Get your foot on the ladder, son – ahem!
Posted by markharrison on November 23, 2006
“Get your foot on the ladder, son” is one of those phrases used by parents.
It roughly translates in one of two ways, depending on the parent.
- You’re now 35, and you’re still living at home, and frankly we want the room back
- House prices are always going up, so it’s always sensible to buy now rather than waiting.
The first of these has a certain charm. I lived back with my parents for a couple of years after University, and it wasn’t entirely comfortable for anyone. On the plus side, it was cheap, on the minus side it was restrictive.
The second of these is the one that causes problems. Well-meaning relatives, or friends, who aren’t an expert in property, but who give well-meaning advice.
Getting your foot on the ladder is something that makes sense if prices are shooting up, but can cause problems if prices go down… and there will be another crash.
I’m not saying that there will be a crash this year, or in 2007, or 2008… I honestly have no idea when it will be. However, I do believe that there will be one at some point. This is because there are only two things I can possibly believe.
- This government has finally put an end to boom and bust so well that, irrespective of what happens in the rest of the world, and who wins the next election, the economy is so sound that there will never be another declin
- There will, at some point, be another crash.
Make no mistake – crashes are painful. I bought a flat in 1994, for just under £40,000. The person I bought it from had bought in 1989, for just over £50,000. Scale up those figures to today’s prices, and you may find today’s buyer at £250,000 becomes 2010’s forced seller who is only able to get £200,000.
There are only two ways to avoid being burnt in a crash. Either you don’t buy at all (in which case you miss out on the upside as well as the downside, and over the long term, there has been a lot more upside.) Or you make sure that you buy intelligently.
There are two planks to buying intelligently.
Firstly, finding something now that, even if the markets do go down, will still leave you in pocket. This is the core of BMV (Below Market Value) investing, and good negotiation skills are a key part of that.
Secondly, buying something that has positive cashflow, so even if prices do go down, then the asset will still be generating you an income.
Property has tremendous upsides as an investment, but don’t let anyone tell you that there is no downside!