Beware of Property Investment Gurus - A Warning to UK Landlords on US Property Investing
Posted Nov 27, 2007 @ 4:47 am, Viewed by 272 Visitors, Read 295 Times.
The rise in the buy-to-let residential investment market in recent years has been accompanied by the appearance of the so called ‘property investment guru’. These ‘gurus’ spend all their time instructing property investors how they too can make millions out of investing in residential property.
As an experienced residential property investor I am instantly suspicious of anybody that appears to want to tell you how they made a million and how you can do it too. The question is always why if you have found such a brilliant way of making money would you want to share the secret with a whole load of potential investment competitors?
What’s in it for me?
The answer is normally that these property investment gurus are trying to sell landlords something and make money in the process. Most property gurus have traditionally tried to sell residential investment property for which they will receive a commission from the seller or the property development company.
Some of these property gurus are currently trying to ‘flog’ investment properties to UK investors sourced from the United States.
The ‘property investment guru’ markets the attraction of these residential investment properties to landlords as being property investments that have:
* An unbelievably low price.
* A headline rental yield in double figures.
* A potential of uplift in the capital values that might occur as the area improves.
UK & US property ‘chalk & cheese’
On paper these residential investment opportunities may seem appealing. However, anybody that knows anything about the US and the UK residential investment property markets and planning systems will know that they are very different property markets.
What anybody may say about the UK property market is that it has one thing in it’s’ favour. As Mark Twain famously advised “Buy land they are not making it anymore”. He clearly had the UK in mind when making this comment. It is obvious to any UK resident and landlord that we live on a very crowded isle where land supply is restricted. This is particularly true of development land, which is constrained by a restrictive planning system and the Green Belt. These facts means that development land and therefore property will always be relatively expensive particularly when demand for accommodation from owners, renters and investors driven by high levels of immigration is so high.
In the United States the land market and planning system is very different.
* They have much, much, more of it.
* They don’t have a green belt or a planning system that is so restrictive, their system relies on zoning and then releasing big chunks of development land on the fringes of towns and cities.
* Land can be very cheap.
This means that U.S. towns and inner cities have suffered from inner city dereliction and decay far more than in the UK. The middle class residents of a town moving to a new suburb leaving great sways of the old town and city to the working poor or crack dealers. Property in these locations may be ridiculously cheap but don’t expect an urban regeneration miracle any time soon.
Property Guru warning
Any landlord looking to follow the advice of a ‘property guru’ needs to stop and think first, what are their motivations?
Property investors should make sure not to get caught up by a guru’s flash car, confidence, swagger, promises and pictures of a bright and wealthy future.
Instead what property investors should do is:
* Do as much research themselves. Use the Internet to dig around and find out about the gurus proposition and their background. Could it well be that the guru is not quite what they make out they are. Have they been in trouble with the law or their professional body.
* Try and understand why residential investors closer to the proposition aren’t ‘snapping’ up the investment opportunity. For instance if the investment proposition is so strong in the US, the heart of global entrepreneurship then why aren’t all the local landlords and property investors falling over themselves to buy such great property investments.
* Ask the most pertinent question. If these residential investment properties are such great property investments why are they not keeping quiet and buying them all themselves. To which they may reply that; ‘they don’t want to be greedy and that they have enough money already’. In which case you may want to suggest that they refund any commission that they receive for their sales.
After this careful research by a landlord it may well be that the residential investment proposition, and indeed the ‘property investment guru’ is not all they seem to be.
As an experienced residential property investor I am instantly suspicious of anybody that appears to want to tell you how they made a million and how you can do it too. The question is always why if you have found such a brilliant way of making money would you want to share the secret with a whole load of potential investment competitors?
What’s in it for me?
The answer is normally that these property investment gurus are trying to sell landlords something and make money in the process. Most property gurus have traditionally tried to sell residential investment property for which they will receive a commission from the seller or the property development company.
Some of these property gurus are currently trying to ‘flog’ investment properties to UK investors sourced from the United States.
The ‘property investment guru’ markets the attraction of these residential investment properties to landlords as being property investments that have:
* An unbelievably low price.
* A headline rental yield in double figures.
* A potential of uplift in the capital values that might occur as the area improves.
UK & US property ‘chalk & cheese’
On paper these residential investment opportunities may seem appealing. However, anybody that knows anything about the US and the UK residential investment property markets and planning systems will know that they are very different property markets.
What anybody may say about the UK property market is that it has one thing in it’s’ favour. As Mark Twain famously advised “Buy land they are not making it anymore”. He clearly had the UK in mind when making this comment. It is obvious to any UK resident and landlord that we live on a very crowded isle where land supply is restricted. This is particularly true of development land, which is constrained by a restrictive planning system and the Green Belt. These facts means that development land and therefore property will always be relatively expensive particularly when demand for accommodation from owners, renters and investors driven by high levels of immigration is so high.
In the United States the land market and planning system is very different.
* They have much, much, more of it.
* They don’t have a green belt or a planning system that is so restrictive, their system relies on zoning and then releasing big chunks of development land on the fringes of towns and cities.
* Land can be very cheap.
This means that U.S. towns and inner cities have suffered from inner city dereliction and decay far more than in the UK. The middle class residents of a town moving to a new suburb leaving great sways of the old town and city to the working poor or crack dealers. Property in these locations may be ridiculously cheap but don’t expect an urban regeneration miracle any time soon.
Property Guru warning
Any landlord looking to follow the advice of a ‘property guru’ needs to stop and think first, what are their motivations?
Property investors should make sure not to get caught up by a guru’s flash car, confidence, swagger, promises and pictures of a bright and wealthy future.
Instead what property investors should do is:
* Do as much research themselves. Use the Internet to dig around and find out about the gurus proposition and their background. Could it well be that the guru is not quite what they make out they are. Have they been in trouble with the law or their professional body.
* Try and understand why residential investors closer to the proposition aren’t ‘snapping’ up the investment opportunity. For instance if the investment proposition is so strong in the US, the heart of global entrepreneurship then why aren’t all the local landlords and property investors falling over themselves to buy such great property investments.
* Ask the most pertinent question. If these residential investment properties are such great property investments why are they not keeping quiet and buying them all themselves. To which they may reply that; ‘they don’t want to be greedy and that they have enough money already’. In which case you may want to suggest that they refund any commission that they receive for their sales.
After this careful research by a landlord it may well be that the residential investment proposition, and indeed the ‘property investment guru’ is not all they seem to be.
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My name is Chris Horne, I am an experienced property professional who is a qualified planner and surveyor. I have worked in both the public and private sector as a consultant in the UK.
I have been investing in buy to let property for the last 15 years. Read More
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