In a slow or stagnant market, there are two choices in property. One is to ride through the tunnel, in the hope there will be light at the other end. This hope is not totally blind, it is born of experience and history. Property always bounces back, it is ‘proven’ historically. However, the question could then be asked ‘just because history shows something always happened in the past, does that necessarily mean it will happen again in the future?’ Perhaps not. There is a slim chance it may not, and the whole house of cards may collapse. All one can do is look at a probable outcome. And this shows the odds to be in favour of property, always rising back up following a stagnation.
The other option is to cut out from the deal, and move on. This requires a fluidity of thought and action. Most people will be stagnant, and chose to stay in the deal, rather than cut lose and move on. If a deal was purchased in a set of favourable market conditions, and then the conditions change does this mean the deal was bad at the time it was bought? No. This is the nature of investment. Things change and move on. When the market softens, deals you are in may not be as lucrative, but opportunities will start to surface.
The property market is not like the stock market, you cannot sell with a press of a button. However, it is not as illiquid as many believe. Especially in London. Currently, we are looking to sell a property at a loss, in auction. The decision to throw this overboard has been made, all that remains is to choose the auctioneer from the options we have shortlisted. This will be done this week. The auction will take place mid July. This means the money will be in, in full, by mid August.
This is a tough decision but one which is correct. Looking at the situation in isolation it does not look good. However, if you open up the framework and view it along with the opportunities on the market currently, you see it makes sense.
The funds released from this sale will be used to invest in a location where the property prices are expected to rise at about 10-15% per annum for the next five years at least. In terms of the expected return on cash, this represents about a 40% return on funds, as these funds will be geared up. The downside risk is extremely low. Therefore, this is the correct decision. But often decisions like this are not governed by common sense, which isn’t actually that common. They are governed by psychology. Inpsychology anddecision theory,loss aversion refers to people's tendency to prefer
avoidinglosses to acquiring equivalent gains i.e. it is better to not lose £5 than to find £5. Some studies have suggested that losses are twice as powerful, psychologically, as gains.
Agony Agent is here to help!
Q: I need to refurbish the kitchen in my rental property. Do you have any tips to share please?
A: Decorating or fitting a kitchen for a property is all about return on investment. You want to spend enough that you get a durable, hard-wearing kitchen, but not so much that it takes you years to break even through your rental income.
If you imagine spending £10,000 on a kitchen for a property which will rent for £300 pcm, you can see how long it would take to earn that money back. However, if you invest too little, you could find yourself having to replace everything a year down the line. Whether you are replacing the whole kitchen, or just doing up an existing one, my top tips will help you save money and time – as well as contribute to keeping your tenants happy. As with bathrooms, moisture is one of the biggest threats to your sparkling new kitchen. Once mould has set in, it’s pretty hard to stop and is notorious for eating away at plaster and paintwork. There are plenty of ways to prevent moisture damage and mould, for example, use a mould-resistant paint (one that is also wipe-clean) and use tiles where possible. Although expensive, tiling will last and keeps moisture at bay.
If your budget doesn’t stretch to a tiled floor, try lino flooring. Lino is cheap, easy to fit and easy to clean – as well as being water resistant. Needless to say, carpets are a no in any kitchen, as is laminate flooring, which can expand and buckle when wet. Install a good extractor fan or cooker hood and advise your tenants to use it every time they cook, to whisk away steam and condensation. If your units are looking a little dated you’ll need to weigh up the expense of replacing them against your intended return on investment. Think again about the type of tenant you’re trying to attract, and this should help you decide what to go for.
If there is no structural damage to the cupboards, but they look shabby, why not paint them, with cupboard paint, and try replacing the knobs for some fresh new ones? You could even keep the ‘shells’ of the cupboards and simply replace the doors but, whatever you do to them, stick to neutral colours. When it comes to appliances and white goods, even unfurnished properties will be snapped up quicker if they have the basics on offer. A washing machine, fridge and cooker will go a long way to attracting tenants. Before you go full steam ahead and start including fancier goods such as dishwashers, consider again the type of tenant you want and how much they’ll be paying in rent.
As always, any gas appliances will need fitting by a Gas Safe registered engineer and will need an annual safety check.
If you need any help or assistance with the refurbishment of your rental property, contact our office for some free advice on this subject.
Richard Bond
Lettings Manager
Sow & Reap
