Blog: Time in the Market or Marketing Timing?

Let me start this blog with a quotation from Terry Smith, a notable British Fund Manager.

“There are only two type of people: those who can’t time the market, and those who don’t know they can’t time the market”.

Whilst it was made in reference to equity markets, the same parallels and rationale can be applied to the UK residential property investment market. There are a plethora of market predictions and forecasts in the public domain but the reality with forecasting into the future is that it is not an exact science and many future unknowns can skew and make predictions redundant. Take for example the many market predictions at the onset of COVID I which were largely all forecasting a significant decline in the UK housing market. With the benefit of hindsight we can look back and ridicule such forecasts. However at the time of making these predictions, which were based on sound economic rationale, it is fair to say a lot of people would have been in agreement. The reality of what subsequently ensued helped largely by government intervention and policy is a case in point for the quotation referenced.  It is hard to predict into the future!

So what does this all mean for property investors and how can they prepare themselves to make good long term investments and cut out all the “noise”?

I will set out ten thoughts below which I apply to my preferred buy and hold strategy.

• I don’t get fixated on timing the market because I know I can’t do this with a high probability of success in calling the bottom or top of the market. Moreover, I aim to have a clear business plan, strategy and framework that I apply in assessing whether a property represents a good investment opportunity.  It is important as an investor that you are clear on your objectives at the outset. It is also key that you seek professional advice on tax structuring and other related matters . Getting this right at the outset can save you a lot of pain and money than having to re-structure in the future. Building a good power team early on which could include mortgage brokers, solicitors, estate agents, deal sourcers, mentors and other property investors. As with everything do your own in depth due diligence. This is will stand you in good stead as your progress through your property journey.
• Always aim to buy a property to which you can add value thereby forcing an uplift in capital value. There are many ways to add value to a property. For example buying a one bedroom flat and reconfiguring it into a two bedroom flat (this tends to work well in high value areas where the capital and rental values would make the uplift worthwhile). For leasehold properties, you would need freeholder consent. Adding value becomes more important If you have a limited pool of capital as you aim to recycle your original capital to purchase further properties (momentum investing).
• In a rising market buying below market value is more challenging so the above point is even more applicable
• Aim to hold with a long-term time horizon. You then benefit from rental income over the long term and capital appreciation. This total return is very powerful and when viewed over the very long-term and with sensible use of leverage, the total return from a property should be significant.
• Buy in an area with a good chance of capital appreciation. Look at the local council’s regeneration plan and understand what gentrification may be happening in the local area
• Don’t buy speculating purely on capital appreciation (as its an unknown) and make sure your rental income is cashflow positive after you have serviced all your outgoings. You are much less likely to get into trouble in this scenario as your rental income is your liquidity!
• Buy in an area with a strong rental demand with a good and diversified tenant profile.
• Use leverage effectively. Taking out mortgage debt can help you scale. You should manage your leverage ratio and stress test at a higher borrowing rate to make sure you can ride out periods of uncertainty and higher interest rates. You can manage this for the medium term  by taking out longer-term fixed rates which give you certainty over your mortgage outgoings for the fixed period. In my opinion. there are some attractive 5 year  and even some  10 year fixed rates in the market currently.
• Tenant selection - either use a trusted letting agent to do this on your behalf or if you intend to self-manage, make sure you are up to speed with all the legislation. Due Diligence is key. Getting this wrong can be very expensive and time consuming should you wish to evict a tenant.
• Lastly, let inflation do its magic and erode the real value of your debt over the longer-term.

Whilst acknowledging the above points are high-level, my hope is that it gives you some food for thought! Please feel free to reach out to me – my contact details are contained in the biography below.