Property investment challenges in 2023

What exactly are the strategies that make sense in an economic downturn? They are many and various, but none of them are vanilla.

Whenever there’s a property crash, or a recession, or some other economic crisis, many people sit on their hands and do nothing as the standard strategies that most people employ (the vanilla ones) no longer work as well as they did, and some no longer work at all.

For most people, vanilla is all they know. So, they freeze, waiting for their trusted strategies to start working again. But when their frozen strategies thaw, the opportunities are gone.

Having worked in property for the last forty or so years, By Ritchie Clapson CEng MIStructE, propertyCEO offers a few nuggets of wisdom. Here are a couple of non-vanilla strategies for you to consider.

Buy-to-let plus

The immediate future is uncertain. House prices may come down as affordability declines which then stagnates the market. Inflation will see interest rates climb and the cost of borrowing increase. On top of this, the buy-to-let market is facing an unprecedented level of taxation and regulation, which has already forced many landlords to sell up. Rental properties will shortly be required to meet more stringent EPC ratings, and for many the cost of upgrading them makes the whole buy-to-let venture unprofitable or unaffordable. And then there are those landlords who hold portfolios in their own name, which means when they do sell up, they will attract a prohibitive amount of capital gains tax due to their properties’ values increasing significantly during their ownership.

So, providing a solution to those landlords could be quite an attractive proposition for them.

What if you were to find a way of taking control of their portfolio while ticking all the buy-to-let regulatory boxes and allowing them to sell properties over time so they could take advantage of the CGT allowance every year? You could then acquire their tenants today and their portfolio over time, giving them a more profitable exit and you a significantly discounted means of creating an active portfolio. Is this possible? You’ll find plenty of people who are in the know that believe that it is. You just need to know how to do it.

More often than not, the trick is to uncover who needs a solution most, and then work out a way of providing it. You are then in the enviable position of being one of a small group supplying a large number of people with something they desperately need. And believe me, every time there’s a crisis, there’s never any shortage of people looking for an exit.

Small-scale property development

Many canny landlords have already worked out that smaller development projects are simply the other side of the same property coin and that they already have the skills to both rent property as well as to develop it. Again, a modest bit of research would tell you that the government is desperate to encourage people to create new homes. Unfortunately, every time it tries to solve the housing crisis, a wave of nimbyism rises up to prevent any meaningful progress.

But one relatively nimby-friendly area is the conversion of the existing unused brownfield stock that we have up and down the country. These old shops and commercial buildings are lying there, unloved, and unoccupied, with little intrinsic value due to a lack of demand. We have more commercial building space than we need and not enough homes. Rocket science won’t be required to work out that converting one into the other is likely to be a savvy move.

But surely the large, established developers will have already snapped up all these opportunities? The thing is, they’re not remotely interested. Which means it’s a market that’s been effectively left to the smaller developers. Better still, the government has recently granted a raft of permitted development rights that make it possible to change the use of these buildings without the need for full planning permission. And with around four years’ worth of new homes locked up in these brownfield sites, it’s no wonder the government is keen to encourage as many people as possible to start developing.

As Warren Buffet famously said, ‘When others are greedy, be fearful, and when others are fearful, be greedy.’ This is undoubtedly true in the world of property investment; you only have to look back at previous property crashes and economic downturns to see the multitude of investors and developers who took action and subsequently made their fortunes.