Property and economic update

At last after months of uncertainty the market once again seems to be tightening. According to the Hometrack national house price survey the market fell by an average of just 0.2%, the lowest since August 2004. More importantly 7 regions reported increases and 13 remained static with Greater Manchester, Surrey and Devon leading the price rises. For the first time since April 2004 sales price as a percentage of asking price increased and new registered buyers rose by 28.5% (-12.8% in January) and agreed sales rose by a massive 36% (-13% in January). John Wriglesworth, Hometrack's housing economist comments: "After 8 months of housing market doldrums, the first signs of a robust recovery have appeared. A more stable interest rate outlook, ongoing low employment and rising household incomes will all help support rising house prices by the end of this year".

This apparent strengthening in the market is echoed by the Nationwide who have reported an overall price increase of 0.5%. Although small, this is a significant improvement on the average 0.3% increase per month for the 3 months prior to February. Alex Bannister, Nationwide's group economist comments: "Housing market activity which had been slowing throughout the second half of last year, appears to have bottomed out. We expect that interest rates will rise once more, with the continued firmness of house prices making this more likely".

Interestingly, the Halifax has recorded an overall drop of 0.5% in house prices during February. This fall brings the total average house price rise to 0.8% since July 2004. All the evidence strongly indicates that the market has bottomed out and that we are now firmly in a period of stagnation. The threat of substantial price falls has all but gone and the expectation is for the market to start increasing again towards the end of the year, with pace gathering throughout next year. This is great news for the property investor, what better time is there to buy?

Invest with your head, not your heart

Property can be one of the most stable methods of investing today. Unlike the turmoil of the stock market, property can be a consistent way for people to extend their wealth ratio. However, many new investors make the mistake of investing with their heart instead of their head. An old cliché reminds us that "You make your money in property when you BUY, not when you SELL." With that in mind, it is important that we make good BUYING decisions in everything, especially with property.

And it's your mind that must be ready to play the game. If you invest with your heart, you will make decisions based on what you feel. Soon, what you feel will get you into investments that you should never have considered.

It's a known fact that if you can repeat an activity for 18 or more consecutive days, you have a new habit in the making. So try these few exercises (or create a few of your own) for the next 18 days to jumpstart a new level of operating:

1. Go home a different way every day and see all the potential opportunities that exist around you
2. Exercise an hour earlier in the morning and learn a different exercise that will work a different part of your body every other day
3. Go to the grocery store and reverse the path you typically take through the store
4. Mail your letters at a different post office than the one you normally use
5. Generate multiple solutions as a way to resolve daily issues
6. Learn one new idea or concept every day to increase your creativity
7. Use your opposite hand to eat, drink, pick up mail or papers or books

Now, fast forward this mental process to real estate investing.

When we first began studying the markets and actively looking for investment opportunities, we looked at everything. We really had not (yet) totally grasped the idea that (more often than not) deals are made, not born. So we analysed every deal that was presented to us. At that time, it did two things for us: (1) We got used to looking at multiple deals everyday and analysing how we could make them work for us (extending our analysis comfort zone to process information quicker) and (2) we practiced using our minds (not our hearts) to create as many ways as we could to get into the deal. Our deal acceptance ratio today is significantly higher than when we first began.

By the end of that first year in business, we were better at pricing and getting into deals. It wasn't until we knew we needed to generate cash and cash flow that we realised that we had not practiced exploring all the various exit strategies - whether we needed to employ them or not. This is even more important than the entry into a deal, because how you exit will fundamentally determine how you will enter a deal. When we made this connection, an entirely new world of thinking opened up to us. That's when we knew our mind was expanding - and our emotions were being managed.

Decisions of the Head vs. Decisions of the Heart
The key to knowing and making decisions of the head is to know yourself and your tolerances. Many of us don't spend enough time to get to know ourselves. Believe it or not, not knowing yourself will lead to many a 'heart' decision because you will ultimately do what feels right to do, even if your head is telling you to go the other way.

Take a look at the following examples to see where you fit…

A head decision will tell you to investigate all the possible avenues to maximise your opportunity.

A heart decision will compel you to ask what other people think about your opportunity - regardless of the fact that it's ultimately your decision. (This can be a very dangerous place to be because chances are you've already made up your mind and anyone who invalidates your decision or thinking is somehow attacking you. (Your heart can be attacked but your mind can be challenged.)

A head decision will tell you the numbers surrounding a deal do not really produce your desired result.

A heart decision will tell you to go ahead with your deal and the numbers 'will work themselves out.'

A head decision will tell you that profit is written all over the deal.

A heart decision will tell you that you need to "up" your offer because this is really the deal of a lifetime and you do not want it to slip away.

A savvy investor will be able to marry both head and heart decisions to logical and sound next actions. You can't become a savvy investor if you read all the books in the world on investing and never do a single deal. Lessons can't be learned if you fail to extend yourself beyond your comfort zone. Why? Because what you do should always push the boundaries of your comfort zone, which incidentally, is based on emotions.

Wisdom doesn't come by osmosis but rather by studying and actively applying what you've learned everyday and surrounding yourself with people who are doing what you ultimately want to do. This may occur by changing the people with whom you currently associate so that you are in an environment conducive to change and expansion.

Remember, you have to continually challenge yourself to win the 'mind over what really matters' game everyday. Enjoy learning and wisdom will follow.

"One today is worth two tomorrows; never leave that till tomorrow which you can do today."
- Benjamin Franklin 1706-1790, US Statesman, Diplomat and Inventor

"I do not ask to walk smooth paths nor bear an easy load. I pray for strength and fortitude to climb the rock strewn road. Give me such courage and I can scale the hardest peaks alone, and transform every stumbling block into a stepping stone."
Gale Brook Burket

Growth is not necessarily related to yield

Many property investors somehow believe that a low rental return will slow the capital gain of residential properties. In other words, many believe that the cash flow of an asset determines its capital growth. This is not necessarily true.

Take a look at the following examples that cut the link between cash flow and capital gain first. What cash flow do the following assets produce?

• A vacant block of land next to a home, or;
• A painting from a famous artist

We all know that the above assets will continue to appreciate in value even though there will be no cash flow; there are many examples where assets may go up in value with no cash flow!

Let's go back to the basics of asset value. Why is an asset worth something? For anything to have a monetary value, it needs to satisfy two conditions:

1. Serve a purpose, i.e. someone wants it - continued demand;
2. Has scarcity, i.e. there is not enough for everyone - limited supply.

However, not everything with a demand has a monetary value, e.g. the air we breathe - there is no scarcity of it. Conversely not everything that is scarce is worth something either. For example, used shoes - as there is no continued demand for it.

For an asset to appreciate in value, we need continued demand and limited supply, simultaneously.

Why do residential properties grow in value, regardless of cash flow?
The reason for their continued capital growth is the combination of continuing demand and limited supply of land. As long as the majority of the residential properties are still owned by home owners instead of investors, residential properties don't need the rent to justify the growth. In the residential property market, home owners are the driving force for the price growth; most investors are just taking a ride with them.

The day when most residential properties are investment properties, the yield will have far more impact on the growth, just like properties in the commercial property market.

Why do cash flow properties grow in value, even when there is no scarcity of land?
Any residential property that can be called a cash flow property needs to have the yield greater than the current variable interest rate. A rental property that has greater than 7% rent can be called a cash flow property, and they are normally in outer suburbs or regional areas.

An average cash flow property won't have much capital growth normally, as there is generally no scarcity of land or anything else.

On the other hand, a cash flow property with extremely high yield (greater than 10%) could have tremendous capital growth due to its scarcity of the yield, especially when interest rates are still low and many investors are looking for instant cash flow instead of future capital gain.

The only thing we need to be careful of is that the capital gain caused by the scarcity of high yield is normally unsustainable. Once the yield drops, due to the increase of the asset value, the scarcity factor no longer exists, hence the reason for low capital growth.

There has been an ongoing debate on which strategy is better: capital gain or cash flow. I believe that anything that doesn't serve a purpose will cease to exist. The fact that both strategies still exist today is a good indication that they both serve a purpose for different investors.

"Trust your hunches. They're usually based on facts filed away just below the conscious level."
- Dr. Joyce Brothers Psychologist and Television Personality

"Just don't give up trying to do what you really want to do. Where there's love and inspiration, I don't think you can go wrong."
- Ella Fitzgerald 1917-1996, Jazz Singer

Let-to-buy, take a different view.

Let-to-buy is a little known but increasing financing method which allows you to rent out your old home without changing lender - while taking out a fresh mortgage on your new home. The idea is that you don't have to go through the hassle - and extra expense - of switching to a buy to let home loan, but can keep your existing mortgage on your old home. By renting out your former home, your mortgage payments will be met by your tenants' rent. Your income will support the mortgage on your new home.

The original idea of let to buy mortgages was that they would offer a stopgap to homeowners who were forced to relocate or could not sell their homes. But now it seems that some homeowners are using them as a backdoor into the rental market.

Go to any mortgage lender and alarm bells will start ringing if they receive an application for a new house purchase when the mortgage on a current house is outstanding. With a buy to let mortgage, a borrower would have to put down a hefty deposit and obtain a specialist mortgage. A let to buy mortgage is only a change in status of the existing loan, which is why it can be seen as a short cut into the rental market.

Mainstream banks are often willing to allow homeowners to let to buy, but they will look closely at the borrower's reasons. They will look favorably on people who have been forced to relocate because of a job and who may want to buy while they are away. Or it can be a way to break the buyers' and sellers' chain.

With let to buy mortgages, the potential rental income you'll get from the property will be included in the equation for working out how much you can borrow. Lenders will look at the mortgage on the first property and would normally expect them to confirm with the existing lender that they are allowed to let the property out and that the buildings' insurer is informed of any changes. It is important to remember the rental income will be subject to income tax - although you'll be able to offset costs and mortgage interest against this.

If you are interested in discussing the possible options open to you through let to buy mortgages, please call our mortgage department on 01252 737575 and speak to Daryl or Andrew, who will be pleased to help.

Need mortgage advice?

Maybe you're thinking of buying an investment property, or you need to release funds tied up in your house. Perhaps you just want to find the best mortgage rate for your own individual circumstances and cut your mortgage payments. Why not call our mortgage department today? Our resident mortgage advisers will give you the best possible advice to suit your requirements. Call them today on 01252 737575.

Meet a fellow Property for Life investor

Meet Willem Steenkamp. Willem is a management consultant within one of the world's largest management and IT consulting firms. This is a role that involves helping huge multinational companies and governments to achieve peak performance, a skill that he has now focused on his own investments.

Over the past couple of years, Willem has really seen the value of investing in property. Since his first investment purchase in March 2003, Willem has gone on to purchase another 6 properties in the UK and 7 in his home nation of South Africa. The first of these was purchased in Cardiff and has turned out to be one of his best investments. Over the past couple of years Cardiff has seen incredible capital growth and rental demand, mainly as a result of massive public and private sector investment. This has been reflected in Willem's investment which has constantly provided fantastic rental returns.

Although Cardiff offers such great potential, Willem has been very careful to spread his portfolio geographically and has purchased property in several other areas including Eastbourne and London as well as South Africa. Willem says: ". I think it is very important to spread your risk to other markets (hence my investments in South Africa where I have seen year on year growth in the 20-30% region even when buying without discounts). I see investing in property as a way of life rather than a "get rich quick" solution and with this in mind I think it takes years to fully master the art and meet the right people in order to make substantial gains".

Willem is absolutely right with this approach, but even over such a short period, he has still seen some incredible returns. Willem's total property portfolio now stands at more that £1.9million of which more than £600,000 is equity. Willem says: "My aim is quite simply to make lots of money and build up a self sustainable and growing portfolio, which would allow me to achieve a lifestyle whereby my assets were working for me rather than me working for it or for someone else".

Willem continues: "PFL has provided me with opportunities in great locations and more importantly, with true discounts. I have done business with some other investment groups and have found PFL to be the best with regards to value for money, true discounts and affordability. Overall, I have found the 'one stop shop' facility to be fantastic as I truly do not have time to negotiate with lenders. The PFL team has really made things happen, all I had to do is sign a few documents and that was it."

Willem has achieved a great deal in just two years. With his commitment and enthusiasm to property investment and a clear long term strategy, he will achieve true financial independence in a very short time frame. "PFL could be your 'jump start' to this exciting journey. By building up the right network I can't see anyone going wrong, whatever the market does".

We wish Willem the best of luck with his venture and look forward to a continued working relationship.

Recent events

If you came along to the Homebuyer show at Excel in London in February, you probably noticed us on stand 651. As always this was a great show for us with many hundreds of new people registering.

On each of the 3 days David Austin gave a strategy presentation as part of the shows seminar programme. Each session was completely sold out indicating just how much interest still exists for new build buy to let investment property. The attendee feedback from each presentation was great and many of these people are now purchasing through us as a result.

If you missed one of David's presentations, he will be presenting at the Property Investor Show in Manchester in June. So if you are interested in coming along, book your tickets early.

What's available?

We currently have the following investment opportunities.

• Squires court, Bedminster Parade, Bristol
• Kingston Quay, Glasgow
• Waterfield Mill, Balme Road, Cleckheaton, Nr Leeds
• Marco Island, Huntingdon Street, Nottingham
• Leeds 43, Dewsbury Road, Leeds

Please go to www.propertyforlife.com/discount_prop.php for full details and look out for more great opportunities coming soon!

Completions

Congratulations to those people whose properties have just completed at Leeds 43. This is a fantastic development that originally sold out in just 10 days. Located in an up and coming regeneration area slightly out of the city centre, these apartments should enjoy strong capital growth over the coming years. Leeds has a strong rental market and letting of these apartments should be relatively simple.

If you are interested in buying a similar property, check out our availability now at www.propertyforlife.com/discount_prop.php

Make some extra money?

The 'Property for Life' referral programme is a great way to make extra money. Take a look at the table below to see just how much. If you know of anyone who is interested in purchasing investment property why not refer them to us. It's simple, if they buy you make money, and the more they buy the more money you make. Take a look at our website for full details www.propertyforlife.com/tellafriend.htm

Back issues

Remember, you can read any of our back issues by following this link to our web site www.propertyforlife.com. If you missed one, or you want to read that really interesting article but can't remember where you put it, you will find it all here.