If you are involved in property then I’m sure that you will be monitoring chat rooms, news articles and, of course, the budget to see what the implications could be for your business.
That said, I want to offer a positive message. This difficult time offers massive potential for savvy property investor. Read on to discover why:
Increased demand for BTL
It’s a sad fact that many people will end up in financial difficulty as a result of the virus. Many people will see homes repossessed which leaves them unable to obtain another mortgage. By default, they then become tenants in the rental market. This could be private, or social rental schemes.
Combine this with lenders tightening up on their terms of business to reflect the risk in the market and many people who may have been eligible for a mortgage are suddenly unable to purchase. This means that they are restricted to the rental market once more.
Diversify into HMO
In some service industries, such as the bar and restaurant industry, most employees are on low hour contracts and regularly work in excess of these. With decreased demand for these services, many of these employees will see their hours cut back to their contracted hours.
Suddenly many of these people who were relying on those regular hours to pay their private landlords will be unable to pay a full rent and will be evicted.
The solution for these individuals may be to rent a room. This offers potential for BTL landlords to diversify into the HMO market to accommodate the increased demand. This can result in significant increases in yield.
Property Price Crash
In a crashing market, property is always one of the asset classes to suffer. Values will drop. This gives cash rich investors a prime opportunity to cash in on low prices. They can do so in confidence that property values always recover to be higher than they were pre-crash. This can be evidenced through every financial crash in the past 60 years.
This principle is true for stock markets also. You should always purchase stocks and shares when they hit rock bottom, and just as they begin to recover. You should always sell when prices hit their peak, just before they begin to fall. Repeat this process several times and your initial investment will multiply exponentially.
We know that, in the UK, we are due to hit the peak of the epidemic in 12 weeks. This would be the time to purchase before the recovery begins.
Interest Rates
The Governor of the Bank of England has announced that it has cut rates from 0.75% down to 0.25%. This means that rates are now the lowest that they have EVER been.
(Read the full BBC article here https://www.bbc.co.uk/news/business-51831004)
People fall into one of three categories. Savers. Borrowers. Or Borrowers and Savers.
Savers
Savers have endured years of very low interest rates far below inflation. Put simply this means that their ‘savings’ are actually depreciating year on year. As such this move will have little effect on their savings.
Borrowers
Borrowers have enjoyed many years of low interest rates on the funds they are borrowing. This has just got even better. There could not be a better time to ‘tie in’ for as long as possible to reduce your monthly payments on a mortgage or loan.
Savers and borrowers.
This group must be rubbing their hands together. If you can release as much equity as possible and tie in for as long as possible with the current rates you are in a great position should there be a crash in the property market. The cash you have released will enable you to purchase property at Below Market Value (BMV).
Purchase Options
The crash in the market is a PHENOMENAL opportunity to exploit strategies such as ‘purchase option’ offers. For this to work you would wait for the price to drop to its lowest, then agree a purchase at this price which is deferred for a set length of time. By doing this you can complete the purchase when values recover and have instant equity!
Subject to planning
It is common knowledge that planning applications take time. For major developments this can be significant periods of time. By making an offer subject to planning you can benefit from the low purchase price now and defer the payment until after you obtain a planning approval. This is excellent because it allows you to pay at a later date but it also allows you the freedom to walk away if the Planning Application is refused or if values fail to recover.
Lease Options
Lease options offer another great opportunity. Like the above they give you the option to defer the purchase. However, they also give you the control of the property in the meantime. If you are purchasing a flip property, or a conversion then you could seriously cash in from this method. Not only can you benefit from the instant equity but you can also use the interim period to undertake the works required.
Construction takes a hit
The construction sector is always one of the first to feel the hit of a recession. This is partly because funding for projects is tougher to come by, meaning projects go on hold. This is also because many tradesmen are self-employed.
The result is that many builders will be forced to cut their margins or offer something extra to remain competitive. As such, if you can take advantage of lower build costs and lower purchase costs, but sell when values recover then you have potentially maximised your GDV.
How we can help
Here at EDG:Architecture Ltd we are used to working with developers and have a passion for implementing development strategies to reflect the market. If you want to talk to us about a potential project then please feel free to get in touch.
We can offer a full range of services from initial concept design, planning applications, building regulations drawings, and on site supervision of projects.
If you are planning a project it is essential that you get the correct advice to ensure that you avoid fines, and in some circumstances, prosecution.