Real estate investment challenges in 2023

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

Whenever there’s a housing crash, recession, or some other economic crisis, many people sit idly by and do nothing, because the standard strategies most people use (the vanilla ones) don’t work as well anymore. as before, 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 your frozen strategies thaw, the opportunities disappear.

Having worked in real estate for the past forty years, By Ritchie Clapson CEng MIStructE, propertyCEO offers a few pearls of wisdom. Here are a couple of non-vanilla strategies for you to consider.

buy to rent more

The immediate future is uncertain. Home prices can drop as affordability declines, which then stagnates the market. Inflation will drive up interest rates and increase the cost of borrowing. On top of this, the buy-to-let market is facing an unprecedented level of taxation and regulation, which has already forced many homeowners to sell. Rental properties will soon have to meet more stringent EPC qualifications, and for many, the cost of upgrading makes the entire buy-to-let venture unprofitable or affordable. And then there are those owners who hold portfolios in their own name, which means that when they sell, they will attract a prohibitive amount of capital gains tax due to their property values ​​increasing significantly during their ownership.

Therefore, providing such homeowners with a solution could be quite an attractive proposition for them.

What if you found a way to take control of your portfolio while checking all the buy-to-let regulatory boxes and allow them to sell properties over time so they can take advantage of the CGT allowance every year? You could then acquire your tenants today and your portfolio over time, giving them a more profitable exit and a significantly discounted means of building an active portfolio. it’s possible? You will find plenty of people you know who believe you are. You just need to know how to do it.

More often than not, the trick is to figure out who needs a solution the most, and then find a way to provide it. Then you are in the enviable position of being part of a small group providing a large number of people with something they desperately need. And believe me, whenever there is a crisis, there is never a lack of people looking for a way out.

Small-scale property development

Many astute homeowners have already realized that smaller development projects are simply the other side of the same real estate coin and that they already have the skills to both rent and develop properties. Again, modest research would tell you that the government is desperate to encourage people to create new homes. Unfortunately, every time he tries to solve the housing crisis, a wave of nimbism arises to prevent any meaningful progress.

But one relatively easy area to use is converting the unused vacant land stock we have across the country. These old shops and commercial buildings lie there, unloved and unoccupied, with little intrinsic value due to lack of demand. We have more space for commercial buildings than we need and we don’t have enough houses. It won’t take rocket science to determine that turning one into the other is probably a smart move.

But surely the big and established developers will have already taken advantage of all these opportunities. What happens is that they are not even remotely interested. Which means it’s a market that has been effectively left to smaller developers. Better still, the government has recently granted a number 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 sitting on these derelict sites, it’s no wonder the government is keen to encourage as many people as possible to start developing.

As Warren Buffett said: “When others are greedy, be fearful, and when others are fearful, be greedy.” This is undoubtedly true in the world of real estate investing; You only have to look back at past housing crises and economic downturns to see the multitudes of investors and developers who took action and subsequently made their fortunes.

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