Whilst the Northern Rock fiasco had rocked the financial sector and sowed the seeds of doubt over cross-collaterization loans and sub-prime mortgage swaps; the main buy-to-let lenders were still happy lending on good solid property deals. That coupled with general optimism in the market that we could ride out the crisis and get back to a solid footing meant that some investors were taking greater risks than perhaps was necessary when considering a long-term strategic investment plan.

Around this time, I had about £0.85 million pounds worth of deals that were sewn up that would have yielded in excess of £1,500 cashflow per month after all costs. Then rumours started to circulate; the banks were finding it tough, they didn’t have the money to lend, they needed to tighten criteria to only lend to “responsible” borrowers (although who knows what a bank terms a “responsible borrower” given their past exhuberence in lending to every man and his dog) and to add fuel to the fire, surveyors were being warned about over-valuing property as it may come back to bite them.

Sadly, one by one by one, the deals started to fold. One was an administrative error by my broker which ended in the offer being withdrawn; one was a solicitor misunderstanding the terms of the deal; one was a surveyor who refused to increase his rental figures despite AST proof and being 25 miles out of area. It was painful, it was costly and the opportunity cost probably runs into tens of thousands if not hundreds of thousands in the long-term.

One did complete based on a refurbishment model which actually was ready within 6 weeks but by that time, the market had completely changed again.

Mortgage Express had ceased all instant remortgages; most lenders now asked for 6 months minimum before remortgage (even if you had added thousands in value by refurbishing a property), lenders now wanted to fine-toothcomb applications and surveys to make sure they were not being exposed, surveyors were automatically down-valuing 10%, available mortgage products dropped by 50%, mortgage brokers didn’t know WHAT was going on; new “no money down” schemes were popping up everywhere; the list went on and on and on.

So, what does this mean for you and me 15 months on?

1) No money down is dead (see July’s YPN article)

2) Lenders want to lend to borrowers who can prove income and deposit

3) LTV’s are down to 70% on average with discounts averaging through now at 25%-30%

4) The amateur investors have left the market

5) Development and refurbishment finance is practically non-existent but with significant conditions attached

6) Lenders are still charging around 6% interest in real terms with arrangement fees and exit penalties increasing significantly

7) Cash is being held within the banking system but not released to the general market

Surveyors are routinely down-valuing any private sales by 10-2%

9) The latest craze is buying houses for a £1 but you’re not buying, you’re “controlling” and it only works on some deals

10) Everyone is jittery and nobody really knows what is going to happen

Now that we’ve tackled these issues and got them out in the open, then what can we do to carry on growing our businesses?

There is only one way – and that’s to change our mindset + look elsewhere.

This is what I started doing back in January of this year. I was fed up of the constant battle to get deals through, valuations to stack and lenders who treated me like a second-class citizen. I knew there must be a better way but where was it and how did I find it?

The answer dropped into my lap one day from a contact of mine who had properties for sale in Michigan in the U.S.A. On paper, the deals seemed too good to be true with $50,000 houses renting for $800+ per month. I knew I had to get out there and do some due diligence.

Several trips later, several thousand pounds of research invested and with a much better understanding of the USA market, I drew several conclusions that I want to share with you.

1) There are lenders who wish to lend to non-US nationals rather than Americans

2) Self-certification is still possible

3) Deposit and closing costs can generally be covered through a variety of methods

4) There are thousands of deals for the taking

5) Cashflow is between $100 to $200 per month from off-the-shelf packages

6) There are certain tax and occupancy benefits to owning through a US corporation

7) The US market is about 2 years ahead of where we are today in the UK – both from a property fall-out and a lending-freeze perspective

Tenant laws are far stricter in the US which allows for fewer voids and damage

9) It is far easier for a UK national to buy in the USA than it is over here – bizarre!

10) It is possible to extract some cash on some deals and get all of your costs covered in year 1

So for now, I’ve refocused my energies and time on purchasing properties within the US. Despite the distance, it’s no different to me than the properties I own in Yorkshire which are a 300 mile trip from my house. I haven’t visited them in years and the letting agents manage any issues for me.

It’s a curious thing property investing but I would recommend that you take a look at your current strategy and ask yourself truthfully; are you doing as well as you’d like to – and is there another way?

I did this 7 months ago and decided that the better way was to carry on investing in cashflow positive properties where I could attain finance with lenders who wanted to work with me.

Due to the buying power our group now has in the USA, we are able to offer ready-made portfolios of 5 units for £3,000 and a $million-dollar value portfolio for just £7,500 with all costs covered in year one and a cashback bonus. For more details and to register your interest, go to www.stanfordknight.com/usadeal.html

Its an interesting question that many property investors ask me when I am out and about speaking at events around the country and one which is not easy to answer.

Firstly, is it the right time to buy?

We need to look at the value of housing stock in the UK to understand whether now is the right time.

The rocketing drop-off in house prices appears to be slowing down with indices such as Halifax, Nationwide and Land Registry showing a flattening off and in some cases, small decreases in localised area pricing.

So, buying today is like buying at 2004 prices – a good healthy margin of 15-20% depending on where you buy will be in your property from Day 1.  However, bear in mind Fred Harrison’s remarks in “Boom Bust” as he predicts a 2010 depression so prices may go down even further.

However, if you buy with your discount already locked in by negotiating a further discount off the already discounted prices, then you are locking in any future falls through negotiating when you buy to get the best possible price.

Secondly, how can you finance your property.

Well if you have equity in your portfolio or main residential home, then now is perhaps the time to consider releasing it to pick up the property bargains that are about.  Even just last week, I saw a 3 bed maisonette in Kent for under £40,000 – a bargain when considering rents were £600+ pcm.

If you’ve downsized and have a pot to play with, then spreading your cash amongst several different properties is a good safe strategy – particularly if you are playing with the reposession and auction market where bargains can be found but a little bit of renovation work may be needed to ensure you get the maximum rent for your cash.

If you are in the position where you don’t have a huge amount of funds available, then getting a buy-to-let mortgage may be difficult.  Property finance has become more tricky and lenders have tightened up criteria and are actively looking for a higher profile of investor to lend to.

LTV’s are currently running at 70% with the highest being 75% although from only one lender, chances of getting one are slim.  At the same time, arrangement fees have jumped up with 1%-3% now commonplace whilst interest rates do not appear to be that overly generous given the very low Bank of England base rate at 0.5% and the LIBOR (London Interbank Offered Rate) being at a very low 0.876 over the last 3 months.  Expect to see the average hovering around 4% still.

Thirdly, where do you buy?

Its all too easy to buy in a location you don’t know because you are attracted by cheap prices.

Don’t!

Unless you are already an experienced landlord and you have a particular strategy (for instance, I am buying in the USA right now as part of my overall property-banking strategy to build up both cash and capital appreciation over there), then I would recommend buying in areas where you are familiar with the rental market, the local business set-up, the transport links and most importantly the do-go and don’t-go areas that every town has.

Also be aware of the particular market you are focused on and cater for this.  Make sure your rents are not too high compared with your competition and focus upon getting properties let – not kept empty.

I know of landlords who have handed properties over to agents and they are still empty 6 months later.

Don’t fall into this trap; there are generally only 3 reasons a property will not let:

1. the price is too high
2. the property is not appropriately targetted at your audience and/or requires refurbishment to convert prospective viewers into tenants
3. the property is in the wrong area

Do it the right way and you can beat the credit crunch.

In part 2, we’ll be looking at how to make sure you’ve got the right tenant for your property, managing your portfolio and also abiding by the regulations that are out there now.  Stay tuned.

If you haven’t subscribed to my most excellent 10-part free ecourse on “Building Your Own HMO Property Business The Right Way”, then please go right now to the top-right hand side of the page and sign-up.  I guarantee you’ll be happy with the ecourse and it will get you started right away.

Let me tell you – the landscape for property investing has changed beyond all recognition in the last 18 months.  Back then, anybody with a pulse could roll along, choose a nice cashback deal, find a liberal lender, buy the property and get a nice cheque in return.

Never mind that:

 ·         The cash was a loan! 

 ·         The property did not cashflow and every month needed supporting

 ·         The cash had already been spent on a holiday to Benidorm! 

 ·         Often, the proper due diligence was not done and the investor ended up with a real dog!

This wasn’t and isn’t property investing – its property speculation or worse – gambling.

Don’t get me wrong; you can still invest in property and release capital – but you need to have a plan to utilise this money correctly.  On a daily basis, I see so-called deals with discounts of 30%, 35% or even 40% off what – a list price, a real price or a RICS valuation?

Given that surveyors have been instructed to down-value by 10% in the general market, any so-called discount needs to take this off right away.  And if its a private sale, surveyors are viewing these with a great deal of suspicion and down-valuing these as well by 10-20%!

But what about the experts who help us? 

Only last night I was talking with Martyn Roberts (BBC’s “Homes Under The Hammer” property expert) who was telling me about investors he meets on his programme who ignore his advice and still buy a dud.  Martyn is a professional investor and has been involved in hundreds of property sales – why would you not take his advice?  The guy that bought a bungalow £50,000 over market value at auction thinking it was a house didn’t and now has a problem.  And Martin even advised him not to buy this but he did – and thinks he got a good deal.  Another guy wanted to buy a property for his son, so he turned up to an auction, bought something and then found out that because there is a big difference between an N1 and an N2 postcode (or may’be it was somewhere else in London – I forget), he had paid £50,000 more than he should have done!  That coupled to the fact that his son didn’t want to live there made it a bad deal – or did it?  Nope, the buyer thought he had got a good deal and was going to refurbish it and then try to sell it….  Wonders never cease.

People are chasing a dream which property gurus seems content to sell you but are they truly walking the walk or just talking the talk?

Does anybody tell you what to do with the property once you’ve bought it…?

The time for amateur investors chasing no-money-down deals is over. 

Just look at what’s happening with the government schemes for landlord registration, more red-tape and regulations, tighter control over lending and requirements for landlords to attend training and certification – where are you going to position yourself to succeed in the future and who are you going to associate with?

The questions you need to ask yourself are:

 ·         What is my primary aim and objectives for my business?

OK, so you know you’re in property but what is your ultimate primary aim?  Do you want to be the next Donald Trump?  Do you want to live in an island in the Carribean (incidentally, anybody see that one in Montserrett for sale for $400,000 last night?).  May’be you want to earn enough to pay for the kids schooling?  May’be you want to retire to the south of france in 10 years time and run a guest-house!  I don’t know what you want but you need to start here.

·         What skills and experience do I need?

This is going to be really useful for you when approaching banks, joint venture partners and other industry professionals.  Get your CV in order so that you understand it, create a biography if it makes sense for you and then start identifying how to use this past experience in your property business. 

·         What core competencies should a property investor have – and how do I rate myself against them?

Lots and lots.  We’ve identified at least 20 key skills that you’ll need as a property investor.  These range from financial management to selling to marketing.  Some can be outsourced, some can be shared but you need to understand what your KEY skills are and how these compliment the people you are working with.

·         How am I managing my time?

Big one this!  You need to do a time and motion study for the next 7 days, cluster your time into sections such as negotiating deals, researching deals, portfolio management, marketing, family time, watching tv etc.  Then tot it up and look at the percentages – there’s a fine line between what you think you’re doing and what you should be doing.

·         What is my current situation – and what are my future goals?

The main one to start focusing your mind right now!  Look at where you are today from a portfolio value and cashflow perspective.  Then look at where you want to get to and how you can break this down?  It helps if you split it into categories such as single let, HMO’s, land, development etc.

What if you need more help!?

It’s my mission to bring the worlds of business and property together and help investors everywhere to build a profitable property business.  As part of our service, we can provide a Strategic Needs Analysis review of your current business to help you understand where you need to change and where the quick-wins as well as the more mid-to-long-term strategic objectives lay.

If you want to be part of a business-minded community that just happens to be in property, then head on over to www.stanfordknight.com right now and register to be on our priority Charter Club mailings.

Please help me out and take the survey.  There’s even a free goodie for those of you who complete it fully!

Click Here to take survey

Fancy renting out to a person receiving LHA only for them NOT to pay you?  I didn’t think so.

For the full details of the petition, take a look here:

http://landlordsactiongroup.blogspot.com/

Even Shelter are getting in on the act so watch this spare and lets see if anything is changed?

After having 4 tenants now go through LHA, I can say that I’m not impressed and as ALL of them have been late in paying, I’ve had to revert to getting the rent paid directly to me.  Had they had done this in the first place, we’d all have been better off.