My property crystal ball (or) where the market will be in 2010
Hey guys,
Well I'd love to sit here and honestly tell you where the market will be in two years from now.
I certainly have my thoughts and I will continue to invest accordingly, but if I'm honest I would have to say that I don't exactly know and it's my opinion that most property experts don't exactly know either.
This is a really important point to get.
The experts themselves do not exactly know, so how can an inexperienced investor just starting out in property, or even a set and forget investor possibly know?
This leaves you either hoping or gambling that the market will go the way you expect (it's the same thing), or you must decide which expert to believe and which strategy to follow. Then you need to take it upon yourself to learn enough about this strategy so that you're comfortable to begin and continue investing.
Property is a long term investment. Yes, that means long term...
It never ceases to amaze me how many people go into property 'for the long term' yet they actually really expect to consistently pull large amounts of money out after one or two years. Most of the time this just isn't going to happen and the sooner you realise this, the better an investor you will be. Investing in property is a 7-10 year event and if you treat it with respect it will pay huge dividends.
So back to the crystal ball.
If the property game is a long term one then it makes sense to know what is likely to happen over the long term, rather than for the next six months as most people view things.
The wonderful thing about property is that it has followed very clear cycles over the past 60 (and arguably more) years. These property cycles allow an educated property investor to crystal ball gaze and with some degree of accuracy predict what the cycle will be doing for the next couple of years (or at least enough accuracy to make money!)
It's one of the first things I learned through my economics training and it has stuck with me throughout my investing career. So what is the crystal ball saying in this area?
Slow down globally but very strong fundamentals so it's unlikely that property will crash. The good news is that already we are starting to see a nice amount of good deals floating to the top and these will continue. Interest rates seemed to have topped out at least for this part of this cycle. Naturally, nothing's certain, but it looks good for a slow down and a strong recovery perhaps in 2009-2010 but definitely all good heading into the Olympics.
I heard the man the papers dubbed 'Mr Buy To Let' speaking about the property market over the next 3 years and he was saying a drop across the board of 30% of values. Now while I don't agree with his percentages - in fact I think he's way off - I do think he is correct in that the next two years could cause problems for those who are mortgaged to the maximum. But those who have followed my two year cashflow rule will be fine.
The other fundamental which I feel that he totally missed was that the amount of people who are mortgaged beyond their means are in a small minority. The vast majority of homeowners and investors have significant equity to call on.
Buy to let has barely scratched the surface in the UK and Europe. I know because I learned my trade in Australia where the buy to let market is at least 20 or more years old. It allows me a great perspective on things. (Almost like a crystal ball you might say.) So, I am thinking a global slow down is likely, but not recession. As long as you can cashflow for the next 2 years you will be sitting pretty.
Always remember: a bank has never repossessed a property due to negative equity but they'll always repossess due to non payment of your mortgage. So cash flow is king over the coming two years. Watch it carefully and if you need help ask us earlier than later. We can normally fix any situation given enough warning!
Live with passion,
Brett