Start A Property Business – Now?

A friend recently asked me about the wisdom of starting a property business in the current climate, he thought it wasn’t a good idea – better to wait until the market is clearly on the up. I disagree, I think now is a great time to start a property business, but then again I’ve always been a bit of a contrarian*.

So why is now a great time to start a property business?

Now is a great time to start a property business because property is cheap and getting cheaper. Some would argue that you’d be better waiting until the prices bottom first, but your chances of predicting the bottom of the market are incredibly low – better to buy when the fundamentals of the business work rather than waiting for the bottom and then missing it. For an explanation of the fundamentals of buy-to-let see how buy-to-let can work for you.

Having said that I would only advocate starting a business that buy’s property with a view to renting it out, I don’t believe now is a good time to be starting a property development business. Not because you can’t succeed with one but because as a novice you are more likely to make a catastrophic mistake in a falling market.

How to start a property business

There are several different types of business than you can operate in the property sector, in my mind now is the time to be a property investor, however there are still opportunities to be had for property finders, moneymen, and property experts.

To be successful as a property investor simply requires access to capital and the ability to find properties that stack up when you do the calculations. That means buying on the basis of facts relating to the rental potential, the rental yield and financing costs not on a gut reaction or because you like the property. Personally I follow a very rigorous process, gathering information and entering it into a spreadsheet which allows me to quickly determine the return on investment from a property and the maximum price I can pay in order to achieve my minimum level of return. If I can buy a property at or below that price I will consider buying it irrespective of what the market is doing.

* In financial terms a contrarian (investor) is an investor who believes that crowd behaviour can lead to assets becoming mispriced. For example pessimism about a security or entire asset class can drive down the price such that it understates the value of the asset. Equally widespread over optimism  can result in assets or asset classes becoming overvalued. Contrarian investors will typically then buy undervalued assets when everyone else is selling and sell assets when everyone else is buying. Many would argue that this is essentially the same as value investing as promoted by the likes of Benjamin Graham and his famous student, Warren Buffet.

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• 1

  For what it is worth – I agree wholeheartedly. The key point is though to buy property with an approach that seeks to maximise income.

  In my opinion, property trading remains very risky and in a falling market – a little bit foolish!

  Permjot on December 18th, 2008
• 2

  You would be mad to buy at the moment. Wait twelve months and you can get the same house/flat at 20% less!

  Bill on December 19th, 2008
• 3

  Bill,

  If you’ve got a crystal ball and know for a fact that prices will drop another 20% then it would be madness. Then again if you’ve got such a crystal ball you’d be better off buying a lottery ticket…

  Without the benefit of a crystal ball the rest of us can only look at the numbers and if, and only if, they produce the return on investment we require then now is as good a time as any to buy.

  If prices keep dropping, more and more properties will start to produce the required return on investment then there’ll be more deals to do.

  John on December 19th, 2008
• 4

  we had £70 pcm deducted from our morgage repayments!

  People will be benefiting from paying less for thier property and pay less intrest. Properties are a risk no matter what angle you look at it but believe me with the property prices shooting down it’s starting to look like a very good investment just to think how long will it be like this? 1 yr 2 yr 3 yr? then we will most likely get back on the boat of high property prices and high intrest

  Take advantage of what you have got now rather then looking and hoping it would drop more! In my opinion its the best time. Its a risk but properties have had always been a risk even before the financial climate.

  I agree John wishing on a shooting star that the prices will drop down to a certain percentage its just an uncalculated prediction.

  Moyo on December 20th, 2008
• 5

  There are quite a few variables in play, as is always the case, and one has to judge whether the possible extended loss of a property purchased at this time would be enough to negate the benefits of acting sooner. It also makes one wonder if there are any individuals that have a near-certain idea of when the low point of housing markets will be.

  Armen Shirvanian on December 22nd, 2008
• 6

  How much rental yield do you usually require before looking closer for that investment opportunity?

  Lennot on December 30th, 2008
• 7

  I am a complete novice to buying and renting.
  What information would I need to find and use to calculate funds required to buy and rent a property.
  Keep up the good work.

  Thanks

  Max

  Max Labonte on January 9th, 2009
• 8

  I have the experience in property, but not the capital! Frustrating with so many opportunities in the current market.

  Andy on September 21st, 2009