Property Values are going to drop over the next nine to 12 months, so we need to plan our business model and deals accordingly. Here's some key-tactics for how to do so:
1 - Open your mind to a different timeframe.
2 - Timing on Market Values Dropping for Renegotiation on Existing Deals
3 - Focus on cash flow in the short term
4 - Factor in a cash buffer to cover arrears/voids.
5 - Adjust your assessment methods for the risk of different types of tenants.
1 - Open your mind to a different timeframe. Can you amend the your timeline to refinancing your property deals on the basis 2020 is going to be an uncertain year for valuations?
If you normally buy refurbish refinance within 6-9 months, could you adjust your deal so that you're planning to refinance at say 18-24 months (or longer)? So that you are working around the market uncertainty that is ahead?
2 - Timing on Market Values Dropping for Renegotiation on Existing Deals. The problem with the property market right now is that there is a lag before we get the data to tell us how far the values are dropping. This means that most of the market feels that property has escaped unscathed at this point... which is not going to be the case. So if you have deals agreed at pre-pandemic prices then you may need to wait for the news to trickle down to your sellers before they are ready to accept reduced prices.
So timing that renegotiation to be in line with how vendors' mindsets evolve (i.e. when Sky news start talking about it!).
3 - Focus on cash flow in the short term. If you have a property on low interest finance and it's generating cashflow you are in a very good position in 2020. So focus on your rent & arrears management systems & processes to ensure you can make rental properties work in the short to mid-term.
4 - Factor in a cash buffer to cover arrears/voids. Arrears & Voids are going to be worse than normal. So for new deals, factor this in, so that you have a cash-buffer planned in from day-one to minimise your risk.
5 - Adjust your assessment methods for the risk of different types of tenants. If you're going to buy a property that's already got a tenant in situ, we want to avoid creating a liability from Day One. That could be how you set up your relationship with that person from day one and how you manage that moving forwards, or at least to go on with your eyes open dependent on the industry of that person and how badly it's been affected by the pandemic - at least that way you can plan for it (see tactic 4!)
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