Streetwise Property Alert 21st February 2014

Here we are at the end of the week with another email of news and views…

Scotland – The News

The prime residential property market in Scotland – defined as £400,000+ – is a strong and growing market according to a new report by Savills. Overall, sales activity is up 19 per cent over the year with Edinburgh, Glasgow and Aberdeen leading the way. And prices? Over to Savills.

‘Overall, prime values across Scotland have remained subdued over the last few years due to the high levels of stock available on the market. However, supply in some hotspots in Edinburgh and Glasgow has been falling, resulting in a gentle rise in prices.’

‘The rebalancing of supply and demand has started in the country locations of Scotland, with prices during the last quarter of 2013 beginning to stabilise. We expect a gentle rise in Scottish prime values during 2014 when supply and demand eventually rebalance.’ More to come? You tell us.

Brazil Get Together

We are having another one of our informal get-togethers for property investors looking at Brazil and, in particular, the social housing units offering 15 per cent. The meet is at the Holiday Inn just off the M25 at Brentwood in Essex on Saturday 22 March; I am taking a show of hands now so we can see how many want to come and how many are existing and how many are would-be investors. We can maybe offer two sessions. Let me know?

DD – Self Assessment Questions

Those of you at the Investing In 20-14 seminar will recall that I talked on and on for so long that Jeannie only had 10 minutes to speak. I then did much the same when it came to the article on page 8 of this month’s newsletter. Jeannie was cut short. So, let’s put that right now. We are talking due diligence. Over to Jeanie who states, these are the questions we should ask ourselves:

How well do I know this sector – do I know what I’m doing? If not, this isn’t a reason not to proceed but proceed being aware of this and be prepared to do the extra work needed to learn about the investment, the structure and the legal framework etc.

The opposite could also be said to be true sometimes – Do I know this type of investment so well that I assume too much knowledge. Perhaps I am not being through and careful enough?

Have I got experience of similar products/structures/investments? If so, what knowledge/ experience can I transfer in to inform this decision?

Am I comfortable with this project – and this level of investment?

What attracts me to this project? Consider what makes you like a particular project as opposed to the numerous others you’ll no doubt have been sent! Emotions can play a bigger part than we acknowledge in decision making. Perhaps a friend had a ‘bad experience’ in Spain? Possibly, you ‘love’ Florida and would like a property there? You need to be aware of these factors when weighing up whether to invest.

Is it best to stay with what you know and are comfortable with – or might there be equally good and better decisions to be made in new areas of investment?

After you have completed your questions and research and fact finding to your satisfaction, there is an argument for just getting on with it – make your decision and act on it. We have seen too many investors get caught up with the quest for the perfect due diligence – it does not exist. Due diligence is not the holy grail it is sometimes made out to be. It’s a process and an assessment based on the best and most accurate information available at the time. DD should help and not hinder you in making the right investment decision.

How’s Your Pension?

We note that Richard Way at The Overseas Property Guide is saying that more and more ex-pats are moving their UK pensions overseas through QROPS schemes. Here’s what he says, ‘A reason for this shift is a growing public perception that pension pots in the UK increasingly are becoming easy targets for stealthy – and not-so-stealthy – government raids, so there are fewer incentives to keep retirement funds in the UK.’

‘As well as QROPS, expats can in some circumstances benefit from SIPPS, which also offer tax and flexibility benefits compared with other types of pension or annuities. Anyone retiring abroad should note the financial landscape has changed in recent years and what once seemed the done thing as regards pensions might not be the best option for them now. Speaking to a financial advisor that specialises in helping expats before leaving the UK could result in a much more comfortable retirement than initially expected.’ That sounds like good advice.

The ‘Orracle’ Speaks’

(Yes, I know it’s Oracle really, but bear with me). Picking up on Jeannie’s questions, I had a coffee with former IFA Dave Orrey the other day (Orrey not Orey…see where I’m going?) He told me of the days when he was an IFA and had a client who spent many years saving up money to invest in property.

This fellow waited and waited for ‘the right time’. It was always soon, but never quite yet. He lived at home with Mum and saved £40,000. Eventually, he bought a property and the £40,000 cash he put in became his equity. Sad thing is, if he’d bought in a little earlier, when Dave had suggested, he’d have had more than that in built-up equity by the time he eventually bought in. So, the moral of the story is ‘get on with it.’

UK Rents – An Update

LSL Property Services offers a view on the rental market right now. ‘Even with an increase in rental properties available, demand in the private rental sector continues to outstrip supply in many areas, especially in London. In the months ahead, this will enable landlords to push up their rental prices when letting their properties, putting a stop to inflation from eating into their rental income. This is underlined by the fact that covering the cost of inflation is the main reason cited by landlords expecting to increase rents.’

‘Rising rents are delivering strong yields to investors, making a powerful case for the rental market for those in search of a beneficial, long-term investment. However, buy-to-let investment is not a license to print money and it requires the same level of research and planning as any other business investment. The success of the investment depends on the property remaining occupied to deliver ongoing rental income. Before taking the plunge it is important to be aware of factors such as the location of the property, which can determine the level of tenant demand. For instance, those nearest to transport hubs will usually be of the highest demand, especially in larger cities like London.’ More to come.

Cycle Route Video’s

It seems like there’s virtually no end to the money making potential of video – and technology is opening up more and more possibilities.

The latest idea we’ve seen is Cyclodeo, a US based business that uses crowdsourcing (the public) to document popular cycling routes on video. A map can show you the route, but it’s not so good at showing the terrain, the state of the roads or how heavy the traffic is likely to be. That’s where Cyclodeo comes in, and there’s now a version which works on mobile devices.

Two questions to take from this:

1. Cycling is growing hugely in popularity. Might a UK based service doing the same thing, prove popular? Cyclodeo doesn’t cover the UK at the moment.

2. What other activity might benefit from crowdsourced video like this?

Late Music

This probably qualifies as one of the strangest businesses we’ve seen recently, but who knows, it might trigger off an idea.  Catacombo is a system for putting music into coffins!

Created in Sweden the system consists of three different parts. Firstly, users create an account through the online CataPlay platform, which connects to Spotify and enables customers to create a playlist for their own coffin or get friends and family to choose the tracks when they’re gone. The CataTomb is a 4G-enabled gravestone that receives the music from CataPlay and display the current track — along with details and tributes to the deceased through an LCD display. Finally, the music is played into the CataCoffin pretty much for ever. The cost?  Around 23,000 Euro’s.

Now I don’t know who’s going to pay this (certainly not someone who’s chosen to be cremated I’d imagine!) but I suppose it gives lie to the phrase, “You can’t take it with you.” There certainly seems to be a growth in interest in unusual funeral arrangements, and perhaps there’s money to be made by fulfilling unusual wishes. Can’t imagine your complaints department will be kept too busy either!

Streetwise Property Alert 20th February 2014

Welcome to today’s views and news…

Student Investing Basics

An article on investing student BTLs caught my eye this week. It is by Kate Faulkner writing for Interactive Investor. Let’s quote one or two of the more thought-provoking comments. In fact, as everyone talks about the upsides, let’s focus on the downsides.

‘Student lets typically require lots of regular re-decoration, new flooring, upgrading of kitchens and bathrooms, so they can feel like a money pit. Despite students using the property during term time, most landlords still charge for the full year but, as with any let, there are security and insurance issues that need to be covered when the property is empty.’

‘Demand and supply can vary over a 15- to 20-year investment, which is an advisable timescale to ride out peaks and troughs in the market. Some student landlords have suffered from a drop in demand due to bespoke student accommodation being built on or near the campus; other landlords may suffer if student numbers fall due to increased fees.’

Fact is, student BTLs can be lucrative – my daughter and her three friends are in a tiny place in Durham and that costs me £450 a month just for her quarter share – but there are plenty of downsides as Kate has mentioned (along with some positives) in her piece. I am happy to put together a short, four-page report, based on my own experiences and those of others, if the interest is there. We can, of course, also introduce you to some properties in this sector.

Lease Options – An Update

Literally 100’s of you asked for the free lease options e-book and many asked for details of opportunities. Nic has been sending these out and is now removing those respondents from the list who do not seem to be as serious about progressing as they indicated they were. As always, we are happy to send out freebies galore but we ask you not to say you are a serious investor in such-and-such unless you really are please. (And, yes, if you have not had the freebie, and would like it, we are very happy to provide it on request).

JV – Heads Up

Crunching some numbers on the JV venture, I think we might be looking at returns of 20 per cent or more! Those of you who have been chomping at the bit since last summer will be receiving an email from me in the next 48 hours to tell you more. There are going to be eight places and I will be writing to no more than 20 of you in the first instance. Do watch your email box.

The Convent – A Visit

Those of you who have met me lately will know I’ve been driving a Y reg old banger belonging to my eldest son. Anyhow, that’s all changing tomorrow with the delivery of a new car and I am going to be visiting the Convent soon. If you are on that list, and are thinking of visiting, do drop me a line. We can meet up?

New BTL Mortgages

The Post Office is back in the BTL market. ‘The new offering of fixed rate products is for deals at both 60 per cent and 75 per cent LTV for two, three and five year mortgages. Certain products come without an arrangement fee and include a free valuation and legal package. These deals will be available online or over the phone from February 14.’

John Willcock, head of mortgages at Post Office, says, ‘Post Office’s mortgage offering has gone from strength to strength since its launch. We constantly review our product range and move quickly to respond to customer demand and changes in the market. There has been a significant increase in the demand for buy-to-let mortgages in the last 12 months as more borrowers begin to consider the rental market.’ Would you like to receive a free weekly update of BTL mortgage products? Drop us a

All for now but we do, for those of you buying in and out of currencies, have a free monthly currencies review for you.

The Citadel

There’s evidence to suggest that, once you get away from the major cities, some Americans are a little bit crazy, and that probably explains the existence of The Citadel group.

The group intends to purchase 2,000 to 3,000 acres in western Idaho with the intention of setting up a private and secure community of 3,500 to 7,000 families.  Citadel explains that residents in the community will be bound by patriotism, pride in American exceptionalism, liberty and physical preparedness to survive and prevail in the face of natural catastrophes –such as Hurricanes Sandy or Katrina — or man-made catastrophes such as a power grid failure or economic collapse. Plans for the community look, as the name suggests, like those for  medieval city surrounding a castle.

I’m not suggesting you set up your own UK Citadel, but rather that you give some thought to the underlying psychology. People who are interested in this  are likely to be dissatisfied with what mainstream society is offering them in terms of facilities and protection. National government should/does provide all the proposed facilities and protection after all. They will be looking for ways to do better by organising things for themselves.  They won’t feel comfortable putting their fate in the hands of faceless government, or be happy having their outcomes married with those of everyone else. They want more.

There are people like this everywhere, and there is money to be made by providing an enhanced experience over and above that provided ‘free’ by the state.  That could be private security services, private health services or private educational services. Just because the government is providing something for free, don’t assume that there aren’t a significant number of people who will pay more for better.

Streetwise Property Alert 19th February 2014

One of the areas covered at our Investing In 2014 seminar was in relation to doing ‘due diligence’, so Jeannie thought it would be useful to apply some of what constitutes ‘due diligence’ to a real example and in this instance we’ll use The Convent.

‘If it looks too good to be true, it probably is’ is actually a pretty good starting point when it comes to looking at investment opportunities. So, rather than talking about the features of The Convent investment opportunity, the 10 per cent annual return, etc, let’s look at the potential ‘downside’? We are often reminded that the ‘value of shares can go up and down’, and ‘your home may be at risk if you don’t pay your mortgage’ – when it comes to investments, it is always worth looking at what would happen if things don’t go to plan.

One of the features in the ‘new world’ that the FCA requires is a balanced provision of information, so both the rewards and the risks. So anyone who says they are interested in investing at The Convent will get an Information Memorandum which summarises the investment and also includes a section about the risks that they identify (in the same size print!). This is not necessarily an exhaustive list, potential investors may identify their own risk features.

Put simply, this investment is via shares in a company that will own the freehold of the properties that will comprise the accommodation section of this boutique hotel. The current valuation of these properties is £2.88 million, and the investment raise is £2.1 million. The properties are then leased back to the hotel operator for a 10 per cent return. That’s the opportunity in a nutshell. So what might go wrong? And what might the consequences might be?

The first question that most potential investors have asked is – what if the hotel operator is not able to/does not pay the contracted returns? What security is in place to cover this situation? The starting point is that the company that investors have invested in owns the freeholds of the properties that are being used as the hotel accommodation. So, the decision would be taken by the investors and basically there would be three choices for investors:

To allow the current hotel operator to continue in post.

To bring in a different hotel operator.

To sell up in order to recoup the investment

The success of the third option would depend obviously on market conditions at the time. Currently, the four properties owned by the investors have a combined residential valuation of £2.88 (before refurbishment). They are on separate title deeds so to ease selling as residential properties. The Cotswolds is one of the highest value property areas outside of South East England and the valuations have been prepared by a RICS surveyor and are available as part of the due diligence process.

However, to put this prospect in context. The owner is currently looking to raise £2.1 million, so the 10 per cent return payable is a total of £210,000 each year. Based on 28 rooms at a very conservative £100 per night, The Convent has to achieve just about 20 per cent occupancy to reach this figure. Our experience has been that when potential investors have seen the security that is in place, and that all money goes through solicitors who ensure that this security is in place, and that the figures in respect of occupancy, etc do add up, then they are happy to proceed. As one recent investor, who is very experienced and thorough, said to us ‘I am comfortable with this because the owner is taking most of the risk. He stands to lose all the
hotel accommodation’.

Remember, this is a totally passive investment, the investment is in the form of shares in the company that owns the properties, there is no involvement nor input in the operation of the hotel. The key points are:

Minimum investment £10,000.

10 per cent return, paid on a quarterly basis.

Exit at any point after 12 months, but if investors stay in to Year 3 125 per cent of capital is returned, at Year 5 150 per cent of capital is returned.

No set up, ongoing, nor exit costs

Our experience thus far has been that the team behind The Convent has been very open to providing information, answering questions, etc.. If you want to know more please get in touch for an initial brochure. If you do want to receive the full due diligence pack, we will need to speak with you and register you with the owner, so will need a contact number. This is to comply with Financial Conduct Authority’s guidelines on ‘crowdfunding’.’

As ever, email back for more…

Streetwise Property Alert 18th February 2014

Welcome to Tuesday’s email…

Spain – Bouncing Back?

We’ve always said that one of the signs of a market coming back up is that builders start building again; in simple terms, they are not going to build if they cannot sell properties at a profit. According to the College of Technical Architects and Surveyors of Alicante over in Spain, there has been a year-on-year rise of 362 per cent increase in Alicante housing construction in 2013. Of course, cynics will say that could mean one house was built in 2012 and only three or four this year! Not so, there are now close to 2,100 new properties there.

Marc Pritchard, Sales and Marketing Manager at Taylor Wimpey España offers a commentary, ‘It comes as no surprise that official data such as that from the College of Technical Architects and Surveyors of Alicante confirms that construction in the Costa Blanca region is showing pre-recession levels again. We have experienced this resurgence on the ground ourselves with four new developments on the Costa Blanca and more on the horizon as sales continue to rise.’

‘There is clearly a high demand for second properties in the area as more and more visitor’s descend. Nearly six million foreigners visited the region last year attracted by the stunning beaches, delicious cuisine, warm Mediterranean climate and ease of access with ever increasing flight routes from budget airlines across Europe and the world.’ Dah de dah – but true enough.

UK Market News

The latest property report from Lloyds Bank, covering Q 2 and Q3 2013, makes interesting reading. The headline story is that sales increased at their fastest annual rate in a decade. Based on Land Registry figures, the report states there were 396,756 house sales in the six months to September 2013.

Lloyds Bank says that the North, the West Midlands, Wales and London are the regions with the biggest proportion of property hotspots. All of the towns in these regions saw a year-on-year rise in sales.

Housing Minister Kris Hopkins says, ‘With house sales at a 10-year high, it’s clear that the housing market has turned a corner. Our efforts to cut the record deficit have kept interest rates low, meaning home ownership is now at its most affordable since 2007. Leading developers have said they’ll build more as a direct response to this increased demand, with house building now growing at its fastest rate for a decade.’ More to come; we are drafting a supply-demand-price property hotspots feature.

Wind Turbines – A Report

The impact of wind turbines on property values has long been a subject of discussion; our response is always the same, ‘Would you want to buy a property nearby?’ (The same goes for landfill sites and other socially-necessary but NIMBY-type developments). Less anecdotally, a new 12 year study by the London School of Economics (LSE) checked out one million + sales of properties near wind farm sites and concluded that properties within a 1.2 mile radius saw between £27,000 and £100,000 deducted from their values. That’s, apx, some 11 per cent on average.

UK BTL Views

We can, if the interest is there, offer our ‘behind the scenes’ BTL mortgage updates to all members. If you are mortgaging or remortgaging soon, be aware that this is a time of change. David Hollingworth of London & Country suggests there is a window of opportunity right now.

‘The market for buy-to-let lending is extremely competitive and rates are the most competitive they have ever been. Bank rate is still at a record low at 0.5 per cent and lenders want to attract new business, so they’re all pushing their rates down, even for borrowers with less equity in their portfolio.’

How long will this last? Not too long suggests David Whittaker of Mortgages for Business, ‘Ultimately, lenders have to recognise the increasing cost of funds. It is highly likely that interest rates will rise on medium-term fixed-rate mortgages, reflecting the impending rise in bank rate. Once bank rate starts to move, 20 years in the industry has taught me that it will move faster and higher than anyone expects. Our advice is to consider taking a five-year fixed-rate mortgage to delay the impact of rate rises.’ Food for thought.

Spain – A Property Database

We now have access to two databases in Spain with what appear to be some excellent BMV deals. I am looking at a couple myself in Calpe. Areyou looking to buy in Spain? Send us your main requirements and we will see what we can source for you.

That’s it, see you on Wednesday.

Cupcakes Collapse?

You don’t have to go back too many years to arrive at a time where nobody was talking about cupcakes. The past few years have seen an explosion in the market, with specialist chains being set up and most mainstream confectionery bakers jumping on the bandwagon. A great deal of money has been made, but it really feels like we’re at, or beyond, market saturation. So I wouldn’t recommend you go into the cupcake business at this moment, but I would recommend that you ask yourself a simple question.. What’s next?

There are always trends and fads in the food and drink business, and spotting them early and riding the crest of the wave can pay massive dividends. Where should you focus your efforts? Well anyone who can combine great taste with genuine healthy properties stands to make a killing in any sector of the food and drink market.

Poopy Cat

You know we’re big fans of subscription services here, and here’s another one. Poopy Cat is a monthly subscription service aimed at cat owners who don’t want the hassle of cleaning out a litter tray.

Cat owners signing up to the service receive a monthly package containing everything needed to set up a litter box at home. All materials are made out of recycled material that is biodegradable, so the whole box can be folded back down and placed into organic waste bins or compost heaps. No cleaning required.

This is a Dutch based service charging 19.95 Eur  per month. There are a couple of ideas to take from this I think:

1. You could perhaps copy the idea here in the UK

2. Might the idea (hassle free waste disposal) have a solution applicable to dog owners too?

Thinking more widely, are there other aspects of life where people would pay good money to avoid cleaning up and simply be able to dispose of what they’re using?

Streetwise Property Alert 17th February 2014

Welcome to today’s news and views…

US Property-‘Situation Normal’

A new report from Clear Capital in the US indicates that the market is now broadly normal and that future growth will be in line with historic trends at about 3 to 5 per cent a year with peak prices being seen in 2021. ‘The market’s relatively quick moderating pattern indicates it reached an unsustainable rate of growth and is now correcting back to more normal historical rates of growth. While there are certainly investors and home owners holding real estate assets that will be underwater for seven years or more, the current housing market is positioned to behave very similar or even below historical norms, given the current economic climate. For new deals and investors without legacy assets, the new housing environment should be framed in terms of more typical, moderate rates of growth with tempered optimism for the ongoing housing recovery.’

‘Double digit gains over the last year, while similar to rates of growth in the run up to the bubble, are off a much lower price floor. Phoenix and Las Vegas, however, are showing signs of overheating. These markets skyrocketed off very low price floors as their low tier and distressed market segments exploded with demand. Each market saw yearly gains top out around 30 per cent and now are seeing price gains cool substantially. Las Vegas has seen more than a 10 percentage point pull back in just three short months, even though prices remain 20.8 per cent below 2000 levels, after adjusting for inflation. Meanwhile, Phoenix’s yearly gains are down to 19.8 per cent, with prices now 1.9 per cent above 2000 levels after adjusting for inflation. We’ll be watching these markets closely to see how demand holds up.’

BTL Mortgage News

We note, from Sky News, that buy-to-let borrowing rates are at their lowest levels since before the recession. Rates are now as low as 2.4 per cent although you should note, not unexpectedly, that these are from BTL mortgage products with low LTVs. David Whittaker from Mortgages for Business is quoted, explaining the reasons why.

‘Landlords were squeezed out of the market at the onset of the credit crunch. They wanted to be borrowing and they wanted to be acquiring properties but there was no funding available to them. The extent to which we are seeing a boom today, it is now their chance to borrow funds from more lenders in the market who are active in the buy-to-let
space.’ We are, behind the scenes, as we do with many niche services, offering soon-to-buy investors with weekly BTL mortgage updates.

New Property Investment

Those of you who want to invest in bricks and mortar without getting your hands dirty, may be interested in the Henderson UK Property unit trust, managed by Marcus Langlands Pearse and Ainslie McLennan, which aims to achieve a high income as well as some growth by investing
primarily in commercial property and related assets.

‘The £1.35 billion fund, which is designed to be a component in a diversified investment portfolio, currently has 29.2 per cent of assets in offices, 22.8 per cent in retail, 15.5 per cent in industrial, and 10.2 per cent in what is classed as ‘other’. The remainder sees 18.9 per cent in cash and 3.5 per cent in property securities.’ If you want to know more, talk to your IFA.

IHT Warning

According to Adams & Remers LLP, many Brits own overseas property, often as a holiday or retirement home, and fail to consider the significance of this on their will and inheritance tax planning.

‘The interaction between UK and foreign succession and inheritance tax law is a complex area and if you are lucky enough to purchase your dream holiday home, or are escaping to the sun for retirement, it is crucial to seek advice on how to manage your overseas assets. It is advisable to have a second will drawn up in the country in which your property is located. Watch out for revocation clauses, which state that all your other wills are invalid, and ensure that they are limited to the country in which your property is located otherwise your foreign will could unintentionally cancel out your UK will.’

‘Many people do not realise that their estate may in effect be subject to double tax by bad financial planning. The UK has treaties for inheritance tax purposes with several countries, and it is important that clients take advice on whether there will be a liability to foreign tax after they have died and also what reliefs are available to reduce any tax payable in the UK. The death of you or your spouse is probably not the first thing that springs to mind when acquiring a place in the sun, but if left unconsidered your beneficiaries will be left to cope with an array of complex foreign laws and financial burdens.’ More to come? You tell us please.

All for now, see you on Tuesday.