Main priority for landlords is cash flow

Gosh, how the property market has changed and continues to change rapidly!

As you will be well aware, the credit crunch has, and continues to have, a severe impact on the property market. It has already caused the following:

  • Thousands of mortgage lenders to withdraw their products or dramatically increase their lending criteria.
  • The number of house sales to dramatically decline month on month and year on year.
  • House builders share prices going into free fall and offices being closed.
  • House prices falling at the fastest rate in years.

What about existing landlords?

Most of the press seems to focus on those who are trying to buy property, but what about those existing buy-to-let landlords who already own property? How are they fairing with the current turmoil?

Well, without a doubt, the biggest challenge facing existing buy-to-let landlords is how they can try and keep their properties generating a positive cash flow!

The rapid way in which lenders have withdrawn competitive lending rates (despite interest rate increases) has lead to properties going from positive cash flow in one month to major negative cash flow in the following month.

Raising rents alone will not get the majority of landlords out of the cash flow problem

You, as a buy-to-let landlord, really need to focus on cutting costs and looking really hard for the best mortgage deals.

Remember, mortgage offers are valid for six months, so look early and try to take advantage of good rates when you see them, as they can still be used several months later. The critical thing is not to let your fixed, or discounted, rates blindly fall into a variable rate.

This is because the first time it will come to your attention is likely to be when you see your bank statement showing a mortgage payment of possibly twice the amount that you were paying previously!

You will win in the long term if... can maintain a positive cash flow, then it does not matter what happens with property prices in the short term, as in the long term you know that your rewards will be there.

But you need to focus on keeping each property generating positive cash flow, otherwise you could fall into the scenario where you once specialised in buying below market value (BMV) property, but are now faced with having to sell your own properties below market value.

This is not the market to be selling below market value as experienced landlords are now snapping up properties in excess of 25% discounts.

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Published on: June 2, 2008

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