Property and economic update
On Thursday the Bank of England Monetary Policy Committee voted to raise the base rate by .25% to 5%. This is the second increase this year and is judged to be necessary to control inflation, currently standing at 2.4%. Will we see another rate increase in the near future? Well many analysts believe that although probably not this year, the rate is likely to increase by another .25% within the next 3 to 4 months. However, with global energy prices now falling and predicted to fall further next year and a steady cooling off of property price rises inflation may well take care of itself making further increases in the base rate more unlikely.
No one can really say with any certainty what will happen but one thing is clear; the base rate is still at historically low levels and changes have settled into a .25% pattern which has brought a new level of stability to property investment.
House price growth has continued its steady upward trend during the last month, with all major price surveys recording increases. The Halifax house price index indicates an overall increase for the month of 1.7% bringing the average cost of a UK property to Å184,593. A little more subdued in its results, The Nationwide has revealed a 0.7% increase during the last month whilst The Hometrack house price survey reports an increase of 0.4% with London remaining the main engine behind the growth.
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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:
⢠Serve a purpose, i.e. someone wants it - continued demand;
⢠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.
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How to overcome void periods
One of the biggest concerns of investors who ask us for advice regarding their property investments is the worry of potential void periods and the impact on their cash flow.
The most effective risk management strategy for voids is in the careful selection of the correct investment property. Well located, attractive properties that are suited to their surroundings tend to have much lower vacancy rates than poorer located less attractive properties. By purchasing though 'Property for Life' you can be sure that you are getting the very best rental properties, in the very best locations. However, vacancies will occur even with the best properties.
Without doubt, engaging a competent property manager will minimise your void period as property managers have access to a greater range of potential tenants than landlords who are trying to lease the properties themselves. Remember that wherever you purchase your property, we can put you in touch with well respected local agents who have extensive knowledge of the market in their particular area.
It is also critical to keep your property in a well presented condition both inside and (in the case of houses) out. After seeing a property on the internet many tenants drive past the property prior to ringing the agent. If it is unattractive from the outside they just drive straight on to the next one on their list. So if your property is vacant a few hours spent sprucing up the garden could work wonders. In the case of apartments, it is important to make sure that the management company suitably maintains the external and communal areas of the building.
Currently, one of the most difficult recommendations we make is to advise our clients that they should not increase their rent when their property becomes vacant. Often, the best course of action is to lower the rent slightly, say Å5 or Å10 a week to meet the market's expectations.
What we try to explain to them is that dropping the rent is better than having another week's vacancy. Think about itâ¦.if your property rents at Å250 a week, for each week it is vacant you loose Å250. This is about equivalent to a reduced rent of Å5 a week over a 12 month period. Isn't it better to have a tenant in the property and then increase the rent in 12 months?
In some areas where there is an abundance of properties we also recommend that landlords give incentives, such as one week's free rent. Prior to Christmas, which is traditionally a slow time for renters, one landlord was actually offering a free DVD player to any new tenant who signed the lease in the month of December.
So you can see that the key to letting your property quickly is to be realistic with your asking price, adjusting it in response to the market conditions. In addition, creativity will enable you to gain an edge over your competition, so get those ideas flowing.
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"It's the constant and determined effort that breaks down all resistance, sweeps away all obstacles." - Claude M. Bristol, 1891-1951, Author
"I can feel guilty about the past, apprehensive about the future, but only in the present can I act. The ability to be in the present moment is a major component of mental wellness." - Abraham Maslow, 1908-1970, Psychologist
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Achieving your dreams by Jim Rohn
While most people spend most of their lives struggling to earn a living, a much smaller number seem to have everything going their way. Instead of just earning a living, the smaller group is busily working at building and enjoying a fortune. Everything just seems to work out for them. And here sits the much larger group, wondering how life can be so unfair, so complicated and unjust. What's the major difference between the little group with so much and the larger group with so little?
Despite all of the factors that affect our lives - like the kind of parents we have, the schools we attended, the part of the country we grew up in - none has as much potential power for affecting our futures as our ability to dream.
Dreams are a projection of the kind of life you want to lead. Dreams can drive you. Dreams can make you skip over obstacles. When you allow your dreams to pull you, they unleash a creative force that can overpower any obstacle in your path. To unleash this power, though, your dreams must be well defined. A fuzzy future has little pulling power. Well-defined dreams are not fuzzy. Wishes are fuzzy. To really achieve your dreams, to really have your future plans pull you forward, your dreams must be vivid.
If you've ever hiked a fourteen thousand-foot peak in the Rocky Mountains, one thought has surely come to mind "How did the settlers of this country do it?" How did they get from the East Coast to the West Coast? Carrying one day's supply of food and water is hard enough. Can you imagine hauling all of your worldly goods with you... mile after mile, day after day, month after month? These people had big dreams. They had ambition. They didn't focus on the hardship of getting up the mountain.
In their minds, they were already on the other side â their bodies just hadn't gotten them there yet! Despite all of their pains and struggles, all of the births and deaths along the way, those who made it to the other side had a single vision: to reach the land of continuous sunshine and extraordinary wealth. To start over where anything and everything was possible. Their dreams were stronger than the obstacles in their way.
You've got to be a dreamer. You've got to envision the future. You've got to see California while you're climbing fourteen thousand-foot peaks. You've got to see the finish line while you're running the race. You've got to hear the cheers when you're in the middle of a monster project. And you've got to be willing to put yourself through the paces of doing the uncomfortable until it becomes comfortable and until you realize your dreams.
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"Focus more on your desire than on your doubt, and the dream will take care of itself. You may be surprised at how easily this happens. Your doubts are not as powerful as your desires, unless you make them so." - Marcia Wieder, Speaker and Author
"You are never given a wish without also being given the power to make it come true." - Richard Bach, Writer
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Stop press!
The greatest house price inflation of any property type over the last 10 years was seen in flats and apartments, Halifax has reported. The lender said average prices for this type of property more than trebled from Å53,726 to Å166, 824.
The purchase of terraced property as a proportion of all sales rose from 29% to 31% over the period, while semi-detached property decreased from 29% to 26%. The percentage of all types of property purchased by first-time buyers declined consistently.
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What's available?
We currently have the following investment opportunities.
UK property
New property coming soon.
Overseas property
If you are looking for quality overseas property you need look no further. Whether you want discounted French property with guaranteed rental returns, land in central Florida or something a little more exotic we can help. Our overseas property department is growing fast and we are currently offering exceptional opportunities in the following locations:
France â Most regions
Spain â Many regions
Cyprus - Paphos
Florida â Central and Northern
Brazil â North coast
Please go to www.propertyforlife.com/property/ for full details and look out for more great opportunities coming soon!
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Upcoming events
Over the coming months we will be running a number of Property Investment Academy sessions. If you would like to attend a property academy session please call Laura on our 01252 737575 or email laura@propertyforlife.com stating which session you would like to attend and how many places you require.
Academy Dates
November 11th â The Cobham Hilton, Cobham, Surrey
December 9th â The Cheshunt Marriott Hotel, Near Enfield
For further information regarding the Property Investor Academy Programme please follow the link www.propertyforlife.com/whyinvest/education.html
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Do you fancy a spending spree at one of the UK's leading department stores?
The new look Property for Life referral programme can offer you just that.
All you need to do is tell an interested friend about Property for Life and you could soon have a minimum of Å250 in gift vouchers to spend in any John Lewis or Waitrose store.
Quite simply, for each person introduced by you who then purchases a property through us you will receive a cool Å250 in John Lewis gift vouchers. If they purchase more than one property you will receive Å250 in gift vouchers for each property they purchase. You could soon be well on your way to that spending spree.
Remember, the more people you introduce the more chance you have of grabbing at least Å250. So why not tell your friends and family about Property for Life? Make sure they register on-line at www.propertyforlife.com/register. When registering it is important that they select the recommendation option in the 'How did you hear about us' section of the form and include your name in the 'other' box.
Please note that the referral programme is on a per property not a per person basis. Please see www.propertyforlife.com/services/referalprogramme.html for further information.
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