A very good post Tony. It is refreshing to hear someone with plenty of experience and down to earth common sense sharing their thoughts with others who may be wondering what to do next after hearing so much bad press from inexperienced and ill informed quarters.

Everyone can benefit from the experiences of a 'Wise Owl'.

I look forward to Part Two.

I note that 17% didn't find your article interesting. I guess they either already knew what you have to say and got bored or they refuse to accept it as they have other agendas - now I have a hunch who some of those characters might be, but I also have a hunch who is going to be in a nice financial position in 5 years time and who is going to regret bailing out.

I agree. I'm looking forward to the next articles on this thorny and emotive subject....

The second part of my discussion article is up and posted. I hope you find it equally interesting and thank you for your comments ... and also thanks for avoiding use of the word 'old' from the phrase Wise Owl. Ha. I like to think everyone on PS is open enough to learn something from each others' experiences and knowledge, including me and all other 'commentators', and while I never expect everyone to agree with what I might say, it's gratifying to see that some do ... and hopefully those that don't agree will take part in a useful debate and explain why they don't agree.

Tony B

Hi Tony,

thanks for the article..

Would you say that you were better off finding good deals in the UK a the moment with a sufficient discount enough to cover a drop in the coming year and a half rather than focusing on the CEE?

I am seeing deals at the moment in the UK, some in good locations and some not so good. I do not have to put a lot of my own money in and there can be small shortfalls on the rent. One example would be a property valued at £110K by a RICS surveyor, costing me very little initially and costing a total of £3000 including shortfalls and fees over the next 2 years and with a 25% discount. The current equity in the property would be £27K+. Local agents verify that they would be placing similar properties on the market at between £100K and £110K and they would sell at that price. Even if you took a 15%+ hit on the RICS certified price (worst case scenario) you could argue that you would be up well over 400% ROI in 2 years. You would also be hoping that the mortgage rate will improve in the nearest future and the £3000 costs for the next 2 years would be reduced further by swapping products.

If we saw a moderate increase in price we would be laughing. Not all areas in the UK will be going down..

Compare this to a property bought in CEE. In general you will have to put in at least 15%. You will have to wait 1+ years for the build to complete, and then in the best country for financial products 1.5 years to be able to remortgage and release some money. The property goes up 30% in this time. You have made 300% ROI. I agree that it is 300% on a higher initial amount so it is more money, but, I have not taken into account a kitchen purchase and other costs associated with buying property abroad. (also I realise you can get 100% mortgages on some developments)

Due diligence in the UK is very simple; therefore you do not have to rely so heavily on a chosen few. I am not disputing that PS provides good properties. Although this is a very important issue it is not what I am questioning here.

I do not want to create conflict with PS. I think that all that work there are lovely, I am just asking them to defend their product, at a point in time where I am having some debates with my portfolio direction. Are the risks of buying relatively blind in CEE and having to put in so much money to get the same return as in the UK worth it? When can the deals be structured in a similar way to that in the UK? Even in the current environment, in the UK, we are still not having to place much of our own money in. In CEE all I hear is “no the banks will not do that”, instead of “I will ask the banks if they will do this”, or “I will demonstrate to the banks why this would be beneficial to them”. For example why can we not realise the current value of a property that has gone up 30% prior to build complete, in a shorter amount of time after completion, if not on completion? Flexible mortgages where we can use the mortgage as a current account? Interest only mortgages for the duration of the mortgage? etc..

A lot of points, but, one real question. Good quality UK property with appropriate discount or good quality CEE property?

I would appreciate as many people's thoughts as possible including Tony's.. :-)

Phew! The simple answer is ... and this is entirely a personal view ... I like dealing with the UK, simply because I feel confident and comfortable with it. I have dabbled in several overseas areas over the years, but got out as soon as the risk started to get uncomfortable. Anyone that has read my articles over the last year and a half or so will appreciate I think the UK has a lot to offer, not least being the fact any property under consideration in any location can be 'visited' personally and it is relatively easily to verify local demand, competition, values, etc. I'm not someone who feels comfortable having to rely on 2nd hand knowledge, no matter how reliable it is considered to be ... but that's just me.

I also believe this is a fairly good time to buy, particularly as buyers have the upper hand in negotiations just now. Sellers realise they HAVE to drop their prices, which is half the battle. Although the worst case scenario is that prices will drop in many regions by 15% over the next year and a bit, I expect the damage will be limited to 10% or less - and then there will be a period of values turning back to a slow positive. For now, it's a case of one step back and two forward - and things will continue that way well into 2009.

I can't advise what you should do, but if I were in your position and all the usual investor facts and figures stacked up and the ratios check out ok, I would go with the UK deal. Others may (and probably will) disagree.

Tony B

Thanks Tony.

Do you think that this 10% drop is already reflected in what the agents tell you you will get for a property if selling NOW?

Do you buy new build (build complete) or just existing stock in the UK? A mixture of the two as long as the figures work?

Do you only buy low yielders in areas of high CG potential, or will you buy something that has a good reduction regardless and steady growth potential thereafter?

Do you buy high yielders in any area or do you stay away from very high yielders in not so nice areas?

It is a secret as to where you focus your attentions now, or where you are staying clear of? (I know...NOT inner city apartments..)

Sorry for so many questions... :-) It is an important topic for me at the moment..

While property prices on many estate agents’ books are being reduced, current prices are still mostly above current ‘real’ values. The best source for actual selling prices is the Land Registry, and generally I use this source as my first point-of-call for initial comparison purposes. One has to remember that even last year, a reduction on the asking price was expected, so asking prices were and still are inflated by agents to the max with the expectation of a negotiated reduction. Taking on board the fact that most values are falling (at around £45 a day), a £150k property on the market for a month will drop by almost £1,400 – and by almost £8,500 if it was first put on the market last October.

Valuing any property in this climate is difficult, and predicting what will happen to values over the next year or so is even harder. We can only use estimates from the best sources available – and they suggest 10 to 15 per cent fall should be anticipated before the market picks up. But values will probably pick up slowly, so there will be a further year at least when capital appreciation will underperform.

I have bought new-build in the past, but I wouldn’t do so at the present time. There are good investments to be made on new-build developments, but they are few and far between. I would personally advise extreme caution. If you are even in the least bit tempted to invest in new-build, get an independent valuation of the unit to point you in the right direction when negotiating.

My strategy is long-term, so I don’t tend to look for making a fast turnover profit. Consequently, I aim to buy existing stock, negotiate hard to get BMV and verify the market is stable or rising in demand with tenants and not oversupplied by other BTL’s. I invested heavily in Manchester at the very start of the BTL boom, but I have gradually disposed of stock there, because it is oversupplied and difficult to get good rents. I like investing locally, so for example, I’m now looking at smaller towns with good commuting links to major north-west cities. Regeneration funding is another major factor – if a town is likely to improve, it’s usually worth investing as there is good potential for long-term above average growth.

Hoping that goes some way to answering your questions. Sorry, but I’m not about to release full and intricate details of my personal investment strategy on an open forum. The truth is, property investment is always a risk. The secret is to stack the odds in your favour as much as possible – and that means verifying the positives of a particular region and property and eliminating as many negatives as possible. In the current market conditions, some would say ‘do nothing’. Sit back and wait for things to improve. My argument is this is actually a great time to invest for long-term growth, because it’s a buyers market and tenants are in good supply; though obviously there are funding issues and the absorption of further downward values to consider.

Tony B

Thanks again Tony. Some useful bits of advice yet again.

Since I am not living in the UK at present I must buy through sourcers, and most tend to supply new build; although I have some other options.

I will be proceeding with caution in areas with CG potential

I fully understand that you will not release full and intricate details of your personal investment strategy on an open forum.. :-)

In a market such as that which we have today, would you ever consider subsidising rental yield?

Will a RICS mortgage evaluation, supplied by property sourcers, not suffice in order to get an idea of the price? The mortgage seems to stack based on the value supplied by this mortgage evaluation. Should I only be considering 25% discounts on good property in areas with growth potential based on the land registry figures for the area? (Is the RICS survey not useful enough? Is the RICS survey based on recent sales figures? (I understand it is based on a single person's opinion, but, is he using the land registry to create his valuation?)

I am inquisitive by nature.. .-)

I think Tony's strategy is very similar to mine and for me it makes for as sound a plan as you will get in this current market. The only points I would add are

1) I prefer to buy property which I can immediately add value to ie houses that can be increased in size and accomodate more tenants (shared houses) or ones that need renovation/improvement.

2) Don't rely on the Land Registry for guidance of valuations. Example: I bought the central house in a row of three identical new terraced town houses from a Developer. The house was marketed at £230k, I did the deal for £202k, but first I bought the plot of land for £100k, then paid the Developer to build the house for £102k (build contract). The Developer then sold one of the other houses at cost to a relative for £150k but the other he sold later that year on the open market for £240k. So the land registry has the three identical houses recorded as being sold for £100k; £150k and £240k. Coincidentally, the house 3 doors down from mine was bought for £160k (a smaller house) and they went on to sell it to their son for £80k - this figure is listed on the land registry records and doesn't reflect the value.

The land registry also doesn't take account of capital improvements which may have been added to a house over the years.

It is a interesting but to be taken with a pinch of salt in my view.

Buying property in an area you don't know is difficult in the current market - there is alot of rubbish out there right now but equally there are some bargains. You can find extremes of differences in prices even within towns and cities. There are sought after districts in all towns/cities and there are areas you wouldn't/shouldn't touch at all - in my view you have to be on the ground and really know the areas to get it right. As Tony says and I agree, I personally don't like other people doing my homework, it doesn't work for me. If I asked 5 Surveyors to value a property i would expect 5 different valuations, that's just how it is.

Thanks for the input guys..

My current strategy has to differ from yours slightly.

I live abroad and it is not practical for me to buy much more than a couple of properties in the country that I am located in for a variety of reasons.

I therefore need to use sourcers in order to get the property required. Unless the sourcer can organise the refurb it is a little impractical.

I will therefore have to look for good quality heavily discounted UK property in areas that have the potential for growth, and for properties that are popular renters.

I do not have the luxury of being able to view each property and must trust the views of the letting agents, estate agents and valuers to a certain extent.

Another approach would be to put more money into the deals in high growth countries, where you are "assured" high short term growth. Good quality property in these countries should give profit. Then we have the issue of financing etc..