Double Dip Your Way To A Win-Win Portfolio

Speculation on the impact of the Government's Spending Review and a ‘double dip' continues. We are hearing differing opinions and seeing diverging figures. Industry experts are clamouring to tell us what this all means for investors. It is easy to get confused and, with confusion, comes inaction. After all, if you do not know what to do, then it is simpler to do nothing.

In this article we are going to express a rather controversial-sounding opinion and explain just how savvy investors can turn today's market to their own advantage.

It doesn't have to be confusing!

Yes, today's market is a complex situation with a level of uncertainty, but it doesn't have to be confusing. When faced with a conundrum, the best place to start is at the most basic level. So, let us begin with the two, main, unanimous factors.

1. Now is an excellent time for landlords
2. Property prices will, in the long run, always follow the basics of supply and demand.

No matter what your or anyone else's angle, it is fair to say we are all in agreement of the above.

Next let's look at what is distorting the perception of the property cycle.

Distortion and perception

The media is always keen to publish scare-mongering headlines and speculative stories about the recession. Sensationalism sells newspapers and, let's face it, as much as we Brits love to grumble, we also like to have something to grumble about.

So, here we have another point which leads to inaction - fear. People are too scared to take action in case they do the ‘wrong' thing, or act at the ‘wrong' time. Confusion and fear, after all, are far from being positive bedfellows!

Let's say, for example, you have been looking to build your Buy To Let (BTL) portfolio. However, you aren't sure if prices are going up or down (confusion) and you are reluctant to borrow due to the economic ‘Armageddon' as reported in the press (fear). What do you do? Wait to see what others do? Wait to see what the next media report will be?

The bear necessity

In Reasons To Be Cheerful we looked at the Buffet philosophy of going against the herd and taking action now, while others are still being cautious. Today that philosophy is truer than ever, because the current, unique, window of exceptional investment opportunity will inevitably start to close again soon.

There was recently a flurry of excitement about a minimal rise in property prices indicating a pending bull market, as covered in Bulls, Bears and Bouncing Cats. You may have thought it unusual that we were going against the herd and reporting this rise as a dead cat bounce (small, brief recovery in the price of declining stock). Surely we all want property prices to boom again - don't we?

Down with capital growth

Actually, no we don't! Investors wanting to build their portfolios do NOT want capital growth right now. Rather, we want the finely balanced combination of low property prices and decent discount percentages that market uncertainty brings. We want to hang around a while longer at the bottom of the property cycle, enjoying a low-priced market and high rental demand.

Discount Compression

Here's the thing - vendors want to sell their stock at the ‘best' time as well. In an uncertain market, a small incremental rise (such as a dead cat bounce) could easily inspire vendors to sell their stock at the ‘best' price while they can. In order to be competitive, they will most likely offer decent BMV discounts - despite the fact the discounts may well reduce their profit margin.

Plus, if the market is perceived to be heading for another fall (bear), then the same strategy and accompanying discount sweetener come into play. We call this relationship between market value and discounted price Discount Compression and will be covering it in more detail in another article soon.

Words of wisdom

So, what does this mean for you? Simple - the best time to buy is now. We are currently experiencing a unique situation and, as property cycles tend to run on a 7 to 10 year cycle, it will be a long wait before we experience this exceptional opportunity again.

Before we finish, there are two more crucial points to note. Again, these are often overlooked in analysis and opinion pieces.

Localisation is incredibly important, so do not confuse the national picture with regional relevance. The fluctuations and trends of the London market, for example, will not be the same as in, say, Stoke-on-Trent.
Remember, the quality of the individual deal always outweighs the overall cycle and where we are ‘supposed' to be in the market.

These factors will serve you well in your decisions and actions, but you don't have to know it all in order to act. At Axis, we are all about studying market trends and cycles and completing due diligence on everything we do, to ensure we bring our investor clients the best deals possible.

If you would like further details of our current deals, want to chat to us about how best to expand your own portfolio, or have any questions at all, then call Russell Bonner on our UK hotline - 0333 444 0034 or email him at russell@axiscontact.com

Live with Abundance

Rod Thomas sig