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Buy To Let - Caveat Emptor! |
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Buy-To-Let investment in the UK is still unregulated,
and the Latin phrase ‘Caveat Emptor’ –
“Let the Buyer Beware” is a clear warning
to anyone wanting to explore the current popularity
of BTL investment.
Nobody
likes being ripped off, least of all property investors
who are looking for the services of others.
I keep reading headlines in the press, online blogs,
property investment forum threads and trade emails
banging on about the ethics of good business and it
got me thinking about how much trust we place in people
when doing business with them.
Do
we really know the people we entrust our investment
money to?
It
really can be a case of Buyer Beware when there are
sharks out there eager to part investors from their
investment cash, take property sourcing companies
for example…
There
are many reputable property sourcing companies out
there, as well as a number of rogues, and it can be
very difficult to spot the difference between the
two as the most successful rogues have learned to
fake sincerity with ease. Even experienced investors
can be taken in by false sincerity and end up losing
thousands of pounds. Trust is a commodity that has
to be earned, unfortunately in this day and age it
is a commodity that many rogues are able to manipulate
and abuse. Even written promises can be extremely
unenforceable. It is often the case that investors
who cannot afford to lose money are the ones at greatest
risk and this type of investor are the favourite victims
of such rogues.
In
order to avoid the property sharks, new or novice
investors should consider the following before using
a property sourcing service for the first time.
•
How long has the company / individual been trading?
Are previous accounts available? Whilst longevity
may not be a cast iron guarantee, their trading
history should give an indication of their track
record.
• Are Testimonials from satisfied clients
available?
Ask to speak with previous customers, good property
sourcing companies / individuals will be very happy
for new investors to speak with any number of their
customers, if they find excuses not to put investors
in touch – BEWARE!
• Are your funds protected?
Investors should be 100% certain that any funds
lodged with a property sourcing company / individual
are held in a client account and can only be used
with your agreement to purchase property.
• Is the investment in your best interests?
Property sourcing companies may be able to provide
great property investment deals, but ensure that
the deal fits with your investment criteria
• Do you know anything about the area you
are investing in?
If investors choose to purchase property in an area
other than where they live then they need to do
some research, visit the area and have a good look
around, speak to local residents about the area
and its prospects.
• View the investment property you wish to
purchase before parting with any cash.
If the property sourcing company / individual does
not allow you to inspect the property prior to purchase
then it should sound ALARM BELLS! Are they really
in control of the deal or are there issues the property
sourcer wishes to hide?
• Investors should ensure they do their Due
Diligence on the property deal.
Is the property worth what you, the investor, are
paying for it? Is rental demand high in the chosen
location? Will the property being purchased appeal
to the rental market in that area?
• Read the small print
Contractual agreements may state that if the property
deal falls through the property sourcer will not
refund reservation monies but will work to find
an alternative property investment deal.
Similarly the reservation fee may be withheld by
the property sourcer if the investor is unable to
obtain mortgage finance.
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Christopher
Watkin - Head of Franchise Recruitment at Belvoir
Lettings, has also posted a similar warning
to investors after he noticed a new wave of
‘creative financing’ schemes, targeting
novice buy-to-let investors entering to the
market, with potentially dangerous consequences.
Advertisements and seminars entice people to
look at the myriad of ways to buy property for
rental purposes without the need for a cash
deposit. Such purchasing methods need to be
viewed with extreme caution and not even contemplated
without some basic research and checks - called
Due Diligence.
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Many of the zero-deposit property buying clubs and
groups which grew rapidly and then disappeared during
the housing market slowdown in 2008 are creeping
back, and some of them have no morals. A substantial
number went into receivership, with their directors
fleeing overseas to avoid claims and litigation
– leaving a trail of disaster behind them.
Such operators made large margins by claiming to
source below market value (BMV) properties, promising
big financial returns for investor landlords. But
the properties were often over-priced, and the operators
charged hefty fees for their services at the time
of making an offer and on completion of purchase.
Many
investors took out no-deposit, over-inflated interest
only mortgages, but then failed to achieve the rental
returns promised, leaving them with a substantial
short fall. These novice investor landlords then
struggled to re-mortgage as the property was worth
less than between 25% and 50% of the inflated purchase
price. As a direct result thousands of investors
had their rental properties re-possessed between
2008 and 2010. Mortgage deals which do not require
a deposit and can only be achieved by creative 'over
inflation' of the property price could well be close
to mortgage fraud, some of these operators even
suggested using credit card payments as a deposit,
which is a totally irresponsible thing to do.
I
would urge new, and inexperienced, investor landlords
to carry out detailed checks before being lured
into these schemes. It’s the old adage, if
a deal sounds too good to be true, it usually is’.
Even the BBC have been warning property investors.
The BBC TV programme “Rip Off Britain”
contained a story about how would be investors were
fleeced by unscrupulous companies. The property
investment story is 19 minutes in.
The
episode can be viewed in full here http://www.bbc.co.uk/i/b017yz4p/
As
a final note, I just want to mention that it is not
just newby investors who get ripped off. Many so called
Property Sourcers offer commission for referrals of
investors with the promise of money if the property
sale goes through, however rescind on payment using
all kinds of irrelevant excuses. If this has affected
you, we would love to hear your story.
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About
the Author
Mike Clarke
Mike
is the director of MyProperty PowerTeam.co.uk.
He has been investing since 2004 and owns property
across the North West and the North East |
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