How do landlords survive the housing crash?

Landlords who are witnessing the gathering fall out in the house market must be asking themselves is there anything they can do to avoid the impending crisis.

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Sell up!

One of the problems with direct property investment is that a residential property is a very illiquid asset and as we know houses can take months to sell; especially when the market is dead as it is now. A landlord who tries to dispose of their buy-to-let investment will be at the mercy of chancers and speculators unless they are fortunate enough to have a 'trophy asset'. In this case there may be some owner occupiers who are still interested and more importantly, able to raise the necessary finance.

HEDGING against house price falls

It is possible to hedge against falling house prices by using a spread bet. I tried it unsuccessfully with IG Index back in 2005 believing that I could hedge my the value of my residential investment portfolio against falling prices. The way it should have worked was that any fall in the value of my residential portfolio would be compensated by the profit on my spread bet. Unfortunately, house prices continued to rise; but not in the areas where I held property. The result was I lost both ways. I've not done it since.

The problem for landlord using this technique is that the 'bookies' factor in future expectations, the betting period is short and the split between the buying and selling price is high. Bookies especially the new stripey shirt brigade aren't stupid and will generally be the winners.

It is also possible to bet against other betters using Spreadfair.

Change of phsycology

The other way landlords can survive the crash is to change their investment psycology. Residential property investment has in recent years been about borrowing as much money as possible and then using your tenants rent to pay the interest on your buy-to-let loan. Then it was just a case of watching the value of your buy-to-let property go up.

Maybe landlords need to view their investment property as a long-term saving scheme. Rather than assuming that asset values will go up, landlords should adopt the view that what they should be doing is using the rent to repay their buy-to-let loan. If this means them contributing a little extra each month to the mortgage payments, then they should see it as a putting money into your own property pension. After all if you were saving in any other way for your pension you would expect to make a personal contribution however generous the employer. Landlords who opt for this more cautious approach will ensure that that what ever happens with unpredictable credit & housing markets. Their future will be more certain and more secure.
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