Below market value property strategy: Portfolio B

Brett Alegre-Wood
January 25, 2009

How to get the most from BMV property

It's a fact of all investment opportunities that sometimes prices will go down. I've personally seen it in my own portfolio and if you're honest you'll have seen it in your own portfolios as well. The important thing is that we are realistic and take decisive action – even if this action is to sit and wait until the market returns.

Sit and wait… or jump on the below market value property bargains?

Although interest rates have dropped and won't be going anywhere for the foreseeable future (great news for cash flows and sleeping habits), many of my clients are sitting and waiting. But not all. In fact our website has seen traffic double in January and it seems that interest in property has returned. Prices have bottomed out and and investors are actively grabbing the many bargains that are out there.

Know your portfolio – it's not all doom and gloom

I suggest that before you do anything you check your local market. To my surprise I have a number of houses that have actually not dropped in value at all. I have some that have dropped by maybe 5% or so and then I have three properties that have dropped a whopping 40%! So my first point is know your portfolio. Don't just accept Nationwide, HBOS or Land Registry as being correct. You may be surprised that many of your properties haven't fallen quite so much as they media would have you believe.

The Portfolio B Strategy

So what have I done to overcome the falls in my portfolio? It's simple – I've bought more property!

I bought a flat in Birmingham city center the other day. In its heyday it would have gone for £165,000 but I bought it for around £100,000. Two years ago you couldn't have gotten me near a Birmingham city centre flat. In fact any city centre flat… But now the prices are much, much more realistic. I have bought a further four properties so far this January and have offers in on another four, which I expect to come off. The market is satuated with many more investment opportunities.

So why am I buying so much right now?

Quite simply, after looking at how much my pre-2009 portfolio has dropped, I've decided that the best thing to do is “ring fence” it and almost forget it's there. It also helps that with the interest rate movements all those properties are cash flow positive now. I call this Portfolio A. Portfolio B is all of the property that I am buying this year. This constitutes investment property below market value value and that is also cash flow positive.

The mastery in the plan

Portfolio A needs time to grow and return to levels that will allow me to re-mortgage etc. It doesn't matter if this takes until 2012 because I can use Portfolio B to re-mortgage much, much earlier because all of those properties are at 70% and 75% “loan to value” from very realistic prices and also cash flow positive. So as soon as loan to values increase, which they most certainly will, this give me the ability to take some money out to cash flow or fund further purchases.

At heart, it's a simple strategy. You don't need to buy hundreds of properties and in fact, most people will just need a few to see them through this downturn. It's a relatively low risk, low capital-required investment to ensure you are ready to fly when the market returns.

If you think that you might need help to build your Portfolio B so you're ready to go as soon as we come out of this downturn, if you have questions about how this applies to your present portfolio or even if you just want to start and take advantage of the buyer's market that exists now, then call the team on +44 (0)207 923 6100.

Live with passion,
Brett Alegre-Wood


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