International property mogul Ofir Eyal Bar has been a power player for 15 years. His experience as a real estate investor has helped him to amass a portfolio of investments spanning commercial real estate, residential real estate, and other assets across Israel, South Africa, and the United Kingdom.
His business savvy and keen understanding of real estate trends puts him at the forefront of the industry. He recently sat down with Minute Hack for an in-depth Q&A session, and here are highlights from the interview:
Question: What are some of the biggest challenges we currently face in the UK real estate industry?
Answer: The UK real estate industry is in a state of flux. It comes as no surprise that one of the issues topping the agenda for 2019 is the impact of a Brexit on real estate prices. If Prime Minister Boris Johnson succeeds in completing the UKs divorce from the EU by October 31, 2019, this will have a direct impact on the real estate industry.
A hard Brexit will undoubtedly rattle markets causing widespread fluctuations in real estate prices through its impact on supply and demand. A soft Brexit a.k.a. a negotiated settlement will invariably stabilise markets and have less of an impact on volatility. In any event, the City of London will be critically impacted by Brexit negotiations.
As the epicentre of European trade and commerce, London has a special place in the world. We know that major financial institutions like Goldman Sachs, Deutsche Bank, Citi, and scores of others have expressed interest in relocating to other European cities like Paris, Madrid, Lisbon, Luxembourg, and Frankfurt.
Whether this comes to pass is anyone's guess. Given that the financial services industry of the United Kingdom accounts for 12.5% of gross domestic product, this is a major revenue generator for the United Kingdom.
Any disruption to this could significantly alter tax revenues for the UK (estimated at £72 billion annually). What we are looking for as real estate investors is a good deal. Will property price fluctuations pave the way for opportunities? Absolutely!
Question: As a UK homeowner, what do I have to be concerned about with the current state of the market?
Answer: According to the latest statistics, homeownership in the UK was actually up at 65% going into 2018. Homeownership steadily declined from 2011 when it was hovering around 70% until 2017 when it bottomed out at 63.4%.
Now, there is a degree of optimism that the UK economy is capable of weathering all of these storms, and people feel confident enough to purchase their own properties.
The statistics for 2019 and 2020 will likely reveal a slowdown in property purchases, owing to the uncertainty around a Brexit, and the UKs ability to negotiate cost-effective trade agreements with other countries.
I feel confident that the pricing mechanism will stabilise, through market forces. For example, excess supply will lead to a drop in property prices. Excess demand will lead to a rise in property prices. Either way, the rental market is likely to benefit from this volatility.
A stable GBP will ensure that inflationary pressures are kept in check, and coupled with low interest rates, the Bank of England should be able to maintain a modicum of normalcy in the economy. I do not feel overly concerned about the current state of the market.
Question: When is a good time to sell real estate in the UK?
Answer: Here's the deal: if you cannot manage your real estate investments any more, and you're not generating revenue to cover your costs and make it worth your while, you may want to consider selling your real estate investments.
However, I always advise clients to consider other forms of passive income such as fixed deposits, government bonds, and other interest-bearing investments (dividend stocks) and so forth.
If the value that you generate off other investments is better than the returns of investment property (current valuations and net revenues are important), then perhaps you should be looking elsewhere.
If you are concerned about property prices falling and you are trying to cash out of the market before they do so, think again. Real estate like any other asset is subject to a degree of volatility. Prices will rise and fall accordingly.
However, over time you can expect between 5% and 6% per annum appreciation in real estate prices. The value of your investment will never be zero with real estate, unlike shares on the London Stock Exchange. I believe in a diversified portfolio, and real estate is certainly an integral component of that.
Sometimes, factors beyond your control will require that you sell real estate. For example, the addition of a new family member, or the loss of a family member, a new job in a different part of the world, or illness or injury. It all depends on your current situation.
Assess the risk/reward of your decision and act accordingly.
Answer: Everything begins with knowledge. Real estate investments are nothing like a gambling. You don't simply go in eyes wide shut and throw good money after some random investment. It's not a crapshoot, or a roulette play at the casino.
You have to understand the market mechanics, the potential for growth, and learn to appreciate what makes something valuable or not. Once you learn the ins and outs of real estate investing, you continue your education through trial and error, additional reading, and talking to key players in the industry.
It's not about studying up and then quitting your learning process. Every day is an opportunity to learn, grow, and develop. You have to learn to schmooze with the right people, talk the talk, walk the walk, and act with a sense of urgency when required.
Sometimes, it's trial and error and you will learn from your mistakes. Many people follow market leaders and do what they do hoping to generate income in the same way. This follower mentality is not something that I was ever privy to.
I like to take the road less travelled by exploring new markets and new opportunities. That being said, you have to understand important real estate concepts like rental fill rates, market values, permits, tenant/landlord regulations and the like.
I agonised over my first real estate investment. It took me months to do it. I poured over data from foreclosure listings, banks, owner-listed properties and the like.
The strategy that I use in all of my deals is known as buy, rehabilitate, rent, refinance, and repeat, or BRRRR. You buy a property, upgrad it, rent it out, and use those proceeds to move onto the next viable investment.