Cooling Starts – 3pm

Picking up from the last chapter – the speculator has out-bid the professional. So all that remain are the speculative investors and the owner-occupiers. These types of purchasers have very different agendas. The speculative investor is looking to make money and the owner-occupier is looking for somewhere to live. Bearing in mind that the speculative investor is essentially a novice, their buying choices will largely be drawn on their own experiences with property. This will be likely limited to purchases that they have made for themselves to live in. In effect the speculative investor has the same buying requirements as the owner-occupier as they are the same being but with different agendas! The speculative investor will buy on emotion rather than fundamentals just the same as the owner-occupier. So they will be lured into the same property developer traps as the normal owner-occupier falls into. Common errors made by speculative investors are:

• A higher purchase price will be paid by a speculative investor for a property that conforms to their higher décor standards, disregarding the prospective tenant’s lower décor standards. The standard of décor that is required for rental properties will be overestimated with the belief that the tenant will pay for this higher standard and that the tenant will maintain it.
• A bias towards private up-market areas as the speculative investor feels ‘safe’ in these areas. A speculative investor will be typically earning above the average UK salary and will expect their tenants to be ‘young professionals’. What they fail to understand is that the young professional sector are either looking to buy themselves, and may very well be a competitor for the type of properties the speculative investor is looking at, or they will have assistance from parents in the buying process. Soon private developments become a fierce bidding ground with only one winner – the property developer!

• Properties that require refurbishment look like the only type of properties that the owner-occupier can afford due to their ‘perceived’ undesirability. Unfortunately only the opposite is true! Speculative investors look at the past historical growth and consider these type of properties another goldmine. They assume that after refurbishment they can make a nice tidy profit and have the opportunity to display their interior design skills for all to see. Again the speculative investor overestimates the sale price and underestimates the repair work and bids higher than the owner-occupier.
• Assuming that a tenant will be grateful and less fussy when deciding on whether to rent a property. Box rooms will be tolerated by the owner-occupiers but not by a tenant who may have to sleep in this box room! There is an arrogance element to the speculative investor assuming the tenant will be grateful for the high finish of the property even though the property is under-sized.

So as these two types of purchaser walk into the estate agents the red carpet is definitely not rolled out! The estate agent would have seen at least 20 of you already and to be honest is fed up with them saying either ‘I’m looking for a property to buy to rent out’ or ‘I’m looking for a property to get me on the property ladder’ – change the record! You, as a professional investor, look around at their display of properties on the wall, you see a property that looks cheap, but damn, it says ‘under offer’. You look further around and you see that all the properties on the wall are under offer or sold.

You ask the estate agent what she’s got under £100k and she hands you one sheet. It’s a studio flat, requiring upgrading and it’s on a lease of less than 50 years! Any property that looks mildly interesting is above £150k and yielding less than 6.5%. You leave, leaving the speculative investor and the owner-occupier to battle it out.