Is now a good time to invest in property? This is a question I'm very often asked by people who want to know is now a good time to invest in property, or should I wait because the markets, should I wait till it comes down? In this blog I'm going to answer that question for you.
So is now a good time to invest in property? Well, it really depends, it depends on your personal view. My view is that any time is a good time to invest as long as you know what you're doing. So let me explain, in Property Magic, I share the five golden rules of property investing. Golden rule number two is about buying in an area with strong rental demand. The great thing is, right now over the last year, we've had incredibly strong rental demand. There is not enough good quality accommodation. If you speak to letting agents they'll tell you that good properties are having five to 10 people view that property and they're going really quickly. So demand is generally really good in the UK right now.
Golden rule number three is you only buy property that makes positive cashflow. What that means is at the end of each month, by the time you've paid the mortgage, insurance, maintenance, management fees, there must be some profit leftover for you. If there's no profit personally I don't think that is a good investment.
Covid 19 Pandemic
Right now we are seeing property prices being very high.
The last 18 months we've had this unexpected property market boom because of the COVID-19 pandemic. This boom was created after the government realised there was a chance of the property market coming down. The Bank of England back in May, 2020, actually predicted that property prices could crash as much as 16% because of the pandemic. So the government responded really well. They introduced the stamp duty holiday, which meant that for purchases up to 500,000 pounds, you didn't have to pay stamp duty. Now that's great to help first-time buyers get on the market and that's certainly stimulated the market.
Also we had the furlough scheme. Instead of people being made unemployed, if their business didn't need them anymore, they went on to furlough. People had more spending money because they couldn’t go out and do anything with it.
But more importantly the government brought in the Bounce Back Loans. So many business owners were able to take Bounce Back Loans and they weren't supposed to be used in property, but I'm pretty sure many people use that money to actually buy property. So we had this unexpected boom in property prices.
Do We Wait for Prices to Come Down
Now whenever property prices are high, whenever we get a boom, historically what's happened is there's always been a crash afterwards. Prices are very high right now, or they feel very high. So a good point might be, well, if prices are high and if we expect prices to come down, do we wait? Why do we wait until they hit the bottom and then we could buy and get some really good deals. Now that is brilliant concept but in reality, how do we actually know if prices are going to come down? But if they do come down, how do we know when it's going to happen? How do we know when it's hit the bottom?
Here's the reality, when prices do hit the bottom, if they do come down and everybody knows they've hit the bottom, I mean the press see it hit the bottom, the media, everyone, the general public think property prices hit the bottom - then all people who are selling property will have the expectation, right? We're at the bottom now, prices are going to start coming up. So anyone selling a property will hold on with the hope that someone's going to come along and offer them more money for their property, because after a crash you always get a boom.
Some people want to try and judge, and guess the property cycle. People talk about the 18-year property cycle. I believe that there are trends, there are statistics, but when things like COVID come along and then the government intervenes and brings measures in, which causes the markets to absolutely boom, I think it disrupts these cycles. So if taking everything else out, yes, these cycles are here. But I think it's very dangerous trying to predict, because you never know when something like COVID will happen. You never know what the government is going to do to respond to them. Rather than trying to judge when's a good time to come in, my view is as long as you know what you're doing, and following the five golden rules, it's always a good time.
"So anyone selling a property will hold on with the hope that someone's going to come along and offer them more money for their property, because after a crash you always get a boom."
The Value of Your Property
Now let's say the market comes down and you're buying property now, is there a risk that you buy a property valued here and 12 months later the value has come down, is that a risk? Well, yes, that is a risk. Does it mean you've lost money? It depends, if you're looking to buy a property to renovate it and sell it on then you could potentially lose money. However, in my book, "Property Magic," golden rule number four is we like to hold property for the long term.
You see, you can absolutely make money short term, you could buy, you could renovate, you can sell. That's been a very good strategy to use in a booming market, however if the market's not going to boom, if it stagnates or certainly if it goes down, that's not a good strategy, I prefer to buy, renovate, refinance and then rent. It's called BRR strategy. The reason I like to do that is because you can absolutely make money by buying, renovating and selling. But once you sell that property, you're crystallising the profit. You're never going to make any more money from that property. Whereas if you rent it out, you could make positive cash flow every single month, as well as the long-term capital growth. Having been investing in property for 26 years, I've seen that the general trend every 10 years is property prices doubling.
It's an average across the whole country. Some areas do better than others and a hot tip for you is to find an area that's going to have better capital growth than other areas. Look for areas where the population is growing faster than the average because the population's growing. It means there is an increased demand for rental properties and also properties to buy. So a little bit of a tip there for you.
But my point is rather than trying to guess the cycle, is now a great time to invest, should I wait till the property market crashes? We never really know. So if you find a good property right now, that stacks up or it gives you the cashflow you want, and the return on investment, as long as it meets your criteria, my advice will be to buy that property.
The only people who lose money in property are people who buy high and have to sell low. But if you could afford to rent it out, making positive cashflow every single month and you know you can easily rent it, then why on earth would you sell that property? You just need to wait and allow the property markets to come up.
Now, how do we know the property market is going to come up? Surely it's really high now, is it going to go any higher? Well, you've got to remember that in the UK we live on an island. It's a very popular islands with a limited amount of accommodation and an increasing population. Despite a number of people unfortunately dying during the COVID pandemic. Despite a lot of people leaving the UK because of Brexit, we still have an increasing population. We have increasing birth rates. We have a longer life expectancy. We have changing social demographic trends, which means more people are living on their own. This all puts upward pressure on the demand for good accommodation, that's why in the UK over the long term, property prices continue to grow.
We've heard recently in the news that inflation has hit 5%. Now that's higher than it's been for a very long time. Actually inflation is good for us as property investors for two reasons, first of all, cost of living. Everything goes up, that means rents also go up as well. So we get an increase in the rental income we're achieving. Certainly in 2021, we saw a massive hike in rents. Inflation also means the value of that property is going up and inflation will erode the amount of borrowing we have.
Although the amount of money we borrowed on interest-only mortgage will stay the same, the real buying power that erodes over time, thanks to inflation. The one risk with inflation obviously is increasing interest rates. The Bank of England use interest rates as a macro economic tool to control inflation and there's a risk they might put interest rates up. So obviously we can fix our interest rates on a five-year fixes which is probably a good thing to do to minimise the risk. So is now a good time to invest in property? I believe as long as you know what you're doing. And as long as you find a deal that stacks up today, you know you could rent it out. You know what makes positive cashflow and you hold it for long term, I believe yes. Now is a really good time to be investing in property.
6th Revised and Updated Edition
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