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We feel properties can be defined into two categories. One where it is a house, a home or a building that you are going to run and grow (hopefully) into a business and the second is where the property is an investment. Sometimes we find that clients think that properties are both. This is possibly a third criterion. We do tend to feel over the years where we have seen booms and crashes in property, negative equity, massive profits made that you need to focus on the property either being a home for you and/or your business and/or property purely as an investment.
What do Investors look for?
There are two types of things that we generally find investors are looking for, capital growth which is where the property grows in value. This can often be because the owners carry out some work such as extending or internal alterations for example splitting a large detached house into two semi-detached houses. Alternatively investors can be looking for an income stream from letting or renting out the property. You do need to be reminded when renting a property that you will have costs and maintenance and management and legal applications and profit is what you have left after you have paid all of these bills.
Investment property capital growth a historic view
Let's look at the historic information and what the property market has done in the past years. There are various websites where this is available. The longest running ones are the Halifax website and Nationwide website. You do need to be aware that the information is being given partly as a sales and marketing exercise both generally selling property and more specifically selling mortgages. Information is very useful (and there is nothing else available over such a long period and we believe it goes back to the 1950s and 1960s respectively). It shows how the market has gone up and down over the years.
The property boom of the 1970s, why did properties boom?
For example in the 1970s property boom prices went up and up. Some areas from hundreds to thousands of pounds and other areas from a few thousand to many thousands. It was said this was caused by the way the mortgage lenders started to lend money to everyone without requiring them to save for a long time. It also allowed the general public to borrow more whereas previously there had been a very limited supply and demand of mortgages.
The property in the 1980s
Then we had the property in the late 1980s. The reason why this property boom happened is really all about opinions. Some say it was due to the general prosperity at the time and the earnings ratio to mortgage ratio. Property moves in seven year cycles or multiples; this really is all a matter of opinion.
Capital Growth and Gearing
It is always said that real profit in property is always from capital growth. For example in the mid-1990s if you had brought ten houses worth £100,000 these properties have since gone up 60 to 70% assuming you sold before 2005. You could possibly have hung on a bit later and particularly in London your houses now would be worth many millions. Some would say not bad for doing next to nothing however many forget that you do have to manage and maintain and keep the properties legally suitable during this time.
Buying at the right time and selling at the right time in the property market is very hard
Just in case you are thinking about buying ten houses you should take some advice as it is very hard to buy at the right time and sell at the right time. The key to buying property at the right time is not location, location, location, its research, research, research. Knowledge really is power as long as you act upon it.
The other way to make a profit out of properties is by having properties with an income stream such as rented houses. It could also be rented shops, offices or industrial buildings. This is how it works.
Let's look at one rented property with an income of £10,000 a year. You will have to take off of that figure any costs you have of borrowing money such as mortgages that you have on the property and maintenance and management costs. Also you may have what is known as a void. These are empty periods when the property is not making any rent. Often when a tenant has left the property not only are you not making any rent you are also having to repair the property as we generally find that it is not left in as good a state as it was taken on. Over the years we probably have dealt with as many good tenants as we have dealt with bad. We would say that the bad ones can be very bad and cost many thousands of pounds.
The worst story that we have ever heard from our colleague who has now sadly passed away is where the clients in one of his properties had taken up the floorboards for firewood. This is one good reason to have good central heating systems and good insulation!
We would also say that care has to be taken as a landlord to ensure that you stay on the right side of the law as there is a lot of protection. You can't just rent your properties and forget about them. Although equally we are familiar with the setup and forget type of mind-set and theories and do believe this works to some extent.
How do you rent out a property?
If the rental income of the property is the way the property makes money then you need to look at how to maximise the rent. We have come across over the year's landlords who consider renting to students to be the best way forward, landlords who consider renting to families to be the best way forward and some who consider that renting on a room by room basis works very well. We have seen all of these various ways of doing things over the years and do think that different things work in different areas but most of all we would say that the old adage 'if you think you can you can and if you think you can't you can't' works. We have seen very different results from the same properties in similar areas. Finally we would say for those interested in property investment have a look around our website and have a read and please take advice and build your knowledge up before you spend any money on property although equally we would say that sometimes lack of knowledge and pure determination has worked very well for some of our investors and clients although in the majority of cases it hasn't!
Independent Chartered Surveyors
If you truly do want an independent expert opinion from a chartered surveyor, and many of us are also chartered builders, with regard to valuations, mortgages, mortgage companies, surveys, building surveys, structural reports/engineers reports/specific defects report, structural surveys, home buyers reports or any other property matters please contact us on Freephone 0800 298 5424 for a chartered surveyor to give you a call back.
If you have a commercial property, whether it is freehold or leasehold then sooner or later you may get involved with dilapidation claims. You may wish to look at our Dilapidations Website at www.DilapsHelp.com and for Disputes go to our Disputes Help site www.DisputesHelp.com .
We hope you found the article of use and if you have any experiences that you feel should be added to this article that would benefit others, or you feel that some of the information that we have put is wrong then please do not hesitate to contact us (we are only human).
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