9th November, 2016 buy to let

  • Some property investors fail to accurately consider exit risks when they are looking for quick turn around deals, which in reality, represents the most risk when it comes to property investment.

    As we have said in previous articles, property is an illiquid asset that cannot be traded like stocks and bonds. Therefore, you are totally reliant on market fundamentals. When markets are rising quickly and demand outstrips supply, the exit risk is significantly reduced. But for  the most part, property markets do not remain in a euphoric phase for any sustained length of time. Which is why, if you want to make money from quick turn around deals, it is important to understand what market fundamentals can increase your exit risks. 

    It is also important to fully understand the regulatory environment if your turn around deal is a refurbishment project. Different local authorities in every country have different rules when it comes to property refurbishments. And approval times to authorise works vary greatly from weeks to months, and in some cases, even years. 

    Also you need to factor in transaction costs which can have an impact on your profits. In Spain, for example, transaction costs are 14% if the purchase price is over €200,000. Clearly, any turn around deal in Spain would need to be purchased significantly below market value to account for the high transaction costs to remain competitive when it comes time to sell. 

    In theory turn around deals sound like easy money. In reality, you are likely to come up against more challenges than you expect. In a recent industry survey, 67% of property investors who attempted turn around deals for the first time, actually ended up losing money. 

    So to protect yourself against this risk, seek out local developers, architects and surveyors for advice on the regulatory and market environment before you commit to any purchase. 

    by: Prime Asset Investments

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