Worried about a 20% drop in property prices?

Worried about a 20% drop in property prices?

by Readers Question

Guest Author

11:51 AM, 26th January 2014, About 11 years ago 22

Text Size

Hello!

I am hoping to get some ideas from a dilemma that I have. I have just had an offer accepted on a London 2 bed flat (share of freehold I am pleased to say) I am buying to let out and in the last 4 or 5 months have seen prices rise rather crazily, easily 35 to 40K.

Now I know that most of you guys here are only probably thinking that property will go up, but I am wondering if my thinking is flawed if I was going to only put down 20% as a deposit on the flat and borrow the rest on interest only? The reason I say this is because I have the full amount in cash to buy the place but should prices get cut in half, say a 50% drop then I can use the cash to buy up more?

I was also thinking that as prices have run up so fast to maybe just wait a while and let the election happen as we may then see some ugliness come out of politics and perhaps a removal of help to buy which may bring prices down and then buy the flat.

Of course I could be wrong and it may not rise or just go up even further. This is quite a dilemma to be in. I have enough cash at present to buy about 1 further flat out right but I am a property bear , so don’t plan to use this further cash until we have a upset in the market like in 2007. I guess my thinking is like buying a rose not on Valentines day but 4 weeks before and stick it in the freezer to get a better price.

Any strategies/ thoughts would be greatly appreciated.

MarcusFrozen Rose


Share This Article


Comments

Jeremy Smith

22:55 PM, 26th January 2014, About 11 years ago

Reply to the comment left by "Colin Childs" at "26/01/2014 - 22:16":

It's simple mathematics, most people can do it, even on a fag packet.

It's very effective, it means you can get a better return on your invested capital by using someone elses money.

Marcus Taylor

9:41 AM, 27th January 2014, About 11 years ago

Reply to the comment left by "Richard Adams" at "26/01/2014 - 12:19":

Hi Richard,

Thanks for your reply and all the other replies, much appreciated.

I wanted to stay away from auctions as I am still new to property and I have been told that these days auctions tend to only sell problem properties, especially within London. Could make sense as everyone is fighting for high yield properties and if anything suitable was to come up in London, I guess an estate agent or someone deeply involved in property would have snapped it up before. When a guy like me who knows nothing about property can get an absolute bargain at auction, something inside me says buyer beware! And when supply is so short, even at auction I am told prices for non problem properties are going for higher than ones through normal channels like estate agents etc.

I did think about outside London to pick up a better bragain but I wanted to try and stay close to the property. Sadly like Jamie says, I think I am risk adverse to property and need to resolve this.

Marcus Taylor

9:52 AM, 27th January 2014, About 11 years ago

Reply to the comment left by "Vanessa Warwick" at "26/01/2014 - 13:33":

Hi Vanessa,

Thanks for your advice, again much appreciated. Are you able to say where in the South East cash flows are better so that I can research a little to see if I can travel there?

I am going to try to avoid thinking about prices and just work on cash flow. I guess the problem is that it can be hard doing this especially when they have run up lately so much but your principle is absolutely correct. My greatest regret was that I saved money for the last 12 years thinking prices would crash in London and was waiting for 10 percent yields when they crashed. And as Neil said, no one can predict these things and as a result I have missed out. I should have just bought steadily along the 12 years.

10:01 AM, 27th January 2014, About 11 years ago

Hi Marcus,

We have a very interesting discussion on Property Tribes about the size of London's commuter belt.

I would look in places where there is high tenant demand and properties are sub £250K.

http://www.propertytribes.com/what-are-the-limits-of-londons-commuter-belt-t-10150.html

Many people like yourself wait for certain conditions before buying.

My personal belief is that the lights are never always on green.

T. Harv Ecker states that successful entrepreneurs adopt Ready! Fire! Aim! instead of Ready! Aim! Fire!

In other words, they take action and then fine tune what they do to hit the bulls-eye.

You have had the realisation of what you could have achieved if you started 12 years ago, so that should give you the impetus to get started NOW!

There is no time to lose and Property investment benefits from the passing of time.

While there are few guarantees in this arena, the passing of time is one thing I can GUARANTEE 100%!

Richard Adams

10:58 AM, 27th January 2014, About 11 years ago

Reply to the comment left by "Marcus Taylor" at "27/01/2014 - 09:41":

Yes Marcus auctions are not a doddle but decent properties can be had. Whether in auctions or elsewhere properties are still being repossessed both owner occupier and BTL and while this may sound heartless form the poor souls involved point of view, lenders don't care much and are happy to sell on the cheap side.

Unlike the others in this thread I'm no expert, but remember this. House prices will go up or down and there is nothing you can do to influence it. Equally there will be prevailing current rents in any locality. You can't influence that either. The only thing you can influence to improve yield and the whole deal is price you buy at.

As you have ready cash you are in a very strong position.

Marcus Taylor

20:10 PM, 27th January 2014, About 11 years ago

I am finding it hard to believe that the offer that was accepted on the flat that I was buying has been reviewed in just a matter of days. I had the agent call me to say that they are suffering with such a low supply of properties on the market that the vendor had said that they wanted more people to view the flat. And on one day they had organised 35 viewings resulting in 10 offers at my price and 4 smashing my price by 10K! And the price I had offered was asking price the agent had listed which I and the agent thought was 15K over priced. Jesus...what is going on out there. I spoke with other agents and they all told me that there is no supply of property and hence prices are mad and being achieved. One agent said that imagine all the banana crop in London destroyed and you have a garage full of bananas, you would easily get 35 pounds a bunch!

So my question to the wise out there is what is going on? I have the cash to buy one out right and can put a big deposit but surely something has to be wrong if your buying bananas at 35 quid a bunch cos thats how it feels buying a flat today. Remember the rents are not going up in the same way as bananas at the same time!

Richard Adams

20:43 PM, 27th January 2014, About 11 years ago

Reply to the comment left by "Marcus Taylor" at "27/01/2014 - 20:10":

Get on your bike Marcus and buy somewhere else! A good deal is a good deal wherever it is provided all the right boxes are ticked. If it's a really good one you can afford to pay someone to manage it for you so you don'y need to live close by.

9:47 AM, 28th January 2014, About 11 years ago

Hi Marcus,

Have a look at our new site, RightYield.

There you will find a variety of tenanted properties for sale, allowing you to know the exact yield you are achieving.

For someone who is risk averse, buying a tenanted property is a possible way to go as it will be discounted from market value because of the tenant, and you also know the rent and if the tenant has a history of paying on time and looking after the property.

You are in a strong position, so do not feel intimidated by end users bidding up prices on properties they want to live in.

You need to look elsewhere and find the bargains that are out there.

See my automatic link below for more information about RightYield.

Marcus Taylor

10:07 AM, 28th January 2014, About 11 years ago

Reply to the comment left by "Richard Adams" at "27/01/2014 - 20:43":

I think you may be right Richard! I am on property alerts with right move and Zoopla and hardly receive new property alerts in my area of London.
I spoke to more agents and they all said they were 80% to 90% below the number of properties they should be selling, one guy I know quite well said that they had 6 new instructions and within 3 days all were offered on above asking.

So why is there such low supply? Why have people suddenly decided not to sell their properties? The government wont like this trend, lower stamp duty revenues and less associated home sales revenues like people furnishing their new homes.

10:19 AM, 28th January 2014, About 11 years ago

I am about to put a 2 bed/2 bath flat on the market in E17. (Walthamstow).

The estate agent tells me that if I put it on at £250K it will sell within a week.

I will report back on how many viewings I have and also if the price is bid up over the stamp duty threshold. 🙂

The flat has stunning water views of the Lea Valley Reservoir and City of London skyline so I am hopeful that someone who wants to live there might go over the stamp duty threshold.

Interesting times for sure....

Leave Comments

In order to post comments you will need to Sign In or Sign Up for a FREE Membership

or

Don't have an account? Sign Up

Landlord Tax Planning Book Now