Having collected the keys to my newest investment yesterday, I did as I always do. With a grateful skip in my step, I headed off to the property to refamiliarize myself with what needs doing before meeting up with my team of contractors. They will spend the next four weeks scraping away the years of dodgy wallpapers and yellowing paintwork to bring the place kicking and screaming up to modern standards, and ready for a new family to call home.
Dirt cheap cash
As I walked about my new cold and grotty property making notes and reading the gloomy mortgage news, I couldn't help thinking this may be the last opportunity I’ll get for a while, at least at cheap money. Like everyone, I’m a little disheartened by the turmoil in the mortgage markets but I knew something was going to give soon.
I could feel it in me waters. Despite being an optimist, I’m always planning for a downturn no matter how upbeat the market is, and it’s been bubbling for a while. If you've had the misfortune of reading my previous articles you'll see. Good things like cheap finance never last forever so there’s only one thing to do while it’s there; take full advantage but do it sensibly and methodically, while keeping your personal costs as low as possible.
What does amaze me though is the number of people who instantly go into a mad panic when the bottom drops out of the market, whether that be for the short or long term like all this has come out of the blue. The numerous warning signs have been there for a long time. Frankly, I’m amazed it's gone on so long. Having come from a financial services background, I have devised three simple tests to establish when the proverbial is likely to hit the fan.
How to spot a downturn
First, I always believe that when the bad stories in our industry begin to outweigh the good ones, there’s trouble in the distance. Yes.
Next, if the rate at which Business Development Managers changing job roles starts to increase in frequency, the trouble is getting closer. Check.
Finally, if not-very-clever people are making a lot of money by doing very little, the trouble will be along on the next bus. Time to batten down the hatches.
For those who were busy sipping champagne instead of feathering their nest while times were good, they may be the most likely to feel the pain now that the music has stopped playing and the hangover kicks in, for however long it may be. And it's of little use to turn around and point a finger at the government. They will simply raise a middle finger back. The smart money was being put away or invested carefully while times were good and money was cheap.
Unfortunately, I’m old enough to have gone through a few cycles now, the credit crunch being the most severe when I was a mere whippersnapper. It came alarmingly close to wiping out everything I had built, which wasn’t insignificant. Looking back, I’m almost glad it happened because it taught me some very valuable life skills at an early age. I had plenty of time to rebuild. The main lesson I took from it was to reduce my personal overheads, arm myself to the teeth with cashflow-producing assets rather than purchase depreciating assets and to always remain liquid.
To do this, it was necessary to look the other way when others were enjoying the fruits of their labour. I could have spent the last couple of years having a late breakfast before spending my days polishing an expensive sports car before heading to the pub for the afternoon. At one time I would have, but these days I am blessed with a little of the wisdom that age brings. Don’t get me wrong, I’d still rather be young and idiotic, but I don’t have a choice.
So, since retiring from finance, I choose to spend my days scrolling through the affordable end of the property listings and trudging about in the rain viewing smelly old houses whose creaking owners have long since given up on, well, everything. During viewings, I often find myself apologising to tenants still lying about in bed at 10am. Perhaps I should have bought that sports car.
Top tip: I always find it helps to have a supportive partner who shares the same investment values, rather than the type that exerts pressure to continuously fund a life of unnecessary items. The latter will suck away your limited investment capital and quickly turn it into designer handbags. Some good ones hold their money, but I’m yet to meet a handbag that produces a monthly income. It’s a sure-fire guarantee of failure in my book and to be avoided at all costs.
Opportunity knocks
But I’m not here to spread doom and gloom, oh no. I am an eternal optimist and a firm believer in spotting opportunities when they present themselves, even if you must think really hard about it. After all, recessions are simply a time when great wealth is transferred from one place or person to another.
The same money simply goes round and round in circles. If you have spent time positioning yourself for the downturn then not only will you be unconcerned, you will actually be quietly excited about the prospect of the cut-price assets coming your way. As Warren Buffet once said, it’s only when the tide goes out do you discover who's been swimming naked.
Without saying I told you so, I have been banging on about getting your investments in order for some time. I’ve had a go at diarising my own journey through property investment over the last few years in the hope of igniting a passion in others to do the same. Why? Because I’m a nice guy that’s why... and people pay me for the privilege of sharing my knowledge.
The good news is that I have been able to help and advise others who wanted a ticket for the ride. I’ve been able to witness them flourish. There are a great many others who waxed lyrical about boarding my boat but alas never did. Despite cajoling them regularly, there was always an excuse for why it wasn’t the right time. Guess what: it was the right time and now the ship has sailed.
Don’t be disheartened though. If you have access to capital, the world may soon present opportunities you’ve been dreaming of. You will have a second bite at the cherry very soon, but you probably already know that. I like to think I’m at one with my local property market, and already more opportunities are becoming available at sensible prices.
Fast forward a little and those poor souls who are hanging on by the fingernails will be forced to sell at prices they’d wished they bought at. And before you start screaming about the moral high ground, this isn’t your or my fault, and you are not the one who sets the market rate. You are simply the one who is there to pick the fallen fruit from around the tree before it goes bad.
Anyway, it could be worse, there could be a psychotic leader of a superpower with his finger hovering over the nuclear buttons. Oh, wait a minute...
