Property TV | Property Question Time – S1Ep172 Paul Mahoney, Mike Gray & John Howard

Stephen Galpin: Hello, welcome to Property Question Time. This is the program that allows you to ask our experts the answers to all your property related questions. I’m Stephen Galpin, and joining me today are our panel of experts. John Howard, hello.

John Howard: Hi.

Stephen Galpin: Mike Gray of Dedman Gray Auctioneers.

Mike Gray: Hi.

Stephen Galpin: And Paul Mahoney, who’s joining us directly linked from Australia. Right, on with the first question. And the first question is going to you, Mike. It’s a very basic question, but one I’m sure many of our viewers ask. What is the process of buying a house through an auction?

Mike Gray: In terms of the process of buying, it’s a very modern and popular alternative these days. And for the buyer’s benefit is that all the information is provided for you in a legal pack before the auction. So instead of going through looking at properties, and still not quite sure the legal position, it’s all available in front of you.

You’d normally try and get to make sure you had a good look at the property well before the auction. Because there have been experiences where people leave it a little bit too tight to the date itself, and then they’re rushing around, deciding is this the right place, is it the right investment to purchase. And cut things a little too time to check out the legal pack.

The first thing is, you’ve got to identify is the auction in a region, an area in which you can attend. And secondly, are you looking to spend out and invest, the solicitors check out the legal back before the auction, or in some cases, some of the experienced investors will take a chance.

Stephen Galpin: Right, okay. What happens if the property isn’t quite up to scratch? Is that specified in the seller’s pack, or-

Mike Gray: The details in the auction will be so much more briefer than that a set of sales particulars through a traditional, residential or commercial agent. And it’s a little bit more like it’s there, it’s in the marketplace, and you’ve got to go check it out and do your own due diligence.

Nothing’s there to be covered up or misled, but it’s probably a more brief set of particulars and you do your good homework.

Stephen Galpin: Okay. John, have you got anything to add to that? I’m sure as a developer, you’ve bought many things from the auction.

John Howard: Well, also I was a major shareholder of an auction house for National One for nine years. So, like Mike, I know the inside track as it were. What I would say, is that it doesn’t matter however experienced you are, you must read the legal pack. I still get a solicitor to read the legal pack for me, even though I’m that experienced after 40 odd years. I know I don’t look that old, but, so, that’s really essential and some people… I think I’m right in saying Mike, some people don’t view the inside of the property before the auction. [crosstalk 00:03:06] I only ever did that once in Liverpool when I was 24 years old. I made a terrible mistake, I’ve never done it since. Always view internally. It doesn’t matter how experienced you are, still go in that property.

Stephen Galpin: And how easy is ease of access for a potential buyer?

Mike Gray: That’s easily arranged, because bear in mind, the auctioneers are used to a very tight time scale. The catalog may be available 21 days and the day that catalog’s launched, viewing arrangements, or the keys, or access to tenants is something that’s all pre-organized. With sometimes with block viewings. The block viewings is a very popular way of getting [crosstalk 00:03:42].

John Howard: It’s a great of doing it, because also you get to gauge, if you’re a potential buyer, you get to gauge how many people are there.

Stephen Galpin: What the other interest is, yeah.

John Howard: My advice on that, is that actually I’ve gone around properties to buy, loads of people. And I think, “I’m not going to bother bidding.” You get to the auction room and I wish I’d looked at the legal pack and got my lawyer to, because only two people bidding, or one person bidding. So never be put off whether there’s 50 people viewing a property, or one. It only takes one to buy.

Mike Gray: It’s interesting that John said about strong advice to check the legal pack. I was speaking to a surveyor the other day, again similar background, 40 years in the business, active for clients buying at auction, but also a buyer himself for investments. He said just a couple months ago, he said, “You know there’s one thing I always tell myself no matter what it looks like, what you think. You’ve got to go and see it.” Property’s a little bit like that. Gone are the days, 30 years ago, where perhaps people used to take out the photograph of the gasometer behind the building. Or [inaudible 00:04:42] next door.

John Howard: You get sued for that now.

Mike Gray: You can’t do that. But you never know what you see when you turn up and have a look inside.

Stephen Galpin: Right. John, we’ll move on to [crosstalk 00:04:51] your question now.

Mike Gray: I’m waiting for this, I’m waiting for this.

Stephen Galpin: Right, well here we go. I wanted to follow in my grandfather’s footsteps and develop my own property. I’ve already got my eye on a good plot of land. I know I can get it for a reasonable price. What are the steps I need to take purchasing the land, and to begin development on what will hopefully be my new home?

John Howard: Well, it’s great that he’s following his grandfather’s footsteps. I don’t know what his father did, but he’s doing what his grandfather, which is great. What I would say, I’m assuming he’s got planning permission. I think we’re assuming it’s got planning permission. [crosstalk 00:05:26]

The first thing he needs to do is check out the ground conditions and that type of thing. He needs to do a full schedule of works. So, get a surveyor in to get a full schedule of works, or a building surveyor. So that when he goes out to tender, to two or three different builders, which we presume he will be doing, they all seen off the same hymn sheet and they all pricing it the same way, because that’s the only fair way of doing it. Once you get the prices in, if they’re too high, don’t be despondent. You can always go back and negotiate the price with the builder, the one you like. And once you’ve done that, always check out whatever work he’s done in the past, to make sure they are bonafide and also make sure financially they’re not going to go bust halfway through the project.

Stephen Galpin: John is there a particular professional body that can act as mentor or guidance for this sort of project? When it’s so relatively small?

John Howard: What I would say is, yes. The building surveyor, who’s going to be doing the schedule of work is going to hold your hand right through the process, because the one thing you don’t want to do is pay the builder every month too much money. So, that work needs to be valued, and the only person to really value it is experienced and professional is the surveyor. Because the builder will want more than he’s due and it’s very important that you pay him what he’s due. And at the end, there’s some left over so that they come back and do the bits and bobs that need done before they get the final stage pay.

Stephen Galpin: For sure, okay. Mike just a question for you on this. We’ve talked about the legal pack that’s prepared by auctioneers when they’re selling houses. If one builds your own home, presumably, it’s not going to have a NHBC guarantees or, unless you contract out to a builder that’s already set up with them. Any advice for somebody who doesn’t want to do it as a new home, but does it as an investment; any pitfalls in a new property in auction?

Mike Gray: In terms of buying, well, first of all, don’t build anything new without an NHBC or [crosstalk 00:07:40] alter certificate. There are four or five in the marketplace.

John Howard: They are now. It’s a lot easier than it used to be.

Mike Gray: Yeah, it used to be an NHBC and that was it-

John Howard: That was it, now there’s quite a few.

Mike Gray: In fact, probably [inaudible 00:07:49] more simple for the smaller and less-

John Howard: And much, much cheaper

Mike Gray: What we often say to a lot of people, if we’re advising in that situation is don’t just consider of what you’re going to do with the property. You might be using cash, not needing to finance, but there’s no good doing that because one day you’ll probably want to sell on and you’ll want to realize full market value. [inaudible 00:08:09] And if you need to do that, you need all your ducks in a row and certificates lined up at that point. So, but in terms of the advice at the auction, I think what we’ve covered: you’ve got to look at it. Do your due diligence, get your solicitor on the legal pack, check out everything, and then get in the room and try and negotiate the best deal you can.

The trouble is like all risk and reward, you can spend quite a bit of time sometimes being unsuccessful in actually buying. So, you’ve perhaps done a survey and you’ve had your assistive bills and you hadn’t turned out to be the buyer. But, there’s an interesting bit that often that happens. You know when people turn back and say, “Well, I think that will go for more money. I won’t get involved in spending time on that one.” It happened in an auction just recently where it sold for fifty thousand pounds less than the expected sell price. The clever ones were the ones that did their work beforehand. They were there ready to buy it, and got it in the room. The unlucky or disappointed ones, the ones who thought to themselves, “I won’t go to that cost. I won’t do my research, we’ll wait and see what happens.” And funny enough, they missed it.

John Howard: There we are.

Stephen Galpin: Gentlemen, thank you very much for that. Paul, now I have your question. Hi, I want to buy a property to rent out as an investment. Why do I need a buy-to-let mortgage? Can’t I just get a normal one?

Paul: Okay, good question. The answer to the question really depends on what you’re planning to do. So, you mention about getting a normal mortgage and renting the rooms out. Now, you can do that, if you actually planning to live there. So, a normal mortgage, or a residential mortgage, meaning that that place is going to be your primary place of residence, you can definitely do that and you can rent the rooms out. You can, in fact, rent the rooms out up to, I believe it’s around 7,000 pounds per anum of income, which is tax free. So the government is actually encouraging people to do this to create more availability of property. So, that can be a good option, if you’re planning to live there.

But, sometimes, the best possible investment for you might not be where you’re wanting to live. And I wouldn’t say, to buy somewhere just because you want to live there, because that’s, going to be using quite emotional criteria. Where as it, when it comes to investing, you should be very commercially-minded and unemotional. It should be about making money as opposed to what you want or like. So, it’s going to come down to what you want to do. You know, are you going to live there? If so, then what you’ve mentioned, you could do that.

But, you also mentioned about investing in property, or buying property as an investment. Now, if that’s what you’re going to do and you’re not going to live there, then you definitely will need a buy-to-let mortgage. That these mortgages specifically tailored for the purpose of buying a property to lease it out. It’s also easier to get a buy-to-let mortgage than it is to get a residential mortgage. The reason for that is the serviceability for a buy-to-let mortgage is linked to the rent from the property as opposed to your personal income.

You didn’t mention about your personal income, but most lenders will only lend you up to four to five times of your personal income. So, for example, if your personal income is 50,000 pounds, you will only be able to borrow about 200 to 250,000 pounds. Whereas a buy-to-let mortgage, generally you would be able to borrow quite a bit more because of the rental income. So, that’s another thing to consider, but to simplify things in answering your question, it will come down to whether you’re going to live there or whether you’re not going to live there as to what type of mortgage you’re going to need.

Stephen Galpin: Paul, thank you for that, good answer, most helpful, thank you.

Speaker 5: The tax system has evolved significantly over recent years for property investors and developers. You may think that you and your accountant have a grip on these changes. However, unless you are receiving specialist tax advice, from a specialist tax advisory firm, then it’s unlikely to be the case. At ETC Tax, our team of highly experienced, charted tax advisors work with private individuals, and companies to deliver effective tax planning, whilst meeting HMRC compliance requirements. Let us help you to meet your personal or commercial objectives in the most tax efficient manner. ETC Tax. Making the complex, simple.

Speaker 6: If you’re considering renovating or building your own home, then you’ll not want to miss the National Homebuilding & Renovating Show. From the 28th to the 31st of March, at the NEC in Birmingham. Get access to the advice center including Michael Holmes, the director of content at the Homebuilding & Renovation Magazine and editorial director, Jason Orme. Get a free 15 minute appointment with an expert, including planners, builders, architects, and more. There’ll be over 100 exhibitors showcasing their latest innovations and ideas to help you improve or extend your home.

Speaker 7: Now we’re here today to talk about your book. It’s John Howard’s Insight Guide to Property Development and Investment for Newcomers. So, John is an expert in property. He’s bought and sold over 3,500 properties. Can you tell us a little bit about what motivated you to write it?

John Howard: So, it’s a really good guide, I believe. From the very start to the end of the process. In the book, I actually explain the pitfalls that I’ve had and, so after every chapter there’s an example of what to do because I’ve done it.

Speaker 7: And what would you expect a reader to walk away, mains pieces of information that they come away from?

John Howard: This book can save them a lot of time and a lot of money. And if they’re serious about getting into buying and selling property or buying and renting property out, I go through how to fund things, I go through about picking the agent, about picking the solicitor, about picking the builder, about the pitfalls of builders. They always have three jobs on at once.

Speaker 7: Now, the property market is always changing, so it’s very important to keep up with things like this, isn’t it? If you’re looking to get into property.

John Howard: So in the book, I explain what to do in hot market, and what to do when things start to go wrong. And that’s the most important advice in the book, totally I think, what to do when it goes wrong. I’m not going to tell you now. You can buy the book and read all about it. Because I’ve done it, I’ve survived 4 property recessions, 3 or 4.

Speaker 9: If you’ve got a question about property, why not ask an expert? Property Question Time gives you the opportunity to ask anything you want. Whether it’s about planning, finance, conveyancing, moving abroad, literally anything that’s property related. The Property TV panel of experts are available to answer your questions no matter how complex they may seem. Simply email your question to info@propertytelevision.tv and join us on Sky channel 189 to hear your questions answered.

Stephen Galpin: Welcome back to Property Question Time with me, Steven Galpin. Joining me today are Paul Mahoney, Mike Gray, and John Howard. Thank you gents. We’re going to go over to Paul now, in Australia, and Paul, this is your question. As it stands, I turn 27 next month, and I have 36,000 left on my mortgage. My salary is about 35,000 a year. I’ve had my house three years next month and I’ve over payed on it since I had it using my temp sent over allowance each year. I have about 12K in stocks and shares and ices and also a mutual fund for which I want to keep going. Instead of overpaying, am I better using the money and saving for another deposit and getting another buy-to-let?

Paul: Okay, well, good question and firstly, well done. You know you’ve done really well in paying down your mortgage. It’s not really an either or answer though. You mentioned about, should you pay down your mortgage or should you save that money to invest in buy-to-let. You can actually do both, and in fact, you’re probably better off doing both, because depending on the mortgage you have, the interest rate you’re paying is probably somewhere between 1 and 3%, depending on what you went for initially. And with paying that down, essentially the saving, or you can look at it as the return, on what you’re paying down per anum, is that cost of the money: the 1 to 3%. However, as opposed to putting that money in the bank, which, you know, you’re probably lucky to get one percent on it.

Now, by doing that you might feel as though you’re locking the money up in the property, or you know, by paying down the mortgage. But, in fact, what you can do is remortgage your own property to release that equity at the point that you have enough equity within the property to release and then go off and buy a property. So that’s a sensible option: pay down the mortgage, save yourself the cost. When you’ve got enough equity there, it sounds from what you said, you probably already do. You know, if you’ve only got 35,000 pounds left, I don’t know where you’re located or the value of your property in total, because you didn’t mention, but I assume you probably have enough there to remortgage now, release some equity, and go and invest. So it’s not an either or answer. Definitely seek advice on both the finance and what you should buy based upon your current situation, your goals and preferences, to actually help you get started and work toward those end goals.

Some initial points to think about: be very unemotional, don’t just buy around where you live because you know the area. Get advice and make sure you’re investing in the best possible thing for you, based upon very unemotional and commercially-minded criteria, because, remembering, property investing is all about making money. It should be looked at the same way as any other investment should be. Very unemotional, and making sure that you’re making the right decisions based upon the current situation. So, seek advice is the best way to go.

Stephen Galpin: I see. Thank you Paul, thank you very much. Gentlemen, any comments?

John Howard: Well, I think he’s absolutely right, you know at the end of the day, he’s the financial expert, Paul is, and he’s got that spot on.

Stephen Galpin: Right, okay.

Mike Gray: I think the financial guidance was correct, but as a property man through and through, it’s not just a case, do I want to buy and buy-to-let, or keep my money in stocks and shares. It’s a case of still going out and doing your research and finding the right property.

Stephen Galpin: In other words, running it as a proper business.[crosstalk 00:19:26]

John Howard: We’ve always said that, haven’t we? At the end of the day it is business. It may not be your main business, but it’s still a business and you need to be professional.

Mike Gray: It’s not a property, it’s which one do you fancy. [crosstalk 00:19:37]

Stephen Galpin: I think it’s also, a lot of people make a mistake. They just assume because they bought a property it’s going to make money, and I think Mike, you would probably know better than most with your business [crosstalk 00:19:51]

Mike Gray: I think the favorite phrase nowadays [crosstalk 00:19:54] maybe come through experience as they turn a little gray, there’s always going to be a winner over very 10 or 12 year period, but don’t always think you can get in and out in two years on the right side, so if it’s a medium term to longer term bet, it’ll be the stock market.

Stephen Galpin: All right. Thank gents, thank you Paul. John, question for you.

John Howard: Good.

Stephen Galpin: What really goes into developing a big scale building that people, like myself, members of the public, are completely unaware of?

John Howard: Goodness me, that’s a massive question.

Stephen Galpin: We’ve got an hour or two.

John Howard: Okay. Well, the experience or the suggestion or the one I’m going to mention is my latest one. Which is, 26 million pounds to develop 150 flats in Ipswich. When we purchased that, we purchased it while the builder had gone bust, so the skeleton was up, the concrete shell was up, but nothing else. So, not only, it’s very hard to do a big development like that in the first place, but when it’s been started and you don’t know what’s been done or whether it’s been done correctly, or whether it’s been done in the right position, we had to remeasure the building, we had to find plans for it, and all sorts of things. That’s a real challenge. And something that after 40-odd years experience and having done a number of tower blocks, I am able to do.

And the financing of something like that is tricky as well because a lot of banks don’t want to lend if it’s already been started. So in that situation, we had Homes England, the government came in and lent us the money. That would be like-

Stephen Galpin: I wonder, given the question, is sort of leaning towards, obviously somebody whose not done a development and wanted to know the content to what goes into it. How important today are the green credentials for the building?

John Howard: Good point. Very, very important and most local authorities have a rules which have to abide by. So, the green credentials are really really important.

Stephen Galpin: Right, okay. Mike, do you have these blocks come into auction, where builders have gone bust?

Mike Gray: They have done, over the years, trends go in a sort of pattern, depending on market conditions at the time. People, as John said, people are quite nervous about taking over a scheme that’s already been started, but then that’s where experience kicks in and you’ve really got to know what you’re doing. But if I give you a more simplified version, even if a small build up was to buy a house that’d just been started by somebody else, or even taken it further down than that. If a builder’s invited to finish an extension, as a contractor, that somebody else has started, there’s always that much harder to carry on where they have left off. It’s not always, necessarily, a seamless task.

John Howard: And they always charge a lot more.

Mike Gray: And then you end up paying extra for the, for phase two.

John Howard: And then they’ve got you by the.

Mike Gray: Yeah.

Stephen Galpin: [crosstalk 00:22:58] mistakes.

Mike Gray: So it’s an opportunity, but it’s not for the faint-hearted and yes, they do come up from time to time. Usually it’s about three-quarters of the way through the development, because by then, the developer is at their weakest financial position, where they’ve bought the site, they’ve funded it, is it half built and you have not yet got to stage where you’re bringing any income. And if they’re running, say, six or twelve months behind, you can image how their cash value is looking at that point.

John Howard: And the interest, I can show you. If you’re late on the development, finishing it, the interest racks up and a lot of these banks will lend you the money for so long, but if you go over that, they then penalize you with bigger interest.

Stephen Galpin: And not only from the bank, but from the purchasers and sellers [crosstalk 00:23:42].

John Howard: Well absolutely because then if you’ve exchanged early on in the development or before it started, and your late, they may well get out of the [00:23:51] depart as well.

Stephen Galpin: Okay. Mike, question for you, now then. I’m a first time buyer with 20 to 25% deposit and a good salary. What’s the average saving when you buy a property at auction, rather than through an agent?

Mike Gray: That’s interesting [crosstalk 00:24:09]

John Howard: What’s Mike going to say to that?

Mike Gray: Sometimes it’s not necessarily a savings.

Stephen Galpin: No bias here.

Mike Gray: But it should be 5 to 10% off what you consider it the retail market, but, again, it’s very much supply and demand. So, with the regulated tenancies, where people expect a discount of more than 30, 40% off the retail price, the lender paid more for that opportunity than you’d expect to do so. Now, what I’d like to show, if one of those tenants is then might move on, it’s now vacant, it’s an old house needing full modernization and the first time buyer is expecting discount to buy that, the chances are there are so many keen people to buy those houses as a refurb, they probably don’t get it at any discount, anyway. And sometimes, they’ll end up paying 110% higher than price.

John Howard: Have you had a situation, Mike, where there’s been another property down the road on with an estate agent and you’ve actually got a high price at auction.

Mike Gray: Yeah, or very close to it.

John Howard: Very close to it, and that’s quite, relatively common now and that never used to be the case, but there’s more and more people buying at auction through all these programs they see on TV and so on. It’s quite interesting. And the other thing I would say, is that if you are going to buy regulated tenants, there aren’t many left. Years ago, as people died off, of course they were replaced by shore top tenancies. But, what you do find, is that if you’re paying 70, 80% vacant possession value, as some people are, by the time you’ve refurbished that property when it comes empty, you’ve paid over, well over the odds for it.

Stephen Galpin: Okay, well, there we are gentlemen. Unfortunately, that’s all we have time for today, so, John Howard, thank you very much [inaudible 00:25:52] Mike Gray, thank you very much too, and Paul, joining us from Australia, thank you for your contribution too. Thanks for watching, and we’ll see you again, next time.

Speaker 9: If you have any questions you’d like to send to the experts at property question time, you can submit them via our website, on social media, or email us on info@propertytelevision.co.uk.

Speaker 10: Property is a great investment option, but it’s one of the largest purchases that you’ll ever make. As individuals, we’re all limited by our resources and regardless of our experience, knowledge, or time, we can achieve much more with the help with a qualified team and extra resources being available. Nova financial specialize in assisting clients to achieve financial freedom through property investment. Without over 100 years of experience, we shape your family’s future. To invest in property with absolute confidence, call us on 0203 8000 600 or visit nova.financial.

Speaker 5: The tax system has evolved significantly over recent years for property investors and developers. You may think that you and your accountant have a grip on these changes. However, unless you are receiving specialist tax advice, from a specialist tax advisory firm, then it’s unlikely to be the case. At ETC Tax, our team of highly experienced, charted tax advisors work with private individuals, and companies to deliver effective tax planning, whilst meeting HMRC compliance requirements. Let us help you to meet your personal or commercial objectives in the most tax efficient manner. ETC Tax. Making the complex, simple.

Speaker 9: If you’ve got a question about property, why not ask an expert? Property Question Time gives you the opportunity to ask anything you want. Whether it’s about planning, finance, conveyancing, moving abroad, literally anything that’s property related. The Property TV panel of experts are available to answer your questions no matter how complex they may seem. Simply email your question to info@propertytelevision.tv and join us on Sky channel 189 to hear your questions answered.

Proper Wealth covers all areas of wealth creation with a specific focus on property. Hosted by international property finance expert Paul Mahoney, the show invites industry experts to share their wealth of knowledge with viewers. From topics that include buy-to-let, tax portfolio management, finance and planning, to hot investment spots and conveyancing. Proper Wealth covers it all. Proper Wealth, exclusive to Property TV.

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