Is it time to invest?
Ajay Ahuja is one of the leading authors on buy-to-let in the UK having produced a series of books on the subject including the Buy-to-let Bible - here he gives his opinions on whether now is a good time to invest and says it depends very much on who is asking...
Buyers usually fall in to one of four categories:
First time buyer
The opportunist
The novice investor
The serious investor
The First Time Buyer - Answer: Yes
The first time buyer should always buy when it is cheaper than renting. A
first time buyer can get a residential mortgage with at least a 15 per cent deposit
and get rates sub five per cent APR. This will render most areas cheaper
to buy than rent. So basic mathematics apply. If you want to save
money then buy!
The Opportunist - Answer: I don't know
The opportunist wants to make a quick buck. They want to buy and then
sell in a short period of time. This involves speculation.
This is the game I NEVER get in to as you need luck on your side. You can
speculate at best six months ahead in the property game but that is about
it. After that all you have is lady luck on your side.
So if you are going to ask me where I think property prices are going to be at
a date greater than six months from now and if it is worth buying to make a
quick profit then I have no idea. I do not think anyone does!
The Novice Investor - Answer: Depends
If you are not an opportunist but are seriously considering whether to invest
in property then it does really depend. It depends on YOU!
If you are willing to work hard and take a sensible view on building
yourself a property pension or cash flow positive portfolio then yes it is the
right time to buy.
The current yields you can get across the UK
are seriously tempting and you do not have to invest as far afield as Scotland.
So get yourself some education by investing in a few books and get hunting.
If however you are thinking that investing in a portfolio is a passive
investment and a sure fire way to get rich then think again.
You need to mature your thinking, be willing to invest in yourself by
educating yourself and have a target of what you want to achieve from property.
The Serious Investor - Answer: Always!
Now a serious investor would only be asking me this question out of curiosity
as they will already know the answer.
It is always a good time to invest. This is because the serious investor
is in it for the long term.
Professional investors may not realise all the reasons why, but I am sure if
they read this they cannot disagree. The reasons why property is the
number one investment compared to other investments is:
1. The income is recurring
There is no need to find new customers, new products new suppliers or anything
like that. Once a tenant moves in the income just keeps on coming
in. It is the ultimate repeat business model. Your tenant will give
you money on a regular basis at a frequency you dictate. How nice is
that?
2. The income is inflation proof
Rent is correlated to wages which is correlated to inflation. So rent is
effectively indexed linked so it can never devalue. If you buy a property
out of the major cities the rent you will receive will survive any inflationary
forces because as a rule people spend around one third of their disposable
income on living costs which includes rent.
I have excluded major cities like London
as these will depend heavily on the job situation in the area which is subject
to global forces. I personally avoid such cities as it is almost like
investing in commercial property.
3. The investment is easily understood
We all grew up in one so how difficult can it be? There is nothing that
tests you more than just basic common sense. This is one of the most
appealing things about property. It is easy!
4. The income is recession proof
If your tenant loses their job the Government steps in and pays the rent.
I have not seen any decline in my rent collection over the six months of
recession.
We all need somewhere to live and whether the tenant pays it or the Government
pays it makes no difference to me nor any other landlord.
5. The investment is geared
Personally this is my favourite. I started with only £500 and now I own a
portfolio worth £15 million. I did this by borrowing. The only way
I could ever have acquired this wealth is from property.
Let me explain. I bought my first property in 1996 with £500 and borrowed
£49,500. Over a 10 year period the property rose to £150,000.
If I were to sell the property I would cash in £100,000 from my £500 investment
for my 10 years of investing.
Now if I had invested in the stock market all I could have invested is my
£500. So over a 10 year period my investment would be worth £500.
This is because the stock market has not grown over the 10 years and I have not
been able to borrow to make the investment.
So compare £100,000 from property to £500 from the stock market. I know
which one I would choose.
6. Demand for property exceeds supply
In 1801 the population of the UK was 10 million. In 1901 it
was 37 million. In 2001 it was 57 million and today it is around 60
million.
Immigration is not an issue. The problem is people are creating more
people. Couple this with people living longer and you can soon see we are
heading for a serious housing shortage in years to come.
It has been highlighted in the 2020 report commissioned by the Government where we need 200,000 homes to be built. Last year we only built 60,000 and this year is going to be even worse.
Written by Ajay Ahuja for www.propertyhawk.co.uk
Picture by everystock