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Ftb: Please Pick Holes In My Investment Strategy.


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I may be young but I'm not blinkered.  I know all investments have a risk associated with them.  It's my job to try and minimise the risk as best I can.

There is that word again 'Investment'! Rawhound I know what your saying and your intentions to look at this as coolly as possible, but you come across as someone who just cannot wait and would rather jump than not.

A lot of what you talk about is (and I dont mean this is a patronising manner) 'wishful' thinking, slightly frantic in its assertions and above all inexperienced. I think you have noted that most on here would be very uneasy with your plans, and not just because we think their is a tipping point of evidence for a serious re-adjustment in prices (as historically tends to happen), but because you have so many imponderables and you are basing things on best-case scenario thinking.

Give it 4 months and you might think differently.

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What have you got to lose by renting for another 6-12 months and saving the difference ?

Simple logic, you sound like my girlfriend and overcomplicate things.

You know something bad might happen so just wait and see first ?

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You are right that now all the old factors become important again, like Location and condition....

but....

all this means is that they will be the last to go. I have seen it in my old area. At the end of last year properties in the outlying villages to my small town were falling, but the Wimborne properties remained steadfast and popular, that was where everyone wanted to be, gone were the days of people buying anything as "close" as they can, now only the best will do.

Now, however, 6 months on, and the places in Wimborne itself are starting to look shakey, they aren't shifting because vendors are too stubborn. The only ones that are/have sold are the best properties AND where the VENDORS HAVE ACCEPTED A PRICE DROP. It might not have been a huge price drop, but for the ones who hold on obstinate, the falls will get bigger from here on in. This information comes from the local EA (Mrs T-B used to work there).

In order to guage how much the best location properties will fall you need to see by how much they have risen since...1997/1998, and compare that to the London "average". This will give you a guide as to how much yours will fall when compared to the average london falls.

If you can wait 6 months, then wait 6 months and increase the desposit. At the best house prices aren't going anywhere and at the worse, they wiill have fallen by another 10%(or more!). At least then you will have some idea as to how this crash is going to play out. If we are not in significant falls in 6 months time, then the stagnationists and modest fallites may well be correct....what will you have lost if you wait 6 months?

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there are lots of new properties and developments going on in the area and I think THEY are overpriced
I don't want any risk
contracts are always short term..... the whole mortgage would stretch me.
I agree this is a risk.
I'm pretty scared about the whole thing. I really don't want to end up in sh*t creek
It's my job to try and minimise the risk as best I can.

I think you've picked enough holes in your own investment strategy!

Why buy a house when the're more overpriced than they ever have been in history? It doesn't make sense as an investment at all, from any angle.

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I think you might be suffering from what I can only describe as blind faith. You do not seem to accept what seems unacceptable.

You sound too young to have lived through the last crash (as an adult) which started 16 years ago.

Might be worth thinking about fundamentals. Big crash last time '89 - big crash in '74 also - and a smaller one in '79.

After '89 it took the average house 12 years to reach where it was in 89 and then what? Massive rise. Why massive rise? Combination of circumstances - 50 year interest rate lows and a collapes in stock markets. So all the investment money went into property causing rises of up to 300% in some areas. (The same 3 bed semi in Leeds went from 32k in 2002 to 110k in 2004 - Land Registry figures - hadn't been extended.

What I am saying is don't, for heaven's sake, think current house prices are 'normal' or sustainable. They aren't. They are completely out of kilter with the ability of people to buy them. The market needs to work from the bottom and now, in 90% of the country, would-be FTBs cannot afford property. The market has been sustained by investors and massive borrowing.

There are few things certain in life. A MASSIVE correction in UK property prices is one of those few things. And, don't think London is somehow immune. London always leads the way up and the way down. Last time London was first and the biggest falls were in London. Just because property is expensive in Clapham does not mean it has some immunity from falls. On the contrary - the most expensive areas fall hardest and differentials become eroded in a falling market.

Like the man above said - why not wait? 6 months or a year. Prices certainly aren't going up in that time and will almost certainly go down - possibly by a lot. Why buy anything at the top of a market if you don't have to. Wait 2 years and save yourself 100k of debt.

Can't see it happening? A lot of people have that problem. Won't stop it though.

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Think of the money you can save by not buying and renting in a houseshare, traditionally people bought a house/flat because it was cheaper than renting, not because it was a good investment. A property is for living in, its not a cash machine...

Perhaps you would be able to save 1k a mounth?

Edited by moosetea
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However the property market like all is supply and demand.  In order to have a drop like that there must be massive oversupply (possible in this area with all the newbuilds) but the demand I don't see dropping.

I don't want to be rude but I do want you to think. The statement 'In order to have a drop like that there must be massive oversupply' is complete and UTTER TOSH.

Turn it around - 'In order to have a rise like that there must be massive undersupply'. Is this why prices in some parts of the country trebled in a few years? Is it? No - the reason house prices trebled was that Interest Rates moved to a 50 year low and people being people, wanting somewhere nicer to live, just kept borrowing more and more. There wasn't an undersupply of houses but because money was cheaper to borrow and there was a widespread belief that property (as an investment) was a one-way bet - prices just kept going up and up. Until ... first FTBs dropped out of the market (about 2 years ago where I live) and now, finally, BTL has dropped out of the market. Who is left to prop it up.

I believe it is important to realise the property market is about SENTIMENT and greed, not supply and demand.

We have a unique situation now. Property is unaffordable (so very few FTBs in the market) - and is going out of fashion as an investment. (Do you know anyone re-mortgaging their main home now to put down a deposit on a BTL? I don't ... half my friends were doing it 2 to 3 years ago). In the mainstream media now we have articles about a crash, a correction - even journalists saying they are selling up their BTL properties even though they were determined to keep them for their pension. They KNOW what is coming next.

A large crash is inevitable.

Do yourself a big favour and don't buy at the moment. In three years you will buy the same property for half price.

Still not convinced? Look at the Nationwide graph - it is not all ups - there are downs as well. Look at recent price increases. Climbing a vertical wall of greed and desperation.

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Rawhound

This is one possible way to think of things - buying a property is a combination of three principle elements:

1 Instead of paying rent you pay interest on the principle of the property

2 Instead of a landlord being responsible for the upkeep of the property you are

3 Instead of being neutral to house prices you are making a massive leveraged bet on the UK(Clapham) residential property market

(It could even be argued that there is a forth element which is a short position on UK interest rates but ill discount this for simplicity)

I find it useful to evaluate each of these three elements separately, for example;

Element 1 –

At 5.5% the interest on a 300k house (including your deposit becasue by buying you will miss out on the interest you could have been earning) = 16.5K p.a

Monthly interest payments = £1375 pm

Net of rental income (£500pm) = £875 pm

Rent for equivalent flat = £600 pm

Net value of element 1 = -£275 pm

Element 2 -

If you take a leasehold flat you must pay ground rent, a service charge, refurb costs etc etc. (a conservative estimate is £150per month)

Plus you are responsible for renting out the second room - getting a continuous stream of tenants, collecting rent, addressing problems, subsidising void periods etc etc. although EAs charge a lot of this service (10% of rental income) its unclear how much this is worth but its definitely a cost i.e. negative value

Net value of element 2 = -£150pm (minimum)

Element 3

This is the element that has historically (last 5-8yrs) made people a huge amount of money masking the negative value of elements 1 & 2. Whether this bet will pay off in the future is open to question and even if you believe that Clapham residential property is a good long term bet does it make sense take your entire net worth, leverage 5 times and put it all on a single illiquid bet? – Would you do the same with a single company’s share price even if you through the company was a great long term prospect?

Another thing to consider are the transaction costs (think 10k min on a 300k flat) Unless you attach a massive amount of value (>£425pm) to the ability to do your own DIY or you are utterly convinced that you property will rise significantly in value it’s hard to make a strong case for buying now.

Tenpintom

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There will always be demand for this sort of housing.

What does this statement mean. I would certainly have a "demand" for such a house at £100,000 maybe £200,000 but not £300,000. There will always be demand for oil (ignoring technological advances) however the price yoyo's all over the place. "There will always be demand" means nothing without taking price into context.

It is that old chestnut again - why come on HPC make a post without looking at previous posts. Do a search at see what the general opinion is. You are basically saying that you can't see even a 15% fall in property.

I can't see anyone who will want to convince you that you won't lose money - 95% of people on here believe in moderate falls (say at least 20%). To me it is obvious there will be large falls the only reason so much money (demand) has poured into the housing market is make a fast buck. That is over the only way is down. You will lose money and most 'real' economist would agree with me. Unfortunately the press, halifax, estate agents regurgitate the same old crap.

Go for it if you want but to make yourself 'feel' better i suggest you get your advice from singing pig they may delude you over there into feeling that your type of house just can't possibly go down in value!

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Thanks - there's some great advice coming through. I'm not set on this strategy. If I was I wouldn't have posted here.

I do admit that common sense rules should apply. £300,000 for a reasonable sized 3 bed property in a decent (not great) part of London does not seem like a good deal. And completely unaffordable to except to high earners.

I do forsee a fall in prices. I've never disputed that. I only challenge the sweeping generalisations that I sometimes hear. I think that certain types of property will be harder affected than other.

I may seem like I am set in my ways and it's a 'done deal' but that's not the case. However there's no point having a discussion where I agree with everything I am told. I have to challenge views. I'm a skeptic, not a 'blind believer' :)

Oh.. and I really don't see the problem with using the word investment. I don't need a three bedroom property for my current lifestyle. If it was just a home then I could happily live in a a 1 bed property. However I've been renting and living in the area for 3+ years and I think that the ideal rental property size is three decent sized double rooms. This requires a larger outlay and IN THEORY would give a larger revenue (assuming no house price crash!) so this is a business/investment strategy.

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All I would say is that pick your area in Clapham wisely.

Clapham is a big place and a lot of it is a right sh*thole.

It is one of those areas like Angel/Islington where the 'bright lights' of the bar scene have given the place a superficial gloss. But if there is a hpc then these are precisiely the sorts of areas which suffer heavy falls.

If you are earning decent dough at the moment I would just save as much as you can and WAIT.

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Contractors are paid more than permanent staff, and are cheaper to lay off in a recession. Look at the IT industry in 2001 - 2003, contractor headcounts were reduced first, and something like 40% were unemployed for part or most of that period.

Where house prices are likely to go over the next few years? The most optimistic predictions are for flat or slow growth, the most pessimistic are for falls of up to 40% - 50%. There are things to factor into this, such as the effect that SIPPs and Gordon Brown's shared owner scheme will have on the market.

An interest only mortgage increases the risk, as you're not reducing the body of the debt, particularly if there isn't a repayment vehicle in place. (Though they can make sense for contractors, who are likely to have varying incomes, if they make repayments to the principle.)

Also compare the cost of paying a mortgage with renting a property. A quick look at Rightmove gives a rent of 320 per week for a two bedroom house, which is in a similar ballpark to your interest only figure.

Lastly, ask your financial adviser what his cut of any deal will be. :)

I'm not as bearish as some of the posters on this forum, but the downsides of buying a house right now are pretty huge, and the upsides probably minimal. I'd be inclined to wait six months, and see whether the market is heading for a soft landing or a crash.

Graeme

Edited by Graeme
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I know there is an expected 'crash' but IMO as long as there is demand I think the risk of the property reducing in price is minimal over a 5-10 year period. 

I just reread this...have you looked at what has happened to demand!?

I can tell you that demand is probbaly down 50% in Clapham from a year ago.

If you look at the last crash property prices sunk and took about 8 years to recover.

I really don't think you have considered worst case scenario at all.

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Thanks - there's some great advice coming through.  I'm not set on this strategy. If I was I wouldn't have posted here.

I do admit that common sense rules should apply.  £300,000 for a reasonable sized 3 bed property in a decent (not great) part of London does not seem like a good deal.  And completely unaffordable to except to high earners.

I do forsee a fall in prices.  I've never disputed that. I only challenge the sweeping generalisations that I sometimes hear.  I think that certain types of property will be harder affected than other.

I may seem like I am set in my ways and it's a 'done deal' but that's not the case.  However there's no point having a discussion where I agree with everything I am told.  I have to challenge views.  I'm a skeptic, not a 'blind believer'  :)

Oh.. and I really don't see the problem with using the word investment.  I don't need a three bedroom property for my current lifestyle.  If it was just a home then I could happily live in a a 1 bed property.  However I've been renting and living in the area for 3+ years and I think that the ideal rental property size is three decent sized double rooms. This requires a larger outlay and IN THEORY would give a larger revenue (assuming no house price crash!) so this is a business/investment strategy.

Im assuming you have no credit card or other outstanding debts, car loans etc etc? How much savings do you currently have? How much do you currently save a mounth?

why not rent a 2 bed property with a mate? You say your current lifestyle is to sublet a room (as thats what you would do if you bought), why not why not rent and sublet a room or two allowing you to save 500->1000 a mounth, or why not houseshare as thats the same as subletting a room? By property i assume you mean 'flat', looking at the average hosue prices you provided flats appear to be the only thing in your price bracket, and flats appear to have been stagnant from 2003, my advice is dont buy a flat as your going to be royally screwed on paying extra maintanance costs, and flats were the biggest to crash in the last crash... People were buying flats in the city for 120k, to find just a few years later they were only woth 30k....

By repeating the words investment/strategy it sounds like your taking work home with you, or fooling yourself into believing your something your not. Stick to what your good at, and stop thinking property is a great way of making money. Buying at a peak isnt a great stratagy or a great investment as your running the risk of being the greatest fool...

Do the maths first, is it cheaper to buy a flat or cheaper to rent a flat? Many people here are finding it cheaper to rent, if it is cheaper to rent, it is cheaper to rent as a group of friends or sublet..

Ive included a link to flat prices in your area:

http://www.upmystreet.com/property/prices/...pham-86533.html

BBC Morgage Calculator :

http://www.bbc.co.uk/homes/property/mortgagecalculator.shtml

For a 3 bedroom flat 300,000 over 25 years at

5% is 1773.81 a mounth,

5% intrest only is £1250 a mounth

6% is 1955.66 a mounth

6% intrest only is £1500 a mounth

add maintanance (and a possible hike in intrest rates) your looking at about 2000-> 2500 a mounth.

The question is can you rent an equivilent 3 bedroom flat for less than 2000->2500 a mounth? If you can then your making a saving if you rent a 3 bedroom flat and sublet the rooms..

Edited by moosetea
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my advice is dont buy a flat as your going to be royally screwed on paying extra maintanance costs

You're not wrong about maintenance costs. Sadly, most London FTB's can only afford a flat.

In my experience maintenance costs can vary wildly, from something as amenable as the leaseholders pay for work as-and-when required* to as much as £1200 a year. They're usually a scam for managing agents to charge a fortune for a lick of paint evry couple of years.

*An excellent solution so long as your neighbours agree to getting work done.

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RH,

Just look at HPI for Clapham on the graph you posted from www.upmystreet.co.uk. Do you really believe prices can rise to these levels but be immune to falls of more than say 20%? The new development above JS has been marketed for months but they just can't get shot of them, as they are overpriced in the current market. This situation is being repeated across the Borough of Wandsworth and London.

On my road, a neighbour's house has been on the market for 7 months and been under offer twice. They bought it for 500k under 4 years ago and the asking price is 750k. 18 months ago, this price would have been realistic (but not in the true sense of the word!) but they have missed the boat now I am afraid. Similar properties are coming onto the market at a lower price. Therefore, your prospective property is also falling in price. The only direction for the market to follow is down.

Personally, I don't like Clapham very much as it has undergone the process of gentrification. The local community feel seems to have disappeared and a more transient population has arrived. The same applies to Balham. Hopefully, when the market falls, these people will move out :) .

Edited by Buffer Bear
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I don't think it's such a bad plan. Nobody on this forum will say it's a good idea, but if you buy at a price where rent - maintenace - insurance - voids covers a long-term fixed rate interest only mortgage then I don't think it's too risky. Only the really pessimistic think prices wil drop over a 10-20 year period so if you plan to hold onto it for the long term it's a fine plan

The thing is though, I've lived in shared accomodation in Clapham for years, and knowing the rental market pretty well here, I don't think you can easily find a property at the moment where the rent will cover the interest repayment, maintenace, insurance and voids. If you can post a link to one I'll be impressed anyway!

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Is it just me or has everybody lost a grip on their senses? A FTBer looking to buy in at 300,000!?! Can I just take the opportunity to remind everybody that that figure is just shy of 1/3 of a million!!! You have got to be a troll or are having an extremely generous helping from Mummy and Daddy which is probably more the case as you seem very very flippant about the property losing money. And as for Clapham, its full of to.ssers, so you have picked the right location. :rolleyes:

Edited by shakerbaby
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  • 443 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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