Over the last few months we have seen a significant increase in the price of property in the UK and, with the UK media continuing to talk up the property market, some investors are now entering the market for a “quick buck”. This has prompted many people to ask the question, should you chase the hot property of the moment or look longer term?
The simple fact is that while some people do make money “following the crowd” those that make the real money are the ones who spot changing markets before the “masses” and have the time, patience and skill to do their research.
Chasing hot property could burn you
If we take a look back to the US mortgage crisis in 2008 we saw a sector which was going from strength to strength, investors who were making very good money in the short term and it looked as if it would go on forever. Suddenly, we saw a small number of high-risk mortgage companies experience growing defaults and this began to grow. Very quickly, the hot property of the day and the easy money in the mortgage sector disappeared!
Quote from PropertyForum.com : “Before we even begin to discuss student accommodation in the UK we would like to open up by confirming that university applications have increased by 2.7% this year in the UK and there will be in excess of 550,000 students getting themselves ready for an autumn start.”
The simple fact is that if you get in soon enough when a market begins to turn, and there is momentum behind the move, there is every chance you could make money. However, do not forget that worldwide media tend to talk markets up and just as quickly knock them down again.
Firm foundations for firm investment returns
Only yesterday we covered news that a major hedge fund is now looking at properties in the North of England as a potential hotspot of the future. At this moment in time there are few people who would agree with the potential for growth in North of England properties but what about the future?
The fact is that the affordability factor in London and the South of England is moving against first-time buyers and will get significantly worse in the short to medium term. The UK economy, while obviously centred around London, is more evenly spread than it ever has been due to the likes of the Internet, financial services in the North of England and the fact that you do not have to be on the doorstep of your customers to make money. Moving to the North of England, where property prices compare favourably to the South of England, could make sense?
While there is no doubt that many investors do make money chasing the short-term hot property, the fact is that it is not as easy as many would have you believe. If your timing is wrong then you could be left with property which is nigh on impossible to sell and is falling in value on a daily basis. Again, if we look for examples we don’t have to look too far!
Dubai is perhaps the most prominent example of hot property going from strength to strength and all of a sudden, boom, investors pull out, property companies experience financial trouble and the worldwide economy finally impacts the indestructible. Foolishly many investors believed that Dubai was untouchable and somehow insulated from the worldwide economic downturn, brought about by the 2008 US mortgage crisis, but how wrong they were.
Long-term gains are based upon strong foundations, in-depth research and the ability to look forward and take calculated risks.