Well where do we start on investments and by that I mean buy to let or buy to flip, in fact anything to do with residential property investments both in the UK and Overseas.

Let’s start is the UK.

Here we have a real struggle with conventional buy to let unless you are cash rich when there are substantial opportunities open to you.

Before I go any further I would like, for what it’s worth, to express my opinion on the current market as at 13/5/09.

First of all there isn’t a single “Current Market”.

There are tens, if not hundreds, and maybe thousands of markets right across the UK.

Some are in the doldrums, some have fallen off a cliff and some are quietly making progress, even if it is at a snail’s pace. But progress is still progress.

Green shoots are supposedly everywhere, well it is the right season, springtime! But I thought we were in the property business not gardening.

But to get serious, just how do you make money today, this month, this year and next year because it is not going to get any easier anytime soon.

Now a word of warning, there are a number of schemes out there that seem to offer the opportunity to get all your money out, even some with a cash back, just like the good old days. The old days are gone, and probably will never return.

The same people, broadly speaking, are still sitting on the same chairs and they knew what was going on back in the old days, but chose to ignore it because they were making too much very easy money, and given that property prices would always continue to rise, what was the problem if a little creativity was used.

Today these same people are on the look out for any repeat of those practices, which are now regarded as being close to, if not actual mortgage fraud.

Get caught committing a mortgage fraud and you can kiss goodbye to your investment plans for a good number of years.

So what can you do?

Sale & Rent Back

This is where you buy a property, at presumably a discounted price, from a distressed owner maybe facing repossession and rent it back to them.

Sounds simple and good for all involved but the idea was too good and resulted in some scammy deals that ripped off the distressed owners and will now probably become subject to Statutory Regulations later this year, maybe as early as the summer, and will not be open to the average small investor.

For information from the horse’s mouth so to speak go to the HM Treasury site.

BMV (Behind Market Value)

This is going on everywhere, buy, sell and make a quick profit or remortgage at a low interest rate and produce positive monthly cash flow.

In both cases you need a willing and able buyer or tenant, both of which can be in short supply in some areas so, once again, location research becomes a vital element to your success.

Dozens of companies are promising to go out and buy properties “BMV” for you or even sell you a BMV property often quoting a RICS (Royal Institute of Chartered Surveyors) value as their justification for claiming that the property is offered or can be bought BMV.

The percentages vary from as little as 25%, don’t think I have seen any less, up to the 40%+.

Of course it is possible to buy what should prove to be a bargain today, given many local market conditions but beware, a percentage off a RICS valuation that turns out to be the buy price then becomes the new RICS valuation.

Valuations are, or should be, based on 3 sale prices of similar property achieved locally in the last 3 months.

If or when buying BMV, factor in what you expect the value to fall by before it hits bottom.

If that number is 10% (further fall) and you buy at 25% BMV you are in fact only buying at 15% BMV (25%-10%).

This would still be a good deal but you now need to look at the knock on effect on the mortgage.

If the max that you can borrow is 75% LTV, you may have problems borrowing what you expected if you are working on the “RICS” value less the 25% which is 75% rather than 15% off the bottom value which may apply. In the 15% case you are left looking for 10% cash to put into the deal.

Lease Option(s)

There are two versions of this strategy, though in some cases the names do change.

Lease Option No 1. You lease a property for a fixed or variable period of time with an option to buy the property at a pre-agreed figure. I will come back to the detail.

Lease Option No 2. You own the property but let it to a tenant under an assured shorthold tenancy whilst giving/selling the tenant an Option to Buy the property from you at a pre-agreed price at a later date. Again I will come back to the detail.

Detail Lease Option No 1. This is a very useful strategy for anyone with limited or even zero funds as you take over day-to-day control of the property paying all the outgoings including the owner’s mortgage payments and let the property under an AST at a rent hopefully greater than the sum of all your costs thereby generating positive cash flow.

At the same time you have agreed with the owner to buy the property at a pre-agreed price on or before a pre-agreed date.

All aspects of this deal are written into a legally binding contract that can be registered with the Land Registry.

There is a variation where you have an option to buy for a limited period of time, at the BMV price. and in turn you try and either sell the property at a price greater than your Option Price or sell your Option to a third party making a profit in both cases.

You can either buy an Option or do a deal where you split any profit with the owner/vendor.

You need to be very clear as to who physically pays the mortgage and how repairs are both handled, paid for and allowed for in the final sale settlement.

Detail Lease Option No 2. In this case you generally start off as the owner of the property though the principle would still work if you had secured a No 1 Lease Option.

You let the property under an AST or Scottish SAT and, at the same time, grant or give your tenant an option to buy the property from you at a pre-agreed price on or before a pre-agreed date.

Your tenant pays a rent in the normal way but also pays a sum on account of the option that you have given him which is often constructed in such a way as to assist in becoming part or all of the deposit that your tenant will need when finally purchasing the property from you.

In most cases any monies paid in respect of the option are forfeit if your tenant fails to proceed to completion of the purchase.

There are numerous variations on this theme and once again you need to have all the legals tied up and very clear.

The advantage to you in that you can turn marginal cash flow properties positive and have a tenant who is genuinely interested in looking after the property and NO VOIDS.

Forced Appreciation

Concept: Buy a distressed or derelict property, fix it up and end up with a property where the value for remortgage or sale purposes in greater than the combined cost of the property plus the cost of fix up or refit and any sundry costs.

Sounds simple, and there are close to 750,000 properties in the UK that would qualify for this treatment.

Also, provided the property is distressed and not derelict, the tax advantages are huge.

You can organise your UK property affairs so that you never ever pay tax on any of your UK based property rental income.

You will still have to pay CGT when you sell a buy to let property if you are still a UK resident for tax purposes.

TO BE CONTINUED

Money money money, oh where has it all gone?

And it used to be so easy!

Well there is still some around, it is just very difficult to get your hands on it and those that have got it, the lenders, are making you/us, the borrowers, jump through various hoops to even start to get at it.

So where do you start.

Well there are at least two options.

Buy to Let Mortgages

The first is the conventional buy to let mortgage route, where you will be limited to 75% of the value or purchase price, though I did see a comment yesterday that 80% LTV could re-appear by the end of June 09, and need a squeaky clean credit record without too much unsecured borrowing and 0% credit cards, these are no longer popular with the buy to let lenders

Private Finance or Lending

The second is Private Finance or Lending which is covered further down on this page.

Buy to Let Mortgages

Big problem with conventional buy to let mortgages is the rent coverage or Loan to Rent Ratio, this is the amount of rent that the property must let for, or be expected to let for by the valuer, in excess of the monthly mortgage payments.

This historically, that is 10 years ago, used to be around 125-130%, the ratio then progressively dropped to, in one case 100%, but is now back up in the 125% region.

Added to this qualification for lending is the interest rate that the calculation is based on and that is often higher than the actual interest rate you are being asked to pay.

So for conventional mortgages try my friend Geoff Laird.

But, a health warning, whilst he is both knowledgeable and tenacious, in fact a real expert, he can’t work miracles, at least not yet, though he did come close to working a miracle for one of my clients a few months ago, he arranged a deal that was quite exceptional in the teeth of the credit crunch gale!!

If you want to know more about him go to his website http://www.buytoletfundingservices.co.uk/ where there used to be a nice pic of the man himself, maybe it’s my browser that has edited it out.

Full contact details

Buy to Let Funding Services (South East)
9 Beverley Cres
Tonbridge
Kent
TN9 2RD

Tel 01732 357920
Fax 01732 357920
Mobile 07920 715178

Web site: http://www.buytoletfundingservices.co.uk/

Email: loanarranger2006@hotmail.co.uk

Geoff sends out regular newsletters and updates like the following which was sent out on the 06-05-09.

To receive these, email Geoff or, for a take on current market conditions and where we will be in a few months time, it is worth giving him a call, you will actually get to speak to a live person, at least he was a couple of days ago, that is live!.

I (Geoff) am sending you an extract of an article which illustrates the current difficulties associated with the funding of Buy to Let properties.

Research from price comparison website moneysupermarket.com shows that in just two years, the number of buy-to-let mortgages available has fallen from 4,384 to just 213 - a reduction of 95%

Furthermore, buy-to-let mortgage rates have not fallen by as much as mainstream mortgage rates following the decreases in the Bank of England base rate. Since June last year the average rate for mainstream mortgages has reduced by 2.6%, whilst buy to let rates have only fallen by 1.51%.

 
Banks are also demanding larger deposits from buy-to-let landlords; there are no buy-to-let mortgages left at 85% loan to value, meaning prospective landlords will need at least a 25% deposit to secure a mortgage.

Louise Cuming, head of mortgages at moneysupermarket.com, said:
"The credit crunch has killed off the majority of buy-to-let deals. Because banks view buy-to-let borrowers as riskier than normal customers, the deals that are still available require an extra large deposit.

 
"Even if you are lucky enough to have a sufficient deposit and have found a suitable buy to let mortgage, you must watch out for the fees levied on arranging the deal, as these can be extortionate.

 
"On top of all this, banks are also increasing the minimum rent they require landlords to charge. In 2007 the average requirement was for the rent to represent 112% of the mortgage payment. The average requirement now is for rent to cover 123% of the mortgage payment. However, this is against a trend of falling rents. Over the past twelve months rental property supply outstrips demand and it is a tenant’s market. The average rent now stands at £819 in comparison to £873 in April 08.”

Geoff Laird

The second route is:

Private Finance or Lending

Why you may ask should a private individual lend you their money so that you can make or at least try and make a profit.

Because they will expect you to pay an interest rate that is way above the savings rate at your local bank. Generally 1.5% per month, ouch, but if the deal stacks then go for it.

Where do you find these wonderful people?

One of the main gathering areas are Networking Meetings such as the Berkshire Property Meet run by Sylvia & Juswant Rai.

At this event you will find over 200 people, some investors, some educators & mentors, some there just for a drink and some there with Money, the real stuff, and they are looking for someone who knows what they are doing and will do all the dirty work paying them a nice return whilst they enjoy whatever turns them on and it probably is not property.

If you want to go, do book early, very early, you can book online, and don’t think that their (Sylvia & Juswant ) claims to being oversubscribed are a selling point, they are not. It’s simple, either book early or be disappointed!

At one of the meetings a guy was walking around with a T Shirt on that had printed on it “Wanted x grand”  “Offered a 12% tax free return”. I think he was successful in finding the finance he needed.

I know of another well known investor/educator who needed quickly and raised, I think it was 40k, by carrying around a placard to that effect.

Anyway, need some cash, try a networking meeting and have the b**** to advertise or ask for what you want, but be clear and make sure that you have properly researched your project and that it ALL stacks up, if you don’t some other better prepared person will score over you and at the end of the day there may only be one pot available.

Get Free Expert Research Here …

As with any investment, research is very important but, in the case of buy to let or any property investment, research is absolutely vital due to the long term nature of buy to let or property investment.

The problem with buy to let is that whilst an investor can get a load of information from numerous web sites, often free, it really is necessary to get out and explore the location on almost a street by street basis.

In that way buy to let differs from almost any other investment.

You don't need to physically inspect the company whose shares you are buying or test the coffee.

Every investor whether “thinking about it” or “actual” needs to thoroughly research the area or location in which they are going to invest and we are not alone with this recommendation.

'Research is key' - buy to let mortgages

Extensive research is a vital part of the property-buying process, one industry expert has explained.

According to Timothy Lambert, head of consulting at independent property investment consultancy Ducalian, it is important for buyers to gain an insight into the potential regions they will be purchasing in.

Research Vital in Buy to Let Market - Property Hawk website editor Chris Horne reminded us.

Speak to an expert for advice or research areas where there is a good rental market.
If you do your own research you may want to consider contacting your local authority or housing department and ask if there is a demand for rented accommodation. From The Buy to Let Business

Top of Simon Lambert, This is Money list of do’s “Research the market”

…………….anyone considering buy-to-let needs to be a savvy operator and do their research. Lee Grandin  Landlord Mortgages, managing director

This is the case regardless of whether the investor is going DIY or using the services of an Armchair Investment Scheme such as our “First Choice” Scheme or others on this site.

Researching properties going through Auction is even more specialised, I have recorded a 1 hour Webinar on what I do pre-auction which is split into 4 15min easy to listen to sessions, to listen either click here or on Research on Auctions in the right hand menu.

Most locations are only suitable for specific buy to let investments.

For example:

HB Tenants:

Want 2-3 bedroom properties close to shops and public transport. Locations should have high unemployment and a local benefit culture.

There is little point in investing in an area which has low unemployment or where the Local Housing Allowance (LHA) is to low for your needs.

Also you must be prepared to accept Housing Benefit tenants regardless of the recent change in the legislation regarding direct payments to landlords.

Students & Sharers:

Want 4-6 bedroom properties close to the “action” and within 10 minutes of their University or Public Transport, if they are professional/working sharers, as against students.

HMO’s (Houses in Multiple Occupation) have a very limited appeal and will only prove to be good investments in very specific locations where there is a stable demand for sharer accommodation.

You might expect that to apply to any Town or City with a University, but that will not necessarily be the case.

Researching a location should be carried out on a street-by-street basis and, in some cases, even a part of the street can make a difference between being successful or not.

The proximity to a Public House, road junction, sleeping policeman or other traffic calming measure, commercial premises or factory can easily make a difference and this information is generally not available from any source other than a person who has walked the streets with investment in mind.

A great deal of research work can be carried out on the Internet and the web sites that you can visit broadly fall into three categories.

1. No commercial bias at all

2. Some commercial bias but information can still be relied on

3. Very commercial and information may be presented to justify a position

This is my take on the sites that I have listed and reviewed, you may disagree, but either way you have to either Register or Login to view this research.

All the sites that are listed offer FREE INFORMATION, some may require you to register, like us, but others are completely open.

Also if you know of any sites that you think should be included please email info@buy-to-let.com.

Become a Location Research Expert

To be successful, every buy-to-let or property investor must carry out detailed research on the location in which they plan to invest.

The investment does not necessarily have to be buy to let, it can be buy to flip or any of the other variants, lease options & HMO’s to mention a couple, but the research remains imperative and a cornerstone to your success.

A great deal of research can be carried out on the Internet, if you know what you are looking for.

I have put together and published on buy-to-let.com pages of research content that is almost all Internet based.

The problem with this information is that is does not tell me/you what is happening in a Location like Clapham Junction in London, even though there is a website devoted to this Location.

Another example is a suburb of Oxford called Summertown, and here, outside of Wikipedia, there is no generic information, just the sites of estate agents, restaurants and the like.

Even the sites about the City of Oxford, oxfordcity.co.uk & oxford.gov.uk barely mention Summertown, and the same applies right across the UK.

Investors though need detailed information, as seen through the eyes of an investor, in order to make informed decisions about their strategy in a particular location.

I also suspect that, when the current credit crunch eases off, lenders will want to see much more information on the viability of any investment that they consider lending against and that will include the viability of the location of the investment both in the short and long term.

With buy to let.com you can both learn how to research a location plus write up your research in a pre-set format and have it published on www.buy-to-let.com under our Research heading, go take a look, you will have to register first.

We already have a few locations up and more will follow in the next few weeks with the existing locations being both improved and enlarged.

You will not only learn a great deal more about your favourite investment location, making you own investments safer, but develop knowledge that other investors will pay for on a consultancy basis.

If you are interested in becoming a  Location Research Expert, and you don’t have to be actively investing, just seriously thinking about it  is enough, then please email me at david@buy-to-let.com with the subject heading Location Research and I will send you further details on how you can participate in this exciting scheme. A little about yourself would be helpful plus your investment location.

...by bringing you the

• movers and shakers,
• scams and rip offs,
• news & expert opinions,
• seminars & workshops,
• lecturers & consultants,
• solicitors,
• accountants,
• mortgage & insurance brokers,
• exhibitions & events,
• armchair investment services,
• books, publications & software,
• networks & associations,
• specialist suppliers,

in fact anyone who we, or you for that matter, think can bring something worthwhile to the party.

Plus providing you with some of the essential tools that will make your investments as safe, secure and profitable as possible regardless of market conditions which, at present, are pretty dire and yet present huge opportunities if you can only recognise them.

Although we are also a

• mover & shaker,
• express our opinions,
• run workshops and offer an armchair investment service
• plus plus

you will find on this site other experts who do much the same.

Buy to let is both complex and varied and no one person or business can really deliver all you need to know on all aspects of the subject.

Generally you will find that a single business specialises in one or a few aspects and for that reason I am more than happy to promote people who may be regarded as competitors but who I regard as experts in their area of speciality. You may ask how do I know they really are expert, in many cases they were students of mine!

Also this is not completely altruistic as, in most cases, I am paid for introductions which helps keep the majority of this site free to user.

So if you are interested in any of the businesses that I feature on this site click through to them from this site or please mention buy to let.com when contacting them. I need the money!!

I do hope you enjoy this site, find it useful and do let us have any feedback whether actually relevant or not as it is always nice to hear from fellow investors even those just thinking about it.

If you are going to invest in buy-to-let you will need some education and not just from books.

Also one seminar, workshop or course from one source will not necessarily be enough just as one book on any subject is seldom if ever enough.

Do not be misled into thinking that self-education is good enough unless you are prepared to pay, often dearly, for the mistakes that you will make.

Mind you, you will still make mistakes even having spent money on a course or seminar, it is just that they, the mistakes, will probably not be as expensive.

Why do you need educating?

Buy to let is very complex, for reasons I will cover later, and yet needs to be able to be compared with any other form of investment so that any investor can make an informed decision and understand the risks.

Shares for example can be simple. You buy a share for £ 100.00, it pays a dividend of 5% so you receive £ 5.00 at the end of the year, which is 5% of your cash investment, less any income tax and the share increases in value by 5% so you have made a capital gain of £ 5.00, which is also 5% of your cash investment, and if you sell your share you may have to pay CGT dependent on the amount of the Gain.

Property is very different. You buy a property for say £ 100,000 and receive a rent (dividend) of £ 5,000 (5%) out of which you will have to pay certain costs before arriving at the net amount on which tax is payable, and this may be less than half the 5% rent dependent on the type of mortgage you have. Fixed and your net return should remain constant, variable or tracker and you net return will be up to your lender or the Bank of England (Base Rate Tracker)

If the property in empty for any period your rent will reduce as will the percentage return, a share cannot be empty, and you cost could increase, utility standing charges & council tax, a share does not consume electricity or carry a holding tax at the moment.

If your property requires any repairs again your net rent will reduce as will the percentage return, you cannot repair a share, but it can go bust, a property can’t go bust, well not really.

The capital gain position is similar to shares provided that you bought your property with cash, if the value rises by 5% then you have made a gain of £ 5,000.

The major change to comparing apples with apples comes into play when you borrow part of the cost of buying the property.

Such borrowing is common with property but generally not as common with shares.

Assume that you borrow 75% of the cost of your £ 100,000 property so you are only investing £ 25,000 of your cash, the returns as percentages of your cash change dramatically.

You will pay interest on the amount borrowed which may reduce your 3% return on the cash above to 1% or £ 1,000 but that £ 1,000 is not a return on the £ 100,000 cost of the property but on your cash of £ 25,000 and £ 1,000 is 4% of £ 25,000, so in percentage terms you are better off.

In the case of capital gain, if your property still increases by 5% (£ 5,000) then the £ 5,000 becomes a percentage of your cash of £ 25,000 or 20%.

For the purposes of these examples I have ignored any transaction costs which will be higher with property than shares but would be amortised over the period that the property is kept.

This is a very simple example of why any investor needs to understand the financial dynamics of buy to let.

There are many more factors to take into account each of which can impact on the level of risk, performance & net of tax income to mention just three points.

Unlike shares, there is also a whole raft of laws & regulations that you need to know about, some of which are criminal law and, like shares, you need to know or learn how to pick a good one, that is a property & a tenant to make it work.