A professional investor's change of strategy on UK property. Plus, how gazumping is back and Scottish property beckons!

publication date: Oct 16, 2008
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author/source: Guest article by Tony Booth of Property Secrets
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A professional investor's change of strategy on UK property. Plus, how gazumping is back and Scottish property beckons!

Please note this article is out of date as it was published on 28th July 2008. However if you are new to property investment it's still worth reading!

The tide has turned ... and investing profitably in the UK is now just too difficult. There are still opportunities, but the likelihood of securing a viable property in the right location, at the right price - and without incurring high expenses - is proving nigh impossible.

Over the last year, I have bought just one property to add to my portfolio - when in fact, I should have bought four. What has happened to me is unlikely to be an isolated example. There are reports that scores of investors are experiencing much the same problems throughout the country.

Despite continuing reports of prices dropping and bounteous opportunities to invest profitably, it has now become very difficult and extremely laborious to identify and secure a low-risk investment. Even worse, achieving completion on properties with potential is proving to be fraught with snags and uncertainties.

At the start of the year, my strategy was to acquire a variety of below market value units from what is currently a depressed sales market, rent them out for three years or so, then sell them on when things improve.

After three consecutive abortive purchases and evidence of a more prolonged decline in the market than originally expected, my intentions have changed. I am now contented to padlock my piggy bank, sit on the sides and wait to 'see what happens'.

Chain reaction
The first attempt at buying what on the face of it seemed a reasonable buy-to-let went pear-shaped in February.

It was a fairly standard semi just outside Manchester. The main advantage of this particular property was its location, standing on a direct tram route into the city and in a neighbourhood popular with young, career-motivated professional couples. I negotiated a good deal and the property had the potential of making a fair return over five years.

Unfortunately, despite undertaking most of the pre-purchase leg-work (at considerable expense) and reaching the zenith of exchange and completion, the sellers withdrew from the deal. It transpired they had lost the property they were intending to purchase - and this was the second time it had happened to them, so they had decided to forget the idea of selling altogether. I tried for several days to persuade them to consider alternatives, such as moving to rented accommodation, but to no avail.

Expenses on this abortive purchase included mortgage fees, survey (full, due to the age of the property) and some minor legal costs ... all amounting to around £1,000. It was a rather painful kick in the pocket and a reminder of how sometimes, no matter what you do, things don't always work out the way you would like.

Broken chains are becoming a common symptom in the frail and increasingly crippled UK housing market. People are anxious ... and anxious people tend to react quickly, without necessarily being prepared to look at alternative solutions to a problem.

Sellers at the end of their tether often want an end to their plight, even if it means taking the battery out of their clock. Forsaking the notion of selling completely, rather than putting the clock back to the starting-point, is sometimes seen as an easier response.

When people have truly had enough, they either come out fighting or back-away, curl up and give in.

In my case, the sellers also went completely mute - refusing to speak to me, my solicitor and even their own estate agent. The evidence suggests that one sale in every three is currently collapsing due to a broken chain. The introduction of Home Information Packs (HIPs) was intended (if we are to believe the official hype) to reduce the problem, but as we all know, HIPs have done nothing to improve things.

Talking to estate agents leads me to believe that the frequency of broken chains has increased substantially over recent months. Many tell me the likelihood of such an occurrence is one in every two potential purchases, which means there is less risk of losing the hard-earned pound in your pocket by playing financial Russian Roulette.

Gazumping is back!
Yes, ironic though it might seem in a downturn market, gazumping is back - and with a vengeance - and it's happened to me.

In early Spring I found a superb little terraced house on the market in Blackpool, just a stone's throw from the railway station. The dwelling had been maintained to an excellent condition, so much so that it would be ready for letting from the first day of purchase.

It was also in a good location for renting out, being within a short stroll from the shopping area and the promenade. This region of the Fylde Coast is in constant demand and rent levels commanded are good.

The price concerned me, not because it was too high - actually, quite the reverse. It was a BMV property, whose owners were keen to dispose at breakneck speed, so they had dropped the price to an appropriate level - and I then managed to negotiate it down even more.

My concern was that it could attract a large volume of potential buyers, particularly from other competitive property investors in the area. My strategy was to act as fast as I could. To that end, I put everything in place, including paying an extra £150 for rapid local searches to be obtained. One week prior to exchange and completion .. I received the dreaded telephone call from the agent saying another buyer had offered the asking price and the sellers had accepted it.

I matched the offer, as the property was still good value and worth pursuing. Then I was gazumped again by another buyer offering £10,000 more than the asking price. This made the house a precarious purchase and I recognised there was a price race starting, so I backed out.

Again, substantial expenses had been incurred during this second abortive purchase. I was now haemorrhaging money with nothing to show for it.

It is interesting to note that while prices are dropping and people are in 'negotiation mood', people think there is much more room for making rising offers on particular properties.

Gazumping normally only thrives in an overheated market, but it is also on the increase now because of a pressure on supply and demand. Fewer properties entering the market means there are more professional buyers looking for that particular 'jewel in the crown' investment ... and some are prepared to pay over the odds for the right property in the right place.

Last year, a Motley Fool survey reported one in ten buyers were getting gazumped. I believe the incidents of gazumping will rise as prices continue to fall and the volume of supply deteriorates due to people becoming ever more nervous of putting their properties on the market.

A pressure-pot
My third and last abortive property purchase occurred just a few weeks ago ... and I think this was directly caused by the huge amount of seller-stress experienced while the prolonged market mayhem continues.

On this occasion, the seller withdrew again at the last minute, this time for what the agent called 'nerves'. The seller was a single middle-aged woman, who had recently separated from her partner, and had been left with two children and a home she could no longer afford to maintain.

The agent explained that she had never really wanted to sell in the first place, but felt there was no other alternative. The property had been on the market for some months by the time I made my low offer. We negotiated to what I thought was a keen but reasonable price, given the market conditions.

Things went along okay for a while. Survey was done, local searches completed and finance put in place. Then, without warning, she backed out. Reading between the lines, I believe the seller may have decided to struggle on for another few months, hoping the market will change and prices will increase.

In conclusion
After a hat-trick of abortive purchases and incurring consequential costs associated with them, I have decided it is time to sit tight and let the market turmoil ride itself out.

Finding a profitable UK purchase is hard enough when things are straightforward, but the situation at present is causing wide-ranging problems that obstruct any forward momentum. Even though I am one of those investors whose financial position is advantageous, which means the restriction of mortgage products doesn't affect me as it might some others, I am still finding it very difficult to reach the investment finishing-line (exchange and completion).

Looking at recent statistics, it seems that Scotland is one of the best locations in the UK to buy potential investment property with a chance of capital growth.

Perhaps the much more certain buying, selling and conveyancing systems over the border have even more benefits for people like me, whose recent experiences of fruitless purchases in England have been extremely frustrating.

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Please Note:-
The views expressed in this article are of Tony Booth from Property Secrets and not necessarily agreed with or supported by Designs on Property Ltd


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