In this blog, I want to share with you the best buying opportunity for property investment this decade. I'm also going to give you a Housing Market Update and also going to talk about the Property Crash 2021. The Property Investors Network gives me a slight unique advantage, because I have my ear to the ground all over the UK to find out what's happening at grassroots level. I'm going to share with you some of that information in this blog.
One of the Best Buying Opportunities of the Decade
I believe that about once every decade something happens that makes it an incredible buying opportunity for those people who are ready. I want to make sure that you are ready for this time because something's happening right now. It's been happening for a year, it's going to happen for another year that's going to make this one of the best buying opportunities of this particular decade. But let me give you some history first of all. So as I said, I've been investing since 1995 and when the first opportunity came out in 1998, to be perfectly honest, I missed it. I'd only just started investing. I had two properties at that time. I didn't know what was going on.
Buy to Let Mortgages
What actually happened to change that made it the buying option of that decade was the introduction of Buy-to-Let mortgages. Prior to that, most people just bought their own home. If they wanted to buy another property, they had to get special commercial finance or they had to have lots of money to do that, it was very difficult. But in 1998 buy-to-let mortgages came in. What that meant was in addition to your own home, which is based very much on what you can afford when you get a mortgage on that, you could get extra properties. These extra properties weren't so much based on your personal income, they were based on the rental income generated from that particular property. What that meant was, people who knew They were doing were able to acquire lots more property and rapidly grow their portfolio. Whenever these opportunities come, it's a great time to buy and massively increase your portfolio which means you could make a lot more cash flow and have property that's going to go up in value over time.
Global Financial Crises
Now the second opportunity was when we saw a property market crash. Now that happened in 2008, 2009, and it was caused by the global financial crisis. What happened? Lots of banks during the early 2000s were lending money to lots of people who may not have been able to afford that borrowing and probably shouldn't have borrowed. So there was definitely some irresponsible lending at that time, there was also some irresponsible borrowing. People were able to sign to say they could afford it. Some of those people who couldn't afford it were taking out mortgages and property they had no way of paying back. Now the banks took all of these mortgages and they bundled them up and they sold them to other financial institutions and other banks.
The problem was, within these bundles of mortgages there were some good mortgages, there were some very bad mortgages. What's called toxic debt, debt that would never be paid back. This was because the people who borrowed the money would never be able to afford to do that. Now, this all started to unravel in America in about 2007, and we saw the first impact of it towards the end of 2007 when you might remember Northern Rock, they got into difficulty, they realised they had some of this toxic debt. They announced they may not be able to meet all their commitments. You saw pictures of people queuing around the corner of Northern Rock trying to take their money out, and the bank ultimately crashed. This was the start of this global financial crisis. All over the world this happened. In the UK, a number of the UK banks like Lloyds, had to be bailed out by the government to stop the banking system crashing.
“By the way when the market comes down, as long as you know what you’re doing it’s a great time to buy, because you can get better discounts from people who are selling”
Now, at that time, obviously people have been buying property in the early 2000s. We saw tremendous growth. To be honest, the market had grown too fast. Now what happens whenever a market grows really quickly, we always see a market correction. It gets too expensive for people to be able to afford. First time buyers and people moving in who are dependent on their own income, they can't afford to buy. Investors stopped buying, because the rents just aren't enough to cover the cost of the mortgages at a high price. So prices shoot up, then they correct and come down. Now, that was the second opportunity.
By the way, the second time I was ready, I missed the first opportunity of the decade back in '98. I wasn't going to miss the second one. I'd had a lot of property by then. I'd replace my income. I'd left my job at Cadbury's. By then, I was teaching other people. So not only was I able to make advantage of that opportunity. Many of my students on our Mastermind programme also bought a lot of property sometimes using very little of their own money, it was a great time to buy. By the way when the market comes down, as long as you know what you're doing it's a great time to buy, because you can get better discounts from people who are selling. Then when the market hits the bottom and starts to come back everyone's got the expectation that prices are coming up. What that means is, sellers are not as inclined to give you big discounts because they hope and pray that someone else is going to come along and give them more money for their property. So, as long as you know what you're doing when the market starts to come down, it's a great opportunity to be buying.
Government Initiatives 2020
Now, the UK economy is based very much on retail and that's why when all the shop shut we went into recession, but it's also based on real estate as all the construction, the sale of that. So really they wanted to protect the price of property to make sure it didn't come down. So they introduced the Stamp Duty holiday. They said that the Stamp Duty on property purchases up to £500,000 was not going to apply. This is the tax you pay when you buy a property. They said, if you're a first time buyer or if you're selling a property to move on, you don't have to pay Stamp Duty up to 3500,000. And that was to the end of March, 2021. Now as property investors, we have to pay a 3% surcharge, but even for us, it's better than having to pay all the Stamp Duty we'd normally pay. So what this means is, there has been a boom in property prices in the latter six months of 2020.
Now, I personally felt the prices would come down, because there were lots of people, millions and millions of people who on the government furlough scheme. Now what that meant was, these people were being paid 80% of the salary. They're at home, the employers didn't really need them to work. I think there were, there was a real worry there that when furlough scheme ended, which was supposed to the end of October, we'd see millions of people who were on furlough, not go back to work, but instead going to the unemployment benefit line. Millions of people becoming unemployed, this would have a compound effect on the economy. We would have a pretty miserable November, December and I mean it's pretty bad anyway, right? But it was going to be even worse with this bad news.
So to prop up the economy, to keep things going, the UK government extended the furlough scheme. So we didn't see the drop in prices that I think we would see. But what we have to learn from history is whenever we see a boom in prices, there's always going to be a correction or a crash.
Strategies for a Property Crash - My Secret
Now, will we see a crash as much as we sure saw in 20, sorry 2009? I don't think we will, but I think we will see prices come down. But I don't know what's going to happen, no one knows what's actually going to happen. So what this means is, we will see prices probably come down a bit and there'll be the fear that prices could drop. Now, I don't know if you're new to property or if you're already an experienced investor, but what I would say is this, I saw many investors in the last crash thinking should they go in, shouldn't they go in or not? Those who came in and they knew what they were doing bought well at a discounted price have done it for normally well over the last 10 years. Most people have seen property prices when they bought at the right price in 2009, 2010 double over the last 10 years. I also know lots of investors who sat back, waited, didn't do anything until they were sure that the market was coming up, then they jumped in. Let me let you into a little secret. When the market's coming down, it's easier to get good price deals.
This is because when it's hit the bottom, and everyone knows that it's coming up. I mean, all the sellers know it's coming up. All the press think it's coming up. The general public think it's coming up. It's much harder to find great deals, because all the sellers live in the hope and the expectation that someone is going to come along and give them more money for their property in the future. So it's harder to get deals. You can get deals all the time if you know what you're doing, and you're looking for motivated sellers, but it's much harder once it's hit the bottom market coming up.
So now really is the time. Those of you that are new, sometimes it takes a bit of confidence to invest when the market's a bit shaky. But you've got to remember this, we live on an island in the UK. It's a very popular place to live. And the values over the long time go up, because we have an increasing population and a limited amount of accommodation. We are not building enough property in the UK every single year. The UK government say we need 300,000 homes a year. And yet, the UK is very good at building 200,000 homes a year. So there is a shortage every year. This is why long term property prices and rents go up. People often say, "Simon is it still a good time to invest now?" The old Chinese proverb says the best time to invest in property is 20 years ago. In fact, the proverb talks about best time to plant a tree being 20 years ago. But if you didn't do it then, the second best time is right now. As long as you educate yourself, you know what you're doing, now is going to be a great time to be investing in UK property. So no one really knows what's going to happen in the property market. I believe we're going to see property market crash in 2021. Some people say it's not going to happen.
“But something’s changed. This is the opportunity that I want to talk to you about and make sure you’re fully aware of this, because this is going to create the buying opportunity of this decade.”
No one really knows, but I want to share with you this other thing that's happening, that kind of people are forgotten about, but I believe makes us an incredible opportunity to be buying, in fact the best opportunity to be buying this decade. So remember, I said back in 1998, it was the introduction of buy-to-let mortgages. That was the thing that step-changed property investing. In 2009, it was the global financial crisis and the market's coming down. And in 2021, it's going to be a combination of factors, but here's the main thing. So, for the last couple of years, we have seen lots of landlords looking to sell some of their properties. Now, if you think about it, in any market you always have some people coming in new who are just starting to invest. You have some people who are exiting the market, because they've been doing it for a long time.
Typically in property investing, you have people who might've been investing 15, 20, 25 years, they've got a nice big portfolio. The idea is at some point, they're going to sell that property portfolio and sit on a big pile of money drinking cocktails on a beach somewhere in the world that's very, very hot. Sounds like a great idea to me. And those landlords will run that portfolio, often they manage it themselves and that's their full-time job. Then we can very good income from doing that. Now, I am an investor. I don't consider myself a full-time landlord. I pay other people to manage my properties for me so I can spend my time doing what I love to do which is this, which is training, which is sharing this kind of information. But I have a significant portfolio managed by other people. But many landlords manage it themselves and that's their job. So they have all the hassle, all the grief, but they get paid very well for that. But something's changed.
This is the opportunity that I want to talk to you about and make sure you're fully aware of this, because this is going to create the buying opportunity of this decade.
Why is 2021 so important for Property Investors?
It's already been happening for the last year or so, but with what's happening in 2021, it's been compounded and accelerating, which is going to make 2021 the best buying opportunity of this decade, let me explain why. So we need to go back a little bit, when need to go back to April, 2017, when the UK government introduced a new way of taxing us as landlords. Now, prior to April, 2017 it always used to be the way that if you wanted to buy properties and hold them long-term and rent them out, it was best to do it in your own name. That was the most tax efficient way of holding property for many, many reasons. Most property investors, they get mortgages on their properties, and it used to be that we could take all of the interest that we pay on the mortgage offset that against the rental income, to reduce down the profit that we make and thus reduce the tax we pay. It's a bit like any other business, any legitimate expense you have, you can offset it against your profit and bring down the amount of tax. So that's what businesses do.
However, the UK government brought in this new change called Section 24. Hopefully if you're an investor, you know all about it, but just let me make sure I explained to you, just in case. So Section 24 was to change the way as we, as investors are taxed. What it means that if you hold property in your own name, which as I've said, most landlords did, because it was the most tax efficient way of doing it. If you have mortgages, which again, most investors have, because they want to get leverage when they're buying property. Also if you're a higher rate tax payer, which many property investors are, because they make really good money from their property investing. So if you own property in your own name, if you have mortgages on it, and you're a high rate taxpayer, what Section 24 means is, you're going to pay a lot more tax on your property income. That's because we can no longer offset all of the interests that we pay on our mortgages against the profits that we make to reduce our tax down.
Therefore for some landlords, they might have a property that doesn't really make much cashflow, but it does make them some profit. But now because they can't offset the interest, it means on paper they're going to make it a lot more profit and thus they need to pay more tax. What this means is, there are lots and lots of landlords who've got properties, some of them might just have one property, which is most landlords, some of them might have big portfolios. Lots of landlords who've owned property for a number of years, they're managing themselves, they've got all the hassle.
Over the last few years we've seen the amount of profit they make in their pocket after tax go down and down, and down.
More Sellers and Less Buyers
So what does this mean? Well, we saw these landlords come forward who say, "Well, I was planning to retiring maybe five or 10 years, but I've got all the hassle of this property and each year I'm getting less and less income." And they say, "You know, I don't want to do it anymore." Add on the fact that in 2020 we had all this hassle of COVID we're seeing more and more landlords saying, "You know what? I don't know if I want to do this." And the crunch point is going to be the end of January, 2021, because that's going to be the third year where people are going to see the impact of Section 24. 75% it's going to be in place.
For the third year of the row landlord's are going to say, "Hey I've made less money than the year before, and even less than the year before that." It's getting worse and worse, and then the next year, 2022 is going to see the full impact of Section 24. What does this mean? So we are seeing more landlords saying, "You know what, instead of putting it into a company," which by the way costs money and takes time and hassle, and they have to get a whole load of new mortgages if it's in a company, not in their own name. So it's a real hassle to do that, we're seeing more and more landlords looking to sell up and retire early.
You might think, "Well, hang on a minute, if they got a property that's not making their money why would we want to buy it?" Well, moving forward, you should really, most people should be buying property in a company structure, in a limited company. If you buy in a limited company, you're not affected by Section 24. What this means is, we can go and buy a property from a landlord that doesn't really make as much money for them, we buy it just in a different structure and can make a lot more profit than that landlord can. Even though they're an experienced landlord, so even if you're brand new to property, and you want to get in, get in a company and buying that, you can make more money than that experienced landlord. Or maybe you're already an experienced landlord, you also own properties and actually you just want to build your portfolio. This is going to be the opportunity.
If the market comes down, and these landlords who've had property a long time, most of them will have had property in the last crash. They're going to remember how prices came down, on average about 19% around the country. Some places it wasn't very much, someplace was as much as 30% discount, 30% off the value. Imagine we go into 2021, we see property prices start to come down. Who knows when it's going to happen? But I believe it's going to happen at some point. And then the end of January, 2021, they're seeing the tax return saying, "Well I'm paying all the Section on all this hassle." I believe we're going to see even more landlords looking to sell their properties. This is why we see all this property come on the market with all the uncertainty, people who don't understand about investing are not going to want to invest, the prices coming down. We're going to see negativity in the press about property. The prices come down. We might see banks and lenders lending less money. The loan to value comes down. It's going to be harder to finance deals. So therefore, they're going to be more sellers, and they're going to be less buyers, which is going to make the prices come down even further. So I believe that 2021 is going to be one of these opportunities. It's one of the best opportunities this decade.
Purchase Lease Option Property Strategy
In my living memory, the first one was in '98. And I missed that one because I wasn't ready. In 2009, I took full advantage and my students who are working with me, they did very, very well, all of us who are investing that time 2021 is going to be just like that. This is going to be the opportunity of this decade, and it's how we can build our portfolio rolling the prices back, and take an advantage of what's happening in the market. We're looking for people who've got a problem. We don't want to take advantage of the people who want to solve their problem, give them the solution they need by moving quickly.
This is what's going to happen in this market. I want to make sure that you are ready for this. This blog was to make you fully aware of the opportunity. So by now you understand why I'm excited about this incredible opportunity. But you might be thinking, "Okay, well, how do we actually make the most there, Simon? What do we need to do?" Well, I've put together some live online training for you explaining what I believe is the very best strategy to be using in 2021. Now here's the good news. This is a strategy that works whether you're completely new to property or whether you're experienced in property. This strategy works in conjunction with every other strategy. If you want to do Buy-to-Lets, if you want to do Houses of Multiple Occupation. You want to do Serviced Accommodation. You want to do Commercial Property. You want to do Dvelopment. You want to do Flipping Property, or you do Deal Sourcing, this strategy we're going to share with you in this live training works for all of those. This live training is 90 minutes long. It's live so you can actually ask me questions and get the answers to your questions. All you have to do, there's going to be a link below this blog, come and register for the live online training.
By the way, if you leave it too long, you might miss the live training, in which case they'll just be some on-demand replay training but you won't get the benefit of asking me questions. So I'd really encourage you to come and register right now, click on the link below, come and join me on this live online training.
We want to get your questions answered. So as always, I encourage you to invest with knowledge, invest with scale, I'll speak to you soon. click on the link below to come and join me for some live online training, all about how you can use purchase lease options and purchase options in your property investing. Because it's live training you can actually ask me any questions you've got about these incredibly, powerful investing tools. So click on the link, book the training right now.
FREE Purchase Lease Options Training - LIVE
If you would like to learn more about Purchase Lease Options, join Simon Zutshi for some live online training, all about how you can use Purchase Lease Options and Purchase Options in your property investing.
Click here to register and get your questions answered about these incredibility powerful investing tools.
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