Fear and Loathing In Buy-to-Let

There have been forecasts of a price crash in the UK property market for several years now, with many commentators highlighting the booming, and still immature, buy-to-let market as a potential weak point.

Yet every year, prices have confounded the sceptics, and continued to motor northwards. Making millionaires of some amateur landlords, and confounding the best efforts of the Bank of England Monetary Policy Committee.

Until now.

The odd thing is, while in the past there have been plenty screaming front page headlines predicting a crash that never came; now it appears to be looming over the horizon, there has been little said.

Like trees falling in the forest, if prices fall, and no front page headlines proclaim it, has it really fallen?

I got into the buy-to-let market by default, when I was stiffed by Mark Hubbock on the sale of my flat. As it happens, this turned out to be a well disguised lucky break, as the flat is worth a good few quid more than when the sale fell through.

Given my freelance occupation, having a sideline business makes a lot of sense so I had planned to expand my property empire thereafter.

Eventually I put my efforts on hold. Partly to keep life simple, and partly because it just didn't seem worthwhile.

Every property I looked at was swarming with potential buyers, with deep pockets, or more likely generous lenders, and little self restraint. I couldn't justify the prices they were paying, and bowed out gracefully.

With interest rates rising recently, and ripples in the US sub-prime sector spawning tsunamis across the world financial markets, I've reignited my interest in the sector.

Price falls in the US and Spain seemed to provide a foretaste of what could happen to the UK market.

Not a time when short term speculators are likely to prosper - such as the ones who buy off-plan and attempt to sell on at a profit before the property is even complete - but a definite buying opportunity for those with a longer term perspective.

My attention was taken by a property in one of the swish new developments that are dotted all across Glasgow.

Three bedrooms, decent specification, and available vacant for early entry. So little had it been occupied, the labels applied in the factory were still attached to the doors of the oven in the designer kitchen.

It was at auction with a guide of around £140k, having sold new for £190k+ two years ago. It failed to sell, even when later offered at a fixed price of £125k.

I was gobsmacked. Even more so when the auctioneer claimed it had been sold on previously for almost £240k - though I was unable to find evidence of this transaction.

It looked too good to be true. There had to be a catch. Detective Div got to work, and discovered a tale of woe.

It seems there were problems with security in this development from the outset. Poor design and build of doors, lack of CCTV, etc. which led to break-ins to both apartments and cars.

It is a common - and shameful - theme with developers that they advertise apartments as plush and luxurious, then skimp on the basics to boost their margins a little higher. At the expense, of course, of their customers who by now have handed over the full purchase price.

There had also been conflict between the apartment owners and the factors - the term in Scotland for an organisation who levy a charge on each apartment in return for managing the common areas of the development. Eventually the factors resigned.

Part of the problem was many people failed to pay their factors fees. There was much speculation from live-in residents that these were primarily hard up BTL investors who'd gotten out of their depth, and either couldn't, or wouldn't stump up the cash.

In desperation it seemed many of the buy-to-let brigade were letting out their apartments to inappropriate tenants, and flouting the laws on letting to multiple occupants.

All of which of course made the apartments harder to let to people willing to pay an appropriate level of rent, and almost impossible to sell, leading to plummeting values.

A classic vicious circle, made worse by shortsightedness and ineptitude within the new breed of landlords and rising interest rates.

From £190k+ new, to circa £120k in the space of two years. Now that IS a crash.

There's no doubt in my mind this cannot be an isolated case. Across the UK other BTL landlords must be in a similar predicament, with nervous lenders getting more and more trigger happy as the flight from risk in the money markets seems unlikely to abate for quite a while. It could be a bumper time for auctioneers and bailiffs.

All of which seems to me to present a selective buying opportunity, and I'm now watching the market with great interest.

Even that apartment of doom, with it's £70k of negative equity, is likely to be a winner in the medium to long term.

It's in a bad area, that's slowly coming good. The sort of area a wise investor buys cheap, and holds long term.

If bought now the purchaser will no doubt be profiting from the misfortune of another, but I've never heard a property developer complain prices are too high, so I'll feel no sympathy for someone who got a little too greedy and went bust trying to make a quick buck.

Back In Action

Managed to set aside Civilization IV for a couple of nights to get back in action at the online poker tables.

Remembering I had a few dollars languishing in a Eurobet account (a legacy of the days when Party Poker skins paid rakeback!), I fired up a session and dropped into a couple of very small PLO games. A game I much enjoy but have been neglecting for a long time.

Most players I've read talk of rustiness manifesting itself in terms of decision making, reading of opponents, etc.

My rustiness was a bit more of the buffoonish variety.

On the very first hand, I've posted to play from late position and been dealt a rainbow hand of middling connectors. Something along the lines T975. Not a monster, but definitely playable in Pot Limit Omaha.

I check behind a limper, the BB pots it, limper folds, and my call takes us heads up to a flop which I totally whiff. BB checks, I check behind, and we eventually check our way to a showdown which I win with the idiot end of a runner-runner straight.

Nothing too bad about that, until about three hands later I notice a pot being chopped in circumstances I struggle to comprehend, until I realise I've actually signed into a couple of PLO8B tables.

Doh! Not quite the manner of donking around I had in mind for some Saturday night light entertainment.

Amazingly enough I managed to finish a few dollars ahead, and maintained that form at the iPoker No Limit Hold Em tables tonight, for a fairly satisfactory return to action.

Can't exactly claim to have brought my A-game to either session, but at least I've ended the weekend actually knowing which game I'm playing, which must be progress of a sort.

July Summary

No poker played for approximately ten days caused me to actually miss the month end, and forget about the summary post. Until today.

July was a bit of a rollercoaster. At one point I was sure I was comfortably heading for a +$1000 month, before I ran into a barrage of outdraws.

Some were pretty sore - overpair v overpair on a low flop, where the lesser pair spikes the two outer after all the chips fly in - but strangely, most actually had some sort of method to them, so I couldn't really get upset.

Lots of good, and considered, calls/reraises with the likes of TPTK went down to flush/straight draws that hit after my flop bets got check-raised.

One shouldn't really complain when action is sought and given.

Ultimately I ended the month about $300 to the good and a nice loyalty payment from BlondePoker pushed that up to $450. So, not a great month, but so long as the bankroll moves north, I'll settle for that.

The reasons for lack of poker action are threefold.

I got distracted by the travel plans for the trip to London. On top of that, the new contract necessitates an earlier train to work - so I'm trying to curtail my late night sessions.

The most recent blocker to my poker play is entirely my own fault. I couldn't resist splashing out on a couple of new PC games to see how they looked on the 24" monitor.

Frontline - Field Of Thunder has been a slight disappointment. Not that it's a bad game, but I'd previously been a Sudden Strike addict and I was hoping this would be a step forward from that, but if anything the gameplay is slightly less satisfying to me. Still a decent game.

The real killer has been my first purchase from the Civilization series of games.

I'm well aware I'm way behind the times on this, but Civilization IV must be the crack cocaine of computer gaming. Time just disappears. I had a skim through the voluminous rule book and decided to have a quick play around to familiarise myself with the basics.

Seven hours later (around dawn) I shut down the PC and stumbled bleary eyed to bed.

Just typing these paragraphs has got me itching for my next Civ fix. No more early nights for me!