From the desk of Geoff Morris, Christmas 2007
Congratulations!!!! Even in today's turbulent market conditions, property still represents the most sure-fire way for you to carve out your own financial freedom. Do you know why?
Simple - with natural population growth, boosted by an increasing number of immigrants wanting to settle within the UK - it is becoming increasingly difficult for many people and their families to find somewhere to live that they can afford.
The unstoppable rental boom in the UK
Unlike other European countries, our population is expanding significantly, predicted to reach 62.7 million by 2016 compared to 58.8 million in 1996.
Also the number of people living by themselves is increasing significantly due to the divorce rate and a general change in social trends as more people live by themselves. The number of Households in the UK is predicted to increase from 20 to 26 million by 2020.
So, how do you take advantage of this situation, and still ensure your next few investments are going to lead you to that elusive financial independence that we all dream about?
Location, Location, Location - AND working with somebody you can trust!
Let's look at this last criterion first - TRUST.
The internet is full of offers and opportunities for you to make your fortune in property - and most of them are, either deliberately or inadvertently, going to turn your hard-earned savings, or your inheritance, into nothing but dust and ashes.
Even if you think you know the person who is offering you the opportunity - that may not be enough. How do you know he or she has not been inadvertently conned into seducing you with a really sexy sounding offer?
Once again, the answer is simple - you must find out who else has bought from this person, and not just get written testimonials, you must be able to speak with them.
Questions, questions, questions...
The next thing you should do is to do your own research. Put the internet to good use. If you are offered an investment opportunity in Bradford, for instance, "Find house prices & trends, schools, crime rates, local businesses, home advice & more on http://www.upmystreet.com/"
Contact a number of estate agents and letting agents in Bradford. Ask about investment opportunities, especially in the area you are thinking of investing in. Ask about historic property price growth. Ask if there are any ‘no-go' areas to avoid (race, crime, redevelopments etc)
Contact the local authorities. Ask questions like - What new housing developments are planned or going on; what is the current economy like - is it growing or static; is there a market for 1/2/3 bed properties in the area; ask if there is a University in the area.
If there is a university, call the student housing office, ask all sorts of questions such as - is there a Halls of residence; is there a demand for 1/2/3 bed properties for students; do they handle letting themselves, do they deal with any favoured letting agents, what is the average rental paid...
Contact some of these letting agents and ask the same questions...
Know the answers before you leap...
So now you know quite a bit about the area you are thinking of investing in. You should by now have a good idea on what sort of rental income to expect, based on the number of rooms etc. You should also have an idea of the capital growth to expect. Also, look at the current economic climate - are interest rates stable - on way up, on the way down - a small percentage swing either way can make all the difference on your cash flow, if not your capital growth.
Don't over-extend yourself.
In a few rare opportunities, you may still get offered genuine 100% financed deals, where, with the combination of GENUINE developers discounts, and the use of low-cost bridging loans, you can end up with a 100% loan against the property you want to acquire. Once again, it is very important that you speak with other investors who have followed this route successfully, as there are far too many instances where not only are the discounts offered far from genuine, but the valuation may not even be genuine. Once again, a bit of local knowledge can help to put your mind at rest here.
But, even if the deal does look genuine, don't over-extend yourself. Sometimes, even if you get offered a genuine 100% finance deal, it is still better to put down somewhere from 5% to 15% of your own money into the deal, for the following reasons:-
- It shows you are a serious investor, and you have thought your financial risks through.
- It may even get you a far better rate of interest on your mortgage, and also have a lower capital value to pay anyway.
- In the event of interest rates going up, you will have a safety zone in place.
- You will be more likely to get a far better return on your rental income with this lower mortgage, and there is nothing more satisfying than a positive cash flow from your investment.
- In the event of inevitable void periods, however small, you are less likely to be crippled by the lack of rental income.
Don't put all your eggs in one basket.
Sometimes, when you get an irresistible offer, the temptation to go for more than one unit in a development can be irresistible, but unless you are an experienced investor, with a bit of ‘slack' in your financial situation, avoid this situation like the plague.
Why so?
I am a great believer in spreading the risk of any investment, especially for newcomers to this process. If you look carefully for opportunities around the UK, the chances of every one of those developments getting into financial difficulties at the same time are pretty remote. If rentals suddenly take a pounding due to say an influx of too many new properties hitting the market, or a big local employer suddenly closing down, then if you have all your eggs in one basket, this could really damage you financially.
How helpful is your contact.
When you are looking at any deal, how helpful is your contact? Is he or she easily available at most reasonable hours, have they got mobiles as well as office phones, are they on Skype (very useful if you are trying to keep in touch if you are overseas at anytime, keeping the costs down). Are they willing to assist with all aspects of the dreaded paperwork, and willing to put pressure on you to get things sorted in a reasonable time ( and are you responsible enough to respond - turn round paperwork in good time, pay deposits and other monies in good time)
Are you credit-worthy?
Many property deals these days, once you have paid a retainer, assume that you can get a mortgage to complete the deal. Once you have entered into a contract, any monies paid will be forfeit if a mortgage is not forthcoming for any reason.
So before you entertain the thought of becoming a property tycoon, please, please, do a credit check on yourself using one of the main credit agencies, such as Experian or Equifax. Take your report with you, and show it to the person offering you the property. After all, if he still takes your money, and you don't get a mortgage due to a poor credit rating, you have a better chance of getting any deposits back.
Now, and only now, consider the offer.
A lot of the above points have been written not with the view of putting you off becoming a budding property tycoon, but to make you think though the risks involved. Too many companies will gladly push you into a situation where you will over-extend yourself if you are not careful, which is a shame. Investing in property can be a very rewarding experience, and be the best and soundest investment you ever make, but, if you are like me, I like to sleep soundly at night, knowing that I have taken steps to eliminate most of the risks involved.
I know - I have been there - taken risks in the past that came back to bite me, but I learnt from my mistakes... so get out there and build yourself a solid, future-proof property portfolio to ensure your financial freedom - especially into your retirement (which you could start of course as early in your life as you want when
you achieve financial independence through property!)
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