Five ways to make money in a property crash – the sixth way
Posted by markharrison on July 3, 2008
About two weeks ago, I wrote “Five ways to make money in a property crash” – and the feedback (particularly on the more detailed version available to subscribers at yourpropertyexpert.com has been mostly positive.
However, one important bit of feedback to me was that, actually, I’m making things too complex. This was really brought home last week in a series of phone calls with a friend who runs a hedge fund – while the conversation was mostly technical (about under-water rights issues from financial institutions and inefficiencies in the secondary rights issue market), one key phrase that came through from him was:
One of the key attributes of a succesful trader is patience
Now, I don’t consider that Property Investment is trading – since I think it’s wider than that… but the point was well made.
There are two schools of thought about buying property now.
- In the current market there are a lot of bargains to be picked up.
- In six months time, it’s likely that there will be EVEN MORE bargains, at better prices.
The question then for property investors is “wait” or “buy now”?
Now, IF (and it’s a big “IF”) you could buy now in a way that had insulation from future market falls, good positive cashflow, didn’t use any of your own capital, and didn’t affect your ability to borrow more in the future, then it would be a good time to buy…
… but I don’t see it.
Yes, I see deals that would be cash-flow positive. I see deals that could (reasonably quickly – in a few months rather than a few hours) be re-financed to return my working capital… but the last point is key – Forget what lenders are doing today. Things are going to get worse for them before they get better, and they are going to look EVEN MORE CLOSELY at borrowers before they start relaxing again. That means that lenders are going to start reviewing entire portfolios and what would in stock- terms be called “marking to market.” That’s to say that, if they think you have borrowed too much on your existing properties, they won’t lend as much (or anything) on additional deals. (I’ve also got a draft article waiting to be finished about what “marking to the market” means in the context of Below Market Value purchasers in a very slow market… which, the more I work on, looks scarier and scarier.)
So, I’m no longer buying. I’m off to do some more interesting things (from a personal / professional perspective) for at least six months. Of course, I’m still a landlord – I’ll still be blogging, and running the newsletter, and my mentoring scheme… but, in my personal circumstances, I think that waiting for a few months is now a good strategy.
Photo copyright Brainware3000 – used under Creative Copyright licence.