With a Brexit decision potentially around the corner, the uncertainty since the referendum has, for many, signalled a time to hold back from any financial investments following reports across the country that property values are falling. Having thrived during two recessions as a property developer, I would contradict this and suggest that now is exactly the time to take the leap if you are considering investing in property.
Brexit is simply a condition in the market and an economic challenge that we are experiencing at the current time, but it’s actually a great opportunity for people to buy. Making money in this market is a skill, as in a rising market, anyone with means can invest in property, regardless of whether they make calculations correctly, as general market increases will usually absorb errors. Contrary to common thought, a volatile, falling market creates a great opportunity to buy, if investors adopt and follow specific guidelines.
Firstly, take advantage of the buyers’ market by making low offers. Look to purchase at least 10-15% below market value, noting that the market value is often lower than the asking price. Making a deal at this value creates an initial cushion from day one equity.
Secondly, find an angle. The real value in a property deal can be found by adding value not just by simply refurbishing it. Perhaps buy a very large freehold one-bedroom apartment that can be sub-divided into two bedrooms, or convert a larger unit into several apartments. Alternatively, purchase a large property and create a house in multiple occupation (HMO) to rent out or sell as small units.
Thirdly, another area where a lot of investors fall down is in the fit-out and refurbishment of a property, as cutting corners seems like a simple way to reduce costs. I would advise against this as it will stand against you when you come to sell the property. There are a lot of ways to add value to a home which cost less than one might expect, and investors should avoid scrimping in these areas. For example, installing quality integrated kitchen appliances, instant boiling water taps, granite worktops, glass splashbacks, LED lighting and in-built USB plug sockets all cost less than one might expect, but help add a ‘wow’ factor when selling the property on.
I would recommend spending the money to achieve the achieve the standard of finish that will encourage purchasers to pick your property over the competition. It is vital to focus on selling a lifestyle, a product that the buyer can walk into and picture themselves living in instantly.
Finally, plan an exit strategy. If the primary plan is to resell the home then budget to sell the home for 10% less than today’s market value, as it is a difficult market. In this way, if the prices drop, there is a buffer for the investment, but if it sells for more, then it’s a pleasant surprise. However, in the event that prices slide away and the property does not sell, investors should ensure there is finance in place to take out a buy to let mortgage on the property, and that rental values will cover mortgage repayments by at least 150%.
Making money in this market requires forward planning, business acumen and a head-over-heart strategy, and there is no margin for error. However, I believe by following this plan it is more than possible to begin or extend a property portfolio.