It really is getting a strange place to live!  6 months ago I could never have contemplated zero rates now we are all just waiting for it to happen.

Now a top investment management firm Legal & General have said rates need to be minus 1.25%.  Now obviously this cannot happen so they have said the Bank of England will simply inject money in to the system!

The credit crunch hit home with me today.  My commercial lender RBS who lend to me for properties that cost less than £40,000 used to lend to me at base rate + 2.5%, 70% LTV and £700 arrangement fee.  I used to hate going to them as I thought it was way uncompetitive but they knew I had nowhere else to go so I would reluctantly borrow from them.

I dropped an email to RBS saying is this deal still on for me and they said they have written me a letter.  Boy what a letter.  My new offer is:

Base + 4.75%

4% arrangement fee (min £1,000)

Max 65% LTV

My first reaction was OMG!!!!  But now thinking about it I just have to by even more keener.  Since we have 2 years of low rates ahead the true borrowing rate is going to be 5% to 7% so nothing out of the ordinary.  After the 2 years we may see rates going back to the normal 4% to 5% so the borrowing rate will be around 10%.

If my true borrowing rate goes to 10% then I want a yield today of 20%.  This means I have to find properties that rent for £6,000 per year for £30,000.  Its going to be difficult, but possible.

This new injection of money from the Bank of England, if it ever arrives, will sort out all the problems.  I will be lining up all my clients for this funding as son as it comes available, buy like mad, watch the market stabilise over the next 2 years and sit back when normality has been restored in 2011.

By that time I would hope to have made at least 400 millionaires in that time and plenty more financially free.

The whole property investment rule book has been ripped up.  These crazy times ahead will result in some crazy returns being made.  Once these returns have been made the book will be rewritten and we can all benefit from hindsight.

If you want to be part of the biggest land and buildings reallocation 2 year period I suggest you forget everything you know, keep your eye on what the banks are doing and get ready to buy up big.

 

Ajay

 

Posted on: 20th Dec 2008