’s being successful. A thousand mile journey starts with a first step. Your first step is to explore this site and find some inspiration.. To re-iterate Albert Einstein, ‘the only source of knowledge is experience.’ It’s the experience we’ve gained that we wish to pass onto you through this website. I’ll leave you with this thought. This is singularly the best investor tip that I can give you – START! Nick Tadd Director – 4wallsandaceiling.com Factual information gathered from: - Halifax PLC, HBOS plc, Kate Barker report What types of properties should I invest in? 4wallsandaceiling.com believes in building a diverse and balanced portfolio of both apartments and houses, and U.K. and international property. Before you decide what property investment strategy is right for you, you need to determine your own personal goals, as this will determine your own strategy, and will be based on your own financial situation, and attitude to risk. A fantastic way to start safely is to find out where there is a demand, and then create the supply! And while the old adage “Location, location, location” is important, in more professional terms it’s “due diligence, due diligence, due diligence”. In other words, research your chosen area thoroughly and understand the local market. Generally speaking, if you are looking for capital growth you need to locate new, build complete properties or off-pan opportunities from reputable developers in areas of sustainable capital growth and high rental demand. This could be anything from a one bedroom apartment in a city centre to a four bedroom townhouse in a leafy suburb, if that adds up to a sound investment. Look for properties in areas of investment, communication, and infrastructure with a ready supply of tenants. By its very nature, if investment is going into an area, property prices will rise. If it has great communication/transport links, and infrastructure (shops, leisure facilities, etc) tenants will want to live there. For maximum rental yield, more experienced investors can utilise a very specific strategy, which is taught on our recommended property training course. *›› Click here* for more information on training Properties accommodating five or more people become a House of Multiple Occupation (HMO). Recently introduced legislation means that a licence from the local council may be required and you will need to adapt the house to conform to local regulations. This type of investment may be suited to more experienced investors. Bear in mind that flats over commercial premises and studio apartments are harder to get finance for and you do not have such a great choice of mortgage products. Also remember, your flat might be over an estate agent when you buy it, but then a tattoo artist moves in a year later. That would de-value your property overnight! Keep away from properties on busy roads, under airport flight paths, or those close to railway lines or radio masts as these will not appreciate at such a high rate and tenants will find these environmental factors off-putting. You also need to be wary if a property is located near water as it may be subject to flooding. Also, if a property is located near industrial premises or sewage works, there may be off-putting smells and noise which downvalue a property and limit your market for potential tenants. Properties in areas of high crime rates are also to be wary of. We avoid the particular types of investments listed above. Whichever type of property fits your strategy, we recommend that you visit it yourself and apply your own personal benchmark. Would you live there yourself? If the answer is “no”, then why should you expect your tenants to live there? Ask yourself if you would feel safe walking home at night. If the answer is “no”, then you are cutting out potential female tenants which is half of your market Parking is a very important consideration and will improve the rent-ability and value of your property. Balconies are always popular with tenants in city centres, while low maintenance gardens are good for houses. Tenants always like to have a lot of storage, so make sure you choose properties where there is built in storage, or plenty of space to put wardrobes. Try and find properties with equal size bedrooms and en-suite bathrooms, as these will particularly appeal to sharers. In a nutshell, if you buy the right property, in the right location, at the right price, with the right mortgage product, you minimise your risks as you will be able to charge a competitive rent, and so secure a tenant quickly. It is worth noting that new build properties come with a ten year NHBC or similar guarantee. They are therefore also low-maintenance and conform to all building regulations. As they are new, clean, and have all modern conveniences, they are a popular choice for tenants, especially in areas where a lot of the housing stock is older. Finally, whatever type of property investment you choose, you must ALWAYS have an exit strategy in place. In layman’s terms - how are you going to realize your capital out of the property should the necessity arise in the future? In other words, who are you going to sell it to if you need to? If you are serious about long-term financial freedom, you should really be investing in property for the medium to long-term, as the goal is to accrue equity from capital appreciation of the property. When you have accrued sufficient equity, and the rental income allows, you can re-mortgage the property and release cash, which is TAX FREE. You can then use this money to invest in more property. Therefore, the business model we advocate is to hold all your stock for the long term, release equity when circumstances allow, and purchases more property. In other words, re-cycle your cash. After a while, your portfolio will become self-funding. If you do sell a property, you incur a capital gains tax liability. Therefore, the true way to wealth creation in property is to hold onto your stock indefinitely, and just keep taking equity releases to fund further investment, finance your children’s education, allow you to retire, or fund your lifetime ambition. It’s up to you! View your properties as golden geese who lay a golden egg every few years. You can use an equity release from your investment property to pay back the original equity release from your own home, which means you only borrowed the money from yourself for a few years to grow additional assets. And on a final note, strangely enough, the more properties you have, the less the risk, and the easier it seems to get! Treat your properties as a business. Keep them well maintained to achieve the maximum rent. If you follow our blueprint, you won’t go far wrong. Building Blocks of Success The key to being a successful property investor is down to being a successful landlord! After all, if no one wants to rent your property then you are paying the mortgage! There are always acquisition costs with any property and having a budget for these is vital. A few such costs are mentioned below and they should be considered or dealt with leading up to, and after, completion. The list is not exhaustive but should give some ideas. Start to liaise with letting agents 6 weeks prior to completion – get ideas from them as to what the demand is i.e. fully furnished, part furnished etc. They can start marketing your property, and, with the permission of the Site Manager, start showing people around. Keep in constant touch with your letting agent and encourage them to be pro-active and communicate with you regularly. Ask for feedback after viewings, so that you can establish what prospective tenants think of the property. You should already know what white goods (fridge/freezer, washer/dryer, dishwasher) are included by the developer – if you need to supply any, consider renting them. That way there is no capital outlay and the rental money is 100% tax deductible. You should have already ascertained what flooring covers are included by the developer – if no flooring is included, get quotes. Consider laminate for the hallway and living areas, and carpet for the bedrooms. It is worth spending a bit of extra money on tiling the bathroom and kitchen floors, as this is harder wearing than vinyl floor coverings, and also looks better. Blinds/curtains are generally not included by the developer. Therefore, get quotes or fit them yourself - don’t forget that tenants expect these to be done as standard. Bathroom fittings e.g toilet roll holder, towel rail, shelving should be professionally fitted to avoid your tenant doing a `bodge` job. The same applies to light fittings, which must be fitted by a qualified electrician. We recommend “dressing” your property with a few pictures, mirrors, shelves, etc as this will make it stand out from the crowd. We are of the opinion that if you present your property in the best possible light, it will attract a tenant quickly, and hopefully the tenant will want to keep the property up to the standard you have set. If your tenants require the property to be furnished, that furniture needs to comply with fire regulations. There are many companies who provide “furniture packs” specially for Landlords and deliver and fit the furniture, taking away all the hassle. We can recommend some companies to you, if required. Obtain permission to sub let from the management company – usually a fee required. Establish what the service charges are – consider monthly standing order Make contact with the utility companies and inform them of your correspondence address Obtain a set of keys for yourself Apply to the local council tax office for an exemption notice - this is available on a new build for 6mths providing that it remains unfurnished. Many Council Tax offices can now be contacted via email so look them up on the internet. Obtain landlord’s insurance – if you have purchased an apartment, the buildings insurance is generally covered by your service charge. Otherwise, with a house purchase, you should arrange buildings and contents insurance. Also consider accidental damage cover, rent guarantee and legal expenses. Consider having an emergency turnout service in place for your tenants if the letting agents don’t provide such a service. It can be cheaper to arrange such a policy at the same time as taking out the insurance. Car parking – is it included in the purchase price? If not, then this is an extra cost that usually can’t be included in the mortgage. Usual cost for car park space is around £15-20k. Before buying a space, liaise with lettings agents to see if it is essential. Conform with the new legislation re: the holding of tenant’s deposits Get tenants properly checked out – there are companies out there that will do just that if the landlord intends to manage the property themselves Ensure the property has the necessary gas and electricity landlord’ safety certificates. If you have your property fully managed, the letting agent will arrange this. We believe in protecting our investment by having our properties professionally snagged to rectify any defects that have arisen through the build - allow approx £250+VAT for the average 2 bed apartment. Keep receipts for everything – you may be surprised at what can be offset against tax!. Network – making contact with other landlords can be just as useful to a first-time landlord as well as to a more seasoned one! This can done via discussion forms, property magazines, local property network groups etc … the list is endless. The great thing about property is people with properties love to talk! As a property investor you never stop learning. It is a fantastic business to be in and done wisely, the most profitable thing you can do. So if you are not already involved in property – START !! Please visit our Lettings and Ready 4 Rent Sections for further information. If you have any questions and would like to know more about how 4wallsandaceiling.com can help you, please C ontact us or Talk To The Wall.