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In the January 2010 Issue of Property Investor News
Editor's Introduction
So what will the year ahead bring to you in respect of your property holdings: hopefully ever increasing cash flow, higher yields and healthier deal trading profits?
Have you a 2010 'game plan' in place, with a clearly defined set of targets as to what you aim to achieve from property investment by 31st December 2010, and if not, why not?
Have you analysed the last twelve months and assessed exactly how and why you achieved or perhaps did not achieve your previous goals for the year now concluded?
Was your own annual report summarised by a 'could do better' - maybe that was the case but just how can you improve on this performance for the year ahead which will certainly bring fresh challenges?
Well at least by regularly reading this magazine - unlike too many others - you are not acting as an ostrich with your 'head in the sand' ignoring newly emerging market trends, perhaps blind to any new ideas or of developing creative buying/selling strategies which could well accelerate your wealth creation in the years ahead.
And most importantly have you assessed the various risk factors which may lie ahead to ensure your portfolio is best positioned to withstand eventualities such as the impact of rising inflation in a fragile UK economy with the employment outlook still uncertain.
The last few years have certainly been an unexpectedly testing period for many private property investor-landlords and a fair few have fallen by the wayside; primarily those who were overleveraged and/or under capitalised with insufficient cash reserves to counter excess void periods or stagnant property sale periods in locations with poor owner occupier demand.
Readers of this magazine historically have divided into two distinct camps; those with a more speculative mindset constantly looking for growth opportunities, and those who focus far more on sustainable income, either from rentals and/or via deal trading profits.
It is quite ironic that most residential investor-landlords today are far more focussed on monthly cash flow and this certainly applies to those who have survived the downturn and who were too heavily into the BMV residential buying mania of 2006/7, a strategy which was over reliant for its success on continued price growth and easy access to cheap finance from lenders overly focussed on personal bonuses linked to short term corporate profits.
So which strategies will prove successful in the year ahead? Those who have heard any of my seminar/workshops talks recently will not be surprised if I say that for those with cash/equity it will be; 'the same strategies that have always worked' i.e. buy at the right price, in the right place, at the right time, always look to add value and when appropiate - refinance or sell on when you deem it is the right time. As the cartoon meerkat in the TV insurance ad says: Simple!
And notwithstanding the obvious current lending restraints, particularly for those with a less than perfect credit rating, or who are unable to do joint venture deals with passive investors who can provide up front cash purchase or deposit funding, there are not that many reasons that I can think of as to why the majority of PIN readers should still not be able to purchase with a 'real deposit' a minimum of one genuine 'buy to hold' deal this year. Some of you with a more entrepreneurial mindset and who are less risk averse may well aspire to do one creative/option deal each week/month; but can you find enough genuine tenant buyers in your area is perhaps a separate question? Others, perhaps with more practical experience and with larger portfolios will be looking at fewer but bigger scale projects with a buy to sell / project development focus in mind.
When assessing our individual aims/goals I am reminded of a conversation I had with one of our younger subscribers - then aged 28 - last summer at one of our monthly PIN workshops. He had at the time some 28 residential properties with pretty good average monthly cash flow, all bought in a five year period from 2003 and he asked me then as to what number of properties he should eventually aspire to. "Just how long is a piece of string", might have been a cynical/pragmatic answer. However my view, unlike that of many others, is that it should be far more about quality than quantity and that fine tuning your portfolio via the occasional sale and subsequent purchase of better quality stock will result in maximising the overall long term returns.
So my actual reply to him was and it would be the same today: just how many units do you want to manage by the time you are fifty years old; how much monthly income do you aspire to, notwithstanding future inflation etc and that notwithstanding any ongoing lead/deal trading etc, I said his aim should be that of buying one genuine deal (to hold) each year, on average - maybe not every year, depending on availability of deposit funds and the lending criteria during each specific year.
Adopting such a long term plan would ensure that he would achieve a very significant level of wealth in the following 22 years if he continued to buy and trade sensibly. As Gerry Pridham observes in the investor interview article on page 14 of this edition, just where else are you likely to get a 13.5% return per annum? And that is after tax!
And in saying the above I am very well aware that in today's UK residential market it is now more difficult in many regions to source genuine BMV deals from motivated sellers who still have equity, mainly due to the historically low base rates. But good quality residential deals are out there, they always are and your success will be directly related to the ongoing degree of effort and access to your contacts/resources that you consistently apply in sourcing deals, directly via auctions or via your own leads from marketing/ networking or perhaps indirectly via professionally run lead/deal providers.
I fully acknowledge that it is now tougher than it was, particularly for those with little capital/equity to build or further enhance a property portfolio in today's UK market than it was in the decade just passed. But at some point, probably before the next election i.e. by 2015, the lenders will have loosened up their purse strings; the public sector debt burden should by then be under control after the application of the shortly to be administered fiscal medicine from whoever forms the next UK government and confidence to borrow will have returned to many aspiring homeowners. That is when those who persevere will reap the rewards for all the application which is now very much required to both protect and grow your portfolio onwards from 2010.
Notwithstanding the above, I also believe there are some very significant opportunities within the secondary commercial property market in many UK regions for those with capital to spare, who have the right mindset and who have or can acquire the necessary skills in sourcing quality deals and who can match specific property to appropriate commercial tenants at competitive rents. Commercial property spreads versus gilts (government bonds) are now probably the highest in the last 30 years, so the longer term investment opportunity is very evident, however with the banks focused on 'rebuilding their balance sheets' a,k.a. blatant profiteering, their appetite for lending on secondary commercial stock is somewhat less enthusiastic than it was in 2005-7 at the height of the lending boom.
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