How to make money from distressed property markets

In my last column I mentioned that I felt that the Spanish and USA property markets would take a long time to recover their previous highs.  I stand by those comments however for the investor who is taking a long term view the prices that properties in those countries are currently being sold for present remarkable value for money in the long term.

For those of you that are looking at investing in these markets or any other distressed markets with a view to making money from them then hopefully this month we can give you some ideas on how to do this.

The first challenge is to source properties at the right price.  There are a number of pieces of software on the market for landlords that help you calculate the return on your investment and thus help ensure that you do not overpay for a property.  The software works by calculating the return on your capital invested and takes into consideration the price paid for the property and its rental income and any other associated costs in acquiring the property such as finance costs and legal fees.

In the UK websites like houseprices.co.uk , which are linked to data at the Land Registry, enable prospective buyers to see what properties in the local area have sold for so that you can make sure you are not paying over the odds.  In the US there are similar Land Registry systems that provide a myriad of data for the investor to peruse and make an informed choice.

It’s always worth meeting local estate agents and getting to know them and let them know what you are looking for and that you have money to spend.  If you don’t have time to do this then there are a number of agents that will source property for you complete with tenants.  All you need to do is make sure that the properties meet the return you want on them.  These agents are likely to charge a finders fee however they will save you time and usually provide a one stop shop service handling the whole transaction for you and the fee they charge should be written off as an acquisition cost.

If you focus on properties that have been repossessed, foreclosures or rehabbing run down property then these are the properties that are likely to provide the greatest return.  However it is important that the properties you buy are in good areas which have an opportunity to recover and provide capital growth or else it doesn’t matter how much you spend on the property you will never realise the money you have invested in it.

Often these run down properties are difficult to mortgage because of their condition and the banks won’t lend on them.  You will then need to consider buying the properties as a cash purchase or by raising the money against other property assets you may have.  This can be done by releasing equity from your main residence.  Some clients are reticent to do this as it puts their main residence at risk however it only puts it at risk if they fail to keep up the repayments.  Often this can be the cheapest and quickest way of raising the money.  If you take your financial advice from Overseas Mortgage Broker, we also have a sister company that is UK mortgage regulated, who can advise the best way of raising the funds from your UK property either via a further advance from your existing lender or a secured loan or sometimes even a complete remortgage.

The other alternative particularly in the US market is private or hard money lenders.  These are often rich investors or hedge funds that have surplus cash to invest.  At Overseas Mortgage Broker we have, through special negotiation, secured a hard money lender for foreign national clients buying in the USA so please contact us for further details.  This private money isn’t cheap however they will have often spotted a niche in the market and will lend where other lenders would not.  Again the cost should be viewed as an acquisition cost and a means to secure the property with the possibility of remortgaging to a cheaper rate in the future.

Lenders worldwide are still being cautious with their money and will continue to be for the foreseeable future, however remember that when the recovery starts the investors that got in now will be the ones likely to make the greatest returns.  Also access to finance will improve, loan to values will soften and lender criteria will hopefully embrace the foreign national buyer again.

The only way is up!