On the face of it, this method seems ludicrous in the existing housing market. Why would anyone be buying property when the value is highly likely to go down for any length of time. The last housing crash in the 1990’s saw prices go down by 30% over a 4 year period and took another 7 years to recover in real terms. Most people would not be willing to commit to putting any amount of money into a depreciating asset?

Well, what if you committed to investing in the same asset with a longer term view, and with the prospect of strong cash generation?

Property has 2 facets that people sometimes forget. It is not just a case of considering the value of a property, it is also necessary to consider the amount of cash that can be generated. In the existing climate there is the very real risk of the value of property falling. However, the fact that more and more people are either choosing to, and in many cases forced to rent property means that the pool of tenants wanting to rent property is increasing drastically.

I know this not just because market forces dictate that this will happen, but also because of my own experience with the tenant market. Looking at Housing benefit tenants, many councils I deal with have indicated they are being flooded with new applications for housing benefit. People are beginning to be affected by real economic forces such as higher costs of living, higher mortgage costs and increasing unemployment and the result is more people are being forced to claim housing benefit to get a roof over their head!

This naturally means that with housing stock static, rents will be forced up! And with higher rents, come greater cash returns for property investors and landlords. With this in mind it is possible to purchase property in today’s climate and make very healthy cash returns.

What has changed in the last 2 years is the easy money route. The boom in house prices in the last decade has meant that virtually anyone who bought a property say 10 years ago would have made money if they sold in the last 2 years. There are in many cases people who will still make significant piles of cash by selling properties they own in the existing climate, even though they may not get as high a price as last year.

The shift will now be from an easy money route to a money making route. Investors will no longer be ensured of making money just by buying property. This is clear when one looks at the increasing number of property investment sourcing groups and training companies that have been closing down over the last 18 months.

The money making route will mean property investors will have to start being clever and do their homework! With lenders making mortgage finance more difficult and more expensive to obtain, property investors are now forced to look at deals from the perspective of limiting their cash input. Perhaps more important than this is knowing how the changes in the mortgage and housing markets are going to impact Investors and having a REAL understanding of what these changes mean to the numbers!

With an average 75% Loan to Value (LTV) available for Buy to Let (BTL) mortgages, most property investors won’t be able to stump up the 25% deposit needed just to buy a property. This means looking for purchases that enable scope to extract equity either through the negotiation and sourcing process, or through the adding of value through refurbishment or development.

Taken from Toby Hone’s fantastic new book ‘Make Money From Property In the Credit Crunch‘. Available to buy online: click here