Throw off your emotional chimp...or how to get ahead in property investment

Posted 20 February 2015

What does a psychopathic politician from the hit Netflix series House of Cards, teach us about buying property?

Well, in the first instance, honesty; and in the second, focus; and the third, shaping objectives. 

For those who haven’t seen the series, Frank Underwood, a malevolent politician, is devoid of emotion when it comes to plotting and planning his future. When Frank is making decisions, he is able to put his “emotional chimp” to one side.  While I don’t recommend Frank as a role model, I trust you can see the point I am making.

So, how is the process of investing in property different from that of buying a property?  

A few basic points to bear in mind. If you are buying, it’s a place you wish to live. You need to check out schools, local amenities, churches and still try to buy the best house in the best street. It’s a family home, a place to entertain.

If you can afford it and have the nerve, ask family to help with deposits and if you like the area, buy big and leverage up. Lots of people have done very well  buying a house in the last 10 years (and just about all of them in the South East), but all ships have risen and some more than others.

If you are investing, you should be looking to move into and out of hotspots and make sure your ship rests highest. That’s investing.

International property

There are plenty of cases of buying off-plan, via an intermediary, which frankly have been an embarrassment to advisers and their clients. From the nightmare that is Brazilian rainforest (timber plantations), Cape Verde, Caribbean, Spanish and Polish properties, there may be winners, but I’ve not met them and from the sheer volume of Financial Conduct Authority investigations, I suspect there are not many.

A simple question: if you don’t want to fly to see your building site before investing, who will want to fly to see it once it’s built?

Par exemple (I’ve just got back from France), a client bought a fantastic property in Turkey for £125,000 in 2010, within a gated community, comprising of four double bedrooms and three bathrooms. Current value is £100,000, less expenses. Overall, they have never covered their mortgage costs from rental. So, remember that value and cost are two very different bedfellows. I assume that the introducer received 5% commission. This is not a bad case and there are far worse around.

A real current hotspot is an island off a large continent with high levels of high-quality inward immigration; so, that’s New Zealand off the books, for the moment, because you’ve missed that wave. We could look at a huge country with lots of land, of which very little is habitable, so that’s Canada out of the picture, because we’ve missed that hotspot. 

How about Spain and Greece? Well, I’m not sure where the bottom of their markets are, or will be.

Back in the UK

Therefore, if we want to invest and I assume you wish to buy low, there are lots of places in the South East that are now overpriced for our purposes. So, where can we find a property near a train line into London, close to other hotspots, with potential?

Hackney, Angel and Old Kent Road are off the board.  So, how about Luton? It’s close to St Albans, Harpenden and Berkhamsted – all three towns have done very well over the past five years. It’s got a great rail route into London, an expanding airport and it’s between the M1 and A1. There’s talk of relocating the football ground, so let’s buy in a road near the development area, LU1.

I have had a few looks of disbelief when I’ve pitched the Luton idea and that’s great. I would have got the same looks if I had said Hackney Marshes 20 years ago.

Now, you can choose any area near you and ponder its potential. Luton buy-to-let yields are still north of 6%, so you could use that as a marker.  I have discounted Folkestone, but anywhere near a fast railway route to a big city has got to be worth considering and as long as London remains politically stable, big money will flow in from abroad. This will push out locals, who have no choice but to buy elsewhere. For example, in Luton.

I am indebted to The Economist for some great work on future hotspots and, in their opinion (see Economist dated 6 December 2014), it would seem that the “burbs” are back. That article can provide more reasoning, but assuming that’s true, we need to look on the outskirts of London.

So, LU1 could well be the answer – but do your own research!

Lawrence Watts is a chartered financial planner with HBB. Contact 07982 235543, 01727 862477


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