A Question of Property - Ep 14 - Paul Mahoney, Stefano Lucatello & John Howard - Nova

A Question of Property – Ep 14 – Paul Mahoney, Stefano Lucatello & John Howard

Lucia France:

Hello everyone. And welcome to our 14th episode of A Question of Property. We have been in lock down for seven weeks now. I’m your host Lucia France and I’m joined by our lovely panel of experts. John Howard, our property expert of more than 40 years experience. And also, three different books on the topic including Buying and Selling at Auction. Stefano Lucatello, senior partner at Kobalt Law International Property Lawyers. And Paul Mahoney, best selling author, award winning property speaker, and head of Nova Financial Group. So, welcome to you all guys.

Stefano Lucatello:

Hi.

Lucia France:

And we’ve got one question to start you all off today. How are we going to look back on 2020 in years to come? And let’s go to Stefano for that question first.

Stefano Lucatello:

“Annus horribilis,” as the Queen says. I suppose, every kind has two faces, two sides. So, some people will be seeing it as a great year because for one person’s downfall, sorry, there is an advantage for somebody else. And there will be people who will be making money on the money markets. There will be people making money on the property markets. Certainly, one thing is certain, that whatever business you’re in and whatever profession you’re in, if you’ve got cash in your pocket, cash is king, and you can go out there and you can do whatever you need to do.

Stefano Lucatello:

For those people who have got the reserves and were careful in the past, I think now is their time both here and abroad. And there’s some good buys to be had and some good things to be had. Certainly, for most people it’s not the best time in the world, but there will be those people like the money players that play the markets and stocks. They’ll be doing something somewhere in the world.

Lucia France:

Okay. Thank you, Stefano. Paul? What’s your thoughts on this one?

Paul Mahoney:

I think it’s mixed everything up hasn’t it? We’ve been forced to re-assess our … Pretty much everyone has been forced to re-assess their business in some way. I know that we have. We would have never dreamt of working from home previously. And now, we’re realizing it actually works quite well. So, we’ll probably continue doing so in some way, shape, or form. I think a lot of people are realizing that they don’t need to have the big flashy office in the center of the city, especially for their whole team. That’s something that most people I speak with are starting to realize that are now working from home, obviously during the lock down.

Paul Mahoney:

But, I think we’re thinking something similar. We’ll still have a presence there, but we’re unlikely to have all of our team traveling into a big, expensive, flashy office every single day because it’s probably not needed. And that’s been forced upon us. But I think in some way, it’s a positive thing, because it’s made us realize there are ways in which our business can be more productive, or more efficient.

Lucia France:

Paul, just a quick question there on that note. What’s been the reaction from your team in terms of working from home?

Paul Mahoney:

Well, they haven’t a choice, have they?

Lucia France:

No. True. True.

Paul Mahoney:

So, I think by now, from speaking with them, most people are used to it. They’ve got used to working from home and they’re not necessarily that they like working from home all the time, but that they do view working from home sometimes as a positive thing. So, we’re discussing all sorts of different options for our business when this is all over. And one of the key ones that we’re talking about is maybe doing a hot-desking type situation. Still having the central London office, because for a business like ours that’s important. But, not having 35 desks, maybe having 10 or something. And maybe, doing a five-day fortnight in the city, and the balance at home. Something along those lines. Which, we would have never dreamt of doing without this being forced upon us.

Lucia France:

Obviously, lots of hand sanitizer on the hot-desks as well. And John, what are your thoughts there?

John Howard:

Well, the first thing, I’ve never had a big flashy office, sadly. Sorry, I don’t know what happened there. I said, I’ve never had a big flashy office, so I can’t really comment on that. I’ve worked from home for 35 years. But, I want-

Paul Mahoney:

You’ll get there one day John.

John Howard:

Paul, you’re saying?

Paul Mahoney:

I said you’ll get there one day.

John Howard:

Yeah, thanks. Although to be fair, I’ve always been on the road. And I’ve never been home to be fair. I’ve never really enjoyed … I think a lot of people enjoy their homes a lot more during this lock down because they’ve got on and changed things, and done their gardens, and so on. So, I think it’s been good for most people. I know some people have struggled, and that’s very sad mentally for it all, but I think for a lot of people it has realigned their situation. Like Paul said and Stefano said, people are re-assessing their lives, and they’re reassessing what they want to do, and it’s a huge game changer this year.

John Howard:

I don’t think financially this year’s is going to be too much of a problem for most people because they’re on furlough. A lot of them have taken these small loans out from banks, and so on. Next year however, it’s going to be very different. Next year’s going to be seriously tough. When the Chancellor Exchequer says openly to the public, “We’re going to be in recession, a recession that we’ve never known before.” When a politician says that to you, you know we’re in for a very tough time, very, very tough time. And yes, some people will fly during that time and others will suffer, but it’s looking pretty grim for next year.

Lucia France:

Okay.

Stefano Lucatello:

That’s for next year?

John Howard:

Yeah. Next year.

Lucia France:

Cheery thoughts then.

John Howard:

Cheery Jordan. Some like me. Some like me. I know, but it really is very, very serious.

Lucia France:

I guess the thing is as well is that nobody really knows. It’s just that it’s-

John Howard:

No, we don’t know. We’re all guessing. We’re all guessing, including the Chancellor, but he’s presumably got a bit more of a clue than the rest of us.

Lucia France:

A bit more. Yeah.

John Howard:

Yeah.

Lucia France:

Exactly.

Paul Mahoney:

No one listens to politicians now, do they?

John Howard:

Well, I think you’ll listen to the next Chancellor Exchequer, Paul.

Paul Mahoney:

Yeah. I do? Okay.

Lucia France:

Okay.

Stefano Lucatello:

We’re going to have a decade of austerity. And as we’ve only just finished-

John Howard:

A decade?

Stefano Lucatello:

A decade, at least.

Lucia France:

Decade?

Stefano Lucatello:

And as we’ve just only finished, someone said the other week, Paul Andrew Martin said that, “We’ve only just finished paying America and Canada back for the assistance that they lent us in the Second World War.”

John Howard:

Yeah.

Lucia France:

Wow.

John Howard:

Amazing. Amazing.

Lucia France:

Well, if anyone was watching, they’re still feeling a bit down and in the dumps-

Stefano Lucatello:

Just shoot yourself now.

John Howard:

Shoot us now.

Paul Mahoney:

I think, to look at things slightly more optimistically, potentially, we might have a tough year next year. I think a decade of austerity is a bit harsh. But, as John quite rightly said, there are still great opportunities. There’s still a lot of money to be made even in a bad economy.

Lucia France:

Absolutely. In fact, yes.

Paul Mahoney:

So, if you do things smart and you do things right, and you follow the trends, and you take advantage of the opportunities, it’s not like everyone’s going to be broke next year. There will be people making a fortune next year. Unfortunately, it will probably be your average worker that’s going to be troubled the most.

John Howard:

Yeah, I agree.

Lucia France:

I think [inaudible 00:08:05]-

Stefano Lucatello:

Everyone’s going to be buying property and coming on your property courses John and Paul.

John Howard:

Well, I think though, a lot of running around now, trying to buy now, Stefano. And I think that’s too early, personally.

Lucia France:

Okay. Right. Let’s move on with our actual viewer questions then, shall we? So, back to-

John Howard:

Yes.

Lucia France:

… John first for your first question here today. So, this person says they’ve just purchased a property and have the opportunity to send it in on to somebody else immediately. “What would you consider to be the right amount of money percentage-wise to sell it on for, rather than just develop it myself?”

John Howard:

Well, first of all, congratulations because they’ve gotten themselves in a great position. When I’m in that position, I was always taught by my first backer, a guy called Robert Boyce, who I still see now and again. Robert always said to me, “John, if we buy a property and we can sell it on immediately, we want to be making 50% of what we would have made if we kept it and developed it.”

Lucia France:

Right. Okay.

John Howard:

So, I would say in this market I would loan it out a little bit, because I think that you can get the money back in and probably buy even better next time the way the markets going. So, I would say if you’re making 30% to 35%-plus, then take it. I would be very careful that actually, you’ve got your cost right. That you are going to make a lot more money if you keep it. So I mean, for instance, if I buy land and get planning on it, I can almost make as much money out of selling on to a builder than I can if I built it myself, because it costs me that much more to build a property than it does a builder themselves getting their hands dirty because I don’t get my hands dirty. So, be smart about it. At the moment, I really advise people to be fleet of foot. If you’re buying and selling, you want to be in and out quickly. If you’re buying-

Lucia France:

I love that.

John Howard:

… long-term or you buy to let, that’s different over 20, 25 years, I understand that. So, I would take 30%-plus. Yeah.

Lucia France:

Okay. So, 30 to 30% if they’re just to sell it. So, immediately out.

John Howard:

Yeah. If they’ve paid $100,000 for it and they can sell it for $130, sell it.

Lucia France:

Yeah. Okay.

Stefano Lucatello:

Just one point there. What about the Stamp Duty on flipping John? What does that give you?

John Howard:

No one ever, ever would with the figures that I give in terms of profit, in terms of when you talk about percentage of profit, yes, you have to build in the Stamp Duty, but never building the tax. So yeah, don’t put in personal. Some people say to me, “Oh well, what about my personal tax I’ve got paid 40% on that.” Well, you can’t organize, to me, everything. At the end of the day some people range 25% percent might be in the company, might be 17% tax, or whatever. So, at the end of the day I never consider the tax situation, but you must consider all your costs, and including Stamp Duty, of course.

Paul Mahoney:

I agree with that for all types of investments. Look at your net, so post-expenses, pre-tax return.

John Howard:

Yeah, pre-tax. Always pre-tax. Yeah. Good point there Paul.

Lucia France:

Great. Great, thank you very much there John. Okay, Stefano. This is your first question for today. “You mentioned in a previous episode Stefano, that there can be a dispute between who owns the land and built land, and who owns the buildings in certain Countries. Which Country were you referring to specifically?”

Stefano Lucatello:

Spain.

Lucia France:

Spain. Okay. Any thoughts on that?

Stefano Lucatello:

I mean, it can apply in any Country. But, I’ve come across it only in Spain where, as we said in a previous episode is right. That the land is owned by one person or entity and the, and usually a developer, and the house itself is owned by somebody else. Now, there are various reasons for this. Because in Spain especially, when a developer sets up the regime of selling plots to people for taxation purpose, sometimes what they do is they have a marketing company and they have the developer. And it’s the marketing company … You’ve got to be very careful in the contract that you enter into as a proposed purchaser of a plot of land because you may be entering into a contract with the marketing company and not the actual owner of the land.

Lucia France:

Right. Okay.

Stefano Lucatello:

And that’s where it comes about. The differentiation between the owner of the land and the owner of the property, that’s where it becomes bad. But suffice it to say, that when you instruct someone to do searches, that should come about, it should be visible. And in Spain, you’ve got to land registries. And one tells you one thing, one tells you something else. One is very similar to our land registry, the other one is an administrative tax. And you should do a search in both because you put them together you get the full picture, and we always do that. So, you must be careful. The problem you could face if you get it wrong, and there have been people, and we have acted for people to extricate them, is rather like where, in the northwest over the last few years there’s been a spate of bogus homes, beltway homes, and all the others who are selling homes and they’re selling you a leasehold. And then, you’ve got the annual rental-

John Howard:

Ground rent.

Stefano Lucatello:

… the annual rent, the land goes up, whatever it’s called. And it’s been-

John Howard:

Ground rent.

Stefano Lucatello:

Ground rent. Thanks John, yeah. And Persimmon I think are the ones that did it. So, it’s very similar to that. So, you’re being held to ransom. So, when you come to sell your home in Spain you will be held to ransom because the guy who owns the land says, “Well, I won’t give you my permission on the document unless you give me a percentage of the sale value, a fixed fee,” whatever it is. So at all cost, you must avoid that.

Stefano Lucatello:

Ground rents don’t exist in Spain, France, Portugal, civil law jurisdictions, leaseholds don’t exist on such. They do exist for business purposes and short-term rents, one thing or the other, but you don’t have things like 125-year, 99-year, 999-year leases. You buy a freehold. And the anomaly is, that when you buy a ground floor, whether you’re buying a 10th floor, you’re buying freehold because it’s called a … There’s a law called the Law of Horizontal Division, which in effect, creates a flying freehold which to us in England and Wales, and Common Law Countries is an anathema.

Stefano Lucatello:

So when you buy it, you buy a freehold, even though it’s on the 10th floor, so that’s what you’ve got to be careful of. And that’s what could happen. You could be held to ransom when you sell the property by the person who owns the land saying, “Yes, you own the property itself. But, I own the land upon which it sits and I’m not letting you have good title to sell on.” And it could become a criminal matter as well.

Lucia France:

Right. Okay. And in terms of people who are wanting to sell on, if they’ve gone through the Notare, et cetera, and done everything the correct way, that, I presume, wouldn’t be a problem then?

Stefano Lucatello:

Well, the Notare, in Spain the Notario-

Lucia France:

Sorry.

Stefano Lucatello:

… the Notario has a legal obligation as I said in a previous program, to give good title, because he is an extension of the government. He’s your representative of the government for tax purposes, collection, and payment. And he is the representative of the government for giving good title. So, he would, and if he’s a clever guy, he will, in his notarial document deed, [foreign language 00:15:31], he will give a caution. He will say, “I have told the parties that one person owns the land and one person owns the property. They have both understood clearly what the situation is and the implications. I have exonerated myself from any future liability.” And they put that in black and white. And if he doesn’t, mind you, if you find yourself in that position as the owner of property you can’t sell because the owner of the land below you is saying, “I’m holding you to ransom,” is I would pay the ransom, and then I would sue the Notare or the Notario because he’s being negligent.

Lucia France:

Right. Okay. Great. Thank you very much Stefano. Okay, let’s go to Paul then for your first question for today. “Could Paul please explain why he thinks that buying a number of buy-to-let properties would be better for me than investing in the stock market over the same period of time? For example, 20 to 25 years.”

Paul Mahoney:

Okay. All right. So, cash-bought property and cash-bought shares on a returns basis are relatively similar. And what I mean by that means you’re going to get some form of yield and hopefully, some form of capital growth. And when we look at that, the sort of average returns from that, you’re probably looking at somewhere between 5 to 10% yearly returns on your cash investment. The major difference between cash and … Sorry, property and shares, your shares are a lot more liquid. Meaning, you can get your money back within three days assuming there’s someone there to buy from you, which they usually would be if it’s a publicly listed company.

Paul Mahoney:

And property is much less liquid, meaning that it’s more difficult to get your money out. But, that’s not necessarily a bad thing, because property saves you from yourself a little bit in that people are far less likely to buy and sell property on a whim, whereas people do that with shares. So, shares is a much more volatile market because people do buy and sale on a whim. If they see on the tele of a morning that China’s having economic issues, they sell their shares. And that means that the price drops. Whereas, property moves a lot more slowly and therefore, it’s a more robust market.

Paul Mahoney:

But, the reason that we prefer property to other types of investments, the main reason is leverage. The fact that I can take a 50,000 pound deposit and buy a 200,000 pound property with a 75% mortgage, a relatively high loan-to-value. [inaudible 00:18:13], so 2 or 3% in the current market, depending on the property in your situation. Over the long-term, with, we’re looking 10, 20-plus years, with no ability for that lender to recall the mortgage regardless of what happens to the value of your property. Meaning that, even if the value of your property dips substantially, there’s nothing the lender can do so long as you are servicing your mortgage. And that means it’s very low-risk because we’re investing in a tangible asset, that are often made of bricks, it’s not going to disappear overnight.

Paul Mahoney:

If it’s in a decent area, it’s always going to have an underlying value. And if we’re investing based upon the right fundamentals that drive demand, we can be pretty confident and pretty well always having a tenant as well. And therefore, you’re always going to receive rent. And that’s another big difference between property and shares is, in a recession, if a company is struggling, they stop paying dividends, so there goes your yield. Whereas, in a recession, good properties still pay rent. So, you’re still receiving your rental income, you’re able to service your mortgage.

Paul Mahoney:

And if the cost of the debt is, let’s say 2%, and you’re receiving your mortgage, which more than covers that cost of debt, and you’ve got the potential for capital growth on the asset as well, we’re generally aiming for returns from sort of 75% leverage properties of between 5 and 10% net yields on the cash invested. So, that’s just the cash. So, the 50 grand example for it let’s say, you’re getting two and a half to 5,000 pounds of net cash flow in your pocket per annum, which is nice. But then, if you’re getting a relatively average 5% uplifting value on the asset … So, let’s say your savings are a 200 grand asset. If that uplifting value to 210,000, so that’s 5%, and the UK average for the past 20 years is 5.5% per annum, which includes two recessions, so we had the dot.com bubble in 1990-2000, we had a credit crunch in 2008. We had a dip in the market there, but the average is still 5.5.

Paul Mahoney:

A 5% uplifting value on the asset is a 20% uplifting value on your cash. So, you put those two figures together, you’re at 25 to 30% per annum on the cash you’ve invested without setting the world on fire with regards to the asset returns. So, it’s the leverage that does that. So, we can invest in an average property but be getting 20%-plus returns on the cash we’ve invested. Now, there’s no other investment option that you can do that whilst taking a relatively low level of risk. Some investment funds might give 20 or 30% return every now and again. Very, very few of them do it consistently. And if the market dips substantially, for example, if we do have a recession the end of this year or next year, and the market turns negative, they will report on relative returns. So, they’ll say, “The market fell by 10%. We hardly fell by 5%.” That doesn’t happen with property.

Lucia France:

Yeah.

John Howard:

No.

Lucia France:

Would you say that there were any-

Paul Mahoney:

So, that-

Lucia France:

Sorry, that there are any circumstances where you would recommend stocks rather than property?

Paul Mahoney:

Look, I think if you already have a large asset base, then it’s worth having diversification. It’s obviously a great luxury to already have a lot of money. And if that’s the case, then it’s worth diversifying across asset classes. But in my opinion, it’s very difficult to compete against leveraged property when it comes to risk versus return and certainty of returns. Because as I say, we can buy … As long as you’re buying properties that are going to rent pretty much all the time, and there in areas with the right driving factors, we can have a relative amount of confidence in getting very strong double-digit returns on the cash we’ve invested without out-performing the market. If you do out-perform the market, you do even better. But, you don’t have to, to do well.

John Howard:

Can I say something?

Lucia France:

Please.

John Howard:

It’s a no-brainer. So, property is like Paul said. I mean, it might extremely well, is far safer, far more sensible to invest into. You don’t need to be the expertise that you need in stocks and shares. I mean, I don’t know about you but I look at stock … If I’m ever looking at buying some shares they also have to go down in price because I’m looking at my time as time of disaster where shares are concerned. One thing I would say, and Paul may know the answer to this, he may not, but they say that property in a recession normally drops half the level of shares.

Paul Mahoney:

Yeah. Well, I have some figures on that.

John Howard:

Yeah? Thought you might.

Paul Mahoney:

The last financial crisis we had in 2008, excuse me, the Footsie share index fell by 32% just in 2008. And the property market fell by 8%.

John Howard:

There you go.

Lucia France:

Right. So, not even-

Paul Mahoney:

In 2009, it fell by another average 8%, so the total downturn of the last financial crisis which was a credit crunch directly linked to property across the whole of the UK was 16%. Which, isn’t too bad when you consider.

John Howard:

No. It isn’t at all.

Paul Mahoney:

Yeah.

John Howard:

Because in the meantime, of course, like you said, unlike shares where the dividends’ cut, and you get nothing, you’re still good going into it.

Paul Mahoney:

Yeah. Exactly right. And that’s the point. If you’ve got a tenant, and you’re receiving your rent, aside from reading the meteor and then, telling you the market’s bad, you don’t even notice the value of your property is fallen.

John Howard:

No. No, exactly. And you’re keeping it long-term, it swings around about in the end, you’re going to be a lot higher.

Lucia France:

Okay, that’s great. That’s a really great answer. Thank you very much, Paul. Okay. Let’s go to Stefano. Back to Stefano. “I am seriously considering purchasing a property in the South of Italy. Is there a better time of year to purchase a property there or does it not matter? And, how long will the purchase approximately take?”

Stefano Lucatello:

I always say to people when you buy property abroad, go out and see it in its best times and its worst times, Spring, Summer, Autumn, Winter. The buying process should take you 12 to 18 months. You should research the property market well. Research the area. Do your due diligence on the vendor or developer, whoever it is you’re buying it from. And get your ducks in a line. To do otherwise is fatal in my view.

Stefano Lucatello:

A number of people have bought abroad without having, almost like John’s analogy in the previous program, of going to an auction and buying without having any funding in place, having looked at the legal pack and all the rest of it. So, you need to do your proper due diligence. It’s true to say that the estate agents abroad sell their properties in the Spring and the Summer at the most, because they’re counting on the sun to sell the property. I was always taught by another lawyer that I worked with that the five S’s to sell property in Spain for example, that’s sun, sea, sand, sex, and Sangria. And it’s still the-

John Howard:

I like that.

Stefano Lucatello:

Yeah, you won’t forget it John, will you?

John Howard:

No, not all of them.

Lucia France:

He’s writing it down.

Stefano Lucatello:

When I do my talk-

John Howard:

I’m writing it down.

Stefano Lucatello:

… I always say that. And the number of the people that have to pick themselves up off the floor. But if you think about it, when you are on holiday, people get bored after 10 days. And buying a property in that period of time when you’re on holiday, when you are in holiday mode, and both of you have written books on property and I allude to it in my book as well, know that when you are in holiday mode, it’s not the right time to buy a property. You have to go out and not be in holiday.

Stefano Lucatello:

Maybe, you need to be in business mode and buying mode, otherwise the agent will [inaudible 00:26:50] on to it. And usually, being totally sexist, and totally Italian here, there are usually blondes or brunettes with long legs, flashy, short skirts, high heels, and they go for the fella because they know that next thing, they can whip you up into an estate agent’s office. And the next thing you know, the fella’s whipped his credit card out and he has put a deposit down only to cause grief for the wife or the girlfriend coming back. And then, I get a call when they land at home beside airport. And they say, can they sort me out. So, there’s never a better time-

Lucia France:

As an example of what could happen, obviously.

Stefano Lucatello:

As an example. Yes, there are many of those. As there are many other airports.

Paul Mahoney:

The men sell property in Italy as well, Stefano.

Lucia France:

Yeah, exactly.

Stefano Lucatello:

Say again?

Paul Mahoney:

The men sell property in Italy as well or not.

Stefano Lucatello:

The point I’m making is that you’ve got to be mentally driven, and you’ve got to be in the right frame of mind to buy a property. Otherwise, the estate agent will sell you what he or she wants you to buy as opposed to what you want to buy. And that’s the point I was making in seminars. Going to 100 estate agents, and because they all use the multi-listing system like the American listing system, you can go to any estate agent, they all have the same properties, whether they’re a Century 21, or whether they’re one of the other Italian agencies. So, the point is, that you should see it at its best and its worst. They sell in Spring and in Summer. They do sell around the year, but especially in places where like Sicily, which is nearly African, the sun’s there most of the year. And what was the other part of the question?

Lucia France:

The other part of the question was, does it-

Paul Mahoney:

How long will it take?

Lucia France:

… is there a better time of year to batten the property down? Does it not matter? And you say, “Look, it’s probably [crosstalk 00:28:36]-

Stefano Lucatello:

It doesn’t matter. It doesn’t matter. I mean, I think I alluded to this. The process for buying a property abroad is the same wherever you go. If you’re lucky, and everything fits into place, you should from the moment you like the property and you say, “I want to instruct the lawyer,” to the moment you complete should take you no more than 12 weeks.

Lucia France:

Right. Okay. Fantastic.

John Howard:

Stefano, did I hear you wrong or did you say it would take 12 to 18 months?

Stefano Lucatello:

No. What I’m saying is … What I always say to clients when I see the exhibitions or they ring me and say, “I want to buy,” I say to people, “You should take 12 to 18 months-

John Howard:

Right. Right, right, right.

Stefano Lucatello:

… to do the due diligence.” Because, many of them say, “I want to buy in Spain.” Okay. And you say, “Well, where do you want to buy? ‘Oh, I don’t know.’ Have you ever been to Spain? ‘No.'” You laugh John, but the number of people that come to me and pledge at some exhibition that I had a stand, and they say-

John Howard:

Really?

Stefano Lucatello:

And you know the tire-kickers because you can tell them. And they say to you, “I want to buy a property in Spain. ‘Oh well, fantastic sir. Where would you like to buy?’ I don’t know. ‘Have you ever been to Spain?’ No. ‘Well, go to Spain-

Paul Mahoney:

We get asked questions like that all the time as well, Stefano, so far as people saying they want to buy a property investment in Portugal. And you say, “Why?” And they say, “Well, surely Portugal is a good place to invest.” It’s an assumption because they’ve been there once and they liked it. And therefore, they assume it’s a good investment.

Stefano Lucatello:

But, after the recession-

Lucia France:

All right, guys-

Stefano Lucatello:

Just picking on that. Sorry, to interrupt you, but just picking up. You picked a great Country. Portugal is the best Country in Europe in my view to buy in for the sort of person that comes to you in the English market for a rental yield and increase in capital, a capital appreciation of property. Why? Because Portugal is so small that there are less in number of properties available, that the property prices are always high. And throughout all the recessions that we’ve had, and they’ve had a few, Portugal has always come out top in maintaining its capital value and its rental yield of all the Countries in Europe to buy.

Lucia France:

I just had a quick question Stefano. Can you legally define the term tire-kicker?

Stefano Lucatello:

Yeah. A tie-kicker is someone who comes to an exhibition and you’re there, and they have no intention of buying, but they use your knicker pen or the knicker suite and they waste your time. They’re a time-waster basically.

Lucia France:

Right. Okay. So, I get you.

Stefano Lucatello:

It’s usually because it’s raining. It’s usually raining and it’s in Olympia where we exhibit or the place we refer to them. They come with the crumbs, and they come with the kids, and they’ve got nothing better to do to keep the kids entertained, so they say, “Well, let’s go to the exhibition.” They waste my time. They block the aisles. And as I say, the kids come onto the stand, they knick the suite, they knick everything else.

Paul Mahoney:

You can tell the people that aren’t worth talking to at these trade shows because they pick up three pens.

Lucia France:

Right. Okay. It sounds like-

John Howard:

I’ve got a minute. I’m always picking up-

Lucia France:

… we’re running out of time.

John Howard:

I’m always picking up free pens off people.”

Stefano Lucatello:

Yes.

Paul Mahoney:

Well, there you go. You said it yourself. What about me John?

Lucia France:

Okay. Right guys. Thank you very much for all that. [inaudible 00:31:47] about this. Okay. Onto to John’s next question. It’s worded a bit unusually here. “I’ve heard John bang on about his three golden rules.”

Paul Mahoney:

Right. He does bang on, doesn’t he?

Lucia France:

I have no idea. “But, I don’t seem to be able to find a deal that allows me to do that. Can John help, please?”

John Howard:

Okay. So, the three golden rules I work on are if you’re buying a property you should be able to sell it immediately at a profit. The second thing you should be able to do is refurbish it if it needs refurbishing, and sell it at a good profit. And the third thing you should be able to do is buy it, refurbish it, rent it and refinance it, and move on to your next deal. And what I say is, if you can’t do all three of those, ask yourself the question, when you’re looking at a property, can I do all three of those things? And if the answer is no, I can only do one of those, or even maybe two, then you have to question whether you should be doing it at all.

John Howard:

Now, I’ve taken a bit of stick on this on property tribes and so on, a number, because people have come back to me and said, “Well, I can’t do that.” Well, don’t buy it. Go and find a deal you can do. People seem to be so quick to want to just buy the first thing they see nearly when they know how much they can pay and so on. And that’s where it’s so important to talk to professionals, and find out from them how they do it. So, you’re not looking in … First of all, you should be looking in the domestic marketplace.

John Howard:

So, we’re right in moving all these other portals. Most of the property I buy is off-market. It hasn’t been through, or if it has been on the market, it’s been on the market a long time and not sold. And they’re ready now for a sensible bid on it. Because, you’re not looking, you’re trying to find a needle in the haystack, I accept that. But, you’re not on the whole, going to find it when everyone else knows about it. So, you’ve got to be ingenious and you’ve got to find ways of finding properties that are not sold on the market, or you can offer them first and no one else does, or you can get hold of a building site and a list of all the repossessions and they’ll deal with you direct.

John Howard:

There’s lots and lots of ways of which you don’t have to go down the same route that everyone else goes down. Of course, contacts are the most important thing. Someone else might have found a really good deal and be prepared to sell it on to you. And it’s still a good deal when you buy it. They take a profit, and you take a profit out of it. So, you’ve got to have a dealing mentality. It’s no point just thinking, “Oh well, I’ve got this pot of money. I’m just going to go and spend it.” You might take six months to spend. You might take a year to spend it. It’s not about the amount of property deals you do, it’s the fact that when you do them they are successful.

Lucia France:

Yeah, okay.

Paul Mahoney:

John, if I can just scale to that slightly because obviously, John has a very entrepreneurial kind of business, hands on approach to property. And I agree with you on that if that is what someone is wanting to do. However, that’s certainly not the only way to invest in property. Many of our clients for example, are professionals. They’ve got a full-time job, and they have a family, and they don’t have any time. And they don’t want a second job. They don’t want to be going to auctions, or seeking out the best possible deal they can possibly get because that takes time they don’t have.

Paul Mahoney:

What they do want is to better utilize their resources by investing in property. So I suppose, in our view, property isn’t always about having to get the biggest possible discount and seeking out the best possible deal. As much as it is sometimes about actually getting exposure to it and taking cash, or taking equity in your home, or your other properties, to build a portfolio.

Lucia France:

And again-

Paul Mahoney:

So, everything just depends on what suits you and your personal criteria.

Lucia France:

… maybe they-

John Howard:

Paul, sounds like I’ve been doing it wrong for 40 years.

Paul Mahoney:

No, no. I’m not saying you’re doing it wrong at all John. But, this is what you do all day, every day. And you have the time and the knowledge, and the experience to do it. Whereas, if you’re a full-time doctor, that person doesn’t have the time nor the experience.

John Howard:

No, no. I completely agree with you Paul. And even those people, even those people should be going on Rightmove or one of the other portals and just buying a property, they need to come. If they like that, and I understand that, they need to come to people like you who can organize discount for the amount of property, and can guide them through that process. And the ones that go off piece, if you like, and do it themselves, I can’t tell you how often it’s a waste of their time. They really need to seek advice. And it’s not hands-on, I understand that, but they need to be going to people like you who can advise them accordingly.

Lucia France:

Great.

Stefano Lucatello:

I keep reading all these books about making money without this and without that. And people like you in their courses in the book refer to property sourcers.

John Howard:

Oh, show-me-not is they do.

Stefano Lucatello:

So, who are these property sourcers that aren’t for-

John Howard:

[crosstalk 00:37:34]-

Lucia France:

So, we can.

Paul Mahoney:

I think we need to be a little bit careful here so that we don’t get sued, but go on John.

John Howard:

Okay, so let me tell you about property sourcers. So, I call them deal-finders. And I’ve got a number of deal-finders who find me deals across the UK. Some earn good money a year, some don’t. But I’ve got one guy this year’s going to earn $100,000 off me. Others have earned $200 over the years. Some, have earned $10,500, whatever. So, we have paid 2% finders fee to anyone who can find us a good deal. And that’s why we end up finding good deals.

John Howard:

So, there’s been a new breed which have come out through these property education conferences and so on. And they’re now called property sourcers. And a property sourcer basically sources deals for other people. Now interestingly, I still source deal from people. So, if I get offered a property and it’s not for me, but I know someone else who might buy it and give me 2%, of course I’m going to tell them about it. And I do that all the time. I’ve got two or three on the go at the moment which is great.

John Howard:

So, it’s nothing new. They’re now called property sourcers. The problem with them is there’s so many of them. A lot of them have got very little knowledge. When you consider it, everyone at Savills, everyone at Night Frank, everyone at Chestertons, all these other big firms ultimately, they’re all property sourcers because they will be retained. They’ll ring you up and say, “John, we’ve been offered this. The client’s come to us, needs to sell this, are you interested in buying it?”

John Howard:

So, they’re basically property sourcers. But, their charts are the best, and they’re qualified, and they know what they’re talking about. The problem is that some of these property sourcers, not all, some, haven’t got a clue what they’re doing, not a clue. Off-market deals, all this city talk, they don’t understand a property deal, nevermind be able to find you one. So, I’m very dubious about most of them. Not all of them.

Paul Mahoney:

Yeah. That’s part of the problem. We’ve been-

John Howard:

Not all of them, but some.

Paul Mahoney:

Sorry to cut you off John. That’s-

John Howard:

No, it’s fine.

Paul Mahoney:

… part of the problem with these property courses that teach people how to be a property sourcer. The amount of people we meet, especially if the property shows that-

John Howard:

[inaudible 00:39:55]-

Paul Mahoney:

… they have a business card that say that they’re a property sourcer. Talk to you about them being a property sourcer. But, they don’t own any property and they’ve got your money. So, that’s their entry into property. And I think, unfortunately, these people fall victim to slick sales tactics of these guys who are selling courses. They spend 5 or 10 grand to learn how to be a property sourcer. But they very quickly realize you can’t really make money in property without having money or experience.

John Howard:

And also Paul, I’m not knocking them because if you’ve got no money and you’re starting out, and you can earn some money to deposit down on a property, I’m not knocking these people at all. I admire their enthusiasm and I admire what they’re trying to do, but they need to have one, more knowledge, and two, far more contacts. I got offered a deal now via LinkedIn or something, and it’s been offered … It’s gone through three property sourcers until it gets to me. And the story’s been muddled and it’s just a mess. And it’s so frustrating because there are some good ones I’m sure. And I’m constantly trying to find those good ones all the time because it’s the life blood of my business.

Paul Mahoney:

Yeah. The unfortunate thing I think about the way part of the property industry has gone is, as I say, a lot of people, especially if they’re just starting out have fallen victim to these property courses and that sort of thing. And you’re learning about, back to what Stefano mentioned about the books and things that say you can invest in property with no money down, and all that stuff. In your area, that’s absolute rubbish.

John Howard:

[crosstalk 00:41:36]. Yeah.

Lucia France:

Guys, I’m afraid-

Paul Mahoney:

Sorry. We’re running out of time.

Lucia France:

That’s right. We are running out of time now I’m afraid. But, thank you so much for that question. We’ll have to come to [inaudible 00:41:45] one next time. And if you do have any questions, please leave them in the comments below or email us directly ask@aquestionofproperty.co.uk. That’s ask, A-S-K@aquestionofproperty.co.uk. And thank you all so much for watching. Thank you, Stefano, thank you to Paul, thanks to John.

Paul Mahoney:

Thank you.

Lucia France:

Great. Thanks, [inaudible 00:42:04].

A Question of Property

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