A Question of Property - Ep 17 - Paul Mahoney, Stefano Lucatello & John Howard - Nova

A Question of Property – Ep 17 – Paul Mahoney, Stefano Lucatello & John Howard

Lucia France:

Hello everybody, and welcome to A Question of Property. My name is Lucia France, and I’m here to host your panel of property experts here on Zoom. As usual, answering your questions today are our star panel. We’ve got John Howard, our property expert developer, Ipswich advocate, and author of more than three books on the subject. He’s currently writing his fourth. He’s had 40 years experience in the industry. So, good morning to you, John.

John Howard:

That’s some build up, thank you very much.

Lucia France:

You’re welcome. We also have Stefano Lucatello, our legal brain of the panel and senior partner at Kobalt Law International Property Lawyers, and of course, expert on buying and selling property abroad. Good morning, Stefano.

Stefano Lucatello:

Morning Lucia, morning everyone.

Lucia France:

Morning, and of course, Paul Mahoney as well, our resident Aussie, bestselling author, award-winning property speaker, and head of Nova Financial Group. Welcome to you Paul, and how are you today?

Paul Mahoney:

I’m very well. Thank you.

Lucia France:

Okay, guys. Nice to see you all. Now we have a question to kick off with this morning, which has come from one of the comments on the videos that have been posted up on YouTube. Let’s just get that up there now. A lovely comment from a viewer, awesome vid, but in your next video, please, can you describe your greatest life moment? I’m going to put that to you first Paul, because I think that came from your channel.

Paul Mahoney:

Yeah, I was thinking about this one and I don’t know. I think you can upset some people with the wrong answer, this one.

Lucia France:

Oh dear.

Paul Mahoney:

I don’t know. I suppose I have to say the birth of my daughter, closely followed by getting married to my wife, closely followed by meeting John Howard, I suppose.

Lucia France:

Absolutely. Well, let’s give our top three.

John Howard:

If only that was true. If only that was true.

Lucia France:

That’s actually a good idea, Paul. If we stick with our top three, then we’ve got less of a chance of offending anybody in the family. Stefano, you’re your best moment.

Stefano Lucatello:

My best moment. I think the best moment was passing my Law Society examinations, which I did on the third occasion. All the best lawyers don’t get it first time, just like all the best drivers don’t get it first time.

John Howard:

I’m not sure about that.

Stefano Lucatello:

In the times when I was sitting my exams in the late 70s, early 80s if you failed it more than three times, you were banned from coming into the profession totally, because you had three strikes and that was it. Then I was a member of a group of students who objected to this and wrote to the Law Society and threatened to take to the EEC as it was, the European Court of Justice as it was there, and they changed the law. So, I helped to change the law, before I even became a lawyer.

Lucia France:

That’s amazing. Congratulations.

Stefano Lucatello:

Yeah, so that was one of my moments.

Paul Mahoney:

I might say you were nearly banned.

Stefano Lucatello:

Yeah, I was banned from becoming a solicitor, because in those days if you took it three times, they thought that you weren’t good enough to … I was only failing it by two or three points. It was a question of learning how to actually put a reply down on paper. That was the reason why, but then you had three strikes and that was it, but they changed the law, they changed the rules, and they said it was anti-competitive, and it was all to do with competition and one thing and another. So, it was changed basically.

Lucia France:

Wow, that’s fantastic. It’s funny though. You can’t do that with driving tests. I think you can take driving tests as many times as you want. I know someone that’s taken it 14 times.

Stefano Lucatello:

Well, there’s some woman, that’s got the record. She’s about 90 times. She’s about 83.

John Howard:

Some people pass first time, don’t they Paul?

Paul Mahoney:

I passed first time.

Stefano Lucatello:

I passed first time, I’ll have you know.

Paul Mahoney:

Me too. I do think though the written exams are a bit backwards, especially in this day and age, when you can pull everything up on your phone, having to remember an equation, or a line in a law book is a bit ridiculous, really isn’t it? It’s more about practice than it is memory.

Stefano Lucatello:

Well, I mean they changed the rules, because now most exams, even for law exams, you can actually take the books into the examination and-

John Howard:

That’s cheating. That’s cheating. That might explain quite a lot Stefano.

Stefano Lucatello:

Well in my time, you didn’t. It was all up here. If you had [crosstalk 00:04:28].

John Howard:

Yeah, quite right. You can’t beat experience.

Lucia France:

Exactly, and you can’t carry a book around with you as well. So, John let’s go into your greatest life moment.

John Howard:

Well, I’m going to say I’m super selfish when I say them. I’m not going to mention family, because that’s obvious really. No disrespect to Paul, because he’s much younger and it’s all newer to him, and I understand that, but thank you for being … I don’t mind being third. That’s fair enough behind his lovely wife and a daughter.

John Howard:

Now for me, I think first of all, my three things I would say were buying my first property on my 18th birthday. The second thing I think was becoming a director of Cambridge United at 25, which was the youngest director of football league club in the country. What would be my third? That’s interesting. Oh my third, I think, writing my three books to be fair, because my English teacher at school would have had his head in his hands and said it’s not possible and I’m done. So, they’re the three things I’d say proud of.

Stefano Lucatello:

What about yours Lucia?

Lucia France:

My top three, off the top of my head. I guess-

John Howard:

Working with us.

Lucia France:

Working with you guys, of course. That goes without saying. That goes without saying.

John Howard:

Of course, that’s like family.

Lucia France:

Actually, I write short stories and I’ve had two of those performed on one of the biggest … Well, the biggest horror podcast in the world. So, they’re available.

John Howard:

That’s impressive.

Lucia France:

It was amazing to hear the stories come to life and the voice actors bring them to life. Marrying my husband, he’s in the other room, I don’t think he can hear me. I love you. My two little nieces when they were born, I love them so much. They’ve brought a lot of happiness to my life. So yeah.

Stefano Lucatello:

Good.

John Howard:

Excellent.

Lucia France:

Let’s move on then with our first question for Paul. Paul, this is a tough decision here for our viewer. I’m torn between becoming a long-term buy-to-let investor and doing more developing property for profit. What do you advise?

Paul Mahoney:

Okay, a fairly common question. I think the simple answer to this, it will very much depend on the amount of time resources, and probably experience this person has behind them. If, for example, they’re like a lot of our clients and they’re time-poor, then property development probably isn’t for them, because effectively it’s a second job. It’s a business. It’s a much more entrepreneurial approach to investing in property. It’s going to take time. It’s going to take resources, and of course there is generally a bit more inherent risk with that approach than there is with a more conservative buy-to-let approach. I think that’s probably the main determining factor.

Paul Mahoney:

Oh yeah, also whether they have a passion for it. I think in business to make things work you need to have a passion for it. You need to be willing to go the extra mile, and I think that probably again, applies more so to property development than it does to passive property investment. I’m sure John will weigh in here at some point. Yeah, I think that would be the main thing.

Paul Mahoney:

As I say, a lot of our clients are what you would call cash-rich time-poor, and for that type of person, unless they have someone that they can absolutely rely upon, and are willing to give their cash to them and have them go off and do property development. It’s probably not for them and therefore more of a passive approach that doesn’t take up much of their time, but still getting exposure to property and getting some pretty consistent double-digit returns in safe locations, and safe properties can make a lot of sense so far as building a portfolio.

Paul Mahoney:

Whereas if, for example, they’ve made a lot of money in business, sold a business, inherited some money, they’ve got time on their hands, and maybe they’ve done some property investment in the past, or they have some experience with it, and therefore can work out what works and how to make money from it, or engage with someone like John to help them do it, then maybe that’s better for them as well. It really depends on the person’s situation as with any investment options.

Lucia France:

I guess, if they were working with a partner as well who had more time, perhaps that could be an option John, do you think?

John Howard:

Yeah, I think so. I think Paul is absolutely right. I think if you haven’t got a lot of time, and also if you’re risk-averse. Some people worry about taking more of a risky approach to property. I don’t think we’ve said this before, but there’s all these educators, they make out that anyone can do it all, and it suits everyone. It doesn’t suit everyone, and it’s horses for courses and absolutely right. When I look back now at times, and I see how successful people have been by just buying, buying, buying, buying, and retaining property rather than developing it, and selling it, and moving on. I do wonder sometimes why I bothered at times.

John Howard:

I think it really just does depend on the person, the person, because like I said, if you’re risk-averse and to a point you worry about things, then one you perhaps shouldn’t be doing property law by the way. If you are going to do it, long-term investment is the way forward. If you’re a little bit racy and you want to turn things up a bit and get a bit more thrill out of it, if you like, then the developing side is far more profitable, can be in the long run. You have to remember there is more risks involved.

Lucia France:

Yeah.

Stefano Lucatello:

Also there’s an age effect. Someone my age, 58, as opposed to someone who’s in the 30, depends how quickly … We were talking about this last week.

Paul Mahoney:

I thought it was 100 Mr. Delino.

John Howard:

Well, first of all, Stefano as a lawyer you should tell the truth, and I can’t believe you’re only 58, and here we go. The other thing-

Stefano Lucatello:

It’s all creams John.

John Howard:

Well, I didn’t say which way did I? The other thing, I don’t think it matters, I think the only thing I would say is as you get older on the whole you get more cautious, because you don’t want to lose what you’ve got. I think that comes into it a little bit, but of course I’ve got a lot of people … A few people I help who are older and are more relaxed about it, because they’ve got the money behind them. It just depends. It really does, but you’ve made a good point.

Paul Mahoney:

A slight caveat to that as well. I think some people do watch too much shows like Homes Under the Hammer, and that sort of thing.

John Howard:

Definitely.

Paul Mahoney:

It makes it look very easy and cheap, and profitable, and that’s not the case. As you know, John, there’s much more involved.

John Howard:

It’s hard work.

Paul Mahoney:

Sometimes you can lose money believe or not. Like any business. So, some people aren’t cut out for that and don’t want that. Therefore, it’s not necessarily the road to riches, developing property. It can be of course, but it’s not always.

John Howard:

I agree with that.

Lucia France:

I have experience of working on one … It’s not quite the same, but it was called 60 Minute in ITV, and that was my first ever job in television. I was a runner on it and then a researcher. Wow, like these people got … It looked amazing when we did the transformation and we did it within the hour and everything, but there were lots of things the camera couldn’t see, shall we say. That was just a superficial make-over show. I can imagine with property developing, I think there’s probably a lot that you don’t see in those programs as well.

John Howard:

Yeah, a lot of stress, can be.

Lucia France:

Yeah, exactly. Right, thank you very much for the answers to that one guys. Stefano, we are moving to Milan now. This person says, “I’ve got a flat in Milan that’s being rented to an elderly lady who has passed away. Her son is now saying that he is living there. Am I able to evict him? I’ve not accepted any rent from him knowingly.”

Stefano Lucatello:

Property rentals abroad, I think we discussed this before, are fraught with problems in that when the lease or the tenancy is over one year, then depending which of the countries it is in, go to become an automatic either three year, four year, or five year lease. That’s the rule usually. First of all, we’d have to look at the type of tenancy that the lady had. It may very well be, dependent how old this chap was, he might have been living with his mother at the time of her death. In any case, whatever he was doing or wasn’t doing, the landlord will have a problem getting him out.

Stefano Lucatello:

He can’t just go in there and throw him out. We have the same protection laws in Italy as we have in England. So, protection from eviction, harassment, that sort of thing. One being civil, one being criminal. It’s not as easy as just going in there and saying, “Get out.” You’d have to go to court. It’s not easy. It’s costly. It takes a while to do, and in essence it’s not the easiest things. I mean, I would just possibly ask the guy to reconsider whether this guy is a good tenant to keep on. If he’s a good guy to keep him on, and then you’ve still got a rental flow coming in. We don’t have in Italy, the same rules that we have in England in certain cases where the landlord is able to regain possession for his own personal use. We don’t have that.

John Howard:

That’s interesting, because of course in the UK we have second generation tenancy on [inaudible 00:14:33] where they can take over from their parents. Of course, when Labor were in government, there was third generation as well, but that was stopped quite a few years ago. The only other thing I can think, that you haven’t mentioned really, is if you want money to go, it might be cheaper to pay him some money to leave, than it is going to court.

Stefano Lucatello:

You’ve got to be careful there John, because it could be seen as bribery and there are rules against that.

John Howard:

Yeah, I suppose the way to do it is to get a legal document drawn up by yourself or something like that, and then get both parties to sign it. Isn’t it? Then give them the money to go, and at the same time he gives you the keys.

Stefano Lucatello:

Yeah. I mean, as I say it’s not easy in some cases. In some cases future generations can take over leases from previous people. It would also depend on … I mean, he would have a much stronger case if he was actually living there at the time when his mom was there, than if he’s decided just to move in, I don’t know, move from London to Milan and take it up as renewed tenancy. So, you’d have to look at the rental agreement. I wouldn’t do anything apart from instruct a lawyer. Thirdly, I think more than certainly if the guy doesn’t want to move out, you’d have to take proceedings in the Milanese courts and wait for them to go through and get them out, but it’s a long-winded exercise.

John Howard:

Yeah.

Lucia France:

In that case, Stefano, it’s worth, like you always say communication first and speak to [crosstalk 00:16:06].

Stefano Lucatello:

Yeah, absolutely.

John Howard:

Always talk to people if you can, always.

Stefano Lucatello:

Yeah.

Lucia France:

Lovely. Thank you very much. Okay, John your first question for today is this, “I’ve heard John say now on a number of occasions that he thinks the development and investment market will deteriorate over the next 18 months in the UK. However, I disagree. There is a huge shortage of housing, which I think will shore up the market. Can John give me his thoughts on this?”

John Howard:

Well, of course what a surprise, someone doesn’t agree with me. Goodness me that’s a new. I always ask myself questions to get the answers. Okay. So, if I ask this gentleman the question, “Do you think there’ll be more unemployment next year than there is this year?” I’d imagine he would agree with me. If I say to him, “Does he think banks will lend loan-to-value less than they are now or have done next year?” I’m sure the answer will be yes as well. If I ask him, “Do you think we’ll be in a recession next year, like the Chancellor of the Exchequer thinks,” and he should know because he’s at the sharp end of it all. Then I’d imagine, he’d say yes to that as well.

John Howard:

There’s three negatives. He’s got one positive, which are … There’s a couple of positives to be fair. One, he’s absolutely right. There is a housing shortage mainly in the South of the country, of course. I appreciate that, there is a housing shortage, and any property problem, I think, is only going to be for a couple of years or so, and then we’ll get back online anyway, probably. Unemployment, I believe is the biggest driver in property prices. If employment is very high, then more people are confident, they want to buy property, and they can buy property. If there’s a lot of unemployed people, not only do the people who are unemployed, not be able to buy, and probably might need to sell and rent, but also there’s no confidence in the market.

John Howard:

Even if you’ve got a job, you might be concerned about your job or you might be just a bit embarrassed that you’ve got a good job and no one else has, you’re not in the mood normally to move and so on now, which is a bit crazy because even if the market drops a little bit, the domestic market drops a little bit in the UK, it doesn’t really matter. If you already own a property and you’re buying another one, you’re in that market, yours goes down a tiny bit, a little bit maybe, and the one you buy if it’s more expensive, goes down probably a lot more. So, actually what’s the problem?

John Howard:

For the developers and the investors, that’s a different matter because you’ve got, for instance at the moment I’m paying 16000 a month in empty rates on property that’s on the market, that’s not sold. £16000 a month I’m paying. In the normal market, and by the way, the market at the moment is quite good. I’m talking about next year, not this year. If it takes me twice as long to sell the properties, I’ve got all those rates to pay for longer and so on. There’s lots of knock-on effects.

Lucia France:

Yeah, absolutely. I suppose that there’s … Like you always say, nobody knows the future, nobody knows what’s going to happen, but the questions that you’re asking they do seem very, very logical. So, your reverse I guess would be to-

Paul Mahoney:

I agree with all the points that John made there, and I think that job loss is the biggest risk to the UK property market. However, I don’t think it’s going to be catastrophic. It will probably have a negative impact overall. However, as I often say, property investment … You can’t invest in the UK property market. You can only invest in individual properties in individual areas.

Paul Mahoney:

I think a key point to what John said there was that probably in 12 months, assuming that we do go into a deep recession, finance will likely dry up, which means that at the moment, it’s quite a good time to be buying, because finance is really strong at the moment. Surprisingly, it’s bounced back really strong from lockdown. To be honest, it probably even stronger than it was pre-lockdown. There’s been lenders that have come back to the market with high loan-to-values and cheaper interest rates than were available eight weeks ago.

Paul Mahoney:

In my view, if you’re buying a good property in a good area with strong driving factors specific to that area, and a broad range of employment in that area, buying now isn’t necessarily a bad thing, because you can be confident you’re going to have a tenant regardless of a recession. Therefore, even if the price does dip slightly, you’re in the market, you’re receiving a net rental income. In fact, some areas might even move forward as the overall market moves backwards.

John Howard:

Paul, why’d you think that the banks have, not the clearers, but all the other financial institutions have come back so strongly?

Paul Mahoney:

I think it’s a surprise to a lot of people because of the negative media that was published at the start of the lockdown around the likes of Barclays and Lloyds scaling back their loan-to-value substantially. Therefore, we were getting a lot of questions about is the mortgage market disappearing? Are they pulling products? I was constantly saying to people, “No, that’s not what’s happening. It’s just on pause.” Now, that’s been proven, because they’ve bounced back so quickly. Keep in mind that we’re in a historically low interest rate environment.

John Howard:

Incredibly low. Incredibly.

Paul Mahoney:

It can’t go any lower unless we go to zero. So, lenders have money really cheaply available to them. Their margins have improved and therefore their appetite for risk can improve a little bit, because they’ve got a bigger margin across their portfolio of loans. So, because the market is still strong, in fact I’d say if anything over the past two weeks the market has bounced back really strongly.

John Howard:

Paul, I have to totally agree with you, which I don’t always want to do, but the market, you’re absolutely right, I mean our estate agents we’ve got and so on, and on the developments we’ve got, I’m pleasantly surprised. How long that will last, we’ll have to see, but at the moment I’m pleasantly surprised. I understand your point, if you’re buying for 20, 25 years does it matter whether the market goes down 10% next year or not? If you’ve got rental income, you got a yield, it’s going to go up like you said. Over 20 years, on average it’s gone up 5% year. I can see your point if you’re not at the sharp end of the job I can see your point.

Paul Mahoney:

I suppose, John, the point I was trying to make, there is some people would say, “Well, if the market might drop by five to 10%, should I wait 12 months in buy then?” The answer is no, because you won’t be able to get the mortgages that you can get today.

John Howard:

Do you think the mortgages will dry up next year? I can’t see that happening personally.

Paul Mahoney:

They could dry up, but if the market goes backwards, and we go into a full blown recession, and you add in Brexit that might affect finance as well.

John Howard:

Yeah, it’s human nature, isn’t it? Yeah.

Paul Mahoney:

It might tighten up, and therefore if you can get a 75% or 80% loan-to-value today, and in 12 months, you might only be able to get lower than that, it makes sense to buy today.

John Howard:

What you’re saying is take the opportunity while it’s there really.

Lucia France:

Yeah. That’s good advice there. Also, this brings us nicely onto your next question, actually Paul, talking about the buy-to-let market as well. I mean, I don’t know who’s written this actually, “As a matter of interest does the buy-to-let market exist in Australia?” We’ll ask that as a first part of this question Paul.

Paul Mahoney:

Okay. Yes, it does. In fact, it’s probably a bit more mature in Australia than it is in the UK. It’s a bit more ingrained. Buy-to-let mortgages have only been available in the UK since 1998. It’s a relatively new concept. Also, the attitude toward it in Australia is quite different in that I think Australians are a bit more like Americans in this respect, in that it’s viewed as a real positive. They don’t call them landlords, they call you a property investor. If you own properties you’re viewed as someone that’s worked hard to become successful.

Paul Mahoney:

I think in Australia, we have a bit more of a positive view towards successful people than, in general, in the UK people. You see in the media millionaire kicks cat. Apparently, if you’ve got money in the UK, you’re a terrible person. Obviously, not to everyone, but in general.

Lucia France:

[crosstalk 00:24:52] in the UK don’t we?

Paul Mahoney:

I think that landlords get a bad rap about being fat cats that squeeze their tenants to pay maximum rent, and I don’t think that’s the case at all, certainly not the landlords that I meet with or speak with on a daily basis. Yes, it does exist there. It’s also quite attractive in Australia, because you have what’s called a negative gearing, meaning that you can depreciate the value of your asset over a period of 10 years, and push your personal taxes into negative territory. So, you’re actually save tax by owning property, which the UK has gone the opposite direction to that.

John Howard:

Yeah. Well, the UK is punishing us, isn’t it really? It’s government really.

Paul Mahoney:

Yeah. It’s quite similar. Australia’s financial services, and you’re lending, and all that sort of thing, and laws as well is all based on the UK.

John Howard:

That’s no surprise there then Paul.

Paul Mahoney:

Yeah. So, it’s all quite similar. It was an easy transition for me anyway.

Lucia France:

So, then to come onto the second part of the question here, Paul. It obviously starts off as a matter of interest as the buy-to-let market exists in Australia. Yes, it does, and this person has said, “And if so, what are you doing in the UK?” Not sure how to take that one.

Paul Mahoney:

I get asked that the time.

Lucia France:

I mean the weather would be the main question I would have, but yeah.

Paul Mahoney:

I think wherever you’re from you take it from for granted in some respects, in that obviously people, a lot of British people would like to go to Australia at least for a period of time, and a lot of Australian people like coming over here, because obviously Britain’s a good place to live. London is a great place to be for financial services and investment. You’ve got Europe just around the corner, so you can pop over for a long weekend. You can’t do that in Australia. The closest place worth going to is Bali and that’s an eight hour flight.

Paul Mahoney:

Yeah, look I previously ran a financial services company in Australia that was publicly listed in 2014. I left. I came to the UK and started Nova. I suppose part of the logic to that is first off, my parents are from here. So, I’ve got a passport. It was an easy transition, but also London’s the financial capital of the world. The level of wealth in London is greater than anything I ever experienced in Australia, so for an advisory business, it makes sense.

Lucia France:

Yeah, okay.

John Howard:

So, what you’re really saying Paul, that Great Britain is better than Australia is what you’re really saying, which of course it is.

Paul Mahoney:

Well, look I wouldn’t go that far, but it’s a good place.

John Howard:

No, no.

Paul Mahoney:

In John’s opinion there, in Johns opinion. Okay, let’s move on to Stefano’s next question then. This person has written in and said, “My wife is Brazilian and she’s pushing me to purchase a property in Rio de Janeiro. Is it similar there to the UK property laws or is it similar to European laws?”

Stefano Lucatello:

It’s identical to European laws. If you buy in Brazil, you’re buying under Portuguese law as it were. It’s very much the same. The Brazilian codes, whether their criminal or civil, follow very much European codes and Napoleonic code, which is Roman law, and as such it’s totally different from English law, common law. You will have a different procedure. So, you’ll put some money down as a reservation fee. You’ll then pay a 10% deposit, and then you’ll pay the balance on completion in front of a notario, the notary public that we’ve talked about in previous editions, who is the state representative, who is the collector of taxes, and who is the person who will register the property.

Stefano Lucatello:

Interestingly enough, I mean, we’ve done a lot of investment work for clients. Many English, people who have bought in Brazil over the last years, and Brazil was a great country to invest in until about five or six years ago. They had a lot of, something called [foreign language 00:29:03], which is my house my life. This was a social enterprise by the government because so many people can’t afford to buy properties. So, you would invest in … These people would invest £20000 and they would get their money back within a year plus £3000 worth of interest. That money would then go to a local builder who would build a property of 54 square meters, and then that property would be mortgageable under Brazilian law to a person who otherwise would not have been able to get onto the property market.

Stefano Lucatello:

We did a lot of that. It was very good. It benefited three people, the investor who got his money back plus interest, the local person who otherwise wouldn’t have been able to get onto the property ladder, and the banks, of course, who had a mortgageable asset, which was worth the value that they were lending. They’re doing this still, and it’s very, very good. So, it’s very good.

Stefano Lucatello:

It’s a very interesting market to be in Brazil. It’s a difficult market in certain parts. It’s one that you should enter with care, like you should every other foreign market, but it’s certainly a good market to be in. They also have other people who complete transactions for them in offices called cartorios, and cartorios are slightly lesser representatives of the government. You can do that as well. In essence, it’s the same as buying in Europe. You have a totally different body of law and the rules are completely different. Just buy with caution, because for example, buying in Rio de Janeiro is totally different from buying in Salvador, Bahia in the Northwest, in the Northeast, sorry, further up the coast, that we used to invest in.

Stefano Lucatello:

So, investment in Rio de Janeiro brings with it a certain different amount of thinking than anywhere else, with Rio de Janeiro being, not the capital, but being the biggest city in Brazil. It brings with it good things and bad things.

Lucia France:

Why did you say Stefano, that up until five or six years ago it was a good idea?

Stefano Lucatello:

Well, the government previous to the one which we’ve got now, which is an ultra right-wing government, was the government run by Lula and he was a communist. When he and his number two, the number two, the woman who then took over from him when Lula went to prison, ran the country down. They ran the country down and therefore investments stopped. The majority of investment into Brazil from Europe was from Italians believe it or not, because many Italians have gone over their first, second generation and followed. Investment in there has been mainly from Italian families.

Stefano Lucatello:

Then people saw the way the country was going. It was going into ultra communism, the fraud, the corruption, and they decided to stop investing. So, there’s many, many developments that are half built and not completed just standing there basically. Then of course, we’ve now got the ultra right-wing guy who’s in, the military guy, and we’ve gone from one extreme to the other extreme. So, Brazil at the moment is, some would say, terra non grata. You wouldn’t want to invest in there if you want to keep your money safe. It’s not the safest of places to invest.

Lucia France:

Yeah. So, right now you’d advise this person against it then?

Stefano Lucatello:

The only reason you would invest in Brazil is if a member of your family is Brazilian, and as such you know what you’re doing and they know what they’re doing, because they know the lay of the land, literally, and the know what they’re investing into. I wouldn’t advise investing in Brazil other than that for that reason.

John Howard:

Or unless you’re in love.

Stefano Lucatello:

Well, that’s the last reason you would use John, you should know that as an worthwhile property investor.

John Howard:

Well, I don’t disagree, but it sounds like the guys under pressure.

Lucia France:

He does say his wife is Brazilian. She’s pushing him to purchase a property there.

Stefano Lucatello:

Yeah, I mean for that reason fine. She speaks Portuguese. She knows the lay of the land. There’ll be able to talk to other people, and so he’s not a first-timer, he’s not green. Many people are doing that. They are buying properties abroad, especially in these times of COVID, and especially because of Brexit, those of us who are over here. I’ve got a couple of clients who are married to Brazilians, and one of them is buying a property not in Rio, but in Sao Paulo where she comes from. People are doing that. People are thinking about returning back to their roots and buying properties in preparation for them to return at some stage later on in life to their properties.

Paul Mahoney:

Just a quick point on the investor’s mindset, which is the opposite of what John has just said there, invest because you’re in love. I very much think the opposite. I think investing should be commercially minded and unemotional. For example, we get asked the question all the time, “I want to buy a property that I might retire to at some point in the future, or that maybe I’ll go to live in if my situation changes, or that maybe my kids could live in the future.” Nine times out of 10, our guidance would be to completely separate those two things.

John Howard:

Totally.

Paul Mahoney:

Invest the money, and then use that money to buy personal assets rather than the other way around.

John Howard:

Paul, I totally agree with you. I was just saying the guy’s in love, so he’s under pressure. That was all I was really getting at.

Lucia France:

Oh no, I think you’re ranting there John.

Stefano Lucatello:

It was a flippant remark, John, wasn’t it?

John Howard:

The other thing, can I just say that Stefano, you astound me with your knowledge genuinely. You really do. I mean, to know what’s happening in Brazil is same as Europe, I mean, I won’t embarrass you, but for someone from Hull that’s quite impressive.

Stefano Lucatello:

I mean, there was a time, John, when my law firm before the first crisis, 2008, when we were acting in 15, 16 different countries ranging from Bulgaria to Argentina. We’ve done some big developments in Argentina in Buenos Aires. We’ve done a lot, as I say, in Brazil. Our strength is that we’ve covered most of the buying parts of the world, even to the Philippines and to Singapore.

John Howard:

That’s quite remarkable, I think. Amazing.

Stefano Lucatello:

There’s nobody else that covers. We are a small firm, but we punch very much above our weight, and there’s nobody else that covers the extent of the countries that we do. So, it’s experience like you in the development business, we’ve got the experience in those countries, and we have the resources to go back to the law firms that we work with in those countries to actually be able to give the proper advice and the correct advice.

Lucia France:

Also Stefano, it does always seem like you’ve just got it straight in your head [crosstalk 00:36:07].

John Howard:

Yeah, it’s quite amazing really.

Stefano Lucatello:

I suppose it’s like John and Paul. It sounds like the two disciples, isn’t it?

John Howard:

Well, it has been said before.

Stefano Lucatello:

It’s a question of you acquire knowledge, and I read a lot just like they do. I read a lot on … We’re subscribed to international blogs, international information, and we read it even if it’s snippets of information, and we write on a lot of these things. So, I suppose once you’ve written it, you condense it. It embeds it in your mind and you’re able to draw on it, and I’m happy. I’m very proud of the fact that we’ve got a team that knows what it does. It’s competent, and I’m very proud of myself in the sense that I’ve acquired a lot of knowledge, and I can, as you say, draw from it. It’s in my fingertips.

Stefano Lucatello:

I’m not an expert like these two guys in development, but I’m an expert in my own area. I’ve said before, you wouldn’t come to me for a criminal law matter, because I’d probably have you locked up for the rest of your life as opposed to getting you off.

Lucia France:

So, nobody here should get in trouble then.

Stefano Lucatello:

If you get in trouble, don’t come to me, mate. Don’t come to me.

John Howard:

Right.

Lucia France:

Good to know. Good to know. Thanks Stefano. Okay, let’s go to John’s last question for today. The person says, they’re looking at doing a commercial deal for their first foray into property investment. Is this a sensible move or do you think that they’re being too ambitious?

John Howard:

Well, the choice between residential and commercial in terms of investment is vast. Residentially, you can easily get funding and mortgages and everything else. With commercial it’s much, much harder. So, depending on how much money they’ve got is the first thing. I always ask the question, people come for help and advice, I say, “Well, you know, what sort of money have you got to spend? What interests you? What do you … What gets you up in the mornings, because that’s also very important.” It might be that they really love the buzz in commercial and they find residential a little bit steady, that’s fine.

John Howard:

The risk involved in commercial is much, much higher. For instance, if you’re going to buy a vacate commercial property and try to let it, you’ve got empty rates in the meantime, unless it’s a Grade 2 listed, historically listed, then there’s no rates. That’s a big problem to start with. The second problem, obviously in this market at the moment is whether or not you can let the property. Just because it was let for 20000 before and now it’s empty, and the agent says, “Oh, it’s worth 20000 a year.” Is it really worth 20000 a year rent, or is it worth 10, in this market? How’d you tell? I would be super cautious to jump straight into commercial. Most people cut their teeth on residential first.

Paul Mahoney:

Yep. I agree. We get asked about commercial property all the time. In my opinion, it is only really suitable for wealthier people, who can afford a bit more risk, because the cost of the debt is more, the loan-to-values are lower so you’re putting your cash in. Vacancy rates are higher. The yields are usually higher, but the gap between tenants is usually bigger.

John Howard:

The risk, big risks. Yeah.

Lucia France:

Also, John, I know you’ve talked about this before, [what you’ve] said about paying for rates while properties that are empty and things like that. I guess, people always need a roof over their head and a place to live, but business has so much more risky involved in terms of what’s going on in the economy.

John Howard:

Without question. The caveat, of course, to that is that is that if it’s got residential above it, if you rent the residential out, it does soften the blow of the vacant commercial underneath. If you’re buying a property, which is … By the way, if you’re buying property that is already let, do some research on the tenants. If they’re limited company, you go to Companies House, do some research on the tenants, and make sure they’re substantial, and they’ve got assets, and they’re making the profit, because if they’re not making a profit, they won’t be that long. So, do you’re research. If it’s tenanted, got tenants in, do your research on tenants, very important.

Lucia France:

All right then guys. Well, that’s it for today. Thank you very much at home for watching. If you have any questions, please do leave them in the comments or email us A Question of Property … Sorry, ask, I do apologize. I’ll start that again. My mind was totally somewhere else there. Ask A-S-K@aquestionofproperty.co.uk is the email address. We’re going to put it underneath anyway, just so that that makes perfect sense. I’m going to say thank you very much to Paul, to Stefano, and to John today.

John Howard:

Pleasure.

Stefano Lucatello:

Thanks.

Lucia France:

[crosstalk 00:40:44] thanks for watching.

John Howard:

Bye-bye.

Stefano Lucatello:

Bye.

 

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