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The Contrarian Property Investor

The Contrarian Property Investor

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The Contrarian Property InvestorI once bought a small block of flats in Liverpool for £20,000, at an Allsop auction in London. Using UK consumer price inflation and taking 2008 as the starting point, that’s the equivalent of about £33,900 today.The story of how I came to look for opportunities like that begins in Cyprus, in 2008.I was a property developer there when the credit crunch arrived. Lending dried up. Buyers walked away. The market we had been working in changed completely. At the time, it felt as though the whole world had collapsed.That experience was really where my book started. It was also where we began thinking seriously about distressed assets, and about what happens when owners need to sell into a market where very few people want to buy.Hello, I'm Dominic Farrell, and welcome to The Property Auctions Podcast.Today I want to talk about the contrarian property investor. We've discussed avoiding the herd before. This time, I want to explain where that thinking came from for me, through a couple of purchases, and why I think it matters again today.I don't expect the next few years to be on a par with 2008. That was an exceptional financial crisis, something I would describe as a generational event like the Wall Street Crash of 1929.But I do believe there will be opportunities for people prepared to take a different view of particular properties. You don't need another global banking crisis for an owner to want out, or for a good asset to become available at an attractive price.What being contrarian meansA contrarian investor is willing to disagree with the prevailing view when the evidence supports a different conclusion.When everyone seems to be running for the hills, you are prepared to stop and look at what they are leaving behind. Sometimes you'll find that their concerns are justified. Sometimes the price has fallen enough to make a property worth investigating.Warren Buffett expressed the idea in his 1986 letter to Berkshire Hathaway shareholders. He wrote about trying to 'be fearful when others are greedy and to be greedy only when others are fearful'.That's easy to agree with when you're reading it at home. It becomes harder when the news is dreadful and you're considering putting your own money into something everyone is worried about.There's comfort in having other people agree with you. If everyone around you is buying, joining them can feel sensible, even when prices have become difficult to justify. When they're selling, you can feel uncomfortable buying at a price that gives you much more room.The way through that, for me, is to understand the individual property well enough to explain why I want it. If the only explanation is that everyone else hates it, I haven't done enough work.You can also agree that the economic outlook is difficult and still find a purchase worth making. A seller may need a decision much sooner than conditions are likely to improve. A buyer who can take a longer view may have a useful opening. The two people are working to different timescales.The Liverpool purchasesThat brings me back to the Allsop auction in London and that small Liverpool block at £20,000.It gives you some idea of the opportunities that became available around that period. Looking back now, the price sounds extraordinary. At the time, you were making decisions with the uncertainty of the financial crisis around you.And there were other purchases. For example, we bought a block of flats and a plot of land in the Sefton Park area of Liverpool that had gone into receivership. The developer sadly could no longer continue to operate. I negotiated with the receiver, who was based in Manchester, and my offer was accepted at the 3rd attempt.We still hold that block today. The income has been tremendous, and the value has gone up several times over.That is a much more useful example than simply saying you should buy when people are frightened. It shows what can happen when you acquire a property at a favourable price and continue to own it over many years.When fewer buyers are competing, you may have more scope to negotiate. And the price you agree stays with that investment. If you acquire the same rental income for less money, the numbers improve from Day 1, assuming the other costs remain the same. That is why I pay so much attention to the purchase. A good decision at that stage can continue to benefit you for a very long time.I also think you have to be fair about hindsight. We know how that investment turned out. At the time, we couldn't look forward and see today's income or today's value.You hear people talk about the opportunities in 2008, 2009, 2010, 2011 and 2012 as though the decisions were obvious. They weren't. Buying the right property mattered, and so did being able to hold it. Someone who ran out of cash before conditions improved could have had a very different experience.That's one of the lessons I take from that period. Your finances have to allow your investment ...
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