With so much is uncertainty in the UK property market right now, many investors are unsure of which strategies are best to use. I thought I'd share my prediction for 2019, which strategies to use, and which ones to avoid.
What Is My Prediction?
When I first started to invest in property back in 1995, like most people, I thought that a falling property market was a bad thing for property investors. But now that I have experienced a market boom, crash and boom again, my mind changed. Over the last 23 years of investing, I know that there is a huge opportunity this year. Or even better, this will may even be the buying opportunity of this Decade.
First of all, I would like to share with you my prediction for the 2019 property market. In my opinion, there is no doubt that house prices will, on average, fall in 2019. Of course, I can’t say how much they will fall. But I feel that this will be more likely to be a dip in prices, rather than a crash like the one we saw in 2008.
There are 3 main factors that will cause this fall with house prices in 2019:
The Uncertainty Caused By Brexit
No one really knows what will happen after March 29th when the UK leave the European Union. I think many of the potential buyers have decided to wait and see what happens, and so they are not looking to buy right now. They are worried that the property prices could fall further. This means there are less buyers in the market than there might otherwise be.
“By 31st January 2019, all of the 1.75million UK landlords should have submitted their personal tax return for the 2017-18 tax year”
The Effect Caused By Section 24.
Higher rate tax payers, who own properties in their own name, will now be paying more tax on their rental property income. By 31st January 2019, all of the 1.75million UK landlords should have submitted their personal tax return for the 2017-18 tax year. This will be the first time that many landlords realise the true effect of Section 24. They will be surprised that they are paying more tax despite earning the same rental income.
We are already seeing lots of long term landlords deciding to retire early and so sell up their portfolios. I believe that there might be hundreds and thousands of accidental landlords, who are higher rate tax payers. They will have had great capital growth on their property over the last 10 years. They then decide that now might be the time to sell their property and invest the money elsewhere. If this happens then the property market could be flooded with ex-rental property for sale. If not that many people are looking to buy, house prices will fall.
Cautious Property Surveyors
There is a third and final factor that will cause house prices to dip further in 2019. Many property surveyors are being very cautious and down valuing property, when conducting valuations for mortgage companies. The Royal Institution of Chartered Surveyors (RICS) has publicly said that they believe the property prices will fall in 2019. They have advised their members to be cautious. Unfortunately, this becomes a self fulfilling prophecy. Property prices are based on the valuations by surveyors on behalf of the banks. So if surveyors are over cautious and down value properties, this actually causes a drop in house prices.
When Should You Be Buying Property?
Should you wait until the market bottoms out before you buy your next property? Absolutely not. As long as you know what you are doing, now is one of the best times to be buying. It is probably the best buying opportunity of this Decade.
But what happens if you buy a property now, and then prices continue to fall so that it is worth less in six month’s time? Well that could happen,but if prices fall, that does not mean you have actually lost any money. You would only lose money, if for some reason, you had to sell for less than you purchased it for. As long as you can afford to hold the property until prices have a chance to rise again, then you have not lost any money.
It is important to remember the 5 Golden Rules from my book 'Property Magic'. Three of these rules are particularly relevant here:
Rule No 2: Always Buy in An Area of Strong Rental Demand
Rule No 3: Always Buy for Positive Cash Flow.
Rule No 4: Always Invest for the long term.
If you follow these then you should be able to hold the property until prices recover. You should have no need to sell and won't lose money if the market drops.
The property market is cyclical. Prices go up and they come down, but the long term trend in the UK is up because we live on an island. We have a limited supply of accommodation and an increasing population. With enough time, property prices will recover.
A Great Time To Negotiate Discounts
If the general public believe that property prices are coming down, it puts you in a much better position to negotiate a good discount off your next few property purchases. There will be some sellers who believe that the property market may be about to crash. They will then be prepared to sell their property at a good discount, just to get it sold quickly. This is because they think prices could fall much further as they did in 2008.
No one can accurately predict when the property market will hit the bottom. If you postpone your investing until you think it has hit the bottom,and everyone else also believes it is at the bottom, prices can only go up. Sellers will then hope that someone will come along and pay more for their property. This means that it is actually harder to get discounts at the bottom of the market. Right now really is a great time to be buying, as long as you know what you are doing.
What About The Rental Market?
If lots of landlords decide to put their property on the market for sale then that means there will be less rental stock available. Therefore I expect rents will rise in 2019. This is good news for those of us who stay in the market.
If the UK goes into recession after Brexit, which some people have predicted, then the population in general may become more careful with their money. Younger people looking to live on their own in an apartment, may decide that living in shared accommodation is more cost effective for them. I believe we will see the demand for rooms in HMOs increase this year.
Get Your Funds Ready For 2019
If you have equity in your home, or other investment properties, which you plan to use to buy property in 2019, then I recommend you release the equity as soon as you can. We don’t know what will happen to the mortgage market, or the extent of property price falls after Brexit. This is why I suggest you release equity now, whist you still can, so that you have funds ready. You can move quickly and snap up some great deals this year.
Strategies To Avoid In 2019
If you believe that the market is falling in 2019, then there are two strategies which you should avoid. The first one is buying property off plan, which you should only really do in a rising market. The second strategy to avoid in a falling market is flipping property. This is where you buy a property with the intention of adding value, and then selling it on for a profit. This can be a great strategy, but only in the right market conditions.
There is a risk that if you buy a property now, spend money on it and then try to sell it in a falling market, then it could be worth less than you paid for it. The only way to do this strategy, is to make sure that if you can’t sell it, you could easily rent it out. This should allow you to cover all the costs, until the market rises and then you can sell at a profit.
“As time is your most valuable asset, you need to delegate as much as you can to other people.”
The Best Strategy For 2019
I believe one of the best strategies you should be using in 2019 is Purchase Lease Options (PLOs). This is a massively misunderstood but very powerful strategy. The main problem is that PLOs only work in very specific circumstances. But also, most investors don’t really know how to use them correctly.
The basic idea of a PLO, is that you take control of someone’s property (or entire portfolio). You then rent it from them for a period of time. You have the right, but not the obligation to purchase the property within a certain time period. This would be for a price which you fix at the beginning of the option period. PLO's work with property that can be used for Single Lets, HMO's, Serviced Accommodation and Commercial to Residential conversion. They really are very versatile and can be whatever you and the seller agree.
You should always make sure you use solicitors to put the paperwork together for you. Of course, they need to understand PLO's. This is usually another issue because most solicitors don't understand them.
But there is a main reason as to why Purchase Lease Options are a great tool to use in the current market conditions. There are so many landlords who are considering retiring early. The landlords can benefit from maximising their personal capital gains tax. This is by spreading the sale of their properties over a number of tax years. By using PLO's, you can take on the responsibility of managing the properties for them. They can then walk away from the hassle of managing the properties.
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