Defining the objective

Wednesday 16th May 2018 10:37 EDT
 
 

Every so often, I will get a client who wants to purchase a property for their children rather than having them rent, and filling somebody else’s pocket with rental income.

Only yesterday a client approached me, who wanted to invest but also wanted to purchase a property for his daughter to live in. They were constrained in regards to what they could afford due to the sizable deposits required, and therefore restricted to only new builds; and not any new builds, but only to those who have signed up to the Help To Buy scheme.

This meant they were putting themselves in a position of scarcity, where they are almost held to ransom in regards to what they could purchase.

It is difficult to satisfy multiple objectives when making investment decisions. When you invest, the aim is mostly to make as much money as possible, in the shortest possible time period.

When you are purchasing to live in a property, the aim is not the same.

The above may happen. In fact, it probably will. But it is a by-product of the aim, it’s symptomatic.

When choosing to live in a property, it needs to suit one’s lifestyle. This involve issues such as security, air flow, outdoor space, the feel and the vibe of the property, and perhaps things that you cannot always put your figure on.

When investing these are not the primary drivers of a deal. It is one which is more binary, consisting of things like numbers, demand and supply and so forth.

Trying to combine the above two scenarios probably will not work so well.

We are Indians and, therefore, money leakage is painful, both economically and emotionally. However, one must be able to discriminate, and separate the above issues.

If, for example, the rental is £20,000 per annum, it is better to make this amount – and live elsewhere.

This way you end up having achieved the same goal. The rent is being earned back and therefore the net position is zero, or one of profit.

There are many variables in life, therefore by renting you remain adaptable to the circumstances which will inevitably change. When choosing a property to live in, the driving factors will be based on personal whims, which they should be.

Even when investing, the goal must be defined. Buying a discounted property may be good for the present, but if you are planning to hold on to it for the next ten years, you need to ask yourself where the market will be locally over this period.

There is much gratification to be had from buying something which is say 25% below market. However, if the market flatlines for the next five years, you have only made 5% per annum, and of course the brief feel good factor at the time of purchase.

To see what an area will do for the next five plus years, one really needs to dig down deep into the wheels of what moves prices, and does so consistently; a slow, long term burn rather than a brief momentary spurt in price. This type of research is required when looking to purchase and hold a BTL property. We believe we have this nailed, and are currently purchasing in a location which is set to increase. Most of the mainstream property press will speak about this through the rear view mirror, once the phenomena has occurred.


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