Many people are speculating, and rightly so, that we’ve reached the apex of the current property market cycle and are on the verge of surrender. That implies anyone who has lately purchased real estate will likely feel a blow to their net worth. That’ll frighten others, including you.
However, as property investors, I feel that we should take comfort and pride in the knowledge that we have protected our money by investing in real estate during these difficult times, and that no one should be unnecessarily scared out of the game! Unfortunately, landlords panic and, in extreme circumstances, throw up the towel, for all the wrong reasons, after every downturn.
The source of my unsettled core is likely my intestines attempting to digest last week’s crab soup. I don’t know the future, and no one does. But I know that if the market doesn’t spit the bed soon, it will eventually, and before that happens, I’d like to tell you about what occurred to me in 2008, during the most epic economic shitstorm in my lifetime.
This blog post is for any rational landlord/property investor who attempted to do everything right yet ended up in challenging market conditions, whether in 2008, 2022, or 2150!
What occurred to me in 2007-2008 is described below (during the previous property crash)
Many of you were there with me back then, albeit with fewer grey hairs and drooping ears, so you shared my experience. I recall it well, much as the first time I realized that having sexual intercourse while standing up is ineffective contraception. Horrifying.
Who’s your favorite knucklehead? I just so happened to buy two properties in 2007, right at the tail end of a massive property boom. Before the global markets crashed on their arse overnight, I may have had six months of growth. I was window shopping for a Lambo one day and selling my grandmother’s used Tupperware on eBay the next without her permission.
- The financial markets had had enough of the abuse and had finally cracked.
- Property values have dropped by 20 to 50 percent.
- Repossessions and defaults increased dramatically.
- Borrowers were unable to remortgage because they were suddenly drowning in negative equity (their debt surpassed the property’s worth), which meant:
- Borrowers were stuck on high regular variable rates (which many couldn’t afford) when their fixed-rate contract ended.
- If borrowers wanted to remortgage, they’d have to put more money into their sinking ship.
- People panicked and sold to cut their losses, and mortgages became more difficult to come by (20 percent down became the minimum), putting downward pressure on home values.
- It was, without a doubt, a bloody marvelous time. Next to my bed, I used to sleep with a sick bucket.
Before the crash, BTL mortgages were so absurd that they were based on potential rental income rather than the borrower’s income/salary. What do you think?
The crash was unavoidable, in retrospect. The financial sector had injected anabolic horse steroids into ‘complacency,’ dishing out 110 percent mortgages (yes, really!) to folks who didn’t have a pot to piss in for amusement. I’m feeling a similar sense of impending doom right now – with all the money printing and handouts that took place during the pandemic’s peak, it feels like something has to give.
It hit me over the head with a wooden mallet because 2007/2008 was a disaster. I was terrified.
My two properties have lost 30% of their value.
I had 40% ownership in each, so by the time we got to the bottom, I was down to 10%. (not enough to remortgage anytime soon). Can you imagine what happened to individuals who bought at the top of the market with a 100% loan? Total obliteration. That’s why, for new landlords, my most excellent advice has always been to resist those who promote fast fixes and get-rich-quick schemes and instead focus on building equity from the start (i.e., put down extensive deposits and clear debt). I know how rapidly the tide may flip, and if it does when you’re gambling, OUCH!
I had to endure some dreadful periods where my rental revenue fell well short of matching my expenses.
Anxiety levels were at an all-time high. I went through all of the emotional clichés, including the feeling that things would never get better.
What I did to stay alive during the property crash
To begin with, I did not sell shit. Cutting my losses was not an option, even though many of my contemporaries were doing so. Breaking even wasn’t an option, so that was out. Who’s here to make a profit?
- It’s a long-term BTL investment plan for me when I acquire a house, which means:
- Minimum investment of ten years
- When I don’t intend to sell, the ups and downs in between are unimportant.
- During the procedure, I anticipate some discomfort.
- Only sell into a thriving market, not one on the verge of collapsing.
- Don’t try to predict the market’s top or bottom.
To get through the crash, I had a simple plan:
Listen to the facts rather than my feelings or the doomsayers. Property values have historically trended upwards over time, and I have no reason to suppose history will not repeat, or at least rhyme unless the circumstances alter.
Remind me that I didn’t start the game to buy high and sell low. When things don’t go as planned, it’s easy to lose sight of why we’re here in the first place.
- Not to be alarmed, and to go about business as usual, changing the strategy as necessary.
- I aggressively paid off as much debt as I could.
- Put your head down and earn extra money. I worked full-time throughout the week and part-time on weekends.
- At every opportunity, remortgage to a better deal.
- What occurred after ten years?
Why do approaching property crashes no longer scare me?
Human psychology will always induce irrational fear in individuals in times of uncertainty. I am confident those who fall victim will not fail to spread their worry like the plague. They’ll always be the person who:
- claim that it is no longer feasible to profit from real estate!
- The property catastrophe is coming for real this time, don’t argue, “it’s different this time”!
Liquidate their assets and encourage others to do the same, frequently claiming that the best strategy is to “timing the market” by selling low and then buying back in at a lower price. Yes, it’s always a good idea to try to catch a falling knife.
Make a list of everything wrong with the market, from economic to legal issues.
It happens whenever people become scared and becomes a self-fulfilling prophecy for those who pay attention. It’s exhausting to listen to negativity, and it’s also contagious. The negative Nancies, in reality, only want you to be as terrified as they are, which is why they propagate fear.
Property collisions are a healthy and essential part of life.
I believe that these schemes’ resiliency will be tested and exposed during the next storm, with the participants constituting the majority of the casualties because these fragile and over-leveraged techniques are built to function in only ONE environment: a blossoming one! It won’t be a protracted and painful death either; it will be a quick slaughtering!
To help combat inflation, interest rates are anticipated to rise more, resulting in less money circulating in the economy. As is customary, the individuals at the bottom will be the first and hardest struck. In other words, rent arrears will rise, and Rent-to-Rent landlords will realize that propping up sub-letting portfolios with pennies is a complete waste of time. For more interesting articles and information about real estate London you might have a look at solicitors in London W2
