Singing Pig

Bradley

Youre getting there!

Youre right re the 18/20% model is dated..but the principles still apply..you just play around with figures that suit you and the conditions..and remember..that you dont have to buy!

If youre driving a fast car in ultra safe conditions..you can afford to drive a little 'close to the edge'...when conditions change for apparently the worse...you dont have to stop driving..you change your driving style and tactics to suit the conditions!

You drive slowly and more carefully, but you will probably be more succesful than those competitors who have stopped completely - probably out of pure fear and because they never really learned how to drive properly in the first place! The road should be less crowded now!

They got away with it when conditions were easy...but they now admit that they might crash and burn - as they are not proficient enough. Which is a wise thing...or they could choose to learn to 'drive' properly!

it has been almost too easy in the last couple of years, and to an outsider looking in now it seems too hard - it isn't..its all about your attitude and orientation 

To answer your question, Im not obsessed with cash backs..they are borrowed money ultimately anyway..and I dont have to borrow money to live on. Things are not dissimilar borrowing wise now than they were 2/-5 years ago. People were prepared to put deposits into solid deals then..and should be now - if it is juicy enough

You don't need many 40/45% bmv deals to start building a solid platform for your future. 

Whats happening now is culminating of a thinning out of the fly by nights who will now be looking at the next big thing. Their hearts were never in this business..they just chase the 'easy money' - but usually dont get it..but thats another story!

We will look back at these times, and, as long as people are ultra cautious with offers - and get the phone ringing off the hook by powerful marketing, will see it is a milestone in property acquisition. 

Rialto,

Your posts are always interesting. I like the analogy about driving and those who didn't learn to drive properly in the first place.

I too am not obsessed with cash backs. I would only go for cash back if I could still produce good positive cash flow and after considering the potential remortaging risks (such as we are seeing for those remortgaging now) and the CGTax position.

Perhaps when I'm up and running, I'm aiming for the end of August, I'll be able to do a couple of these NMD BMV deals for myself and really get going. Fingers crossed.

BMV08:

Hi,

Im a property consultant and i can find amazing properties to add to your portfolio, i source properties from a number of places and are getting genuine 25% to 30% discounts with rent back offers......

BMV08:

Hi,

Im a property consultant and i can find amazing properties to add to your portfolio, i source properties from a number of places and are getting genuine 25% to 30% discounts with rent back offers......

Am I missing something or is this, and many other posts on here, veiled commercial plugs?

TwD

I am reading this whole thread today and I just have to reply to this post - I have not read others replies yet.

"BUT there comes a time when it's clearly rational to be negative - and now, sadly, is the time!"

No - that was 4 years ago when prices looked to be getting unsustainably high.  I am not saying you were wrong to keep buying, but then was the time to start preparing for the inevitable crash.

"Also, I still believe I was right then to say get deals while you can now [as in January!!] because it may well get very hard to get the lending you're after later (point to me, I think!)"

Please explain to me the hurry to buy a falling asset?  Can you not see a correlation between lenders not wishing to lend and buyers (if they are not sensible) deciding that it is a good idea not to buy?

Bradley said (18^th June)

It's taken ages but I've finally read all of this thread. Very very educational. I'm a newbie in my mid-20s who hasn't done any BMV deals yet but having been reading all about property, and more recently BMV, for approx 2 years now. It's clear to me that BMV deals are the only sustainable way of investing in property in a sophisticated manner. One of the most important things I've learnt about on this thread is the risk of not being able to remortgage at the same LTV, thereby necessitating a cash-injection. I pity those who are highly geared and need to remortgage at the current time.

I've been running some spreadsheet calculations on typical rents and house prices in my home area of Bristol (for my own education/practice etc) and I find that I'd need to buy at approaching 40% BMV (!) to meet 130% of the repayment at 7% SVR. From what I read, it's better to calculate it on the SVR as it's better to be safe than sorry if I wasn't able to remortgage in the future. Shucks, even the fixed rate is approx 6.6% plus fees at the moment! Do people agree that it is only really practical to buy approx 40%BMV at the moment? It would seem to be prudent to do current calculations based on 80% LTV, as I gather BTL mortgages are going that way.

I was going to get my marketing set up then go full guns blazing into the BMV market but this thread has probably put the stoppers on my plans for the moment. Am I correct to say that there are no more one day BTL remortgage deals available anymore. I could tie my capital up in a deal for 6 months before remortgaging, but it would have to be a great deal to justify it, right?!

Perhaps I'm better off waiting until interest rates/fees on these mortgages drop and one day remortgages are available?

Your expert thoughts, please.

You may be a newbie but you have done the research and come to some damn sensible conclusions.  And guess what, at the end of the day, in the long run, prices have to have some relation to rents and IRs.  Most bears say 40% falls is the maximum likely and hey presto, that is what you have worked out makes a sensible investment.  This is not a coincidence.  It is sensible analysis on your part.  Just make sure you know that 40% BMV is probably 50-55% off peak price and it MIGHT (not will, might) mean that at some point - 2-4 years? - you have no equity in the property and can’t remortgage).  But in the meantime, if the rents stack up (which they probably will with that discount) you can cover the mortgage and you are very unlikely to get into negative equity.

I agree that Bradley has done some very sensible, good calculations there. 

It's fairly straightforward to work backwards from the rent (OMR) to what you can afford to borrow:  let's say for argument's sake, you can get 100% mortgage and need to because you have no cash (another whole realm of controversy and change which I won't go into).  So if the OMR is £500 pcm and you find a mortgage deal at 6.79%, 80% LTV, then what you can borrow will be 500 x 12 / 1.25 / 6.79% = £70k, less costs say £3k, so the most you can pay is £67,000.  Depending on area, that may be 40% BMV or more or less.

Now someone will come on here and say "oh no, I use the SVR" or "I use 1.30 instead of 1.25" or something even more cautious or clever and here's the thing:

I don't care!  Frankly. 

If you've got no cash, you've got no cash - ok, point taken. 

But what percentage BMV you buy at is not going to be the primary determining factor in whether or not you're a successful property investor.  There is just so much more to it than that.  That's the main point I've been trying to make on this thread.

Of course I agree that it's fantastic to get deals at great big juicy discounts if you can!  But it's not everything.  BTL mortgage rates have gone up now - I bought a place in March at 1.76% discount, rate 4.99, 85% LTV.  We wish, now.  Instant remortgage... jeese.  25% BMV.

I actually know people personally and have heard of yet others (including here on singingpig) that have been stopped in their tracks from getting mortgages AT ALL by key BTL lenders in the last month or so, just because BMV is so out of favour with lenders now basically.  I bet some of them wish they'd bought more properties while they could.  That was one of my poiints before - and I didn't know how bad things would get.  One of the great things about property investing is that we can get leverage... currently... maybe not always.

I guarantee that the amount BMV you buy at is not going to be the prime determinant of whether you succeed as a long term investor or go bankrupt.  Here's a thing, for instance: CASHFLOW IS KING.  Useful little saying that, in business:-)  The enormity of the wisdom that lies behind that little saying has, to me, far greater significance than "buy BMV!  buy at least 25% BMV - then you'll be fine!"  Somehow it doesn't have quite the same ring to it... don't you think?! I can't see it going down in history in quite the same way! 

THAT is my point!!

I don't recommend that people rush out and buy loads of property at very little discount - of course not!  All I'm saying is that the whole picture is a lot more complex and imho we should consider the picture as a whole... which, by the way, is in constant flux and so should our thoughts be!  And of course, each of us has to take our own personal whole picture into account.

One of the good things about now relative to a few months ago of course, is that vendors are generally more willing to accept bigger discounts and so bigger discounts are actually naturally more achievable.

Angela

"But what percentage BMV you buy at is not going to be the primary determining factor in whether or not you're a successful property investor."

I agree with that statement 100%.  Cash-flow is king to an investor.  It is that undefinable thing "true worth" that is relevant, not BMV.   If you can find me a house that rents at £10,000 per annum that is worth £50,000 I will happily pay you 100% above market value.  (well I won't cos I'll buy the one next door that is for sale at £50k but you get my point)!

However... I would suggest that "investing" in an "asset" that is falling in value is a very foolish thing to do (certainly more stupid than the arguable thing, holding a falling asset, which I am currently doing).

So, if you want to be an active property professional now what do you do?   I would suggest you have 2 options, actively manage your portfolio (an extension may yield 20% compared to a purchase at 5%) or you can become a trader.  In the first case you are not buying so BMV is irrelevant, in the second case you are trading and BMV is everything and yield is nothing (apart from as a plan B if you can't sell, but if you can't sell a property you bought BMV then you didn't buy it BMV!)

Your methodology to take the rent and work back to a price to pay makes sense, but I would suggest that it is very very sensible to also consider the likely future price.  What is so special about clearing £100 pcm if you are losing £500 pcm in capital losses?  Why not wait for the price to fall and buy when you can make £250 pcm and capital gains of 0% at worst?

I am ultra cautious.

As far as I am concerned property is fairly simple.  

BMV is better than OMV, but a profitable OMV deal is better than no deal.  

Buy and sell to make cash, developing and refurbing if necessary (developing and refurbing is next to impossible in a market tanking like we are now, so buy BMV and sell on the market a bit BMV ASAP).  When prices are rising rapidly and look likely to continue to do so (say 1996-2001/2) expand as rapidly as you can leveraging all the way.  When the market looks like it may fall (2004/5 onwards) pay off debt, establish a war-chest, sell poorly performing properties and make your money from trading only, unless the odd really decent high yielding property comes along.

You might prefer risk to me and work on the basis that the price will rise for at least a couple of years above any rational peak, but then you need to be selling the excess you bought after the rational peak, before the inevitable crash. 

Angela, you are north sussex aren't you?  Near where I grew up in South surrey?  What are you seeing the market doing?  From my research (Dunsfold, Guildford, Farnham) I am fairly confident that decent detached houses are 5-15% off peak, with 10-15% being my best estimate.  Is this right?  Are your properties doing better than that?  Are you worried?  As someone with under 50% gearing last summer (over 50% gearing now due to price falls) I am slightly concerned at the speed of falls.  I dread to think what anyone who has bought in the last 2-3 years is going through let alone people who have bought more recently.  I genuinely believe that your gross worth is 10% down on January when you first posted on this thread, which may well be 20% or even 90% of your net worth (I don't know.)

Genuinely I hope you are successful - some investors will plod along buying reasonable properties that make a bit of money each month and get away with it, but some won't.  I hope the one's that won't are the arrogant, greedy ones, and I honestly think that if that is the case you may well be all right.  What will happen to you if prices fall to 20% off peak and SVRs stay at 6.5% for 4 years/