I mentioned before how I look at this year when it comes to real estate investing, and the future looks very bright, in the right markets. I have recently seen some sensational newspaper headlines or TV shows about the real estate market. What’s new, huh?
The story is often about a naive investor who has bought a property at the wrong price in the wrong market at the wrong time. Prices are coming down slightly in certain markets, which is exactly to be expected as around 80% of the UK is overpriced when measured traditionally i.e. considering local affordability.
However, several parts of the UK and market areas will increase by more than 10% this year again, why? Because they are so undervalued and represent exceptional value for both the local market and buy to let investors.
What will happen this year?
Well, some new investors who probably shouldn’t have gotten involved in the property in the first place will pull out and stay out of the market. Potential new investors may be put off by the newspaper headlines and keep their money “safe” in banks and ISAs, but those who understand the markets and make a sensible decision will be able to do well by purchasing the right property.
Most experienced real estate investors will continue to buy the right type of property and expand their portfolios. Why? Because there are excellent opportunities both in the UK and abroad. Paragon’s latest quarterly report is an excellent read and supports my thinking: rents are rising at their fastest rate since 2001, interest rates should fall at least 0.5% this year, and 90% of landlords are looking maintain their portfolios, with 40% increasing it in 2008.
Not exactly a woe story for all experienced homeowners!
In fact, every serious property investor I know is buying as many now as ever (I’ll buy more this year than any other year) in the UK and various emerging markets. I know an investor who only buys in the UK, who has over 1000 properties, and he’s still buying massive amounts!
What I would say is be careful what you buy. In our free Buy to Let workshops, we discuss affordability and how to shop around for certain deals. Investors are astonished that the average UK property costs more than 9 times the average salary and only returns 3.6%, not much!
However, there are local markets that offer properties at 4-5 times the average salary, with a yield of more than 6.5%. I would choose markets where the property is under 6x the local median wage and earns at least 5.5%. I know that if I buy a semi-detached house for £80,000 where the average local wage is £20,000 then there is excellent room for growth, up to prices of around £120,000 in the next 4-5 years.
Conversely, I know that if I buy a property for £200,000 where average salaries are £22,000 then there is little room for growth over the next 5 years and the potential to lose money. There are also many real estate markets around the world that are growing very fast. At the moment, I especially like the cities of the Czech Republic, Poland and Turkey.
So if you’re serious about investing, as long as you look at your trades correctly and understand what brings capital growth to a market or area, eg, perceived undervalued properties, new mortgage products, property shortages, keep increasing your portfolios and enjoying the phenomenal returns that ownership can offer you. You should get a return on investment of at least 30% per year, and many investors are earning much more.
