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Archive for the ‘Property Investment’ Category

Divorce and the Property Investor – article on

Posted by Mark Harrison on January 13, 2011

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 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.


Posted in Property Investment | 3 Comments »

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

Posted by Mark Harrison on January 12, 2011

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!



Posted in Property Investment | 2 Comments »

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

Posted by Mark Harrison on January 10, 2011

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.

Posted in BMV, Property Investment | 27 Comments »

Chinese Property Prices

Posted by Mark Harrison on January 9, 2011

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 –… (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.

Posted in Overseas investment, Property Investment | Leave a Comment »

Why are British housing-developer houses so boring?

Posted by Mark Harrison on January 8, 2011

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.

Posted in Property Investment | 3 Comments »

Should I buy near a school or not?

Posted by Mark Harrison on January 8, 2011

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 –

Posted in Property Investment | Leave a Comment »

Social Housing – the outline announcement in the CBR

Posted by Mark Harrison on October 20, 2010

The Chancellor has outlined the top-level plan for social housing, following yesterday’s reports.

He made the point that, a decade ago, only 1 in 10 households living in social accommodation had someone working. But, as of last year, the figure had risen to 1 in 3. A tripling of the number of council house occupiers who have jobs… and this in a time when there are huge waiting lists.

He has said that existing council tenants won’t have any changes…

… but that new council tenants would be assessed, and potentially have to pay about 80% of market rent.


There are, at the risk of oversimplifying, two reasons for his doing this:

  1. Bluntly, the need to save money. The more council tenants pay in rent, the less that councils have to raise in council tax to pay for commitments.
  2. The logic is that, if benefits are “too good”, then people tend to stay on benefits rather than try to find work. If benefits aren’t seen as an easy option, more people will try harder.

Of course, as an entrepreneur, I still have some problems with the idea that we should “find work”, as if jobs working for other people were the only way to make a living. Personally, I’d rather see a focus on “creating value”, whether that’s finding an employer who lets you maximise and leverage your talents, or by setting up a venture on your own.

So, now we know the outline. It might be a good time to start talking to your local councillor about what the private landlord can do to help the situation!

Posted in Property Investment | Tagged: , | Leave a Comment »

Gazundering is back, so why don’t you do something easy to stop it…

Posted by Mark Harrison on October 18, 2010

If you’ve read my book, you’ll know that I don’t like gazumping or gazundering. This is because I believe that, once I’ve agreed a deal, I should stick by it.

In case you’re reading from outside the UK, these are two techniques that rely on the fact that it typically takes 6-8 weeks between verbally agreeing a property deal, and the lawyers coming up with contracts that can be signed, or, in the parlance “exchanged.”

  • Gazumping is where a seller agrees a price, waits 6-8 weeks while the buyer is incurring cost in the various legal / financial paperwork that has to happen, and then refuses to sign the contract unless the buyer pays, say, 5% more than originally agreed.
  • Gazundering is the opposite – where the buyer waits until the last moment, and then reduces his/her offer.

Now, many have said that the law should be changed to mean that deals are binding once agreed… but in practice, this just transfers the risk to the buyer, who then has to deal with all the legals/financials (which take time and money) before even making an offer.


However, if you are selling, there’s an easy thing you can do, up front. This assumes that you are selling through an estate agent.

Ask the agent a very simple question.

As far as you know, has this buyer attempted to gazunder anyone in the past?

Now, the agent may not tell the truth, or know … and it is, in practice, impossible to prove any liability against them even if they do lie… but the very act of asking will, sometimes, flush out something. Gazunderers only get good deals if people fall for their dirty tricks.

It’s a limited upside strategy, in that it seldom works… but it’s a zero downside strategy, in that I’ve never known it to backfire. Or, viewed another way, it’s a free bet that, if you win, makes you a few thousand quid.

Posted in Property Investment, Property Negotiation | 1 Comment »

HIPs – some updates to the law

Posted by Mark Harrison on March 12, 2009

In about three weeks time, some minor changes will apply to the way that Housing Information Packs (HIPs) work. If you are thinking of selling any property next month, then you should be aware of these changes now, since you may need to take action before the 6th April!

As I reported at the time, HIPs were introduced about 16 months ago, supposedly to make the process of selling a house easier. I think that the jury is still out on whether it has worked, but it has led to a nice little hidden extra tax, and it’s certainly been good for the association of housing pack providers 🙂
Anyway, the rules changed as of last week – the changes were announced back in December, and come into force on the 6th April.

Up till now, you could market a property, provided you had applied for a HIP. You then had a grace period of 28 days to get the HIP together (and with the exception of water companies, things pretty much worked.)

As of next month, however, the grace period disappears. You have to have a complete HIP before you start marketing the property. That means you have to apply for the HIP and get all the information back, before you can even put a ‘for sale’ piece of card in a window, or place a free ad in a newspaper… let alone instruct an estate agent.

There are some other changes, which to quote from the government press release, mean that extra information about the following is required:

[…] include flood risk information, gas and electricity safety, service charges, structural damage and parking arrangements […]

I’m broadly in favour of the “extra info” changes, but enforcing a wait for HIP providers to get all the information they need back? About the only possible reason to be pleased with that is if you want to see house prices decline further!

Of course, from a purely selfish perspective, because I intend to be a net buyer, I do want to see house prices carry on going down (and my reading of the economics tells me they will)… but extra legislation to suppress a market further in the middle of what is looking like the biggest recession since the 1929 one??? Please?

Posted in Property Investment | Tagged: , , | 4 Comments »

UK Base rates cut (again) – another record

Posted by Mark Harrison on February 5, 2009

In sport, it’s common for records to fall at each Olympics.

In banking UK history, it appears that no-one is willing to wait four years to smash a record, but that the Bank of England want to set a new “lowest ever” on a monthly basis.

In a move that was, frankly, anticipated by just about everyone, the MPC again reduced the UK base rate, from 1.5% to 1.0%.

Customers on tracker mortgages will see the benefits, as will (according to the FT) customers of the standard rates of Nationwide, Halifax, Lloyds TSB, Woolwich and Skipton Building Society. This is, on the face of it, good news for borrowers… sort of…

Specifically, it’s good news for borrowers who have already got mortgages, but not altogether great for those looking for mortgages.

The problem is that, as a result of the rate cuts, over 14% of UK savings accounts are now paying 0.1% interest a year – that’s to say 10p interest for every hundred pounds in savings. Under these circumstances, people are saving less (despite the offset in savings growth caused by “I might lose my job” fear.)

When people save less, banks have less money to lend. It’s nothing like as simple as “one pound in savings means an extra pound to lend”, but there is a relationship – in that regulators only allow banks to lend a certain multiple of the cash they have.

However, banks are caught in a double-whammy: One the one hand, people are saving less (because they can only get tiny interest on their savings)… but on the other hand the regulators are requiring banks to hold MORE cash per million of lending than they were a couple of years ago… so even if savings returned, the money available to lend wouldn’t come back to the same level.

So, harder to get a mortgage – in that you probably need a much bigger deposit. Truth be told, finance was much too easy to come by in the past – some made a killing by borrowing to buy in a booming market and got out in time before the crash… others, however, borrowed too much because the banks were falling over themselves to lend money… and then got stuck with property encumbered with massive mortgages in a falling market. Those who concentrated on positive cash-flow over the last few years (as I’ve been banging on about since 2004) seem to be OK, but those who bought anything in the belief that “properties go up in value” or with the intention to “flip” them have been left holding the bag when the music stops.

My own position is that I’m waiting, but not yet buying again. I see the potential for bargains getting better each month, as credit (slowly, very slowly) improves, prices continue to fall, but rents (round here, at least) are holding up.

Posted in Economics, Property Investment | 5 Comments »