david

thanks for this article, which is indeed a lot more intelligent and balanced than almost anything in the mainstream media. i'm particularly interested in the virtual 'news blackout' on rising rents.

but as for your conclusion that the 'current UK market looks to be a strong buy at the moment'...i'm not sure that's justified.

i would conclude: panic is not justified, might even be some bargains soon, but better price growth prospects are clearly abroad.

regards,
dan

an addendum to my own post (running the risk that it appears i have no work to do):

for data on UK house prices, i think the best place is here, the surprisingly comprehensive reference section of a site whose forum posts are rich in spleen and schadenfreude:
http: / /www .housepricecrash .co .uk /graphs -index .php

does anyone know of any sites for authoritative UK rental data?

regards,
dan

A very good article David.

I also find the Housepricecrash website a surprisingly great info resource which mostly completely disproves their own forum contributors' theories - thankfully there are still plenty of people who believe the media and the 'Big Bang' theorists which helps people like me get a bargain or two.

I heard another sad story yesterday similar to one I heard 3 years ago - a friend of my parents decided to sell her house and go into rented accomodation to benefit from the property crash and then she'll buy back in when the prices drop enough for her to buy a bigger house for less money!!! With 2% Estate Agents' fees, legal fees on sale & purchase, stamp duty and possibly a mortgage fee of 1.5-2.5%, valuations/HIPS, moving costs etc added to the rate that rents are increasing, I reckon she needs to see a fall of over 12% per annum to be able to buy back in at the same level as she left the market. Now that really is risky and very very scarey - BRAVE, SENSIBLE, STUPID OR INCREDIBLY MISLED BY THE MEDIA???

In our area the market is manic, went quiet for a week or two in Feb but otherwise it's busy and there aren't enough good houses coming on the market so I guess prices will go up for the good stuff as a result. Whatever it does I'm still buying in the UK but most importantly my best tool of trade is my five year cashflow which rules everything I do and ensures I sleep at night. It surprises me how many people do this Investing with no seperate bank accounts, no discipline, no cashflow projections and no real control of their own finances. If people don't know how to manage money they won't do any better when they have more of it. I have made mistakes in this game (well just one fortunately) but having a balanced portfolio and mixing Investment with Development has helped me.

David,

The UK market will take a long time to turn. 5 years I predict of stagnation, rising inflation and salaries to bring the market back to an even footing of reasonable yields.

I just can't see the credit market allowing high multiple lending anymore or high LTV's and this will naturally reduce growth to below the real rate of inflation.

A lot of people here are hoping for a quick sharp downward correction to allow the market to return to its 'upward trend'

I just cant see it myself...

The UK market has been done.

Totally agree with you Tom F, UK market dead in the water for years to come. In 5 yrs time we will look back at the market and call it a crash, as inflation takes hold and wages rise but property value will stay on hold. In real terms there will be a big fall.

The question "Should I sell or sould I hold" is a moot point really because the answer is another question "Do you believe this is a short sharp shock or a 5 yr downturn (or even just static prices)?". If you believe the latter then clearly it is best to sell and put your money elsewhere since you can clearly make more money elsewhere.

I look at a UK BTL investment in the UK as a current account or a low yeilding savings account ...... why on earth would you leave your money in it when there are far better yields elsewhere - where you would be far better off even after considering fees etc.

In a period where MR Brown is clearly turning hostile toward BTL investment ..... clearly better to be elsewhere.

Because it's not my money I'm doing it with - it's my tenants' and the banks so it's a no lose situation - they will ride the storm for me and I'll cash in my current account in better times. So don't get confused by likening Property to other assets. For £50k cash I get a £250k asset, minimises my losses but maximises my profit - great isn't it?

Hi Savy,

Would you mind elaborating on your "five year cashflow "...... sounds interesting and may be of use to me and other users.

Thanks,

Ger

Hi Ger

It is difficult to explain in detail on the forum but the general principal is quite straightforward and I'm sure many other people have their own variations of the same principal. I aim to know what my bank balance will be at the end of each month for the next 5-6 years (if money is tight then you can break this down further to a weekly forcast). I use Excel and have a column for each month with the predicted bank balance at the bottom of each column, which then carries forward to the top of the next columm. At the top of the first column you will need to have your opening bank balance per your bank statement when you start the cashflow.

Then each column is split into Income and Expenditure, top half Income - add to opening balance, bottom half Expenditure, which I show as negative numbers, totalling to carry forward bank balance.

On the income side I have rents with an inflation increase built in and interest from rent invested, plus sales where I predict them or drawdowns from capital.

As I have my mortgages fixed it is fairly easy to put in the expenditure for the next 3 years or so, but I have penalties and increases built in for times when I need to renegotiate, for one property which is due off fixed this Sept I have predicted running with the 1.25% above base and added a further .25% for comfort - I don't intend to renegotiate a mortgage as the fees are too prohibitive now and getting 1.25% above base is impossible from most mortgage companies now so I plan to stick with it for the time being whilst the rate is falling.

There are loads more rows for expenditure - fees, insurance, maintenance, subscriptions, admin etc. I also have a row for transfers to and from my higher interest earning account where I hold the bulk of the balance of business monies, this is just where I top up the current account or invest surplus, keeping my business current account in credit by no more than £1,000 so I can maximise investment.

Once you set up one year, it is usually relatively easy to work out the rest using best guess inflation, I never overestimate on income and try to underestimate on expenditure.

You will need to slot in Sales and further investments, including mortgage redemptions as necessary and build in voids for rental income - I generally allow for 2 months' void per annum on each property unless I know otherwise for certain - always put in the worst case scenario.

For instance, I plan to sell a property in 2011 so have built in a 6 month void with additional maintenance costs during this period to allow us to improve it ready for sale and assuming a 6 month period to sell.

To sum up - if you have a five-six year plan of what you want to do with your portfolio then try putting it into a month by month financial forecast, add you bank balance at the top and bottom of each month and you start to build an interesting picture of what you can and can't do.

The good thing about taking worst case scenario is when you reconcile the forecast each month to the actual bank balance (which you must always do), it is often good news and you find you are better off. But if a disaster happens you are usually well prepared.

I always try to keep £10,000 in my instant access savings to draw on in the case of disaster and moving money to and fro.

Hope I haven't sent you to sleep. I'm sure there are others doing much more technical stuff than that and PS have some examples of spreadsheets in their literature, but my simple monthly forecast serves me very well and helps me make decisions quickly when opportunities come along.

Jo

wow..... thanks for the very comprehensive answer, and I thought I was pretty diligent with with my few spreadsheets!! This 5 year cashflow plan makes my spreadsheets look with something you'd do on the back of a matchbox! Will take a look at the PS examples and once again thank you for your time in explaining this to me.

Regards Ger