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To be in the present or predict the future?

There are two ways to source a good property investment, one to buy cheap Below Market Value property, the other is to foresee the trend and buy at market value.

To purchase property BMV in strong locations is not easy, in other parts of the country you can get them wholesale. Emails come in almost daily where agents are offering 25% to even 40% BMV properties. The word BMV has become a fad especially among property network groups, where everyone comes to find the secret to getting BMV properties without putting any money down into the deal. The trouble is the underlying asset is where you usually make the bulk of your money. So even if you’re buying Below Market Value there is very little to say the prices will not be even lower the following year.

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Buying in a strong location, reduces this risk. However in a strong location there are not many distressed sellers; and the sellers tend to be more savvy and know the prices and what the markets are doing.

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The difference between the two is which part of time you concentrate on. The first way concentrates fully on price in the present only, this is where most people’s attention lies. The second way is to forecast the future, and see where the trend will be going.

The first has security in that when you purchase you can resell straight away and make money. However this does not mean strictly speaking the price cannot fall from the date of purchase onwards, it does mean you will have a cushion from the fall in prices.

In the second way you do not have this cushion but if you predict correctly, the market price will rise almost week on week.

So then which is the more powerful? Being able to read the future or seeing here and now only? It is a question of numbers: how much discount are you getting straight away vs how much will it increase in the future and over what period of time.

I was told an interesting story at a corporate event, the person speaking to me told me about how his family had amassed a strong commercial portfolio worth £330m, they then had an offer from a well known public business man for £310m. They declined the offer, this was in 2007, before the credit crunch. You can predict what happened next, the value of the portfolio dropped to £150m. They spent the next few years digging themselves out of quite a deep hole by negotiating with the banks.

At the same event I was introduced to a Jewish property person, who was I would estimate about 60ish in age. He focused around the Central London area and was well versed with the players there and clearly knew the local market. He had been through three recessions. However I was informed he surreptitiously sold his entire portfolio before each one hit. How did he know, whilst the first one got caught?

Currently we are in the beginning of a sharp spike in property prices. Mortgage lending has reached a five year high of £49.3bn this has been driven by new house purchases. According to the CML (council of mortgage lenders) this is the highest level of gross lending since the middle of the financial crises. This is an uplift of 32% since a year ago in 2012. This figure combines both new home purchases as well as remortgages.

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These figures probably do not measure the foreign money which has been loaned from off shore entities purchasing property, or money which has been cross guaranteed with overseas assets.

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What drove the property prices down in 2007 was not that the demand for property went down, this was still there, it was the lack of credit available; and this is what will lead to an increase in prices currently.

What has fuelled this growth in lending in part has been the government initiative for new homes. This will be expanded to its second phase which will be launched this month and be fully operational in the New Year. This will serve to further fuel lending and price rises. The second phase will allow buyers to purchase all kinds of property and not just new builds.

The mortgage guarantee scheme is designed to help first time buyers and home movers move up the housing ladder. The scheme will allow borrowers to purchase property up to £600,000 with only 5% deposit. The 15% will be guaranteed by the government. This scheme will only be open until Jan 2017.

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Property prices in Central London have not suffered much due to the credit crunch as here much of the money fueling the market comes in from overseas investors, as a flight to safety. Whilst the economies may be growing they do not have a stable political or legal system. This together with the situation in the world economies has meant foreign investors are parking their funds in the safety of London property market.

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This scheme will open parts of London to first time buyers, which formerly had barriers.

Our experience on the ground reflects this high level of lending, in a recent mortgage application it took two weeks to get the surveyor out. Normally we would expect to see a survey within 2-3 days of an application being submitted. This is for a property we advertised some time back in St Johns Wood. It’s an ex local authority property consisting of three bedrooms on the top floor, with a long lease and low service charge. It has been purchased at £575k. With a little refurb this property is expected to be valued at £700k, our client has kept this as a long term purchase, with a fixed mortgage rate of 3.69%.

Everyone always looks back at the property market and regret…if only they had bought a decade ago they could have retired. Looking at the past will not make you any money. The future will.

  The Real Deal

Bayswater, London, W2

Purchase Price: £575,000

 

  

  • A bright and well proportioned two double bed room apartment
  • First floor flat
  • Two lifts with porter
  • Close to Whiteleys shopping center and Hyde Park
  • Currently priced at £809 per sq ft and we estimate it will go up to £1,500 per sq ft in a couple of years due to regeneration

Call us now to reserve!

  

Suresh Vagjiani

Sow & Reap

A Property Investment Company

 

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!Tips of the Week

To generate good profits in property you need to be able to pick the right property, in the right location and at the right price. And all this requires the right LOCAL knowledge.

Investing in bricks and mortar means the investment is real, hence it cannot simply disappear, like non tangible investments such as stocks and shares.

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Sow & Reap

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