Opportunity & Risk – How will you react second time around?

Dear Investor,

It’s a fascinating time in the UK property market at the moment, one which is pregnant with opportunity and risk. Many people are looking at the uncertainty and choosing (understandably enough) to sit tight, not to buy or to try to sell. Many people feel that if economists and business analysts cannot agree what will happen to the UK economy, interests rates and the housing market what chance have they got?

I certainly don’t have all of the answers but it’s this very uncertainty that makes people uneasy and uneasiness usually means that vendors will look to sell more cheaply than they otherwise would have done, pricing in this fear as they do so. This applies to Banks and Developers as much as to general members of the public.

If you talk with anyone in the residential property investment industry they will tell you that shortage of quality stock has been a real issue over the past few months but this appears to be changing, at least from our experience here at Bold Spirit. When the financial crisis started all but the most daring investors steered clear of buying as no one knew how far the market would fall. In retrospect this was a great time to buy (and incidentally when we started up our Distressed Assets division) but a crowd mentality and panic set in. Since then the property market has rallied significantly and much of the opportunity has dried up, particularly in London where distressed stock is now routinely being sold off at a negligable, if any, discount.

Knowing now what we know about how the distressed property market has evolved and having learnt from the behaviour of banks during the crisis it would be careless to miss another opportunity wouldn’t it? Uncertainty equals increased price flexibility, stability means precisely the opposite. If you want lower prices and greater stability you are in for a long wait.

Risk is the balancing factor to opportunity when looking at any property investment but understanding that there is no such thing as the “UK property market”, only a collection of local markets with their own patterns and behaviours will help. As ever doing the appropriate due diligence in terms of looking at the area, stress testing the cashflow and looking at rental demand, local demographics and price history will pay dividends. By accepting that there will always be risk when investing in any property you should be able to sleep better at night. If you can’t accept risk of this sort simply don’t buy property, especially not now. It’s a question of minimising and mitigating this risk as much as possible.

As alluded to in the last newsletter we have recently received instructions to dispose of a significant amount of residential stock in the north of England with locations across Lancashire, Greater Manchester and Nottinghamshire from distressed developers, and banks via receivers.

This is good quality stock with a genuine discount to current and realistic market value. Many of the units are only available to buy in bulk although there are also some exceptionally good propositions available individually. Anyone wishing to buy in bulk is naturally in a better position to negotiate on price.

The average gross rental yield is between 7 and 9% and most of the stock is already tenanted meaning that accurate cash flows can be predicted. The average discount across this stock is 25% but please note that this is a realistic and not an inflated figure.

Finance is not easy to obtain in the current climate. Any potential investor will need at least a 25% deposit and money put aside for purchase fees although most units are below the threshhold for stamp duty. We are not able to deal with anyone wanting to purchase with “no money down” or similarly structured finance unfortunately and proof of funds will be required.

We are currently adding to our list of interested parties so if you would like to register your interest in these properties please fill in this form and we will contact you shortly with details. For reasons of confidentiality we are unable to market these properties directly.

Alternatively if you would like to speak to me personally about these properties then please come along to our conference taking place in Liverpool this Saturday, the 18th September. Tickets are half price for the whole of this week at £48 which represents excellent value for money considering we have specialist property tax advice from Begbies Traynor Tax, and expert speakers from Blackstone Property and David Roberts and Co. Solicitors. The theme of the day is distressed property. I thought that it might be helpful to profile Ray Abercromby from Begbies Traynor who is delivering the property tax presentation.

Ray Abercromby is responsible for the taxation advice on all corporate and transactions (mergers & acquisitions) work dealt with by Begbies Traynor Group plc.

Ray joined BTG Tax as a Director in 2007 and prior to this, he was a Tax Senior Manager at PricewaterhouseCoopers in Manchester, leaving in 2002 to pursue academic lecturing and tax consulting. He trained at PricewaterhouseCoopers (then Coopers & Lybrand), qualifying in 1993. He is a member of both the Institute of Chartered Accountants of Scotland and the Chartered Institute of Taxation.

It’s advice from people like Ray that will make a big difference to any property investor.

To book your place at the conference please click here.

I very much hope to see you on Saturday.

Best wishes,

Henry Powell-Jones