Negotiation, Negotiation, Negotiation

UK Property Investment news and comments from Mark Harrison of YourPropertyExpert.com

Posts Tagged ‘Below Market Value’

Five ways to make money in a property crash

Posted by Mark Harrison on June 16, 2008

Property Crash Photo - Courtesy of ericskiff, reused under Creative Commons Licence.Let’s face facts, we’re in the start of a property crash, and if the 1989-1994 experience is anything to go by, then we could have another 4 years to go before things bottom out [that wasn’t a prediction, by the way, this one could be shorter or longer].

The crash is being cursed by some, particularly those who paid too much for their properties in the final months (or years) of the last boom, but greeted with relief by others – not only first time buyers who want to get their feet on the ladder – but by savvy investors who are starting to buy again.

So, what are some possibilities for those hoping to make money over the next few years? The following, of course, hinge on the market going down further… If you believe that, then consider them… If you think the market’s going to bottom out quickly, then some won’t be appropriate.

  • Consider selling some of your portfolio. If you bought a while ago, and have decent equity (ie – haven’t remortgaged to stupid levels), then it may be worth taking advantage of the much lower rates of Capital Gains Tax that we in the UK now pay on property. (Until April, we used to pay between 24-40% depending on how long we’d held – now we just pay 18%.) Of course, you won’t get what you would have done 6 months ago, but in many parts of the country, property are still moving fast if priced about 10% below the competition.
  • Consider Sell-To-Rent (STR). This is a more dramatic version of selling some of your portfolio – it’s when you sell the house you live in, and move into a rental place, in the hope that you can buy back something similar later in the market cycle. Obviously, not suitable for those who want to guarantee they can buy back the same house.
  • Go into your estate agents, and offer 20% less than the asking price on any property you think you can find a tenant for – the vast majority of buyers will tell you where to go, but agents are no longer acting shocked and receiving these offers, and more buyers are considering them.
  • Adopt more BMV (Below Market Value) techniques – look for buyers who need to sell quickly, and put together rescue packages for them (if they make sense for you.)
  • Consider using options – these take a lot more work, and aren’t suitable for everyone, but can be very worthwhile in today’s market. In summary, your tenant pays a higher-than-market rent in exchange for having a right-to-buy at a predetermined price (say, today’s market price) for the next 2-3 years. They are, of course, a cashflow strategy, and prevent you selling the house to anyone BUT the tenant in that period.

I should stress that none of these are trivial – and I’ll be going into each in more detail on the www.yourpropertyexpert.com newsletter….

Photo Credit: http://www.flickr.com/photos/ericskiff/191371480/ – reproduced under Creative Commons Licence with thanks to EricSkiff.

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Bank of England – base rates down 1/4 %

Posted by Mark Harrison on December 7, 2007

Yesterday, the Bank of England monetary policy committee cut its base rate by .25%.

It’s already been reported that the larger domestic (ie – NOT buy to let) lenders are going to pass on this rate cut in full (which, frankly, I’d have been appalled if they didn’t.)

However, for those borrowers, particularly Buy To Let borrowers, whose mortgages are tied to LIBOR rather than the base rate, the news isn’t so good.

The markets are still making money very expensive, so the lenders who are re-borrowing the money they lend as mortgages on the open market are still finding this a lot harder.

I’m getting increasingly concerned about the UK economy next year – over the last few years, I’ve held off making predictions, but I think we’re in for a rocky time, and “effective repossessions” will be up.

What do I mean by “effective repossession” – it’s a (not very good) term I’ve coined to mean ACTUAL repossessions PLUS “distress sales to avoid repossession.” If more and more people are selling their houses at 20% below open market value, in exchange for a rapid sale, to avoid repossession, and the investor market has got a lot better at buying these things, rather than letting the lenders repossess, does it REALLY mean that repossessions are down?

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