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Buy to Let - When is the time to buy, some people will ask. The answer is that any time is, at the right price. When property is in the middle of a price spurt it sells fast and you have to often be nearer the asking price, but having got it, the value rises rapidly. This, particularly in areas of great shortage, is the most difficult time and where instant decisions are needed, but also the largest risk of making a poor buy. When property prices are stable, some are concerned they will fall and want to take their profit, so be in a hurry to sell, allowing a better price to be negotiated. When property prices are falling, many will imagine they might fall a great deal further than they will so most buyers are holding off purchasing until they turn, allowing you to buy well below the lowest price it could go. Timing is not important in its self, we all know property over the longer term will continue to go on up in most areas. Clearly in some areas very rapid growth has occurred and now it perhaps has less chance to go up as much as other areas. Take for example a central London 2 bedroom flat shown on a TV programme recently, it had gone up from £160,000 to £750,000 in 4 years, and ask yourself is this property as likely to double in value, as a country area near London that for some reason has been overlooked so far, and is still available at a more reasonable price. In some parts of Britain you could get 20 houses for the same price as this flat, in desirable areas like Wiltshire or Gloucestershire you could get a smaller manor house, two large 5 bedroom houses or 5 smaller 3 bedroom houses, for this sum. In the media we see headline trends, property is said to be going up rapidly, or stabilizing or even dropping as a correction to too fast of growth, but these are average figures, not relating to an area, or type of property. In some cases it will just be a statistical fluke, for example if the more well off are concerned about a budget coming, they may just hold back on making purchases, so there are smaller numbers of larger houses but the same number of smaller ones, the average is therefore much lower, the headlines could read property prices falling, but in reality they could still be going up. Another cause of concern is when it is said that less money went out on mortgages, implying selling is getting more difficult, but again this may just be people are looking at other things, uncertain news coverage, holidays or the weather has just put people off going to view new show homes. As prices rise, many people expect it to get even faster, and may be encouraged by agents to try on a far higher asking price, someone may buy it, or if not within a few weeks the price will have caught up the arguments goes. When it does not sell and the asking price has to be dropped there may be a feeling that prices are dropping, when in reality prices may be stable or still rising, but at a lower rate then sellers wish they had. Figures as to the number of first time buyers buying new houses are sometimes used as a headline guide, but under 30% of new homes are bought by first time buyers, so a slight change in the numbers of 1st time buyers in all reality has little impact on price. Valuations or asking prices set by estate agents are a wild guess as to what the property will fetch, in some cases they get it too low and you end up with a series of offers and guzzumping, and at other times they get it too high and a property does not sell. In many areas if you ask a number of estate agents for a price, they will be drastically different. In one area recently we saw valuations from 2 estate agents where one was over twice the other. Property does not have a measurable value, its subjective based on what similar properties in the road and area is fetching and the mood. The greater the shortage is thought to be the larger the rise, the more people expect property to go up in the area, the greater the rise. Agents get paid as a percentage of the value of the property sold, so when property is moving fast they want to get the highest price and therefore the highest commission, but if property does not move much for a period they are desperate for sales at any price as they have overheads to meet. Agents can be far more desperate for sales than owners. The effect therefore may be that the asking price fluctuates far more than the real value. Price is important, if you can buy at a discount of 30% to 40% on valuation, you have immediate equity and whatever the price does you cannot lose. Valuation I would suggest is what the building societies or other lenders valuer is prepared to put on the property, which is often a lower figure than the estate agents valuation when prices are rising and perhaps nearer when they are stable, and the market is ticking over. Valuation however can often be greatly influenced at minor cost, in some cases people will, get a mortgage at 80% of initial valuation, then do the property up a bit, and get a new valuation to extend the mortgage to 80% of the new valuation, resulting in more than the cost of obtaining the property and a cash sum over. Valuers, like buyers are influenced by the initial approach, feel, light etc. Most buyers have decided if they are interested in a house by the time they have seen the first room, some say in the first 8 seconds. Kitchens and bathrooms may add value and help swing people but if the first impression has not worked the valuation will be low. When you get started, is important however, as is the speed at which you progress. If it takes you an extra year to get started and an extra year to make each subsequent purchase, then your holdings will be far behind what could have been achieved, and you will come across those after six years that have 3 houses, and feel they have done well, when they could, given their situation in recent years, have had over 30. Of course they are still three better than the person who is still thinking about making their first move. Our example showing how compound gearing works shows over thirty houses being obtained, but also those companies that search out the cheaper house and do them up before mortgaging and releasing the capital look to getting up to 5 houses a year for you on a single fixed initial sum, so over 6 years you get 5x6 = 30 potential houses. These two may appear similar, but the lower priced houses are in areas of lower demand and therefore are both lower value initially and don't go up as fast, so the value of your equity in these two different groups of properties and the eventual value when mortgages are paid off are very drastically different. The secret is therefore in getting going as soon as you can, buying at the best price, and then tightly managing every stage so that timescales are kept as short as possible, and being ready always to make your next move. What you never want to do is react to headlines, but to look at each and every property as a separate business proposition with a unique potential and to select those that will give you the greatest growth or income that you want. From this you can see that often the best time to buy in an area is when others are not. |
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