No marketing hype
The web is cluttered with complicated investment products whose clever marketing lures you in with promises of riches, but instead drain your bank (and can even leave you in debt).
Our investments are, at their core, a simple play on acquiring very high yielding property which have clear and obvious growth potential and rental security. That’s it. No smoke and mirrors. No financial trickery.
Below we explain a few questionable practices which we feel our clients should know about.
We don't believe there is such a thing as below market value (BMV) property. When a property is put up for auction or advertised for sale in the normal way, then the price paid is 'market value'. Admittedly, there are panic sales, or 'fire sales' where the seller is under time pressure to sell, but the seller usually doesn't sell much below open market comparables.
Companies that buy in bulk and then claim to sell BMV usually over inflate the figures to start with. They simply wouldn't sell perfectly good property for cheap. Besides, whatever they sold the properties for would be the new market price and ultimately effect future sale prices because everyone looks online to review sold prices.
During the 2007 boom, countless investors purchased newly built properties which were routinely advertised at 30% BMV. They soon realized that their properties were in fact OVER priced. Many of these properties are in declining areas, poorly built and have terrible cash flow.
It is dangerous for investors to use BMV as a barometer of how good a deal is because they may buy a lemon simply because they think it's cheap. Remember, good quality, high yielding, solid freehold property in great locations rarely go cheap. To us, any property marketed as BMV is a clear sign that something is wrong with it.
Property investors use a range of Key Performance Indicators (KPIs) to check the viability and health of investments. The trouble is, one can use all sorts of financial engineering to make the % return look favourable.
Investment property is often marketed on the strength of it's yield, but if taken on it's own, yield can mask more important factors, such as long term growth, ongoing maintenance, rental security etc. Cheaper properties (like small flats) can often have high yields but low monthly income which puts the investor at risk of interest rate rises, void periods and maintenance costs.
Aside from the many costly problems we've seen with leasehold properties, there are other reasons to avoid flats. Flats are generally smaller and cheaper than houses and even a high yielding flat would have fairly low cash flow. This, in our mind makes the investment risky and a potential waste of time. I know that may sound blunt, but let's look a bit deeper.