Conclusions of 2009 – Opportunities for 2010
2009 – A year when then the smart investor used their time to set them up for 2010.
I think you will be in the minority if you haven’t suffered some kind of hardship this year, many investors have seen thier dreams of retirement severely set back.
This has not been confined to property, if you had shares or your money in some banks you could be in a worse situation!
So what should this year have taught the average investor?
1. The only way to build a profitable portfolio for the long term is by investing smart.
For me that means keeping at least 20% worth of equity in any property so you build yourself a buffer to combat any drop in values.
Investors have been stung by dropping loan to value rates, an unwillingness by lenders to remortgage on to rates previously offered has seen investors have to increase the equity in their properties, leaving them severely stretched.
Over the last 2 years i have seen investors with portfolio’s worth in excess of £100m go bankrupt, how can this be i hear you say.
What some property investors seem to misunderstand is that if you have a portfolio worth £100m, with lending on it of £90m. You actually have a portfolio worth £10m. If property prices drop 10%, what is the worth of your portfolio…Nothing!
If this happens you are entirely reliant on the income that your portfolio brings in, investors too highly geared normally cannot withstand more than a couple of months of empty properties.
2. Property Investment is not a get rich quick scheme – investors that use it as such usually find they have leveraged too high.
I am one of the biggest exponents of flipping property, i think that if you have the time and the know how it is possible to make decent profit this way but it is entirely dependent on a couple of factors.
Firstly, you need a massive amount of knowledge of the local market, this is not something that can be learnt quickly, so for this reason either keep to one area or find yourself a property specialist that you trust completely.
Secondly, always have another exit strategy, so if you are buying to re-sell, make sure that if worst case you can’t do this immediately, you can let the property out and pay your mortgage that way.
I have refurbed properties for over 6 years and we are also in the middle of developing apartments, i value every property investment opportunity by the number of exit strategies it provides.
3. The good times will come again, use times like these to research the market and decide where the best profits will be made next year and in the future.
If i could focus on the single most important factor i have taken from 2009 it’s that within the next month or so the vast majority of new build developers will completely run out of stock.
At Fresh Invest we are in contact with all major new build developers and 9 months ago all of them decided to stop all build that wasn’t already past footings. This decision was made because the last thing the market needed at that point was more new build stock. They are all building again now but this has created a back log where all finished sites have been sold and the next tranche of stock is still around 6 months away.
We have seen average discounts reduced from 40% 9 months ago, to 15%-20% now, and thats if you can find any stock. We have 2 developments left on our books which are selling at around 2 a day.
The first 6 months of 2010 will see property prices increase due to a lack of supply and increased demand as more confidence seeps back into the market.
I would take the first few months of 2010 to pick up the last pieces of good quality discount property around, there is only 1 way values are going to go in 2010.
New Opportunities through Fresh Invest:
1. We are launching a scheme that should give clients access to lender stock, for property investors looking to pick up great quality buy to let property in a particular area this is the one!
2. We are working hard on some student schemes, these should yield over 8%, have really low interest rates and start at around £80,000. With massive demand and industry professionals flocking to this market this is definitely one for the future!
Close to a deal for forestry at Copenhagen
It looks like alternative investments are going to recieve a well deserved boost after some firm negotiations have been getting under way in Copenhagen.
Unless you have had your head buried in the sand for the past few months you will know that climate change is the “Hot Topic.” The reason climate change is a hot topic, is that world leaders have finally opened their eyes to reveal a world that is years away from possible catastrophe.
Leaders of the world are gathering in Copenhagen from the 7th of December to the 18th to “thrash out” a deal whereby rich westernized countries will have to pay the less economically developed countries for what we have done to the planet while we were growing.
You’re a property investment company why are you interested in climate change?
Well apart from the obvious - This affects all of us!
The reason we have taken such a serious interest in these climate change debates is that, we know that when all the world powers are getting together to discuss climate change business opportunities are going to arise… and they have, but luckily we have a readily packaged investment for you to:
- Profit by up to 100% pa
- Make a real difference to the environment by saving the rainforests.
Have a look at our Carbon Credit Investment or read our Carbon Buyers Guide.
“Climate talks near deal to save forests” New York Times
Student Property Report 2009-2010
In a market where many investors have seen rental voids, capital values decrease and Ltv rates decrease, why are many of the UK’s most renowned investors focusing on Student Accommodation?
If you look at the simple economics, student accommodation really does sell itself.
In short, you can purchase a property that will rent at a much higher value to students than an equivalent unit would to a private individual. You also do not have the downfall of rental voids! In fact, many landlords are filling their units 6 months in advance!
Many investors want hands off investments with high returns and no rental voids.
If this is you, look no further.
Demand:
Where rental demand in the residential sector is prone to peaks and troughs, student number have continued to rise from 1.8 million in 1996-97 to approaching 2.4 million in 2009-10*.
Indeed early indications are that the economic conditions have led to even more people looking to higher education.
UCAS data revealed that UK university applicants rose 10% between 2008 and 2009 and overseas applicants rose 13.6% during the same period.
“Overall student numbers are likely to remain stable and in the medium-term there is unlikely to be a substantial uplift in student places as caps remain in place. However, the expectation is that the proportions of both overseas and postgraduate students will continue to grow, underpinning future demand for private professionally managed halls.” Knight Frank
Supply:
Private Student Development is still made up of the 4 main service providers, UNITE, UPP, Opal and Liberty Living. The majority of students have to rely on halls for their accommodation with a small percent benefitting from access to private operated rooms.
Many university run halls are found to be outdated and lacking in necessary facilities. This creates demand for private accommodation but with development finance so hard to come by, this accommodation is nowhere near keeping up with demand.
“Student Numbers are growing at 15 times the rate of new supply in London” Savills
Prospects:
Student accommodation rents have increased by 5% p.a for the last 6 years with growth increasing right into the 2009/10 academic years. Compare this to residential and commercial rents which have both fallen overall during this period and you start to understand what makes this market so appealing.
“Student Housing delivers income during uncertain economic times” Savills
As student accommodation is commercial by class this has also seen an increase in values, this sectors robustness is highly attractive to a growing number of investors who want high capital growth that can be depended on for the long term.
Even in the midst of a global downturn occupation levels for good quality purpose built private accommodation is close to 100% with rental levels for 2010 predicted to increase by at least 5%.
Yields and Values:
Although the rentals gained have not been hit by the credit crunch, one side that has been impacted has been the finance student developers have been able to find. Because of a lack of this many new build schemes have not got off the ground.
If we factor this and the fact that university applications have steadily increased we have a demand/supply scenario which is drastically in the favour of the buy to let investor with student property in their portfolio.
Compound this with the fact that many universities cannot afford to build the necessary accommodation themselves and we have a scenario where these same universities cannot grow to their potential because of this lack of accommodation.
Universities have always relied on private developers to make up the deficit that their own student halls cannot fill.
With many student developers not building because of the lending constrictions, small investors are starting to fill the void with new build 4/5 bedroom houses. These normally comply with the rigorous build accreditations and rent for a lot more than residential lettings.
Through this lack of supply yields have risen steadily and values have followed, we envision this to be the case for the foreseeable future. The student market is continually growing and with many universities operating on shoestrings it falls to the private student developers to build in their place.
How we can help:
You will have seen by previous posts, blogs and emails that Fresh Invest have faith in the student market as a valid buy to let option.
For this reason we are due in the very near future to bring you a selection of landmark student pods which can be bough individually as “completely hands off” investments.
These properties will come already tenanted with high yields and great commercial mortgage options.
Below is an example of a property we are close to agreeing an exclusive for.
Financial Example.
1 bed student pod – First Floor – From £90,000
- Deposit Needed – £31,500
- Rental achievable – £541 (£125 per week)
- Mortgage – £58,500
- Mortgage Payments – £138 pcm (RBS, 65% LTV @ 2.83% Tracker)
- Service Charge and Ground Rent: £70 pcm
- Positive cashflow of £333 pcm!
Register your interest for these opportunities here.
