A Question of Property - Ep 19 - Paul Mahoney, Stefano Lucatello & John Howard - Nova

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

Lucia France:

Hello, and welcome to our penultimate episode of A Question of Property. I’m your host, Lucia France and joining me are our usual panel of property experts who are primed and ready to fight it out and see who’s going to give the best advice for our viewers. So good morning, first of all, to John Howard. Good morning to you, sir.

John Howard:

Good morning. That’s fighting talk, isn’t it? As you know, I’ve got told off by a few viewers that told me off for being too aggressive towards solicitors on whether they are worst listers anyway. I don’t know, but I’ve also got to calm down a bit.

Lucia France:

Was it friends of Stefano? Do you think?

John Howard:

Well, I’d imagine. I would have thought he hasn’t got any friends, so I wouldn’t have thought that was the case.

Lucia France:

Dear.

Stefano Lucatello:

You’re going to get a dead horse head in your bed one night.

John Howard:

That’s obviously an Italian job, isn’t it that?

Stefano Lucatello:

It’s a mafia.

Paul Mahoney:

Well, it wouldn’t be hard to guess who’s done that.

Lucia France:

Right? Okay. Let’s let’s hold it there guys.

John Howard:

Long as it’s not one of my horses outside, I’m okay. I’ll be happy [crosstalk 00:01:05].

Stefano Lucatello:

Due to run at new market at 1:30 today, mate. Have luck

Lucia France:

We don’t condone to any abuse of animals here on this show.

Stefano Lucatello:

Absolutely. No.

John Howard:

We don’t. We’re animal lovers.

Lucia France:

John has 40 years experience in the industry, if you’ve been watching you’ll know this and he’s the author of three different books on the subject, including Buying & Selling at Auction, and he’s working on a fourth. We’re going to say good morning as well to Stefano Lucatello, senior partner at Cobalt Law, international property lawyers and I’ll go to for advice on buying and selling property abroad.

Stefano Lucatello:

Morning.

Lucia France:

As well as being a top notch lawyer, Stefano is also very handy in the kitchen.

Stefano Lucatello:

Yes.

Lucia France:

So what’s been the top recipe this week?

Stefano Lucatello:

Lobster bisque and lobster salad this week.

Lucia France:

Was it good?

Stefano Lucatello:

Fresh delivery from Cornwall. I’ve got a big container full of fish to cook over the next few weeks. So keep watching this space, watch me on Facebook. You’ll see all these beautiful recipes.

Lucia France:

Awesome. We’re not going to…

John Howard:

Very eco-friendly that, isn’t it? All the way from Cornwall to Hall?

Stefano Lucatello:

No, London.

John Howard:

Well, even so.

Lucia France:

As long as we don’t see any fish based dessert, I’m fine with it.

John Howard:

No, there’s no fish panna cotta.

Lucia France:

Okay, good.

John Howard:

[crosstalk 00:02:16] to that.

Lucia France:

Last but of course not least, welcome to Paul Mahoney who is not only has one but two university degrees.

Stefano Lucatello:

Wow.

Lucia France:

And he’s also a best selling author, award-winning property speaker, and head of Nova Financial Group. So, morning to you Paul, how are you today?

Paul Mahoney:

Thanks Lucia. I’m very good. Thank you.

Lucia France:

Are you going to keep the peace between these two please?

Paul Mahoney:

I’ll do my best.

Stefano Lucatello:

Amazing what you can buy on eBay nowadays, isn’t it titled [crosstalk 00:02:40].

John Howard:

Well he’s got to be the most intelligent Australian ever.

Lucia France:

My goodness. We are going to leave that there.

Stefano Lucatello:

Come on. Let’s get on with it Lucia.

Lucia France:

Let’s get on with it. Just our first question to all of you. It’s obviously our penultimate episode, we’ve been filming now for 10 weeks.

Stefano Lucatello:

Wow.

Lucia France:

Most of which has been a fairly tight lockdown down here in the UK. So what’s the strangest thing any of you have had to do for yourself during lockdown. Let’s go to…

John Howard:

Do I go first?

Lucia France:

John, yes.

John Howard:

Hoovering. I’ve been hoovering, and also emptying the dishwasher every morning.

Stefano Lucatello:

Wow.

John Howard:

I’ll tell you what, I’m not used to any of that. I’m normally very spoiled.

Lucia France:

Who did it usually then?

John Howard:

The housekeeper had the opportunity to come back and she said, “No.”

Stefano Lucatello:

I’m not surprised.

Lucia France:

Well, fair enough. I think. Stefano?

Stefano Lucatello:

I can’t think. Probably trying to cut my own hair.

Lucia France:

Looking good. I like it.

Stefano Lucatello:

What’s left of it.

Lucia France:

Very nice.

John Howard:

I’m not saying a word.

Stefano Lucatello:

You can’t talk.

Lucia France:

Paul?

Paul Mahoney:

I let my wife cut my hair and that was a bit dodgy. Luckily our cleaner is back now. So we’re living in a clean now.

Stefano Lucatello:

We don’t have a cleaner, we do it ourselves up North. None of this lark.

Lucia France:

Well, everybody’s hair looks great. I have to say. So, yeah.

Stefano Lucatello:

What’s your strangest moment Lucia?

Lucia France:

Waxing my own legs. [crosstalk 00:04:02]

Stefano Lucatello:

Golly, what a problem.

John Howard:

I thought you said you got your husband to do that.

Lucia France:

Yeah, he did. He had to do the back because I couldn’t reach. Anyway. Let’s move on.

John Howard:

See. To much information.

Lucia France:

TMI. Let’s go talk about some property then shall we? First question here is for Paul. So when people quote say a 6% yield on a buy-to-let property, have they normally taken into account any repairs or service charge that may have to be paid? And that one’s for you Paul.

Paul Mahoney:

Okay. Yeah. So returns with regards to property can be quoted in a number of different ways. And usually the most common, and probably what this person is talking about, is the gross yield.

Lucia France:

Right.

Paul Mahoney:

So when somebody says 6%, they’re more than likely talking about the rent as a percentage of the property price. And that’s the gross year without taking away any costs. But there’s other ways of looking at returns and probably much better ways of looking at returns. You can look at the net yield on the property, meaning that you’ve taken all the costs out of the rent, but one step further, which I think is an even more important figure is the net yield on the funds applied or your ROI, your return on investment. So for example, 50,000 pounds into a 200,000 pound property with a 75% mortgage, the net yield after all costs as a percentage of the cash you’ve invested being the 50 grand. Now I think that’s the most important figure when talking about yield because the asset returns, aren’t really all that relevant to you as the property investor, because it’s the cash, all the equity that you’ve got invested in that property, that’s most important.

Paul Mahoney:

Because you could do with that, whatever you like, you can invest it in stocks and shares. You could keep it in the bank, shove it on your bed. You’ve decided to invest it in this property. And therefore the most important figure is the return you’re getting on that cash. So I’d encouraged people to do that. And the way you work that out is you just take your yearly rent minus all of your costs. So things like your monthly mortgage costs, management, service charges, ground rent, maintenance, [inaudible 00:06:18] property, always do that quite conservatively because it’s usually a bit of a forecast as opposed to actual figures. So conservative rent, build a bit of a buffer into the costs and then divide that by the cash invested. And that will give you your net yield on cash applied.

Lucia France:

Sorry Paul, just to clarify, you said, divide that by the cash invested?

Paul Mahoney:

Exactly. Yeah. So divide the yearly rent by the cash invested.

Lucia France:

Okay.

Paul Mahoney:

And that will give you a net yield on funds applied. And in the current market, a good net yield on funds applied, it does depend on locations, but usually what we’re aiming for is somewhere between five to 10%.

Lucia France:

Okay.

Paul Mahoney:

So that will be post expenses, pretax yield.

Stefano Lucatello:

So where would you get 10% now Paul? Which city?

Paul Mahoney:

So Liverpool, Leeds.

Stefano Lucatello:

Wow.

Paul Mahoney:

Where the property prices are a little bit cheaper than the likes of Birmingham, Manchester and therefore the yields are a bit higher. It does depend the property price, the location, all that thing. You can get much higher than that, but generally when you’re going from much higher yields, you’re also buying cheaper properties in cheaper areas. And therefore, in my view, you’re taking more risks because the vacancy rates are often higher, the quality of tenant is lower. So it’s a bit of a balancing act between having confidence in the return and actually getting it.

Lucia France:

Okay. That’s great. Thank you.

John Howard:

I think the other thing I would say also, I think you’re right there, Paul. I think the other thing, when you’re looking at cheaper properties with higher yields, you’re already sacrificing capital growth probably and quality for yield. And of course, unfortunately, sometimes the yield might sound great to start with, the rental return, but of course, it doesn’t cost a lot less to refurbish your house in Burnley say, all due respect to Burnley, as it does, Leeds or somewhere else. So actually, when you have to refurbish them, you’re actually investing more money into that property for what it’s worth than you are in another one. And also you’re getting less capital gain over the long period of time as well, probably.

Stefano Lucatello:

Yeah.

Paul Mahoney:

Yeah. Yeah, we get a lot of people that come to us with properties in the Northeast of England.

John Howard:

Yep.

Paul Mahoney:

[crosstalk 00:08:36]. 10% to 15% gross yields on the asset value, which is really high. When you worked there in new cash, it’s a significant return. But whether you’re actually going to get that or not is the question, because the vacancy rates are higher. The quality of [crosstalk 00:00:08:54].

John Howard:

Hartley, Paul, is a great example. Hartley, Paul, has got the highest unemployment level in the UK and the biggest drug problem, one of the big strip clubs at the moment. So in Northeast. Some of the homes in the Northeast are lovely by the way, I’m not saying they’re not. But that would be an example people have said to me a lot. I bought in Hartley, Paul, but now I can’t get my money back. Well, do your research. Always say this on this show, on every show.

Lucia France:

Yeah.

John Howard:

Do your research. It’s so important to take some advice from people that know.

Lucia France:

And get the right advice, like you, yourself, Stefano and Paul.

John Howard:

Yeah, for sure.

Lucia France:

John, sorry. I’ve just realized you’ve got a tie on.

John Howard:

Yes, I have got a tie on today.

Lucia France:

Why is this? What’s going on?

John Howard:

I just thought I would out smart the others, to be honest with you, in more ways than one probably, but there we go.

Stefano Lucatello:

You’ve got a long way to go, mate then, keep trying.

John Howard:

Well, I haven’t got a degree, I accept that, or even two, I do accept that. But I’ve got NVQ 3 in racehorse management, my only qualification.

Stefano Lucatello:

That would be very useful.

Lucia France:

Absolutely. Absolutely.

John Howard:

It’s easy if you’ve got a racehorse.

Lucia France:

Let’s move on. Stefano. It’s your first question for today. We have a question from a solicitor in the UK who says, as a matter of interest, is there an equivalent to the land registry in any European countries?

Stefano Lucatello:

Of course there is. Yes. Next question.

Lucia France:

Well, he doesn’t specify, which country.

John Howard:

Is that because you don’t know the answer?

Stefano Lucatello:

Abroad land registries are called cadastral registers. And the cadastre is the word which derived from Latin, which means register and which was used by the Roman centurions to count their stocks, the food, their soldiers and all the rest of the stuff that they were counting about. So that’s where it comes from the cadastre. And the cadastre is our form of land registry in Italy, Spain, Portugal, electronic. So you can do searches online on it. And the cadastral register will tell you much the same way as our English land registry does, which is divided up into a property register, proprietorship register and the charges register. What is on the title? So it will tell you who owns the property or the share of ownership because in foreign countries, in European countries, we have the civil law system and you can own in fifth, sixth, seventh, which is very unheard of in our common law jurisdiction.

Lucia France:

Yeah.

Stefano Lucatello:

So you could get families which each own a sixth if there is six of them. And it’ll tell you who owns what and where, it will tell you the rights and the obligations of the property. It’ll have a cadastral plan, which is the planning of the property showing you the perimeter of the property. Interestingly enough, abroad, when you have a plot of land and the property, each one of the two will have a separate land registry number and plot number. So you could have plots within, plots within plots, within subdivisions, so you can external buildings attached to it with its own title number. Makes it quite complicated. And the interesting thing about cadastre registries, especially in Italy is that the further North you go in Trentino, which is an [foreign language 00:12:04], which are the two regions close to Austria, the system of cadastres of registering property is based on the Austro-Hungarian system, which talks about fractions.

Stefano Lucatello:

So it’s not decimals, it’s fractions. And you have to… Its the only place in Italy where it’s not electronic and you have to do a manual search. So when we deal with clients who are buying up there, we have to send someone down to the local land registry to actually do in manual search, which means flicking through loads of loads of books, finding the plots and getting all the title problems off the register to then be able to advise the client. So, yeah, the answer in short is yes, every European country how something called the cadastre, which is the equivalent of our land registry. Some cadastre have more information on… Some countries have more information on the cadastre then others, but it is what we start off with when we start doing searches and start buying property for clients abroad.

Lucia France:

It sounds like it could get really complicated there with all of the subdivisions. Does that often cause problems?

Stefano Lucatello:

Yeah, it does. Especially in Northern Italy, as I say, because you’re hand searching as opposed to electronic searching. And do you imagine that would take an absolute nightmare to sort that system out. Yeah.You’ve got to be very careful and you’ve got to be… My reputation’s on the line when I’m talking to clients and I’m telling them, look, the six people own this and making sure that there are six people.

John Howard:

Yeah.

Stefano Lucatello:

And then just before completion, the notary or the [foreign language 00:13:28] in Italy or the public authorities, I’ve always called him along this series, has to do another search to make sure that between exchange of contracts and completion,, the day before completion, there hasn’t been any changes such as a new charge being put on the property or someone coming off the property or someone having died or whatever. So there’s been no change to the registry cadastre.

Lucia France:

All right. Okay, great. Thanks, very much, Stefano. A longer answer there. See, we’ve got it out of you.

Stefano Lucatello:

But it was complete and it was what you wanted.

Lucia France:

Absolutely. Comprehensive indeed.

John Howard:

Professional.

Stefano Lucatello:

Thank you.

Lucia France:

John’s being nice to you. That’s good.

John Howard:

I’m trying.

Stefano Lucatello:

You’re very trying.

Lucia France:

Okay, let’s go onto John’s first question then for today. This person says I’m looking to purchase a commercial investment. I’ve come across one that looks quite interesting. Can you explain the distance to me please, between a full repairing and insuring lease and an internal repair and insuring lease?

John Howard:

Well, Stefano can probably do a better job than this than I can, but here we go. And I’m sure he’ll catch me out at some point.

Lucia France:

Yeah. [crosstalk 00:14:33].

John Howard:

A full repairing and insuring lease means that they are taken on all the costs, all the insurance and the repair of the building. So when you get, say the rent’s 10,000 pounds, you will get the 10,000 pounds clear of any other costs. So that is a real genuine net. And that’s the great thing about commercial of course. You’re not, then unlike residential, you haven’t got… If it’s full repairing and insuring, that’s what it means. For repairing and insuring. If it’s internal repairing only, and insurance only that means they have to look after the interior as it is when they take it on normally, but they don’t have to look after the externals. And that may be because there’s a number of different tenants in the building. And if the guy or lady checks they might find that there is a what’s called a service charge to cover all the external repairs. So they pay share of the external repairs. They may not be.

John Howard:

So that’s the difference and you definitely need to check. Also, the big thing you need to ask is when the tenant moved in, was there a schedule of works carried out. So a schedule condition, not works, schedule of condition. That could be done by photographs, which is the cheap way of doing it. So that when they leave the premises, they have to leave in the same condition. So if it’s not in the same condition then there’s dilapidations, which means they have to put it back into the condition it was when they took the building on in the first place. Stefano, how have I done? How many out of 10?

Stefano Lucatello:

Reasonably well. Seven out of 10, John. Seven out of 10.

John Howard:

Great, seven. Thank you. Would you like to add anything?

Stefano Lucatello:

Yeah, I was going to.

John Howard:

Thought you might.

Stefano Lucatello:

The main point on the full repairing insuring lease is that if you were to take it on without doing anything, at the point of signing the lease, you would take on all the historic problems. So you could inherit the problem as a tenant with any previous history.

John Howard:

Yes. Good point.

Stefano Lucatello:

And it would be yours incumbent on you to deal with it.

John Howard:

Yep.

Stefano Lucatello:

As John says, when we deal with commercial leases, we always have a schedule of dilapidations attached to it with photography, if possible, which then shows the state of repair that it was in at the time. We always, as lawyers try to water down a full repairing and insuring lease in the condition [crosstalk 00:16:59].

John Howard:

Of course you do.

Stefano Lucatello:

It’s incumbent on a solicitor to try and water it down, especially when the landlord wants to get away with something that perhaps he can pass on like a roof or foundations, structural or whatever, which is going to cost him a lot of money and may not be covered by insurance. So he’s going to try and put it onto a tenant. So the first thing we would do is we would look at the historical condition of the property. We’d have a survey done, and the survey would then possibly be attached to the property lease. And it would be watered down in some way, shape or form. I always tell clients be careful what you wish for, because you want the property. But if you take it on an FRI, you’ve got a real problem.

John Howard:

Yeah. Great. Well, thank you very much, Stefano for that. And you wonder why I feel the way I do about lawyers. Thank you. Taking the bread from my mouth.

Lucia France:

With the properties that you’ve invested in John, then have you gone for a full repairing [crosstalk 00:17:56].

John Howard:

Yeah.

Lucia France:

We lost you.

Stefano Lucatello:

He’s gone. Hello John?

Lucia France:

Come back to John then I think we just lost connection there. Okay. Let’s go back to Paul then for your second question for today. So Derek asks, I’ve heard John Howard recommending paying off your buy-to-let mortgage on a repayment basis as quickly as possible to save thousands of pounds in interest. Is that something that you would advise as well?

Paul Mahoney:

Well, we’ve obviously silenced John for a reason. [crosstalk 00:18:30] Accident John’s on pause.

Lucia France:

Not intentional.

Paul Mahoney:

And I suppose that leads into my answer is that no, I don’t agree with that necessarily. The reason I don’t agree with that. And we get asked a lot of questions about for buys to let, should I go for interest only or repayment mortgage? And my answer as a mortgage advisor and financial advisor is always interest only because it’s less risk. Reason it’s less risk is you are committing to a lower level of payment and keeping in mind, this is an investment where you could potentially have cashflow issues down the line. And if you do have cashflow issues, you want to have the minimum level of outgoing commitments as possible to get you through that.

Lucia France:

Yeah.

Paul Mahoney:

With most interest only mortgages, you can still repay up to 10% of the principal per annum anyway, but it’s your choice. So for example, even if it is interest only, you could get that paid off within 10 years, if you wanted to pay extra. But if it’s principal and interest, you don’t have a choice, you have to pay the principal. You have to make the repayments as well.

Lucia France:

Right.

Paul Mahoney:

And this is especially so the case when you still have personal debt. Personal debt, being a home loan, credit cards, car loan the debts that improve our lifestyle, but hurt our finances. You want to get rid of debt as soon as you can. So definitely personal debts, you want those on repayment.

Lucia France:

Yeah.

Paul Mahoney:

Definitely wants to be paying them down. But investment debt is different. And certainly shouldn’t be really be paid down until you’ve got rid of your personal debt. The reason it’s different is investment debt helps your finances. It makes your money go further. It extends your buying power. And especially while it’s so cheap, when we can borrow it two or 3% that’s tax deductible, it makes sense to have it really, regardless of your situation. I’m a big believer that unless you’re extremely wealthy and you just don’t want the hassle, and you’ve got enough resources to give you what you want from your investments. It’s almost madness not to have some mortgages against your properties because it accelerates the returns. And a lot of people think associate debt with risk more so than they do opportunity.

Lucia France:

Yeah.

Paul Mahoney:

I look at it the other way around, because the only risk of debt is the cost of the debt. And when it’s so cheap, that risk is quite low. Because if we can be achieving strong double digit returns from investing in property and the cost of the debt is low single digits, then the risk is quite low.

Lucia France:

Yeah. So in terms of paying things off, in terms of these loans, as quickly as possible, that’s not actually something that you would advise?

Paul Mahoney:

Not necessarily. Even carrying mortgages, buy-to-let mortgages right through retirement can make sense, because you’re not limited in getting buy-to-let mortgages by being retired. You are limited getting personal debt. So for example, getting a residential mortgage on your home, it becomes more difficult to get a mortgage when you get toward the age of 65. And the reason for that is your personal income is the serviceability for that mortgage. And therefore, most lenders will only lend to you four to five times your income, and they’ll start to get worried as you get older, because they’ll think, “Well, you got to stop working at some point, how are you going to service this mortgage?”

Stefano Lucatello:

Paul, can you get a buy-to-let mortgage on an interest only?

Paul Mahoney:

most of them are interest only, it’s standard practice.

Stefano Lucatello:

Yeah. I’ve never done an investment, but my only mortgage was an interest only with Halifax, which I took out in 1987 when we bought our house.

Paul Mahoney:

Yep.

Stefano Lucatello:

And it was backed by three life endowment policies with Scottish Amicable and one of the others. And I know that getting towards the end of it, I was starting to get notifications from the insurance companies saying your endowment is not going to cover the repayment, your endowment will only… And they have to quote at certain percentages or interest rates as to what it’s going to perform at and do. And if I…

Paul Mahoney:

Yeah, endowments are a very old product, but they don’t really do them anymore.

Stefano Lucatello:

So they don’t exist anymore. Right. Okay. So that was my fear would be, yes. Okay, fine. You take an interest only mortgage, but can you repay it when it comes to the moment they have to repay it at the end of 25, 15 years, whatever?

Paul Mahoney:

That’s the thing with buy-to-let the service ability is the rent from the property and the security is the property.

Stefano Lucatello:

Yeah.

Paul Mahoney:

There’s some buy-to-let lenders will lend to you up to the age of a hundred. And most of us don’t live that long.

Lucia France:

Wow.

Paul Mahoney:

So it’s not really… The reason for that is it’s much more about the property than it is about your personal situation. So a lot of people get concerned about debt. And I think the thing you need to do is separate the difference between good debt and bad debt in your mind. It’s worth having good debt. And you’re almost, you are under-utilizing what you have if you don’t have good debt.

Stefano Lucatello:

Right.

Paul Mahoney:

But it’s worth getting rid of bad debt, being personal debt. So we see people all the time that have debt-free properties or very low levels of debt against properties. And we go through an educational process with them to show them how they could be achieving so much more by, for example, taking some equity out of those properties and buying more properties, which multiplies their exposure to the market and therefore multiplies their returns.

Stefano Lucatello:

Right.

Lucia France:

So Paul, just talking about not bad debt, but things that you referred to before, such as like your car, people that buy cars on a lease. Would you say that’s a bad debt thing to have?

Paul Mahoney:

Well, a lease is a bit different because so long as you can afford to service it, and you can just hand the car back at the end, that’s not necessarily a bad debt. Because as I say, as long as you’re servicing it, it’s not going to cause you an issue. But for example, your home loan is a bad debt. Most people have a home loan, but it’s personal debt. It doesn’t help your finances. It hurts your finances. It gives you a place to live. And I suppose that’s the difference is my home loan where I’m talking to you from now is a repayment mortgage. And you want to try to get rid of that as soon as you can.

Lucia France:

Yeah.

Paul Mahoney:

Whereas with bu-to-let mortgages or any investment debt for that matter, that that should be carried until you’ve got no personal debt.

Lucia France:

Right. Okay. That makes sense. Yeah. Thank you for that, Paul and Stefano as well.

Stefano Lucatello:

He’s back. Don’t give him the opportunity to reply. Move on to the next question.

Lucia France:

Okay.

John Howard:

I’m very sorry. [crosstalk 00:25:24].

Lucia France:

Sorry John, We lost you there. Are you okay?

John Howard:

My internet kept falling out. So I do apologize. That’s the only drawback to Suffolk, [crosstalk 00:25:32].

Paul Mahoney:

We’ve been saying how wrong you are.

Lucia France:

It was all cut off an opportune moment there for the other guys. Right. Stefano, let’s move onto your next question. This person says I’ve been put off by some of the advice you’ve given regarding buying property in Europe. It doesn’t sound that renting out a property there is easy or safe as doing so in the UK. And that would be my primary objective, return on investment. How have I misunderstood you?

Stefano Lucatello:

Well, every country has its own rules and regulations and certainly buying property and then renting it out abroad is totally different from doing it here in the United Kingdom. When you set up… We’ve quite often touched on this during the 10 weeks that we’ve been talking. When you actually rent a property out in a foreign country, in a European country, let’s say, there are rules and regulations, which apply. And they mainly, as they’re doing any country, but they mainly benefit and protect the tenant. So it means that if you try as a landlord to be clever and have, let’s say a fixed term lease, which is a recurring lease, a one year lease, which then becomes a five-year lease, the law states that that automatically gives security of tenure in all European civil law countries to the tenant. So yes, the odds are stacked very much in favor of the tenant in European jurisdictions.

Stefano Lucatello:

And yes, you’ve got to get your act together when you decide to rent it out, whether it’s commercial or residential, two sets of different laws. And it’s very important that you do think about it because if your aim is to get it back at some point, you don’t always, and this is the one point that differs in many European countries. And you don’t, like in the United Kingdom, have the right under the landlord and tenant tax, 1954, for example, which deals with commercial leases to get the property back if you fall under one of the cases, which is that you need it for your own occupation as the landlord.

Lucia France:

Right.

Stefano Lucatello:

Or you need to carry out works of reparation one of the two of the seven cases under the schedule that you can actually take back possession for when it’s covered and protected. Most leases nowadays in England are not protected. They fall outside of the scope of the 1954 part too. But anyway, abroad, you don’t have that. And therefore, yes, it is very much stacked against it. No, there’s nothing wrong in renting out a property. I would always rent out a property abroad on the basis that you’re going to get a slightly lesser income, but you would rent it out to a professional couple, someone who is local to the area where you bought the property and they will look after the property for you. And I think you should see it more as John and Paul do as an investment rather than a lifestyle change, because you’ve got someone in there, you won’t be able to occupy it yourself either temporarily or fully. And you see it as a return on your investment.

Stefano Lucatello:

These two keep going on about returning investment and all the rest of it. Well, as long as you keep the client there, the tenant there, you’ve got a return on your investment. You’ve got to see it as something that he’s going up in capital, have a capital appreciation and also return by way of rental income. But it is, yes, more difficult. And yes, it is fraught with difficulties. And I’m not saying no, don’t do it. The English market is what it is. The international market is a totally different market.

Lucia France:

I guess…

John Howard:

Stefano. Sorry, sorry. Just going to very quickly ask. In terms of capital growth, have they seen the same amounts of capital growth, perhaps that the UK market seen over the years in principle and have they had the recessions as well? Property recession?

Stefano Lucatello:

Yes, absolutely. The property recessions, of course, we’ve have the property recessions, 2007, 2008, the whole world got a property recession. So, yes, in Spain, when I do my seminars, I say that in Spain, for example, overnight property prices went down 40%, in Italy, 25%, 30%, France, 20, 30%. But Spain took the real hit. And yes, it’s a totally different market, John. You can’t equate the two.

John Howard:

Right.

Stefano Lucatello:

At the end of the day, we’ve had the recessions. Property… I always say to people, people see if you go to… The best example is France and people buying France, you look on the property markets now you’ll see the properties have gone down 30% in the last two months in France, but that does not mean to say that you will get a great price when you come to sell it in 10 years time. Lots of people who sell their properties now will have been trying to sell their property in France and Italy in Spain and lesser Portugal have a problem in how they’re selling it or getting the price they wanted. It’s the case that if you invest a hundred thousand pounds into a property in France, and then you do some works to it, you might not get back what you have invested in it, on the purchase price.

Stefano Lucatello:

Why? Because it’s not that sort of market. You will only get your money back in France, for example, in places like Paris, the major cities, if you’re going to do a flux in investments like John and Paul do, or if you go to seaside resorts, like Saint-Tropez, Cannes, Nice and places like that Marcé, where there is a high demand for people. I did one last week for a client… Completed one last week for a client who bought in Mougins, which is just outside Cannes. And she paid 6.5 million quid for it, Euros for it.

John Howard:

Cool.

Stefano Lucatello:

So she will get her money back because that’s one of the trendy areas. But if you go to the Vienne, if you go to one of the other door dying, even the famous areas, they’re not always areas where you will get your money back. And you’ve not got to see it, unfortunately that way, because the investment abroad has different criteria to investment like Paul and John. Paul’s always saying, isn’t he, that he wouldn’t invest abroad because it’s totally wrong and this and the other, but it’s two different frames of mind. I’m investing abroad at the moment because I want to buy something for my cookery school and for my spa. And it’s a lifestyle change. I’d like to think…

John Howard:

I take it, we’re going to come to the opening. Lucia will definitely get [crosstalk 00:31:30]

Stefano Lucatello:

Lucia’s [crosstalk 00:31:32].

Lucia France:

I’d love to go. Yeah

Stefano Lucatello:

[crosstalk 00:31:36] She’s doing some of her yoga there.

Lucia France:

Absolutely, yes. [crosstalk 00:31:39]

Stefano Lucatello:

Say again? Right. It was just to say that two markets totally different. And there are people who want to invest abroad other people want to invest in United Kingdom, the two are totally separate. You’ve got to consider what you want at the end. What do you want? And mainly, investing abroad is a lifestyle change. [crosstalk 00:31:59] Return.

Lucia France:

Yeah. And it comes down to what we were saying. It’s what was the intention in the first place? Where do you want to go with it? And there’s obviously very different things as to whether you’re just looking at it purely financially or for your lifestyle or whatever investment. So yeah.

Paul Mahoney:

So just a couple of [crosstalk 00:32:16] guys, and points I probably made before. But I agree with what Stefano said there in that if it is solely for investment and if you’re solely doing it to make money, it doesn’t make much sense in my mind to be buying abroad because one big reason is you’re playing the foreign exchange.

Stefano Lucatello:

Yep.

Paul Mahoney:

Nobody knows what the pound versus the Euro is going to do over the next 10 years. And that could benefit you, or it could wipe out your returns through no fault or logic of your own. So that doesn’t make much sense to me. And also as Stefano said so far as that they are more cyclical markets. For example, a friend of mine bought a holiday home/investment on a golf course in Portugal. And when the recession hit that golf course shut. So he went from having a lovely house on a golf course, having a lovely house in a desert. So you’re right, it’s a lifestyle thing. Sometimes people get confused between lifestyle and investment. They should two completely separate things.

John Howard:

I agree with you. I would describe it as using walk about money, bit of fun money compared to business money is how I would describe it, probably. But you’re not alone. You don’t sound a lot of fun Paul, to be fair. A lot of people love to buy abroad. The UK, we’re the biggest buyers abroad, aren’t we, in Europe. I think?

Paul Mahoney:

Well, that’s probably why it’s so cyclical because you have wealthy British people who will splash all their money on these million pound properties in Mabaya. When the recession hits, they need those millions of pounds back.

John Howard:

Yeah. That is true. Yeah. No understand that.

Stefano Lucatello:

Last year, 990,000 registrations to a place in Spain. Now, not all of them are British. 65% of those registrations were British.

Lucia France:

Right Wow.

John Howard:

990,000?

Stefano Lucatello:

Yes.

John Howard:

65% were British?

Stefano Lucatello:

Yep.

Lucia France:

You mean registrations as in getting an NIE number?

Stefano Lucatello:

No, no, no. As in people… Land registrations, ie completion.

Lucia France:

Right.

John Howard:

That’s unbelievable. Unbelievable.

Lucia France:

Wow.

Stefano Lucatello:

They’re not all big things.

John Howard:

Yeah.

Stefano Lucatello:

In Spain, you can start off with 30,000, 20,000, 30,000.

John Howard:

Yeah. That’s wild isn’t it?

Paul Mahoney:

That’s interesting. That’s nearly 1% of the UK population have bought it.

John Howard:

Yeah.

Paul Mahoney:

Yeah.

Lucia France:

[crosstalk 00:34:45] Included. Although it wasn’t last year, it was a bit longer than that. Okay. Let’s move on to John’s next question then for today.

John Howard:

Good.

Lucia France:

This person says, I am in the process of purchasing a partly finished two flats conversion from a house. What are the things that you would say I have got to look out for and be aware of?

John Howard:

Goodness, me. With the opportunity quite often comes risk. So the bigger the opportunity, potentially the bigger the risk of things going wrong. So when you buy any property, a house, or in this case, they’re buying two flats, which has been converted from a house. You really need to know what has been done. And more importantly, has that work been done correctly? Because it hasn’t been done correctly, it needs to be started all over again. So any benefit you might think you’ve got by some of the work being done may have to be destroyed. And I’m very suspicious, and I buy lots of properties that are partly finished and I’m always incredibly suspicious as why isn’t a part finished? Because normally it’s because the people have either run out of money, which tends to suggest that they weren’t very organized in the first place and may suggest that they’ve taken shortcuts on the work.

John Howard:

So the very first thing I do is ring up the building inspector at the council and say, “Right, what do you know about this building?” Check the planning, check has it got planning. That’s the first thing because it might not even have planning. Check the planning, check that they applied for building regulation approval and check that the building inspector has been out to check the work that’s been done. And you can always get them to come out. The building inspector will come out and advise you as to what’s been done what hasn’t been done. So that’s the very first thing to do. Very, very important. It should ring alarm bells, that it’s part finished is what I’m really saying.

Lucia France:

Right. Okay. And is there any other things they’ve said, what else have I got to look out for? Is there any other [crosstalk 00:36:51].

John Howard:

That’s it really.

Paul Mahoney:

One point that comes to mind to me is the warranties from the previous builder.

Lucia France:

Right.

John Howard:

Yeah. Well, I’m assuming to be fair, Paul that if there’s… These days you conversion two flats to sell them, you need a 10 year warranty on them. And of course the chances are that they haven’t applied for one and even if they have, like Paul said, it may not be accepted, but all that stuff is your solicitor will be asking the other side’s solicitor although all those facts. Now, if there isn’t a warranty in place, you can get one put in retrospectively. So cost a little bit more. But if you’re halfway through the project or whatever, you should be fine. There are companies that do that now. Yeah.

Lucia France:

Okay. That’s great. Thank you very much. Well, that brings our questions here for this episode to close. If you do have any questions for us, please just write them in the comments below, or you can send an email to ask, A-S-K, ask@questionofproperty.co.uk. We look forward to seeing you next time. Thank you so much to Paul, Stefano and John and we’ll see you again.

John Howard:

Pleasure.

Lucia France:

Bye-bye.

 

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