EXPERT PANEL: How to thrive in market turmoil

With rising rates, a recession and even a possible property crash on the horizon, holding your nerve as a property investor can be a seriously tough ask. So Buy to Let Group founder Wes De Leur and ON THE HOUSE Magazine editor Julian Pletts had a discussion with a group of experts to find how they manage it in markets like these

MEET THE PANEL

Ross Harper (RH)

Having been in the property market since the late 80s Ross Harper has had a multifaceted career with many different interests in the property field including owning Auction House Scotland and online platform National Auctions Property. Harper has amassed a significant commercial and residential portfolio and was awarded Property Development of the Year at the Property Investor Awards.

Debbie Dorans (DD)

Debbie Dorans is the CEO of Vigeo Property Hub and has been investing in property for over 15 years. She has mentored 300+ clients, is a regular speaker at industry events and conferences, and has built a portfolio that covers a host of different strategies from buy to let and HMOs through to hotels and serviced accommodation. Debbie is managing director at Woodstone Property Solutions.

Adam Lawrence (AL)

Involved in more than 500 UK property deals in the past decade, Adam Lawrence coowns multiple investment companies and asset management companies and lettings agencies as part of his portfolio of businesses. He is co-founder of the Partners in Property Network and serves as a mentor to students at the University of Warwick Business School.

I only have one strategy - do good deals!

WES: Are you still looking for property? Sitting and waiting? Or out of the market for now?

RH: Yes, I am still buying, although I’m being super careful not to overpay at the moment and to ensure that I have multiple exits. When you buy 10 units a month this has become a bigger workload for the team.

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DD: Yes, I am always looking for property, it’s a constant search, no matter what the market conditions, I just adapt. This is my profession and business and I am already seeing opportunities out there. I believe in our industry we can’t sit and wait around; we need to keep momentum as the deals and properties are out there, again we just adapt to the market. I started my main property investing in October 2008 after getting educated at the time of the 2008, economic crash. I remember back then the lenders pulling products from the market and changing criteria for loans. The mortgage rates were around the 6%. It took around two years for the rates to halve and it was within these two years (2008-2010) that I built a portfolio. This replaced my pharmacy income and I went full time into property.

The biggest ‘why’ for me currently is to help vendors and landlords. Some will be in mid flow of either coming out of a fixed rate or moving house and trying to get the sale through before the mortgage offer expires. I am looking at buying good strong stock, good areas, good properties, that I believe will increase in value in the medium to long term.

I am currently stress testing the cash flow at 9% and confirming that it is positive. It won’t be great, but I am buying for the future. I hedge the risk and increase the cashflow using several property strategies.

AL: Still looking. I follow the old adage from Warren Buffett – ‘Time in the market, not timing the market’. From speaking to many who have been involved in property for 30+ years, they have always done great deals in every economic environment.

JULIAN: What strategies are currently working well for you?

DD: We are still buying good buy to let stock for future growth and future cashflows. The main strategy that we are looking at today is serviced accommodation with a buy to let exit. Another strategy we are using is buying social housing properties where we can do assisted living properties. These have long fully repairing and insuring leases on them, 5-10 years so we can get guaranteed rent and cashflow while the maintenance is looked after by the provider.

RH: I’ve moved from portfolio building, which I had been focusing on, back to primarily flips and trades. I own auction companies so I like to buy off market and then sell out through auctions without doing work if I can.

Ross Harper

AL: I only have one strategy - do good deals! Things that make money on the way in - either significant value add opportunities and/or significant discounts to current value. I’m not put off or worried by whether the end product is BTL, HMO, SA etc - these are just noises created by those who sell property education courses, in my experience. It is all business and it all requires business sense.

WES: For investors to stay ahead in the current market what are your top three tips when deal hunting?

RH: Don’t use a goldmine area. Loading up in one area could be counterproductive if that area is badly hit in a recession - I said ‘if’. Have your finances in place and be clear about the strategy. Don’t get overwhelmed by the news there is very little chance of predicting accurate outcomes. Instead stick to basics.

DD: Make sure when you buy, you buy at a discount, and there is equity left in the property, this will give you a buffer from market fluctuations. Make sure you buy in the right area for your strategy and do all your due diligence thoroughly. Confirm there is strong rental demand in that area, now and in the future and keeping on top of what’s happening in your chosen area is vital. Will your strategy still work? Make sure the property you are buying is stress tested and is on a positive cashflow from the beginning.

AL: Follow up would always be my number one. Look for badly marketed properties would always be my number two. In this market, don’t overstretch, overpay or overleverage would have to be number three.

WES: Are you doing anything in this current climate to help tenants and secure your monthly rents?

RH: By not increasing rents and looking at EPCs and energy saving options.

Debbie Dorans

DD: We are looking at securing long leases on properties at a guaranteed rent and working with our letting and management agents to make sure that the affordability checks have been done including asking for guarantors and deposits. We have regular communication with tenants to check how they are managing throughout the case with the cost-of-living crisis. Heading off a problem can save heartache all around later. Where possible, and if the tenant qualifies, we will also consider insurance for loss of rent.

AL: We raise rents annually to keep costs realistic. That means we are not a million miles behind market rents, although with the meteoric rises some need to catch up. We cap rent rises at 7% annually regardless of inflation. We are also sending out information and links to help save energy costs since education on this front is limited and non-existent outside of consumer money-saving websites.

JULIAN: For new investors, what should they be focusing on in order to build robustly in these unpredictable times?

RH: If they can cut their teeth on trading properties first as we don’t know where medium term values will move to and when there’s more stability, a long-term plan would be to hold properties as rentals. Do not overstretch yourself financially just now and be careful of giving up employment to follow property dreams.

DD: Have a strong set of values and stick with them, it will help you when you come to work with other people, be they investors, contractors or your power teams. Make sure you carry out, strong due diligence – ask yourself will your strategy and area work? Is there demand for your offering? Have strong robust systems in place and regularly assess your KPIs. Interview your power teams and make sure they understand what your needs are. Plus, make sure you control your costs and don’t let refurbishments get out of hand. You have to treat this as a business.

AL: Cashflow. Over 90% of businesses go broke because of cashflow problems.

WES: Current rates will be proving challenging for some when exiting current deals, bridging etc. What advice would you give to those facing such challenges?

RH: Spend time trying to build your cash pot and also try to find people you can safely borrow from at lower rates if possible. In this current market I’d take a small loss to get out of things if they don’t stack up in the medium term.

DD: Have a good broker who regularly updates you on market conditions and sentiment. Leverage your network. Shop around for deals and providers.

AL: Consider waiting for longer on temporary finance and be ready to transact with finance providers when the opportunity presents itself. Don’t benchmark against rates from six months ago. If it works - take it, and manage the asset well over the next five years. Stick with five-year fixes - revaluations in two years might cause further problems and rates might go up a lot more yet.

Adam Lawrence

WES: For landlords with more established portfolios what do you recommend to look out for moving forward in this current market?

RH: There will be deals. Our auction companies are seeing increased deal flow. Generate cash now and sit on your hands until that ‘superdeal’ comes along. Don’t try and fathom the bottom of the market.

AL: How to exit - on your own terms and not managing the assets well and letting them depreciate. Poor exit plans can cost you an absolute fortune. Never put sticking plasters over something that needs stitches. Consider all your options on every property - repurpose? HMO - private or social? SA? Sell?

DD: I would advise constantly looking for the best deals you can if you are still in the market. Also make sure you have robust systems so you can regularly monitor if your properties are performing. Consider pruning those ones that are not if the deal is right to sell. Keep ahead of what’s happening in your chosen areas and demand for your offer. Be aware of increasing regulation and compliance nationally and locally and look at where your properties are with their EPC rating and try and get the works done to increase the rating if this is possible.

WES: There are lots of investors who are one dimensional – can only focus on one strategy. What would your advice be to those investors and what do they need to do to sharpen their investment tools?

DD: Treat it as a business - continuing professional development. Keep up to date with what’s going on by monitoring good property portals and the press but read behind the headlines. Network and listen to various investors to broaden your horizon and see if you can find another strategy or two that you like or that work in your area. Look at who is doing better or are where you want to be. See if you can learn and benefit from what they are doing? Make sure you have the best of the best within your power team - brokers and solicitors are crucial. Consider a mentor or some education but interview them beforehand, making sure that they can deliver what you need and fit your values.

AL: Open their minds. I’ve met lots who have done a lot in certain market conditions (say pre-2008) then in the past 14 years done little or nothing. Why? Push yourself out of your comfort zone and be an eternal learner.

ADVICE FROM WES: When it comes to choosing a mentor, a lot of due diligence is required.

Here’s how to go about it:

1. Arrange a few meetings before committing to anything2. Understand what they will be able to offer you3. Understand what they have done and accomplished

4. Ask to see their overall portfolio for a better in-depth understanding of what they have achieved. If they refuse to be open with this, run a mile!

5. If there are still red flags check Companies House to see if they do in fact have a registered mentoring/coaching/ consulting business

6. Question fees. For instance, some, not all, will have fees running into £1,000s however this does not need to be the case. I certainly would question how the fees are broken down and what you are expected to achieve.

7. Speak to previous mentees - what success have they seen?

8. Alternatively, you could consider joining a Mastermind group for advice, accountability and support. I run a twice-monthly meet-up called The RoundTable Mastermind group and I am genuinely proud of the success members of the group have achieved such as Kev Dendy (featured in Issue Visit https://linktr.ee/btlgroup

WES: If there is one strategy which is most exposed at present times which would it be and what can investors do to change course to make it through?

RH: I’m not clued up on all the strategies but buying buy to lets at full market value for long term hold might see a loss and I’m staying away from developments just now due to the financial and political climate. It’s hard to predict where costs of materials, labour and values are going to be just now. Anything that drains cash is not ideal.

DD: My opinion is the standard buy to let. Increase in mortgage rates and increase in regulation will increase costs and there are also political moves to make the private rental sector more accountable through regulation. That can be a good thing, getting rid of not-so-good landlords but we don’t know what that completely looks like. It’s therefore a risk that you will have to account for when buying. Locally, you could get councils applying limitations and premiums in areas to influence the property types. Certain lenders may have a large exposure in an area so it may be harder to get that lending. Again, good due diligence and being aware of what’s going on in your area will help you in your decision making.

AL: Hard to pick one but I would pick HMOs, purely because so many struggle to add any meaningful value and often end up with an end product that is worth less than the amount of money they’ve invested, plus - exposure to energy bills. Buy better and look more closely at energy efficiency measures, would be my advice.

JULIAN: There is lots of fear around everywhere you look. How do you sift through the noise and draw on positives to continue progressing?

RH: I don’t listen to the news or property channels. The Partners in Property guys keep me abreast in an organised fashion, which was why I got into that network.

DD: I am passionate about providing good properties for people to live in while helping people achieve a good return. I am not a financial advisor and only an investor, so I can only talk from that point of view. What I know is that there are not enough houses to meet the demand and prices have made it hard for people to afford to buy their own house. So, for the foreseeable future people will need good housing, near amenities that are nice to live in and low cost to run. That’s where we as investors can be a valuable part of the private rental sector, providing good housing where the return on our time and money is best used.

AL: The news only serves one purpose - to let you know what everyone else is thinking. There’s no point being blindly positive but anyone can tell you that more opportunity is created and executed on in a recession than in a rising market. Concentrate on what’s going well and what you have to be grateful for at the start of every day, then make your list of three-six things that you want to get done today - then go and do them!