I believe there is never a bad time to Buy-To-Let, there’s only a bad time to sell. I don’t pay any mind to the cynics nor the house price indexes. House Price indexes are usually based on national averages, they don’t account for every property in every dark corner. And if I listened to every cynic about every commodity, I would never part with my cash. The key factors when buying a buy-to-let is TIMING and LOCATION.
Anyone can squeeze money out of a booming market; it takes a good investor to squeeze money out of any given market condition. I don’t practice any magic formulas, I follow the basic theory of supply and demand. You buy in an area where demand is low but where you believe more people will want to rent in the future. Those areas are known as the “upcoming hotspots” For example, before it was announced that the 2012 Olympics were going to be held in London, a lot of people took a gamble and purchased property in the Stratford area because the proposal was to centre the events in the planned Olympic Park in Stratford. When London got the go ahead, those people had money signs in their eyes.
While that was a good spot, I wouldn’t usually endorse buying in major cities like London, Manchester or Bristol. Buying in well developed areas is a mugs game; you need more money to invest and the profit margin isn’t all that flexible. Instead, I go for small towns that need a bit of TLC, such as Harlow. For the amount you would need to spend in London for just 1 property, you could alternatively buy 3 properties in Harlow and get a better return.
Last year I purchased a property in Harlow, Essex. This was around the time when speculation of the expected “property crash” started to race around the circuits. Harlow is a small town outside of London, but it has a few thriving business parks and a big hospital which attracts plenty of workers; workers that need shelter. At this point property prices were at their peak, so buying was out of the question for a lot of people. But there were a few areas in Harlow that were extremely affordable which were prime locations for nurses and factory workers to find accommodation. While this wasn’t entirely a ‘hotspot’ find, because the area was already developed, the rental demand was there, and there were still parts of the town that weren’t ‘cosy’. In general, if parts of a town are being developed, it will positively reflect on the less developed areas. The logical step was to find an affordable property based in one of those less developed spots, which had scope to attract a lot of tenants. One year later, while the cynics are still hauling all their savings under their mattress and bracing themselves for a crash, the property has gained value by 20k, and currently leaves me with £100 beer money after paying my mortgage with the rental income I receive.
The hotspots idea is not rocket science. I look for areas that conform to my price and rental requirements. But hotspots cool as the sheep try to cash in by buying and pushing up prices. It’s the ones that spotted the areas before getting hot that really cash in. Which leads me back to my key point- research is key to finding those hotspot locations. Look for small towns that have plans for major developments- anything like hospitals or major business parks. Places like that will bring people in by the masses, and they will need somewhere to live.
Right now, more and more first time buyers are being priced out of the market and that’s great news for buy-to-let investors; those people need to live somewhere, so they have to rent. The reason they can’t buy is they cannot find the deposits and/or maintain the mortgage payments. With demands being so high for rent, it’s a buy-to-let paradise. Point being, don’t let a overpriced market scare you- no one is going to rent if houses were affordable and the market was booming. Would they?
During the course of an investment, prices may fluctuate and that’s why investing should be all about the long term. I buy to hold and not to trade. If you move in and out of the market and expect to make up on capital values what you lose on rents then buy-to-let will be a disaster. Long term buy-to-let investors won’t even feel the dips in the market, they’ll only feel the equity growth over the long haul, and that’s exactly why I’m still looking for property to invest in, while others are camping under their doorways with safety helmets on. Short-term fluctuations in property prices shouldn’t be a concern. Just look at the way prices have increased over time. Even if prices fell tomorrow, they will crawl back up again. It’s just the gloom-mongers who are making people more cautious at the moment. The only thing that can kill me is a quick rise to 10% in interest rates. That’s extremely unlikely to happen, especially since rates are currently at 5.5% and are expected to drop later on during the year. But if interest rates rise it will largely be because of inflation. So my rents will go up as well. You’ve got to have a cushion against harder times. Otherwise, you’ll be a distressed seller forced to get out of buy-to-let at a loss.
There’s never a bad time to buy-to-let, there’s only a bad time to sell…