Earlier this month, we ran a two-part series on Paul Hanafin - who successfully moved from busking to a £1 million property portfolio. Here, we check in with him again for his advice on investing in the current landscape - which is still completely dominated by Covid-19.
"What has been happening in the world is certainly unprecedented in our lifetimes," he tells PIT. "Here, I will share my thoughts on how the market in my area has been affected and what I will be looking to buy and when. I also believe some strategies for investment have changed overnight and may do again in the future. So it is a volatile time where there will be winners and losers. A little knowledge, foresight and luck could make some people hugely increase their wealth whilst others pay the price. This is the landscape as I see it.."
The word Hanafin has heard used more than any other in property circles recently is ‘pause’. "It is like many buyers and sellers understood that now is not the time to act too hastily. Sellers may have thought: ‘I will wait until things get back to normal’, whilst buyers are thinking: ‘maybe I’ll get a better deal later’. The fact viewings weren’t possible and estate agents were shut meant it was virtually impossible to buy anyway. Overall, I believe there was a time just before lockdown to secure deals from those in a motivated position to sell," he says.
Now, he adds, there are two factors which he thinks affect things. "Firstly, the government is pushing out a lot of money. For people who have built up funds from not spending during lockdown they may have more money to put into property. Add that to the fact that transactions were on hold, leading to pent-up demand (buyers buying at a later point in time via postponing sales), we could have a bubble on the way."
He continues: "Of course there are many other factors which could swing it the other way but the way I am looking at it is area specific. If my area was already in a trough (i.e. no significant capital appreciation has happened in recent years) then I would take the approach that it is less likely to go down further so buying now is feasible."
"If we were after a recent time of appreciation then I may be less confident and look a little deeper into it. My point overall is that I am not convinced waiting for a better deal later is the way forward at present."
Why not buy now, he says, and if things get worse, buy more? "If things went up, you would look back and wished you’d bought more. My motto is buy within your means but don’t wait too long in case the grass isn’t greener. I’m not currently running with the assumption that things are going to get worse. We have been through a bad time already so the disposition could be on the other side."
The second part of Hanafin's thinking is what strategy to use when buying now or in the near future. Every assertion on this, he says, varies depending upon the investor's micro area, 'so I will be taking in general terms'.
"Let me go into an assessment on some common property investment or development strategies and, for simplicity, I will add a rating GOOD, BAD or UGLY depending upon how it has been affected by the crisis temporarily in my eyes," he says.
Standard buy-to-let - GOOD: "People are a little more cautious and likely to stay put so if you have tenants in a buy-to-let, they probably didn’t move out over the last few months so your occupancy may have been good. You may also have more applicants as people move out of HMOs due to the shared living difficulties with social distancing. It may have been bad if you had empties whilst people couldn’t view, but within our lettings department it has been good.
HMO - BAD: "There is an inherent issue here in that shared houses aren’t good for social distancing and would technically be kind of against the government guidelines if that were practical to enforce. More people may move away from this in the short-term unless a solution to the health crisis is found. One positive is that people who lose their jobs may need cheaper accommodation which could increase demand on that front. If we have a bad economic impact ongoing - these houses could actually benefit.
Student Accommodation - UGLY: "Without travel and the willingness to use shared living spaces, this has been on hold but in some instances government help may have been available. Again - a short-term negative for this strategy until a health solution is found. However, this could boom once people get out again in full force.
Flipping - BAD: "Temporarily, sales were paused due to viewings, so holding costs would have mounted up. Many people would have lost money here but to counterbalance that - now is a good time to sell as buyers have low interest rates. So I consider the effect as temporary during lockdown.
Commercial - UGLY: "Many business are closed and may not reopen. These businesses may struggle to pay rent and occupancy could be low. Government help may have assisted but probably only to a certain extent going forward.
Large developments - BAD: "As with the flipping strategy, holding costs during lockdown and extension to timescales may have mounted costs on developers which exceeded their plans. Certainly not a winner in the lockdown period.
So what should you do now? "I would suggest buy-to-let is a safe approach at present for those more risk-averse," Hanafin advises.
"Other strategies are more volatile and would be affected by things such as a second wave if thinking of short-term cashflow, for example. So, putting your eggs in those baskets is only OK if you know what you’re doing or have well-thought out contingency plans. You would somewhat be betting on the solution being found soon."
"One final point I want to make, though," Hanafin says. "The analysis of strategies above is relating to temporary consequences of the crisis. Those consequences are applicable in the short-term. Like Warren Buffett said: 'We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.'
Hanafin believes some of the bad or ugly effects above are only temporary, but they may give rise to some incredible deals on prices to purchase those types of properties.
"So, conversely, buying those now whilst their stock is low could pay off in the future either with the discount alone or by converting the building to a more effective strategy. If some investors think outside of the box and buy the buildings which aren’t performing well, as long as they know what they are doing, they could end up being big winners."