In client newsletters, I have written many times about the strange phenomenon of the majority gettin...
In client newsletters, I have written many times about the strange phenomenon of the majority getting it wrong at the same time. So I should not be surprised at the latest rush of investors to get it wrong again.
Renting a house is not exactly new, and landlords have been the butt of stories of greed down the centuries. If buying to let is such a great idea, why has everyone not piled in before now?
The answer, I suppose, is that all of the pieces are currently in place ' low interest rates, higher incomes and volatile stock markets. I have even heard a renewed rumbling about investing in antiques and fine wine.
So perhaps all those who invested in such things in the 1980s can now offload on the new investor who will then have to wait their turn to sell when no one wants to buy. Stock markets may rise and fall but they are at least liquid and you can sell when you want because a buyer can always be found. Not so with other investments.
We furnished our boardroom with antiques in 1986 and the value is much the same today as the price we paid then.
We have had the use of the furniture, which is a benefit, but I would hardly call it an investment.
When you sell, you still have to replace it either with reproduction or other antiques.
The only time you can truly release the money is when you can make do without the item. Buying antiques because you admire the beauty and craftsmanship is another matter and the only reason for doing so.
Everyone seems to be buying to let these days so it must be the next disaster to strike ' all it takes is a turn in market forces and away it will go like a breach in a dam. The current yield that appears acceptable to investors in property to let in the Southeast is 4% and there are, as usual, plenty of lenders offering attractive packages to those that are willing to throw themselves into this market.
The more that are buying to let, the more the prices will rise and the lower the yield will become.
But, to let, you need tenants and as more property becomes available looking for tenants, the more tenants become scarce and the rents will have to fall in order to attract more tenants.
There are periods when the property will not be let and times when the tenant defaults on the rent and all that for a yield of 4% or less. Suddenly interest rates start to rise and the special deals created for the buy-to-let market mature and a commercial rate of interest is charged.
The landlords find it more and more difficult to service the debt until they are forced to put the property on the market.
But who will buy it at an uneconomical rent? The price has to be reduced to less than the price paid and now we have a potential negative equity problem.
More and more landlords feel the pinch and more property comes on the market forcing prices down further until the day comes when the professional landlord decides that the bargains are worth picking up for a fraction of the price paid just a few months before.
The best time to buy an investment is when everyone is selling ' it hasn't quite got that way yet in the stock market but it will.
But whatever you buy, remember that an investment is only as good as the number of people who will buy it from you.
Wine is fine to drink, gold is good to wear, and antiques are great to own but without liquidity, it is only the professionals who really make money out of the investment. And so it will be for the buy- to-let market.
I wonder who will get the blame for this next scandal about to break.
Ken Lowes is managing director of Lowes Group of Companies
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension
Launching later in 2019
£80bn funds under calculation