Shona Lindsay: Hello and welcome to Property Question Time. I’m Shona Lindsay, and I’m joined today in the studio by three experts. Let me introduce you first to John Howard who is a property developer. Next, we have Stephen Galpin who is a property consultant, and finally, Paul Mahoney, the managing director of Nova Financial Group. Gentlemen, we’ve got a lot to get through today, so I’ll crack on with the first question to John, if I may?
John Howard: Please do.
Shona Lindsay: “I’m currently working shifts full-time but get quite a lot of time off work, and I’ve decided that developing property is the way forward for me. I currently have an £85,000 mortgage on a £120,000 house, although as I earn only £26,000 a year, I feel that I’m at my limit with mortgage payments. Ideally, I would like to keep this house rather than living in the development. I have no credit cards, no loans, and I have no overdraft, so I expect my credit rating to be pretty good. My problem is knowing how to get funding to proceed with buying a property and financing the renovation. I’m looking to buy a property for approximately 80 to £120,000 and to spend approximately 10 to £20,000 on the renovation. What deposit would I need, if any? Would I need to write out a business plan? Could I add the mortgage payments to the property for the renovation budget? I have contacts for renovations, i.e., a plasterer, plumber, electrician, et cetera, but I do need some advice on the best way to proceed with my idea. Thanks in advance.”
John Howard: Well, thank him very much for the question.
Shona Lindsay: Or many questions.
John Howard: Many questions. First of all, I’ll be very blunt. He hasn’t got any money. That’s the first thing because if they sift … unless he sells his home. I don’t advise him selling his home, and he has family. He wants to keep his job, keep his home, and he needs to find a like-minded person who has got some money, and he needs to get together with him or her, and they need to buy it together.
Shona Lindsay: The person who sent the question in would do the work, project manage it.
John Howard: Exactly. Organize it, find it, organize it, which is no different to what I do, a lot of the time, with my backers. My backers have the money, and I sort the rest out for them. I’m very spoiled.
Shona Lindsay: Instead of trying-
John Howard: In a much bigger scale, obviously, but to start with, there’s nothing wrong with that, so if he can find a like-minded person who has got some money, then that’s the way to do it. Partner up with them. Do a small scheme to start with til they get to know each other, and take it from there.
Shona Lindsay: Work out what side of the equation they both have.
John Howard: Absolutely. There’s no point in the partners doing the same thing. One partner has bit of money, puts the money in. The other partner keeps hold of the finances and everything else, and the other partner probably finds the deal, organizes the work, does some of the work, perhaps, as well. It’s part of his or hers payment in the deal. Yeah.
Shona Lindsay: Our viewer has presumably written this question hoping that they might be able to release equity from the house that they have at the moment, but you’re saying there’s not-
John Howard: No chance. Yeah.
Shona Lindsay: There’s not enough equity there to do that.
John Howard: No, not enough equity there, and even if they could, it’s a huge risk, and I wouldn’t take that risk.
Shona Lindsay: Right. Thank you.
Stephen Galpin: You know what? Doing property development or renovation on a shoestring is a dangerous game. I’m afraid things very rarely go to plan. If you run out of money, you’re back to zero and minus.
Shona Lindsay: Then you’re trying to sell a property that isn’t finished and nobody wants.
John Howard: Exactly. Also, if you’ve got a family, it’s huge pressure on the family. The first thing I always ask someone, and I get asked a lot, “I want to do this. I want to give my job up, and I want to do what you do,” and all these things, and I always say to them, “First of all, have you got … Is your partner, if you have a family and partner, are they behind you? Because if they’re not, the pressure on you is just immense.”
Shona Lindsay: The hours that you have to put in, I mean we watch these television programs-
John Howard: We do.
Shona Lindsay: … that will remain nameless. It all seems very seamless and very easy. We cut from that initial shot to the finished shot, and we’ve not seen the pain, the stress that people have gone through in between.
John Howard: The other thing I would say is that, actually, you don’t need to give your job up to do it because you need a lot of properties to be busy, so you can easily do four or five while you’re still working if you’re not doing the building work yourself. You just check in on it, chasing things up, and so on, so keep the income coming in. I live the dream, but it’s taken me a long time to live the dream.
Shona Lindsay: A long time to get there. Yeah.
John Howard: Exactly.
Shona Lindsay: Great. Thank you.
Paul Mahoney: Just one more point to add to that. I think, because of a lot of those nameless TV shows, in some people’s mind it’s assumed that you’re going to make more money by developing property than any other option in investing in property, and that’s not necessarily the case, especially with smaller renovation project. If this person’s just starting out, they’re not necessarily going to make a fortune from property developing, and there might be other options, given their skillset, where they could do better or at least take less risk. I suppose my point there is don’t assume that by doing some work and getting your hands dirty-
Shona Lindsay: Just by developing-
Paul Mahoney: … that you’re going to make a fortune, because that’s not always the case.
John Howard: No. Good, good point.
Shona Lindsay: Thank you. I’ve got a question for you, Stephen, if I may? “I’m trying to find a piece of land on which to build my dream home. Ideally, this would be within the M25, but I do prefer the idea of being in a small town or village. How do I go about finding land that might be suitable? Is there a central register or something similar to that?”
Stephen Galpin: Okay. Well, the simple answer to that is, I suppose, yes, there is a kind of register, and it’ll be a register that’s held by the local planning authority that will be able to show, on the internet or wherever else you search it, what’s been giving planning permission, but it’s quite a complex job doing that, and don’t forget that there will be numerous developers doing exactly the same thing.
I think I would approach it probably rather differently. I think what I’d try and do is identify a little bit more closely the town or the village that I wanted to be in. I’d go in, I’d spend a lot of time talking to the local agents, registering with the local agents in the hope that, perhaps, I was tipped off about things coming to the market before they get marketed, before developers, perhaps, have completed their planning consents or wishlists for land in that area. I think, essentially, the town or the village is the real key to where you want to be. It’s no go having a super plot of land in some way you don’t like.
Shona Lindsay: Well, it’s not going to be the dream home then, is it? No, no.
Stephen Galpin: It’s not going to be the dream home at all so, as I say, the planning lists published on the sites are a way of checking what the status of a piece of land is, but the real key, I think, is get to know your local agent in the area that you want to be. I don’t think you can do better than that really.
John Howard: Stephen, I think you’re spot on. Go and see the local agent as regularly as you can. Go and see them, talk to them. Talk to them, take them some doughnuts, coffee, and hope for the best.
Stephen Galpin: I mean the other thing is, too, you’ve obviously got to consider the sort of budget that you’ve got here. Again, I think probably Paul would confirm a good thing to do is to make some inquiries as to the sort of budget that you’re going to be able to manage. What’s that going to mean in terms of borrowing? Are you going to be able to do that? Where are you going to live in the meantime-
Shona Lindsay: In the meantime-
Stephen Galpin: … while you’re building this property? Again, a good mortgage broker or a good, good lending broker will assist you with that and give you some guidance.
John Howard: Absolutely, yeah.
Stephen Galpin: I think that’s critical.
Shona Lindsay: I suppose a fear for someone like this might be that, if they’re not taking it from a register where the planning commission has already gone through, the implications of just finding a plot of land and then the additional thing of getting their own planning commission for that, and what if they don’t?
Stephen Galpin: Well, we’ve talked on different programs about approaching local authority planning departments. There is usually a duty planner on duty every day in most of these authorities’ planning divisions. They will be wonderfully helpful. They’ll guide you. They’ll steer you. They’ll tell you what the plan and the aspirations for the village or town are and whether what you’re wanting to do is practical and would have a realistic chance of obtaining planning. I wouldn’t suggest, for a house project, if you haven’t done it before, I wouldn’t recommend doing that yourself. You would need a planning agent-
Paul Mahoney: Definitely.
Stephen Galpin: … or a good firm of chartered surveyors locally.
John Howard: Yeah, you would. Square footage is important or meterage because how big do you want the house? Because the bigger it is, the more expensive it is to build. You might want some mansion but only be able to afford a much smaller build, so you need to know …
Shona Lindsay: That goes back to you talking about managing that finance side of it. Yeah.
John Howard: Yeah, exactly. Yeah. Spot on. Yeah, yeah, definitely.
Shona Lindsay: Now I have a question for Paul. “I’ve just rented my flat out for the first time, £800 per calendar month rent with an agency fee of 10% per month deducted. I’m looking to work out how much I’d be looking to pay in tax. I’m afraid I’m not understanding a lot of the terms and calculations thrown at me, so I was hoping someone could please explain the process and also what would be taken into account in working out how much tax I would pay per month.”
Paul Mahoney: Okay, good question. I’m not a tax advisor, but I know the answer. Essentially, the £800 gross rent per annum, that’s 9,600 … sorry, per month. That’s 9,600 per annum. They’re paying 10% management, so that’s £80 a month, so what’s that? That means that they’ll deduct £960-
Shona Lindsay: Sixty.
Paul Mahoney: … from their total profit, so they’ll pay tax on about nine grand or thereabouts.
Other things to consider are maintenance. Assuming they’ve got a mortgage on the property, depending on their tax band, whether they’re a basic rate tax payer or a higher rate tax payer will determine how much of that mortgage interest they’ll be able to deduct, which sort of changes with regards to Section 24, which is quite misleading because the way it’s written says that, well, actually, that mortgage interest will no longer be tax-deductible at all, but you do receive a tax credit, that 20%, which means that if their employment income plus their property income is less than 45 grand, then it will, essentially, still be deductible.
If they’re a basic rate tax payer, they don’t have to worry too much about Section 24. They can claim all their mortgage interest, effectively, and it will essentially be total income minus all expenses, and they’ll be taxed on the net income at their basic rate of 20%. If they’re a higher rate tax payer, that’s a little bit more complicated, and it will change over the coming years up to 2020.
Shona Lindsay: 20.
Paul Mahoney: If that’s the case, they’re mad not to get tax advice to see how that would affect them because, for example, if they have a high mortgage, that property may not even be profitable to rent out. If they’ve got no mortgage at all, then again, they don’t have to worry about it. If it’s somewhere in between, then maybe they do, maybe they don’t. Definitely seek tax advice, but in simple terms, the way the tax is calculated is your income minus your expenses, and then you’re taxed on the net amount.
Shona Lindsay: Brilliant. Thank you so much. That’s all we’ve got time for in this half of the program, but please do join us after the break for more questions for our expert.
John, I have a question for you. “Hi. We’re looking into a new-build property with a small developer. The company itself is very small and was set up 14 months ago, but I’ve done a Google search on the guy in charge, and he seems to have been involved as a director with 13 different development companies since 1996. He’s currently serving as a director in three companies. Is this normal in the building industry, and how else can we make sure that this person is a trustworthy contractor?”
John Howard: Okay. Well, don’t Google me is the answer because I’ve got considerably more than that. What I would say is to check whether any of those companies have gone bankrupt. That’s the first thing. The second thing I would do is to ask him what was his latest project and ask him if he wouldn’t mind you contacting the owners of that to see if they were happy with his work.
Shona Lindsay: It’s effectively a reference.
John Howard: I would say so, yes. If all that comes back fine, then good luck.
Shona Lindsay: There’s no reason why he can’t be a director on several companies.
John Howard: Not at all, not at all.
Shona Lindsay: It’s just whether any of those companies were in trouble.
John Howard: The only thing that makes me a bit suspicious is that he was 13 or 14, and he’s been involved in 13 or 14 companies, but he’s now only a director of 3.
Shona Lindsay: Three.
John Howard: You just have to do the-
Shona Lindsay: What happened to the other 10?
John Howard: You just have to check. Yeah, absolutely.
Stephen Galpin: I think it you look at the math there, look, that’s over 22 years, isn’t it?
John Howard: Yes, shows he’s got experience.
Stephen Galpin: He has got experience. If you look at, say, let’s take a normal house build of, say, two or three houses or four houses, a two-year time span is quite normal. 12 times 2, that’s 24 years. It would be quite normal to be employed on a specific project and then move on to the next, so it needn’t necessarily be a down point.
Shona Lindsay: Right. I think the idea of being able to go and see, especially if it is a small company, you should be able to make contact-
John Howard: Absolutely.
Shona Lindsay: … with a previous employer that I could go-
John Howard: Even if it’s a new company so, well, this is a new company, you can still go back and say, “Well, what else have you done in the past?” and talk to them. The bigger thing about when you’re having a house built for yourself, the biggest thing a lot of these builders want to do is get a lot of money up front. Do not allow that to happen. Only pay for the work that’s been done a month in arrears. If they start saying, “Oh, I need half the money up front or a third of it up front to get materials-“
Shona Lindsay: Alarm bells.
John Howard: Alarm bells. Go to someone else.
Shona Lindsay: You wouldn’t give any money up front at all?
John Howard: No.
Shona Lindsay: Literally, you want to see something done.
John Howard: Absolutely.
Shona Lindsay: You pay for it as it’s done.
John Howard: You’ll have a contract that you signed, hopefully. You need professional advice. You want a schedule of works to make sure that the builder knows exactly what he’s building so there’s no argument there. You want to go out to tender with him and others, probably, and get the prices back, and you need a building surveyor to oversee it for you and advise you. Please don’t try and do it all on your own, especially if it’s your first attempt. Don’t do it.
Shona Lindsay: Okay. Thank you very much. Now, Stephen, I think you have a golden nugget of information for us. Is that right?
Stephen Galpin: Well, I’m going to hijack your spot, I’m afraid, and I’m going to say this. I’m very passionate about young people get on a housing ladder, which we’re reading about in the news as being impossible day by day, rental properties being short, and people even having trouble finding rents to pay. I do think that the government is in a position to do something about it.
Now, I’ve been very fortunate. I was involved in a program that Property TV here have initiated about looking at stamp duty. Now, the suggestion is that stamp duty be moved from the buyer to the seller. Now, there are some complex arguments about that. The classic one would be, “Well, I’ve paid stamp duty going into my house. Why would I pay it going out?” Nevertheless, a credit system could be sought which says, “Okay, well, whatever you’ve paid coming in, you can credit that against you going out,” and that would only last for a short period of time.
There’s the alternative idea of a sales transaction tax which, again, maybe we’ve come to the end because of the demands on our budgets these days. Care for older people, universal credit needs funding properly, NHS needs more funding, so perhaps we’ve come to the end of the time when we can just buy and sell our homes totally tax-free and often make quite substantial profits. I think a change of emphasis of stamp duty from, as I say, from buyer to seller would perhaps alleviate that a little bit and perhaps be politically acceptable.
There are other things. I’m very much against long-term … I’m sorry. My developer colleague here is going to get upset-
John Howard: Oh, that’s coming now. I’ve seen that.
Stephen Galpin: … because you know what I’m going to say. I’m going to say I’m very anti selling from plan too far before completion. It causes inflation. Why? Because property developers say, “Well, look, it’s going to take me three years to build this thing. I’m going to pop in 10% per annum growth, so my price is 30% above the current market value.” What does somebody selling their house do? They say, “Well, do you know what? I think I’ll just add 20% today in there where …” You’re building in inflation, just making it harder and harder and harder for people to buy and get on the property ladder.
Paul will talk, no doubt, about loan-to-value percentages. Again, the Bank of England, yes, they’ve strengthened the banks’ balance sheets, but they’ve done it at the cost of our young people, to a great degree, demanding 30 and 40% deposits. There needs to be a relaxation there, and I’m really not convinced that we’ll end up with a country full of delinquent borrowers simply because we give them high loan-to-value mortgages.
John Howard: Stephen, I hear what you say, but I mean the government have invested 10 billion in to help to buy scheme, 10 billion, which is a huge amount of money.
Stephen Galpin: Well, it is unless you look at the take-up figures, then it’s not that great. A lot of the schemes have helped the developers rather more than they have the purchasers.
John Howard: First-time buyers don’t pay stamp duty at the moment either. That’s the other issue.
Stephen Galpin: Well, no, but you’ve got-
Paul Mahoney: Up to 300 grand, yeah.
Stephen Galpin: Yeah. You’ve got to remember. I mean in London, look, again we’re in the [inaudible 00:18:39] here, two minutes from Canary Wharf. You’ve got average one bedroom flat prices in new developments there-
Shona Lindsay: Way over that 300 … Yes, yes, of course.
Stephen Galpin: … at £800,000.
John Howard: Chum, let’s be fair. You’re the king of London. You’re talking about London, and you are a very experienced property consultant in London. You’re an expert, but we do have the rest of the country.
Stephen Galpin: We do.
John Howard: Certainly, up north-
Stephen Galpin: We do-
Paul Mahoney: [crosstalk 00:19:02]-
John Howard: … you’ve got no problems at all up to 300,000 in terms of buying stuff.
Stephen Galpin: Well, we do. We do indeed, but in the program that I mentioned earlier, we interviewed John Stevenson who is an MP for Carlisle. My specific question to him was, “Are you getting the same kind of problems in your [surgery 00:19:19] that we’re experiencing here in London?” because he had the benefit of seeing both sides of the coin.
Shona Lindsay: Absolutely.
Stephen Galpin: The answer was yes.
Shona Lindsay: I think, clearly, gentlemen, we could probably do an entire episode-
Stephen Galpin: I’m sure. It would be great.
Shona Lindsay: … or possibly a month’s worth of episodes just on that one question, but it was brilliant. Thank you, Stephen.
Stephen Galpin: [crosstalk 00:19:35]-
Shona Lindsay: I must give Paul his final question of the episode. Paul, “My daughter has sold her home and made quite a serious amount of money on the transaction. She’s about to invest the profits in another property, but 50% of the value has to be loaned to her. I’m concerned that she might be doing this without thinking it through, and some of the implications of being a landlord might not have been thought through properly, and she may end up regretting it. Is there any training? Are there any courses, anything like that that she could do for new landlords?”
Paul Mahoney: Okay. The way that’s been put, 50% of the money needs to be lent to her, I assume that means she needs to borrow 50% of the value of the property-
Shona Lindsay: A mortgage. That’s what I’m thinking, it’s a 50-
Paul Mahoney: … which is pretty standard practice. In fact, I’d say 50% is quite conservative given that the average maximum, if you like, is around 75% where lenders will still lend you at pretty effective tax rates.
Shona Lindsay: Indeed, yeah.
Paul Mahoney: That’s right, interest rates. I wouldn’t be too worried about her borrowing because remembering it’s investment debt which, in my view, is good debt, and that’s not a bad thing. In fact, I’d say most people need to borrow to invest to really achieve financial goals, so that’s not a bad thing.
Shona Lindsay: Absolutely.
Paul Mahoney: She definitely needs to go into it with her eyes open, and she definitely needs to educate herself or align herself with a person or a company that can guide her. She shouldn’t just go down and speak to a local estate agent, buy a property, and put it on Zoopla because what she hasn’t experienced before is using an investment sort of mindset when it comes to using property to actually make money. She sounds like she’s bought a home or she sold a home and made money on it, but that was probably by accident because she’s bought that place because she likes to live there. It’s emotional criteria as opposed to commercially-minded criteria.
Shona Lindsay: And the natural capital growth with that, yeah.
Paul Mahoney: Exactly. There’s a load of courses of varying quality. There’s lots of books that she could definitely read.
Shona Lindsay: There are. I hear there are lots of very good books on the market, yeah.
John Howard: There are. There’s a very good book.
Paul Mahoney: Oh, yeah. Is there?
Shona Lindsay: One coming up, I understand.
Paul Mahoney: There’s loads of books. She should educate herself, but she should definitely seek advice from various professionals and understand what those professionals can advise her on.
John Howard: Exactly.
Paul Mahoney: For example, a mortgage advisor will advise on mortgages. An accountant will advise on tax. There are various new services around, people that will advise on property investment, actually help her find the right things to achieve the goal she’s working toward, so seek that advice, educate herself, and make an educated and commercially-minded decision.
Shona Lindsay: Brilliant. Thank you, and thank you to all of your input on that final question.
John Howard: [crosstalk 00:22:11].
Shona Lindsay: Well, that’s all we’ve got time for today on Property Question Time, but don’t forget, if you do have any questions for our experts, do log on to the website, which is www.property-tv.co.uk, or you can send a direct email to us at email@example.com. All that’s left is for me to say thank you to my guests today. I’m Shona Lindsay, and we’ll see you soon. Bye.