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Article > UK Buy To Let - Caveat Emptor!



Article kindly provided by Mike Clarke

mypropertypowerteam.co.uk

 


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.

 

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.


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.

 


 

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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