Jo Grimwood: Hello and welcome to property question time. I’m Jo Grimwood. This is a show where you get to pose your questions to our panel of property experts where they can really help you find those answers that you’re looking for. Now I’m joined today by three esteemed gentleman. We have Simon Zutshi who is a author, speaker, and founder of the property investment network and CrowdProperty. Welcome, Simon.
Simon Zutshi: Hello.
Jo Grimwood: We’re also joined by Garret O’Hanlon who is the founding director of MAP Chartered Surveyors.
Garrett O’Hanlo: Hello.
Jo Grimwood: Hi. Paul Mahoney who is the MD of Nova Financial Group. Welcome gents. Fabulous. I’m going to start with a question for you, Paul. “Now, my wife owns a property in Yorkshire which is in negative equity. It’s been on the market for well over a year now with little interest even though it is on for significantly less for what she paid for it 11 years ago on an interest only mortgage. Now we’re planning to buy our first family house in the Southeast in the not too distant future, but we require her salary to be part of the mortgage calculation to be able to afford what we’re looking for. Can she convert her existing mortgage to a buy to let, and if so are there any financial penalties. Also worth noting, she did initially live in the house when she first purchased it, but hasn’t lived there for nearly 10 years.”
Paul Mahoney: Given it’s in negative equity, you’re almost a little bit trapped with regards to remortgaging. One potential solution is you could ask the current lender if they will allow her, this is called consent to let, and let her let it out.
Jo Grimwood: Right.
Paul Mahoney: How subsequent lenders would view that would probably be their call because it would still be a residential mortgage and potentially wouldn’t release her from the obligations of that residential mortgage given that the service of the lettee is based upon her income. I suppose it would depend how much negative equity that property is in, but considering disposing of the property is probably something worth looking under. They mentioned it’s on the market for less than what they paid, so perhaps that’s not an option either. It’s a difficult one given that she already has the residential mortgage that ties up her income and it’s hard to sell it and it’s hard to remortgage it given the negative equity.
I suppose again, we’re working with limited information so certainly worth speaking with a professional to get a full picture of what all of the options are, but negative equity is always a hard one to deal with especially when it comes to trying to get a subsequent residential mortgage, obviously your income being required for that.
Jo Grimwood: Yeah. Garret and Simon, anything to snowball onto that?
Garrett O’Hanlo: I’m a bit worried about it still being in negative equity 11 years down the line. I’m guessing she must have raised additional funds at some point and just done it at a bad time in the market.
Simon Zutshi: Remember back in 2006, 2007 you could get 125% mortgages.
Garrett O’Hanlo: Yeah.
Simon Zutshi: Buy a house for 200,000, they give you 250,000 and so even with the market then crashing and recovering, there are properties still around the UK that still do have negative equity.
Paul Mahoney: 11 years actually bought in 2006, 2007, the market was [crosstalk 00:03:21] original area. It’s a tough one but certainly not an end viewable situation.
Jo Grimwood: Yeah.
Paul Mahoney: Find out what all of your options are and make the one that hurts less I suppose.
Jo Grimwood: Yes. Excellent advice. Okay. Garrett, quite a long one for you. Are you ready? Take a deep breath.
“Me and my partner are looking to get a mortgage, we’re first time buyers, on this end terrace cottage as we absolutely love it. However, we’ve just had a home buyer’s survey done roughly 500 pounds and have had bad news. There’s Japanese Knotweed located 12 meters from the property in an adjacent plot, there’s poorly supported roof and tiles, progressive movement in the house, and this could be do to a very old property, external wall at the gable end in bad condition and rendered. We knew this before as the gable end seemed to be slightly not straight. They valued the property at zero pounds. Once these problems get fixed, they will value the property at the asking price of 130,000. Now they will only do this once a structural engineer comes in to assess the property which I believe to be the highest and most thorough evaluation there is. Should my myself and my partner pay for this or the current occupants? Also, can a home buyer’s survey be wrong and completely exaggerated and have they asked for a second opinion that being of a structural engineer that’s what me and my partner are really hoping for?”
Garrett O’Hanlo: 58 questions in one. Okay. It doesn’t sound like the dream cottage.
Jo Grimwood: No.
Garrett O’Hanlo: If I’m honest with you. I’m going to try to pick a few bits and pieces out of that. Well, yeah. There is a temptation to say that if your building decides your bank value property is zero pounds, that’s quite serious. There was a comment in there about Japanese Knotweed being 12 meters away. I’m not going to drag on about Japanese Knotweed, but in lender terms seven meters is a critical distance that will impact on it’s mortgageability. It is a vigorously growing plant, and it won’t take long before that is seven meters away, it’s next door, how much control are you going to have over that? That’s the thing to be worried about. They suggested that the property has progressive movement, but that might not be a problem because it’s old. No property should ever have progressive movement whether they’re old or new. If you have that, that’s a very serious problem and that could have implication for the longterm for saleability again, for insurability.
They talked in terms of getting a structural engineer in, which I’m guessing is what the bank on the [inaudible 00:05:53] suggested, and they said is that the most thorough type of survey? Absolutely not. That is something which deals specifically with certain structural issues, in this case it would be movement. A structural engineer is generally not qualified to do a full building survey of the type they’ve already had done. Yes, you’re going to have to with that engineer to assess that structural position. They talked about even they noticed that the gable wall was leaning outwards and had been rendered, so you start to think was that rendered to cover up the fact that it was leaning out but you can still see it. That’s another problem. The roof apparently was poorly framed so that could cause a thrust which could start to push the front and rear wall out as well as the side wall moving out.
You’ve got all of that, you’ve got progressive movement too, and then the question was could the surveyor who did the home buyer’s report have over reacted? Well, it sounds like there’s quite a lot to react to there. Hopefully not. I think sometimes people presuppose that there aren’t going to be too many issues with a property, and when you go in and you find all this, there is a feeling of perhaps you’re overreacting. If all the problems are there, the problems are there. I think unless you’re a very experienced buyer, you’ve got to be very, very careful buying property like that.
Jo Grimwood: Absolutely. It sounds like they’re really in love with it so they almost try to talk themselves out of the problems, but they have to weigh out whether it’s going to be worth it in the long run I think.
Garrett O’Hanlo: There’s a lot of imponderables there because if you’ve got progressive movement, you might need to monitor that for a year or two, then you might need to underbid the property, then you restrict your potential sale market because it’s been underbid, and your insurance options are reduced as well. Really not for the faint hearted.
Jo Grimwood: Not at all. Gentlemen, anything to add on this?
Simon Zutshi: Yeah. I’d be really careful there. You have an older property, it’s going to have lots of things. It sounds like it has a lot of particular problems. It could be very expensive to fix those. You could always use those things to negotiate the price but if they’re new and they’re inexperienced, do they really want to take on what sounds like a bit of a money pit?
Jo Grimwood: Yeah.
Simon Zutshi: When you buy your own home, it’s understandable emotions get involved, but you’ve got to be careful. When you buy an investment property, you should completely keep emotions out of it. It’s all about the numbers. It’s not about the nice kitchen or not. When your own home, be really careful about not trying to convince themselves that this is a great deal.
Jo Grimwood: Okay. Great. Great. Simon, “What are the top five tips for starting my own property portfolio? I’ve just inherited 200,000.”
Simon Zutshi: Okay. I don’t know how long we’ve got. That’s quite a big question. I’ll try to keep it really simple. First thing, number one, I’d say always work out what are you looking to achieve from your investing. Are you looking to get cashflow or are looking to get equity growth or some kind of combination of the two? The type of properties you buy and where you buy might affect the kind of returns you get. Think about why are you doing it first of all.
Next thing is to educate yourself. Read books, look at magazines, go to network meetings, attend webinars, maybe do some training courses because if you’re going to be spending 200,000 pounds on some properties, that’s a lot of money to spend. We want to make sure we do it right and we maximize and get the most out of that. People make mistakes in property. It’s much smarter to learn from someone else’s mistakes, someone who’s done there and done it rather than make them yourself. First of all work up what you want, secondly do your education.
Next thing work out where you want to invest. I think it’s a really good idea to look close to where you live or work because you’re going to have a better understanding of what the good areas are, the not so good areas, you can keep an eye on it; however, you’ve got to decide ultimately do you want to do the management. I would argue that you don’t really want to do that. You want to get someone else to do it. Therefore, I’d suggest that as long as you have the right power team around you, i.e. people that can find the properties, who can do the refurb, and can do the management. As long as you have that team in place, you could invest further afield around the country where you might get a better return on investment. That’s something to think about.
The next thing to think about is always, always do your diligence. Always do your research. You want to check you’re buying a right price, check it’s a good rental demand, check it makes money, and if someone else is sourcing a property for you elsewhere, always double check, triple check the numbers and the research. Never take anyone else’s word for it. Not that they’re trying to deliberately mislead you, but all sorts of people set themselves up as deal sources and often they’re new to property and they don’t really know themselves. Never take him on his word for it.
Finally, keep on checking what you’re doing, keep the knowledge up to date, check in with other investors, learn from other people, make sure you’re adapting, keeping on top of all the regulations because they’re changing regulations, changing financing rules. Keep the knowledge up to date. When you buy one property you might think “I know it all now,” the next property a couple years later might be a different scenario. Always update your knowledge.
Jo Grimwood: Fabulous. I think too, bear in consideration it’s not just the money you’re putting in, it’s the time you’re prepared to put in as well.
Simon Zutshi: Absolutely. Yeah.
Jo Grimwood: It’s important isn’t it?
Simon Zutshi: It does take some time and effort. The time and effort you put in will be very well rewarded if you do it correctly. If you buy the wrong kind of property, it might soak up loads of your time because you’ve got all this stress to deal with it. Be very careful. Yeah. Absolutely. 200,000 pounds is a huge amount of money to invest with, you should be able to get a really good portfolio with that.
Jo Grimwood: Fabulous. Great answer, Simon. Thanks, gents. We’re going to take a short break and we’ll be back with lots more fabulous questions when we return.
Hello there and welcome back to Property Question Time. Today, I’m joined by Simon Zutshi, Garret O’Hanlon, and also Paul Honey. Welcome back gents. Okay. Simon, we’re actually going to start with a question for you. Quite a long one. “Having bought a one bed in London three years ago with 25k deposit, I’ve now got 100,000 equity, maybe a tad more. I don’t like the block and I’m moving out. My fiancee has her own place. We married in the spring so we’re moving in together. I can rent it, but the other income and tax clamp down means I don’t make any net profit. I could sell, but I don’t know where to invest the 100,000 plus equity. Any suggestions would be appreciated.”
Simon Zutshi: Okay. This is often how people end up being property investors is they end up with a property surplus of requirements. Maybe they inherit a property or in this case they’ve met someone, they move in together and they’ve got a spare property. There’s always a question what do I do with that? You need to look at a couple of things. As the viewer said, they’ve already looked at how much income might come in and they’re not going to make that much money from it because of the new taxes and things. You’ve got to look at the opportunity cost. They got 100,000 pounds tied up there so they could sell the property, take the 100,000 pounds, reinvest it elsewhere. With that they could split that into two deposits maybe and buy two properties in maybe slightly cheaper parts of the country. They could get a good return on those and get cash flow on two properties which is a good idea.
They’ve also got to think about is selling the first one is going to have some costs, buying the next two is going to have some costs, stamp duties, legal, et cetera. Sometimes, even though there’s not a huge cash flow, and believe me I love to get a good cash flow from properties. It must pay for itself, ideally make a profit as well. If they feel that money is going to have good growth there, it’s had good growth the last couple of years, maybe the easiest option would be to leave it there and just let it grow and then maybe some point in the future another option is to maybe refinance that property and take some money out and buy some more. It depends on the numbers and that’s really what they need to sit down and look at and understand have they got the inclination and the knowledge to go and find more investment properties to actually buy if they then take that money out. A couple of questions there for them to consider.
Jo Grimwood: Fabulous. We’re sitting on it for the long term, they may get some really nice capital growth so it’s worth bearing in mind as well.
Simon Zutshi: If they believe that’s the case, yeah. As long as it does pay for itself. They obviously need to change the mortgage on it to abide to that mortgage because it was a residential, but assuming they do, there’s plenty of equity there, it could well do that.
Jo Grimwood: Right. Anything to add there?
Paul Mahoney: Just one thing to consider, from a lender’s perspective they’d be considered an accidental landlord if they did that so that does limit their options a little bit because they essentially didn’t do it for commercial purposes. Whereas the options Simon mentioned so far as selling and investing intentionally, they would be considered commercial landlords. Just something worth noting the category they’d fit into depending on the options they chose.
Garrett O’Hanlo: I think also if they’ve achieved 100,000 equity from a 25,000 pound deposit over the last three years in London, keep going.
Jo Grimwood: Yes. That’s what I was thinking.
Simon Zutshi: Yeah. Yeah. Having said that, the London market has grown quite [inaudible 00:14:49] slow. I would agree leaving it there is definitely consideration. You’ve got to figure out what’s going to happen to the market the next couple of years maybe. That’s a pretty good return, right?
Garrett O’Hanlo: Yeah.
Simon Zutshi: I’d do that.
Garrett O’Hanlo: Yeah.
Jo Grimwood: Okay, Garrett. Question for you. “Hi. We’re planning to buy late 1700 stone house in the Northwest. To the massively untrained eye, it looks like it’s in reasonable nick, but the seller did quite a lot of work on it around 20 years ago. It’s that rather than the age of the house that’s making me nervous. After all, it stayed up for nearly 200 years already. In my situation, what survey would you get?”
Garrett O’Hanlo: Some interesting points again that they’re worried about the last 20 years and not the previous 200 years. I can understand that people are reticent that if people have done lots of work on the house have they done it correctly. Some of that will be concealed anyway, and it depends on what they’ve done. If they’ve extended and so on and so forth, then you need to check that all the regulatory requirements have been met. There is again a cliché that old houses are better than new houses which is completely untrue. There’s good and bad across the whole spectrum, certainly in 200 years lots and lots of things could have happened. Broadly speaking, you should probably go for the most detailed survey which is the building survey on something as old as that, but I think there are still people who incorrectly use the old fashioned term the full structural survey that hasn’t been sued for about 15 years now. The reason being that you cannot have a full structural survey because you can never expose every single part of the property.
Jo Grimwood: Yeah.
Garrett O’Hanlo: Inevitably, the inspector would draw inferences from what they can see and perhaps guide you to do other things. Similarly, you’ll want to see that certain treatments may have been carried out on an older property like that where there’s almost certain to be some type of wood boring infestation, but as long as it’s been treated and it’s under control, then that shouldn’t be an issue. You’re likely to have potentially listed building issues, conservation area issues might be a factor as well. Broadly speaking, you want the most detailed survey you can get, and also, and I’ve said it before, it’s amazing how many times people come to us and say “I want you to do a survey and we are particularly interested in A, B, and C.” When you get there, A, B, and C are not a problem at all, it’s X, Y, and Z.
Jo Grimwood: Yes.
Garrett O’Hanlo: Make sure you get somebody in there who knows what they’re doing, who’s experienced in old buildings, experienced in surveys, and you get a decent report.
Jo Grimwood: Absolutely. Obviously be prepared for ongoing work I should imagine if you move into an older building. Would you say that’s fair?
Garrett O’Hanlo: It is fair. The likelihood it will have quite a poor energy rating, not necessarily but it is more likely. The implications of heating and so forth are much greater, tend to be greater with an older property. You have completely different standards of what you will accept in terms of movement, unevenness, and things like that. You need an experienced eye there to make those judgements for you.
Jo Grimwood: Yeah. My friend had a beautiful older property, but unfortunately they were unable to change the windows so they were freezing in the winter.
Garrett O’Hanlo: Yeah. Exactly.
Jo Grimwood: They can hear every single noise so they ended up having to sell at a loss because there was nothing they could do about it.
Garrett O’Hanlo: Yeah. That’s right. Your listing authorities again are quite strict about what you can and can’t do, not just outside but inside as well. Be fully aware of what you’re getting into. It’s more complicated with an older property like that.
Jo Grimwood: Yeah. Fabulous. Thank you. Paul, “Buy to let, is it worth it? As it stands, I turn 29 next month and I have 32k left on my mortgage. My salary is about 29k a year. I’ve had my house for three years next month and have overpaid on it since I’ve had it using my 10% overpayment allowance each year. I have about 12k in stocks and shares, ISA, and a mutual fund which I want to keep going. Instead of overpaying, am I better using that money and saving for another deposit or getting a buy to let?”
Paul Mahoney: Okay. A couple of parts to that question. First part is buy to let worth it? I’d say absolutely in the right circumstances. There’s been lots of changes recently. You need to understand those changes and how they affect certain properties and generally certain areas and whether things still stack up. Yes. Absolutely. In the right circumstance it still works if you’re ticking all the boxes, therefore is something worth seriously considering to help you build an investible asset base.
As far as whether that person should keep paying down the home loan or save to invest in property, the two aren’t mutually exclusive. In fact, I’d say often you’re better off paying down your home loan to save to invest in property because by paying down your home loan, you will generally be getting a better interest rate than putting the cash in the bank. Then, you can remortgage your home to take that cash back out and invest. Again, not necessarily specific to that person, but that can be a good option to look more closely at.
When it comes to making sure that buy to let stacks up for them specifically, they’ll need to understand their goals, what it is they’re hoping to achieve from investing in property, again seek advice to better understand that. Certainly something that I think is quite common is the things that you think you might want aren’t really the things you want once you dig into it a bit deeper. Then put in place a strategy, make sure as I say you’re ticking all the boxes, you understand all the recent changes in the market. Buy to let isn’t a DIY activity anymore. It’s generally one of the largest purchases you’ll ever make, so solely for that reason you shouldn’t be doing it own your own unless you know exactly what you’re doing. With all the changes recently, it’s a lot more complicated. A good decision is really different to a bad decision and you need to make sure you’re making a good one.
Jo Grimwood: Yeah. Research of course, and looking to all the options is very important when looking at investing in property. Just again, being prepared to put a lot of time and energy into that at the same time.
Paul Mahoney: Self-education is great, and I absolutely recommend that people educate themselves, but as individuals we’re only [inaudible 00:20:49] by resources. We can only achieve so much on our own, regardless of our experience or knowledge. Utilizing the resources of somebody or a company that can help you with that is quite useful in those cases.
Garrett O’Hanlo: Can I just say also I think there’s a tendency you go to a financial advisor or your broker obviously to discuss all of that aspect that we just covered and people often will think they go to the surveyor to talk about the technical elements of the building, but there are places where it wouldn’t be wise perhaps to be investing for other reasons. Very often your surveyor is the chap that knows those areas and can give you advice not just about the building but about that too. It’s tangential, but it’s very relevant at times.
Jo Grimwood: Brilliant. Anything to add, Simon?
Simon Zutshi: Just to back those guys up, you know, don’t try and do it on your own. Get a good power team around you. I would also suggest that the people you get advice from, you need to make sure they are actually investing in property themselves.
Jo Grimwood: Yes.
Simon Zutshi: Lots of financial of advisors who don’t really understand property, and that’s because historically they haven’t got commission for selling properties, they get commission for selling insurance and pensions and stock investments. Try and find people who are investing in themselves and that includes your mortgage broker and ideally includes your solicitor as well. Then have a better answer on what you’re trying to achieve.
Jo Grimwood: Fabulous. Thank you so much to our panel of experts Simon, Garrett, and Paul. That’s all we’ve got time for here today at Property Question Time. You can get involved by posing a question to our panel of experts and you can do that by just sending it into the following email address which is firstname.lastname@example.org or logging that question on our website. We look forward to seeing you next time here at Property Question Time.