Paul Mahoney: To my left is Richard Bush from CrowdLords. Richard’s the Founder and CEO. Is that right? Richard is Founder and CEO of CrowdLords, a great crowdfunding platform that that we’ve worked with quite a lot. So obviously he can add a lot of value from that perspective.
Paul Mahoney: To the left of Richard is Nicholas Wallwork, who’s the Founder of Property Forum, one of if not the largest property forums, it is what it says, the largest property forum in the UK. So again, knows property and is also a developer and investor himself.
Paul Mahoney: And then we have Tony Gimple from Less Tax for Landlords, which again, is pretty much what it says on the tin. He helps people pay less tax when you’re a landlord. So again, very relevant in the current market.
Paul Mahoney: So we’ll start off by asking some of the questions, each of which are fairly relevant to each individual. Of each of the panelists, we will each give some of our own feedback between us. We’ll work through those few initial questions and then we’ll pass your questions to the audience and perhaps raise any other key points so far as where the market currently is, where it’s going, and how you might be able to take advantage of that and apply that to your own situation.
Paul Mahoney: So first off, I’ve got a question for Richard, which coincidentally is with regards to crowdfunding. So there’s a couple of parts to this question. First off, where does crowdfunding fit into the market with regards to other sources of funding? And where do you see it going from here, and what are the risks involved in crowdfunding?
Richard Bush: Okay, that’s two very big questions.
Paul Mahoney: We’ll answer that very briefly.
Richard Bush: Okay. So what was the first one?
Paul Mahoney: The first one is where does crowdfunding fit into the market?
Richard Bush: Right. The one thing I’m very aware of is not contradicting anything in the book, which is a great book. But one of the things that Paul mentioned is the starting point, really, for buying an investment property for buy-to-let is around 50,000 pounds if you live in the Southeast. One of the best things about crowdfunding is it enables you to get into property investment at a much lower entry point. That’s the first thing.
Richard Bush: And the other thing that it allows you to do is to diversify your investment across multiple locations, multiple properties, and multiple asset classes. So that 50,000 pounds could be invested across 10 properties, which spread your risk.
Richard Bush: In terms of the second part of the question, which was…
Paul Mahoney: So the second part of the question is where is it going from here?
Richard Bush: Okay, where it going? When we started, our mission was to make buy-to-let more accessible to more people. And that was when the government changed the legislation around mortgage interest and they raised the stamp duty. So we moved from doing buy-to-lets to doing property developments.
Richard Bush: So our biggest product at the moment is investments in developments. And they can be debt investments or they can be equity investments. And the debt investments can be first charge or second charge. So those investments are typically three to five years. And they give returns. They are leveraged, but in a different way, and we can talk about that later if you like. But they give returns typically of between 10% of their debt to 20% to 25% per annum with their equity.
Richard Bush: So where crowdfunding is going is a much more diverse range of investments. There are many more platforms now. I won’t list any of them, but they are there if you want to find them. And each of those platforms have different areas of expertise. So there’s much, much more choice. And I think what will happen is, over time, more and more platforms will spring up.
Paul Mahoney: Okay. And what are the risks involved?
Richard Bush: The risks are really the same as doing it yourself. So there are market risks, there are risks around choosing the wrong location, there are risks around choosing the wrong platform. But your hope would be that you choose a platform whose due diligence is better than what you could do yourself. So you would mitigate some of those risks. But there are risks. Your capitalism is at risk, and I’ve got to say this, your returns are not guaranteed. So it’s the same risk as doing it yourself, except that most of the platforms have professional people who are choosing this. But in the same way as you get good advice from the guys at Nova, you are leveraging the expertise that the platform has in-house.
Paul Mahoney: Okay. I agree with what you’re saying there. Do you have any comments on that, Nic?
Nic Wallwork: Well also de-risking it across the portfolio is key, isn’t it? I think as a smaller investor, it’s hard to instantly get a huge portfolio. So from day one, you’re kind of covered.
Richard Bush: Yes, diversification. Absolutely.
Paul Mahoney: Tony?
Tony Gimple: All good. [inaudible 00:05:21].
Paul Mahoney: I have a couple of comments, surprisingly. So, yeah, look, I agree with what you’re saying there. And just to kind of expand on it in in my own way, I think it’s great that individual investors can get access to the debt and equity side of a development, which is something that’s never been the case before. It’s been very much institutions, development lenders, the big guys that get access to exposure to that. So in the right circumstances, that can be really good. And yeah, like diversification, it can help you spread your risk, but also get access to some really good returns that perhaps, as a smaller investor, you just wouldn’t have had access to before.
Paul Mahoney: Key point though is in the right circumstances, because you’re quite right, Richard. It’s not guaranteed. And if you’re giving money to a dodgy platform or a dodgy developer, well, the risks are very high. Because if they go bust, so too do you. But if that’s a manageable risk for you and it’s not a massive amount of money for you, then perhaps it’s not too much of risk either.
Paul Mahoney: So again, no one size fits all. Based upon your situation, your goals, and your current financial position, getting some exposure to crowdfunding can be great. In a number of different ways, not just for the debt and equity, but there’s other options as far as getting access to the PRS market and actual property ownership, or partial property ownership, depending on the platform and what they’re offering. So the right circumstance, it’s very good. Just make sure it is the right circumstances.
Nic Wallwork: Yeah, I think that’s a good point, actually, if I may, just on the different strategies there. So some of the deals could be serviced accommodation, massive PRS scheme stuff that, as a smaller investor, you couldn’t possibly do. You can do service accommodation on a small level, but the kind of level you would invest in is quite different.
Richard Bush: The other way of looking at it as well is that for every project that we have, there are two sides. There’s the landlord, straight developer, then there are the investors. So you might consider it as a way of raising funds, increasing the equity that you have available, so that you can buy more properties or bigger properties than you could if you did it on your own. So you should consider it as an investor, but also as a fundraiser for your project.
Paul Mahoney: Right. Okay. I think we’ve covered that pretty well. And again, if you have any questions, we’ll turn to some questions from the crowd shortly.
Crowd: [inaudible 00:07:41]
Paul Mahoney: Okay. Wasn’t time for questions yet, but I’ll answer anyway. There isn’t one, really. We’ve had some clients invest through the platform.
Richard Bush: We’re mates.
Paul Mahoney: We know each other, obviously. I think in the property industry, especially, in my experience, you come across people that you sort of know are legitimate people, and know what they’re talking about, and that you’re happy to be associated with. I’d say that’s the extent of our relationship.
Richard Bush: It’s mutual.
Paul Mahoney: Yeah, okay. Good. Nic, as the Founder of Property Forum, what are you finding are people’s biggest concerns in the current market?
Nic Wallwork: Dare I say the B word? Not that one. Yeah, I mean, I… Brexit, okay. Someone else said it. Excellent. Thank you. Believe it or not, I’ve just written Brexit for Dummies. So that’s due out in a couple… I’m not going to do a book pitch night, but…
Richard Bush: Have you really?
Nic Wallwork: I have, yes. No joke. When they asked me to do it, I laughed down the phone. I said, “Are you kidding? That’s got to be the worst book to write in the world, because no one knows what the hell is going on.” But it’s coming out. It’s kind of a bit of a history, and the lead-up, and stuff like that. So it’s getting your head around how we…
Tony Gimple: [inaudible 00:09:04].
Nic Wallwork: Say again?
Tony Gimple: [inaudible 00:09:05].
Nic Wallwork: Pretty much, yeah. It was a few years ago. So did you ask me a question?
Paul Mahoney: Yeah, sorry. Well I think you answered it very briefly.
Nic Wallwork: Oh, yeah, okay.
Paul Mahoney: People’s biggest concern, given that you run a platform.
Nic Wallwork: Yeah, no, it’s obviously, definitely Brexit. I think that’s pretty much unfounded. I think any decent property investment should be long-term. You shouldn’t be investing for three, six, 12 month window or however, God knows how long Brexit’s going to go on for. But regardless of that, if anything, I think we’re probably in a bit of a buyer’s market right now. Interest rates are still low. There’s still a massive under-supply of property. So if you can get something built, or whatever you’re doing development-wise or adding value, there’s going to be tenants there at the end of it that will take your product and bite your arm off.
Nic Wallwork: We’ve just finished a 27-unit block in Newbury, which is not a massively, it’s not a London borough. It’s a an out of town kind of borough. And we filled all the rooms in four weeks, I think it was, four or five weeks, 27 units, all sort of micro-studio scheme. There was unbelievable demand, and we rented them all sort of…
Crowd: [inaudible 00:10:06].
Nic Wallwork: Yeah, sorry, yeah. Yeah, so we just finished a 27-unit micro-studio block in Newbury. And it literally flew out the door. Four, five weeks, we let all units. And we’ve got a waiting list. So the demand, if you can get stuff done, I think it’s a buyer’s market. I think the site values and things you’re looking to acquire now, there are people that are nervous. There are people that are offloading stuff maybe a bit cheaper.
Nic Wallwork: There’s not as much transactional activity in the market, that’s for sure. So as investors, when you’re at the top 1% of knowledge of property investment knowledge, I think we stand ourselves in a really good stead to go and pick up these kind of deals, hold them for the long term, and now couldn’t be a better time.
Nic Wallwork: I’m not affiliated with the government. I have nothing to do with Brexit and telling you you should be buying now to get the market going. But yeah, it’s definitely, looking at all positives, any market you can do business in. You can do business in a declining market, even. So I think we’re in a pretty stable market, and I think housing figures out this month are actually looking up, aren’t they? Certainly Central London is up, and it’s rippling outwards gradually now. So I think people are sick of the B word, and I think we’re getting on with things slowly. And I think once it’s done, whatever happens, whatever the event, we’re just going to crack on and do business, hopefully.
Tony Gimple: Yeah, absolutely, we will.
Nic Wallwork: Pretty sure we will.
Paul Mahoney: So that being people’s biggest concerns, what is the sentiment like based upon… That’s one concern, but what would you say the sentiment in the current market is like?
Nic Wallwork: From who? From just general market chatter?
Paul Mahoney: Well, I suppose general market chatter. But given that you’re on Property Forum, I assume people are talking a lot on that forum. What are they talking about?
Nic Wallwork: We get a mix of demographics. You have people who have never invested in property, so they’re probably more nervous. They don’t necessarily appreciate the fact we could be in the best market in the last five years to buy property. And then you’ve got the sort of bigger investors that might be stalling on the sales of their sites. We’ve got a couple of our sites, big sites, that are stalled on the sales. We’re fine. We rent them out and they’ll sell in six months. It’s not a problem.
Nic Wallwork: You’ve got to be able to wait it out. You’ve got to be able to make sure your deals stack up. I think whatever you’re buying, just make sure you’ve got a bit more margin, a bit more buffer for the market in there, so that you can ride it out. And make sure it rents like hell. You’ve got to be exit-led. You’ve got to make sure that whatever you’re building rents, and therefore you’re creating income. And someone will buy that income.
Nic Wallwork: All the investments that we do is creating income streams. I’m not a traditional development. And I’m not saying that’s a bad route. By traditional developer, I mean building units to sell off. I think the end market of selling off to the end consumer or house buyer is probably the worst market to be in right now, because home owners and first time buyers, they’re the most nervous. They’re not property investors. They’re not in the top 1% of people like ourselves that appreciate it’s a buyer’s market. So they really are holding off.
Tony Gimple: Yeah. The basic fact of the market is demand exceeds supply. Everyone comes here for a reason. Brexit or no, it’s still the capital of the known universe. But whatever you do when you come to property, if you’re relying on a capital growth bubble, you’re exposing yourself. The nice thing about income producing assets is they’re income producing assets. If you get the capital growth, so much the better. But you’re on a Caribbean beach, when you’ve got an income, the cash register is still ringing. So whatever you look for, be it development, be it buy-to-let, be it HMO, be it crowdfunded, be it personally funded, look for the right kind of demand-led property. Is it an exit route? Maybe. But if you’re going to be in property development for flipping, be in property development for flipping. If you’re going to be in buy-to-let for long-term buy-to-let, be in long-term buy-to-let.
Tony Gimple: If, however, you want to have a balanced portfolio where you’re actually building for a potential sale, but plan B, which could also be in the plan A, is to rent it for the long-term, make sure it wipes its face, makes a profit. Put the tax element last. You have to make a profit before you pay tax.
Tony Gimple: And the underlying facts are there are more people who want the good quality roof over their head, and there’s a new generation who’s quite happy to rent. What’s that? Rent investor? You’ve got people who don’t even own their own homes anymore. They just continue to rent and make their capital work in other ways.
Tony Gimple: The key is you’re very good at what you do. People on this panel and other experts are very good at what they do. Make sure you get the best out of both sides, and don’t rely necessarily on what you’ve picked up over the years. Work with the advisors, and tell them everything you know. That way they can tell you everything they know in relation to where you want to go.
Nic Wallwork: There you go. Tony’s read the book.
Paul Mahoney: Any comments on Brexit or market sentiment, Richard?
Richard Bush: I would say we’re finding people are more cautious. I think that’s the word that sums it up. They’re not not acting, but they’re doing more due diligence, which is even better. And they’re investing less than they would have invested a year ago, but there’s still a lot of investments.
Paul Mahoney: Yeah, I agree. I think there’s no doubt that transactions have fallen, but it’s actually been quite recent that’s happened. It’s really only been the past three to six months. If you think about before the referendum, there was all these doom and gloom predictions about what was going to happen if it went the way of Brexit. And of course it did go the way of Brexit, but actually, the UK market has grown on average by 4% per annum since then, so 8% in total in those two years.
Paul Mahoney: You look at somewhere like the Northwest, it’s grown by 15% since then. So actually it’s been quite a buoyant market ever since the referendum. It’s really only been in the lead-up to Article 50 that people have been getting a little bit worried. Whether that’s unfounded or not, I think it probably is unfounded. Because no one actually knows what they’re worried about. And it seems silly, but that’s the truth.
Paul Mahoney: So it’s more about uncertainty and that affecting sentiment. People still want to buy, in my opinion. The people I’m speaking with still want to buy. So what we’re getting now is pent-up demand. People still want to buy, they’re going to buy, but they just haven’t been buying in the past three to six months. Once Brexit’s resolved, whatever that means, we’ll have that pent-up demand returning to the market pretty bloody quickly.
Paul Mahoney: What we’ll probably also have is a bit of stimulus from the government. They’re going to want to justify their decisions, stimulate the economy. So you’ve got returning of certainty, returning of demand, stimulus. The market’s going to take off when Brexit’s resolved, I think, in my opinion, at least for a short period of time.
Nic Wallwork: I’d also think you’ve got all the foreign investors that have held off investing. They’ve waited for the weak pound. They’ve waited for us to make a complete mess of things. They see that as the low point. They see it as a buyer’s market. And all that foreign money pours back in as well. So that’s another thing that will create a mini, I don’t want to use the word boom, because I don’t think that’s what it’s going to be, but I think there’ll be solid transactional value for a while.
Paul Mahoney: I agree. I think we’re in a plateau at the moment, and there’ll be returning of strong returns in the foreseeable future.
Paul Mahoney: Okay, good. Tony?
Tony Gimple: Yes.
Paul Mahoney: Does the tax changes mean buy-to-let’s dead?
Tony Gimple: No is the short answer. Don’t let the tax tail wag the planning dog. Section 24, the capping of mortgage interest relief, basic rate tax, a blunt instrument to solve a problem that really did not exist. It will affect higher rate tax payers or those becoming higher rate tax payers. And we will see clients this year, next year, whose tax bill will exceed their profit in that year.
Tony Gimple: And it’s typical, government not thinking through, playing to the, what do they call it, populist politics. Will the tax changes kill the buy-to-let market? Not if you are properly leveraged. And anything up to about 75% is relatively safe.
Tony Gimple: It won’t hurt if you’re a basic rate tax payer. It won’t hurt if you’re only one or two properties and not looking to grow. If, however, you want to run a professional property business and actually do what the government wants, which is to professionalize the sector, then if you’re not careful, it could have a very powerful individual effect, not just on income tax, but on capital gains, on inheritance tax.
Tony Gimple: Now, however, is a good time. The real threat to the market will be if there’s a vote in our confidence, and for some reason Comrade Corbyn manages to get the case to number 10. Then it’ll be life, Jim, but not as we know it, at which point buy-to-let tax and the rest of it, frankly, will be a sideshow.
Tony Gimple: What you’ve got to be careful of with the tax changes is to make sure you get well-rounded advice and speak to people whose specialty it is. We see time and time again, most of our clients, they’ve got existing accountants who are just that, they’re historians. If you’re going into property, if you’re looking to build forward, you’re a futurist. You’ve turned the telescope round to look at it the right way. So you’ve got to make sure you see tax as a legitimate business tool and not as across the bow, a millstone around your neck.
Tony Gimple: But if you are highly geared, if you’re already a high rate tax payer, if you’re not maximizing your returns, then it can be a difficult time for you. Will it kill the whole market? No. Will it kill individuals within the market? If they don’t act the right way, then absolutely.
Richard Bush: Do you find that it’s putting people off getting into the buy-to-let market?
Paul Mahoney: I think there’s a lot of misunderstandings about it. Tony mentioned about Section 24 not affecting basic rate taxpayers. That’s something that’s just not been explained at all. And I think unless somebody has heard someone like myself, or Tony, or one of you guys speaking, they just don’t know that. And their accountant probably doesn’t know it either.
Paul Mahoney: That’s a problem, I think, and that turns people off. A lot of our clients are what I call mum and dad investors. They’re not extremely wealthy. We have some extremely wealthy clients, but our average client is more well off than average. But quite often one will be on a high income, one will be on low income or no income at all. And that’s one way around Section 24.
Paul Mahoney: Another is if they’re getting toward retirement and they have 100,000 total income, they can split it in two, and again, not be affected at all. So there’s lots of ways around it, other structuring and all that sort of thing. There’s lots of ways around it. I think it’s mostly the unawareness of the actual rules and how it’s applied that scares people off it, rather than the reality of it. And I think that, again, ties into the popularist politicians, is the way it was described, the headline of buy-to-let mortgage is no longer tax deductible, is not necessarily the reality.
Nic Wallwork: But they’re also trying to get rid of the incidental landlord, the people that jump on the growing market and think they can throw a lick of paint around and make a 100,000 in two months. And quite frankly, I don’t think anyone in this room would ever be in that position. And I think we’re all here knowing how to survive in a market that’s throwing all sorts of curve balls at us.
Tony Gimple: And yeah, pretty much everyone in this room is an accidental landlord or have started that way.
Nic Wallwork: Maybe started that way, yeah.
Tony Gimple: And some of you still are. We’ve got probably now a billion pounds of client properties effectively under a form of management. So we see it across the board. And some of our largest clients, one of them is 330 properties, is still an accidental landlord. Never meant to get into property in the first place, and is in rinse and repeat, county businessmen at the same time. And yet it’s not what he wanted to do with his life.
Tony Gimple: When I first got into property, I checked out with my girlfriend, had a spare house that became our first buy-to-let. Mom and dad passed on, I inherited their rights by council flat, which I rented out, and so on and so on. Until our last European foray when interest rates went up from pretty much where they are to 15%, and that hurt for a while, I can assure you. Took 10 years to get back on the horse.
Tony Gimple: By the by, even the most professional of firms typically start off as accidental. It’s not where you’ve been, it’s knowing where you want to go. And it’s what you do now will make the difference between having a reasonably interesting life and being able to create long-term, intergenerational wealth. It eventually will disappear, but that’s just the way of things.
Tony Gimple: But make the right decisions now. Decide where you want to be. Tenants and toilets are bloody hard work, that’s for sure.
Paul Mahoney: Yeah. Look, I think the underlying thing and something that I’ve been hearing, most people that know what they’re talking about saying a lot of lately, and I touched on it before, is that property investment is just not a hobby anymore. And Nic, you said it just there. It’s not about just buying something on the side and forgetting about it, and not really being serious about it. You do need to go into it with a clear strategy, looking at it as a business, and knowing why you’re doing it and what you want from it, and doing it in the right way.
Paul Mahoney: Again, plugging myself, my business, that’s something that we can help people that perhaps don’t have that full understanding of to get a better understanding of or at least be helped with it. We’re not the only ones. There’s other people that can help you with that. But you do need to make sure you’ve got that or you’re working with someone that’s got that.
Paul Mahoney: Because there’s a huge difference between what works in today’s market and what doesn’t, far more than before. It’s not a do it yourself activity anymore. Tony touched on it. If you’re a landlord and you’re a high rate tax payer with a mortgage, and you haven’t sought tax advice and how Section 24 is going to affect you, you’re absolutely mad. You’re kidding yourself. You need to understand that, because that’s going to determine what your profits are going to be.
Paul Mahoney: And that’s just one example of a professional that can at least let you know where you stand moving forward, and perhaps help you put in place a strategy for better dealing with it. I think we’ve touched on some of the negatives of all these changes, but actually there’s some positives to it as well. It’s causing shifts and trends in the market. And some areas, some locations, for example, are really benefiting from that and have done better over the last few years, probably a big part due to Section 24. Because what worked then, for example, buying properties in London just for capital growth that only just break even, doesn’t really work anymore.
Paul Mahoney: Buying properties that give you a really good yield and potentially some growth really does work. So that’s an example of a shift just over the past two, three, four years.
Tony Gimple: Well it’s a classic case of the law of unintended consequences. All Section 24 has really done is crystallize the market. What did Dr. Johnson say? The prospect of imminent death concentrates the mind wonderfully. If it hadn’t been for Section 24, this room would have probably been half empty. What it will do, however, is make you think about what you’re doing.
Paul Mahoney: Come on, Tony. The book’s brilliant.
Tony Gimple: I know the book’s bloody brilliant. All right, mate. Truly, sorry. Nova, crowdfunding, forums, us, we’ve all existed before this. But now it’s comes to the fore. It’s made everyone think, “What am I doing? I’ve got to accept I don’t know what I don’t know.” Seek advice, work together, focus it as a business in a pension, business funding, business communications, and the rest that goes with it. Now you’re facing in the right direction. And you’ve just got to decide where you want to end up. And then you can reverse engineer it, like any good business.
Paul Mahoney: I think that’s a great point so far as mindset, mindset of the changes. I speak with a lot of… We do all the property shows for the whole circuit, and so do some of these guys. There are a lot of landlords that are just really annoyed, and sort of just getting really upset about all the changes, and taking it in a really negative way. The way Tony just described that is actually, this is showing you that really from the start, you should have been seeking advice, and education, and the right strategy, and all that sort of thing. And you’re almost being forced into it now. I think that’s a really good way of looking at this and how the changes have impacted things.
Tony Gimple: So stop whinging, suck it up, make some money. You only pay tax if you make a profit. And that’s a novel concept.