As many of you know, I am a Business and Economics and teacher by day. As part of the A-level course, we cover ‘External Factors’, which nicely fits into the acronym PESTLE… Political, Economic, Social, Technology, Legal, Ethics (depending whose version of PESTLE you look at!) As I was teaching this I realised how well it fitted into property and particularly at this current time.
I have been thinking about writing a blog on politics and property for a while; it’s been difficult to avoid politics in the last few weeks/ months. I am not going to go into what each party can do for us as property investors, and seeing as the Conservatives got the majority vote, there isn’t much of a discussion to have.
As a property investor, I always revert back to three principles:
- Control what you can control
- Invest for the long term
- Time in the market is better than timing the market
Control what you can control
We have little control (a part from our single vote) as to which party gets voted in. This is also subject to change: a parties time in office can soon end (think how many elections we have had over the last few years!) This means that you can set up for one party and then another comes in and makes changes. One thing that can be sure of is that if you look back over history, property prices have risen over the long term. This has happened with Labour, a coalition and a Conservative government.
Invest for the long term
I always go back to this golden rule and it is no different when it comes to the political environment. I have recently put all my mortgages on to 5 year fixed terms to try and give me some certainty going forward. As always, I have done all the figures to make sure that the properties provide enough cash flow to cover for voids, maintenance, agent fees etc. Although the five year ‘lock in’ has come at a higher cost in interest, it’s meant that I know what my biggest outgoing is going to be for the next five years as we approach a time of possible change.
Time in the market is better than timing the market
I read a blog on timing the market by a blogger called Jason Escamilla. He wrote the following:
“…and the lesson about timing is: not only do you not know when to get in, you don’t know when to get out. And when you market-time you’ve got to be right twice. You’ve got to know when to get out and when to get in. And nobody, and I really believe this: nobody can do that.”
I have read different articles over the last couple of days of how a Conservative government will provide some certainty with the Brexit situation which will help investor confidence. I have also read how leaving the EU will lead to a recession and investors losing confidence, so who do you believe? Well in answer to that question, I don’t care. I am investing for the long term and I stick to my core purchasing principle: check the fundamentals, make sure the cash flow sufficiently covers short term costs and that there is rental demand in the area. This provides me with a return on my investment, any capital growth over the long term is then a bonus… but not essential.
Over the last hundred years we have had a World War, recessions, double dip recessions (really bad recessions), been out of the EU, been in the EU, had double digit interest rate figures and had lots of changes in legislation, however, over the long term property has continued to rise in value and prove to be a good investment.
Although with Business Studies A-level we only really scratch the surface of business, the core theory does ring true and most of my students come back to the same conclusion, that a robust business with cash flow, loyal customer base, a good reputation who are open to change, will survive and thrive over the long term. As investors, we need to ensure we remain informed using the appropriate professionals (estate agents, accountants, solicitors etc.) so that we can keep up with changes in the market. If we then prioritise looking after our tenants and they stay for the long term, my investment continues to provide strong returns. If they are unhappy, my investment suffers. We are in a customer service business and in my opinion this is key. Next week I will look at the Economy. This is one of my favourite topics to teach in Business Studies A-level and GCSE and in my opinion this should be included as the core curriculm along with other essentials such as sex education, drugs education and mental health. Anyway, this is a story for another time!
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