A Question of Property - Ep 15 - Paul Mahoney, Stefano Lucatello & John Howard - Nova

A Question of Property – Ep 15 – Paul Mahoney, Stefano Lucatello & John Howard

Lucia France:

Hello and welcome to episode 15 of A Question Of Property, where we answer all our questions that are property based and some other ones as well. My name is Lucia France. I’m your host and I’m joined by our usual panel of experts. We have John Howard, property expert of, would you believe it, over 40 years experience in the-

John Howard:

I can’t believe it.

Stefano Lucatello:

I believe it.

Lucia France:

He can’t believe it either, in the industry, and author of three different books on the topic. The most recent one is Buying and Selling at Auctions. Yeah, you can’t believe it, John. 40 years. Has that gone quickly?

John Howard:

Where has the time gone? I’ve lived in my current home 28 years in August. I just can’t believe where the time’s gone.

Lucia France:

Well, here we are and there’s no time like the present. We also have Stefano Lucatello-

Stefano Lucatello:

Good morning.

Lucia France:

… a senior partner at Kobalt Law international property lawyers, and our go-to for advice on buying and selling property in Europe and further afield, Stefano, as well.

Stefano Lucatello:

Yeah. In North America, South America, North Africa. We do a few different places.

Lucia France:

Excellent. Well, we’ll have to find out about that a little bit later because I think you’re heading over there maybe later this year. Last but not least, Paul Mahoney, best selling author, award winning property speaker and head of Nova Financial Group, and our much needed straight talking Aussie of the panel.

Paul Mahoney:

Good morning.

Lucia France:

How are you, Paul?

Paul Mahoney:

Very well, thanks. Yourself?

Lucia France:

Good. I’m very good. Nice to see you again. Let’s kick off with our starter question. As you all know, Boris has announced that we can meet in groups of six from different households as of next Monday. Which six people, dead or alive, fictional or non-fictional would you like to meet for a socially distanced barbecue in the park? Who would like to take that one first? Let’s go for-

John Howard:

I was quite sure I’d take it first.

Lucia France:

Let’s go for John. Yes.

John Howard:

Well, being a property developer, I haven’t got many friends.

Paul Mahoney:

Aw.

Lucia France:

Boo.

Paul Mahoney:

That’s very sad.

John Howard:

I know. I know. We’re not very popular. I think I’ve got three new friends. Well, I think they’re friends. I have you, Lucia, there.

Lucia France:

Aw, thank you.

John Howard:

I have Paul there because he’s got to come with if you come, I suppose. Of course, we definitely need Stefano to cook, so he would have to be there. Then that’s me, that’s four. Then I think I would have Margaret Thatcher.

Lucia France:

Right. Okay.

John Howard:

Got to have Margaret Thatcher, and I think I’d have the Queen because the Queen has been around for so long. I’ve got so many questions to ask her, and I’m probably not going to get the opportunity to. I do watch The Crown, which is very good, on Netflix, but I’ve got loads of questions to ask her. I’m not likely to get the opportunity, so lest she knights me. She could knight me for my work in the property industry, couldn’t she? Sir John Howard.

Lucia France:

She absolutely could. I know-

John Howard:

Quite a nice ring to it.

Lucia France:

I think if she’s-

John Howard:

I don’t think that’s going to happen. I don’t think she watches the show either, probably, which is why I’m disappointed. She might though.

Stefano Lucatello:

I’m not so sure about that, John.

Lucia France:

You never know.

Stefano Lucatello:

Not so sure.

John Howard:

You never know. There we go.

Lucia France:

Your Majesty, if you are watching, please do consider Sir John Howard for his knighthood.

John Howard:

Quite right.

Lucia France:

Do you know what the Queen-

Stefano Lucatello:

Can you imagine it, Lucia? If he had a knighthood, he’d have an even bigger head and he wouldn’t be able to get through his own office door.

John Howard:

I didn’t think I had a big head at all.

Stefano Lucatello:

My word, John.

Lucia France:

It would be interesting. You know what? The Queen was actually one of my six as well, so we’d have to get together as a group.

John Howard:

Well, there you go. Excellent.

Paul Mahoney:

You’re all very boring, you English.

Stefano Lucatello:

I’m sure the Queen was also on Paul’s list, being a good Crown follower.

Paul Mahoney:

She’s most definitely not.

John Howard:

Well, that’s nice, isn’t it? In fact, I might have to dis-invite you, Paul.

Lucia France:

Paul-

Paul Mahoney:

I might not come.

John Howard:

I’d send you back on a boat, Paul.

Lucia France:

Oh, dear. Right. Paul, who were yours then?

Paul Mahoney:

Well, I was thinking about this, and I thought the lockdown has brought family and things closer together. I think it’s made family, in people’s minds, more important. Not that you forgot about your family previously but we had our 9:00 to 5:00 previously, now we don’t really. I was thinking, my two grandfathers are dead. It would be nice to have a lunch with them.

Lucia France:

Aw.

Paul Mahoney:

My sister just had a little baby I haven’t got a chance to meet her yet. She’s asked me to be the godfather, so it’d be nice to meet her, so maybe a little family gathering would be nice.

Lucia France:

Yeah, that sounds good. I think that’s much needed.

John Howard:

Does that mean you haven’t got any friends either, Paul?

Paul Mahoney:

No. No, I don’t.

Lucia France:

It’s not meant to become a sailing match, but as usual, it has. Okay, Stefano. What would your six be like?

Stefano Lucatello:

Well, being Italian, I have to find a couple of Italian people. I’d start off with that famous man, Galileo Galilei-

Lucia France:

Ooh!

Stefano Lucatello:

… famous scientist. Leonardo da Vinci.

Lucia France:

Of course.

Stefano Lucatello:

I’d need a bit of music there, so I’d have Eric Clapton. I love Eric Clapton.

John Howard:

Oh, lovely. Oh.

Stefano Lucatello:

Madonna, because she’s a bit of a scream.

Lucia France:

She was one of mine as well.

Stefano Lucatello:

Yeah, she’s quite good.

John Howard:

Really?

Stefano Lucatello:

I like fashion, so I’d have Coco Chanel. Also, because she’s so full of herself, I’ve been watching her program about her and another group of people going to India, Britt Ekland, because I think she’d be a bit of a scream.

Lucia France:

Fantastic. What a great lineup there.

John Howard:

Well, what about us? How rude, how rude.

Stefano Lucatello:

You’ve said you got no friends, mate, anyway.

John Howard:

Unbelievable. You certainly don’t seem to have any either, if you got that lot.

Stefano Lucatello:

I have intellectual friends, John.

John Howard:

Yeah, yeah, yeah.

Lucia France:

Well, I guess we’ll have to have our own one, at some point, this summer.

Stefano Lucatello:

What’s your choice, Lucia? Who was your six?

Lucia France:

Oh, my six were, so Madonna was one of them. The Queen was also one of them.

John Howard:

God knows why.

Lucia France:

I would also love to see my friend, Pete. He passed away three years ago. He was my best friend, I’d love him to be there as well.

John Howard:

That’s nice.

Lucia France:

I’d like Prince to be there, the singer.

John Howard:

Aw, I’m not coming if Prince is there.

Lucia France:

What am I up to? Four. Then the rest would be taken up with you guys.

Stefano Lucatello:

Yeah, that’s very kind of you.

Paul Mahoney:

Then you’d be breaking social distancing law, wouldn’t you?

John Howard:

You’d be breaking crisis … The only person who’s allowed- [crosstalk 00:06:34]

Paul Mahoney:

You and George Cummings.

John Howard:

… to break that law is Dominic Cummings.

Paul Mahoney:

Sorry. Dominic Cummings. [crosstalk 00:06:38] I went to school with a George Cummings. That’s why I said it.

Stefano Lucatello:

That was his dad.

Lucia France:

Well, yeah, that shows my math skills definitely haven’t improved since school.

Stefano Lucatello:

All right. Well, John and I will take a shift each then.

Lucia France:

Okay. All right then. Let’s move on through our proper questions then.

Stefano Lucatello:

Go on then.

Lucia France:

The first one here is for Paul. This person says, “I’m looking at investing in the buy-to-let market. Could you advise me whether I should be looking to purchase a flat or alternatively, a freehold house. What’s your advice?”

Paul Mahoney:

Okay. That’s a fairly common question. Generally, I’ve found, when talking about this topic, people sit in one of two camps, and it’s not necessarily what you think when asking the question. It’s either they don’t really care which one, or they prefer freehold houses. I can understand that, because you’ve got more control over the property. You actually own it.

Paul Mahoney:

However, I suppose we tend to approach property a bit differently to how most others look at property. That is, we try to take the emotion out of it, and rather focusing on the asset, focusing on what we can try to achieve from investing in property. Therefore, our approach is much more about finding the best possible location based upon certain driving factors and key fundamentals. Then, allowing that location to determine what the most suitable property is.

Paul Mahoney:

I think a lot of people start out with saying, “Oh, I want an end-of-terrace house,” and then they jump on Zoopla to find an end-of-terrace house. Whereas, we will do our research to find the best possible location based upon the strongest driving factors that give us the most confidence in that location doing well.

Paul Mahoney:

Then, for example, if it’s a city center location, single occupancy and dual occupancy households are the majority, and therefore, one or two bedroom apartments make the most sense in that particular type of location. Whereas, of course, if it’s a family oriented area, then maybe a three bedroom house makes the most sense. Regardless of the location, there is always a skew toward a certain type of property. Therefore, that’s the type of property you want to be buying.

Paul Mahoney:

Now, based upon that, we tend to invest both personally, and advise our clients to invest more so in flats, mainly because they’re in more central locations. Most flats are freehold. Now, if that freehold is sufficiently long, and I’d say, you probably don’t want to be buying anything if you’re more interested in the long-

John Howard:

Did you say, “Freehold”? Sorry, Paul. I think you said, “Freehold.” You mean leasehold.

Paul Mahoney:

Oh, sorry, sorry. I meant leasehold. As long as that leasehold is sufficiently long, and I’d say if you’re buying for the long-term, you wouldn’t want the leasehold to be anything less than 125 years. Quite often, you build freeholds … Leaseholds, sorry, 250 or 999 years. That’s often what’s referred to as a virtual freehold, because it’s going to substantially outlive you, and won’t ever cause you any issues with regards to the value. The value is only really affected on a leasehold when it gets below about 80 years, because that’s when you need to start considering renewing it. Both can work.

Paul Mahoney:

lot of people rule out flats because they’re leasehold. I think that’s a massive mistake. There’s a huge trend towards inner-city living, central living, for young professionals especially. In the past, I suppose older generations, their goal was to have the larger family home and they were happier to live further from home to achieve that goal, and travel to work.

Paul Mahoney:

That’s not the goal of young professionals anymore. That’s something that I buy into personally. I’m talking to you today from zone 2, London. Our office is in the city and it’s 10 to 15 minutes commute. I’ve got no interest in moving further out just to get a slightly bigger place.

John Howard:

Do you know what the view is I’ve got out my two jewel aspect windows, Paul? I’ve got my- [crosstalk 00:10:50]

Paul Mahoney:

Well, you’ve been around for 40 years.

John Howard:

… I’ve got my stables and everything, beautiful country, beautiful views. You’d hate that living in a flat, but what I would say-

Paul Mahoney:

Would you consider yourself a young professional, John?

John Howard:

Well, I consider myself 38, which I wish I was. The one thing I would say, Paul’s absolutely right. The one thing I would say, people get hung up on the service charge. If the service charge is too much, if you consider it too much in a flat these days, you can take control of that management, if enough of you agree, and run the job yourself, or even appoint someone else to run it. Or you can buy the share for freehold. That’s one thing, because what people …

John Howard:

My argument about flats, which is I believe a good one, is that actually, if you’ve got a house, you’re going to have to pay the insurance, the maintenance. I just had my house painted. It cost a bloody fortune, all these things. At the end of the day, you’re paying a service charge of sorts on your own house anyway, so it’s probably going to be a lot more on a house that you own outright yourself than it is a flat, because of the size of it, and the fact you’re not sharing those costs with a load of other people.

John Howard:

If your roof goes wrong on the house that you’ve invested in, you’ve got to do the whole roof yourself. I think the service charge just gets a bad rap sometimes, and it’s a bit unfair and a bit unnecessary. The other quick thing is, if you’re looking on Zoopla, you’re looking on the wrong place to find a deal. That’s for sure. You should talk to Paul [crosstalk 00:12:20] You should talk to other people to find deals, not on Zoopla, Rightmove, or any of these other sites.

Lucia France:

What do you mean there, John?

Paul Mahoney:

Sometimes, the service charges, generally, in a development if you have services, facilities, they obviously need to be serviced and that might increase the service charge a little bit, but that’s not necessarily a bad thing. A perfect example is, we have a client at the moment that we found … Well, he’s actually buying a property of a previous client of ours that bought off-plan 18 months ago or so. This is a development in Central Manchester, and it has everything. It has a pool, a gym, a spa, a sauna, plunge pool, a 24 hour concierge.

Paul Mahoney:

Now, the service charge is a bit higher because of all of that, but the rent is substantially higher. The gross yield on this one bedroom flat is 7.2%, compared to others in the area that are about 6%. That extra rent more than pays, it substantially more than pays for the slightly extra service charges, so it’s more about the net outcome rather than the internal cost.

Lucia France:

Basically, Paul, for this person, in terms of your advice, you’d actually say it doesn’t matter really whether it’s freehold or leasehold. It just depends on the area, and what they’re looking for.

Paul Mahoney:

Exactly, yeah.

Lucia France:

Great, okay. Thank you very much. That’s great. Let’s move on to Stefano for our next question. We’re off to France. “I have a dispute in France with a neighbor over the boundary fence. Who would you suggest I get to advise me over this issue, bearing in mind that most of the time, I’m based in the UK?” What’s your advice on that one, Stefano?

Stefano Lucatello:

Well, the first thing I’d do is I’d go to my notaire, the guy that completed the sale on behalf of the French government, and I’d get a set of my title deeds and a copy of the plans. I’d then go to the Cadastre Register, which is the equivalent of our Land Registry, and I’d make sure the two were the same, and that what was registered at the Land Registry when you bought it was in fact what you bought, and the boundary line goes where you think it should go.

Stefano Lucatello:

Then what I’d do is I’d get a local surveyor, someone called an Expert Géomètre, and get him to consider the plans, to walk the boundary, and make sure that I have my facts before I go anywhere else. Having done that, I would then send an amicable letter, a friendly letter, to my nextdoor neighbor telling him what the situation is, setting it out, and enclosing a copy of the plan showing the boundary, and whatever it is that’s in dispute, and what should be done. I mean, we’re not exactly clear what the dispute is.

Lucia France:

No, no.

Stefano Lucatello:

It could very well be that he’s got a huge high fence that is reducing the amount of light that’s coming into his home. They don’t have, in France, the same 45 degree rule that we have, for example, for light, so it could be that. It could be that the fence is actually misplaced. It could be that, for example, the fence has blown down and the guy’s put it back, but he’s put it back in the wrong place and he refuses to put it back.

Lucia France:

Right.

Stefano Lucatello:

Once you’ve done that and you get no joy out of that, then what you could do is take the matter to court. You could start a civil procedure in the local court, and then the matter would go before a judge. It would be a long-winded exercise. It would cost quite a lot of money. The judge would then rule based on the facts that he or she is presented with. That’s the follow-through of what you do.

Stefano Lucatello:

I would always urge people to meet. If you’re not there, you have a problem because you don’t know what the guy’s doing. I would install a camera along the boundary line, if at all possible, so that you can transmit, a Nest camera, something like that. I’ve got a client who’s done that already on something else, so that you can exactly record what’s going on, and make sure that nothing untoward is happening in your absence.

Lucia France:

That would be allowed then, Stefano. That would be-

Stefano Lucatello:

Yeah, yeah. You just put a camera on your property and you can record. Record it to your phone, and you could take a live view of what’s going on. Every now and then, you could log-in and see what’s going on. It could ping to you if there’s any movement on the boundary fence, whatever, so you could cover that. You don’t need to be there nowadays with the technology that we have.

Lucia France:

Or you could send a drone.

Stefano Lucatello:

You could send a drone.

Lucia France:

Sorry, John. Go ahead.

Stefano Lucatello:

You could send a drone, yeah. Yeah, absolutely.

John Howard:

I was just saying, don’t you think all this technology, you can talk to yourself with it at the end of the day. Surely, he needs to get over there and sit down, and have a red wine, or a cup of tea or something with the person, try and … It’s always the best way, isn’t it? To negotiate.

Stefano Lucatello:

Well, absolutely. The best way to do it is to negotiate.

John Howard:

The best way. Going down the legal route, I know you make your living out of it, Stefano but even you don’t want to deal with negative issues, if you can help it. Do you? Am I right, in the UK-

Stefano Lucatello:

No, quite the contrary, John. Quite the contrary. No, no, no. Quite the contrary. No, quite the contrary. I don’t advocate litigation at all. I always advocate mediation. In fact, in every European country and in North America now, and in most countries of the world, the procedure of mediation and dispute resolution, ADR, has to be done before you go to litigation, so the parties don’t spend more money on people like me, and it’s quite right.

John Howard:

I think that’s a good idea.

Stefano Lucatello:

[crosstalk 00:17:49] I would get the Mayor involved. The other thing is, I would get the Mayor involved because the Mayor, especially in small areas, has a lot of swing, a lot of say, a lot of power. If you’re in the right, go and speak to the Mayor and show the Mayor, because they have a lot of influence in the area, and he or she, because they’re usually so full of themselves with the trinket collar on their chest. Go round and have a word with them.

Lucia France:

Yes.

John Howard:

The other thing, am I right in saying in the UK that the height of the fence can’t be more than two meters? Is that right?

Stefano Lucatello:

It’s only where it converges with the height from a side road into a main road. In Yorkshire where I live, I live in the countryside, my road comes onto the main halt to York Road. The guy there put a fence on, and we couldn’t see the main road coming out of the side road, because he put this private hedge up, over the years, and we all asked him to get it pulled down. He didn’t, so the local authority pulled it down for him. Yes, where it converges with a highway, you can’t have a two meter high fence.

John Howard:

No.

Stefano Lucatello:

No.

Lucia France:

Right, okay. That’s interesting. What was the reason for that, Stefano? That you can’t have-

Stefano Lucatello:

Because when you come out, if you think about it, you’re coming out into a main road. In my case, I have to look left and right. On the right-hand side, for traffic coming from me, no problem. From the York side, I can’t see what’s coming, so it would mean me going to the middle of the road and waiting to see what’s going on, basically, so that’s why.

Lucia France:

Yeah, yeah. Although, you could get those mirrors. Those [crosstalk 00:19:16]

John Howard:

Well, can I also say, if you’re in one of those dreadful Maseratis, you’re very low down, and probably the angle isn’t great.

Lucia France:

Yeah, and then those are quite-

Stefano Lucatello:

My Maserati is a Quattroporte. It’s a standard sports cylinder.

Lucia France:

Okay, let’s leave it there. This is about property, guys. Not about cars.

Stefano Lucatello:

Yes, yeah, we make it into cars as well. Can we have property and cars?

Lucia France:

That would be fun, actually. That would be fun.

Stefano Lucatello:

Let’s do it, property and cars.

John Howard:

Yeah.

Lucia France:

All right. Let’s go to John then for the next question.

Stefano Lucatello:

Yes, or do we have to? He’s [inaudible 00:19:52]. Can we just go to Paul again?

Lucia France:

Well, he’s got more to say about this, I’m sure. I know-

Stefano Lucatello:

Paul has got more to say about everything.

Lucia France:

Very true, very true. John, “I have recently been offered a property with a large garden to live in myself, but there is an overage to be negotiated with the current owner. Please, can you first explain what overage is, and secondly, how I can get out of it?” Because I definitely don’t know what overage is, so that would be helpful for me as well.

John Howard:

Okay. I’m going to pass this to Stefano in a minute because of the legal question, but basically-

Stefano Lucatello:

You know the answer.

John Howard:

Basically, what an overage is, it’s an agreement between two parties. They obviously feel that, potentially in the future, you might be able to get planning on the land, at the side of the property. If they do do that, they want to share some of your uplift, some of your profit, some of your uplift.

Lucia France:

Right.

John Howard:

Now, normally, they limit it to a 10 year overage, 20 years, or whatever. There’s a time limit on it. If you can negotiate a time limit, the lower the time limit the better. Also, the percentage. It might be that it’s 50%. It’s never more than 50%, normally. I would try to get away with 20, 25% of the overage, so the uplift in value.

John Howard:

If the land value is 10,000 as garden, and you get planning and it’s 100,000, then they would share a percentage of the difference. Not when it’s built, but just on what the value of the land is once it’s got planning permission. I should pass it over to our legal beaver, Stefan.

Lucia France:

Yeah.

Stefano Lucatello:

Legal beaver. Yeah, I’ve done a few overage agreements in my lifetime. It’s called a claw-back or uplift agreement. It’s where I have a plot of land, it’s got no planning on it, but there could be planning on it. I sell it, and I retain the right when it goes to the other guy to buy it, and he gets planning permission to get a percentage of, as John says, the uplift. If I sell it for 100 grand, but then he goes and gets planning permission, he sells it for a million, then I can share in that difference, that profit.

Stefano Lucatello:

An overage agreement is quite a complicated agreement. It needs all sorts of clauses being put in it such as what costs are going to be deducted before the actual amount is shared. What’s the trigger date? How may triggers will there before the event happens? Which disposals of the land are permitted and not permitted within or without the overage agreement? There are agreements on fees. That’s the sort of thing that goes into an overage agreement. They can be very-

John Howard:

Can I just stop you there? Only a lawyer would have to complicate it. It should be a lot simpler than that. It’s the difference between what the value is now and what the value is … You guys make it so complicated, and it could be a lot simpler. We know why you make it complicated. However-

Stefano Lucatello:

John, you have to contemplate the exit strategies because-

John Howard:

No, I understand that but-

Stefano Lucatello:

Hold on. In certain situations, people say, “Well …”-

John Howard:

I understand that, but some lawyers, and I’m not saying-

Stefano Lucatello:

… “That was not within my clause, and therefore it’s not part of the overage agreement I’m not going to pay you.”

John Howard:

No, I appreciate that, but lawyers do make it incredibly complicated, when it probably doesn’t need to be quite as complicated. Can I give you a quick trick I do sometimes? If I’ve got some land that’s got no chance of getting planning on it ever, I put an overage on that piece of land, buying it in an auction. Because there’s an overage on it, people think they potentially might get planning on it, so you get a bit more money for it.

Lucia France:

By conning people, then John.

John Howard:

Not at all, because if they’re cleverer than me-

Stefano Lucatello:

That’s not an honest strategy. That’s not an honest strategy, John.

John Howard:

If they’re cleverer than me, then they may get planning permission on it. The planning laws change all the time.

Lucia France:

That is true.

Stefano Lucatello:

John, is that why they call you honest John?

Paul Mahoney:

Honest and ethical John.

Stefano Lucatello:

That’s it.

John Howard:

I’m just giving you the trick. All I’m doing is giving you the tricks of the trade, the inside tricks of the trade. That’s all I’m giving you.

Lucia France:

John, just to fully answer this question then, how would they get out of it? They just have to negotiate?

John Howard:

Well, first of all, they can say, “No, we’re not going to give you an overage. This is the price we’re paying.” If you don’t want to accept that, well, walk away and find another property. Or they can say, “I’ll tell you what. I’ll give you 10%, but your lawyer draws up the overage. Our lawyer, because it’s going to cost money to do.” Even if you get it as complicated as you can with some of these lawyers, it will cost quite a lot of money.

John Howard:

Of course, all they really do, may I just say, is press a button on a computer, it prints out the overage they used last time, and then charge you a fortune for it. That’s what they normally do.

Stefano Lucatello:

Every overage is different. Fundamentally, it’s the same, but every overage is different, John. I refuse to back down on it.

John Howard:

“Is different,” you tell me. That’s the same old rubbish I hear from every lawyer I talk to.

Lucia France:

All right. Order, please. Order. Thank you very much.

Paul Mahoney:

That would have nothing to do with charging per hour, would it Stefano?

John Howard:

Exactly.

Stefano Lucatello:

No. We charge a fixed fee actually. We charge a fixed fee, Paul.

John Howard:

Unbelievable.

Stefano Lucatello:

We charge 1,750 pounds for an overage.

John Howard:

Now who’s got a shark practice, hey?

Lucia France:

Right.

Stefano Lucatello:

We charge a fixed fee, not by the hour, so whether it takes three hours or 10, it’s the same thing.

John Howard:

Or three minutes.

Lucia France:

Great. We’ll leave it there, shall we? Thank you, John and Stefano.

Stefano Lucatello:

All three minutes pressing the button the computer, yes.

Lucia France:

Great. Back to Paul now. Paul, please, let’s have a bit more calm.

Paul Mahoney:

All right.

Lucia France:

Somebody’s written in and said, “I saw you at an event in Olympia, and you spoke about buying a further buy-to-let property every two or three years. Can you explain please how that works again?”

Paul Mahoney:

Yeah, sure. Okay.

Lucia France:

[crosstalk 00:25:56]

Paul Mahoney:

Well, we haven’t spoke at Olympia for a while, have we? We’ve been on lockdown. We missed all the events.

Lucia France:

Exactly.

Paul Mahoney:

Well, look, firstly, thanks for coming to Olympia, I hope you found it useful. With regards to buying, or building a buy-to-let portfolio, probably what I was talking about is this sort of self-perpetuating snowball effect that a leveraged buy-to-let property can have. I think the easiest way to explain that is using an example.

Paul Mahoney:

Let’s say you take 50,000 pounds and buy a 200,000 pound property. Essentially what you’ve done there is you’ve quadrupled your buying power, because you’ve turned 50 grand into 200 grand. The debt’s cheap. It costs you 2 or 3% at the moment, it’s over the long-term, and it’s with no ability for the lender to recall that mortgage, regardless what happens to the value of the property, so it’s quite low risk.

Paul Mahoney:

Now, therefore, by achieving relatively average returns on the asset value, the 200 grand, you can get really strong returns on your cash, meaning the 50 grand. I don’t want to make this too numbers heavy, but generally what we’re aiming for there is between 5 to 10% net yield on the cash invested-

Lucia France:

Right. Paul, just you’re [crosstalk 00:27:19] there Paul. There you go.

Paul Mahoney:

5 to 10% yield on the cash invested, and then if you’re getting a relatively average 5% uplift in value on the asset, so the property, and the UK average for the past 20 years is 5.5%, that includes two recessions. If you get five, which is very, very achievable on an average basis, over a five to 10 year period, that gives you 20% on your cash. Again, because you’ve quadrupled your money.

Paul Mahoney:

To put that another way, a 10,000 pound uplift on a 200 grand property is 5%. 10 grand on your 50 grand investment is 20%. You put those to figures together, you’re at 25 to 30% per annum. I’m yet to hear a logical argument that says that’s a bad return. It’s a very good return for cash invested in a passive investment.

Paul Mahoney:

Therefore, you’re essentially, if you’re able to do that, that 25 to 30% a year, you will get your initial investment back every three to four years. That 50 grand, through cashflow and capital growth in the asset, you’ll be able to take that back, and buy another property. Therefore, you start off with one. In three or four years, without investing any further money, and without doing very much either, if you invest in a decent property in a decent area, start out with one. After three or four years, you’ve got two. After six to eight years, you’ve got four. After 12 to 16 years, you’ve got eight. That’s what’s often referred to as the snowball effect.

Paul Mahoney:

Obviously, if you’re investing more money along the way, you can build that a lot quicker. That’s really the beauty of leveraged property. If you’re buying in good areas with the right driving factors, it can very much be self-perpetuating, that it actually creates wealth itself through the uplift in value, assuming that you’re happy to reinvest in that cashflow. That helps as well because it brings down the debt as the value increases and increases the equity.

Paul Mahoney:

That’s more than likely what I was referring to in that talk at Olympia, is how people can build a portfolio. Now, that might seem like a slow burn, so having eight properties in 12 to 16 years, but keep in mind, you’re only investing 50,000 pounds in one property to start with. If you’re buying an extra one every year with extra cash, that builds a lot more quickly. It has a multiplying effect on how quickly you can build the equity and how quickly you can build the passive income.

Stefano Lucatello:

Can I just ask something, Paul?

Paul Mahoney:

Yeah.

Stefano Lucatello:

If I come to you and I say, “I’ve got, my mom’s given me 200 grand,” what would you do with that 200 grand to start my portfolio off?

Paul Mahoney:

Well, it would depend on your situation, your goals-

John Howard:

Spend a million.

Paul Mahoney:

… stage of life. If you were, for example, Stefano, a first time investor, the criteria might be different to if you’re retiring tomorrow, likely would be quite different. Because if that 200 grand is all you’ve got, you need to focus on growing it. Quite like what John mentioned, you’d want to turn that 200 grand into a million to be able to generate any sort of half decent passive income to live off at some point in the future. If you’ve already got a couple of million in the bank or in investments, then what’s suitable for you would be quite different.

Paul Mahoney:

At a high level, for our average client, I’d say every client at the moment is buying property predominately in Birmingham, Manchester, and Liverpool, of an average purchase price between 200 and 250,000 pounds. Therefore, deposits are somewhere between 60 to 80,000 pounds, including all costs. You’d probably split that 200,000 into two or three properties, probably across slightly different locations. Perhaps you could go for one property in each of those cities, for example. Maybe slightly different types of properties.

Paul Mahoney:

You could go for a one bed, a two bed, and maybe a house, so your target market’s slightly different, your driving factors are slightly different, but you’re still in major cities with substantial catalysts for positive change. At a high level, that’s the type of thing that we generally do.

Lucia France:

Great.

John Howard:

Can I also suggest something? Bear in mind, Stefano’s age and so on. I’m not being rude to you when I say that, but you could invest in my new copy bond I’m launching shortly.

Lucia France:

Tell us about that, John.

John Howard:

Guaranteed income.

Stefano Lucatello:

Thank you, honest John.

John Howard:

No problem.

Lucia France:

Right. Let’s go over to Stefano then for your second question for today. Thanks very much, Paul. This person says they’re looking at potentially selling their apartment in Paris, but estate agents charge a lot of money. “Is it possible, and am I allowed by law to just sell the flat myself?” How would that work in Paris, Stefano?

Stefano Lucatello:

The law in France says that when the buyer puts in an offer and it’s accepted, in that offer there usually are included estate agents’ fees. That’s the starting point. It’s not necessarily the case. You can buy without estate agents’ fees, if the vendor is desperate or he’s happy to foot the bill for the estate agents’ fees, but it’s usually the case that the buyer foots them. Especially in Paris, where property …

Stefano Lucatello:

Well, it depends on which part of Paris. If it’s on peripheric area of Paris or the outer rows of Paris, then the property values are lesser than in the center, like the boulevards in the center. Yes, you can sell your own property. It’s like the same in England, anywhere else in the world.

Stefano Lucatello:

As long as you do not enter into the business of selling as your immobilier, that’s an estate agent, and you don’t profess yourself to be entering into what’s called a commercial activity as your immobilier, then yes, you can sell your own property. Of course, they don’t have the same things as we have like Zoopla and all the other platforms that people sell on, Rightmove, and there are many others, but you can sell it.

Stefano Lucatello:

People do sell their own properties. What they do is they talk to the notaires. Notaires in France can also sell properties, and have been for some time. They’ve been supplementing their huge anyway income by selling properties, and more and more notaires are now becoming estate agents. They don’t charge as much as estate agents do per se, so you could go that way.

Stefano Lucatello:

I would say that unless you know your marketplace very well, as with anywhere else, I wouldn’t be selling it on your own, unless you are a whiz kid on the Internet, because if you think about it, Paris is like Rome, it’s like Milan. Who’s going to see your property for sale? You can’t stick a for sale sign out on the … That’s the other point.

Lucia France:

Really? Why?

Stefano Lucatello:

Sorry?

Lucia France:

You can’t put a for sale on the property, did you say?

Stefano Lucatello:

No. Properties which are flats, and most of them are in central cities, you cannot put a for sale sign on the outside of your balcony like people have tried to do, and that’s one of the reasons that it would be very difficult for you to sell the property. Because only certain buildings, and certain activities can put affichage, as it’s called, notice boards on the outside of their balconies. It would reduce your opportunity to sell even more because who would see you on the fourth floor, the fifth floor, the seventh floor of a skyscraper?

Stefano Lucatello:

My view is that, especially in Paris, you should be able, even in this lockdown period, to sell your property for a good price. Paris is always one of those cities in France that maintains its values. People are always looking for a one bedroom, two bedroom, three bedroom apartment in Paris, and you should be able to sell your property, even including estate agent. I would go to an estate agent or a notaire, because it’s well worth the … It takes the hassle out of it. Okay, fine, so you don’t pay the 3%, but then again, is that not worth it? Because it means you can get on with your life and let the guy do what he’s good at supposedly doing, and I would do that.

Stefano Lucatello:

It’s like people in England, they try and sell the properties themselves, and with differing results. It doesn’t come down to whether you can sell a property. Nowadays, it comes down to how you manipulate the Internet. Can you understand the algorithms and all these things that Google puts across and whatever? It’s not being a great estate agent. If you look at Purplebricks and all the other organizations, the asking they do online, it’s not because they’re a good estate agents, really. It’s because people manipulate the algorithms. I don’t want to-

John Howard:

Don’t you think you should be asking someone the question who is an estate agent or owns estate agent businesses?

Stefano Lucatello:

Yeah, well, sorry-

John Howard:

Who do you know on the panel like that? Oh, me.

Stefano Lucatello:

In France.

John Howard:

No, in Britain. You’re talking about UK now with Purplebricks.

Stefano Lucatello:

No, no, no. I’m saying to you, but I don’t want to go into a discussion on that. What I’m saying is, when people sell, they have to be able to manipulate the Internet. It’s not a question of being able to sell a property.

John Howard:

You’d want to sell, you’re absolutely right, Stefano. If you’re going to sell, sell through an estate agent. Don’t sell through one that’s online. Sell through a traditional estate agent.

Stefano Lucatello:

I mean, estate agents in France and abroad, they have the multi-listing system. Italy-

John Howard:

Yeah, we don’t see-

Stefano Lucatello:

We don’t have that in England.

John Howard:

Well, there is that in England, but we’re certain we’d find a country who we’ve got the license for in Norfolk. We don’t take any property on if it’s on with another agent. It has to be sole agency, because the money we spend, the amount of time and money we invest in that property, and that estate agent only, on average, sells 45% of the properties they have on their books, so it’s an expensive business.

Stefano Lucatello:

I would go back to what I said before. My view is if it’s a flat in Paris, it should demand a good return-

John Howard:

I think that’s good advice, yeah.

Stefano Lucatello:

Usually, as I say, Lucia, the sale price always includes estate agents’ fees, unless they are expressly removed.

Lucia France:

Right, okay.

Stefano Lucatello:

You can tell, because it always says on the bottom of the price, there is a series of words afterwards that go after the price, and you can tell immediately if the estate agents’ fees are included or not. As the buyer, you will pay for them. If you’re the seller, I wouldn’t worry about it.

Lucia France:

Okay, great. Thank you very much, Stefano. Okay, John, on to your last question then for today. “Contrary to what you’ve said before, John, auctions-

John Howard:

Oh, oh.

Lucia France:

… appear to be very busy at the moment. Do you think it’s best to wait a few months before jumping on my first property acquisition at auction?”

John Howard:

Well, it’s all a matter of opinion. At the moment, I would agree. I’m slightly surprised, as a lot of people are, how busy the auction market is, and how busy the estate agents are, and how well the stock market’s doing. I think it’s a little bit like Red Bull. People who drink Red Bull, I’m told, get a very quick high, because it’s all full of sugar. What the government’s done, they’ve sugared everybody. They’ve given these bounce-back loans, they’ve given, done furlough, and it’s all short-termism. I think this short-termism will fizzle, phase out over the next three or four months. I think if you’re patient …

John Howard:

If I ask most people the question, “Will there be more people unemployed in the next year than this year?” Most people will say, “Yes.” Is there going to be more businesses in trouble? Yes, there will be. Property is linked to employment, in my opinion. On that basis, just sitting, waiting is hard, but it is definitely the best thing. When I was training race horses, in the last recession … I had a racing yard at home here. It’s the only qualification I’ve really got. I’ve got my NVQ3 in race horse management.

Lucia France:

Wow.

John Howard:

There’s a saying in race horses, and it’s called, the saying is, “Cheap speed,” which means you can get a horse that can do it in three furlongs, but of course, it needs to do it for five or six, normally. It’s quick for three, but it can’t keep it up for six, and it’s called “cheap speed.” That’s what’s happening at the moment. We’ve got cheap speed. Don’t get involved in it. Wait, be patient, and there’ll be some bargains next year.

Lucia France:

It’s kind of like I had a smart car, and when I used to go from naught to 30, it’s really quick, but actually after that, it’s a bit slower.

John Howard:

That’s right. Exactly.

Lucia France:

I love smart cars, by the way. I definitely want to get another one, but yeah, I get what you say. Right. Thank you, John.

Stefano Lucatello:

You have to take the hand brake off, Lucia.

Lucia France:

What’s that, Stefano?

Stefano Lucatello:

You have to take the hand brake off.

John Howard:

That’s very sexist.

Lucia France:

I definitely always remember to take the hand brake off.

Paul Mahoney:

Don’t you think it’s more sexist you thinking that was sexist, John?

John Howard:

Probably, probably.

Lucia France:

I have [crosstalk 00:40:43]

Stefano Lucatello:

Thanks, Paul for catching the post.

Paul Mahoney:

Just to add a little bit to John’s answer there, obviously, buying at auction can be great but as John often says, usually when a property’s in auction, there’s a problem with it. That person said buying their first property at auction. I hope it’s not their first property, because John might disagree with me on this, but I wouldn’t encourage somebody to be buying their first property at auction.

John Howard:

Surprisingly, I would agree with that, Paul.

Paul Mahoney:

Excellent, good.

Lucia France:

Goodness. We have to leave it there because everybody’s agreed. Just one last question. Would you change any of your six people that you’d choose to have a barbecue with now?

Stefano Lucatello:

I’d exclude John even more so.

John Howard:

I wasn’t included in the first place.

Paul Mahoney:

Well, I didn’t have any of you there anyway, so …

John Howard:

Oh, that’s nice.

Lucia France:

Right. Let’s leave it there. Thank you-

Stefano Lucatello:

I’ll put his race horses instead.

John Howard:

I’m keeping it the same, the same lineup. Why change a winning combination?

Lucia France:

Absolutely, absolutely. We’ll leave it there. Thanks for watching. Do email us at ask@aquestionofproperty.co.uk. That’s ask, A-S-K @aquestionofproperty.co.uk. We’ll see you again next time. Thanks for watching.

 

A Question of Property

A Question of Property – Ep 20 – Paul Mahoney, Stefano Lucatello & John Howard
A Question of Property – Ep 20 – Paul Mahoney, Stefano Lucatello & John Howard
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A Question of Property – Ep 19 – Paul Mahoney, Stefano Lucatello & John Howard
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