| I read over the weekend about the very sorry affair | | | | investment property. However, an empty buy-to-let |
| of a novice female landlord. This newbie landlord's | | | | apartment which the market knows is a forced sale, |
| problems began back in 2003 when she was enticed | | | | probably sold at auction mean that the chances are |
| at a 'property seminar' by the promise of a 'fast buck' | | | | that the buy-to-let property will be bought by another |
| to invest in 4 'off plan' buy-to-let properties. Now this | | | | buy-to-let investor who will scrutinise the investment |
| poor landlord is facing financial ruin as one by one the | | | | figures and will be looking for a property bargain (BMV |
| buy-to-let mortgage companies have repossessed her | | | | property). |
| buy-to-let investments. | | | | The chances are in this case that a buy-to-let |
| This landlord's problems were three fold: | | | | investment property will not even get looked at by |
| 1. The rents the landlord was promised by the sales | | | | 90% of property buyers who are owner / occupiers. |
| staff were never realised. | | | | Not only do owner / occupiers make up the bulk of |
| 2. The landlord's unrealistic rental expectations resulted | | | | prospective purchasers but also are likely to pay more. |
| in her holding out for too high rents which she never | | | | This is because they are ultimately looking for a home |
| obtained, as a result she incurred high voids (her | | | | and therefore are not constrained by financial returns |
| properties were only let for 70-80% of the time). | | | | in the way that buy-to-let investors are. The outcome |
| 3. The prices that the landlord bought at even with an | | | | of a forced sale by the buy-to-let mortgage company |
| alleged discount were considerably above any realistic | | | | of a landlord's investment property is that the landlord |
| market value. The result is a significant capital loss | | | | is likely to get less for their buy-to-let investment than if |
| when the properties are finally sold; this is likely to be in | | | | they were in control of the selling process. |
| the order of 30-40%. | | | | How does a landlord secure a property bargain? |
| In addition to these direct problems with the landlord's | | | | The reality is that the buy-to-let mortgage company is |
| buy-to-let property portfolio, the landlord also borrowed | | | | not overly bothered about getting the top price, |
| money to pay the mortgages on her properties when | | | | particularly where they can easily recoup their |
| they were empty. This additional borrowing now totals | | | | mortgage advance. Their aim is simple, to sell the |
| some £100,000. | | | | repossessed buy-to-let investment property as soon |
| I suspect that this poor lady landlord is not alone | | | | as they can. Once the buy-to-let mortgage company |
| amongst landlords. I am careful to point out that I along | | | | has sold the residential investment property they will |
| with the rest of the team at Property Hawk have | | | | present the landlord with a bill. This demand will include |
| been strongly advising landlords to steer clear of this | | | | any shortfall in the repayment of the outstanding |
| type of 'discounted' off-plan investments from the | | | | buy-to-let mortgage, missed buy-to-let mortgage |
| beginning. Sadly some landlords have already circum to | | | | payments and charges and expenses incurred in |
| the sales pitch. PLEASE DON'T FALL FOR IT! | | | | disposing of the residential investment property. These |
| All this prompted me to think, what would I do if I was | | | | charges are likely to be significant and the total |
| confronted with this situation? | | | | demand from the buy-to-let mortgage company could |
| PLAN OF ACTION | | | | easily run into tens of thousands of pounds. A sum |
| Firstly, the solution to any problem starts with the fact | | | | that is likely to take a property investor many, many |
| that you as a landlord accept that there is a problem. | | | | years to pay off. |
| Too many newbie landlords are still in denial. They | | | | A landlord's best options |
| bought a buy-to-let 2 bed apartment say 3 years ago | | | | The best option for a landlord in this unfortunate |
| for £150,000. "Everybody knows that house | | | | situation is firstly having faced the facts is to take |
| prices have been going up". | | | | control. A landlord should use their realistic valuations |
| Therefore it is worth at least £150,000, probably | | | | for their buy-to-let investment to work out how much |
| a bit more. The reality is unless a landlord has bought in | | | | their negative equity is. Then, a landlord needs to work |
| London, this is very unlikely to be the case. The glut of | | | | out a strategy to start repaying it. This may not be |
| new build 'luxury' buy-to-let apartments has meant that | | | | easy. Many landlords on interest only mortgages are |
| supply outstrips demand and this continues to depress | | | | already struggling to meet their buy-to-let mortgage |
| values. | | | | repayments. However, I would suggest that a landlord |
| Therefore a landlord needs to get an accurate value | | | | should consider these four points: |
| of what their property investment is really worth. On | | | | 1. Landlords should look for is a low Annual Percentage |
| the face of it this is not difficult. Thanks to the land | | | | Rate (APR). This will ensure that they minimise the |
| registry there are now numerous websites where a | | | | payments necessary over the period of the loan. It is |
| landlord can get the prices for actual sales in or around | | | | possible to get APRs in the low 6%. |
| their property. I would suggest Our Property as one of | | | | 2. Landlords should consider using any savings to |
| the best. | | | | make a one off over payment on their buy-to-let |
| However, landlords should be aware that where | | | | mortgage account and reduce their negative equity |
| properties were sold with a discount, the list price and | | | | that way. |
| not the discounted or actual sales price is often shown. | | | | 3. If a landlord has a mortgage on their home it may |
| Otherwise get a couple of local estate agents to give | | | | well be that they can re-mortgage their domestic |
| you a value and ask them to price it to sell. Agents will | | | | property at a better interest rate and use these funds |
| otherwise tell you, their prospective client what you | | | | to part repay their buy-to-let mortgage thereby wiping |
| want to hear to get your business. This is not | | | | out their negative equity. |
| necessarily the hard truth. After this process, you as | | | | 4. The best way for me is if a landlord's rents are |
| the landlord and buy-to-let property owner will need to | | | | strong is to convert their loan from all interest only to |
| sit down and face up to how you are going to | | | | part repayment. This way the landlord can use the |
| approach your hidden negative equity. | | | | cash generative quality of their buy-to-let property |
| I'll just hand back the keys! | | | | investment to slowly repay any negative equity. |
| Some landlord's think that getting rid of their buy-to-let | | | | Inaction is not an option. |
| negative equity is as easy as just handing back the | | | | One thing I would strongly advice landlords in this |
| keys for their residential investment to their buy-to-let | | | | unfortunate situation is not to ignore it. It is not going to |
| mortgage company. That way the residential | | | | be tempered by fast rising house prices as has |
| investment property is no longer their problem. | | | | happened in previous years. Therefore a landlord |
| "The buy-to-let mortgage company can sort it out!" | | | | should 'face the music', take advice from professionals |
| Again, unfortunately wrong. The buy-to-let mortgage | | | | mortgage consultants on their options and above all |
| company will indeed eventually repossess a landlord's | | | | ensure that they pay off their negative equity to give |
| buy-to-let investment if a landlord stops paying the | | | | them as a landlord and property investor a secure |
| buy-to-let mortgage. The buy-to-let mortgage | | | | long-term and sustainable property investment. |
| company will then sell the landlord's residential | | | | |