Welcome to this week's edition of Money Matters, and this is the once-a-month special edition Q&A, your questions, my answers.
Question 1 - Can anybody get a buy-to-let mortgage? I have an IVA. Would they accept me?
I've got an issue with my credit. Lending is given to legal entities. What's a legal entity? Well, a legal entity could be you as a person, but it could also be a company. It could be a limited-liability partnership, it could be a pension fund and it could be all sorts of things.
So, the real question is not have I got a credit issue, in this case an IVA.
So, that's an individual voluntary agreement and that normally means somebody's gone a little bit overboard with regard to credit card spending, and they've just come to an agreement with their creditors to write that money off and they'll pay a certain amount of pennies in the pound, over a certain amount of years. When that agreement is finished, then, their credit record can start to go back to normal, again. So, during that period it'd be very, very difficult for an individual that's got an IVA, to get mortgage lending. However, if that person were part of a company, were a shareholder in a company then probably, not easy. I'm going to say, but a lot easier to get mortgage lending. So, if you've got something like that, you really do need specialist advice. We help a lot of people, rebuild their credit files, because people get into difficulty with their credit files for all sorts of reasons, and quite often, nothing to do with being their fault. Somebody gets made redundant. They take time to readjust, so, because the salary's not coming in, but they've got a credit card, there, they start maxing out the credit card, desperate. I'm going to go and get a payday loan. So, you've gone from perfectly good credit, hardly using your credit card, through to ‘I've lost my salary’. I'm going to use my credit card, through to, I've just filled up my credit card, so, I'm going to go get some payday loan money.
Before you know where you are, financially-speaking, you're way under water. So, I understand, how it happens. You can do all sorts of things to rebuild your credit, and, you can do all sorts of things, to make money in property without buying property, rent-to-rent, rent-to-rent serviced apartments, rent-to-rent HMO's, lease options, deal packaging.
Question 2 - would HMO strategy work in cities in the South, the South West?
First up, I'd better explain what HMOs are. What's an HMO?
An HMO is a regular flat, or a house, but, you're not letting out the whole flat, or the house. You're letting out a room in that flat, or the house. So, you might know it, as, student accommodation, a house-share, a house in multiple occupation, it's all the same thing, from this perspective. Typically, somebody's renting a room in a house, by the week, and the amount of rent, they're paying, includes all the bills and the WiFi and everything else.
In Doncaster, it would be £100 a week for a room. So, would HMO strategy work in the cities in the South, the South West, Bristol, Exeter, where house prices are a lot higher? Yes, this is your answer. There's loads of HMOs in Bristol. There's loads of HMOs in Exeter, I got a friend in Cornwall, which is doing this, and they're making fantastic money. So, will HMO strategy work in South and South West? Rather then buy regular houses, if you want to get more affordable properties, how about, you go and look at guest houses, or, hotels, or, care homes, or, things that are shutting down, and failing industries, because it's really hard to make a care home work, unless you got these 30 beds. How do I know? Well, I bought one, I live in it. So, what I bought, was a nine-bed care home, that, effectively, went bust. I didn't, well, I did buy the house, but I bought the property, as part of the care home business. See the difference? So, I didn't buy a house, I bought a care home business that happens to own a house. So, if you're taking properties, like that, and then, bring them back into use, as HMOs, can you make really, really good money? You bet, you can. So, great question, thank you.
Question 3 - How do I open a SASS? Consultant, or can I do it, myself, with help?
SSAS - Small Self-Administered Scheme. We're talking about pensions. So, a SASS can be for up to 11 people. It's a really, really tax-efficient way to do things. It's a trust, any money in it, is not subject to inheritance tax.
I'm not trying to sell you on the benefits of a SASS, I'm just trying to tell you what SASS is, so, you know, what I'm talking about. Do I need a consultant? Well, by consultant, I think you'd mean, an IFA, an independent financial advisor or a pension specialist, can I do it, myself? Here's the news, you can do it yourself and some people have. I know people who've spent anything up to £15,000 to open a SASS. If you want to, you can, not only do it yourself. I'm not saying that it's, you've got to learn stuff, you have to read books and things, but, if you want to, you can, absolutely. Do it yourself.
I'm going to give you a company name, that you can do it with, and I'll tell you why afterwards. But, I'm going to give you a company name. If you're not feeling confident to do it, yourself, don't. But I want to give you an example of our managing director, Abi Hookway. She worked at BT for I think six or seven years in her early 20's, and she kind of forgot about the pension. She heard me taking about pensions, she did what I asked, she got her pension statement out, to find out what she would get from that pension when she was 65. It is many, many years away for Abi. So she looked it all up, and it's works out that she was going to get £600 a year. So it's like 12 pound a week. Oh, my god. And she opens up a SASS, she's up a SIPP, self-invested personal pension, she did that, it's her personal pension. She did that in two weeks, for nothing. Do you need a consultant, or an IFA? No, you do it yourself. I could have said that really, couldn't I? But then you wouldn't probably be as interested, not that I'd mind.
Question 4 - Do rental properties still make a profit when markets crash when buyers can afford to buy, when the demand drops for renting?
I love the thinking. It is not normal thinking, but I love the thinking. So, here's the thinking. Do rentals, in other words, do buy-to-lets still make a profit, when markets crash, because people think when buyers can afford to buy. So, the house price was up here, market crash, whoops, it's down here! Now, the buyers can afford to buy. So they buy it. There's less renters. That's the logic, I get it. What actually happens in the market corrections, the last market correction crash that we saw, was 2008, and property prices across the UK dropped by about 20%. When the market does that, all the banks tighten up their lending criteria, It's much harder to borrow. Your normal person that's got a partner, and a couple of kids or something, they don't buy houses for cash. They need a mortgage, and in a recession, mortgages are harder to get, and critically, if house prices have just come down, and you, as a property investor, you go. That's good because then they're more affordable. Now, the general person in the street, is like 'house prices just dropped' if I buy a house, I'm going to go bankrupt. So, it's not actually about price, it's about market sentiment, and the two are linked. If the market sentiment is house prices are going down, that means the man on the street, the man on the Clapham omnibus, to quote that mythical creature, thinks property's a stupid thing to buy, I'm not buying it.
So, in a recession, normally rents go up, and I'm 54, I've seen several recessions. I can tell you this, every recession, rents go up, not down. That answers that question.