What’s the best strategy for investors in London property?

Four property investment strategies for difficult markets

I met a young couple a week or so ago who own a couple of investment properties. It was a chance meeting. I had coffee, and they noticed that I was reading an article about property investment. Carl is a fireman and personal trainer. Roberta, his wife, works in an office.

We got chatting, and it became obvious that they were worried about the property market. Brexit and the talk of lower real estate prices had spooked them. They weren’t sure what they should do with their two buy-to-let properties in London.

(You can discover a property investor’s plan for turning Brexit into a once-in-a-lifetime opportunity into a national success when you download the eBook “Brexit: We’re out! Now what do we do?”)

In this post,  I’ll highlight why today’s investment market is highly unique, and outline the four strategies that I discussed with Carl and Roberta (or Bobbie, as she likes to be called).

Why today’s investment market is unique

Despite so much uncertainty about the economy and politics, the financial markets are in quite a unique position:

  • Interest rates are at all-time lows. Cash savers get next to nothing for parking their money in a deposit account.
  • Yields on long-term gilts and bonds are falling towards zero, too. So there’s no income there.
  • The stock market is near its all-time high. Even then, capital growth over the last fifteen years amounts to nothing, so share investors have received growth from dividends (currently around 3.7% on the FTSE 100).
  • Gold and silver prices are rising, but way below their highs of just a few years ago.

With this background, property has been a star performer. People need somewhere to live, and the government has stepped away from providing social housing. The private rented market is strong and growing (expected to be around 33% of the UK’s housing stock by 2032), and, with a growing population, demand for housing is rising.

Since Carl and Bobbie invested a couple of years ago, they have seen the value of their mini-portfolio increase by almost 20%. But with property prices at record values, they are quite rightly worried about the possibility of prices falling and their capital gain rapidly eroding.

So, their question is, what are their options right now? What investment strategy should they employ for their properties?

Strategy option number 1: Cash in and bag bargains

With the capital gain they have so far, Carl and Bobbie could sell, bank their profits and wait for prices to come down (if they do). They may have some capital gains tax to pay, and if they choose to reinvest, some of the profit could be eaten up by legal fees and mortgage charges. They might also be liable to early repayment penalties on their buy-to-let properties.

Strategy option number 2: Hold and use as a store of wealth

A Property is a long-term investment. Traditionally, gold and silver have been stores of wealth and value in periods of inflation. But we don’t have inflation in the economy right now. In fact, until the pound fell after Brexit, economists were worried about deflation (when prices drop).

With cash savings rates so low (a German bank has recently become the first to effectively charge private customers on their savings accounts), no inflation, and stock markets that are struggling to break through historic highs, property is the natural home as a store of wealth.

Real estate has a great long-term track record of not only keeping up with inflation but beating it. Property prices may go down in the short term; they may not. In the longer term, they are likely to be higher than they are today.

If prices do fall, you may have to sit tight for a while to see values come back. If you invest in buy-to-let property for positive cash flow and not capital gain, then short-term swings in the value of your properties will be less of a concern.

Strategy option number 3: Refinance and concentrate on rental income

Carl and Bobbie aren’t in a position where they have negative cash flow. If you are, then one option will be to speak to a buy-to-let mortgage broker and refinance your mortgages. You might be able to extend the term or decrease the interest rate. Either way, your monthly payment will fall, and will help your cash flow position.

After doing this, concentrate on being a great buy-to-let landlord and look after your tenants. You’ll find that happy tenants more readily accept rental increases.

Strategy option number 4: Use creative rental income options

If you’re really in a hole with your properties, then you may need to use more flexible rental income options. This include:

  • Short-term rentals
  • Turning the property into a holiday let
  • Converting into a house of multiple occupancies
  • Offering a rent-to-own deal to your tenant

Read more about these in my recent investment blog, “Strategies to use when your property accidently goes into cash flow negative”..

Strategy starts with objective and opinion

The strategy you use when investing in property depends on several factors but starts with your objective and your opinion of the market. Investment strategy will need to evolve as the market travels through its cycle. There will be times when you’ll want to step in aggressively, and other times when you’ll want to sit on the sidelines.

For more information, contact the team at Gladfish on +44 (0)207 812 1255. Our priority is your property investment.

Live with passion,

Brett Alegre-Wood

Brett Alegre-Wood
October 31, 2016

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