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Bad Time to Buy Property as an Investment? By Lawrenson of LettingFocus

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A weird thing happened last year.
An old pal of mine from Merseyside bought a house right next door to the place where we used to live on the Wirral when I was just a small kid. This next door house was identical to our one.
He paid about half a million for it. My father paid £30,000 for ours back in 1971.
Not a bad increase in price over time I guess.

Don’t Compare Oranges with Bananas
But when comparing property prices over time don’t forget that properties need to be maintained which costs money.
And, of course, the quality of what’s in today’s properties is so much better than what one would have put up with in the 1970s.
Bleeding obvious I know - but often forgotten by many commentators.
So when comparing property prices today with what they were some years ago and saying “Gosh, how much things have gone up” we must always remember that we are not exactly comparing like with like because maintaining and improving property costs real money.

Inflationary Hedge
But all the same, those kind of figures really does show how property is a great inflationary hedge.
Money left in the stock market over the period 1971 - 2009 would have done pretty well too.
An investor friend of mine - Rochdale Andy - noted that he rather fancied gold at the moment but then added “Unfortunately I can’t leverage up to 70% buying gold.”
And nor can you borrow money to buy shares either.
Just go to your bank and see if they will loan you money to buy shares without any asset to back it and see how far you get.
And I imagine that, even if it were possible to borrow money to buy gold or shares, it would not normally be tax deductible either in the same way as investing in let property is .
And neither would gold produce a rental income.
These factors, for me mean that the right type of let property will beat shares most of the time.

Is It a Good Time to Buy Now?
It’s better to buy now than it was in 2007 right? House prices are down so it has to be better to buy now. Isn’t it?
Well, I bought 2 places in 2007 and where I have invested prices are down between 5 and 10% on 2 years ago.
Should I not have waited? Should I not have seen what Sir Fred and the other banking eejats were up to and held on through the credit crunch to buy now.
I disagree. At least not for one who needed mortgage financing to complete the purchase.
Why?
Well, back then I could get an 85% loan to value at a buy to let mortgage rate of just .69% above base rate FOR LIFE for a mortgage fee of about £500.
Now, the best loan to value is a measly 75%, the best buy to let mortgage rates are a whopping 4.5% above base for just 3 years followed by 2% above base for the rest of time.
And the fee is a whopping 2.5%, )which would have been £2,500 on that particular property.)
I’ve done the maths and because of the effect of the cost of money, it still looks like 2007 was a better time to buy. That said, I think 2009 will also prove good in the long run too partly because I think inflation will come roaring back within 2-3 years.
But I will look in more detail at why I think today is a good time to buy to let in a forthcoming blog.
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ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
We are LettingFocus.com - the property experts.
I’m, David Lawrenson, the author of “Successful Property Letting” which for the last 3 years has been the UK’s top selling property book.
What’s unique about LettingFocus is that I offer independent unbiased
property seminars covering property investment and letting because unlike most people in the buy to let and property “advice” business I am not linked to a property company, developer, agent or bridging loan financier.
I can tell you where to buy (which areas), what type of property to buy, when to buy, how to buy property at a low price, how to make sure you get tenants who are going to pay the rent and how to manage a rental property to make £s at my one to one consulting service.
I can also comment on “No Money Down” Schemes and “Buying Below Market Value” methods too.
I can answer all your questions on letting property too because I have been a landlord and property investor for over 25 years.
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  1. Anonymous Robert Taylor | 11:14 PM |  

    My parents purchased a 2 bed cottage built circa 1890 in 1963 for 2500 Pounds, the home sits on 1/3 acre. In the garden of the cottage my parents built a 4 bed detached home in 1973 with a double garage for 7000 Pounds (self build). Sadly my parents passed away leaving the homes to me. Both homes are currently rentals, as of 2009 the cottage is valued at 150/160K and the 4 bedroom home is valued at 280K. I have just received planning permission to demolish the 4 bedroom home and to replace it with a 3 bed detached home and to
    build an additional 2 off 2 bedroom detached homes on the same
    1/3 acre site. My only problem is that currently the banks have no appetite for new build development
    financing. We have had many ups and downs in the property market since 1963, however, I strongly believe everyone should have a component of real estate as an assset class within their investment portfolio. In the UK space is limited in those areas of high demand, so for the forseeable future I can only see demand outstripping supply. This is very sad for those who cannot afford to buy, but it ensures a viable property rental business in the right areas.

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