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LettingFocus

Unbiased buy to let, property investment and letting coaching, mentoring, advice and seminars for landlords from top selling property author and media commentator.

Mortgage Fraud Danger in Below Market Value (BMV) says LettingFocus

Is making money in property as easy as some people say?
Well, it’s not hard, that’s for sure, providing you know what you are doing.
On a scale of 1 to 10, where 10 is very hard (e.g. running a kids football team as I do and having to deal with some of the parents) and 1 is very easy, I would rate buy to let as a 4.
To keep it simple, it is really just about doing a few things right.
First, you find a property in an area where there is currently strong and ongoing future strong tenant demand for that property.
Second, you buy the property at a good lowish price and third, you find good tenants who will look after it and pay the rent on time.
Sounds simple – and yet so many people try to overcomplicate it.
Usually the companies who overcomplicate it are trying to sell property that is supposedly dirt cheap and which does not require you to put any or much money in.

Too Good to Be True
If you see a deal that looks too good to be true, it usually is.
Very often you will see such companies trying to promote “no money down deals.”
But please keep in mind these important facts……
Mortgage lenders will ALWAYS want to see that you have put some money into the property you are buying. They want to see that you have a stake in it.
And this cannot be funny money – it has to be YOUR money – not money you have borrowed from someone else or from another company.
It has to be YOUR money and you have to tell the mortgage company where it has come from – i.e. the source of the funds.
If you don’t tell the truth about where the money comes from, you have committed mortgage fraud and if you don’t tell the mortgage company the true price you are paying for the property – with all the kickbacks made clear – then you are again liable to be done for mortgage fraud.

Use Your Own Solicitors
Lots of companies specialising in marketing no money down deals will require you to use that company’s own finance arm and legal advisers.
This is because they will make some money from the legal team and finance co. Nothing wrong with that, of course.
But you should check out the cost first as it is often not cheap – and always make sure you have the deal and the property checked by your own solicitors and valuers.
Finally, if you are paying someone to source leads you ought to check out their track record very carefully indeed. Look at the Internet and ask for references.
There are some good firms sourcing below market value property -and we can help with that too - but there are some whose leads have proved to be not so much “below value” as “very poor value.”

Final Thought
It is important to have a mix of investments.
I always laugh when I see how people who manage equity and bond funds are very keen that investors avoid direct property investments like buy to let.
And many who promote buy to let often gloss over the risks and hard work involved to make it work.

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LettingFocus.com are the experts on landlord issues and I’m David Lawrenson, the author of “Successful Property Letting” – which has been the UK’s top selling property and buy to let book for the last 3 years.

We help landlords and property investors make money in property by coaching them in ways that work, that are ethical and which involve minimal risk.
I have been a landlord and property investor myself for over 25 years.
We also show you how to manage tenants properly and in ways that take up as little of your time as possible.
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Realted article: BMV or Below Market Value

Copyright of Blog: David Lawrenson 2009. This blog is updated roughly once a week usually on a Monday or Tuesday.

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Fraud on Below Market Value BMV property by Lawrenson of LettingFocus.com

Further to last weeks’ post about mortgage lenders, I see the Chelsea Building Society is the latest lender who was so dopey in buy to let lending that they got hit for a big fraud.
In the case of the Chelsea, a loss of about £41m has been taken as a result of mortgage frauds involving some of its buy-to-let loans. Ouch!
The frauds appear to have involved professionals colluding to inflate the value of buy-to-let properties. Crikey, Imagine that! (Excuse the cynicism.)
A team of people are now going through these cases individually to see if fraud has been committed.
“This could take some time,” said one of their spokesmen (in what must be the understatement of the year.)
Too bad the Chelsea did not read or bother to respond to my consulting letter of a few years ago offering to help them make a better fist of their buy to let mortgage lending.

New Scam – Duff Leads for Below Market Value Deals
Talking of scams, in property fraud is a bit like the poor …….always with us!
The combination of lack of FSA regulation, rapacious entrepenuers and gullible punters wanting to get rich quick makes for a deadly cocktail.
So no surprise that my friend Paul Shamplina at Landlord Action has recently reported that their debt recovery department has never been busier due to pursuing rogue property sourcing and investment companies.
Here is the scam.
What happens is that a Dodgy Property Entrepeneur asks for up an upfront fee to source Below Market Value deals.
The Punter hands over his cash and the leads are duly delivered.
The trouble is once surveyed for mortgage purposes the value of these properties is a whole lot less - making them not so much “Below Market Value” deals as “About Market Value” deals.
The Dodgy Property Entrepeneur then refuses to refund the fee the punter paid.
Pretty simple hey and it’s the latest scam in the world of property, so let’s think of a name for it. Let’s call it “The Bogus Discount Deal Scam.”
So remember, always do your own research into property values and rental levels and check the level of demand in the area.
And for goodness sake, research the sourcing company - how long have they been operating and what does it say on the Internet about them? Always read the terms and conditions and get a signed contract.
Not all property sourcing companies are bad. Just make sure you don’t hand money over to a duffer.
In next week’s blog, I promise I’ll get round to look at studentification and the latest barmy government plans to make student areas, nicer!
ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
We are LettingFocus.com - the property experts.
I’m, David Lawrenson, the author of “Successful Property Letting” which for the last 3 years has been the UK’s top selling property book.
What’s unique about LettingFocus is that I offer independent unbiased
property seminars covering property investment and letting because unlike most people in the buy to let and property “advice” business I am not linked to a property company, developer, agent or bridging loan financier.
I can tell you where to buy (which areas), what type of property to buy, when to buy, how to buy property at a low price, how to make sure you get tenants who are going to pay the rent and how to manage a rental property to make £s at my one to one consulting service.
I can also comment on “No Money Down” Schemes and “Buying Below Market Value” methods too.
I can answer all your questions on letting property too because I have been a landlord and property investor for over 25 years.
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Buying Below Market Value from Distressed Sellers and Sale and Rent Back by Lawrenson of LettingFocus.com

RISK OF BIG PROPERTY CRASH IS LOW
Last week I was speaking at the Birmingham leg of the Property Investors show at the NEC.
It was pretty quiet there and much less active than last year reflecting, I guess, all the negative news about the property market.
As you’ll know if you have read previous blogs, I don’t believe all the doom and gloom and whilst I think that property prices could fall up this year by up to 10%, I think that falls will be limited for properties and areas that are not oversupplied already or where serious local social and / or unemployment problems exist.
And since rents are rising strongly and unemployment has so far stubbornly refused to go up, there are indeed still many green shoots for the investor or brave property buyer.
In other words, this is a year when you can buy property cheaply, just as long as you have access to credit and can put in at least 20% of a property’s value as equity.

DANGERS IN BUYING BELOW MARKET VALUE
Whilst at the show I heard a few scare stories about Below Market Value (BMV). It seems some investors have got themselves in a bit of a mess with below market value purchases from distressed sellers - and here is how they did it.
I’ll just explain for those who don’t know that buying BMV can sometimes involve buying from indebted (and hence motivated) sellers who are about to be repossessed by the mortgage company.
BMV buyers will seek out and then buy from these kinds of “motivated distressed sellers” at a discount, sometimes using bridging loans to buy with “No money down” and then they rent back the property to the seller who becomes their tenant.
So far so good!
But one of the big dangers is that the kind of property seller who is prepared to do this type of deal - and sell their home at below its true price- will by definition have what we could call “a bad credit history”
In other words, they have defaulted on their mortgage already, so the chances are arguably higher that they will default on their new tenancy too than a normal tenant would.
Most BMV investors would say that if they do, well it is bad for them but by doing so, it will allow the investor to evict if the arrears are bad enough.
And that is true, though some will have ethical issues with all this – but let’s leave that aside for now

TROUBLE IS.....EVICTION IS NOT FAST
The only trouble with eviction because of arrears is that it typically takes about 5 months to go through if you have to ultimately enforce the eviction notice with a bailiff.
First, you need there to be 2 months before you can even start a possession action and it takes another 3 months for the court processes to slowly grind through.
Oh and don’t expect an evicted tenant to leave the property spotless – chances are very high that they wont. And we won’t even mention the stress that comes with having to evict someone
Property Investor News in one of their articles in their current edition, anecdotally report the cases of some BMV operators who are in difficulties because the investor is struggling with a many of these types of properties where he is receiving nil rent.
Some of the less reputable operators in the market sell BMV deals on the basis of “becoming a property millionaire overnight” with “nil (of your own money) down” using bridging loans and as by definition many of the investors who do this have a very high loan to value, the affect of tenant default can be crippling.
And that’s why we hear stories of BMV investors being repossessed themselves - leaving their tenants homeless.
This, of course, does nothing for the reputation of the Below Market Value business which is already being looked at by the regulatory bodies who would like to see codes of practice drawn up.
So, my message is, if you buy Below Market Value be aware of the risks, especially in sale and rent back type deals and don’t borrow too much.
Sure, you can do it using a closed bridge loan and hence with No Money Down but only do this only you have a stack of cash elsewhere to pay the mortgage - just in case your tenants default.
Pretty much all the more realistic advisors on BMV at the property shows do, to their credit, advise their investors of the risks and they caution having a pot of money aside for a rainy day.
However, there are some who don’t. You have been warned.

BEING A GOOD LANDLORD
I was quoted in the Mail on Friday and the Telegraph on Saturday. Here is the link to the Telegraph story which is all about how to be a good landlord: http://propertyclub.telegraph.co.uk/Page/View/222

ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
I’m David Lawrenson from property consultants lettingfocus.com.
I’m the author of “Successful Property Letting - How to Make Money in Buy to Let” the UK’s top selling property title buy the book
It is fully up to date with all the recent changes to tenancy deposit schemes, HMOs, licensing, capital gains taxes and it has new sections on buying below market value. I’m an expert on buying property below market value and a well known property investment blogger and I contribute to newspapers and a host of property websites, write a property investment blog, a number of columns in the press and I run a landlords help service.
I also work as a consultant helping banks, building societies, housing associations and web portals with their buy to let and property products and services and am a regular speaker at property shows.
You can read more of my blog & find details of my networking, advice, property investors networking programme at my website.What’s unique about lettingfocus.com is that we offer independent property mentoring because unlike most people in the buy to let and property “advice” business we are not linked to a property company, a developer, an agent or bridging loan financier and do not receive commissions from any of these sources.If a property investment is lousy – We’ll tell you straight and we will tell you all about buy to let and property investment - the good and the bad and we won’t make silly promises that you’ll become a millionaire overnight.
Copyright: David Lawrenson 2008. This blog is updated once a week. Permission must be sought before using the material in the blog.

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