Fear and Greed Drives Markets - A Recent Case Study
Wednesday 15th May 2024
Fear and Greed
Fear and greed are sentiments that drive markets, whether real estate, stocks and shares, Bitcoin, or any other market where profits (and losses) can be made by trading.
I write about this in my book, “Property Auctions: Repossessions, Bankruptcies and Bargain Properties.”
Understanding the psychology of buyers and sellers, whether they act as individuals or part of a herd, is a crucial skill in navigating the complex world of markets.
A small illustrative example is a property we acquired yesterday for a client.
In Liverpool, the sweet spot for a freehold two-bedroom house is £55,000 to £65,000 (sometimes as high as £70,000, depending on condition and location), and £65,000 to £75,000 for a three-bedroom house (£80,000 depending on condition and location).
The gross yield is always double digits.
Anything less means you are overpaying in the current market or buying retail (estate agents) rather than wholesale (distressed assets).
This target property is a two-bedroom terrace with an EPC C, a new (ish) boiler (2020), a new kitchen, and a new consumer unit. It is a rock-steady buy-to-let with an excellent tenant, albeit with a below-market rent AST (under-rented).
In a previous auction, we offered £65,000, but the seller rejected it and wanted £70,000. We walked away and it did not sell.
In this auction, we offered £60,000 which was rejected, but the auction house passed on our comment that we would not bid at the live auction. The seller then offered to sell at £62,000, which we accepted.
For fear of missing out ‘on the best possible’ price, the seller lost £3,000. Our patience meant we did not overpay.
The property ticks all of the boxes and the tenant is excellent with no arrears.
At the current rent, the gross yield is 11.3%, and at the market rent, it would be above 12%.
