Property TV Property Question Time S1 Ep54 - Nova

Property TV Property Question Time S1 Ep54

Our MD Paul Mahoney is on the Expert Panel for Property Question Time which features on Property TV – Sky Channel 198. In this show, the public asks property related questions to the panel of industry experts. The experts also provide “Golden Nuggets” or Pearls of Wisdom from their experience on what viewers should be aware of. In this episode, they discuss Borrowing, Property Investment and Advice on Assests. Watch Property Question Time on Property TV – Sky Channel 198. Click above to watch this week’s episode.

Bryony Billson:

Hello, and welcome to Property Questions. I’m Bryony Billson, and this is the show where you get a chance to have your questions answered by our resident property experts. Let’s see who we have in the hot seat today. A warm welcome to Satyen Lakhani from Off Market Investment. Thank you for coming. Suchit Punnose, founder and CEO of Red Ribbon. Thank you. Last, but by no means least, Paul Mahoney, the CEO of Nova Financial Limited. Thank you for giving up your time today gentlemen.

We’re going to go straight in with our first question. This is for you Satyen, “I’m considering buying a new build off plan resale, i.e., not from the developer, but from someone that purchase the property from the developer, and then stuck it on Rightmove. Is this generally considered safe, and what are the associated risks?” Any advice on this question?

Satyen Lakhani:

That’s a loaded question.

Bryony Billson:

It is a bit, isn’t it?

Satyen Lakhani:

I think the key is, and all of these things, you need to be prepared to do research. I say that quite often when I’m in here, but it’s so important, because once you start that process, you understand where to go, and what advice to take. If it’s a resale, you need to inquire from the developer really, that is it an assignable property? Is it an assignable contract? Because if it’s not assignable, then you may be stuck where you have to buy with cash. By assignable, it allows you to take a mortgage on it.

You need to ascertain some information from the developer. If you can, you want to inquire from the developer, why has it gone to Rightmove, or portal as such? Why has it not gone back to the developer to say, “Look, we’ve got a unit that’s come back on the market.” You can then try and negotiate perhaps a better price with that developer, because they’re keen to get that sold. They’ve sold it once already. They don’t really want it back on the market, because spoil their pricing strategy perhaps, on the other units that they’re trying to sell as well. You need to make some inquiries with the developer, or perhaps companies that are trying to sell on behalf of that developer. They’re many there, and that’s what they are there to do. They’re there to assist you, and help you through the maze of the best way to get to that unit.

You need to incquire from the developer as to why it’s on the market again. Is it an assignable contract? This is again, where you can ask these questions to your lawyers as well, who can find out for you. Make direct inquiry to the developer, or to even the developer’s solicitors. Bear in mind that when you try and purchase from the developer, they will ask you for a reservation fee. This is usually nonrefundable. You are well within your rights to put money down, that you may lose. You want to make sure that you got the right questions answered. Again, having your lawyer do that for you is really the best way. That lawyer can ask the developer’s lawyer. You’ll probably get the best answer from source.

If you can use a property company that’s associated with it, do that as well. That’s a second route to find out. Again, to assure that you can get finance on it, you need to take advice from a mortgage broker of sort, who will assist you, and help you through that maze as well. So yes, opportunities are there to get the best pricing possible. Work with the developer, and use people around you, who perhaps may know a lot more, to assist you. In any of these things, I think the best advice to give to any kind of buyer, is to surround yourself with people who probably know more than you will. They’ll find out the right answers, to help you make the right decisions.

Bryony Billson:

Brilliant, really thorough response [crosstalk 00:03:42]-

Paul Mahoney:

Just to expand on that slightly, exactly right, even if it is an assignable contract though, there are limitations around mortgages. The vast majority of lenders, won’t lend on an assigned contract. Some will. It’s a very small pool. Even those that will, will generally only lend at the value that the original buyer paid, not what that subsequent buyer is paying. For example, the original buyer pays 100,000 pounds for that one bedroom apartment, as an example. They are reselling at 120,000. The lender, even if it is in a signed contract, will generally only lend on the 100,000 pound value. That’s important to understand as well. You don’t want to get yourself into a situation you can’t borrow as much as you are expecting to, or you can’t borrow at all.

Bryony Billson:

Fantastic. Thank you. A really thorough response from both of you there, and really helpful. Generally, it’s not that it’s not safe, safe or not safe, but actually really ask all the right questions, and take further advice.

Satyen Lakhani:

Yeah, and compare the pricing. Absolutely, as …

Bryony Billson:

Paul-

Satyen Lakhani:

… Paul has said, your resale price may be higher than the price you may get direct from the developer on the other units that are available. So yeah, compare your pricing there.

Bryony Billson:

My next question is for Suchit. This question is in regard to buying in India, “I am in an NRI, and I wish to invest in commercial property, a shop or an office. Forming my own company, as investment holding company in India. The income will be purely rental income. Can I take a loan out from the UK, to help me with this?”

Suchit Punnose:

Good question. Yes, the answer is yes you can. In this case, the viewer is structuring the investment as a limited company in India, which owns the asset. The easiest thing to do, is to go to probably a local lender in India, and based on the loan to value, and the property profile, you should be able to easily get a commercial loan on the ground in India. If you are getting a loan from the UK, it usually will be on the basis of whatever the credit covenants are of the client, and not necessarily on the underlying asset. It will be up here borrowing down on the basis of a personal loan. Cross-border lending is very expensive, so unless it is of a substantial value, it makes perfect sense to borrow locally in India.

Bryony Billson:

Okay, so your advice would be perhaps to borrow locally in India, rather than from the UK, and then you just take it across.

Suchit Punnose:

Correct.

Bryony Billson:

Okay, fantastic. Do either of you to have any experience of …

Paul Mahoney:

I suppose just in general, from a finance perspective, again, I completely agree, anything that makes that borrowing more risky to the lender, is going to make that borrowing more expensive. For a UK lender to lend on an asset overseas, obviously, there’s much more risk there. To mitigate that risk, you could just be borrowing from someone who is local. The same goes for people investing in the UK, that might live overseas. Making sure that you’re, I suppose, exploring your finance options. Getting the most cost-effective options can save you a little money.

Bryony Billson:

Thank you. Is that fairly easy to get a loan locally? I mean, is that a relatively straightforward thing to do in India, in comparison to in the UK?

Suchit Punnose:

Yes indeed. I mean, as Paul was referring to, for a lender, it’s all about risk, and risk management. The lender will look at the quality of the building, what are the chances of a good renter yield, and they’ll do their standard calculations, and come up with the loan-to-value ratio. So long as the client has got a good, clean credit history locally in India, they do tend to check the client’s credit history in the UK as well, the lenders have started doing that, so long as all of those boxes are ticked, it’s a fairly straightforward process.

Bryony Billson:

The next question goes to you Paul, quite a big question. They’ve asked, “Keep or sell? We refurbished our current home with a lot of love and attention to detail, as a lot of people do. However, it’s now too small for our family. We’ve been thinking of moving for a long time, but the idea of selling this house is breaking our hearts. Moreover, this house has a lot of potential. Loft conversion, or conversion into two flats.” They say a couple of properties in the neighborhood have done this. “It’s also in a lovely area with good schools, and great links to London, and it’s in zone four. If we rent it out for a few years as it is, we could get a rent of about 1,800 per calendar month. This is more than enough to pay the mortgage.” So I mean, there’s quite a lot going on, quite a lot of detail, and I definitely can relate with adding the emotional element into dealing with a house, and living there. But what would your advice be in this keep or sell scenario, particularly with the financial side that they’ve mentioned?

Paul Mahoney:

There’s a few points to that question. I suppose the first point is, remove the emotion. I know that’s a difficult thing, and that’s very easy for me to say, and not very easy for somebody to do. But definitely try, as much as possible, to remove the emotion. Be commercially minded when it comes to something like this, because at the end of the day, if you’re renting it out, it’s not really yours anymore. You’re not getting the utility of it. You’re letting somebody else use it, and occupy it, so try to remove that as much as possible.

In saying that though, I am always reticent to telling people to sell property, because it’s a long-term thing. I don’t know anything about the property really, aside from the fact that it’s in zone four, and [inaudible 00:09:21] pounds a month. But if it is a good investment, then maybe it is worth keeping. They’d obviously need to assess that first step, for a start. Then maybe they could seek advice on that, or just some of their own research, to determine whether that is a good investment, because obviously they bought it as a home. The criteria that goes into buying a home is very different than the criteria that goes into buying an investment. A home, you need to love the place. It needs to be your home. Whereas an investment, should be about the numbers, and the fundamentals. So assess that, I suppose, to start with.

They would then need to assess their ability for finance, because just because the rent would be enough to cover the mortgage, doesn’t mean they be able to actually get the mortgage they need, because given some recent changes in the market, there are higher stress testing levels, than what lenders are actually lending at. That would be another thing to assess. Is finance actually viable? Especially because the property is in London. London properties in general, the yields are quite low. An average of about 3 1/2 to 4%, which can make it difficult to borrow what you might think you could be able to borrow. Or what you could’ve borrowed last year, for example, before these changes. So there’s a few things to consider there.

I’d certainly explore their options if I was keeping the property, rather than rushing into selling it. That should put them in a more informed position, as to whether that’s the best option for them or not.

Bryony Billson:

Okay, fantastic. Brilliant response to that question there, because there’s so much going on. Am I right in thinking that this person really needs to make sure that they’re seeking the correct advice, because while they might think they can cover their mortgage, given the changes that we seen in the last year, that might not really be the case?

Paul Mahoney:

Exactly, and some of that depends on their ability to finance. Another part of it would depend on their actual personal tax position. With Section 24, I will go install the changes, but with Section 24, and the way that affects the way mortgage interest will be tax-deductible on buy-to-let mortgages. That’s another consideration. Will this property actually wash its face after all these changes? Are all very important things for them to understand, and that most people in general wouldn’t understand on the face of it. Therefore, seeking advice would be pretty important in their situation.

Bryony Billson:

Thank you, I think that’s really good to keep in mind that it’s quite normal to feel confused about these types of things.

Satyen Lakhani:

I think Paul mentioned a key point there. As soon as you bring investment into a discussion, you’ve got to take the emotion out, because by right, investment is all about a box that gives you a return. Once you bring emotion into that, you can’t see the focus, as to what you are trying to do. It’s very important, I mean it’s a great question by that viewer, but they’ve got to be as strong to remove the emotion away. Then you can work out your figures properly, and seek the right advice that you need. So investment and emotion, two things can’t go together, in my opinion.

Bryony Billson:

No, absolutely, I think that’s brilliant advice. Thank you. Okay, we’re going to take a short break there, but please stay with us. After break, we’ll be hearing more from our property experts, and they’ll be sharing some of their top tips, and golden nuggets. We’ll see you soon.

Hello, and welcome back to Property Question Time. I’m Bryony Billson, and we are with our expert panelists today. Warm welcome again to Satyen Lakhani, Suchit Punnose, and Paul Mahoney. We’re going to go straight to you Paul, for one of your golden nuggets.

Paul Mahoney:

Yes, so my golden nugget is, when it comes to investing in property, to know your limitations. Or know your skill set, I suppose. Something I’ve seen a lot in the market lately is seminars, books, talks, about property development, commercial to residential conversions, all sorts of hands-on, skill-based property investment. My analogy for this is, you don’t do a week’s course, and then become a brain surgeon. That might be a bit silly, but property development is a profession. It’s something that people do for years, and years, and years, for someone else. Learning how to it. Learning how they can actually make money out of it, because at the end of the day, that’s why we invest, to make money.

If you’re a first-time investor, or even someone who’s only been in the industry for a few years, going out and buying a block to redevelop on your own, or even with some people around you, probably isn’t the best idea. You need to build up to that type of thing. I’d say, when it comes to being a first-time investor, or building your skill set, start relatively passively. Build your way up into complexity, toward being a bit more creative, and toward maybe making more money. But at the end of the day, property developments, or redevelopment projects, don’t always make more money than past investments either.

Just understanding that when it comes to investing, or when it comes to property development, it’s not as easy as you might see on the TV. Or as you might be told in those one-day seminars, where you can double your money overnight. If it’s too good to be true, it usually is. So making sure that you start based upon where you’re actually at, with regards to your knowledge and your skill set.

Bryony Billson:

Why do you think people do this Paul? I mean it was an excellent piece of advice there, but I agree. I think people do do this a lot of the time. Is it because it can be such an exciting thing to do, that people throw themselves into it? Or [crosstalk 00:15:14]-

Paul Mahoney:

Yeah, well of course it’s exciting. Being told that you can make 100,000 pounds in a month, without any money down … Well, isn’t that brilliant? But in reality, that’s pie in the sky stuff. Keeping your feet on the ground when it comes to investing is very, very important, because it makes sense as to why these guys are running these courses and things. I’m sure they’re making lots of money out of them. But making sure that you understand what’s real, and what’s not. Do what’s right for you, and what’s right for your skill level, and also your risk profile.

Bryony Billson:

Okay, fantastic. Fantastic piece of advice, don’t bite off more than you can chew.

Paul Mahoney:

Yeah.

Bryony Billson:

Excellent. Okay, let’s go back to our questions, and I’m going to go too you Satyen. Our next question from our viewer says, “I’m looking to buy property off plan. At present, the single property site has been cleared, but no works have been started on the build. I have had my house valued, but it’s not on the market yet. Do you think the builder would accept an offer, as I’m not in a position to move? The house won’t be available for six to nine months, so it would give me, hopefully, plenty of time to sell mine.” Quite a lot going on in that question, any advice there?

Satyen Lakhani:

I think, again, timing is key. You don’t want to put yourself out of position really, if you can’t guarantee your own timing. What I mean by that is that, if you want to put an offer on a property to the developer, and you want them to accept it, you need to put yourself in the best position you can. If you’re not on the market, and you feel there’s enough time to sell yours, then get it on the market now. Get yourself in the position where you have more control, than the developer. Then you’re more likely to get them to accept a better price for the property you want to buy. Again, key factors here are, who is looking after your property? Who is looking after the property you want from that developer? What are they saying to you?

As Paul put it, through that golden nugget, which I thought was an excellent golden nugget, do your research, because anything you want, you can find in the public domain. As to why you want to buy that unit that’s off plan, what are your reasons? Do your reasons justify what you’re trying to do by selling your property? Or not selling it, or not putting it on the market yet? Are you trying to wait, to capitalize on the money you might get in six months, as opposed to now?

Again, be careful, because if you’re trying to be too greedy on both ends, trying to get your price on the new property as low as possible, and maximize the price on your one, with any kind of, if you like, trying to get the returns there, there’s always a risk that you may lose on both ends. So put yourself in the best position you can. Get it valued. Make sure that whoever has valued that property can stack it up in six months time. Do your research on why you’re buying in that area. What will happen to that price you get agreed today, in six months time?

Justify what you want to do and why, what your motives are. That way you’ve, tick box, I call it. When we look at any developments, we look at tick boxes. We have a range from the years that we’ve been doing this, 87 tick boxes. If we can tick 80 out of those 87, we’re comfortable that, that’s a good area to invest in. The viewer should do the same as well, because the more you find out for yourself, the less you need to go somewhere else to ask, because you’ve got that information yourself. If it’s in the public domain, that means anyone can see that this is correct. You’re not just relying on a third party telling you, because they’re telling you. As long as you can justify it, make the right decisions based on that. So logic, system, and follow what you feel properly. Go through with it full on. If you do it halfheartedly, chances are, you’re going to make a wrong decision. You’ll fall flat on your face. We don’t want anyone to go to that position, absolutely not.

Bryony Billson:

Brilliant, fantastic. An excellent response there to that question. Lots of really clear detail, so really consider your timing, being much more strategic and logical about your decisions.

Satyen Lakhani:

Again, key factor, once you negotiate the price with the developer, he’ll want a reservation fee, which will be nonrefundable. Are you prepared to put money down that you might lose, based on something that might or might not happen with your own house? Again, that’s where the risk reward comes into.

Bryony Billson:

Okay, fantastic. Really brilliant advice there. I like the idea of having a checklist, and thinking about the questions that you’d want to ask. I’m sure you have advice on that area as well, but we do need to move on to our next question, if that’s okay with you. This question is do you Suchit. Straightforward question, “What is the process of purchasing a property in India? Any tips for buying property, such as a checklist, or items to verify?” So actually similar, but getting a checklist, but quite specific with this one, about buying in India. Any advice there?

Suchit Punnose:

Yes indeed. I think the difference in buying a property in India, is that one doesn’t go through lawyers for conveyancing, as one does here in the UK. So you would apply the same common sense approach that both my colleagues have spoken about. Research is key. India is a big country, so the idea would be to look for cities that can give a maximum capital growth. But you would go down, and have the simple commonsense approach to look at who the developer is. What’s the track record of the developer? Is it in an area where you can rent the property, and the process is very simple? If it’s a new build, you wire the money to the developer, and they write a title in your name, and it’s as simple as that.

If it is not a new build, if it is old property, then the due diligence needs to be a lot more, to Ensure that the person who is selling is indeed the owner. Title deeds in India have, over the years, gone online. So it’s easier to check and verify the ownership, or the title of a property. But one would approach it, just the same way as one would here in the UK. They’d look for good location, good developer, and if it’s rentable, and if it’s value for money.

Bryony Billson:

Fantastic. A really positive response to that question actually. That really a lot of the things, it’s the same systems [crosstalk 00:21:26]-

Suchit Punnose:

Indeed, yes-

Bryony Billson:

If they’ve invested in property in the UK, and they’ve got a checklist for that, they could apply that to buying in India.

Suchit Punnose:

Indeed, yes.

Bryony Billson:

Fantastic. Okay, excellent. Well, we’re going to move on our next question, to Paul. Not such a long one for you this time Paul, but-

Paul Mahoney:

Excellent-

Bryony Billson:

… equally confusing for some people, “I need to remortgage my current main house. I do own two more houses, which are mortgage free, and are rented out privately. What questions are the mortgage lenders likely to ask, and is it better going through a broker, in cases like this? For example, face-to-face.”

Paul Mahoney:

Okay, very broad question. Remortgaging their home, they’ve got two buy-to-lets. What questions are lenders likely to ask? They’re actually likely to ask quite a few. They’re going to want to know all about said individual’s personal financial position. Their employment, their income, is very important when it comes to a residential mortgage, because that in the main serviceability for that mortgage. Some lenders will consider the rent from the buy-to-lets, others won’t. Not knowing this person situation, if they’re not employed, then that would limit their mortgage options. But it wouldn’t necessarily rule them out, given they’re getting rent from the buy-to-lets.

They would also want to know things like, have they ever had any credit issues in the past? Do they have any other debt obligations; credit cards, car loans, whatever it might be? Their overall financial strength really. Both from an asset, and a sort of serviceability of liquidity perspective. How are they going to service this mortgage? Also, I suppose what they’re looking to use the money for. I don’t think they mention whether they currently have a mortgage on their home. If they do, and they’re just remortgaging to get a better rate or something, then fine. If it’s debt-free like their buy-to-lets, well why do they need the money? Some lenders would want to know that. Some don’t really mind, so long as it’s not for things like gambling, or debt consolidation, or whatever it might be. But there’s a lot that goes into it.

That kind of ties into the second half of the question, as to why it most definitely does make sense to get advice. That advice doesn’t have to be face-to-face. Mortgages advisors can advise via correspondence, almost as well as face-to-face. The only reason to do face-to-face, is you actually get to know the person, which I think in business is always a good idea. But seeking advice just gives you a much broader spread of the market.

A lot of people, when it comes getting mortgages, or getting mortgage advice, we’ll just go to their bank. Their bank will only have a certain criteria. Now often that bank might say, “Well no, you don’t fit our criteria.” Then they’ll make the determination, “Well, I can’t get a mortgage,” which isn’t really the case. There is a very, very broad range of lenders out there, with a very broad range of criteria. Understanding that as an individual, is very, very difficult. In fact, some mortgage products are only available to intermediaries or brokers, and they’re not available directly to the public. By seeking advice, the right advice, you can get a much more broad understanding of what’s available to you. Then hopefully through that advice, end up with the best possible product, or the right outcome for you.

Bryony Billson:

Fantastic, brilliant Paul. Thank you. I think getting that right advice, when someone in this situation, it seems like they do have quite a number of options available to them. That does seem to be very important, so thank you for your advice on that one. I’m sure they’ll really appreciate it. Well, I’m afraid that’s all we’ve got time for today gentlemen. Thank you so much for your fantastic answers to some quite complex questions in this week. I really appreciate your time and advice with that. If you have a question that you want answered, you can email us at info@propertytelevision.tv. Or you can go to our website, which is property-tv.co.uk. Or, why not download our app, and join us there?

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