Property Investing: February 2011

Tuesday 15 February 2011

The Dangers of Investing Abroad

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In Brazil, for example, many European investors lost their investment funds in a pre-construction luxury resort in north east Brazil (near Natal).

The developers’ glossy brochure promised 30,000 homes, a marina, golf course, sports centre, spa, heliport, shopping centre and even a plastic surgery clinic – all on an idyllic beachfront location surrounded by a lagoon. The problem was that no construction was ever built and the money miraculously 'disappeared'. Amongst a complex legal battle, the investment fund has still not been recouped to over 500 investors and the developer remains in a Spanish prison.

Don't forget the mud slides in Brazil, the hurricanes in the Gulf of Mexico and parts of the USA, the cyclones of Eastern Australia, and the fires of Western Australia. I'm glad I didn't invest in the Nata project - I was seriously considering it but, at that time, I had run out of money. I'm remortgaging my oldest properties to continue building my portfolio. I will release more money in 2012 and 2013 when the others mature. As LTVs continue to increase, further money can be released by virtue of that increase.

Naturally, all this money will be reinvested in the UK where it's safer. This reminds of Dr. Martin Weiss of Wiess Research when he coined the phrase "be worried about the return OF your money rather than the return ON your money". The Brazillian experience of losing ALL your money underlines that phrase.

Repossession Report 2010: 36,400

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The CML published its quarterly report on house repossessions and it's 36,400 well below the WPM's prediction of 38,000. At the time this prediction was made, people said it wasn't possible - but time has proved them wrong. I mean the CML's prediction was 53,000 but they reduced it to 39,000 in the Summer of 2010.
This is another feather in the WPM's cap; the first one was forecasting a repossession rate of 50,000 in 2009 as opposed to the CML's 75,000. At the time, they reduced it 65,000 then 48,000 and it eventually came in at 46,000 but then it was revised to just over 47,000. Notice, that the WPM always stick to their forecast come what may - and we're always vindicated.

The WPM's forecast for 2011 is 32,000. Impossible I hear you say. Well, the RICS believe that the down trend will continue to 33,000 and the CML believe it to be 40,000. With Q4 GDP at -0.5%, I rekon the CML will win this round especially with the spending cuts yet to bite and the base rates yet to rise.

I'm betting that the BoE won't raise rates while the economy is in dire straites - the spending cuts will do enough damage. Besides, it won't affect the real inflation; all it will do is choke demand reducing productivity and sales thus reducing GDP. Politics of a mad house if they go against advice.

The WPM will help stabilise the economy thus helping improve the repossession rate. Remember the latter is an indirect effect of the progress the former is making.

Wednesday 9 February 2011

The one that got away

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I saw a 3bed semi in a posh area advertised for £75K in a road where the most recent semi sold for £139K. Previous sales were £129K and £118K going backwards. In the forward direction, prices are going up. I mentioned this in a property forum and they shot me down in flames.
Whichever way you look at it, £75K is very cheap. I called the agent and he said that they need to see proof of funds - cash or Decision In Principle (DIP) - before I can view it. So I called my broker who said that she'll provide me with a DIP within 24 hours. This came and went and nothing. I called another broker and within 2 hours, he emailed a letter stating that I qualify for £100K mortgage and can complete within 28 days. The next day, the first broker emailed me a DIP.

I called the agent to arrange a viewing now that I have a credit line. He said "Don't waste your time as we have received offers well in excess of the asking price and some of them were cash offers. The vendor will certainly accept the cash offers and yours will simply be rejected....". he kept rambling with cynical laughter at my attempt to buy this property with a mortgage when he had several cash offers well in excess of £75K. I got the hint that he didn't even want to show me the property. So, I abandoned this venture as I can't compete with cash offers.

I then got the idea that I've already applied for £38K further advances from 2 of my properties and I can get
a further £9K from a 3rd one. All I need is another £30K which I can get as a loan: £25K personal loan and £5K on my Credit Card. Then I can buy a property cash and remortgage it after 6 months to get my money out. But then I thought that these loans are too expensive and I'll be taking too great a risk as I may not get all the money I put in.

A week later, I was inundated with emails telling me that I can get an 85% LTV buy-to-let mortgage @5.99 fixed for 2 years. This reduced the risk as the required deposit is substantially lower. However, the increased gearing has its own risks. This product reverts to a LIBOR + 5% standard variable which is a bit pricy. I'm prepared to wait for other offers with lower margins. If there are none before April, I'll go for this product.