Can you imagine what it is like to be a surveyor? They have the power to make or break a market. They made it for us on the way up and broke it for us on the way down.
Back in the days you would ask a surveyor to value a property at £60,000 which you had bought for £38,000 3 months ago and they would do it no problem. You would remortgage and get a nice chunk to go and reinvest in more high yielding (and high growth!) properties.
Now it is a different story. You ask him or her to go and value a property you are trying to buy for £60,000 and they value it at £38,000. Argh!
So why do surveyors do this? Well simply they are scared. They are scared that the bank will come after them when the borrower has defaulted and all the property is worth is £38,000 when sold at auction. If they put a value of £60,000 the bank could come after the surveyor for the difference i.e. £22,000. The surveyor’s insurance will pick up the bill but the surveyor’s professional indemnity insurance rockets and the surveyor gets known as a bad surveyor.
Good surveyors in the banks books are the ones that down value. The real pessimistic ones are the banks favourites. But there is a point when the bank wants the surveyors to put an optimistic valuation. Then the tide turns.
The surveyors that start valuing on the generous side start to get the work. Ultimately the bank is safe because the surveyor has insurance. So it becomes a game of who has the most balls.
We are not there yet. But there will be a point when one of the banks says “I want to lend big time”. Then there will be pressure from above on the surveyors to start valuing up properties.
Once other banks see what is happening they have two choices:
- Do nothing and lose market share or
- follow and compete by getting valuations that value up.
Now if you are looking for some real cheap properties that yield very highly then get advice. These deals are bread and butter deals. Nothing fancy, just cheap properties that rent to the DSS or low paid workers. It is these sort of deals that make up 95% of my portfolio.
In a recession these properties are always in demand. In a boom these properties are always in demand. Kind of ironic isn’t it? Everyone wants a riverside apartment in London when things are going good. However no one can really afford one in a recession. Therefore rental rates can fluctuate heavily.
Bread and butter property’s rental values hardly change. They boringly rise (at a predictable rate) at the same rate of inflation. Perfect if you are trying to build stable and forecastable cashflows in the long term. So are you?