Archive for the ‘Get Rich in Property’ Category

Private Landlords Don’t Sell Their Time for Money but Must Beware of Other Risks in Letting to Achieve Success

Tuesday, June 28th, 2011

At the end of a recent speaking engagement to a group of building society buy to let lending staff in the North of England, none of whom were landlords; I asked them, “So, do you think you might be interested in becoming landlords then.”

I was a bit surprised when all said, “No”

That got me thinking. Recently a peer reviewer said something in a similar vein. Commenting on my book, “Successful Property Letting” he said that it was so honest, it could actually make someone think twice about becoming a private landlord.

Of course, to many landlords, I hope that is the attraction of my work: I do tell it like it is and I don’t pretend that being a private landlord is a walk in the park. Being a landlord can be hard work, even for those who use a letting agent (who must still check that the agent is doing a good job for them, especially in relation to the selection of good tenants.)

Digression – Secret Landlords

It’s worth saying that the building society’s staff may have been “secret landlords” and they did not want to admit their landlord-moonlighting activities in front of their bosses. If so, they would have good reason for keeping quiet. When I worked as a full time employee for a bank, for a straight glorious period of 5 years I was making a lot more money via capital growth and rental income from my properties than the bank was paying me as a salary.

I decided to keep the extent of my moonlighting hidden from my bosses, who would no doubt have figured that if I was doing so well at property, perhaps I did not need a pay rise. And after all, my bosses wanted me committed to the company, not to myself.

Setting the Record Straight

So, I feel I need to set the record straight a bit and say that whilst being a private landlord can certainly be hard work, especially when you are going through the process of letting any property to new tenants; it is still a very good business to be in. And it is one in which you will undoubtedly make a good return over time providing you do the job right and you don’t take silly risks.

And as I said in my book, it’s a business where you are in control, not your boss.

John Corey, writing in “Property Investor News” recently, hit a similar spot too. He made the point that when you are a private landlord, like any business owner, you are no longer “selling your time for money.”

Indeed, for those borrowing money to help finance property purchases, they are going a step further because not only are they no longer selling time for money, they are able to offset the interest cost (and loan fees) on mortgage loans used to buy a let property against the rental income they receive. This is of course one of the big attractions of buy to let.

Contentious Issue

Now it must be said that this ability to offset interest is a contentious one for many on the left who see it as giving landlords an unfair advantage over first time buyers. For Marx and Engels landlords were simply evil “rentiers” living off the hard work of their tenants.  In other words, landlords live off the rents of their tenants who do toil away selling their own time for money. (Cynics would point out that Engels with his Manchester factory was no doubt more than happy to offset interest costs against revenues in his business; that is when he wasn’t whinging about the laziness of his employees – something that he did rather a lot of, apparently.)

This ability to “gear up” and borrow money to buy investment property and then offset the interest on the loans against rental income received when calculating taxable income is something that the “Get Rich Quick in Property” folk are very keen to highlight.

But there are dangers. Borrow too much to buy the wrong kind of overvalued property in the wrong location that won’t let out is not a very smart thing to do. Indeed, it’s the route to bankruptcy. And there is always the danger that rising interest costs cannot be passed on as a higher rental income.

It’s these dangers that cannot be denied and the foolhardy continue to fall into the same old traps.

Doing It Right

But if landlords understand their business, learn what their legal responsibilities are as landlords and buy the right kind of property, all the while keeping borrowing levels reasonable, the risks are actually pretty minimal.

And once you have a successful property letting business with a good level of income and happy tenants, you can leave those who only sell their time for money to whinge and discuss Engels’s theories until the revolution comes.

Being a landlord can be great fun, but for me personally, it can get boring sometimes, which is why I enjoy the intellectual challenge of helping a range of clients such as banks, insurers and local authorities to sell to the private rented sector.

The point is, when one becomes a successful landlord, being at the beck and call of the same old boss can be a thing that you can leave in the past.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector Experts and advice.

Services to Businesses and the Public Sector

Primarily, we are consultants to a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors and insurers. We help them develop and improve their services and products for private landlords.

We also write for property websites, speak at property shows and we are regularly quoted by the media.

Services for Private Landlords

We also find a limited amount of time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor.

AT OUR WEBSITE LETTINGFOCUS.COM:

HOME PAGE OF THIS BLOG click here: Blog

To read blog posts on related posts use the tags and categories at the bottom of each post (after the list of links), or over to the top right. Here, you can click on “Select Categories” and use the pull down menu to read all the posts on any Category that interests you.

THE HOME PAGE OF OUR MAIN SITE : http://www.LettingFocus.com

For general info on our CONSULTING SERVICES and also to find a small sample of links to where our comments have been featured in the National Press please click here: Consultancy and Seminars

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Advice

TO READ CLIENT TESTIMONIALS – from both organisations and private landlords click here: Testimonials

BUY “SUCCESSFUL PROPERTY LETTING”

Our book is the highest selling property book in the UK. Click here to Find Out More and Buy the Book at Amazon. If you are from an organisation and would like to bulk buy at least 50 books please ask us for special rates.

To JOIN our Free NEWSLETTER containing regular news for landlords and details of our Events simply send an email to david@LettingFocus.com – Please note we WILL NOT send spam or sell our mailing list to advertisers but please put us on your “white list” to ensure you receive our emails.

Discounted Products for Landlords: Landlords Resources

This blog is updated once a week, usually on a Monday or Tuesday (or more frequently when “hot” news items come up.)

For my random thoughts on property and personal finance, plus other random things that interest me from sports, to 80s and 90s Indy music, to tsunamis, to politics please see our TWITTER PAGE: Twitter

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Posted in Buy to Let and Landlord Tips, Get Rich in Property, Landlords as Rentiers | Comments Off

Mortgage Fraud and Below Market Value Property Plenty of Scams About

Monday, June 20th, 2011

Though I try very hard to make sure I’m not on mailing lists for the “Buy Property Below Market Value with None of Your Own Money Down” brigade, I still get the odd email coming through.

Naturally, once you are on one mailing list, you quickly end up on lots of others – most of them flogging the same “Get Rich Quick” messages.

This is because these guys often share lists between themselves. Partly this is because “mutual backslapping” and endorsement is the very much the name of the game at the events that they host (in order to convince the punters) and partly it’s because many seem to eventually go bust and look to sell their list of potential “investors” (they never refer to themselves as landlords) onto to the next BMV company.

I had one typical email the other day.

As usual there was the usual list of properties in a northern town which sounded (to a Londoner like me) as cheap as chips.

Of course, relative to London (or any decent area in any city outside the capital) these properties are cheap but they are nearly always in very disadvantaged parts of (usually) provincial towns in England and Wales, in places where they almost cannot give property away and the streets are full of pit bull mess and the biggest local cash generator is the local drugs dealer and the pub next to the DWP Office.

Overvalued

A quick check at Rightmove and I was able to find better properties in the same postcodes for more than 10% less than the price they were offering the properties to me at (and more than 30% below what the company claimed was “true RICS market value”.)

It was the same on the rental side – here similar properties were also available to be rented at Rightmove for less than 20% below what they claimed was an achievable rent for these “high yield properties.”

And to have the honour of buying one of these overpriced properties from the sourcing company in my own sink estate all I had to do was part with a cool three thousand pounds or so, up front.

The companies doing the marketing often have a short track record, naturally. This one has been trading for three years, which is about as long as it takes for the HMRC to insist they file a tax return and just enough time for the company to go bust, potentially taking the up front fees paid by the unfortunate punters (most of whom aren’t that well off either) with them.

Mortgage Fraud

Of course, there was the all too usual exhortation to commit mortgage fraud – in this case because they would provide the deposit which would come via a bridging loan.

The punter is expected to tell a lie to the mortgage company that the deposit is from their “own funds.” However you cut it, it’s still a lie, of course and it’s still mortgage fraud because it is clearly not from “own funds” in the true sense of the meaning. As they say in the US, “Tell it to the Judge!”

Indeed anyone thinking they can get away with this should “save it for the judge” because whilst mortgage lenders are still playing catch up at  preventing fraud, they are very good indeed at pursuing any customer who commits it.

Now, I’m not saying all BMV operators operate like this. Some (and it’s now a very dwindling bunch) have a decent reputation but punters must still beware when dealing with them.

Last time I spoke to him, Paul Shamplina at tenant eviction specialist, LandlordAction was developing a good sideline in trying to recover money for punters who had paid thousands over to property clubs who were supposed to provide below market value properties and who had clearly failed to honour their agreements.

All Quiet on the Lending Front …..and from Journalists too!

Clearly, the mortgage industry or the FSA should be doing much more to police this kind of thing.  (In my work advising mortgage lenders on buy to let products I know that most have very little awareness of the scale of the frauds that are still happening.)

With the exception of the likes of The Investors Chronicle and the FT (where Claer Barratt and Tanya Powley have covered similar topics) we have seen very little reportage make the national press.

The reason for this is because the budgets at the nationals does not extend to paying journalists enough to undertake proper investigative reporting – which explains why so much of what you read about buy to let, property investment and the private rented sector, in the national and local press is well, “pretty average.”

It’s not the fault of the journalists – they are just not paid enough to make it worth their while. Outsiders would be surprised to hear that a typical 800 word piece on property in a national might see the freelance journalist paid £250. The result is a copy and paste job from the Internet.

Editors and readers cannot expect great insight or investigation on that kind of money.

So, whilst the mortgage lenders are still playing catch up and the mainstream press ignore what is going on, it’s still a case of buyer beware.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector Expertise and advice.

Services to Businesses and the Public Sector

Primarily, we are consultants to a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors and insurers. We help them develop and improve their landlord, private rented sector and buy to let product strategies, marketing and services.

We also write for property websites, speak at property shows and we are regularly quoted by the media.

Services for Private Landlords

We also find a limited amount of time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor.

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

To read blog posts on related posts use the tags and categories at the bottom of each post (after the list of links), or over to the top right. Here, you can click on “Select Categories” and use the pull down menu to read all the posts on any specific topic.

THE HOME PAGE OF OUR MAIN SITE click here: http://www.LettingFocus.com

For general info on our CONSULTING SERVICES and also to find a small sample of links to articles where our comments have been featured in the National Press please click here: Consultancy and Seminars

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Advice

TO READ CLIENT TESTIMONIALS – from both organisations and private landlords click here: Testimonials

BUY “SUCCESSFUL PROPERTY LETTING”

Our book is the highest selling property book in the UK. Click here to Find Out More and Buy the Book at Amazon. If you are from an organisation and would like to bulk buy at least 50 books please ask us for special rates.

To JOIN our Free NEWSLETTER containing regular news for landlords and details of our Events simply send an email to david@LettingFocus.com – Please note we WILL NOT send spam or sell our mailing list to advertisers but please put us on your “white list” to ensure you receive our emails.

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This blog is updated once a week, usually on a Monday or Tuesday (or more frequently when “hot” news items come up.)

For my random thoughts on property and personal finance, plus a host of other random things that interest me from football, to 80s and 90s Indy music, to tsunamis, to politics please see our TWITTER PAGE: Twitter

Copyright of Blog: David Lawrenson 2011. We pursue copyright infringements.

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Posted in BMV, Below Market Value Property, Financial Freedom, Get Rich in Property, No Money Down, Property Clubs, Same And Next Day Remortgages | Comments Off

Mortgage Fraud Buy to Let Lending and Property Clubs

Monday, February 7th, 2011

My blog post last week (about what mortgage companies could do to support landlords more), generated 27 emails from managers at buy to let mortgage lenders and ten from landlords.

One aspect that I referred to, in passing, was how the mortgage lenders had been “behind the play” in terms of understanding how bad buy to let mortgage lending and mortgage fraud was being carried out in respect of below market value (BMV) deals financed by techniques such as Bridging Loans and Next Day Remortgages.

I have written at length about this in other blog posts, so do not propose to go into it again here. All I will say here is that the mortgage companies could still do a lot more and do it a whole lot better.

To assist my understanding of what mortgage lending banks do today and how they assess risk, I now subscribe to “Mortgage Finance Gazette” – a publication widely read by those concerned with the business of making mortgage loans with a readership including mortgage companies, mortgage brokers, valuers and conveyancing solicitors.

A lot of the talk in this magazine these days is about mortgage fraud and bad lending – who was responsible for it happening in the past, who is going to pay for the past mistakes and how to avoid making mistakes in the future.

Of course, this is all rather late in the day, but “better late than never” I guess. But there seems to me to still be a long way for the mortgage lenders to travel.

The Latest Wheeze

I’m not a fraud expert but I have said many times that if the mortgage companies want to see how they might be taken to the cleaners in the future, they really ought to tear themselves out of their offices and get down to see the latest wheeze the “Get Rich Quick in Property” advisors are coming up with at the various “free events” that they put on to attract the more “hands off” (some would say, lazy) investor.

Of course property advice from property clubs is not regulated and at these events there seems a never ending stream of “investors” ready to hand over large amounts of cash to advisors who claim they can source “Below Market Value” properties for them. At least four of these firms have now gone bust taking a lot of the “investors” cash with them. (If you are an “investor” and you wish to buy property this way, please check out the trading position of the “advisor” at Companies House first and never hand over large amounts of money to an advisor to source a portfolio of properties for you. If you really are tempted, at least do it on a “one property at a time basis” only.)

Strange Financing Techniques

Why should the mortgage lenders attend these types of events?

Because a lot of the time the deals the “advisers” propose using strange financing techniques which they sometimes try to run in parallel with a straight mortgage application.

Not all the property advisors are bad. Far from it. But if I was a lender I would like to know about such techniques and yet, mortgage lenders are conspicuous by their absence at the events.

In the last edition of Mortgage Finance Gazette, one expert was still talking about Next Day Remortgages and Back to Back Bridging Loans, but the game has already moved on – to Lease Options and other techniques.

And yet, how many lenders and their advisors are even aware of these new techniques?

My local building society had to be bailed out and is now in the process of changing its name – and it had to do it primarily because of bad lending on buy to let (which also included some fraud.)

All mortgage lenders need to sharpen up their game to avoid the same fate in the future.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector expertise and Landlord Information and I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years. 25,000 copies sold (to Jan 2011).

Services to Businesses and the Public Sector

Primarily we are  consultants to a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors and insurers. We help them with their landlord facing or buy to let product strategies, marketing and services.

This work includes helping banks improve their buy to let mortgage lending practices and helping housing associations / local authorities procure supply of properties from private landlords (private rented access schemes, local letting agency models etc.)

We also write for property websites and we are regularly quoted by the media.

Services for Private Landlords

We also find a limited amount of time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor. We pride ourselves on giving independent unbiased Buy to Let Information on a coaching basis.

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

To read blog posts on related posts, use the tags and categories at the bottom of each post (after the list of links), or over to the top right, you can click on “Select Categories” and use the pull down menu to read all the posts on a specific topic.

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THE HOME PAGE OF OUR MAIN SITE click here: http://www.LettingFocus.com

For general info on our CONSULTING SERVICES and also to find a small sample of links to articles where our comments have been featured in the National Press please click here: Consultancy and Seminars

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Advice

TO READ CLIENT TESTIMONIALS – from both organisations and private landlords click here: Testimonials

BUY “SUCCESSFUL PROPERTY LETTING” A new edition of the book is coming out within the next few weeks. Click here to Buy the Book at Amazon (new edition) plus anything else at that Amazon sell. (If you are from an organisation and would like to bulk buy at least 50 books please ask us for special rates.)

To JOIN our Free NEWSLETTER containing regular news for landlords and details of our Events simply send an email to david@LettingFocus.com – Please note we WILL NOT send spam or sell our mailing list to advertisers but please put us on your “white list” to ensure you receive our emails.

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This blog is updated once a week, usually on a Monday or Tuesday (or more frequently when “hot” news items come up.

For my random thoughts on property plus a host of other things that make me grumpy or happy, please see our TWITTER PAGE: Twitter

Copyright of Blog: David Lawrenson 2011.

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Posted in BMV, Below Market Value Property, Buy to Let Mortgage Fraud, Buy to Let Mortgage Regulation, Buy to Let Mortgage Strategy, Buy to Let Mortgages, Get Rich in Property, Property Clubs, Property Lease Options, Property Lease Options and Rent to Buy, Same And Next Day Remortgages | Comments Off

Mortgage Fraud and Buy to Let

Monday, October 18th, 2010

I’m sad to say that at some recent events I have been to, quite a few punters came to me with pretty strong evidence that some property investment “advisors” are still encouraging people to carry out mortgage frauds as a way of buying property with little or no money down (NMD) and / or as part of a “buying below market value” or BMV strategy in buy to let investment.

The advisors often claim that they have uncovered a new clever way around the rules. I’m not so sure.

Let’s be clear here: If you do not declare the actual net property purchase price to the lender, you have carried out a mortgage fraud. There are no ifs and buts about this.

And no matter what a “friendly” solicitor says, if you know the price you sign to say you are paying on the mortgage application form is not the same net price that you have paid (taking account of all side agreements and options etc), then you have committed mortgage fraud. It’s that simple.

Lenders are now very sharp at detecting fraud as we can see from the many solicitors and brokers who have been struck off in recent months. And yet there are many more bent mortgage brokers and solicitors still at large who are still operating the dodgy deals and will do all they can to ensure the trail does not end with them.

They will ensure that it is the hapless investor, not them and not the property advisor who is exposed to the force of the law when the brown stuff hits the proverbial spinning thing on the ceiling.

A Plea for Common Sense

At a recent event two people came up to me to lament that they had paid thousands of pounds to property sourcing and property finding companies that had later gone bankrupt, taking all their money with them.

I really despair at this and have to ask when will people ever learn? I see some firms are now asking sums in the range from ten to sixty thousand pounds to either teach people all there is to know about property or to find them a few properties.

“Great” I say, “And what happens should that firm go bankrupt?”

Sadly, it seems that often people are too blinded by the concept of fast riches and “financial freedom” to worry over much about such an event occurring.

For me parting with that kind of cash would be too much of a risk. But then again, I know that 85 to 90% of all that someone needs to know about residential property investment in letting property is in my book:

Buy the Book at Amazon

Other good sources are Property Investor News and sites like LandlordZone and our low cost seminars:

Next Property Investment Seminar and Networking Event

Recent Mortgage Moves – The Latest and Best Buy to Let Mortgages

In next weeks’ blog we will publish a beginner and intermediate guide to buy to let mortgages. But this week I will have a quick look at what rates are available.

Most lenders prefer landlords with experience, though as noted in a previous blog, Lloyds Banking Group (BM Solutions and Cheltenham & Gloucester brands) have rather bizarrely recently decided that they will no longer lend to landlords who have more than 3 mortgages with them across the group.

This odd move has been countered recently by lender Paragon which has recently re-entered the market. For landlords with a number of properties, that’s good news because Paragon has always majored on portfolio landlords (though their rates have not always been the best.)

And two new buy-to-let lenders Aldermore and Precise Mortgages have also helped fill up the space vacated by the Black Horse. The Mortgage Works (part of Nationwide) are still offering buy to let mortgages at 80% loan to value but credit score is very important to them – so make sure both your Experian and Equifax credit reports are accurate.

Bank of China is offering good rates on Buy to Let up to 75% with fixed fees. Northern Rock offering buy to lets up to 70% loan to value with no income verification and refinances within 6 months.  HMO lending up to 75% and loans for portfolios are available with a variety of lenders but will always cost more and you must be an experienced landlord.

There are currently 292 buy to let products available on the market, compared to the 266 products that were available in July 2010. The average variable rate has been reduced from 4.84% to 4.76% and the average fixed rate on the market is now about 5.55%, so whilst the margins over base rate are still very high on an historical basis, maybe these are small signs that things are finally looking rosier in the world of buy to let finance.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information.

I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years. 25,000 copies sold.

Services to Businesses and the Public Sector

Primarily I am a consultant to a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors in build to let and insurers – helping them with their landlord facing or buy to let product strategies, marketing and services.

For example, I help banks improve their buy to let mortgage lending practices and I help housing associations / local authorities find private landlords (private rented access schemes, local letting agency models etc.)

I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

We also find a limited amount of time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor. We pride ourselves on giving independent unbiased Buy to Let Advice on a one-to-one mentoring / coaching basis or through our (very occasional) group seminars.

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

You can also use the tags and categories at the bottom of each post to read blog posts on related posts or click on the categories pull down menu over to the top right. (If you want to find relevant posts from before 30 April 2010 you can also click on LettingFocus’s Old Blog  - Categories, then search from the list for a topic that interests you.)

THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page

For general info on our CONSULTING SERVICES and also to find a small sample of links to articles where our comments have been featured in the National Press please click here: Consultancy and Seminars

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BUY “SUCCESSFUL PROPERTY LETTING” click here to Buy the Book at Amazon plus anything else at that Amazon sell. (If you are from an organisation and would like to bulk buy at least 50 books please ask us for special rates (which are lower than Amazon)).

To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com – Please note we WILL NOT send spam or sell our mailing list to advertisers but please put us on your “white list” to ensure you receive our emails!

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This blog is updated once a week, usually on a Monday or Tuesday.

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Copyright of Blog: David Lawrenson 2010.

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Posted in BMV, Below Market Value Property, Buy to Let Mortgage Fraud, Buy to Let Mortgage Terms and Conditions, Buy to Let Mortgages, Get Rich in Property | 1 Comment »

Rent to Buy and Property Lease Options

Thursday, September 2nd, 2010

Our brief comment in past blogs on the topic of property lease options (or Rent to Buy) schemes which were quoted in last weekends’ “Financial Times” Money section have been taken up by a number of other websites.

In some cases they have used some of the article in the FT and reproduced it without quoting us properly.

Just to clarify, in the FT we said just this, ” The danger (with these schemes) is that the tenant turned possible buyer has no real security at all over the property.”

This lack of real security is our concern.

In our view, some types of property lease options and rent to buy schemes in the private market may be dangerous for would-be first time buyers, who as tenants, pay a premium for a lease option (on top of the rent under their tenancy agreement) to a landlord to give themselves an option to buy the property from the same landlord at some future date or dates.

It seems to us that the majority of the risk is usually on the tenant’s side, because in the event the landlord defaults on his mortgage, the lender (if there is one) will ultimately recover the property and the lease option would have to take second place. In this scenario, there is a real likelihood that the tenant’s lease premium would expire worthless and they would find themselves homeless at worst, or, at best, having to pay rent to the mortgage lender (who would normally ultimately seek repossession anyway.)

Also, in some versions we have seen, if the tenant misses just one payment under the lease option, the lease option could expire too.

We feel that much tighter controls should be in place to make would-be first time buyers aware of the risks and would strongly urge property buyers to take INDEPENDENT legal advice before entering into such arrangements.

We would hope the FSA, Citizens Advice Bureau and the Council of Mortgage Lenders were aware of how such deals can be used too – but I doubt they are currently.

Of course, these schemes are attractive to some property investors as it potentially gives them an additional income stream (from the lease option)   and may be very especially attractive when used in connection with what are called “sandwich lease option” deals.

However, whilst they are usually good for investors and landlords, we worry about the risks some tenant-buyers are taking on with these schemes which can, in the worst cases, prove worthless for them.

Other types of property lease options may be more ethical and fair and if the lease option is worded fairly even the types we are concerned about may be OK too (though we and the Council Of  Mortgage Lenders cannot see a way around the repossession problem should the landlords default on the mortgage and the lender repossesses.)

We have nothing against property lease options. In some cases they may present good solutions to property buyers and investors.

But we would hope all property investors look to get involved in schemes like these only if the schemes are fair and transparent and if the risks to the other party have been clearly explained.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information.

I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years. 25,000 copies sold.

Services to Businesses and the Public Sector

Primarily I am a consultant to a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors and insurers – helping them with their landlord facing or buy to let product strategies and services.

For example, I help banks improve their buy to let mortgage lending practices and I help housing associations / local authorities find private landlords (private rented access schemes, local letting agency models etc.)

I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

We also find a limited amount of time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor. We pride ourselves on giving independent unbiased Buy to Let Advice on a one-to-one mentoring / coaching basis or through our (very occasional) group seminars.

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

You can also use the tags and categories at the bottom of each post to read blog posts on related posts or click on the categories pull down menu over to the top right. (If you want to find relevant posts from before 30 April 2010 you can also click on LettingFocus’s Old Blog  - Categories, then search from the list for a topic that interests you.)

THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page

For general info on our CONSULTING SERVICES and also to find a small sample of links to articles where our comments have been featured in the National Press please click here: Consultancy and Seminars

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Mentoring

NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors (which now take place just once or twice a year): Next Property Investment Seminar and Networking Event

We have OFFERS on a few services and products here: Services and Products for Landlords

TO READ CLIENT TESTIMONIALS – from both organisations and private landlords click here: Testimonials

BUY “SUCCESSFUL PROPERTY LETTING” click here to Buy the Book at Amazon plus anything else at that Amazon sell. (If you are from an organisation and would like to bulk buy at least 50 books please ask us for special rates (which are lower than Amazon)).

To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com – Please note we WILL NOT send spam or sell our mailing list to advertisers but please put us on your “white list” to ensure you receive our emails!

IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR TO OUR WEBSITE?

IF YOU SELL SERVICES TO LANDLORDS, YOU COULD BE A PARTNER ON OUR AFFILIATE PROGRAMME. PLEASE GET IN TOUCH!

This blog is updated once a week, usually on a Monday or Tuesday.

For my random thoughts on property plus occasional comments on things as diverse as football, 1980s indy music and the size of Curly Wurlys, please see our TWITTER PAGE: Twitter

To reads old COMMENTS and to write your own COMMENT on this blog post, please page to the bottom of this post and click on Comments to open the form. Spammers please note that all spam is automatically deleted.

Copyright of Blog: David Lawrenson 2010.

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Posted in Get Rich in Property, Property Lease Options, Property Lease Options and Rent to Buy, Rent to Buy | Comments Off

Same Day Mortgages, Property Lease Options and Protected Bonds That Aren’t Really Protected

Tuesday, August 24th, 2010

It was nice to see my story about next day re-mortgages (see last week’s blog) was picked up by the FT writer Claer Barrett and actually appeared on both the front page and Money section of the Weekend “Financial Times.”

Ms Barrett originally came to know me when she was doing an investigation for the FT’s sister mag, “The Investors Chronicle” into the sometimes murky world of property seminars and buy to let advice. She actually came undercover to one of my own seminars (which cost £30 not £2,000 like some of the others she had been to.)  Next LettingFocus Seminar and Networking Event

Once she realised I wore a white hat and was not in the business of selling property or finance or indeed, another course at £2,000 odd quid, she came clean, shook my hand and has been quoting us from time to time ever since.

Here is an edited summary of the FT’s article:

“The government is pursuing negligence claims against law firms that advised Bradford & Bingley on hundreds of buy-to-let loans that are facing losses. B&B, nationalised in 2008, is alleging that anti-fraud guidelines were ignored by firms that advised on “same-day remortgaging”, a practice that was promoted by (some) buy to let investment clubs at the height of the property boom.

Investors were encouraged to buy property from distressed sellers or developers that were being offered at below market value using a one-day bridging loan. Investors then remortgaged on the same day at the open market value of the property, allowing them to bank a quick profit.

B&B alleges that some solicitors failed to disclose crucial information about the deals to Mortgage Express, the arm of B&B that was the largest buy-to-let lender during the 2006 boom. The bank said an internal review highlighted a number of same-day remortgage applications that had been “unknowingly accepted” when they otherwise might have been rejected. Potential losses to B&B would include the costs of repossession if borrowers default and the shortfall on its mortgage advance, as in most cases the value of the loan far outweighs that of the property.

The UK bank said it was pursuing claims against solicitors where there had been a breach of the Council of Mortgage Lenders Handbook. It claims solicitors have a duty to supply specific information when lodging mortgage applications. A solicitor that failed to report that borrowers had acquired their properties less than six months before remortgaging, for example, would be in breach of the lending code.

“There will be many more claims of this type in the future as buy-to-let lenders struggle to find someone to blame for what looks like a lack of due diligence,” said David Lawrenson of LettingFocus.com, a private rented sector consultant.”

Thanks to the FT for allowing me to reproduce this here and look out for a  piece in the FT or Investors Chronicle this weekend or next on property lease options which will be quoting me too.

Buy to Let Battles for Life

As you may know, I’m not necessarily a cheer leader for there being more properties let out. (Oh, for the good old competition free days of the late 90s!)

But one of the things I do find amusing is the way many journalists keep finding reasons to say that private landlords are all about to sell up. (Perhaps they think those landlords who made a muck up of buying property using techniques like next day remortgages are the norm? Sorry, but they aren’t. Those that used such financial techniques are a minority and even then, many of them who did, managed to do quite well in the end  -which is more than can sometimes be said of the lenders.)

So it’s interesting that latest Council of Mortgage Lender’s figures show that buy to let mortgages are forming an ever higher proportion of mortgage loans and another survey shows that rents are going ever higher each month.

With news like that, it hardly sounds as if the private landlord is on his knees does it? Even with the ludicrously high and unjustified (by arrears rates) margins on buy to let mortgages, that sounds to me like the private landlord is in pretty rude health. But I doubt if these figures will stop the naysayers.

Protected Bond …. Or Is It

In last week’s blog I moaned about how banks and building societies were selling these “Protected” or “Guaranteed Bond” schemes under false pretences and how I had written to the PR people of one building society that I happened to visit two weeks ago.

Now I have the reply from their PR. See if you can follow the thought pattern here. (If you get bored just read the bits in bold.)  It said:

“The Society’s Protected Capital Account is a fixed term structured deposit account which is designed to offer the investor returns based upon the performance of the FTSER100 Index with the initial investment being repaid in full at the Plan Maturity Date, provided the investment is held for the full term. With the Protected Capital Account products sold by the Society the investor’s initial capital is therefore protected in the sense that, regardless of how the FTSER100 Index performs, the investor will receive their initial capital back in full provided they remain invested for the full investment term.

Feeling happier now? Thought so…. But read on as she says…..

“…… the Protected Capital Account is ultimately dependent upon the continued financial security of the Deposit Taker. For our current Protected Capital Account this is XXXX High Street Bank therefore should they fail to meet their obligations the investor could lose some or all of their investment as no additional protection or guarantee is provided by XXXX Building Society or XXX Investment Bank. Deposits into the Protected Capital Account are afforded protection under XXX High Street Banks’ participation in the Financial Services Compensation Scheme, subject to the limitations of the Scheme.”

Mmm, bet you are kind of getting worried here……There’s more. She goes on:

“ …… …..to ensure customers are made aware that a 100% capital return guarantee is not provided, the Society takes particular care on its marketing literature and through its subsequent product sales process to highlight to the potential investor the extent of the capital protection provided by the Account.”

FSA Should Not Allow This

Got that? Well if you did, you are brighter than me. Kind of contradictory isn’t it. And another good reason why I remain an investor who prefers to invest in property letting and directly in shares instead. I just think all these opaque stock market related products are like endowment policies. Avoid the lot of them!

But seriously, how on earth does the FSA allow these building societies to make big claims about their bond being protected, when it isn’t… or is it? Who knows? This building society obviously doesn’t.

Twitter

Having a Twitter page is a great way to sound off about things like “Protected Bonds That Aren’t” Here are two more from recent Tweets. See more at Our TWITTER PAGE: Twitter

1. A bugbear of mine is agents who market leasehold flats but don’t say or know how the long lease is. It’s kind of important to assess value, guys.

2) A level results – Mmmm, either the students are now geniuses or we have inflation of grades. How long before we see A** and A*** grades?

Sorry to the nation’s students. I’ll prefer to think you are all very bright geniuses and the cure for cancer, the end of carbon fuel and world peace is just round the corner. Alleluia.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information.

I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years. 25,000 copies sold.

Services to Businesses and the Public Sector

Primarily I am a consultant to a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors and insurers – helping them with their landlord facing or buy to let product strategies and services.

For example, I help banks improve their buy to let mortgage lending practices and I help housing associations / local authorities find private landlords (private rented access schemes, local letting agency models etc.)

I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

We also find a limited amount of time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor. We pride ourselves on giving independent unbiased Buy to Let Advice on a one-to-one mentoring / coaching basis or through our (very occasional) group seminars.

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

You can also use the tags and categories at the bottom of each post to read blog posts on related posts or click on the categories pull down menu over to the top right. (If you want to find relevant posts from before 30 April 2010 you can also click on LettingFocus’s Old Blog  - Categories, then search from the list for a topic that interests you.)

THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page

For general info on our CONSULTING SERVICES and also to find a small sample of links to articles where our comments have been featured in the National Press please click here: Consultancy and Seminars

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Mentoring

NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors (which now take place just once or twice a year): Next Property Investment Seminar and Networking Event

We have OFFERS on a few services and products here: Services and Products for Landlords

TO READ CLIENT TESTIMONIALS – from both organisations and private landlords click here: Testimonials

BUY “SUCCESSFUL PROPERTY LETTING” click here to Buy the Book at Amazon plus anything else at that Amazon sell. (If you are from an organisation and would like to bulk buy at least 50 books please ask us for special rates (which are lower than Amazon)).

To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com – Please note we WILL NOT send spam or sell our mailing list to advertisers but please put us on your “white list” to ensure you receive our emails!

IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR TO OUR WEBSITE?

IF YOU SELL SERVICES TO LANDLORDS, YOU COULD BE A PARTNER ON OUR AFFILIATE PROGRAMME. PLEASE GET IN TOUCH!

This blog is updated once a week, usually on a Monday or Tuesday.

For my random thoughts on property and various other things that typically make me grumpy, please see our TWITTER PAGE: Twitter

Copyright of Blog: David Lawrenson 2010.

Tags: , , ,
Posted in Below Market Value Property, Buy to Let Mortgages, Buy to Let Not Dead, Get Rich in Property, Index Tracker Bonds, Property Lease Options and Rent to Buy, Same And Next Day Remortgages | Comments Off

Next Day Remortgages Legal Questions and Another Property Investment Firm Bites the Dust

Monday, August 16th, 2010

Next Property Investment Seminar and Networking Event

One of my mentors in property investment is Richard Bowser of “Property Investor News.” He’s been around property investing even longer than me, wears a white hat and really knows his stuff in the residential property investment sector. Also, like me, he’s seen lots of the “Get Rich Quick in Property” people come and go.

In the last issue of his magazine he refers to how he went to one “seminar” where the chap claimed on the blurb about how you could become a “property billionaire, achieve financial freedom and escape wage slavery” in no time at all. Er yes, that’s right, “billionaire” not even “millionaire.” As Mr. Bowser noted in his editorial, that’s quite a claim even by the usual wildly optimistic standards of the property advice industry!

Crash and Burn

This man with the billionaire seminars (no, I won’t name him because perhaps he had the best of intentions after all) has now apparently crashed and burned – taking lots of his “investors” cash with him.

Well, I guess he won’t be billing himself as a billionaire (or even a mere millionaire) from now on then. Of course, many of you will wonder why would a property billionaire / millionaire want to spend his time running expensive seminars anyway – why not just go on and make more money or give it to charity or back to the community. And that’s a fair question but I’m sure you can work out the answer yourself.

The latest faller from grace is following a well trodden path used by the likes of Inside Track and many others who, having claimed fast riches in property were just sitting waiting to be plucked from the tree, crashed themselves. (Actually, I must clarify this, Inside Track did not as far as I am aware actually take folks’ money and simply not buy property with it, but they did charge pretty hefty fees with three naughts on them for weekend “education seminars” where novice buyers were told that the way to riches was via new build flats. Alas, buying over hyped over priced new build flats that all too often wouldn’t fetch the rent Inside Track promised, usually wasn’t a route to riches as most of these “investors” later found out!)

With property being largely unregulated and a rich minefield for the “Get Rich Quick While Sitting In Your Armchair” type of advisor, this latest failure will not be the last property entrepreneur advocating “passive investment” strategies who ends up taking their mainly novice investors to the cleaners.

The Great Next Day Re-Mortgage Deals   – What Did The Lenders Know

Talking of skullduggery in buy to let, those of you who have been around long enough will recall the “Great Next Day Re-mortgage Deals.”

Well, not so much a scam, more a strange and clever finance system that used bridging loans to allow people who sometimes didn’t have a bean to their name to buy property using a mortgage taken out on the property the same day, or more usually the next day – hence the terms “Same or Next Day Re-Mortgages” and “No Money Down” property investing.

Back in the day, various advisors liked promoting these techniques because they often got a cut from the bridging loan company and maybe another from their own friendly solicitors who were the only ones who understood the structure of the deals. (Your local high street solicitor with their beloved 1950s furniture and badly cleaned office wouldn’t have a clue. Why is the local solicitor’s furniture always so old, but I digress?)

This way of buying property worked because there was always a rich vein of people who liked the idea of “financial freedom” from their Godawful day job and the idea of getting rich as a property investor but unfortunately didn’t have enough cash for a deposit.

The bridging loan technique was clever and some of the investors did OK using this method of finance and purchase. Usually, they were the switched on types who also learnt who to be good landlords too. But the “passive investor” types who used bridging loans and next day remortgages and then didn’t bother to learn the nitty gritty of being a landlord often didn’t.

Legal Action

Anyway, I hear that at least one of the lenders who wrote lots of this business – i.e. provided the mortgages – is taking legal action against the solicitors who, er, “did the business” on the conveyancing side.

The solicitors defence is that the mortgage lenders must have known that the borrower had only “owned” the property for a day and that it was bought via a bridging loan  – something that was actually against the lenders’ rules.  But the mortgage lenders are saying, “No, we didn’t have a clue.”

Don’t Believe You!

None of the brokers I spoke to believe the lenders for a minute. “They surely must have known” they all chime.

I agree  – all the lending banks needed to have done would have been to have come down to some property shows and seen advisors in action promoting “next day remortgages” and bridging loans as a way to get wealthy fast “with none of (the punters) own money down.”

No Bankers at The Big Property Shows

Of course at the property shows one never saw a mortgage lender – a few brokers sure, but no actual lenders. The lenders were (and many of them usually still are) much too aloof from the nitty gritty of what landlords want and do to attend a property show!

All the same, even allowing for their glaring omission not to bother to really know their business, they must still have surely known what was going on  – and the way their mortgage deals were being used (some would say abused.)

Anyway, my sources tell me that the solicitors who are under fire, have, it seems, hired other legal folks to try to get documentary evidence to prove that the lenders not only knew all this was going on but even positively sanctioned it. A big paper chase is on to find the proof. Indeed I was contacted by one of the law firms preparing the defence last week and by the FT, where we will be featured commenting on this on Saturday 21 August. All good stuff!

When Is an Index Tracker Bond Protected?

Still on the subject of dodgy business, last week I was in a certain building society and noticed a huge poster in the branch which screamed “Protected” in big print but, alas, the small print seemed to say otherwise.

They were trying to sell one of these stock market linked bonds that quite a few of the building societies and banks seem to be trying to flog to death these days. It’s the latest wheeze dreamed up to drum up funds didn’t you know?

Now, I simply cannot understand how a leading high street brand can get away with what appears to be a misleading up front claim. I asked them, “Is it protected or not? And exactly what is protected because I have read all the small print in this and with my very clever expensively educated and big MBA head on and a lifetime in finance, I have to say I cannot work out even after reading all the small print, exactly what’s protected, so God help the average punter off the street.” It’s been a week now and I await their PRs reply.

New Nameplate

The particular building society will soon be changing the nameplate on its door after having been forced into a merger with a bigger society, largely as a result of a pretty hopeless foray into buy to let mortgage lending. I don’t know if they did next day re-mortgaging but they certainly did some duff lending.

Eight years ago I wrote to their Chief Exec and offered my services to help with their buy to let mortgage lending activities (having pointed out that in my humble opinion, they were going to lose a lot of money with the strategies they were employing at that time). But this society did not even acknowledge my letter. It’s a shame because w e could have helped them as we help some other lenders now – see this feature in Mortgage Finance Gazette about my work in this area:

http://www.mfgonline.co.uk/article/Advice-for-the-novice-landlord-230128.html

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information.

I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years. 25,000 copies sold.

Services to Businesses and the Public Sector

Primarily I am a consultant to a range of organisations including banks, local authorities, social housing providers, institutional investors and insurers – helping them with their landlord facing or buy to let product strategies and services.

For example, I help banks improve their buy to let mortgage lending practices and I help housing associations / local authorities find private landlords (private rented access schemes, local letting agency models etc.) I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

We also find a limited amount of time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor. We pride ourselves on giving independent unbiased Buy to Let Advice on a one-to-one mentoring / coaching basis or through our (very occasional) group seminars.

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

You can also use the tags and categories at the bottom of each post to read blog posts on related posts or click on the categories pull down menu over to the right. (If you want to find relevant posts from before 30 April 2010 you can also click on LettingFocus’s Old Blog  - Categories, then search from the list for a topic that interests you.)

THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page

For general info on our CONSULTING SERVICES and also to find a small sample of links to articles where our comments have been featured in the National Press please click here: Consultancy and Seminars

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Mentoring

NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors (which now take place just once or twice a year): Next Property Investment Seminar and Networking Event

We have OFFERS on a few services and products here: Services and Products for Landlords

TO READ CLIENT TESTIMONIALS – from both organisations and private landlords click here: Testimonials

BUY “SUCCESSFUL PROPERTY LETTING” click here to Buy the Book at Amazon plus anything else at that Amazon sell.

If you are from an organisation and would like to bulk buy at least 50 books please ask us for special rates (which are lower than Amazon).

To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com – Please note we WILL NOT send spam or sell our mailing list to advertisers but please put us on your “white list” to ensure you receive our emails!

IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR TO OUR WEBSITE?

IF YOU SELL SERVICES TO LANDLORDS, YOU COULD BE A PARTNER ON OUR AFFILIATE PROGRAMME. PLEASE GET IN TOUCH!

This blog is updated once a week, usually on a Monday or Tuesday.

For my random thoughts on property and various other things that typically make me grumpy, please see our TWITTER PAGE: Twitter

Copyright of Blog: David Lawrenson 2010.

Tags: , , , ,
Posted in Buy to Let Mortgages, Get Rich in Property, Index Tracker Bonds, Landlords Show Award | 2 Comments »