Phew – the new government aren’t hanging about! They’ve certainly got stuck right in and are making some big changes that are going to affect anyone involved in the property industry.

First came the abolition of Hips packs last month, then last week they announced the reclassification of back gardens.

Now the Housing Minister Grant Shapps is to scrap the residential property landlord register planned by the previous government (you can read about it here).

So far, the move has been widely welcomed by the industry. And I can see why! I think that the last government went too far with their plans for the landlord register. Ultimately, it would have led to more red tape, more complexity and would have been costly for the housing sector.

The move to reduce bureaucracy and red tape is a good one. I think it’s a great way to build up confidence in the property industry and encourage further investment in the sector.

However, saying that, I think that ignoring the regulation of the private rental sector is a mistake. Currently, there are no mandatory controls of letting agents. This can lead to unethical and unprofessional agents giving the industry a bad name.

It seems the Government hasn’t decided how, when, or if it will introduce some form of regulation of letting agents. I think more self-regulation would be the preferred option and this is something that they do seem to be considering. Let’s hope they don’t leave the decision too long.

After the recent slump in property prices, headline figures suggest that house values are once again on the up. The latest figures from Nationwide reported that house prices rose by 1% in April, and have increased by over 10% in the past 12 months, while the Halifax has stated that prices are 7% higher than last year.

Plus, the Royal Institution of Chartered Surveyors has predicted that the housing market will experience a post-election boost with housing prices increasing over the summer.

Sounds good on the surface, right?

Well you’d certainly think so! However, in my experience, lenders seem reluctant to pass on the good cheer. Low mortgage valuations are still proving to be a big problem for many people.

So why are low valuations such a problem?

When assessing for finance, some mortgage lenders have been valuing properties by up to 20% below market value.  So say you’ve found a great BTL opportunity on the market for £200,000.  The lender then values it at 160K. This leaves you having to find a bigger deposit, negotiating a lower price… or simply missing out on the opportunity all together.  And, it’s not just BTL investors who are being hit. The problem also affects private home-buyers and especially those trying to remortgage…

So what can you do about a low valuation?

Firstly, make sure that the lender carries out a physical inspection of your property, rather than simply relying on a “desktop” appraisal. If they still come back to you with a low valuation, you can try appealing against the decision and show your lender evidence of a few similar properties in the area that have sold at the right price. However, this isn’t always easy… in a market where few properties are changing hands, you may struggle to gather enough evidence.

That doesn’t mean you have to miss out though…

If you’ve sourced a great BTL opportunity that’s been down-valued in this way, and you can’t persuade the valuer to change his opinion then it really comes down to one thing:

Do you think it’s a good deal or not?

At the end of the day, if your due diligence has shown that the property is good at the price, with great potential, then you may have to be brave and trust your judgement. That’s assuming you have the capital to invest to cover the extra deposit shortfall.

These are far from normal times and 12 months from now, with more confidence in the market, the same deal could be seen in a much different light.

Bear in mind that these low valuations are being given by some over cautious lenders to provide them with an extra buffer of protection on the deal. So, I prefer to judge each property on its own merits and ask myself whether it’s a good deal or not.  If it is, I’m likely to be happy with it, regardless of what a surveyor may think at that point in time. Let’s face it, BTL is a long-term investment strategy so I’m more interested in the value of the property in a decade or so’s time, not what it’s worth at the bottom of the property crash.

So, if after carrying out your due diligence you decide to press ahead, you can take the mortgage offered by the lender and make up the shortfall yourself or through mezzanine finance.

What other options are available?

Obviously, there are lots of lenders out there – even in the current market – so it can pay to shop around to see if you can get a better valuation – and finance deal – elsewhere.

A lot of investors rely on a development finance broker who knows which lenders are less likely to undervalue. They should have access to a wide network of specialist finance lenders and financiers and be able to trawl through all the relevant products to find you the very best deal.

A good broker will not only save you time and effort but – perhaps even more importantly – they’ll also be able to provide you with good value for money, getting you a deal that will pay for their services many times over.

Shameless plug altert!

LandLounge.com has just launched a brand new development finance service proving access to a range of products specially tailored to the needs of developers and BTL investors, such mezzanine finance and BTL mortgages. They’re also offering some exclusive products not available elsewhere. For full details visit www.LandLounge.com.

So remember, just because some lenders are providing low valuations, doesn’t mean you have to put up with it or miss out on profitable BTL opportunities – you still have plenty of options!

I’m a regular visitor – and occasional contributor – to the excellent 4Walls Property Tribes forum. I recently came across a thread started by Richard Greenland who was amazed to learn that many buy-to-let investors budget on spending up to £250 per month per property on maintenance and other costs. His post generated a response from a number of experienced investors (including yours truly!) The general consensus seems to be that although costs can vary quite substantially between individual properties, £250 is a sensible and fairly accurate reflection of the monthly overheads of an average buy-to-let property… IN ADDITION to the cost of any mortgage repayments.

In percentage terms, it was generally agreed that 30-35% of gross rental income should be put aside to cover management and maintenance costs.

A lot of relatively new investors will probably dismiss this figure as hugely inaccurate and inflated. They will tot up their monthly costs and conclude that their outgoings are much lower. However, as a number of the people who contributed to the discussion pointed out, it’s only after you have owned several properties over an extended period of time, that you realise how the costs begin to mount up.

Regular on-going costs such as management fees, vacant periods, property insurance, gas certificates etc are fairly easy to budget and account for. It’s usually these costs which a newbie investor includes in his budget. However, what’s often overlooked are all those relatively small, regular maintenance and refurbishments costs – repairs to boilers, appliances, ovens etc – which soon mount up to become a major strain on your bottom line.

But that’s only part of the story. The big shock comes when you have to start replacing worn out white goods, cookers, shower units, carpets and furniture. Each item on that list could potentially wipe out several week’s worth of rental income.

However, there’s worse to come. Redecoration will be needed every 3 – 5 years. Kitchens, bathrooms, boilers, interior doors etc will probably have to replaced every 5 – 10 years. New windows, external doors, barge boards, guttering, pathways, driveways, radiators etc will be required every 15 – 20 years. Depending on the age of the property and the length of time you retain it, rewires and re-roofs may be necessary. Obviously this sort of major renovation work isn’t cheap. Unless it’s been budgeted for upfront, many people find that their ‘investments’ turn into expensive liabilities.

Buy-to-let is a long term investment. Therefore it’s sensible to budget for all the costs you’re likely to encounter during the life of your investment. The maintenance costs for a new or recently refurbished property are likely to be minimal at first. But over the longer term those costs will grow in significance, particularly when larger scale refurbishment is required.

Buy-to-let can prove to be a very profitable long term investment strategy. But only if you do your sums properly, budget for the myriad of hidden costs that will crop up along the way and put money aside to pay for them when they do. Many people seem more interested in the number of properties they own, rather than the income they’re generating or the true long term value of their investments.

Due to the high cost and scarcity of finance, making genuine profits from buy-to-let is far, far harder than it used to be. I hope the advice provided on forums such as 4Walls will motivate more investors to take a long hard look at their strategies and to double check their figures. I suspect a fair few people may be in for a nasty shock.

Fame at last!

I was recently interviewed for an article in the excellent Your Property Network magazine. For anyone who hasn’t seen it, I thought I would reproduce the article here as it acts as a neat overview of the main methods I currently use to profit from property.

The exposure has generated a massive amount of interest and I’ve been inundated with emails from people wanting to know more about my methods. Many thanks to everyone who’s responded. If you haven’t yet received a reply please bear with me… I will be in touch shortly.

Why Buy-to-Let when you can Build-to-Let?

Like most people, my first venture into the property industry involved the purchase of a small buy-to-let house. Over a seven year period that original £28,000 investment was leveraged to amass a £10 million residential and commercial portfolio.

My methods were completely self taught. In the main, I refurbished rundown properties, increased their value and then re-mortgaged. At that time – when finance was readily available – it was a fantastic way to build a real estate portfolio. I sourced the properties via a network of estate agents and finders, all of whom knew that I had an insatiable appetite for rundown properties requiring full refurbishment. I used bridging funds to buy the houses for ‘cash’ and had two teams working full time to refurbish the houses. All lettings and management was done in house.

Why the move into developing?

Although I’d built a portfolio of 80 houses, I realised there was a limit to how much regular income I could earn from buy-to-let. After finance, management and maintenance costs, my monthly income was not going to make me a multi-millionaire anytime soon! I realised I needed to broaden my outlook and bought the site of an old Methodist church in my hometown of Westhoughton for £120,000. I managed to borrow 70% of the purchase price, paying a deposit of £36,000. I then obtained planning permission to demolish the church and replace with eight mews houses. In doing so I increased the land value to £200,000 which provided the equity I needed to get the build started.

Each of the eight houses had a market value of £125,000 so the gross development value (GDV) was £1m. The bank agreed to fund 70% of GDV, so I was able to secure £700,000 of funding. I owed £84,000 on the land, which left me with £616,000 to build the houses and cover all costs, which proved to be more than enough.

This one small development returned a profit of over £250,000 within around 18 months. It would take me years to generate that sort of income from my buy-to-let portfolio. I was hooked!

I went on to complete further development projects including apartments schemes and luxury barn conversions. Each time I would buy the land off-market and without planning permission. That way I could ensure I had good profit built into the land element of the deal before construction even began.

A few years ago, this approach provided me with the capital I needed for the self build of my home. I was able to purchase the site for a total of £110,000 as, on the face of it, there was very little chance of obtaining residential planning permission due to traffic restrictions on the access road. By applying my specialist planning knowledge, I quickly obtained the relevant permissions and could have sold the site straight away for at least £250,000. I must admit a quick £140,000 profit was very tempting – but in the end I decided to keep the site and build my 7,000 sq ft dream home.

Planning Gain Deals

I continued with my development projects but realised I could also make a substantial income simply by dealing in land. I would secure a site, obtain planning consent and then sell the ready-made scheme to another developer at a healthy margin. A good example of this was a former MOT garage not far from my home in Bolton. This was on the market with a local agent who hadn’t spotted its redevelopment potential. I bought it for £220,000 – what it was worth as a garage – obtained residential planning consent and sold it for £535,000 within six months, netting a staggering £300,000 profit for just a few hours work.

Finding good quality land was the key to my success. Last year I helped launch the land agency service Landlounge.com. It provides a free service to land owners enabling them to market their sites directly to property developers. If anyone is interested in planning gain or development projects, it’s the ideal place to start their search.

Do you need lots of capital to get started in developing?

I don’t think it’s possible to embark on a new build development without any funds at all as planning applications and finance broker fees need to be paid upfront. But if you have a little capital to hand – as little as £5k to £10k for a small single unit – it’s definitely something worth considering.

It’s still possible to obtain finance at 70% of GDV although admittedly, not as cheaply as a couple of years ago. But as long as you buy the land at the right price and employ a good architect to get the most from the site you stand a good chance of keeping costs below the 70% threshold. I’m about to embark on a project consisting of just a pair of semi-detached properties:

This allows £19,000 for finance and should give a profit of around £80,000 after incentives.  The finance isn’t cheap at around 1.5% per month so I can’t afford to keep the houses on the market for long. Luckily I’ve pre-sold one of them and will refinance the other if it hasn’t sold at time of completion. However, as there’s good profit in the scheme, I can afford to offer an attractive discount to encourage the sale and still make a healthy return.

There are ways to reduce the amount of upfront capital even further by entering into a joint venture with the landowner. These deals are becoming increasingly popular amongst developers large and small. They are easier to source than you may think – I’ve brokered many such deals between our LandLounge.com members – and because the developer doesn’t actually buy the land, they are much easier to fund. I’ve just agreed a JV deal on a site for 16 houses. We don’t intend to start until next year when the market has improved further, but essentially the landowner will be putting his land into the deal and we will be arranging the development. I’ve secured a loan from the bank to fund the build. On completion, the bank is repaid first, the landowner next (at an pre agreed figure) and we then split the profits. The deal should clear £400,000 for my company.

I go into a lot more detail about sourcing and structuring JV deals in my newsletter. Your readers can subscribe for free via my website: www.ukpropertyexpert.com

What construction experience do you need in order to start developing?

You don’t need a lot of experience if you employ a main contactor to carry out all the work under a fixed price contract. There are different types of contract but basically ‘fixed price’ means that the main contractor handles all the construction work within an up-front agreed price.

Over the years I’ve established a fantastic team of professionals – specialist financiers, planning specialists, architects, structural engineers, contractors, surveyors – who now take all the stress, hassle and much of the risk out of my development projects. If anyone is considering embarking on a new build project, they’re more than welcome to drop me a line and I’ll happy introduce them to my team.

Do you think development is an option for an average BMV investor?

Yes I do. But if you don’t have construction experience then always rely on a single, main contractor. Most banks will insist on this anyway. Development projects aren’t that different from renovating a house to sell… they just involve bigger numbers. The principals are the same. I’m not saying there isn’t a great deal to consider but if, like me, you start small – perhaps with a self build or single dwelling – it should help you conquer that initial learning curve and give you the confidence to move onto larger schemes.

I go into quite a bit of detail about new build developing in my newsletter. It’s written with the beginner in mind so should be an ideal resource for your readers. They can subscribe on my website: www.ukpropertyexpert.com

What other methods do you employ to make cash from property?

Over the last few months I’ve concentrated on the commercial property market. Certain retailers – the likes of Tesco, Aldi, Lidl, KFC – have benefited from the downturn and are desperate to secure new sites. So during the property crash I turned my attention to sourcing development sites on behalf of the retailers in return for finders fees. You’d be surprised how lucrative and simple it can be. For example, the finders fee for a small Tesco Express site can be £30k+.

Commercial investments with strong covenants are extremely sought after, especially in the current climate. I quickly learned that it’s possible to maximise profits further by finding a developer interested in building out the site as an investment property. I can then charge them an introduction fee too! I’ve used this tactic as part of a current project which will return over £300,000 once planning is granted.

Retail site finding has been a great way to ride these turbulent times and I’ll continue to dedicate a lot of my time to it even though I’m starting to venture back into developing and land trading. With such huge risk free profits to be made, I’d be crazy not to!

I’m currently writing a free report which reveals how easy it is to discover exactly what the retailers require, how to source a suitable site and how to claim your five figure introduction fee. I’ll be releasing the report to my newsletter subscribers soon. It will come under the umbrella of my new property education venture ukpropertyexpert.com. By sharing my knowledge of retail and residential site finding, planning gain, residential refurbishment, buy-to-let, self build and new build development, I hope to generate an on-going source of quality JV opportunities.

I also hope to explode the myth that a no-money-down property portfolio is a realistic way for newbie investors to “get rich quick”. I don’t believe that model is practical these days. It certainly isn’t a viable method of earning a life changing income in the short to medium term. So I’ll be going into more detail about the various strategies I use to generate substantial short term income which people can replicate to support, or even replace, their long term portfolio building strategies.

Anyone interested in finding out more should visit my website and subscribe to my free newsletter: www.ukpropertyexpert.com