General (main property discussion here) - Buy rental propertes direct from the developer. No fees

I've been reading (with some amusement and concern) the posts by people who have either attended, or are considering attendance at one of the "Buy-to-Let" seminars, many of which cost several thousand pounds.

For what it's worth, I'm a director of a UK property development company that currently has several hundred flats under development. I can only offer you the following advice: you do NOT have to pay thousands of pounds in order to be in a position to buy rental flats at a discount. For example, I have a project underway at the moment in which I have over 100 flats that I would happily sell you at a genuine discount of at least 10% (I doubt that it will come as a surprise to you that most of the discounts offered by purveyors of buy-to-let investments are, at best, illusory). Why would we sell at a discount? For the same reason that most developers would: in the early stages of a development, with 18 months before project completion, the bank wants us to reach certain sales levels. So we take a much smaller profit on flats we sell earlier, just to satisfy our bank's requirements. In six months the discounts won't be available, but now, when we need early sales, we give some pretty good deals to investors.

But you don't need to pay fees, or attend seminars to buy these flats. You can deal direct with the developer...not even an estate agent between us.

Here are a few things that you won't be able to do...despite what you may have read in some of the ads for the seminars:

You won't be able to get 90% financing. Those days are, at least for the moment, over. Count on having to put up a deposit of 25%, with the bank putting up the rest. Sorry, I don't make the rules, but by virtue of the formulas that the banks are currently using for buy-to-let properties, even at the still-very-low interest rates you just can't realistically expect much more than 75% funding. But that's not such a bad thing. You'll be paying your mortgage from your rental income, and perhaps have a (tiny) bit of money left at the end of the year. You'll benefit from all appreciation that takes place...and of course as rents rise your cash flow increases.

You also won't become a "property millionaire" in several months...or even in a couple of years. Sorry, but it just doesn't work that way. It's a slow, steady grind. If you do everything right, you will get there...but it will take time. And by the way, just because you own flats with a total value of 1 million pounds, you almost certainly are NOT a "property millionaire. What those flashy advertisements fail to acknowledge, is that almost all buy-to-let investors have something called a "mortgage". If you owned property worth a million, but your mortgage was two million, would you consider yourself a millionaire....or broke? That's an extreme example, but most investors who have a million pound "portfolio", also have at least £700,000 in mortgages on their properties...so their net worth is only a fraction of a million pounds.

You also aren't guaranteed to make money. People do lose money in property. Admittedly, it's harder to do than in most investments, but if you take a few wrong steps, it can happen. At this point in time, apart from the obvious admonition not to over-pay for your property and not to be lax in the management of it once you've bought it, the greatest single factor is where you buy. There are some parts of the UK in which I wouldn't even consider buying...the risks are just too high. Many areas are fairly safe, but of little interest to me. A few spots are, in my opinion, money in the bank. They always said that the three most important things affecting the value of property were "location, location and location"...and the current UK market is an exemplary embodiment of that axiom. Pick your spots...in the right area you'd really have to work to lose money....in the wrong area, you'd be fighting hard to break even. It's like swimming in a river....swim downstream and you'll be covering a lot of ground...swim upstream, and with exactly the same amount of effort you'll probably be losing ground. By picking the right area you have the inherent advantage of "swimming downstream".

At the moment, I would steer well clear of London. The risk/reward equation is just not favourable. You could make some money...but in my opinion you'd be swimming upstream....and why put yourself in that position?

The Southwest is a great place to live...but not a great place for the buy-to-let investor. The dynamic rental market that you need simply doesn't exist down there, no matter how nice a place it may otherwise be.

Liverpool...which is highly touted at the moment, is of little interest to me. The "Culture Capital" card is being played for all it's worth...but how many new jobs will that designation bring to the city? No new jobs.....no additional demand for housing. No additional demand for housing....stagnant prices and rents. Liverpool's a great city...and I'd much rather buy there than in London....but it's far from the best UK opportunity.

Small towns...and out-of-the-way villages, no matter how charming they may be, are strictly off limits. It's like the famous quote from the bank robber Willie Sutton when asked why he robbed banks: "Because that's where the money is". If you own rental property, you want to be where the people are....lots of them. That means cities. Large cities. Near, or better still in the centre.

In my opinion the best two places in the UK to buy rental property are Leeds, and even better still, Manchester. Leeds has a solid growth of business and jobs and a civic infrastructure that I believe will carry Leeds to further levels of appreciation.

Manchester is a special case. Some pundits have been opining recently that the glory days of Manchester are over.....that the big gains of the past several years can't continue. Well, perhaps not at the same outlandish pace as in recent years....but prices will continue to rise in Manchester over the coming years. Perhaps dramatically.

There are several very large corporate transfers in the works at the moment that will bring literally thousands of well-paid employees directly into the city centre. This will decimate the existing supply of housing...which can only do one thing to rents and housing prices. Many of these employees are being transferred from London, which may give you a partial clue as to why I'm not too keen on the London market at the moment.

Remember, the forces of supply and demand can not be denied or avoided. Try dumping 5,000 well-paid employees into the centre of any city and watch what happens to the prices.

Manchester also has a secret weapon, in the form of Howard Bernstein, the head of the Manchester City Council. I don't think the good people of Manchester know how lucky they are to have a leader like Bernstein working for them. He's a magnificent visionary, with a clear view of where he wants Manchester to go...and a fundamental nderstanding of what it will take to make it happen. Unlike a lot of the soppy, hard-Left civic leaders who run their cities into the ground...Bernstein fully understands the relationship between good jobs (in other words:private sector jobs) and the quality of life in the city. He's doing everything he can to bring those jobs into the city..and he's succeeding. This can only have one effect on rents and property values.

My company could be doing developments in any part of the UK, but we're concentrating our efforts in Manchester because we know where the market is heading there.

Anyway, I've written enough. If you fancy entering the fray of the buy-to-let marketplace...but don't fancy paying thousands of pounds as the price of admission, and would like to know you're buying a flat directly from the source, feel free to drop me an email with your details. If I get the feeling that you're someone with whom I'd like to deal, I'll contact you. You can come to one of our sites, meet me, put on a hardhat, and take a tour of the site. You can stand in what will be your flat in 18 months or so...and if you want to go ahead we've got some great mortgage brokers at our disposal.

I'll let you have my private email:

galt_one@hotmail.com

All the best,

Some great points there john, however to play devils advocate why would someone invest in an off plan development with 100 flats in a flat market (forgive the pun). That 10% discount may seem rather small when you release all 100 flats - rental prices are pushed down and your 25% is stuck in the property for a few years while it finds its feet and the builders are finishing phase 2 and 3.

What rental would you expect on what value? Also what other associated costs is there e.g. service charges.

There are hundreds of new flats put on the market each month. If the addition of new flats to the rental market was good reason not to get involved in the rental market, no one could *ever* get involved.

I have no idea what you mean regarding Phases 2 and 3. Our projects are one-phase. Rents are £850 for a typical 2 bed, with values of £170k-ish. Service charges are likely to be £800-£900 per year.

I'd suggest the share market if the idea of a "flat" property market scares you. Sure...shares could drop (and in my opinion *will* drop) 30-40% in the next few years, but they can also go up very fast. Property is a long, slow grind upwards.

I think John's point is that if all these 100 flats come to the market on the same day will that not be an oversupply. I have seen that happen in many other areas including Manchester and flats have sat empty because that wasn't the demand for that many rental properties.

Even if you could guarantee 100% occupancy, with the figures you are quoting the gross yield is circa 6%. What happens when the flat sits empty and you factor in others costs such as service charges and ground rents? What will the yield be then? Is there not an arguement that your money could be better used elsewhere?

Off plan is definitely for the long term investor who can afford to put some of his/her own money to cover negative cashflow.

Just for the rcord you can get in excess of 75% funding - 85% is easily achievable as long as the figures stack up. Additionally some seminar companies are educational and aren't just there to push overpriced off plan developments.

Russell

I cant understand why anyone would buy off plan , you would be better off buying a run down old house and doing it up, then renting it out.

This is what i do and it immediatley gives me around 15K equity after refurbishment.

And the house and price is solid, i buy in arears where the sale is good and the rental is strong 12 to 15% yield.

Alex M

Agree with you Alex. You would be mad to invest 25% of a £170k property to get a yield of less than 6%. These kinds of properties are definitley not for the wise investor. You would be investing £40k plus just to break even. Invest £40k in to 5 quality terraced properties at £50k each and you will get a minimum yield of 8%, where you will not only cover your cost, but also have an extra £100 per property every month, giving you a passive income of £6k per year, mortgage paid plus significant capital growth. Return on capital will be significantly more than the off plan. Also, if you wanted to, you could remortgage each of your 5 properties after year one to release your capital invested (£40k) and start again.

Zubair's stratagy is very good, ive read all his threads and i think the guy is on his way and he strongly believes in the trusted old terraces at around 50K as they have plenty of room for growth and return good yield and the risk factor is minimum, unlike off plan.

Alex M

I agree fully...if you have the time and skill to seek out and refurbish small properties you will make a lot more money...as you should. Time is worth something, and a lot of hours get poured into refurbs...so you *should* earn a lot more. I've known people who crowed loudly about the refurb they did on which they made all of a 20 grand profit. This after working their ass off for 4-5 months hammering, sawing and painting. Christ, they could have found a job that would have paid them more per hour:) And of course, they had to put up a wad of cash for a while for the privilege of being allowed to earn 10 pounds an hour for their DIY work.

You've got to know the market inside out....if you do, and you buy right, you should be able to make good money at refurbs.....but be aware that it takes a good deal of your time. It's not an investment....it's a job...and you get paid for it if you do it properly. Investments are, by definition, fairly passive. You don't turn up at your buy-to-let every day for 4 months to work on it all day. So you *shouldn't* earn as much as if you *had* done.

Buy-to-let is for the more passive investor. The yields are low.....unless the market rises. We're now completing on flats in Manchester with buyers who paid us £117,000 when they exchanged...and the flats now value for £155. That took place in 18 months...it was a great market and for a 12k deposit, they earned almost 40 grand. That's not exactly a 6% return:)

If the market doesn't go up, buy-to-let makes very little money. But then...when *any* market fails to rise you don't make money if you invested in it. If you're a handyman type, and have the time, knowledge and skill, you should definitely do your own projects..find, buy, refurb, sell. I don't advocate buy-to-let investing...nor do I discourage it. It's horses for courses. All *we* do is build flats and sell them. What people do with them is up to them.

My point was...don't *pay* for the privilege of buying a flat. What you'll learn at the seminar you pay thousands for won't help you decipher the property market. I'm *inside* the market..a director of a good-sized developer (and substantial shareholder)...and I sure don't fully understand what makes prices move all of the time. All I know is that property goes up most years...and so far has never gone down and failed to come back with a bang a few years later. If you're not willing to hold a buy-to-let flat for at least 5 years...I wouldn't even think about getting involved.

everyones point are valid. my take is:

- offplan is more risky but offers higher reward

- cash is king and period of lower capital growth go for yield as income is why most people trditionally invest in property as opposed to equities

- if you get property training make sure it is from people with good knowledge and proven experience not from people that charge £4k that tell you just to spend, spend, spend. being prudent and learning to evaluate opportunities is the most important part when starting out. also key is knowing how to manage a large portfolio

tom

You don't have to buy properties that need refurb, so you won't spend 4 months working on it. All the properties I buy are ready to go as I don't have time for refurbs. The price reflects this, and as long as the valuer is happy with the figures and everything stacks up, there is no problem. John: Would have agreed with you 5 years ago, off plan was the thing to do then. But now, the market is too saturated. I'm sure you know that, otherwise you wouldn't be wasting your time trying to sell your properties on forums.

Alex M "you would be better off buying a run down old house and doing it up, then renting it out.

This is what i do and it immediatley gives me around 15K equity after refurbishment."

Alex do you do the work yourself or hire people to do it?

Also are there special mortgages for these types of properties?

Hi Frank, for the last 2 years my Uncle used to work for me and he used to basically do them for me with a little help from a few people like id get a plumber in to put the centrel heating in and get window people in to replace the windows for double glazing units & plasterers in to replaster, he used to do the gutting out and joinery and minor plumbing and fitting of kitchen and painting.

Any way he left me with out warning leaving me right in the shit with 2 houses to do and a load of repairs on others, i started to use a builder who turned out to be totally rubbish, and he agreed his work was rubbish. Im now using some one else who is very good and cheap.

As for the joinery and painting & general maintance i do that myself on Saturdays and Sunday mornings.

I enjoy doing joinery as it's a break from mortgages and to be honnest it gets me out of the house on Saturdays and Sun day mornings.

Alex

p.s. always watch the tradesman, once seen easy learnt.

Sorry Frank regards special mortgages some lenders yes with others as long as it's livable then it's mortgagable.

Alex M

"I enjoy doing joinery as it's a break from mortgages and to be honnest it gets me out of the house on Saturdays and Sun day mornings."

Gee I just spent both Saturday and Sunday recuperating from Friday night! Something I am going to have to knock on the head.

"p.s. always watch the tradesman, once seen easy learnt."

Really? I am sure most people could pick up the basics but do you think that it would be possible to pick up the more tricky stuff? If I were renovating a house to sell on I would probably get professionals in, I really have not a shred of experience in that field.

"Sorry Frank regards special mortgages some lenders yes with others as long as it's livable then it's mortgagable"

Thanks.

If it weren't livable would it be better to take on a business loan?

I admire your style, Alex.

If there's a big job to be done, it's more efficient to get the pros in, but for smaller stuff if you can get away with patching it up yourself andd save calling others in, you must save yourself a packet.

I'll make more of an effort myself!

Phil

Hi guy's, this morning at 8am i was tiling a shower, i brought big tiles to make the job easy, i was back in the office for 10.30. Tiling is so easy i used to put it on the tile first then a saw a tiler and they just trawl it on the wall then put the tiles on and leave the cutting till last, gee it does make the job easy.

Tomorrow ill go back and fit the shower enclosure and skirting board then it's all ready for tenant who moves in a Saturday.

Think if you wanted to you coud spend 4 hours a day on a house 2 hours in the mroning and 2 hours after work and say 8 on Saturday and 4 Sunday thats 32 hours per week. 2 hours in the morning and 2 hours after work in the house for 8pm.

This is what i tend to do on and off. im currently renovating 2 houses one is almost finnished, just got the tiler in to tile the floors as i did not want to risk it myself as there a bit uneaven.

I would love to be able to plaster and im thinking of taking one of these 3 day training courses, it's seems great fun, been watching them for ages now and just dying to have a ago, looks straight forward it seems to be more of a patient type of job as you have to wait for the plaster to go off slightly before trowling over it and then you wait again and trowl poeple go wrong as they dont wait and dont use the PVA sealer first.

Alex M

Any news on the software Alex, I'm itching to try it out?

Cheers

Simon

Hi Simon,

Just having a few more filters put in first, as this will inprove the data it holds.

Alex M

alex,

by the way thanks for the software. just working my way round it. unfortunately i am more of an excel man rather than access so finding my feet.

ill give you an update when i am up and running.

thanks again,

tom

Hi Guys,

This morning at 8am I was in bed asleep. By 10:30am I was awake in bed with a coffee and biscuit. By 11:00am I was convinced that I really should get up and think about going to make a bacon sandwitch. I agree that tiling is easy and so is working on old houses - but it is so much better when you don't have to. If possible avoid, avoid, avoid.

There are two things in life that I personally value more than anything else. Time and money. They are both precious so don't waste either of them unless you have to.

I agree with most of what everyone has posted so far. There are no wrongs and rights in this business. It is possible to cock anything up if you possess the correct "know how". Dont get suckered into being obsessed with those rental yields. 6% rental yield doesn't mean anything. 6% capital growth, well now we're talking.

I just want to add my piece...

Lets talk about our 40k investment above for example. (As that has been quoted). We can do one of (at least) 2 things:-

1) Buy 5 £50k terraced houses in need of no renovation (where you can find these now, god only knows!) and rent them out immediately. Total cost £40k. Total mortgage £210k. Portfolio value £250k. Total annual income = £100 month per property (£6000 less voids of say 10%) £5,400 Plus say appreciation of 5% (of £250k) £12.5k TOTAL Gain in 1Yr = £17,900.

2) Buy 2 £200k off plan flats (ready in 12 months say.) Total cost $40k (10% deposit). Total mortgage £0. Total income per month £0. Portfolio value £400k. Discount (10%) £40k. Appreciation of 5% (of £400k) £20,000. TOTAL Gain in 1Yr = £60,000.

This assumes that the discounting is genuine (for this you (rather obviously) need to compare comparable properties in the area). However even if you paid full price you still gain £20,000 in the year which is more that in the first example.

What would you rather have ? 5% of 250k plus some £450 per month and loads of hassle from 5 sets of tennants....or....

5% of 400k plus no hassle, no phone calls, no tradesmen, no DIY, no service charges, no maintenance, no breakdowns, no rental agents greedy 15% +VAT management fees, 1 months tennants finders fees, etc...

OK, I've simplified it a bit and ignored the costs (as they will be about the same in both cases) but what happens in year 2 ?

Well assuming case 1) you re-invest your £17,900 profit in 2 more houses, then in year 2 you make a total profit of £25,060.

But in case 2) you re-invest your £60,000 profit in 3 more off plan flats at 10% discount then you make a total profit of £90,000.

Well... you make up your own mind about buying off plan...

and no, I am not selling any off plan flats. But if you are then I may just be interested

I've said enough and am tired now.

Funky Me

Like your style Funky and u do make some very valid points, making me think now. Maybe i should give one ago at least.. thanks for the figures.

Alex M

You do make some good points Funky and agreed in Year 1 off plan looks attractive assuming the discount is real which I doubt in most cases.

But in Yr 2 what happens when your shinky new apartments goes up for rental at least 50% of the block that has been sold to investors and you have to take a lower rental which doesn't cover the mortgae just so they don't sit empty. The the others start trying to do this and some start panicing and put them up for sale but there is a glut now so the price drops back down to what you paid for them less discount?

Might seem a bit melodramatic but I have seen it happen from personal experience and I like to think of myself as savvy. My opinion is that off plan has had its day but of course as always I am more than happy to be proved wrong.

Russell

Agree with you Russell. And I am also talking from experience. This does happen. The Year One figures look very good on paper, but very often fail to materialise. Russell describes it exactly as it is, lower rental figures, lower sale prices due to over supply. Very risky. You would be lucky to pull it off in the current market. 5 years ago, it was the way to earn money, but it has definitely had it's day. Anybody tells you otherwise is kidding you. Seen an eexcellent quote earlier I thought I might share with you. 'Fool me once, shame on you. Fool me twice, shame on me.'

Regards,

zubair@ip3.co.uk

I bought an off-plan apt and on paper it looks good now, but I'm not sure how it's going to look in 2yrs time. When they build 1,000 more. It was my secound property so I'm still going through a very skint stage and need to invest everything now if I'm going to make a go of it. I can't see that the value can go up much if the market is flooded and I can't see the rent increasing in the long term.

I'm thinking of waiting til they start selling the new similar properties and sell mine for less, to get out. I'm going to invest in a larger multilet near hospital if I can afford it.

sjc

Well Funky

You made some excellent points. Your strategy is really about making more money faster. Good idea if that is your strategy. For me I would like residual income so adopting your strategy to raise funds seems like a good idea.

Thanks for the tip.

If you're unsure as to whether you're getting a genuine discount...try doing something called "Research":) An hour on the internet will give you all the comparable prices you could possibly need to see if you're being offered a real discount.

Often you aren't. Sometimes you are. I just sold 35 flats to a group (that contacted me from this board, by the way) at 20% below valuation. This wasn't a friendly valuation....it was done by the buyer's bank. But I needed a large number of quick sales to make our funder happy, so we gave away our profit on a fairly small number of flats because it suited our individual interests.

So 35 people start out with a large equity....if they sell in a year their return will be extremely high. I always smile when I read people grandly proclaiming that the market is "saturated". The same "experts" were saying that two years ago, and at least in Manchester, where we do most of our developments, prices have skyrocketed during those two years...and will likely continue their rise later this year, after the effect of the Dollar's drop forces down Sterling interest rates..as it will in due course.

Some people are just inherently negative...which is why they tend to live and die without prospering. My father was like that...his whole life spent telling me that the share market was about to suffer a big "crash". During his life it rose over 30x, and while many people got rich from it, he made zilch.

I see the same sentiment on boards like this sometimes. This is more of a global mindset problem than a case of someone with good market knowledge opining wisely.

Property prices are almost purely a mathmatical equation derived from average incomes and interest rates. Unless you have good evidence that wages are going to drop, or interest rates are going to rise, you'd be most unwise to bet on declining property values over the next several years.

John,

I couldn't agree more about the negativity on these forums in general which is why I prefer this forum. It is not negative but infact informative and helpful.

I unfortunately have to disagree with you however on your points about Manchester and saturation. As stated before I know this from experience of owning apartments in city centre. Flats are still sitting empty in some cases after a year. Rentals have dropped because of the number of flats on the market and more often than not these rentals will not even cover the mortgage.

You say you have just sold 35 out of how many on that development? You said 'we gave away our profit on a fairly small number of flats ' and therefore I can only guesstimate that this is quite a large development. Therefore my questions to you are:

How many flats on this development in total? When are they due to complete? Are you not concerned about this many flats hitting the market at one time?

If all 35 flats go to the rental/sales market at one time there will be a glut - how does the local market sustain this.

I hope I haven't come across as too negative but I have concerns. However I am myself always interested in a serious discount and have clients who are aswell. If you can show me that I am wrong I am more than happy to eat humble pie and perhaps next time I am in Manchester we can talk and discuss future developments.

Regards

Russell

Are we talking about the same Manchester? The rental market in Manchester is very strong at the moment. We've got flats we've just completed in which tenants already reside...just a week or two after the buyers completed their purchases from us. Rents have crept *up* not down...and I can't imagine any interpretation of the situation that could categorise the rental market as soft.

There are certainly some flats sitting empty and un*sold*. Almost without exception these are flats that were vastly overpriced by the developer in the first place...Hacienda and even more egregiously, the "Green" building (a travesty of design, in my view) for example. People aren't paying £330 a foot....buy they *are* paying £255-£290 a foot...for nice, city-centre flats. We've sold quite a few in our development in the middle of things for £280 a foot. But if we'd tried to sell at £330 we'd still have them all. So, as with most markets.....fairly-priced things sell, and over-priced things don't. Only in the panic-like "bubble" stage of a market, when people are desperate to get in, will even the over-priced stuff sell. This is true in *any* market, property, shares, art, whatever. This almost always is the absolute *top* of the market, by the way, so we should be happy that the vastly over-priced flats *aren't* selling:)

Our new city-centre development is over 200 units, and is a good 15 months away from completion....and no, I don't worry about the grand total of 35 flats "hitting the market" at once.

Please.

How many people live and work in central Manchester? How many more will be working there in the next few years as a result of transfers from the BBC, Bank of New York and even the Inland Revenue (who are making massive transfers of staff to Manchester, though most of those people are fairly low paid, so they may not be potential buyers....as much as potential renters...though this still pushes prices up as it induces buy-to-let investors to compete for the rental stock to supply the rental market). Do you think that there are 5,000 surplus flats in Manchester?

I remember that Ronald Reagan had a dead simple test of how well the economy was doing......which was how many pages of "help wanted" ads appeared in the newspaper: the more ads....the more vibrant the economy, as companies competed for the available labour pool. My test is equally as anecdotal, but equally as valid...although as much predictive of the coming days than indicative of present time. My test is how easy it is to get a good hotel room in *business*-oriented hotels (on a weekday, weekends don't count). When an economy is in a boom, and more is on the way, there is a LOT of business travel to that city. How many business people were staying in Liverpool hotels during its darkest days?

Try getting a room in Manchester on a weekday. These are HIGHLY overpriced rooms....and they tend to fill up almost every week day nonetheless. I'm one of the people who gets hammered, as I spend a day or two a week there. Sit around the bars in these hotels and listen to the conversations: there is a LOT going on, and a LOT more in the works. The trains from London are uncomfortably full, even though Virgin now run TWO trains per hour (up from hourly service last year). I may *look* thick...but I don't have to be hit over the head with a hammer to read the signs that are as plain as the nose on my face:)

Northern prices, even in Manchester are still half of London prices. Wages are NOT 50% less. Translation: people who work in Manchester can still afford to live there. This is NOT normal for large cities. How many cops,nurses etc can afford to live in central London, even when they work there? None...unless they live three to a flat. A cop or nurse get paid only a bit less in Manchester, Leeds, Liverpool, and yet housing costs are MUCH lower. So the cities are still affordable. Again, this is not normal, city centres are NEVER affordable, as there are more workers in the city centre...almost *all* of whom would like a nice short walk to work than a long commute..if only they could afford the luxury, then there are flats/houses. So prices just get bid up in the slow-motion auction that is the property market.

Property prices will always get pushed up to the absolute highest price possible that the people who work in city centre can even *remotely* afford, as workers compete for a limited supply (which is never equal to the number of employees who work in the area). Eventually, some get priced out and have to live far away...with a miserable commute. London is a perfect example. Almost everyone would rather have a flat in Mayfair than live in some remote corner of Essex, with a 90 minute commute...but even the director of the development bank with which we deal has to commute to work from Kent every day. Even *he* can't afford a nice place in central London.

The Northern cities, despite large recent price rises, haven't yet reached those levels...so prices almost certainly have a fair bit further to go. At some point the prices will reach maturity....when only the highest earners can afford to live right in the middle of things (as in every other major city in the world), and mid-level workers will have to live outside the city centre. Right now, a mid-level employee on a modest salary can *still* afford to rent a luxury one-bed right in the middle of the city. This is an aberration and *can't* last. Let him try that in two years when there are a few thousand new, and much higher salaried people transferred up from London.

Once the market has reached "normal" levels, i.e., levels where most people don't have the luxury of walking to work, the markets will settle down and go back to an "inflation" market, which rise at slow, predictable speed. But we're not at "maturity" yet.

London is *beyond* mature, in that almost *nobody* earns enough to afford a nice flat in Mayfair, Knightsbridge, etc. This is caused by one factor: International demand (which doesn't exist in Northern cities). This demand, by people who don't earn wages in London, and thus aren't subject to the normal restrictions on what they can afford to pay (say, 1/3 of their salary in mortgage payments or rent). This demand from *outside* the UK economy has pushed London prices up beyond maturity, so only the elite few who work in city centre can afford to live there.

That's why I'm afraid of London prices. The indigenous population couldn't keep prices at their current levels. Only the demand from foreigners can maintain these prices. This demand may well continue unabated.....but it's riskier, in my view, than "home-grown" demand.

I was in Liverpool a few months ago (a place, by the way, where I *never* have trouble getting a good hotel room, at WELL below Manchester prices) and was standing on the roof of a building (an empty building) that was for sale for conversion. As I looked around a saw a LOT of empty floors in the office building that surrounded me. Try to get office space in central Manchester. We're contemplating building office space there to satisfy the latent demand, which without question now exists.

I'm suspicious of the Liverpool market. I'm not saying it will drop....but I don't see the fundamentals there that tell me that more boom times are coming.

Sometimes one can over-analyse a market. The signs to look for ain't that complicated.

John,

Great posts! I am a London investor primarily but could be interested in gaining some diversifications. I would be interested in looking at some off-plan opportunities where the discount can be backed up by market comparables.

Please email any interesting opportunities to frankiesedia@hotmail.com.

Thanks,

FS

Just spent 15 mins composing a reply to see my computer crash with the BSD !

So this response is going to be shorter (and probably full of typo's - so bear with it)!

Some very good points made above. Notably don't pay too much.

To keep you in the picture. Some of the buyers in the off plan scheme I'm involved in have just exchanged on them at £20k more than they payed. They "sold" for £190k instead of the £170k they payed 12 months ago. They now have the new 10% deposit in their hands and are free to invest it elsewhere. They complete in 2 months as soon as the builder finishes.

So looks like they have their cake and they are now able to eat it too !

£17k deposit. £20k profit. £3k fees. Not bad that 100% return on investment in 12 months.

Equally to be fair on the above "I've seen it crash". "I had to sell at a loss" brigade above.... Some people did buy these properties for full price. i.e. £195k / £200k But they were not the real investors.

Amature hour is over in this game ! Unfortunately (for some) you have to use a bit of brain power now.

Regards,

FM

John,

Heavily involved in Manchester market at the moment. Mostly land based but interested in offplan depending on client demand / criteria. Would be interested in a quick chat.

James Patterson Director Urban Pulse Property Investments Limited