Vanessa Warwick: Well, welcome along to the final installment of Buy to Let Blueprint Week, powered by Nova Financial. All this week I’ve had the pleasure of the company of founder and MD, Paul Mahoney. We’ve covered a lot of ground this week, actually, Paul. I’ve really enjoyed talking to you. But, I think for the final installment, we were going to focus on three things that are absolutely vital for landlords, prospective landlords, to understand. They’re kind of core topics that come up time and time again on Property Tribes, and that is tax, finance, and managing the asset. Obviously, if we start with tax, the tax landscape has changed so dramatically in the last four to five years, since the introduction of section 24. Landlords coming into the sector now, they really need to make a choice about whether they’re going to go forward as a sole trader in buying property in their own name, or whether they’re going to be incorporating and buying through a limited company. Again, it’s not a question of one size fits all, and there’s no easy answer, is there?
Paul Mahoney: No, there’s definitely not. Again, we spoke before about the blueprint being personal to that individual, and that’s paramount here when it comes to tax structuring. I think a lot of people, with anything with relation to tax, it’s quite confusing, but especially section 24. The way it’s written is very confusing, and a lot of people don’t really know whether it’s going to affect them or not. That’s probably resulted in a lot of people not really knowing what to do from here on in, whether they should continue in property investment, whether they should incorporate, all those sorts of things. But, obviously, very important for any landlord or prospective landlord to understand how that’s going to affect them and they’re strategy moving forward. So I think anyone that is involved is absolutely mad not to seek advice on how that’s going to affect them, or how they might be able to avoid the affects of it, because there are some ways around it.
Vanessa Warwick: No, I totally agree. It is one of those cases where professional advice is worth every penny, because it’s also thinking about when you come to exit, maybe you’re going to go for a legacy model that you want to leave to your children. You kind of again, you’ve got to start at the end and kind of work back as well, haven’t you?
Paul Mahoney: Yeah, you are, you do, because it’s somewhat difficult to unscramble the egg. Certainly, with existing portfolios, obviously you can change the way you do things moving forward, but once you own a property in your own name, or [inaudible 00:02:45] company, or through whatever million of structures that are out there now, it’s difficult to change it. So you need to make sure that you’re getting the right advice on how to structure that moving forward, particular to your situation, your timeframes, and your end goals.
Vanessa Warwick: Yeah, no, I think it’s absolutely paramount. If we talk a little bit now about finance, again, a lot of changes to the mortgage sector in recent years. We’ve had the introduction of the PRA, which is actually healthy, in my opinion-
Paul Mahoney: Yeah, I agree.
Vanessa Warwick: … so that people aren’t getting over-leveraged. But, again, I think there’s so many mortgage products out there now, a broker, certainly when I was in my portfolio building phase, I had my broker, Rebecca, on speed dial. She was such an important asset to me. She helped me stack deals. She helped me find the best product. It’s not necessarily just about headline interest rate, is it?
Paul Mahoney: No, absolutely not. I think the biggest mistake that beginners in property investment generally make, and we hear this time and time again, is they go down and speak to the local bank, or their current bank, their consumer bank. You might go down and speak to Lloyd’s, and they’ll tell you, “No, sorry, you can’t get a buy to let mortgage, or you can only get it at this really high rate,” or whatever it might be. Then, they assume, “Well, that means I can’t get a buy to let mortgage.” And that’s generally not the case. As you know, there’s a very broad range of lenders out there. There’s some lenders that will almost lend to anyone, but at very high rates. Then, there’s the high street that are quite stringent and strict in who they’ll lend to, and then everything in between, including specialist lenders for different things. So there’s over a thousand buy to let products available now, and more than half of those are only available through brokers.
Paul Mahoney: So firstly, by doing it yourself, you cut yourself off to half the market. But also, it’s kind of like anything, when you can’t drive a car you don’t just jump in the car and start driving it. You get some lessons and some guidance on how to do it. So you’re going to save yourself a lot of time and money by speaking to someone who actually knows what they’re doing. In that area, it’s not just about speaking to any broker either, because some people that we speak to are surprised to hear this, but most brokers just do residential, because that’s mostly what they do, they speak with people who are buying homes. But, if they’re not familiar and doing lots of buy to let mortgages, well, they’re not going to be familiar with the buy to let lenders and the products that are available. So speak with a specialist to what you’re actually looking to do or get.
Vanessa Warwick: No, I totally agree. When Nick and I started out, I’d been banking with NatWest for many, many years. I initially went to them to [inaudible 00:05:30] release from my flat in London. That was what we used as a kind of seed our portfolio. But, then when I started immersing myself in the sector, I came across all these different names like Aldermore, and Precise, and Together, just so many different lenders out there that you just don’t hear about. But, they’ve got really specialist products that can help people move forward.
Paul Mahoney: Yeah, absolutely. It’s a broker that helps you find those things out, because of course, you can do it yourself, but why would you? Again, another thing that consumer brokers I’d say is don’t just seek out the cheapest ones. Some brokers won’t charge any fees, but I’d say that’s more so the kind of sausage factory type brokers, the really big offices that … You’re probably dealing with someone that’s got not very much experience, and they’re quite often chasing the higher commissions as well, because the commissions do vary quite a lot between lenders. Whereas, if you have to pay $1000 pounds to get a $500,000 pound mortgage, and that’s done in the best way possible for you, that could save you tens of thousands of pounds over years, I’d say that’s probably not a bad option.
Vanessa Warwick: Money well spent, I think. I think also, we’re talking about standard buy to let mortgages, which is, of course, the bread and butter of buy to let financing. But, then you’ve got other financial products like bridging loans, and you’ve got specialist mortgages, and mortgages that help you do a refurb. Again, if you’re not aware of these products and how they actually work, it’s harder to move forward. I actually met a very, very experienced property investor a few weeks ago, and he said, “Oh, I came across this fantastic product. I could see how it worked, and how brilliant it was.” He said, “I went and found a property that suited that product,” which I thought was quite an interesting way to kind of approach it.
Paul Mahoney: Yeah, that is quite an interesting way of approaching it. Yeah, but absolutely, there’s lots of specialist lenders and specialist products out there now. So you need to make sure you’re using a product that’s fit for purpose.
Vanessa Warwick: Yeah, because it’s like a tool in your toolbox, and you want to have access to as many tools as possible, really to help you move forward, don’t you?
Paul Mahoney: Yeah, exactly. We spoke before about the massive difference that finance makes to property in the returns on the funds that you’re applying. If this is a long term strategy, you’re looking to build a portfolio, making sure you’re using the right product, and the right level of leverage, and the right interest rates, and all those types of things every time is going to make a huge difference over the mid to long term.
Vanessa Warwick: No, I totally agree. I think one of those questions that comes up time, time, time again on Property Tribes is, “Should I go for an interest-only mortgage, or a capital repayment mortgage when I’m starting out, and buy to let?” It’s a good question to keep asking, and clearly, you would say go for interest-only, could you just explain why?
Paul Mahoney: Yeah, I would. I’d say it’s similar to some of my views, it’s kind of against conventional thinking a little bit, in that a lot of people view principal and interest as being lower risk, because you’re paying down the mortgage. In a way, that makes sense. But, if you look at it the other way around, actually, by going for your principal and interest mortgage you’re committing yourself to a higher repayment amount. So you’re not just paying interest, you’re paying some off the mortgage every month as well, which means if you run in to some financial difficulties, you’ve got a higher liability to upkeep. Whereas, with most interest-only mortgages now, you can repay extra over and above the interest if you want to-
Vanessa Warwick: I think it’s usually up to about 10%, [inaudible 00:09:01].
Paul Mahoney: Yeah, that’s exactly right, which means you can get the same benefit without the commitment. So I’d say with buy to let always go for interest-only, but pay extra if you have the ability to do so.
Vanessa Warwick: That’s such a good point. Thank you for raising that. I think the other thing is, we’ve always been talking all this week about how it’s not a case of one size fits all. With different products, you’ve got your two year fix, you’ve got your five year fix. Even now we’re seeing 10 year fixes coming out, which is really interesting. But, again, if you understand your investment and what your long term goals are, and you work with a broker, you can actually use these products correctly in the way that’s going to serve you.
Paul Mahoney: Yeah, absolutely, and it needs to fit your strategy. I’d say most of our clients tend … Well, they aim to be able to re-mortgage every two or three years. Most buy to let products almost force you into that, because you’ll have your initial periods of two to three years where your rate is a bit lower, and then it will increase. In my view, that’s a good indicator, or a good sort of reminder to say, “Okay, well have I built enough equity in this property to allow me to release some equity and go again, or across a couple of properties perhaps.” Whereas, if you lock yourself in for five years or 10 years, you’re going to pay very high fees to be able to get out of that and get any equity or funds out of the property. If your strategy is to build a portfolio, then a two or three year product probably works quite well.
Vanessa Warwick: I think also, mortgage products, they’re so important in the respect that we were talking earlier about getting started. Right now, we’ve got the most competitive rates we’ve had in many, many, many years. If that isn’t a reason to take advantage of those rates and get started now, and take action, I don’t know what is, because they may not be around for longer. I think seeing where the opportunity is in taking advantage, and as we’ve been saying, taking action.
Paul Mahoney: Yeah, absolutely, and making sure that you’re best utilizing your funds, as we mentioned before, because leverage, in my view, is what makes property so attractive. Cash poor property isn’t all that great, from a net returns prospective. But, it’s the leverage that makes it great. I think far too many people look at debt in one pool, and I speak about separating that to good debt and bad debt. Good debt is investment debt, it helps you better utilize your funds. Bad debt is personal debt, it hurts your finances, it helps your lifestyle. So you want to retain good debt until you have no bad debt, and then maybe you can start to get rid of some of your investment debt as well, if you’re in a good enough financial position to do so. But, if you’ve got cash poor properties, and you’re not extremely wealthy, I think you’re completely under-utilizing your resources, because if you can borrow at 2% or 3% and achieve returns far greater than that, then why wouldn’t you?
Vanessa Warwick: Yeah, well, again, it goes down to the math, doesn’t it? It’s telling you the answer. The final point we’re going to talk about is property management. We have talked about this in a previous video, but I think in the context of today’s discussion, I think that once you’ve purchased an asset, you do have to keep it up. You have to keep it refurbished, you have to budget for a facelift maybe every five to eight years, if you’ve bought a new build, or if you’ve done a refurbishment. You can’t just sit back and let an asset deteriorate, because it’s like a downward spiral, you’ll achieve less rent, you’ll have higher voids. I think people have to have a plan to maintain the asset and to keep funds back to do that.
Paul Mahoney: Yeah, absolutely. You need to make sure the property’s up kept. You need to make sure it’s managed well. You probably gathered from the thing of what I’ve been saying, that we tend to encourage our clients to be more passive in their approach, generally, if that’s what suits them. But, I’d say is what suits most people. Therefore, we encourage them to have in place [inaudible 00:13:03] management, so they don’t necessarily need to get bogged down in doing that themselves. Some people like doing it themselves, and if that’s the case, great. But, obviously, you’d want to make sure the properties are relatively close by, if that’s the case. If they’re not close by, then again, I think you’re mad to try to self-manage them, because if you can’t get to them quickly, someone else can. The cost of doing that is, in my opinion, relatively acceptable.
Vanessa Warwick: I agree.
Paul Mahoney: If you can get someone to let and manage a property for 8% to 10% of your rent, well, that’s a relatively small fraction of that, especially when you consider your own time value, and the time that you’re personally going to put into that.
Vanessa Warwick: I think also, the important thing about property management, working with a reputable agent who, as we mentioned, is either voluntarily committed to professional standards, by joining a trade body, such as ARLA, or Safeagent, or Rick’s, are the three main ones. By working with somebody of those credentials, they are going to help you maintain your asset, but also, make sure you’re compliant, because lack of compliance can lead to massive fines.
Paul Mahoney: Yeah, absolutely, and complications with tenants, if they stop paying and you haven’t fulfilled your requirements that can get you into a lot of trouble as well. But, there’s also, another good point in there with property management, there’s economies are skill in property management with like anything, if you’re dealing with a good agent that’s managing 50 local properties, well, they’re going to be able to do that better, or more cheaply, than you can if you’re just managing one or two. So that’s worth considering as well.
Vanessa Warwick: No, I totally agree. I am a big fan of [inaudible 00:14:45] Agents, I think they fulfill a very important role, particularly for newcomers. I would certainly never advocate somebody starting out and managing their own property. Work with a reputable agent first, understand how much work is involved, how much time it takes, setting up the tenancy compliantly is so important, because at the end of the day, Paul, we are responsible for tenants’ safety and health in the property, and that should really be at the forefront of people’s minds as well. This is where a reputable property manager can really make sure that you are providing a safe and compliant home.
Paul Mahoney: Yeah, I agree. It kind of ties into with what we were saying before as well, a lot of people that we speak with say they want to buy close to home so they can self-manage. I think that’s a bad reason to buy close to home, because for example, if you can get … If you live in London and you can get double the yield in Manchester, and it’s going to cost you 10% of that doubled yield, well, the cost of the management is a lot less than the benefit of investing in that area. If that makes sense. So sometimes investing close to home can be a good idea, because you just so happened to live in an area that’s a good place to invest. But, quite often that’s not the case, because you’ve used an emotional criteria to select where you live, versus a commercial criteria to select where you invest.
Vanessa Warwick: I think as we’ve been saying, if you get the right people around you it can be done remotely. I’ve just had a four bed house in Manchester that I haven’t visited for a long time, actually, and had a complete refurb done of that, which was managed by the agent. They did a fantastic job, I got all the pictures at the end to see the work that had been done. So yes, I think certainly starting out, really, really important to have a reputable manager. We will put a little link below this video to show you how to do due diligence on a letting agent, make sure you find yourself towards one. We do have a few people on Property Tribes that have had bad experiences of working with agents, and I can only assume that they didn’t do the due diligence.
Paul Mahoney: Yeah, absolutely, makes a lot of sense.
Vanessa Warwick: Yeah. So we’re winding up here on Buy to Let Blueprint Week, where we’ve been talking about many different aspects of starting out in property, building your portfolio. Paul, I guess to finish, it would be nice just to find out from you again, if people who’s watched our series this week would like to interact a little bit with you, what can they do?
Paul Mahoney: Yeah, okay, so there’s quite a lot they can do. We now have over 100 hours of video on our website, so they can sort of … There’s a lot to sink your teeth in to there, from an educational perspective, blogs, and articles, and things on there as well. As far as if people have any questions or think they might be able to improve on their current strategy, any unknowns as far as how the current market might affect what they’ve been doing up until now, perhaps not quite understanding what their goals and their timeframes are. Then also, of course, implementing that and making positive change to their situation. These are all things that we can help with quite a lot. So getting in touch for an initial chat to sort of find those gaps, and then determine whether there’s a fit between what we do and what they’re looking for, that can be quite beneficial, at the very least to find out what they’re options are. We’ve never had a client disappointed with that initial conversation. But, if there is a fit there, then of course, actually helping them make that positive change.
Vanessa Warwick: Yeah, because you have a very wholistic approach. You look at all of the issues that we’ve actually been discussing this week, don’t you? So you could plug the gaps, if there’s a knowledge gap, or you can review portfolios, you can see how people … You can help them move forwards really.
Paul Mahoney: Of course, the book’s a good starting point on that as well. So anything that we’ve been talking about today, that kind of expands on that, but will also tell the reader a lot more about what we do, so they can decide whether that fits their train of though and what they’re comfortable with, and then perhaps get in touch from there.
Vanessa Warwick: Well, fantastic. We’ll put a link to Paul’s book below the video. You can apply to get it for just the cost of the postage, so I highly recommend to do that. We’ll also put the contact details for Nova Financial, but below the video. Paul, I have to say thank you very much to you, you and Nova, for powering this week on Property Tribes, and supporting landlord education via this format, because I know it’s very important to you, isn’t it?
Paul Mahoney: Yeah, absolutely. And thank you very much for having me.
Vanessa Warwick: It’s been an awesome week. We hope you’ve enjoyed it. If you’ve been watching on YouTube, we do invite you to click across to PropertyTribes.com, that is where our discussions on hosted, and Paul is also a member of our community, so if you have any questions for Paul, I’m sure he’d be absolutely delighted to answer them. But, for now, we’re signing off from London, here at Nova Financial offices. We’ve reached the end to Buy to Let Blueprint Week, powered by Nova. Again, we do hope you’ve enjoyed it, and thank you very much for watching.