1.  Introduction

Due to the credit crunch, widespread reporting of doom and gloom and recession fears it has never been a better time to capitalise on the negativity and structure No Money Down (NMD) cashflow positive property deals.

2.  Current State

Buyers have been scared away from the property market.  Why would anyone buy a property if they thought they could buy it cheaper next month, next quarter or even next year!  Since most buyers of property are looking to live in the property there is no need to work out yield calculations as this has no value to a typical property buyer.

So simply by typical property buyers waiting to buy causes a natural fall to property prices.

So who is left buying?  Its professional property investors.  The most important factor to a landlord is yield, then the amount of cash they have to put down.  If a landlord can get a high yield with putting very little down then the more money he can make as the only limiting factor in any landlord's business plan is his starting capital.

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3.  Current Myths At Play

1. You cannot get a mortgage

This is one of the biggest myths going round.  It has been well reported that two thirds of mortgage products have been pulled which is correct.  But the number of mortgage products is irrelevant to the amount of money there is to lend. 

HSBC (who are worth £100 Billion) have announced they will lend and match any rate that you are on.

Lenders are just pulling some of their "sexy" products that entice you in and replacing them with unexciting products with sensible rates at roughly 1.5% above base rates which is still pretty good.

2. A Recession is likely

A recession is only 10% likely.  The IMF has reduced UK's anticipated GDP growth to 1.6%.  For it to be a recession we have to see the GDP growth being negative.  This is highly unlikely.

3. Prices will crash

Interest rates are low and will be getting lower.  Liquidity is already coming back as we can see with all the major banks still offering buy to let mortgages at 85% loan to value.

Residential buyers will still stay out of the market.  By the time they realise property prices have stopped dropping and got back to their end of 2007 prices the landlord would have firmly locked their position in.

Fundamentals ALWAYS over rule hype.  There is nothing at play to make property prices crash unless liquidity was withdrawn from landlords, there was mass unemployment on the horizon, interest rates were set to rocket or major punitive taxes were being introduced.  If anything all the opposite is true.

Interest rates are getting lower

Liquidity is rising for landlords

Unemployment is getting lower

Tax is being reduced

4. Buy to Let will cause the crash

There have been a lot of novice investors buying overpriced city centre apartments from companies like Inside Track who now cannot afford to keep them.  This is a small proportion of the market and these properties will come in to the professional landlord in time.

The only things that can cause a crash are stated above.

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4. The next 6 to 18 months

As I said the 2 most important things to a landlord is:

a)       yield

b)       amount of cash to put down

 

a)       yield

The great thing about first time buyers staying away from the property market means they have to rent.  This increases demand for rental properties and guess what - rental prices increase!  This causes the yield to just get better.  Rental price growth has been widely reported and will continue.

 

b)       Amount of cash to put down

This is what has really changed.  Before I would have to put down at least a 15% deposit but now, due to being able to negotiate quite ferociously, a landlord can bid the price down as all he has to compete with are other landlords.

 

Since landlords are a cheeky bunch the least cheeky landlord wins - which will still be quite a cheeky offer!

But the neat bit is we will request the surveyor to value the property at market value.  Market value will be the latest data he has access to.  So if a property sold for £105,000 three months ago it is reasonable to request to the surveyor to value the property at say £100,000 - 5% less than 3 months ago.

However if we have negotiated the price to £85,000 then we have got the property at 15% below what the surveyor has valued it at i.e. we have got the property at Below Market Value (BMV).

Since we know of lenders that allow the Bridge & Remortgage Strategy (there are only three!) and we negotiate with surveyors on your behalf to up values the ability to structure No Money Down deals has never looked better.

Considering fundamentals will be realised (as they always are) the opportunity exists for a short period, I would say 6 to 18 months.  After this prices will go back to normal and surveyors will have a much clearer picture of prices as the prices would have settled down and become more stable hence more predictable.

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5. Working with ahuja.co.uk to build you a portfolio

We will:

a)       ascertain your yield and BMV criteria

b)       Send you properties that meet your criteria

c)       Negotiate the purchase price

d)       Arrange for a surveyor to go out and value the chosen property at market value

e)       Negotiate with the surveyor if the value falls below our expectations

f)         Arrange a bridge and remortgage through our preferred mortgage brokers

g)       Put you in touch with suitable letting agents

 

This is not an exact science.  We will be negotiating with people hence do not expect it to work like clockwork.  Remember these deals are not our properties.  We are not like other property companies where they sell their own properties, inflate the price and basically rip off their clients. 

Expect the following to happen:

a)       The property valuation falls below what we expect - we will do our utmost to get the property valued in excess of the purchase price.  We will give the surveyor comparables of properties that have sold previously and force the issue to value the property on the recent data.

b)       The property is unsuitable for mortgaging purposes - if we cannot get this overturned then we simply walk away from this deal

c)       A retention is placed on the value - this means the property requires work and the recommend to the lender to hold back on this retention amount until the work is done.  We then have to look if the deal is still worth it.  The maximum retention I have seen is £5,000.

d)       The vendor pulls out of the purchase - this happens!  There is nothing we can do.  It is a vendor's prerogative and we just have to find you another property.

Expect to spend on surveys.  In my experience I acquire 1 in every 3 properties I survey.  I have negotiated a special deal for my clients of only £199 per survey.  So expect a rough spend of £600 on survey fees.

To instruct us all we ask for is £350 upfront and the rest on exchange.  The total fee can be anywhere between £1,500 up to £3,500 depending on how high the yield and BMV is.

We look forward to working with you and building you a large cashflow positive property portfolio with very little money. 

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Posted on: 28th April 2008 @ 16:49:00