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  • Buy-to-Let

    Has the crisis killed buy-to-let investing?

    Hi
    Just read an article titled "Has the crisis killed buy-to-let investing? " see HERE
    I agree with most of the article, in that some Landlords are struggling, as a Broker I get them ringing me almost every other day to see if there are any decent mortgage products out there that they could use and remortgage their BTL's.
    Most of these landlords bought Porsches and other Luxuries with their "Cashbacks" instead of banking them to cover rental shortfalls. If you know anyone in this situation then basically they will need to try and ride out this correction in the housing market until such time lenders have an appetite to lend to Professional Landlords again.
    What seems to be unfortunate that all Landlords are being penalised and I think that Banks should look at Landlords on a case by case basis rather than Mr Bloggs is a Landlord, lets just offer him our Bog Standard 75%LTV BTL.
    The article goes onto say that landlords need to put down a 50% deposit, which I dont agree with but I do agree with the fact that BTL is fast becoming the reserve of the Cash Rich.
    During a conversation with one Andy Shaw, he once advised me that for the next few years we need to try and make sure that 30% of our working capital is put to one side to try and survive the next few years. This will be used to cover Rental Shorfalls, Void Periods and Tenants who cannot pay their rents.
    Im not normally one to plug books but Toby Hone has published a couple of Good reads based around this topic...
    * Part 1 - How to Make Money from Property During the Credit Crunch
    * Part 2 - How to Beat the Credit Crunch
    I bought both parts a while ago and would recommend a read.
    These are available from http://www.taxcafe.co.uk/creditcrunch.html
    Toby is a well respected consultant and I have read other posts and books he has written.
    Your thoughts and comments as ever would be appreciated.
    Regards
    Wasim
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    I agree with much of what you've said here Wasim, particularly your comments about the lenders assuming all BTL investors/Landlords are the same. Not only are their financial situations very unique, but their business experience, and views on running their properties will differ - it's a shame the banks did away with the 'local bank manager' who got to know his/her customers. Has the crisis killed buy-let-investing? I don't believe it has, but it WILL weed out those who believed the property brokers who told them it was a 'passive' income, a quick and easy way to top up their pension portfolio! Many BTL investors I speak to don't want to hear the hard truth, which is that working capital is a necessity in the BTL business. A Landlord can't survive for long without a cash cushion - anyone going into this business thinking they'll have properties let 100% of the time, with no missing or late rental income, needs a reality check! I have a number of over-stretched BTL investors to sort out now, and I think this will continue for some time.
    All the best
    Helen
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    Helen Godbold-Eade

    Freelance Administrator for Property Investors / Entrepreneurs

    http://www.like-clockwork.co.uk

    Find me on LinkedIn: http://www.linkedin.com/in/heleneade/

    Hi Helen
    Thank you for your response.
    Phew I thought it was just me who had a challenge explaining to Clients that they should have a "Cash Cushion".
    It is difficult to get this across to most because they dont want to be told that their Business Model is flawed.
    I am currently working with one client who has a portfolio of 60 properties and I am constantly talking to lenders on 15 properties as they are the worst offenders as far as his portfolio is concerned and if he let these go, his portfolio would be in a better position.
    The negotiations are to ensure that the remaining lenders do not "Call In" their loans for other properties in his portfolio.
    On a more positive note, I have a client who is investing heavily in the Derby and Loughborough areas as they make good Student Lets. He has 14 HMO's and even in the current climate he is Cashflow positive...hes clearing about £5000 per quarter...and the Git wont let me manage them.
    He has a good working relationship with a Commercial Lender (LloydsTSB of all people) and they are happy to finance his operation as they see that his Business Model works.
    Regards
    Wasim
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    Hi Wasim,
    I read this article and found it rather generic and sweeping.
    The crisis has not killed BTL investing. What it has killed is the NMD industry and the get rich quick mentality that was largely responsible for causing the crises in the first place viz a viz people buying BMW's and Porsches with their equity release.
    I also think you have quoted Andy Shaw out of context. If you based your property portfolio on positive net cash flow, then you would only need a small contingency as you could put aside a bit of excess cash flow every month to cover void periods. His business model was based on capital growth/equity release and therefore was a lot more risky, needing such a large contingency.
    The NMD crowd are now all advocating lease options as the latest "must do" strategy. At our event on Sunday, we heard from expert John Corey that lease options are only another tool in your tool box, and not suitable for use in every circumstance.
    I think a lot of people are either living in denial or in the past. Still talking as if the industry was the same as two years ago. It's not the same as two weeks ago.
    There will be a huge fall out of people who realise that they cannot do anything because they have no cash ... no matter how many courses they attend, how many BMV deals and leads they pay for, now many leaflets they drop, how many "gurus" they network with and how many times they post on forums asking for help and mentors. But, we will have a whole inrush of new people falling for marketing hype and spin. That's the way it's always been. That is one thing that hasn't changed IMHO.
    The difference being that that will fund the property marketeers/industry, not the property market per se as none of them will be able to bring any deals to fruition ... because they do not have the necessary liquidity.
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    Hi Vanessa
    Andy Shaw explained that if we have £100k to invest then its best to use £60k-£70k for cashflowing property purchases...regardless of the way you structure your deal and always try and make sure you leave the rest aside for use on your portfolio. Alot I know but its a good strategy.
    I think the only workable strategy in the current climate is:
    * Negotiate Your Deal
    * Get a 75% Mortgage (or whichever is the best for your situation)
    * Plug In 25% Deposit (or dependent on the mortgage you get above)
    * Buy the property
    * Refurb your property
    * Let your property
    * At the appropriate time remortgage.
    I agree with you V that there are alot of property education courses but to be honest they dont really teach you anything...nothing useful or what you dont already know. The next course i want to go on is a Negotiation course...so if you can sort one of those V then i will be your first client.
    Lease Options as you say are another tool and should not be used as your core business model.
    Regards
    Wasim
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    I think it is important to realise Lenders are not judging all BTL Investors the same way they have just made a decision in a market short of funds they are " Cherry Picking ". They are also rebuilding their balance sheets by capitalising on shortage of funds by charging very high arrangement fees.
    We are in a market where Lenders attitudes are focusing on reasons not to do a deal rather than reasons to do it.
    I did a mortgage for a Client where we were capitalising to repay a loan. They said if client had a high credit score they would disregard payments on loan for affordability reasons. However if medium credit score they would take loan payments into account for assessing affordability. What a daft world these underwriters live in !!!
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    John Edward said:
    I did a mortgage for a Client where we were capitalising to repay a loan.
    Please explain the line above using terms that the bulk of the readers will already recognize.
    Thanks in advance.
    John Corey
    https://www.ChelseaPrivateEquity.com/blog
    Follow me on Twitter -> https://www.twitter.com/john_corey
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    John Corey 


    I host the London Real Estate Meet on the 2nd Tuesday of every month since 2005. If you have never been before, email me for the 'new visitor' link.

    PropertyFortress.com/Events

    Also happy to chat on the phone. Pay It Forward; my way of giving back through sharing. Click on the link: PropertyFortress.com/Ask-John to book a time. I will call you at the time you selected. Nothing to buy. Just be prepared with your questions so we can use the 20 minutes wisely.

    Hi John
    Its basically where you remortgage a property to take out more funds with the money being used to repay other loans and debts.
    What you must remember that in the short tern this reduces your monthly outgoings but by adding it to your mortgage you may be paying more in the long run.
    For example a £10,000 loan at 8% over 5 years means that your monthly repayments are £202.76 and the total interest paid is £2,165.84
    If you know add this to your mortgage (by remortgaging) then you may get a rate of 5% and spread this loan out over 20years. Your monthly repayments (for the loan element) will be £66 and the total interest paid is £5,838.94
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    Wasim said:

    "On a more positive note, I have a client who is investing heavily in the Derby and Loughborough areas as they make good Student Lets. He has 14 HMO's and even in the current climate he is Cashflow positive...hes clearing about £5000 per quarter...and the Git wont let me manage them."

    I am puzzled. If he clears 20k pa on 14 HMO's, that's £1428 per property pa or £119 pcm. With possibly several properties on low trackers, this figures indicate a very low yield. Running an HMO should provide some serious cashflow otherwise it's hardly worth the effort.
    If I am correct in my assumptions he might make losses or even go bust once the interest rates pick up again, right?
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    Hi Angela
    My apologies...that's £5000 per HMO per Quarter. That's why I want to manage them.
    Regards
    Wasim
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