THE CREDIT CRUNCH AND BANKING CRISIS
The credit crunch and banking crisis and why now is the time to start investing in property despite the fact that property process are likely to continue falling and the credit crunch and banking crisis are unlikely to go away yet
Start of article about the banking crisis.
Previous page about the credit crunch.
I have not bought a property for over three years. Property prices had continued to rise and I just knew they had to come back down in price. However, I never borrow money when buying property and that is why I said I was waterproofed against this whole fiasco. Yes my small property portfolio has dropped in value but it is only a paper loss; property prices will go back up. Now, for the first time I am looking at dipping my toe back in the water and looking to pick up a bargain or two. Being a cash buyer I don't have to worry about going cap in hand to a bank to raise the funds and the first property I will be buying will be a joint venture with my eldest boy (22) who has saved a few grand and wants to get on the property ladder and into property development.
There are plenty of bargains that can be picked up now; distressed sales that we can most likely buy at well below the current market value. Property values are likely to continue dropping for at least another twelve months, and it is possible that anything we buy now, even at below market value may gain a small loss on paper. However, the time to buy is in a falling market when there is plenty of choice and people readily prepared to unload property at any price; not when they can see some daylight at the end of the tunnel and maybe believe they can hang on till things start to pick up. I am in a position to cherry pick the deals and if I can't buy a property at the right price I can afford to walk away and buy any property that falls within my budget. You should not do this if you have to raise a mortgage to do it; it is unlikely that you would find tenants to cover the mortgage costs and if the property price dropped further you would be in trouble. I will explain what you should do to overcome this problem later.
CREDIT CRUNCH
When I originally stopped buying property, many other property developers scoffed at my negative attitude to the market and continued to borrow money and invest in more properties at over inflated prices. On paper, they were making far more money than I was, and their property portfolios were valued at far more than my own. None could understand my attitude towards only investing with my own cash when there was cheap money to be had at fixed rates. They thought I was short sighted whilst I considered them to be blind to what was likely to happen. I have been proved right as most of the property developers I know have been wiped out as their fixed term mortgages came to an end and they found themselves facing a huge increase in monthly repayments and unable to find any competitive mortgage rates available from any lender prepared to loan them the money.
BANKING CRISIS
Property portfolios that were valued in their millions, but with millions of pounds worth of mortgages; and property developers who considered themselves to be millionaires are now bankrupt. Most have simply handed back the keys and walked away. Some are trying to hang on by selling properties and approaching me to see if they can unload them; but they paid too much in a rising market and most have negative equity way too much to salvage the situation. Worse still, many are sitting on empty properties and unable to even collect rents to buffer their situation and fend off the banks. One mortgaged property without a tenant could now be costing a buy to let landlord upwards of a grand a month. Leave that property empty for six months and multiply that by twenty or a hundred properties and any profits made over the last few years can be wiped out in a matter of months and there is no going back.
It was always going to be a here today gone to tomorrow market. People ruined by there own greed and inability to visualise anything but a rosy future who thought they couldn't put a foot wrong. The fast cars have gone, in many cases their own homes have been repossessed and the future looks exceedingly black.
INVESTING IN PROPERTY
Earlier I talked about the dangers of holding money in the banks and investing your money in property instead; but I also advised against borrowing money in order to do this. So what do you do if you don't have the kind of funds to run off and pay cash for a property?
There will be millions of people in this situation; who have a small nest egg but not enough to go out and buy a property. You will know many people like this and possibly members of your family. Talk to these people and find out if they would be interested in forming an association with others who are in the same situation. My 22 year old son has been careful with his money but is not in a position to buy a property of his own without borrowing on a mortgage. However, he has enough to raise 25% of the value of a small property and his mother and myself are happy to put up the rest. It will get him started on the property ladder, mortgage free and we can either rent the property out or refurbish it to sell it on when the market improves.
You may need to find several people willing to invest in this manner; how many really doesn't matter. However, the rental return is likely to be far more than you would receive by keeping your money in the bank and you will find that the value of your property will increase over the years. Of course it comes with responsibilities and you have to choose the right people but this has to be better than keeping your money in the bank.
The credit crunch and banking crisis and why now is the time to start investing in property despite the fact that property process are likely to continue falling and the credit crunch and banking crisis are unlikely to go away yet
