Property TV | Property Question Time – S1 Ep156 – Stephen Galpin, Paul Mahoney and Mike Gray

Lucia France: Hello and welcome to Property Question Time. I’m Lucia France and this is the show where we answer all and any of your property questions with our panel of experts. So joining me in the studio today we have Steven [Gelpi 00:00:26]. Welcome to you Steven. London based property consultant. We also have Paul Mahoney, welcome Paul. Managing director of Nova Financial Group. And Mike Gray as well. Welcome to you, Mike. Managing director of [Devon 00:00:39] and Gray Property Consultants. Good to see you all today guys.

Okay, Steven you’ve got the first question here today, which is, I’m looking to invest 30K in a property and I’m not sure where to invest and how tough it would be to get a mortgage as this would be my very first investment. And I want to start myself on getting a property portfolio. Any advice appreciated.

Steven: Right, well I think the amount of money involved here is relatively low. So that in itself is going to restrict where you can buy. And I just wonder for a first time investor with obviously very limited capital here, I wonder whether some of these crowd funded opportunities may be an idea. In other words, a number of people get together and buy a property for investment as a syndicate. Now the downside of that kind of that thing is it’s relatively easy to get into, not quite so easy to get out of.

You’re probably governed more by the market than in normal circumstances. But it is a great opportunity to test the water to see how you manage a property. To learn from other people who perhaps have got more experience than you. And therefore reduce the risk. In terms of mortgage, I don’t know. I think Paul, you could probably answer that one better than I.

Lucia France: Over to you Paul.

Paul: Yeah, a couple of the points on that. So in my opinion I think 30000 is really the bare minimum to buy anything half decent in the UK. And the reason for that is there’s not a lot under 100000 in the UK. And that’s the whole country in decent areas. And obviously with the 25% deposit and some costs that’s where you are about for a purchase price. So you’re a little bit limited and I don’t disagree with Steve. I think you shouldn’t buy for the sake of it. If you can find a property that stacks up and is a good investment, then there are mortgages at that level.

It becomes more difficult to get a mortgage under 100000 and even more so under 70 or 80000. That’s really the minimum that most lenders want to lend.

Lucia France: So in this situation, would you say it’s worth waiting and saving a little bit more?

Paul: Maybe waiting and saving a little bit more. But they’re kind of just getting to the cusp of just having enough money.

Lucia France: Right, okay.

Paul: So yeah, something crowd funding, something that they can maybe invest in that they might get a decent return over a year or two to boost their funds and maybe save some more money as well. Essentially consider all options, get professional advice on what’s available to you.

Lucia France: Absolutely. Anything further to add there Steven?

Steven: No, I don’t think so. I think Paul’s right about the mortgages. I think that’s absolutely right. And again, just remember this is a business that you’re going into. So if you don’t know how to do it, learn how to do it and try and minimize that risk of the outset.

Lucia France: Yeah, take some advice as we always say, right?

Mike Gray: I think, just one quick response. The key thing there as you rightfully said is also have the ability to getting out of that arrangement. Because if your funds are then built up to do something on your own, you’d want to come out of that first arrangement and move forward. So it’s all right getting in, but you need to know what the exit opportunities are.

Lucia France: Definitely. Very good advice there. Thank you very much. Okay Paul, your first question for today is, having recently paid off our mortgage, we’ve a chunk of extra cash each month and we’re trying to figure out the best thing to do with it. We have two buy-to-lets, one with about 80% equity and the other about 40% equity. Both have very low interest rates and a fix for two and five years respectively. With the option to overpay 10% per year. The plan is to use them as a source of income in retirement. But should be pay them off now with the extra money? There are plenty of other things we could use the money for, increase pension contributions, save for school fees, house renovations, et cetera. We currently have cash savings of about three months salary and about 20K in shares from a former employer. What is the best thing to do with the money we were paying towards our main residence, any advice?

Paul: Okay, that’s a good question.

Lucia France: It’s a long question.

Paul: Conventional wisdom would say that you want to be debt free by retirement. But I think that’s wrong.

Lucia France: Okay.

Paul: And that might be a little bit controversial but especially in the current market when money is cheap. With buy-to-let properties, you can actually borrow to accelerate your income, not just your growth.

Lucia France: Right.

Paul: So they mention about having 80% equity in one buy-to-let, 40% in the other.

Lucia France: Yes.

Paul: They said they’re fixed though, so there’s not much they can do about … Not much they probably should do about those until those terms expire.

Lucia France: Okay.

Paul: But unless these people are extremely wealthy in other areas and it doesn’t seem that they are, I would say that’s not enough debt on their buy-to-lets. They could better utilize that equity in their properties, and they could have more properties. Which would give them a better return on their money. So as far as what they should do with this money that they currently have, depending on how much … I don’t think they mentioned how much it is.

Lucia France: They don’t I’m afraid, no.

Paul: Depending on how much it is, they probably are best off placing, overpaying on the buy-to-lets. But not necessarily to get them to a debt free scenario. Mainly just to add equity to the properties and then remortgage them when their mortgage terms expire or those initial periods expire.

Lucia France: Yeah, okay.

Paul: Because saving, let’s say it’s two or 3000 pounds a month, putting it off their mortgages might save them that two or three percent they’re probably paying for the mortgages. But with that same money they could quite easily be getting 10, 15, 20% returns on that cash by investing it in property with mortgages.

Lucia France: Right.

Paul: So I’d say initially do pay down the debt because that’s … Unless they’ve got somewhere they can get a better return on it with safety, pay it down. Let the initial periods expire. And then seek advice about remortgaging them to take control of the equity they have in those buy-to-lets. And reinvest to build their investible asset bags.

Lucia France: Okay, so you’re basically saying that in the fixed plans that they’ve got, the two and five years respectively, use that money to pay down the debt.

Paul: Yeah, for those initial periods because there’s probably exit fees for those periods. It’s probably going to be expensive for them to exit out of those mortgages now. But it’s important to keep in mind why are we investing property. It’s all about making money. And generally the end goal is about replacing employment income with passive income. So you really do especially in that wealth creation phase of life, you really want to best utilize what you have. And a 20% mortgage and a 60% mortgage in my opinion isn’t the best utilization of that resource.

Lucia France: Right, okay. Well that’s … And is there anything else that you would recommend that they should do during that time? Do you think definitely pay down the debts or …

Paul: Well it sounds like they’re comfortable with having three months worth of pays put away for a rainy day fund. That’s sensible. Contribute the extra they have to those mortgages. But have a plan and a strategy for what the end goal is. I think far too many people go about accumulating buy-to-lets in a very ad hoc way. They kind of just buy them here and there and just hope for the best. Whereas, when we think logically it’s obviously better to have a plan of action and know what we’re working toward because then we’re going to have more purpose and direction. So get that in place. Seek advice or do it yourself or go about it in the way that works for you. But have that and better utilize what you’ve got. Because it doesn’t seem like they’re doing that at the moment. And that’s probably just because they’ve not really thought about it too much.

Lucia France: What is that you said, is that’s the conventional wisdom to have it debt free. But maybe that’s not the best option for them in this case. That’s great. Thank you Paul. Thank you very much.

Mike Gray: One quick touch on the ad hoc, I think that’s interesting.

Lucia France: Please do, yes.

Mike Gray: It does need strategy, doesn’t it? It needs thinking it through. And I think when people buy and expand a residential buy-to-let portfolio, they should it more like it’s a little business they’re growing and forming. I had an experience from an [inaudible 00:08:32] based investor that bought 10 properties up in I think it was [inaudible 00:08:35] in Manchester because obviously they might be cheaper. And there’s a much lower price to buy. Having bought them, they spent the next 10 years frustrated that every time they needed an electrician or a plumber or any maintenance, they didn’t want to go up, they’d say it was too far.

They never got to know or see any of the tenants. they never had any feel about what was going on. And as time went on, they were relying on people to let them re-let them, manage them, that they’d never met before.

Lucia France: Yeah.

Mike Gray: So what do they want to do? They want to cash them in and come back south and start again.

Lucia France: We do often say, buy where you know as well. Where you’re going to be close to.

Mike Gray: And keep your eye on it.

Lucia France: Thank you very much. Okay Mike, your next question here is, I’m trying to sell a small commercial property but it isn’t selling. It could be converted back to residential, which it originally was. I think with hindsight that the selling agent may have overvalued it. I’m thinking of trying an auction but I’m nervous about the method and if I lose control of the sale, I’ve read up about it and I don’t really like the sound of it. I just wondered if you have people who have used this method to sell and what they think of it?

Mike Gray: Okay, this first phase of that, it sounds like an ideal type of auction proposition. One because it could be commercial or it may be residential. So that automatically brings it out to two sort of marketplaces. So let’s work on the basis that they’re right. It could be either. The second thing, it hasn’t sold so far. So they’ve tried on the market and it hasn’t worked to date. So the only fear is that they don’t understand the auction process and are a little bit frightened of it.

And that’s a natural thing to do. If it’s an experience you haven’t been through before, you’re not quite sure how to support it or go with it. The good thing about a property that you’ve described is if it could be converted and some commercial properties now can get automatic changed use to residential. And that is usually because some of the commercial properties now are sort of un-lettable or they’re in areas where they’re looking to encourage residential property. For example near high streets where they want to bring on a nighttime economy for the benefit of the struggling high streets. So what we’ve got there is not a straightforward property.

It could be one or the other. For a non-property term, is it a boy or a girl? Which way could this go? So the auction is probably the ideal process. One, it goes out to commercial buyers. It goes out to residential buyers. It goes out to people who might like to refurb it and use it themselves. Or it might go to landlords who want to refurb it and find a tenant.

Lucia France: Right.

Mike Gray: So you can see that the avenue of potential buyers is that much greater. So I think what the client needs to do is think about a different process they’ve not tried before just to get to understand that. I would suggest they attend a [inaudible 00:11:18] from an auctioneer in terms of fees and timing. And probably I think it’s a clear one to give it a try.

Lucia France: That’s great. Perfect timing there Mike. Thank you very much. That’s all we’ve got time for for now, but we’ll be back very shortly after this break. Welcome back to property question time with me, Lucia France and our panel of experts. Today, Steven [Gelpi 00:11:47], Paul Mahoney and Mike Gray. So welcome back guys. Okay moving on to the next question for you, Steven which is this, my father has sold his house so he can move in with us. Now he’s 80 years old and we have bought a five bed house on the basis of his contribution to a bigger property.

My father’s train broke down unfortunately though and we are committed to buying the bigger property at the end of November. Do you think we should leave it with an agent or put it to auction?

Steven: Okay, well we really need a little bit more information now. I’m not sure what committed to buying means. Do they mean that they’ve exchanged contracts on their new purchase or not? If they’ve exchanged contracts, then obviously the whole thing become time critical. So assuming that that’s the case and it is time critical, then I think the easy answer is to say well, an auction will produce almost an instant result. The difficulty of that is as I’m sure Michael will tell us, an auction is an ideal way of finding out what something is really worth. It sells for what somebody will pay.

Now that differs from an agent’s view who might be over optimistic or might even take advantage of the situation and undervalue it. So it’s a very difficult tightrope to walk this one. I think in essence I would first of all look at my commitment. If it’s an exchange of contracts, it might be just worth having a word with solicitors and see if you can gain some kind of extension on the completion date to give you a little bit more choice. If that’s not possible, if your next lot in the chain went play ball, then I think a conversation with a good, reputable auctioneer would be a sensible option I think. If you would agree, Mike?

Mike Gray: Yeah, yeah, yeah.

Lucia France: Yeah, Mike anything to add?

Mike Gray: Yeah just one little thing and I think exactly right. It’s about are they committed or not? There’s a different between being under contract already and just going ahead and hoping to write something. Some things that flash through my mind there with a price differential is if they haven’t already exchanged, there’s always another way forward. Are the people they’re buying from may actually take in to part exchange like a chain breaking exercise to take this smaller property in at the end. And even if they let them have a little bit to less expensive, a little bit under the price, what they get is their property sold and the people selling the larger house at the other end of the chain have an instant buy. And then they can all exchange contracts.

But of course that’s all very well, that’s only if the people in the chain want to take in a property.

Lucia France: Yeah, I suppose a lot of this problem is dependent on what people in the chain are happy to do.

Steven: Yeah.

Mike Gray: So it’s another option. But as you say, if they’re under contract already, probably they’ve got no option. Get in the auction, and in the room in six weeks.

Lucia France: Great stuff. Okay, thank you very much guys. Okay, moving on now to Paul for your last question for today. I seem to have got myself in a fix with my mortgage company. Oh dear. After a period of sickness in which I couldn’t pay my mortgage, unexpectedly, as soon as I was well and able to work again they went to demanding all of the [inaudible 00:14:51] to prevent repossession. Is there a sympathetic company that would consider giving me a secured loan to cover the [inaudible 00:14:59] as well as perhaps to settle my other debts so that I could start again? Unfortunate situation.

Paul: Yeah, very unfortunate.

Lucia France: Yeah.

Paul: So a bit more information is required to determine their best course of action. Generally lenders are relatively sympathetic to those situations usually. And would work out some sort of payment plan or ability for them to get back on their feet as opposed to just foreclosing, which is obviously kind of the last resort of any lender. Because they don’t like doing that either because quite often they’ll make a lot on the sale. So the first thing would be to approach their current lender.

Lucia France: Right.

Paul: I assume they’ve probably already done that, but they may not have. They may have just got a letter in the mail and thought oh no, I need to go to another lender. So approach the current lender first, speak with them, ask them what they can do for you so far as a payment plan to work something out. A lot of it will also depend on whether the current lender has defaulted them or whether they have actually given them flexibility already.

Lucia France: Right. Well, sorry to interrupt you, but what they’re saying here is that they’re demanding all of the arrears to prevent repossession as soon as they went back to work again.

Paul: Right. Yeah, so that might’ve been the flexibility that they’ve been given in the first place.

Lucia France: Right.

Paul: Again, dependent on whether they have defaulted them, that will also impact upon their ability to go to another lender. So far as fixing all of this. It will also depend on whether they’ve got any other assets. Their current financial position, they might have a very high income. And that would impact upon whether another lender might give them a short term loan, a secured loan, a second charge on the current property or on other assets.

Lucia France: Yeah.

Paul: And then there’s a very broad range of lenders out there. Lenders that are quite cheap and restrictive, and lenders that will lend to pretty much anyone and are very expensive. So the answer is yes, there’s an option available for them but it would depend on the cost and it could be quite substantial if they’ve been defaulted. If they’ve obviously missed a number of payments on their current mortgage.

Lucia France: Yeah.

Paul: There’s a number of … I’d say first speak to an independent broker. See if they can help you. If they can’t, there’s a number of sort of money advice type centers that can help with those sorts of things as well.

Lucia France: Yeah.

Paul: So seek out, put your feelers out to as many people as possible I’d say and try to solve the situation. Because obviously you don’t want a foreclosure on your hands.

Lucia France: No, and I think where they’re mentioning to settling other debts as well, which I take to meaning as in more than their mortgager is, that could be the wise way to go.

Paul: Definitely an unfortunate situation but do something about it would be the main thing. Don’t just sit on it.

Lucia France: Yeah.

Paul: Make sure you approach as many options as you can.

Steven: I think the key thing there, Paul said it is really about conversation. Talk to your lender. You will find that they will help. It’s not in their interest to see you default. And I think the other thing is, be very careful, you do get these letters in the post and sometimes they’re a course of action that the company regulations, articles of association insists that they do. Identify the loan in total. Identify the arrears. Give notice that those arrears need to be paid. But actually they’re still willing to talk. It might be just a process rather than anything else. And it’s important you differentiate between what’s process and what is actually practically [inaudible 00:18:32].

Paul: Yeah, they might just be trying their luck so far as getting their money from you. And they might actually be willing to be a lot more flexible than you expect.

Lucia France: Good point. Thank you guys. Okay moving on to Mike for your last question for today. I’m putting up my house for auction using local auctioneers. The next auction day the company has is in early December. I’m wondering how quick the process is including appointment to value the property, signing paperwork, et cetera. Can anybody who has auctioned houses answer this for me please?

Mike Gray: Okay, yeah that’s quite a simple question to ask to be honest. Let’s look at it as an overall throughout the country. Most auctioneers, more experienced auctioneers would have between six, eight or nine auctions a year. So if we average that at seven or eight, there’s one sort of every … Always coming every sort of six or seven weeks. So the turnaround of the auction process is very quick anyway. So I’d like to think that if they chose an experienced [inaudible 00:19:24] auctioneers, from the day of phone call, from the inquiry they would carry out an inspection, report back with fee proposals, recommendation on the price and probably the next auction entry date should be within no more than four to six weeks.

Lucia France: Right.

Mike Gray: Yeah. So that’s nice and quick.

Lucia France: So that would happen on the first day that they inquired about selling?

Mike Gray: Within two or three days of that phone call they’ll have that information. Now sometimes a little bit about timing, because if they’ve only had their last auction the day before, it’s going to be a slightly longer run to the next one. But it’s a little bit like London [inaudible 00:20:00], there’s always another one coming soon. So what I would suggest is the result is still going to be much quicker for someone who’s under time pressure. Most auction lots are sold on the say, so the time the gavel goes down, it’s under contract. They complete 28 days later.

Now some people say, well what about if it doesn’t sell? 10 to 15% of the properties that don’t sell by auction are then having a sale agree within the next week or so afterwards. So if it doesn’t sell on the day of the auction, you don’t have to wait for the next one in eight weeks. There’s a good chance the sale will be agreed afterwards and still under of 28 day completion. So it’s a quick turnaround.

Lucia France: In that way, yeah, you could be looking at the whole thing taking depending on how soon the next auction is, one and a half months maybe even that quickly.

Mike Gray: Yeah, certainly if you say … I was going to say up to nine or 10 weeks. And if you think a lot of properties go on to the market by private treaty. And within eight to nine weeks they may only have had two or three viewers. So it’s a much quicker process. And you always know where you’re going because the auction date is a fixed date. And you know when that’s the date, it’s going to be in the room.

Lucia France: Okay. And is there any other sort of advice you’d give them about putting their house up for auction using a local auctioneer?

Mike Gray: Well I think it’s obviously like anything, do the research. Are they successful in their sales? Make sure their auctions are held in the right, in the correct region. Are there other properties being held? And look at the last three auction results of that company. And you ought to see that they’re coming in with at least 75%. And if they’re selling 75% of the properties they take, you’ve got more than a two thirds chance of that being sold within six or eight weeks.

Lucia France: That is great. Thank you very much Mike. Thank you to Paul and to Steven. That’s all we’ve got time for here today. But if you do have your own property questions and you’d like to get in touch then please do. It’s @property_TV on Instagram. Property-TV.com at UK or info@propertytelevision.tv if you’d like to email us. Thank you for watching and we’ll see you next time.

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