Creative investments: Beyond stocks and shares

1 April 2009, The Independent

By Graham Norwood

PROPERTY AND LAND: ‘Remember, there is more than one way to make money from a property’

Phil Spencer’s home-finding firm has gone bust, developers have downed tools worldwide and The Apprentice hopefuls include an estate agent seeking a career change. It doesn’t sound an ideal time to try to make a profit from property, does it? Yet we may look back on spring 2009 as the moment when we should have acted.

“We’ve seen precipitous falls over an extremely short period. Many [homes] are selling at 30 per cent less than the heady 2007 levels. A new raft of buyers is getting ready to pounce on correctly priced property,” says James Greenwood of Stacks, which finds homes for buyers and bargains hard with sellers to slash asking prices.

“The fear of a total collapse in property prices has now passed,” Greenwood claims. If that is right, canny buyers will purchase at the bottom of the market – and may remember that there is more than one way to make money from a property. For example, land prices are down 40 per cent or more. A 0.2 acre plot like the one at Abbotscroft near Melrose in the Scottish borders (knightfrank.com 01578 722 814) costs £125,000 and comes with planning consent for a house and garage. If you build during the recession you could make a profit of 25 per cent.

Another plan would be to buy a period apartment in one of the central London private estates on a very short lease – say under 20 years – then extend the lease and thus add 10 per cent to 40 per cent to the property’s value. This tactic is not for the faint-hearted as you must live in the flat for a short while to qualify and then negotiate the lease extension directly with the freeholder. The cost depends on the freeholder’s willingness to extend, on how much a longer lease could add to the value, plus compensation to the freeholder that is worked out by complicated formulae. But every year about 400 people do it and make money.

Another option is to buy a home with viable integrated business. West Cottage Café at Cley-next-the-Sea, Norfolk, is a fine example. On sale for £575,000 (savills.com , 01603 229 229), it sits in a busy tourist area and boasts a £60,000 annual turnover, of which £42,000 is profit. It is ripe for improvement. You could use its four bedrooms as a B&B or expand the café, or both, of course.

Then there’s buy to let – with a twist. Purchasing a flat in a city centre already saturated with identical apartments is the equivalent of burning £20 notes, but buy a carefully chosen student property and you may do well. Student numbers across Britain have grown from 1.8 million in 1997 to over 2.5 million. “The recession has led to a surge in college applicants keen to avoid entering the current job market. Investors who purchase apartments in private university halls or invest in shared student houses can enjoy high net yields of 5 to 6 per cent” says Stuart Law of Assetz property investment consultancy.

All of these investments come with the usual health warnings. Prices may drop further, and make a bad choice of location or property and that profit could turn into a loss. If the recession becomes a depression, everything is up for grabs.

Even stronger health warnings apply to overseas property. There are bargains aplenty, but you need excellent independent research and a good solicitor to check contracts before you sign. Spread your risk by buying property where prices have dropped (so may be about to rise) and which can in any case produce a separate income.

Le Manoir de Raynaudes is a boutique guest house near Albi in south-west France, where prices are 20 per cent down but unlikely to fall further due to resilient demand from Britons seeking a lifestyle change. The hard work has been done – transforming this from a wreck to a hotel in US Travel and Leisure’s Top 500 guide took 15 builders and two years of sweat – but the business has a large turnover and a global reputation. The downside? It will cost you €1.55m (£1.44m) (savills.com , 020-7016 3740).

If terroir is your thing, buy a vineyard. For €700,000 you get 15 hectares of vines near Bergerac with cabernet sauvignon, merlot, cabernet franc and sémillon grapes (french vineyards.fr , 00 33 556 2714 01). There is a large farmhouse needing modernisation and buildings to convert to holiday homes.

More traditional property investors can look for that elusive “emerging market”, but be very careful. Rewards will be high for those brave enough to buy early and who manage to sell quickly if their chosen area becomes a hotspot. But remember, many sellers in Dubai and Bulgaria waited too long and are now seeing prices fall thanks to a glut of homes on the market, with very few buyers in sight. One new area is the Philippines. The Blue Coral resort has apartments from £63,425 with what the developer calls “a guaranteed net income of up to 20.9 per cent” (experience-international.com , 020-7321 5858). Another new location is Poland, tipped to rival Germany and Britain as Europe’s economic powerhouse in the 2010s. Flats and commercial properties in Lodz – to which computer giant Dell has relocated from Ireland – are on sale from £54,500 (knightknox.com , 0161-727 1327).

If all this smacks of an era when agents’ details hinted at untold wealth in lands you hadn’t heard of, then your home in Blighty can still make money for you. Whether you rent a flat or own a mansion, you can get a lodger. The Government’s Rent a Room scheme allows you to receive up to £4,250 a year tax-free, provided the dwelling is your main or only home. “In the final quarter of last year, there was a threefold increase in the number of landlords registered with us looking for lodgers,” says Tamara Smith of easyroommate.com, one of many websites helping match home owners and would-be lodgers. Or use a home exchange agency to get a low-cost holiday. Advertise your property on services such as homebase-hols.com, which gives you access to thousands of other homes worldwide. Identify a place and home you like, email the owners and strike a swap deal for anything from a weekend to a month. The result? A holiday without the accommodation costs.

If all else fails, buy a property and live in it until it rises in value – which it will do, eventually. “But it’s a long-term play,” says Camilla Dell of Black Brick, a home buying agency. “Anyone thinking they can buy and sell in 12 months’ time for huge profits is not realistic. The market will take at least five years and maybe longer to recover.”

You could put your money into shares, bonds or gold. But they don’t sound as much fun as cultivating a vineyard or running a café, do they? Graham Norwood

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