The end of the 2007-2008 tax year is bound to see some BTL flat owner landlords bail out of the UK market, spurred on by fears of a serious market downturn, and, more importantly, the fact that they can take advantage of the new capital gains rules. From the start of the new tax year, capital gains is a flat 18 per cent however long you’ve held a property, whereas previously it was 40 per cent initially, gradually tapering.

Glut of properties

But, despite some newspaper headlines featuring predictions of a glut of properties hitting the market, a recent Money Centre survey revealed that only 13 per cent of landlords said they were likely to sell any letting property during the next quarter. In the main, the rest viewed their properties as long term investments.

Similar findings come from the Association of Residential Letting Agents (ARLA). Their latest survey reveals that nine out of ten landlords say they wouldn’t sell even if prices fall, preferring to benefit instead from strong rent rises. In the long run, this is the smart view to take.

The recent House of Lords report on immigration to the UK pointed out that immigration and the current projections are of a net inflow of 190,000 people a year – have a significant effect on property prices, including, of course, flats. So, long term, good news for landlords and potential landlords.

Inexperienced landlords

But the key here is that there is strong evidence of some more inexperienced landlords having overstretched themselves and who are now finding finance a serious problem. Some are undoubtedly having to sell and this is going to be one terrific area in which to go bargain hunting.

Meticulous research and a clear strategy and goals are the vital factors to manage the property market’s inevitable peaks and troughs. Even more so in a bear market.

Demand doesn’t equal affordability, so, it’s important to enter what is undoubtedly a buyer’s market quite certain of what the dangers and pitfalls are – and how to avoid them.

Do you have something to add about the buy-to-let market or any other topic that we covered in this issue? If so, please write to the editor at jamie@newsontheblock.com, or call him on 0207 616 5262.

5 property investor tips

Tip 1: Be clear on strategy. You must plan an end goal and have a clear plan about how you intend to achieve it. If you’re buying for capital gain you are going to be looking to buy in different areas (probably), but certainly different properties in different sectors of the market, than if pure rental income is your aim. Buy what suits your goal over the long term.

Tip 2: Before you go shopping it’s best to know what is available in the mortgage market. So, keeping up to date with mortgage products and looking carefully at admin fees (that can add significantly to the real repayment rate over a fixed period) and other charges is vital. Also check out early redemption penalties.

Being cash positive and projecting what, say, a full point rise in interest rates would mean to your investment, is vital. Forget the direction of base rates right now – it’s vital to plan for the worst because the objective here is never to be forced to sell. Of course, it’s fine to be cash flow negative, so long as you budget for it, expect it and can afford it.

Tip 3: We’re in a buyers’ market, which translates pretty much as ‘it’s a little scary to be a buyer.’ You’re a rare commodity – a buyer. So, be as ruthless as it takes to drive a bargain. And if you don’t think you’re getting one, walk away. The National Association of Estate Agents reports that the number of sellers is actually down, put off by the fact that they believe they will achieve a disappointing price. Great, because that means those that are selling probably have a good reason to do so – they’re motivated sellers and that means you have an opportunity to secure a bargain. But for an investor, what exactly is a bargain? This brings us to...

Tip 4: Determine market value. This is important because everywhere the talk is now all about buying BMV – below market value – which sounds great! Buy BMV and you’re home and dry, even if the market plunges a little in the short term – this is why BMV is made such a big deal of right now. So, how do you know you are buying BMV? Obviously, you need to determine market value and to do this requires leg work. Surveyors spend a lot of time looking at comparables – what comparable properties have sold for in the same area as a flat to be assessed. Actual selling prices are the best measure and these days these are easy to find with many sites offering the data, often for free.

The key is to sure that you are comparing like for like. That means location (including storey), condition, age, type of flat – how may bedrooms, bathrooms and so on. What you should end up with is an accurate, mean square metre price. You can then compare that with your target property.

So, how far BMV do you need to go before you buy? That really depends on how long you intend to hold the flat, how much you are prepared to cashflow it, how easily it will rent and – the big question– what cushion you think you need against a possible price correction? If you get BMV right, it can be applied to any location – even some northern city centres where oversupply of new build flats is obvious.

You need to take care with BMV though. Because a bad location can make what is a BMV property today, a disaster tomorrow.

Market value for an investor also means assessing, at least to some extent, potential. Location is the number one element here – plus looking for an area that is generally on the up, with improving infrastructure and local amenities and certainly any regeneration plans in the area. The same goes for employment prospects, major construction projects and how the proportion of tenants versus owner-occupiers might alter supply and demand over time.

Tip 5: The time for buying flats off-plan is over in the UK – at least for now. This works superbly in a rapidly rising market, like those in central and eastern Europe, but not in a flat market, as the UK predominantly now is. Even if it looks like a bargain, it probably isn’t. Most incentives such as rental guarantees, are factored into the price somehow.

But if you are determined to go ahead with an off-plan buy, be sure to get the very best valuation you can!

www.propertysecrets.net is an independent company of analysts providing property investment information and insight as well as carefully selected investment opportunities in central and eastern Europe."