I’ve had a great question from one of my readers.
“If you were in the market to buy, buy to lets, would you look for deals now or wait until next year to see where the market is then?”
Now, I have to start by saying that I can’t give financial advice, I can only give my opinion, so you will have to make your own decision as to what is right for you.
But this is the way that I see it.
Unfortunately, there is no simple yes or no, do it or don’t do it, binary answer because that’s not how life, or the property market, works.
There are so many variables.
And it’s going to be different for every individual investor.
Let me explain.
Now, the presumption behind this question is presumably that it’s going to be cheaper to buy properties next year because, as things stand at the moment, (imo) there’s a good chance of a major or a minor correction in house prices because of the current economic volatility and uncertainty.
So is it worth waiting to buy them up even cheaper than they are now?
But when we’re thinking about whether a property is a good deal or not there are other things to consider than price.
One thing which I saw in 2007/2008 was, perhaps unsurprisingly, as prices fell banks became more reluctant to lend. Some banks stopped lending on property altogether. Others tightened their criteria. Others reduced their LTVs.
So, many investors who sat on their hands waiting for prices to fall couldn’t buy the bargains they then found because they couldn’t get finance anymore (or the right level of finance). How frustrating!
So that’s something to bear in mind. You may pay a higher price now, but you may be able to get finance. You may be able to buy the property cheaper next year, but you may not be able to get such good finance, or even any finance.
Another thing to think about is why are you buying property? What’s your strategy? The answer to those questions might influence your decision.
For example, if you’re buying for the long term, and intend to hold your property for 20, 30, or even 40 years, you will probably be less price sensitive.
Now, I’m not saying that you shouldn’t do the best deal that you can , and we’ve all heard the expression that The Profit is Made on the Purchase and all of that, but the reality is that if you’re buying for 40 years and the price drops after you buy it , does it really matter? Especially if you’re buying for cash flow. If you’re relatively confident that prices will recover and grow over the next 40 years that might put the whole thing in a different perspective.
My buying criteria depends upon being able to refinance my money back out of the deal. If I can do that then as far as I’m concerned it’s a great deal anyway, and I don’t really care what’s going to happen to capital values over the next few years.
On the other hand, if you’re buying properties to flip, in other words to sell-on at a profit, then a falling market may limit your ability to be able to sell the property in six or nine months time after you’ve done a refurb, and in a steeply falling market you may lose all of your profit . So that would be significant.
So you need to understand your strategy and what you’re trying to achieve.
Another thing to think about.
Have you found a great deal now, or is it a bit marginal? For example, if you can buy a property truly 25% BMV, you may think it’s worth taking the risk of buying the property now. But if the deal is marginal, and you’ve only got it at 5% BMV, then maybe you won’t take that risk.
Another thing to consider. How much do you think the market is actually going to fall next year?
If you think that the market is only going to fall by 5% but you can buy a property now at 25% BMV, then you may well think it’s still a great deal.
If, on the other hand, you think there’s a good chance or probability that prices may fall 20% over the next two years, then it may not be the right time to buy a property where you’re paying closer to the current market value.
But I have to stress again, it all depends on your game plan and what you’re trying to achieve.
And this will be different for every investor.
That’s why there is not one, simple, one-size-fits-all answer.
And that’s why I don’t believe there are any hard and fast rules on this.
Anyway, I cover this and MORE in the video. It’s one of my longer ones, about 9 mins, but this is a very, very important question so I want to go into some detail.
I hope it helps.
Here’s to Successful Property investing
Peter
Peter Jones
(ex) Chartered Surveyor, author and property investor
PS. By the way, I’ve rewritten and updated my best-selling e-book, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same.
For more details please go to:
The Successful Property Investor’s Strategy Workshop