Singing Pig

"The impact of leverage is startling...see the spreadsheet..."

 fortunately it also works in reverse .............. hence many landlords' unwillingness to panic. 

also, for many FTBs, a house is not an investment, but a home.  the loan will be paid out over 25 years.  over that time, house prices will move up, down and sideways ........... they will trundle along paying their mortgage off month by month.  there will be a few who get stuck on the SVR for a while while prices recover, and they pay down the loan ......... the vast majority can afford, and will pay, the extra costs.

when the FTB's who bought a typical £175k house in 2007 with 90% LTV mortgages finally pay off the loan in 2032, they will then have no rent or mortgage to pay for the rest of their days, plus an asset that will probably be worth £350-450k.  for many, it will be their biggest asset, a source of great pride to them, and one of the best (the best?) investments they made during their life.

let's get back to basics here ......... prices will recover.  all borrowers are wise to maintain a cash cushion & not borrow to the hilt ........ but make no mistake, we have not reached a peak on house prices ....... there will be many more, higher peaks yet ........... and in years/decades to come, you will marvel at how cheap property used to be!

Hear, Hear Pod,

While no one condones or recommends over leverage the asset class is a consistent performer over time.

This is why I recommend trying to find additional income to be able to pay your way through the difficult times in order to protect your assets.

The act of grabbing the max leverage & assets in good times and fighting to keep them has been the method of billionaires - check out Donald Trump's experiences in 1990 to 1995 - it's a carbon copy of what's happening now albeit on a smaller scale for lots of people.

And before anyone 'flames me' I do not recommend sticking heads in the sand or ignoring reality - but we all got in this to make money so we should not just bail out, because there are lots of positive things to do to solve the problem you may have.

Regards,

Carl Henry

It is a mistake to watch your investment to collapse in value on the basis that in the long term it will come back. I sold all my stocks and shares last November 2007 on the basis that I was fairly certain that they would go down in value this year - why hold on when you know the value will decline? The money you save can then be used to buy in later on when assets are cheap.

When it comes to property, the cycles are a slow moving car crash - there is no excuse. The direction is set in terms of years.

And it is difficult to convince a first time buyer that it would be right for them to take on a house of £250,000 with a £25,000 deposit (10% LTV) if it's pretty certain their deposit would be gone and they would be under water in just 12 months time. Not great investment advice in my book.

But you are right - leverage works both ways - make sure it's used the right way. 

Sorry I forgot to add - I am a customer of Fidelity. One of the messages they put out is very much the long term buy and hold..."if you miss out on the 10 best days of every year, your stock returns would be reduced by blah, blah, blah". For a long time I have held by that view - very difficult to time the markets and in fact often you are best off doing nothing.

However, the caveat to that view is that if you can see something looming that will affect prices significantly then the best approach is to get out (if it is financially feasible so to do). I now hold by the following investment advice:

 "January 2006: Fortune. Interview with Richard Rainwater. He's 112th on the Forbes 400, worth $2.3 billion: "Most people invest and then sit around worrying what the next blowup will be. I do the opposite. I wait for the blowup, then invest."

 I had to fundamentally change my own deeply held belief system. You have to question yourself constantly and attack your beliefs rather than defend them - for it is they that stop you from behaving rationally.

hotair (how apt),

it is also a mistake to sell your illiquid asset in a difficult period, realise a paper loss, and pay very large disposal costs, as well as write-off the very large acquisition costs ....... when you believe that the asset will only lose a relatively modest amount in the short-term & will appreciate in the medium-long term ... and generates positive cashflow ........ and, most importantly, you are not able to predict the bottom. 

the problem with yuor advice is that it is not practical ........ many investors have built up a portfolio over many years for income generation.  selling because prices dip temporarily would not therefore make sense.

however, i do take your point ... investors need to be careful when choosing their props if they do invest .......... i am finding that the lack of mortgage availability, plus vendors that are suspicious of many of the NMD schemes that some investors require their co-operation for, that their are some bargains around ......... good example was one last week ........ went to visit a lady ,,,,,,,,, 125k OMV ........ i offered 96k .......... she refused (wants 103k) ....... calls me back, "i will accept £100k" she says ........... i say (tactfully!) "sorry love,i've jsut bought your neighbours for 90k, i can now only offer you 88k" ........... she checks with neighbour, he confirms ......... she is kicking herself now!  why?  no buyers, and she won;t deal with a NMD-type investor ........... thinks its a bit fishy ......... i show her a copy of my bank statement with the cash in it & challenge her to ask the other trader for his ................. she comes back and we settle at 86k.

Pod:

the problem with yuor advice is that it is not practical ........

I think you'll find the most successful investors foresaw this coming and offloaded their portfolio's last year.

The second most successful investors will react and sell into a falling market but cap their losses.

The losers will be those who sell at the bottom of the market or end up subsidising their investments through the long trough - whilst others who got out continue to make money.

Long term buy and hold has always worked for our Norman landowners I confess...but this approach will not do as well over the housing cycle as someone who times their purchases and disposals.

Rules of investing...

1. Don't panic

2. Panic first

 Try and question your beliefs rather than defend them - it really is the most effective way.

hotair,

i know an awful lot of landlords who DID NOT sell their portfolios last year, and who DO NOT plan to sell now .... do you?  how many?  what areas?  or is this just what you think is happening, or what you have read in forums/newspapers?

i am not saying that investors shouldn't try to time their purchases ........ i am saying that a knee-jerk response to sell-up is not the only response .......... sell off the lower-yield props, pay down the mortgages, increase rents, etc ......... more than one way to cope you know!

maybe you should heed your own advice ..........  " Try and question your beliefs rather than defend them - it really is the most effective way." .........

Pod:

maybe you should heed your own advice ..........  " Try and question your beliefs rather than defend them - it really is the most effective way." .........

Po,

I'm trying to explain - I did change my beliefs. From long term buy and hold. And it was quite a different approach for me. Boy am I happy with that.

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