Property Overview
How to make a profit with property is the No.1 advertisement, under the business opportunities section, in many national newspapers.
The reality is the adverts are:
- House 'finders' wanting to sell to you - Mortgage sellers wanting to sell you a mortgage - Developers wanting to sell to you - Seminar people wanting to sell you seats - Property professionals wanting to sell you their services - Authors wanting to sell you their material
People are generally quite comfortable with property, it is a well-known entity and there are all the usual clichés of bricks and mortar being a secure investment, safe as houses etc.
Due to these aforementioned reasons many people don't want to 'miss the boat' and it is to these people that many of the adverts are currently targeted.
How to be a successful property entrepreneur is well known and this information is available for free or for a few pounds.
Courses, manuals and seminars range up to £5,000 ($10,000). You don’t need to spend thousands or even hundreds for this information.
There may be decent upstanding companies and individuals advertising and they may have some good properties, products or services.
However taking rental properties as an example; if you consider how many people are looking for a bargain using auctions, adverts, leaflet drops, estate agents, finders etc, it begs the question surely a bargain property would move fast on its own merits, why does it need advertising?
Types of Property Business Opportunities:
- Off Plan - Land Development - Commercial - Developing - Finders - Rebuild - 'Free Land' - Foreign rentals - Lettings agency - Buying Property with 'Nothing Down' - Financial structure of a nothing down deal 3 Key Questions 1. Which system should you chose? The answers to these questions are what will determine success or disappointment. The third one is down to each persons ability to honestly assess themself in relation to what is needed.
Is It The Right Time? This depends in part on what type of property system you are going to use. Some such as rental properties and off plan are more sensitive to yields and interest rate fluctuations.
Some of the tools advertised may help those that are at a stage or of a talent to use them, but not everyone will be.
The majority of the average Brits' net wealth will have been as a result of booming house prices over the last 10 years with increases of over 300%.
This time has also seen a meteoric rise in renting houses as a personal business.
At the start a price boom it is relatively easy to make money. Net yields are high to start with giving you a positive cash flow and higher profits. Whilst double-digit annual price increases mean you can grow your portfolio rapidly.
But what happens at the end of a boom period, when net yields are low and prices and demand are high?
Post 2004 it is much harder to make decent profits with rental properties and off plan.
That is unless you are talented with a natural disposition and drive. Those with the talent can make money at any point in time. Now in the UK it is the time for the professionals or the gifted.
For amateurs or the less gifted the opportunity has passed until the next rise in the cycle or until they develop their skill.
If you don’t have the cash flow or margin to go through the tough times, property may turn into a beast of burden rather than a cash cow.
Last year there was an article in the Times Bricks & Mortar section on three young men who had amassed £9 million in 11 months in buy-to-let investments. This was in a period where most new amateurs were cautious, anxious, making tiny profits or actual losses.
These three had a good combination of drive, talent, and City contacts.
It is also worth noting the historical 25 year average of interest rates in the UK is 9%. Today it is hovering around 5%, what will happen to a lot of BTL portfolios if this increases to the average?
I remember well the sting of paying 12% interest in the late 80’s.
When you see “Deposit paid, stamp duty paid, legal fees paid”……….…you know the market is in trouble, below is a sample of the current desperation.
The carrot of an instant equity of £32K sounds great but how easily will it be to benefit from this paper figure? If the house was easy to sell... it would be sold... and not offered as an opportunity.
Bargains Are Made or Found Not Sold
Beware ultra cheap houses which can still be picked up for £15,000, go and check the ‘neighbourhood’ first. There is almost always a reason for low prices.
Which System? At this point in the cycle I suggest using tools and strategies that create property or land value such as knockdown and rebuild. In particular getting up to speed with assignable option agreements is a safer tactic to use in the current climate of uncertain yields and creeping interest rates.
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