Buy to let is dead – prices are down 5% or 10%. Buy to let is booming – prices are up 5%. The stock market has crashed – dropped 5%. The media hypes and sensationalises to sell newspapers, creating polarised extremes that usually exaggerate in either direction. Life is generally far less extreme and exciting, so always assume this and see through the hyperbole.
To reiterate, I am not giving a judgment call that all selling is bad. In fact, as long as what you are saying is true, it is smart to use some of these proven strategies to sell good products and services in your business. My aim here is to make you aware of what you are going into, to be able to isolate what is emotion and what is logic, so you make the best investment decision that gives you the best most sustainable return.
Many people and journalists who spew out general statements like ‘property is dead’ and ‘buy to let no longer works‘ don’t invest in or have direct knowledge of the investments they write about. Unless they are specialised in the subject matter and have been at the coal face dealing with the asset class that they write about (rare), often their views are regurgitated and end up being a cocktail of what the market believes in general. This is not as credible or helpful as real investment and business experience. A good example was when one major broadsheet proclaimed at the onset of the credit crunch that ‘buy to let is dead’.
The article was mainly predicated on the fact that more buy-to-let lenders had tightened their criteria. A clearly ridiculous headline, when you consider that around 2.7M households live in houses in this sector, which is also forecast by the CEBR to grow by 40% over 10 years. Anyone operating in the sector who knew the market knows that buy-to-let doesn’t ‘die’ overnight, in many who operate in it see it as comical and sensational, but it has an effect on the less experienced. Conversely and fortunately for the smart investor, headlines like this contributed to one of the biggest property buying opportunities in the last 20 years. Thank you indeed. Let buy to let ‘die’ more frequently.
You see, we have had some good results profiting against the tide too. Between 2009-2012 we went on a buying spree, buying up UK residential property, and commercial property, bought to be converted into residential. Feeling it couldn’t get any cheaper, with many commercial buildings having dropped in value in excess of 80% of their 2007 value, we went in aggressively because we thought it couldn’t get much lower. With the media constantly reminding people of how wounded property had become, the mood became very negative. As we had invested heavily pre-recession, I would get many people offer sympathy, condolences and would be questioned on how bad things were for our business, with many assuming that things were tough for all of those in the property market.
The rental market actually strengthened during this period as less people could or wanted to purchase homes. As rents rose so did profits. Clearly capital values suffered, but this only really affected those who had to sell such as developers, many of whom got welched in the last recession. As is usually the case, this negativity was at it highest in most people’s minds in 2009 and 2010, when it was ironically the best time to be buying.
The media and the wider public turned had turned much more positive on property by 2013, after the biggest recovery had already taken place. Most of the assets we bought during the bear period quickly increased in value by over 30%, producing multiple millions in capital growth. As quickly as prices can drop in a recession they can rise in a recovery. The negativity in the media really helped some investors as it eroded confidence, so some would be grateful to them for this, and as usual listening to the masses can be very costly to your wealth.
There will be many people telling you what you should and shouldn’t do in your business and investments. Like the onslaught & the attack on buy to let landlords, the hike in stamp duty, full mortgage interest relief being phased out and tougher mortgage lending criteria for everyday borrowers and portfolio landlords which we’ve discussed elsewhere.
At one time we got told that live events would be dead as soon as online streaming gained momentum. We got told our property training business would be disrupted with free social media. We got ‘advice’ form all over the place, mostly from people who had an ulterior motive. We rarely sought this advice but much of it was offered by those with no experience making sustained profits. Remember that free advice is worth every penny as my business partner Rob likes to say, but as long as it comes from the right source. Ensure that you are only taking advice from people who have been there and done it for a sustained period of time. There is no need to get into heavy debates and waste your time, simply smile, thank them for their advice, and carry doing exactly what you were. And when you find great mentors and advisors, keep them close for life.
As you gain more experience, if you ever think the asset or class you are in can’t get any higher, it is likely a good time to sell. Conversely if you think the asset or class can’t go down any more, it is likely a good time to buy. You might not be exactly right, but you may not be far off. Many mentors and fellow friend investors have recounted stories that they felt their market was overpriced so they sold out. Andreas Panayiotou did that before the recession of 2007 and cashed in for hundreds of millions. This is another reason for staying with your business model and sticking to asset classes within your circle of competency for the long term, because your ability to ‘predict’ these peaks and troughs will get more accurate.
But to finish off, buy to let is not dead. Far from it. The rules of the game have changed and you have to adapt and manoeuvre with these changes. Try not to pay any attention to those who are not digging in the trenches as they will often be regurgitating media musings or pub talk. The fundamentals haven’t changed much, but the intricacies have been disrupted. Be wise to follow those who are in the coalface and making property ‘work’ and you will see your results follow a similar pattern.