When the pandemic started, many investors were caught off-guard due to all the unknowns. A recession isn’t automatically bad for everybody, and not all recessions are created equal. For property investors, the pandemic is a great time to re-evaluate your property investment business model and strategy.
Historically, recessions have been wealth-building opportunities for property investors. It is clear that the pandemic and 2020 recession will have plenty of nuance to it. Initially, it was thought that the pandemic would have a negative effect on real estate but any negative effects have so far been only superficial.
The impact of the pandemic on the UK property market is not simply due to the lockdown restrictions, but can also be more attributed to changing market demand, tenant perception, and location. The pandemic has exacerbated many existing trends.
Decisions on how to maximize value in your property business should be a top priority right now. But what can you do to position yourself for success?
The best investment strategies take a risk-based approach, consider the effort/time required, and capitalisation rate. In this article, we spoke to Adam Lawerence from Partners In Property about how adapted his strategies during and after the pandemic.
Many new property investors gravitate to HMOs because of their perceived cash flow benefits. Experienced investors like Adam know the seduction that comes with HMOs isn’t all it’s made out to be.
HMOs may generate more yields than single lets but, despite what property trainers will tell you, keeping in mind the net-net profit – after all the costs, not just the obvious ones. They require higher maintenance, have more ware and tare, require more tenant management. These rack up and they are a lot more costly to run than single lets. They can also be hard to sell, if they are all ensuite for example, because of their lack of appeal as a family home. They tend to appeal to niche property investors, and they are always looking for the best deals. This doesn’t necessarily make HMO a bad strategy, but it can create nightmares for your investment portfolio.
The HMO market is highly saturated in some locations. Some savvy investors have begun converting their HMOs to single let properties to try and attract a different tenant type, reduce the long-term costs and boost profitability.
Whether you are investing in HMOs or single lets, property location is a fundamental consideration for you as a successful investor. It is easy to change the size of your property, its use, and price, but it is impossible to change the location. The location can have the single biggest impact on desirability and demand. What this means is the location can affect both the value the prices of the property you own or want to own. Each location represents a different value due to variables such as traffic, access to amenities, and socio-economic level in the neighborhood. Location will also have an influence on choice for your customers or tenants.
Post pandemic a property investor should factor in changes to the market when they assess property deals. In particular, it may be prudent to consider its capitalisation rate as opposed to yield. This differs from the yield in that it uses the net-net income as opposed to the gross in the calculation. Based on the cap rate alone, investing in HMO can be riskier than investing in single lets since the cap rate is lower. Before investing in your first, second, or n-th property deal, think like a pro and even consult. Understand the difference between price and value. Price is what you pay for and value is what you get. Make sure you are getting more value than you are paying for.
The pandemic and movement restrictions have made roomier homes more appealing for buyers and investors. Home sales have spiked by 20.7 percent since the reopening in June 2020.
In a hot market, the quicker and easier a property should sell. Buyers will find it tougher in a hot market to negotiate hard and we often see properties selling above the asking price. We are in a seller’s market right now and while it may not be an ideal time to buy, it is a great time to sell.
Although UK property may be enjoying a sellers’ market, there are clearly nuances to this, and pockets of the country are seeing properties that are struggling to sell. In London ⅓ of available properties sold or under the offer price.
To wrap up, the pandemic might have affected your business model as a property investor, but if you use the tips above you will become a successful property investor.
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