Become a property millionaire!” screamed the advertisements, inviting investors to seminars to “find out how you too can retire early”. Fast-forward two years and those ads have disappeared, vanishing as house prices fell.
The property investment clubs and their founders have kept a low profile since then, but renewed confidence in the housing market and the prospect of future returns has brought some out of the woodwork. Among those who have reappeared are Jim Moore and Tony McKay, the founders of Inside Track — the most high profile of the property investment clubs, which met an ignominious end in 2008 as the buy-to-let market crashed. They recently set up IAP Global, a new company that promises to “secure the best distressed property deals” with discounts of 25 per cent on offer.
They are not alone. Encouraged by signs that the bottom of the market has been reached and evidence that there are bargains in repossessed and distressed property sales to be had, investment clubs are making a comeback.
The sales patter has changed, but the claims are as bold as ever, according to experts, with some even offering free DVDs to entice prospective landlords to their seminars. But the approach is now more low-key, with most opting for a more targeted marketing strategy.
“The clubs are trying to restore credibility and at the same time, thanks to the market recovery, gullibility is returning. They are targeting the already converted — people already on property investment databases, rather than advertising to everyone,” says Kate Faulkner, of Designs on Property, the property advice business. “The seminars used to be £200; now they are free. The marketing has changed, but the product is the same.”
Before the downturn, “no money down” deals were used to lure investors. These involved someone buying a property with a 100 per cent mortgage, for example, for £100,000, remortgaging for £120,000 several months later following a rise in prices, taking £20,000 in cash and buying another property.
Sales pitches now are more likely to be tailored to the post-downturn bargain-hunters, with the most popular offer being “below-market-value deals”. This assumes that there will be desperate sellers — people trying to avoid repossession, who will sell their home for less than it is worth.
“The problem here,” Faulkner says, “is that the amount of stock for sale has fallen and so has the number of repossessions, but prices are rising, so these so-called ‘BMV’ deals have not materialised.
“There is also a difficulty in a market where there is so little for sale that it is impossible to know what the value really is, and, therefore, you won’t know if you are really getting it below market value.”
The damage done by these deals is already in evidence. Landlord Action, a buy-to-let investor support network, says that inquiries relating to debt recovery of sourcing fees rose by 50 per cent last year. “Investors ran out of patience, recession hit, funding ran out and people became more desperate to reclaim deposits and funds,” Paul Shamplina, the group’s director, says.
Sensing the danger of a return to ill-advised property speculation, calls are growing louder for the property investment industry to be regulated, like financial services. The Council of Mortgage Lenders has suggested that this would be a better mechanism to protect homebuyers and sellers than the Financial Services Authority’s proposed regulation of buy-to-let lending.
In the meantime, there are ways to tell if a club is bona fide. “There are actually some good property companies that share the risk, do well, and have figures to back up,” Faulkner says. “The problem is that because there is no regulation, they sit alongside the dodgier companies at the investor shows.”
First, be alert to any company that quotes the wisdom of celebrity property experts or well-known economists — “the chances are they do not have their permission”, says Shamplina. IAP Global has been criticised for using comments made by Phil Spencer, from the Channel 4 programme Location, Location, Location, that “now is the best time to buy since 1991” — a quotation that Spencer reportedly does not recall making.
You should also be alert to advice not to seek advice. “Some will tell you not to speak to an adviser and will not allow you to use your own solicitor or mortgage broker,” Faulkner says. “If anyone says this, walk away immediately. They should be telling you that you should seek independent advice.” Clubs should also encourage investors to see the property they are buying on their behalf, and should refund deposits if they cannot find a suitable property. “Some take money for non-existent property,” Faulkner says.
“If you want to invest, now could indeed be a great time, but forget the ‘no money down’ or ‘properties for £1’ — you need a decent pot of money to afford a deposit of at least 25 per cent to get a decent mortgage rate,” he says. “And the rental income must stack up now or in the future. You need a yield of between 5 and 10 per cent to cope with potential interest-rate rises and increased taxation in future.”
Thursday, 24 March 2011
Property investment clubs return - Times Online
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