I’m no longer blogging about property… see my gardening blog.

The next book will be, not about property, but about gardening.

 

While the book won’t be until late 2019, you can read a lot of the material I’m drafting at:

Trug and Wellies – my new blog.

Happy15th Birthday, AutomatedHome.co.uk

If, like me, you are into both property and technology in the UK, there is a high chance you’ll have come across AutomatedHome.co.uk, Mark McCall’s excellent website.

I’ve been involved with the UK HA scene since 1997, co-founded (and sold) two installation companies along the way, and been a Director of one of the UK’s largest retailers in that space.

Over that time, Automatedhome has been a truly excellent resource, and I am honoured to have been asked to contribute an article to their “15th Anniversary Specials” series.

The first article in the series, by L Y Chiu of Cytech has just gone live. Congratulations also to Lu Yung and the team at Cytech for their contribution to the industry over the last 15 years.

Divorce and the Property Investor – article on money.co.uk

One of my consultancy clients had, while back, wanted some advice on prenups for investors – sadly, this isn’t an area where I have any experience, and had to direct him to a lawyer.

Today, however, I came across an article on money.co.uk today entitled “What Divorce Means for your Mortgage.”

The article isn’t particular about investors, but is aimed owner-occupiers going through divorce. However, on reading it, it struck me that the things it suggests that such a couple do would apply equally well to property investors.

Rather than plagiarise, I’d suggest that you read the article if this is a concern.

Why do people rent rather than buy at the high end?

On Quora, the question “Why do people pay $10,000 to $100,000+ per month rent instead of buying a place?” was asked.

My answer was, obviously aimed at the high-end, but most of the points relate to the whole of the market:

There are various reasons people choose to rent rather than buy. Many of these are just as true at the $10,000-and-higher end of the market as they are at the $1,000-and-lower end.
1: They can’t get a mortgage. In order to secure a tenancy, you typically have to come up with about three months’ rent in ready cash – for a mix of deposit, costs, and the first actual rent payment.

In order to buy a property, you might need to come up with a 20% deposit.

Just because you could afford $10,000 a month rent, doesn’t mean you could come up with $500,000 in ready cash for a down payment.

2: They expect that property prices will fall.

If you think that property prices will fall 10% this year, would you rather buy a $2m place, and find it lost $200,000 over 2011, plus pay maybe $50,000 in mortgage interest… or would you rather spend $120,000 in rent over the same period?

In my experience, this is more true at the high end of the market, probably because of the financial sophistication of the people who would do such a thing.

3: They don’t expect to be in that place long.

There are high costs to buying and selling. If you are only expecting to be in an area for a year, it can work out cheaper to rent than pay a mortgage, particularly if you don’t expect prices to go up. This isn’t just about job relocation, but about things like divorce settlements.

4: They believe their income will go up substantially, and therefore will be able to afford a better place next year.

This doesn’t apply so much at the top end of the market.

5: They are having a permanent place built / massively remodeled, but need to stay in another property for 6-12 months until it is completed.

6: They are not sure their level of commitment to their partner, and don’t want to buy a place together. A fair number of my tenants over the years have been “living together for the first time”. My experience is, to be fair, at the lower end of the market. At the higher end, particularly in the States where such things are legally binding, pre-nups may make this less of an issue than in the UK, where the divorce courts can award any settlement they like, and prenups are not legally binding.

Paying $10,000 a month rent is neither more nor less outlandish than paying $2,000,000 for an apartment. The fact that it’s rental rather than mortgage payment isn’t the big factor!

 

 

How do I buy property with no money down – the 30 second answer

An answer I gave to a question on Quora asking how to buy property with no money down. My answer on Quora was related to the US market – this version is slightly tweaked for the UK.

 

Option 1: Vendor finance. You get the people selling you the property to lend you the shortfall between the price you are paying, and the mortgage you can get. Obviously, this means finding a vendor who is both in a financial position to do so, and willing to!

Option 2: Investor finance. You build up relationships with people who trust you to put together deals, and they lend you the shortfall (deposit.) The rates these people would charge you, though, are typically much higher than bank lending for the same amount (in the UK, typically 1-2% per month, payable monthly.)

Either way involves you assuming a lot of risk, and only works if either you are letting the property in a way that generates sufficient cashflow to pay off both sets of lenders, or if you have enough cashflow to make such payments yourself.

Either way also involves careful legal advice.

For Option 1, you also need to either directly source properties, or build relationships with estate agents who are comfortable to put a vendor-finance offer to a vendor. Most UK estate agents have no experience with this at all.

For Option 2, you will, obviously, need to source prospective investors willing to put down the cash. It is generally a good idea to build up relationships with such people before you find your deal, so that you can move quickly once you do.

Chinese Property Prices

My reply to a question on Quora about Chinese Property Prices over the last few years.

The question was in two parts – firstly, why have they risen so much, and secondly, will they continue to rise in the same way.

There are three factors which I believe were instrumental in the growth in prices. 

Firstly, shortly after Premier Wen Jiabao took office in 2003, Chinese economic policy changed to allow cheap credit for construction and purchase of property. Interest rates remained low, and lending increased massively through until 2009.

It seems probable that the trend continued in 2010, but year closeout figures have not been officially released, though a report in the Guangzhou Daily based on unofficial figures suggests that average price per sq. m. could have risen by as much as 24% in 2010 – http://www.chinadaily.com.cn/bus… (English-language reporting from China Daily of the Guangzhou Daily story)

It should be noted, however, that compared to the lending practices of Western Europe, Australia, New Zealand and the US over the same period, Chinese lending remained conservative.

Secondly, average incomes rose considerably over the same period. According to a World Bank report in November 2009, property prices had broadly kept in line with incomes. (If anyone could find a direct link to this report, please let me know, and I’ll add a citation).

Thirdly, compared with citizens of the West, Chinese nationals are relatively limited in their ability to invest in overseas markets. Consequently, compared to the West, a higher proportion of Chinese investment went into the domestic market. The natural impact of more investment money being funnelled into a particular market is, of course, inflationary.

There are two hotly debated questions on the future.

Firstly, whether the price increases over the last 7 years genuinely constitute a boom (in the sense of whether they are sufficiently far above historical norms that reversion to the mean would imply that they need to fall relative to earnings.

Secondly, if the Chinese Government determine that prices, indeed, need to fall relative to earnings, they will be able to implement policies that ensure a “soft-landing” (a period in which nominal prices stay fixed, or go up slowly, while nominal incomes rise faster.)

I would counsel you to take anyone making firm predictions with a dose of scepticism. If the period from 2007-date has taught us anything, it is that making accurate predictions about property prices is notoriously difficult.

That having been said, my personal opinion of the economic ability of the Chinese leadership is high. (I speak as a Western European), and the nature of the government structure in the People’s Republic makes it easier for a government to enforce structural changes that it would be for a Western government.

To my mind, therefore, there are two separate risks that need to be assessed, in considering whether a slump will occur.

1. The possibility that the housing boom will, indeed, prove to have been a bubble, and the Chinese Government be willing, but unable to contain it.
2. The possibility that the housing boom will, indeed, prove to have been a bubble, and the Chinese Government coming to the view that a quick correction would be in the national interest, and therefore take no steps to prevent such a correction.

It seems, to my mind, that one of these will happen, but whether it will happen in 2011 or later is a matter on which I don’t feel I have enough evidence to comment.

The Singularity … will it happen in our lifetime?

“The Singularity” is a term bandied about to talk about a point, maybe as soon as the mid 21st Century, when the combination of increases in computing power, and brain-computer interfacing will mean that “hybrid human-machine” intelligences will emerge that, among other things, lead to a massive surge forward in the development of… machine/human hybrid intelligences.

A question I answered on Quora today asked whether it was going to happen in our lifetime.

My answer:

Firstly, there is much argument over exactly what is meant by “The Singularity”, since it is used as a convergence term.

Secondly, there is a question of what “in our lifetime” actually means.

Finally, there is much concern about whether social / political factors will retard its progress.

So, let us consider the parts one at a time:

1: What bits of the singularity are coming / here:

Will the technology be developed to enhance humans bodies? – answer, yes: glasses, walking sticks, hip replacements, pacemakers, hearing aids… or on another level, cars (which let us move faster), lifts (which let us climb faster), drills (which let us make holes faster.) I think that the results are in, and that humans will accept things that enhance their physical capabilities.

Will the technology be developed to replace failing parts of the brain? answer, yes: Deep brain stimulation with electrodes as a partial alleviation of Parkinson’s has been in use since the late 90s. According to Meditronic (the largest maker of such), in a press release, some 80,000 of these had been installed by September 2010.

Is there a demand from people for brain implants? answer, not a mass market one, but a niche exists. Enough people have indicated a willingness to have such things that it’s hard to believe that it won’t happen.

Will a mix of human and machine-assisted technology lead to an increase in the mental capabilities of (some) humans, at some point in the next 100 years? Answer: probably. Combining the human strengths in aggregation and conceptualisation of dissimilar pieces of information, with the mass-analysis and rapid-retrieval capabilities of machines already underpins the Western and Asian  economies. It is hard to believe that there won’t be some people willing to trial brain implants for “rapid information retrieval” when they become available. Likewise, it seems likely that a disproportionate number of such people will be from a “geek” background, and a self-selecting group of those interested in the development of such technology. Such people are likely to use part of this capability to develop faster, cheaper, better, versions thereof.

Will it happen as fast as people like Ray Kurzweil predict? Answer: maybe… but the question was about whether it would happen in our lifetime, which brings me to…

2: How long will “our generation” live:

How long will “our generation” live? Answer: I’ve seen mainstream reports that some medics are now predicting that 25% of those currently aged 40 (my age!) in the UK will reach 100. Because I sing at a local church, I have a reasonable grasp of funerals booked! Someone dying in their 60s is now seen as surprisingly young, and in their 50s a tragedy. Most funerals I sing for are now for people  who died in their 90s, with 100+ the second most common cohort.

What are the main causes of death, and how quickly will they be treated? According to the World Health Organisation, 58m people died in 2005, and the main causes were: 1: Cariovascular (29%, of which myocardial ischaemia is 12% and strokes 10%), 2: Infectious / parasitic diseases (23%, of which respiratory diseases 7% and HIV/AIDs 5%), 3: Cancer (12%)…. all three are undergoing massive  research in Western/Asian nations, and 2010 saw the first substantiated report of a patient fully cured of AIDS (albeit in a risky way, relating to a treatment for Leukaemia with a 30% death rate, which in the patient’s case not only succeeded, but cured his AIDS!) So it seems likely that, in Western/Asian nations at least, that the trajectory of life expectancy will increase as the major causes are eroded.

3: Will politics stop it?

Will US legislation / public opinion stop it in gaining mass appeal in the US? Probably, however… short of travel bans, there will be numerous opportunities, such as already exist for “Medical Tourism”. In 2007, forexample, an estimated 1,800 US citizens, 1,200 UK citizens, and 400 Canadians also sought treatment in Jordan, and the World Bank ranked it as number 5 internationally as a destination for such.

Will US legislation stop it? answer, in my view, no! Quite apart from the likelihood that there will be / is development in this space in Asia, one of the first implants of a computer chip into a human was that of Professor Kevin Warwick, of Reading University in the UK, whose autobiography contains confirmation that he denied that he was intending to do so when helping the (US) manufacturer gain their export approval, but then did so, legally under UK law, once he’d received it.

Will any legislation / government activity be able to suppress it? Answer no – wikileaks has demonstrated that information tends to be leaky. Even were the majority of the world’s nations to agree that such things should be suppressed, the nature of such technology would lend itself to “off grid” research, and underground collaboration.

So, overall, I can’t help feel that the singularity might happen in my lifetime… and I’m interested to see what the impact will really be!

Why are British housing-developer houses so boring?

Another answer I gave to a question from Quora. This question was about why developers neither follow local styles, nor embrace modern design, but instead build bland boxes.

My short answer is “because experience has taught them that that is what sells, and is cheapest to build, and they can get approval for.”

In terms of what sells, UK property prices are at a high relative earnings (even after the declines of 2007-2010). At the cheaper end of the market, buyers typically want a set number of bedrooms, with little requirement ever articulated to developers for “design feature X.” At the upper end of the market, the term “architect-designed” is more frequently used, with houses incorporating more interesting and vernacular features.

So the question becomes one of why large numbers of entry-level houses are required. The answer is partly demographic, and partly planning-led.

The big social change that drives housing requirements over the last 40 years has been the decrease in the number of people who live in the average property. Not only have numbers of children per couple decreased, but divorce is far more common, as is an expectation that children will live away from their parents prior to marriage. The housing mix in the UK still has a disproportionately high number of large houses by historical levels, compared to the number of occupants per house.

Planning Permission is top-down, and led by Local Development Frameworks, which are renewed every 10 years (or Local Development Plans if the local authority has not hit one of its 10 year cycles since LDFs were introduced – the differences between the two not really making a huge difference to this answer.)

If a developer has a plot in area A, then the local council will generally have a strong guidance on the mix of sizes of houses / flats that should be built, in order to meet their own social objectives.

In many parts of the country, particularly the South East, councils are attempting to maximise the number of new properties, while minimising the amount of non-housing land turned over to construction. As such, guidance is in many cases for a large number of small (1-3 bedroom) properties.

Once a developer is in a situation that they need to build, say, 15, houses, then there are clear economic benefits of standardisation. The lure of paying one set of architects / structural engineers’ fees rather than 15 improves their profit, typically by about 1%-1.5% of turnover.

Add to that the possibility for re-using the same design on multiple sites across the developer’s landbank, and the “cookie cutter” approach becomes irresistible, with national designs trumping regional variations.

At the higher end of the market, designs are, indeed, far more varied, and tend to incorporate more interesting features, as do self-build houses.

Should I buy near a school or not?

I recently joined Quora, which is the new kid on the block for Internet questions and answers. One of the questions I tried to answer was whether someone should buy one of two properties in Silicon Valley.

Now, I’m no expert in the different areas of the Valley, but the question basically boiled down to a smaller property in the catchment of a good school, or a larger property somewhere else. The questioner didn’t actually have children, and was asking which was “better” for him to buy to live in, not to rent.

What is “better” depends on two things: firstly, whether you are viewing the property as an investment which you happen to live in, or for its “utility” (the economics term for how you, personally, value the benefit of being able to live there); and secondly, your personal circumstances and outlook.

If we consider the question from a utility point of view first.

In general, the Townhouse would be a better option for you. The reason for this is that, in a good school area, you are competing with more potential buyers. Some of these potential buyers will have children, and are therefore prepared to pay a premium for a property in an area with good schools. The value of these schools is, therefore, built into the property price, and effectively you are being asked to pay a premium for some features that you don’t need.

By avoiding paying the schooling-district premium, you can choose to spend that money on something else that you value highly – the obvious one being a higher square footage. However, considering proximity to your employer / business / clients is also important. An extra 30 minutes commute each way adds up to 5 hours time per week – only you can make the decision as to whether you would rather 5 hours or, say, a big garden.

Consider also whether you intend to have children in the near future. If you do, there might be utility benefits to you of buying a place now that would suit your future family as well as your current circumstances.

If we turn to the investment prospects, then the overall argument is that the premium for a particular area is already built into the pricing, and will continue to be built into the pricing the properties. The question, therefore, is not whether the area is “good” or “bad”, but whether it is “improving” or “declining” relative to the surrounding areas. As such, neither option is inherently better than the other.

On investment, however, the areas you have listed are in a notoriously cyclical market. I strongly recommend that you look at recent price movements and determine whether the timing is right in the area(s) in question

 

To go a little further than what I said on Quora – from the perspective of someone buying with a view to letting out the property, the question is really down to achievable rent, and likely demand… go and ask a lettings agent what you might get, and work out which has the better yield.

 

If you use Quora, feel free to follow me – http://www.quora.com/Mark-Harrison-2

ebooks vs. paper books

Let me start with a confession: try as I might, I can’t bring myself to be rational on the subject of book formats. I am a bibliophile as well as a lectoholic.

I’m wrestling (again) with the question of how I should consume books. Let me think as a reader first, and I’ll come back to my viewpoint as an author later…

There are, as I see things, four broad ways in which I might buy a book:

• I could buy it on paper (the so-called DTV / Dead Tree Version)
• I could buy it in a format that locked it to one publisher’s software, but allowed it to be read on any device I own that runs that software
• I could buy it in a format that allowed me to read it, restriction-free on any device (PDF/EPUB being the obvious example, but there are others)
• could buy it in a nasty proprietary format that locked it to some specific reader software on a Windows PC

However, I can dispose of the last two options fairly quickly (at least, from my own perspective), albeit for very different reasons:

The “PDF/EPUB version”  – There are over 33,000 books available for free download from Project Gutenberg – primarily because they are out of (US) copyright. As such, if I want a classic book, like Adam Smith’s “The Wealth of Nations“, this is a fantastic place to start. That having been said, the vast majority of things I want to read have been published sufficiently recently that they aren’t available for free, and the vast majority of publishers do not sell DRM-free books.

Then there’s the “why would you bother?” option of having a DRM-loaded book that could only be read with a special reader software, and normally locked to a single PC. This fundamentally fails the “I don’t work that way” test. I want something I can read on a plane, on a train, in bed, on the tube, in the bath… and a Windows laptop fails at least two of them (your mileage may vary.)

So, let’s consider the mainstream ebook options, vs. the traditional paper book.

The economic case

I have just looked up the four books I’ve ordered since Christmas:

• Never Get a “Real” Job: How to Dump Your Boss, Build a Business and Not Go Broke, by Scott Gerber
• The Art of Non-Conformity, by Chris Guillebeau
• We Feel Fine: An Almanac of Human Emotion, by Jonathan Harris, Sep Kamvar
• The Age of Spiritual Machines, by Ray Kurzweil

So, the first part of the economic case is the cost. Let’s compare a brand new copy (from Amazon) with the Kindle edition (Amazon’s ebook format):

• Never get… Hardback: £10.39, Kindle: £9.35 (no softback available yet)
• The Art… Paperback:  £6.93, Kindle: £6.58
• We feel fine… Hardback: £17.57, Kindle: £N/A
• Spiritual Machines… Hardback: £16.43, Kindle £N/A

OK, our first issue is that only two of the four are actually available on the Kindle platform. However, for those that are available, Kindle is saving 50p – £1

But the “lifetime cost” of the book is important, so let’s consider the “total cost of ownership” of the books.

What if I want to lend the book to a friend?

Amazon introduced a new feature, in fact about 10 days ago, where I can “lend” my Kindle ebook to another Kindle user. There are some limitations (like, I can’t do it from the Kindle – I need to go to a real PC – doh!) I regularly lend books. However, this is only equalling the functionality I have with a paper book – I can lend that to anyone I want to – they don’t have to have a Kindle. I know only a few people who regularly read ebooks, and actually, as far as I can remember, Kindle isn’t their platform. This may, of course, change, but at the moment a clear win for the dead trees.

What if I want to sell the book once I’ve read it?

As far as I’m aware, I can’t. Once I’ve read my Kindle book, as far as I know, I can’t sell it back to Amazon (nor any other third party.) Nor can I give it to a charity shop and have them sell it.

Aren’t I failing to take into account delivery costs?

I have Amazon Prime. For a fixed annual fee, I can have “next day” (ho, ho, ho) delivery on pretty much any book from Amazon. It’s not better than 50% reliable in terms of “next day”, but it does mean I don’t pay shipping. As we saw above, only half the books I wanted to buy are available as ebooks, so I’d still be in a place where shipping costs existed, to the extent that I, personally, would probably stay with Amazon Prime anyway.

Can I buy second-hand?

As well as buying new, I average about 100-150 second-hand book purchases each year. Some are collector’s items, selling for more than the original price, but most are in the £1-3 range from a bunch of second-hand sellers, either locally to me, in Hay on Wye, in charity shops, or through Amazon marketplace.

In most (all?) cases, I’m buying that way, either because the books are not available new, or because it’s cheaper to do so than it would be to buy new. In some cases, the books are as cheap as a penny on Amazon. (And in some, brilliant, cases, I’ve picked up books I wanted for one penny that were eligible for Prime delivery – a book for a penny including delivery!)

Cost of an ebook reader

Actually, I’m prepared to accept that ebooks actually work out cheaper here! A Kindle would cost £100-150. That buys about 3 IKEA Billy bookcases… each Billy stores about 240 books, so a Kindle costs the same as (cheap) bookcasing for 720 books. This is about 2 year’s shopping for us, so we could buy a Kindle every couple of years, and hope they lasted.

Yes, an iPad would be more expensive, but would have other uses, and the ebook readers are only going to come down in price. However, the marginal saving is only of the order of 20p / book.

Economic Conclusion:

For me, ebooks would work out, in many, many cases, to be more expensive than paper books.

 

Utility

Where can I read a paper book? Where can I read an ebook? Where do I want to?

I have the following list of places I can read either:

• On a plane, at cruising altitude
• On a train
• In the back of a car
• In the front of a car during daylight (on the basis that reading lights distract the driver, I’m excluding the passenger seat)
• In my study
• In bed (I’m of an age where reading ebooks in bed is acceptable, sorry to those who consider it a breach of protocol)
• In a hotel room
• At the beach

However, there are places where I could read a paperbook, but not an ebook

• On a plane, during takeoff and landing
• On the loo
• In the bath
• In a working kitchen
• On a bus in Central London (books don’t get nicked on buses, computers do, your perception of risk may vary!)
• On a tube (ditto)

I am hard-pressed to think of somewhere I could read an ebook where I couldn’t read a paper book.

There is, of course, balancing this, the fact that, with an iPad / Kindle / iPhone on me, I could read anything I owned (in the right format) wherever I was – paper books limit me to the ones I have taken with me to wherever I am.

However, for my own lifestyle, I’m going to award this one to the paper books again.

Physiological

I read a lot before going to sleep. I find it (much) easier to get to sleep if I’ve been reading on paper rather than on a screen. Win for paper books.

Reference / Lookup

The combination of text-search, and ebookmarking features do beat the combination of index (not all books have one) and bookmarks. That having been said, for reference books, I find the Post-It page markers very useful.

More to the point, however, with an ebook reader, finding the right book would resolve to “finding the reader.” With 5000+ books in the house, finding the right book is sometimes problematical:

• Fiction is straightforward – group by category, sort each category by author. The only problem you sometimes find in bookshops (which have an order of magnitude bigger a problem) is category confusion, say, between sci-fi and fantasy, or between humour and crime (Jasper Fforde, you know I’m writing about you here!)
• Non-fiction is far, far, messier. Yes, the Dewey Decimal system lends itself well to libraries that span the whole gamut, but those like mine that concentrate in a particular area are more problematical. Is this book about “property”, about “negotiation”, or what? Is this investment or economics? By author is fine for the books with an obvious author (Rich Dad, Poor Dad, Napoleon Hill, etc.), but remind me who wrote “Creative Capital” (a biography, not an authobiography, of George Doriot). Actually, by publisher is looking increasingly useful in my life, but that’s another story for another day.

So, overall, I’m going to give the win to the ebooks here.

 

The “Rational Conclusion”

For all the reasons above, I have to vote to stay with paper books.

 

P.S. …

Everything above has been self-justification, or at worst, sophistry.

My decision actually boils down to a simple fact – I love books.

Books aren’t just about the content. They are about how they make me feel, and the memories.

• “Midnight at the Well of Souls” is, for me, as much about Inter-railing through the summer of 1991, and sitting on the Brindisi-Patras ferry, as it is about Nathan Brazil.
• The Art of Kitchen Design is about meeting Johnny Grey at the Grand Designs Show, both exhausted at the end of long weekends on our respective stands.
• “Family Food” is about my (then 5-year-old) son standing on a chair, holding a hand-blender in a dish of peas, saying “I’m so clever” while daddy is flipping between three different things to check timings

To trigger those memories involves looking at the book, listening to the rustle of pages, feeling the creases, finding the bus ticket that was used as a bookmark ten years ago…it’s a visual thing, a kinaesthetic thing, even an auditory thing.

There is an Epicurean streak in me… paper books give me a pleasure that no ebook reader I’ve yet encountered can match.