Hey it’s Dr Ro, I hope you’re well.
The question is, is now a good time to get into property?
As I’m recording this right now it’s a seller’s market, there is definitely a lot of interest in the property market. People seem to be buying in a very sort of spontaneous way.
There’s a lot of amateurs out there untrained property investors out there, a lot of people are buying because of what they’re hearing on the news. Some things affecting the market moment, definitely stamp duty relief is happening. It’s incentivising homebuyers for example, to go upscale, maybe people wanting to get into the property market because stamp duty is being weighed up to a certain threshold.
I think also off the back of Covid a lot of people are frustrated with their careers and lockdown and they’re like I want to get security and finance into my life I’ll go buy some property, so just going out and literally throwing money at the property market. You’ve got people that have been city-based apartment based thinking you know what the dynamics are changing, I don’t have to go to work all the time, I can actually go out and buy a property in the country and move further away from the workspace.
In fact, geographically, I can be quite a long way away because I can now operate remotely, so now there’s buying activities due to that as well. Plus of course you’ve got a growth in the number of people that want to get in start to invest in property and they don’t want to miss the bandwagon and alongside that you’ve got people like myself and a lot of other investors who have been doing this maybe 10, 15, 20 years in my case so we’re selectively looking and buying.
It’s going to ease off that’s my personal view. I think this flurry is particular with the government trying to incentivise, and this expression of shit I’ve got to do something different, that happens regularly through cyclical manner, particularly around recessions coming off the back of recession, for example. We happen to be just mixed with recession/Covid and a lot of other changes happening as you know.
That brings me to the question: is now a good time to buy?
There are four things to consider, number one: what’s your strategy?
Everyone’s got a different view. Are you buying properties for income? Big income, small income? Are they buying lets? Shared accommodations, HMO properties? Are you looking at hotels versus are you buying with a view to selling a property, and if so when are you looking to sell? Short-term, long-term if you’re trying to take advantage of the fact that it is a seller’s market right now, what’s going to happen after September, October this year? You buy at the wrong time and could be affected by that.
Everything you do has to be strategy driven. It’s not like I want to own property, actually what is your long-term vision? You and I could look at the same property and you might decide yes I’m going to buy and I might decide no or vice versa, so it’s a reverse engineered process.
When I teach property one of the first things I do on the very first day is I share how to reverse engineer the calculation of the purchase price because only by doing that and knowing what our exit is looking at income if so, how much income?
Looking at return on investment in which case, how much return on investment as that depends on what the value of the property is at the end because if I know what the value is at the end I can reverse it to find out what I need to buy it for. If I get that right I can increase my return on investment and that makes it worth my while particularly if I’m using angel money for example.
This is critical.
Don’t go into the deal from the front you go in from the back and, of course, that then comes to the question are you doing a large deal? HMO? Are you doing GDV, Gross development value which is the bill value which is a very different way of valuing a property? It’s no good asking the question. Now is the time to get in because you and I might look at an area and there might be one cracking deal, even though it’s a booming market, but that particular seller is distressed.
They mess around and need to move quickly and you happen to be the person that could come in at the right time and the right price, according to your purchase and you get the deal, even though there’s a lot going on we should wait as the markets are buoyant. If you buy at retail right now that’s dangerous because it’s going to correct at some point it has to, that is part of what the markets do and if you bought at the wrong price that’s when you’ll get stumped.
Number three are you in this long-term or short-term?
If you’re buying to trade to get profit you’ve probably got three, four months before it may slow down. So can you get in, buy it, renovate it, get it back out on the market, make the sale before suddenly the market breathes and it slows down. You’re stuck with a property, and you haven’t got any exit strategies, now you’re in danger.
With rent to rent you could have a five-year contract and not have to own it equally if you do lease option, you have the right to buy the future as well. These are other considerations you can see why the question is wrongly suited. In fact, an educated investor wouldn’t ask that question, they would say looking at my strategy and everything I’ve done with my numbers is this market, timing and property right for this particular area? It comes down to property by property and circumstances by circumstances and seller by seller.
Number four is doing research. Have you run the numbers? Have you checked the area? Have you checked the cash flow calculations? Have you checked on the demand? Have you checked on what two or three exit strategies you have for that particular area?
If you’re hinging on one strategy and that strategy gets changed by the changing market conditions which will happen then does that leave you in trouble? If you can’t refinance at the price you are planning to, are you prepared to live with that with a lower return investment, but then taking a longer-term view to get that back through cash in the future when the market increases I can refinance then as opposed to in the short term.
All these questions are critical. If you do not even consider this, then asking that question to 20 different people is relevant and that’s what people do. They shop around to hear someone say actually, you should get in the market and off they go.
When in fact these are considerations you should have in place.
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