Property Tribes - Ep5 Property Topics Going Head to Head with Paul Mahoney - Round Up - Nova

Property Tribes – Ep5 Property Topics Going Head to Head with Paul Mahoney – Round Up

Vanessa Warwick:

Well, you are joining us for the fifth and final installment of our themed week, that’s been running here all this week on Property Tribes. We’ve called it Property topics, going head to head. And my cohost and guest all this week has been Paul Mahoney, MD of Nova Financial, and Paul and I have been having a bit of a debate about various different property strategies, trying to tease out the issues. And for this installment, we’re going to have an overview of different topics that appear on Property Tribes, and everything is framed around a post COVID-19 lock down environment, threats of a recession coming. And Paul, I know at Nova Financial, every day you get the same question that appears on Property Tribes very regularly, and that is, is buy-to-let still a worthwhile investment? And not only seasoned landlords are asking this, but obviously newcomers as well. So how do you respond to them?

Paul Mahoney:

Yeah, so a very, very common question. The most recent reason for that question is COVID-19, or the recession that’s just been announced, but there’s been other reasons. There was section 24, Brexit. Whenever anything goes wrong with anything there seems to be the question is property investment still worthwhile? I think the beauty of property investment, or probably more specific, leveraged property investment, so buying property with mortgages, is that you don’t have to set the world on fire to do really well on the cash you’ve invested. So a really commonly, and quick example I give for that is I can take 50 grand, invest into a 200,000 pound property, and by achieving very average returns on the 200 grand property, I’m going to get really strong, double digit returns on the cash I’ve invested. And I can be very confident in that, because even if I significantly underperformed the market, they’re still really strong double digit returns.

Paul Mahoney:

So in short, yes, it definitely still works in the right circumstances. Yeah, as we’ve covered in previous episodes, some strategies in the past don’t work so much so well now, I think there’s more of a focus on having a yield buffer in the current market, for example, where people used to invest in London with a very flat cashflow, or no cashflow, just for capital growth, maybe that doesn’t work so well anymore, but investing in properties that give you a decent net yield and potentially capital growth as well is probably a more balanced approach. So far as whether it’s worthwhile or whether the strategy changes at all, our strategy hasn’t really changed in that we’ve always been very focused on mitigating risk. You’re going back to that example I’ve just given, given the fact we can get really strong, double digit returns without setting the world on fire. In our view property investment isn’t really about maximizing returns, but rather mitigating risk and investing in properties where we have the most confidence in getting ongoing returns.

Paul Mahoney:

So rather than going and trying to buy a really cheap property in the Northwest with really high potential yields, but also probably more risk, or investing in the latest buy-to-let hotspots that don’t have any history of growth, but might because of X, Y, and Z, we would prefer to invest in established locations with desirable properties that aren’t going to double in value overnight, but we’re confident will give us about 5% growth per annum being just below industry standard, will give us about 5 to 10% net yield on the cash invested based upon the costs and the rent that go into the property. And therefore, we’re going to be achieving, as I say, those strong double digit returns, which over a 7 to 10 year time frame, means we should be doing really well.

Paul Mahoney:

Most of our clients tend to re-mortgage their properties and reinvest every three or four years, and that has a snowball effect. It means we can turn one into two, and two into four, and four into eight even, within a 10 to 12 year period, and that’s just through the one investment. So, I don’t want to get too complicated here, but definitely still works in the right circumstances. If we relate that back to the current scenario, I think this recession is quite different to others. It’s quite different to the previous one, for example, which was directly linked to property and the finance for property, and therefore finance pulled back substantially as it started to happen. This one isn’t, this one is related to an economic lockdown. Business wasn’t able to occur for three to four months. So, we’ve got to expect that to have a pretty big impact.

Paul Mahoney:

Now, some businesses are starting to struggle, some are people losing their jobs. And I think most people would agree with me that the biggest risk to property in that regard is the job loss in certain locations. So if we’re invested, or investing, in locations with a very broad and diverse job market, provided by a broad and diverse range of industries and employers, then that’s much less of a concern. We also hear, well, I certainly hear a lot of people talk about the UK property market, and it’s going to grow by X percent this month or decline by X percent this year, I think that’s almost irrelevant, and it’s a bit silly even to comment on, because we, as landlords, don’t invest in the UK property market, we invest in individual properties, individual locations. And those individual properties and locations, there are driven by individual driving factors.

Paul Mahoney:

So what we are always looking for is what I refer to as microclimates, and microclimates with really strong driving factors. Strong infrastructure spending, substantial positive development taking place, various things that are going to really surely contribute to that location, and are almost external to the overall market, because that gives us confidence in growth regardless of the direction of the overall market.

Vanessa Warwick:

Well, these are all fantastic points, Paul, and I’m glad you brought up leveraged property investment, because if we had had a head to head of going for unencumbered properties against leveraged properties, then we wouldn’t have been able to bait because we would both be on the side of leveraged buy-to-let, because actually leverage is one of the most amazing things about investing in property that you can put in a relatively small amount of your own money, say 20 to 25%, and the bank puts in the rest, but you’re getting control of the total asset value. So I think it’s an absolute no brainer to always consider leveraging by to let finance. And that’s, again, a very common question that appears on Property Tribes. It really does make sense to take advantage of what is a wonder of the world, and that is leverage, to really grow. And if you have 200,000 pounds cash, why would you put that into just one property when potentially you could buy four or five properties, leveraging bank finance as well?

Vanessa Warwick:

So, and I think all I would say to people starting out now is that perhaps slightly lower loan to values around the 65% would be prudent just as we’ve been saying that there’s a need for a bit more of a equity cushion/ cash buffer, across your portfolio. And I think the other thing is, Paul, that people always say, well, should I invest now? Or should I wait? And I always, always say, now is the only time any of us have got. You can’t go back 10 years ago and buy a property, and you can’t go five years into the future and buy a property, unless of course you are Dr. Who, with a time machine. But now is only time any of us have got, and right now there are extremely cheap mortgages around, and I do fear a trend that mortgage rates are going to go up. Banks are going to start pricing in because of the recession, et cetera.

Vanessa Warwick:

You’ve got to take action with what you know now. And if you don’t, your circumstances can change. Life can throw you a curve ball, you could lose your job. You could become ill. So, I know that you also agree that it’s not timing the market, it’s time in the market, which is the phrase I learned from you. And so- [crosstalk 00:09:14].

Paul Mahoney:

I probably stole that from somebody along the way, but I have claimed it as my own.

Vanessa Warwick:

Yes. So really people have got to take action, intelligent and sustained action, and to try and say, well, I’ll wait till next year when prices have crashed, well, if you’ve got a crystal ball, well, fair enough, but actually no, most people don’t have a crystal ball.

Paul Mahoney:

Yeah. And there’s a few considerations there. If you’re a cash buyer, that’s fine. And you’ve got loads of cash to go to buy up all the cheap deals if the market does crash, great. But if the market crash you may not be able to get financed the same way as you can now. So, that’s another consideration. And another old Chinese proverb that we use for that, is that the best time to plant a tree was 10 years ago, and the second best time is now, and I think the same applies to investing, especially property, given it’s such a longterm investment. So for example, I did a webinar earlier and I was quoting 5% growth figures, and I was asked, do you think we can still get that in the current recession? And the answer is it doesn’t matter, because if you’re confident in a good investment, in a good area, you can be confident in getting it over a 7 to 10 year time frame.

Paul Mahoney:

The UK average for capital growth over the past 20 years is 5.5%. That includes two recessions. We had the dot-com bubble in 99, 2000. We had the credit crunch in 2008, 2009, the market dipped a little bit, but it recovered strongly. So I don’t think it really matters if we have a recession around the corner, if you’re buying good properties in good areas that you’re confident are going to rent, and that’s key, because that’s the biggest risk. If your property is empty, you’re in trouble. But if you’re confident the area you’re investing in is somewhat recession proof with regards to rentability, and again, a reason for investing in employment hubs is you can have more confidence in that. Then it really doesn’t matter if the value of your property dips in the short term, because we can be confident it’s going to recover over the mid to long term.

Paul Mahoney:

And trying to be Nostradamus and picking when things are going to dip, you’re more likely to lose that bet than win it, because as we know, just look at history, property prices have generally only dipped over a 12 to 24 month period, every 10 to 15 years, there, or thereabouts. Now you might say, well, it’s been 12 years since the last one, but that doesn’t necessarily mean that we’re going to have one now. And if you can position yourself in a good property for the long term, I don’t think it really matters.

Vanessa Warwick:

No, I agree with you. And I think the recession will change things a lot in the UK property market in general terms that, a lot of people may decide that they don’t want to own their own home, they’re not sure how things are going to pan out with their job. And I think more and more people will be looking to private renting as a tenure, and because of the uncertainty that owner occupiers face, just as landlords face. So again, this is all about doing your research and learning as much as you can from seasoned property investors and trying to move forward in the safest possible way for you. And we do definitely both agree that risk is amplified post COVID-19, it is uncharted waters really. And I think, what we’re really saying is also the fundamentals do still hold true, but you maybe just need to put a little COVID-19 twist on them.

Paul Mahoney:

Yeah, exactly right. I think that those fundamentals I quoted earlier are tried and tested. They don’t change all that much. It’s the locations that might change, it’s the market that might change, we can still apply those same fundamentals. I think too many people struggle to see beyond their nose a little bit in that the short term things are first and foremost in their mind, remembering that property investment is a business. There’s a great book on why it makes sense to take action, and it’s called, Ready, Fire, Aim. Now, in my experience, it’s those that get off their bum and take action that succeed in business, and that’s just certainly been the case for me, rather than those that analyze things to death, and then try to make a perfect move, because trying to make a perfect move is never going to happen. Perfection doesn’t exist.

Paul Mahoney:

So take action, allocate your resources in a smart way, do it right, but don’t wait for the perfect time, because it’s never going to come. I’ve been in financial advice, financial planning now for about 12 years, and it’s the entrepreneurial guys who take action as many times as they can, as quickly as they can, that have done really well, from client wise. It’s the ones that are sat on their hands and worried and trying to pick the market that get to the age of their mid sixties and have very little to show for their efforts. So big believer in taking smart action as often, and as quickly as you can.

Vanessa Warwick:

I will definitely go with that as well, Paul, and I think that some of the issues surrounding newcomers is that there is so much information out there, and they hear about so many different strategies that it can almost become overwhelming in some ways. And in those cases, I always try and take them back to basics and say, start out with baby steps, buy a safe, tourist house or whatever it might be, one bed flat, in a good area, with high tenant demand. It’s not the most exciting investment in the world, but it’s not only acquiring the property, it’s actually managing that property and the tenants within it that’s part of running a property business. And you do have to learn on the job in this business. We’ve all done that over the years that we’ve been involved, but unless you start, you’re not going to start acquiring all that experience that is actually going to help you to continue to move forward as you learn and grow as an investor.

Paul Mahoney:

Yeah, exactly. It’s akin to learning on the job, isn’t it? Rather than doing all the courses and reading every single book that exists with regards to property investment, buy one and then learn.

Vanessa Warwick:

I agree. I just thought it’d be interesting to just close out with this, Paul, to see what you think about whether to go for high quality… Let’s say you had 600,000 to spend, whether you should go for high quality, higher value properties, but less of them, or lots of lower value, lower quality properties, or maybe a mix of both? I think it’s quite an interesting discussion to have about lots of low value properties versus a few high value properties, and we do have a thread about that on Property Tribes, which [inaudible 00:16:37] underneath this video, but what’s your take on that?

Paul Mahoney:

Yeah, it’s a good question. And I think part of the answer does depend on the person’s situation in that, I mention in my book that a family member of mine bought 10 factories in the North of England, and aside from being offended, he didn’t ask me for investment advice, I couldn’t understand why, but they had a 20 year lease in place and they were giving him a fantastic yield. So it made perfect sense for him as he was retiring. And he didn’t care what happened after 20 years because he didn’t think he’d be around anymore. So for that, yeah perfect for him, whereas for someone like me, that doesn’t make any sense. So I think for different people it works different ways, but in general, for example, for a Nova client, that’s your sort of mum and dad investor that usually has a job that takes up most of their time and has a family that takes up the rest of their time, I’d say desirability is quite important.

Paul Mahoney:

You don’t want to be buying luxury at the top of the market, because they don’t usually yield very well, and they tend to be a bit more fickle because the rental and the resale market is limited for them, but we do want quality, livable properties, because they’re going to be very desirable in the rental and the resale market pretty well at all times. So I wouldn’t buy at the bottom of the market, and buy cheap. I wouldn’t buy at the very top either, I buy in the sweet spot, somewhere in between.

Vanessa Warwick:

I think that you’ve touched on something, and another fundamental as well, which I don’t think has changed is to buy properties that you know are going to appeal to owner occupiers when you want to exit. We have discussions on Property Tribes about, should I buy near a railway line, or a cemetery, or this flight has a really nasty view out the back window. Yeah.

Paul Mahoney:

And it’s always a balance here, I quite often say to clients, you’re never going to find the perfect property. It doesn’t exist. We would prefer it faces slightly different direction. We prefer the bathroom was there not there, there’s always going to be something, but it’s about trying to tick as many of the boxes as we can, to get comfortable with it. You mentioned about a rail line, there are some good properties near rail lines, but that’s the only bad thing about them, and therefore it works. So it’s a balancing act, as I said before at sometime that’s a bit more art than science. The best way of getting clear vision on those sorts of things, do your own research, but also speak with people that have got some experience in those sorts of things. As you said, Property Tribe is a good forum for that. We work with people on a daily basis like that so far as…

Paul Mahoney:

Sometimes we work with really experienced landlords, as a sounding board, if you like. They’ve done it themselves to a point, and they want somebody there to chat to them about their decisions. And that can be really valuable as well, I think. Because you get out of that cognitive bias, you take off the blinkers, you get a different perspective. And I think that we, as a business, do tend to have quite a different perspective to most property people, if that makes sense.

Vanessa Warwick:

It does. And I think we can also turn it around and say, I’m not a fan of flats above commercial premises because you might have a nice quality clothes shop in the unit underneath your flat, but then that tenant leaves and you end up with a restaurant which could create smells, or you could even end up with a tattoo parlor or even worst case scenario an adult shop. So, again, you’ve got to think about you’re going to be in that relationship with the property for 15, 20 years, do you want to buy somewhere that could risk having something happen to it? Which could devalue it. There is a lot to think about.

Vanessa Warwick:

And, as you said, just then, one of the ways to think about property deals is to find sounding boards such as Nova, such as Property Tribes, where you can go on and say, look, I found a deal. This is the town. This is what I’m thinking of. But I think, those are all really good ways to help you find a way forward. I think ultimately one of the key ways to mitigate risk is to try and buy at some kind of discount that does factor in some comfort zone there for you.

Paul Mahoney:

Yeah, I agree.

Vanessa Warwick:

Okay. Well, that’s fantastic. Any final words, Paul, as we close this week out? What would you say post COVID-19 lockdown, supposedly heading into recession, what would you say are the top five things that property investors should consider going forward?

Paul Mahoney:

Okay. Top five. You put me on the spot.

Vanessa Warwick:

I have.

Paul Mahoney:

Okay. I think the answer to that depends on whether we are talking about people buying in new properties, or whether we’re talking about people [learning 00:00:21:41]. I’m going to answer it to the way of people continuing to buy, because we’ve each been talking about taking action. So buying in the current market, regardless of what I will call short term blips, and what I mean by that is economic and political cycles like COVID-19, like Brexit, like section 24, all these things that happen, they come and go, we overcome them, and we move on over the mid to long term. I would say, just to recap on some of the things you already mentioned, top five things is, invest in the right types of properties, with really strong demand for those properties. So I suppose we would always start off looking at lo… Sorry, I’ll take it a step back.

Paul Mahoney:

First off, location. The old adage location, location, location, it is very important. Find a really good location based upon various driving factors, then determine the best type of property in that location, where the demand is skewed toward. Make sure that property is desirable to that target market. It ticks all the right boxes so far as what people look for when it comes to renting and buying. And some of the key things to go into the location, the property, all those sorts of things, is the facilities and amenities around the area. Now, sometimes you want those things to already be in place. Sometimes you want to be able to foresee them coming into place. And probably in my view, the easiest way of doing that is if it’s a foreseeing type situation, you want those things to be really close by. For example, I’ve just bought a place in Salford, in Manchester. There’s nothing on the street, but I can see at the end of the street, the city center.

Paul Mahoney:

So I know in 12 to 18 months, you’ll start to get nice cafes and things popping up as this new development progresses. So, that’s my tips there. Either make sure these things are in place, or they’re very much coming into place. All of those things I’ve mentioned creates stability and sustainability of demand. And in my view, that mitigates risk, regardless of where we are in the cycle.

Vanessa Warwick:

Indeed, I think just as sort of another layer on top of that, I would say, look for properties with gardens, or certainly flats with balconies, or roof terraces, or access to outdoor space, green spaces, I think that has become a greater awareness of the role that these spaces play in family lives. I think people are looking more at home offices, as well as space that can be used as a home office. I think good broadband speed is obviously absolutely paramount as well. And just to keep aware of changing tenant priorities. And certainly as we said, also really, really do try and buy at a discount because that does help factor in an equity cushion. It means if you were forced to sell through whatever reason in the relatively near future that you would be able to take a little bit of a hit. I think we just, everything we’re saying Paul, is just really be aware of what’s happening- [crosstalk 00:24:57].

Paul Mahoney:

[inaudible 00:24:57] Vanessa, to the discount idea, and I don’t disagree with you. I do agree with you, but just to understand what a discount is.

Vanessa Warwick:

Mm-hmm (affirmative).

Paul Mahoney:

Is sometimes a property can be really well-priced, and some people would refuse to buy that property unless they can get more off it. That’s not always the best approach. Either a property’s already really well-priced, and probably already is at a discount to market, then that might be a really good buy. It’s not always about getting 5, or 10% off what they’re asking, because what they’re asking could be really good.

Vanessa Warwick:

Yes. And I thank you for clearing up that important point. You’re absolutely right, because the asking price could be, as you say, a very fair price, and I know for a fact that people have paid even market value, or even slightly above market value on occasion and have still done well out of it. So you’re absolutely right. And then that really takes us back to, again, understanding your area and understanding all the comparables and where your prospective property sits in that, and if it is fairly priced. So yes, I’ve really enjoyed this week, Paul, and thank you very much for joining us on it. And also thanks to Nova Financial as always for powering Property Tribes, obviously just so everybody knows, if you don’t know already, that Property Tribes is a free to use resource for landlords and property investors, and it’s thanks to companies like Nova Financial that it remains free to use, because their support as advertisers and sponsors helps us keep it as a free to use community resource.

Vanessa Warwick:

So if anybody is interested to know more Paul and Nova Financial, Paul’s a regular contributor to Property Tribes, and Paul you offer Property Tribes members, you offer them a free introductory phone call just to chat through what they’re trying to do, and if you think you can help them.

Paul Mahoney:

But we also offer a meeting. Now we usually do those face to face. That’s also free, but given the current scenario, they’re all done via video conference. So it can be done from the comfort of your own home. And that’s a 60 to 90 minute meeting. We do the call to see if there’s value. If there is value, we can add, great. We do the next meeting. That 60 to 90 minutes with full review of your current situation, your goals, your preferences, what the shortfall there is, and how you might be able to make it up, more of an understanding of our business and determine together if there’s a fit there. Generally quite valuable.

Vanessa Warwick:

I agree. And I think it’s a great thing to do, particularly for people that are starting out or not sure of their way forwards, because you’re really there like a security blanket to hold their hand and guide them through. And I think in times like we’re in where there’s so much uncertainty, I think having you and all your contacts, and your teams around your clients, I think is a really valuable service.

Paul Mahoney:

Yeah. Look, property investment is a big decision. It’s usually one of the biggest purchases we’ll ever make. So doing it on your own, especially when you’re starting out, but even if you’ve got a bit of experience, is a little bit silly, I think, you should be using the resources around you, and that’s what we do, is we help take away the guesswork. As individuals, we’re all limited by our resources, and we fill those resources gaps.

Vanessa Warwick:

Okay. Well, thank you very much, Paul, for joining me, we will put a link underneath this video of how you can get in touch with Nova Financial, if you would like some support in moving your portfolio forward, but for now, both Paul and myself are saying, thank you very much for watching. We do hope you’ve enjoyed this week, and we do encourage you to join in the various debates that we’ve had over the week and hopefully we can keep them going, keep teasing out those all important issues, but for now it’s goodbye from both myself and Paul.

Paul Mahoney:

Thanks very much.

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