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9:22 AM, 29th November 2023, About 5 months ago
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The rise of social media has seen self-professed ‘property experts’ offering property investment courses and pricey one-day seminars with promises of becoming ‘financially free’. By that, they mean rich.
But these so-called property gurus charge a hefty fee for their advice, and many get-rich-quick landlords are now paying the price.
Many investors who dived headfirst into buying property did so when interest rates were low, but now with interest rates rocketing, many are deciding to sell.
This Property118 investigation looks at why many properties are being sent to landlord auctions and advice on what to look out for in a possible property investment fraud.
What was often glossed over, to novice property investors at these events is what would happen if historically low buy-to-let mortgage rates suddenly started to rise.
Now we are starting to find out as property investors who attended expensive seminars on how to make millions have been caught out.
Many of those landlords appear to be taking their properties to auction usually with a tenant in situ.
David Coughlin, a landlord and director of the Landlord Sales Agency, has seen for himself the rise in investors trying to sell at landlord auctions.
He told Property118: “Yes, I have seen it. You have different types of auctions and landlords will be looking at those auctions to try and get themselves the best price.
“Anybody can sell a property for half price but when the landlord has been building a portfolio for 15 to 25 years, they obviously want to sell but they don’t want to give it away.”
Mr Coughlin said landlords might send their property to an auction for different reasons.
He said: “Firstly, you have a tenanted property and a vacant property and usually the vacant property requires some level of refurbishment and has structural issues.
“A buyer would get a mortgage valuation and the surveyor might say there’s work to do to get a higher price or you can’t get a mortgage because the lender won’t accept the property in its condition.”
Mr Coughlin added that selling through an estate agent can take a long time which may put landlords off.
He said: “Trying to sell a property that needs refurbishment through a normal estate agent has a lot of pitfalls so landlords will then say, if I can get £105,000 or £110,000 through an auction versus taking a chance at getting £125,000 through an estate agent, I’ll take the hit on the price and I’ll sell through the auction.”
Mr Coughlin added one of his clients is facing a dilemma in sending their property to a landlord auction.
He explains: “With tenanted properties, they can even be more of a problem for landlords. I’ve got a client at the moment with lots of properties in Kent. They are worth around £250,000 – £300,000 the properties are in good condition, but the problem is he’s got lots of tenants that have been with him 15-20 years and they are paying a rent of £900 a month.
“The market rent in the area is about £1,400 – £1,500 a month and if a buyer were to buy that property with the tenants in situ and buy it for the price the landlord wants.
“The mortgage that the landlord would pay would be higher than the rent that the tenants are paying.”
Mr Coughlin added a landlord has to weigh up options when heading to auction.
He says: “So, you have a property worth £250,000 but if a landlord bought it for £200,000 and got a mortgage on it. The mortgage would be more than the rent.
“The owner of the property has two choices if he wants to sell. One is to sell it really cheap at a price that the owner would keep the existing tenant. The second choice would be to evict the tenant and sell it for a higher price.
“A landlord has to weigh this up as to what price the auction company might set at a reserve versus what price a company like us or a local agent would say.”
The team at Landlord Sales Agency can sell properties quickly at auction and landlords don’t need to worry about fees.
Mr Coughlin said: “Usually when you put a property through auction, especially in the current market the prices you have been getting at auctions have been steadily falling.
“At National Residential, the company I own, we do a modern auction with a bit of a twist. We only charge a very small deposit and give flexibility to our buyers so that they can delay in completion a bit.
“We try to use auction tactics to get a high price and a high completion rate. Other auction houses tend to charge a 10% deposit for the buyer, and they’ll give the buyer only 28 days to complete with no wriggle room.”
He added: “We’re trying to solve the problems that give landlords the best price and the quickest sale. When an auctioneer might sell for £150,000 and an estate agent might get you £220,000, we try to target between a price of £190,000 – £200,000. We try to target the middle ground between an estate agent and an auction through our process.”
“We only deal with buyers who are chain-free and buyers who are willing to pay a deposit, but we keep the deposit at a level which we call the ‘Goldilocks level’.
“That way we have the buyers still committed to complete but it’s set at the price with a bit of expense so they won’t pull out but also, they will pay a higher price than what you pay through a normal auction.”
The Landlord Sales Agency team can also help investors with selling a property at a landlord auction with a tenant in situ which can come with challenges, but the team tackle them head-on.
Mr Coughlin said: “In order to get a property sold with a tenant in situ. We sometimes have to negotiate with the tenant to pay a higher rent, sometimes the rent might be £600, and the buy-to-let investor might need £800 and we will negotiate with the tenant to pay a higher rent.
“Sometimes the tenant might just say I’m happy to leave but I need some help with finances to leave. They might suggest doing a deal and if the landlord has sold the property at auction for a higher price.
“The landlord’s made £20,000, the tenant gets £2,000 and can move into another property.”
He adds: “Everybody wins, the buyer wins, the seller wins and the tenant wins.”
Landlord Sales Agency deals with every eventuality and can help if things are more complicated with an eviction specialist.
Mr Coughlin said: “We work with the very best eviction solicitors in the country where we then say to the buyer and the seller, look, we’ve sold the property the buyer wants vacant possession in order to get you the price.
“From that buy, we’re going to have to evict the tenant, we’ve got eviction solicitors with a 100% success rate, their fees are lower compared to others where you might pay something between £4,000-£5,000 our fees are at about £2,000 with 100% success rate.
“We manage the tenant, we keep the buyer on board, make sure their mortgage doesn’t expire, make sure that we do everything we possibly can to get the tenant evicted, we would then go into the property, tidy it all up so the buyer can complete.”
On get-rich-quick schemes, Mr Coughlin says simply that if a proposed investment doesn’t look right, then the investor shouldn’t go ahead.
He told Property118: “20 years ago, when I entered the market, you had all these people doing conferences and property prices were increasing and people promising you to get rich.
“I’ve been in the property business for a long time, and it has taken elbow grease, you can’t make money off property in five minutes.”
The National Reporting Centre for fraud and Cybercrime Action Fraud, says get-rich-quick schemes for property investors in the UK can come in many forms.
On its website, the organisation states: “Property fraud involves fraudsters offering you a ‘get rich quick’ investment scam, claiming it can turn you into a property millionaire.
“You attend a free presentation about making money from property investment. The fraudsters may persuade you to hand over money to sign up for a seminar or course promising to teach you how to make money dealing in property.”
It goes on: “Another variation is buy-to-let fraud, where companies offer to source, renovate and manage properties, claiming good returns from rental income. In practice, the properties are near-derelict and the tenants non-existent.”
The third scam is offering properties that haven’t been constructed yet.
Action Fraud says: “You might be offered the opportunity to buy properties at a discount that aren’t yet built.
“What you don’t know is that the land is either agricultural or derelict. In many cases, it’s unsuitable for development, or is bound to have planning permission refused.”
Action fraud has made a list of what you should do if you’re a victim of property fraud.
It now appears that there will be a lot of get-rich-quick landlords who want to bail out of the rented sector when renewing their BTL mortgage – because higher interest rates has made the prospect of making a profit on their rented property almost impossible.
Similarly, many investors that jumped in at low interest rates will want to sell quickly at a landlord auction many with tenants in situ. They will want to quit while they are ahead, but some will want to sell to avoid losing any more money.
With more legislation on the horizon for landlords in the shape of the Renters (Reform) Bill, landlords will be looking for ways to sell properties quickly for the most money possible – while they still can.
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Mick Roberts
9:55 AM, 29th November 2023, About 5 months ago
Great words and negotiations on keeping Landlord, Buyer, and tenant all in the loop and a solution for tenant either way.
Michael Booth
15:54 PM, 29th November 2023, About 5 months ago
Never go into buy to let on short term you will get burnt, think long term you won't go too far wrong unless we encounter a government like this or even worse case voting the socialists in.