Is the property market going down?

This is a question that never ceases to amaze me just how many times I am asked it.

I think before I answer it I would rather show you how you can answer it for yourself, I should tell you about why the answer is not the most important thing.

There is something a lot more important than knowing the answer to that simple question.

If you had none of your own money at risk and a positive cashflow then surely the only problem with a market downturn is that, you have to hold and wait for the upturn.

This as anyone who's been in property for 30 years will tell you always happens. So in fact your being forced to do the best thing you can in property 'Your not waiting to buy, you've bought and are now waiting' taken from one of Robert Kiyosaki's great books.

This is very important, as this is closer to real Property Investing than what most amateur investor's think.

When I made my first real Capital gains in property I had worked out that the market was undervalue and as my wife said I bet on a market rise, bet being the appropriate word. The market rise happened exactly as I predicted and we became paper millionaires in a matter of weeks. I went around patting myself on the back and calling myself a Property Investor, but I wasn't.

I wasn't even trading in property, what I was doing was gambling, and my gamble was with a lot of money. Whenever you see someone who has made a lot of money in a very short time frame you can be sure that someone took a big risk. I did, I gambled and was lucky enough to have won.

When I realised what I had done (it took me about 4 months to realise), I was horrified. I thought that I had taken a scientific approach to investing and really all I was doing was pure speculating.

I knew if this was going to become my future career then I needed to be able to do this whether the market was going up or down. I had done all of my research into property and how the majority of the rich either held or made their money from it.

As well as working out the exact position of the market. I went back to studying round the clock and I developed all sorts of techniques, most of which I have subsequently gone on to read about in a wide variety of books.

But essentially the core investment strategy I now use is this: -

1. Put money I have borrowed in

2. Rent the property out to make profit

3. Get my borrowed money back within 6 months max

I have to keep it simple as otherwise it gets confusing!

The benefits I have with this strategy are almost endless but the one I like best is my security. My money is nowhere to be seen, my borrowed moneythat is, is safely back in my bank account.

I could talk for hours about benefits of no money down deals or protection from interest rate rises, but I am not going to do that here, today I am talking about working out if the markets about to crash.

For a second, just imagine how worried I am about the property market going down in value, when you bear in mind that I have no money at risk.

Especially when the money I used to buy the properties is ready to buy more at lower prices. Then there's the power of gearing and time to compound my investment success. All I have to do is sit and wait!

The most important thing is that you make money when you buy not when you sell, make sure you have none of your own money in play and try to ensure you have positive cashflow on your rental properties.

I like to think now that I am a Property Investor and it is a fact to me that prices will go up more often than they will go down. I simply play whatever trend there is at the moment.

I am now going to give you a tool for you to tell without the help of us so called 'Experts' whether the Property Market is about to fall. Actually it's not my tool, it's a friend of mines, but she gives it freely to everyone.

When I first saw Gill Fielding use this tool it was on the Russ Whitney training program at the end of 2003. Why did we go along you say? Simply put 'You don't know what you don't know!'

When I first heard it, I wasn't that impressed and it was only at one of our Open Days when I heard it for the 3rd time that it finally sank in just how clever it is. As I believe it gives insight into the market to everyone if they just use it and trust it.

Gill's technique is a mnemonic called Take a ride.

What it stands for is: -

A = Alternatives

R = Ratio: Salary/House prices

I = Interest

D = Demand & Supply

E = Employment

It is used to work out whether property is a good current investment

A = Alternatives

• What alternatives are there to property and are they any good

R = Ratio

• What is the ratio of Salary to house prices

I = Interest

• What interest rate are we paying for borrowed money

D = Demand & Supply

• What sort of demand is there and what sort of supply

E = Employment

So lets run it now on a thumbs-up scale on a clock face: -

12.00= Very Good (4)

10.30= Good (3)

09.00= OK (2)

07.30= Poor (1)

06.00= Very Poor (0)

Here we go: -

Alternatives

The stock market is doing ok now but I wouldn't say it is doing really well, I would say that property is not as good as it has been in the last few years, which I think is a good thing as I don't want it over inflating. This year the market will grow as a whole about 10%. So I score this a (3)

The Ratio is, Average house price in West Sussex is £220,000

Average wage in West Sussex is £28,000. So £200,000 divided by £28,000 is 7.8. I think 5.5 is the middle ground so it's in the higher end but is Poor. So O score this a (1)

Interest rates are not as low as they were but they are low so that's Very Good. Even with a prospect of 0.5% rise, I'd still say they are very good. So I score this a (4)

rates are not as low as they were but they are low so that's Very Good. Even with a prospect of 0.5% rise, I'd still say they are very good. So I score this a (4)

The Demand where we are in the country is very high and the supply of new properties is not that good so. With demographic changes and immigration I would say this is Very Good, So I score this a (4) (should be a 6 really though)

The Employment in Britain has not been this high for many years in Worthing we have been in under employment for the last 5 years so this is Very Good (4)

So out of a possible 20 the current property market scores 16. So what's everyone saying about the market having problems.

Makes me feel good about buying!

Yeah sounds good doesn't it, but it didn't really impress you that much did it!

Well now lets run it again as if it were July 1989!!!!!

Alternatives

The stock market was flying and it was easy to make money on the market so I would say that as there was a good alternative to property. So I score this a (1)

Ratio

The average wage in West Sussex in 1989 was £12,000(approx) and the average house price was £70,000(approx) is 5.8. So I score this a (3)

Interest rates had never been higher so as I can only score this as a (0), but it should be a minus. We have had people at our Open Days that were paying 19%

rates had never been higher so as I can only score this as a (0), but it should be a minus. We have had people at our Open Days that were paying 19%

Demand

There were surplus properties about as Miras had finished and people had paid too much, builders were stopping building property as they couldn't sell them (0)

Employment

Un-employment was at its highest and the feeling was it was going to stay there or go higher so (0)

So out of a possible 20 the 1989 property market scores 4.

Just out of interest I bought my first property in September 1988. What were we all thinking about!!!!!!!!

All of a sudden this simple tool begins to look more interesting doesn't it!

I think this tool Gill developed is a simple and fantastic guide.

Realistically the property market as a whole only requires a casual mention but I'll cover that in another article.

Now the thing is as you may have previously read in one of my other articles is that there is not 1 property market but in fact there are dozens in every town.

So if you want to predict the market in your town, use history and go back and run this scenario at the start of 2002 and for now, it should, tell you what you need to know.

But for all of you die hard's out there who can't live without a so-called 'experts' prediction here it is, but I warn you it gets a little heavy!

I want to give you some figures to think about, the next time you here a claim from one of the national newspapers that property prices are going to crash by 20% in the next 3 years.

Before I start, it is a commonly understood fact that house prices double every 7 years. This would mean that they have to rise by 10.41%/year.

So the average price today is £220,000 (approx in my area). If it were to loose 20% over the next 3 years it would be £176,000. That would mean if it just went up by 10.41%/year that the houses true price now is actually £126,558.

That woud mean that the whole property market is overvalued by 42%.

It's down to you to work out where you think the market is.

I for one think, using the same formula's I used to work out that the market was 30-35% undervalue, is that the market is 5% undervalued currently with a 6% margin of error.

If you were me what would you be thinking when you heard such things as there is going to be a 20% market fall over the next 3 years.

I'll tell you what I think – I think these so called economists can carry on making predictions based on the feelings in their gut or misreading the figures their formulas are showing them. I will carry on using my mathematics to work out what's going on.

My prediction is the average price of a property in Worthing in July 2008 will be £256,503 with a 6% margin of error that is a rise of 16.5% in the next 19 months. Is that enough of a prediction for you!

Incidentally I first made this prediction in October 2005 when I said it would rise by 38%, now its down to 16.5%.

So forget that lets say I'm wrong but to loose 20% over 3 years actually means loosing a lot more.

Sorry if I got a little complicated there but when you try and analyse where the property market is and where its going to be a number of different factors have to be taken into account and most experts would say that I have not used enough.

However, since doing this professionally I can't remember ever getting it wrong.

I would like to think that you could now predict whether prices are going up or down. Hope you enjoyed my weird way of viewing things.