Monday, June 23, 2008

New build scam

The £238,000 flat that has lost 70% of its value in two years

There are hundreds of examples of similar disasters, according to David Sandeman, managing director of the auction experts Essential Information Group.Mr Sandeman added: ‘People believed all the hype and the marketing that they would be able to rent out their flat for £1,200 a month to a professional couple. ‘They could only actually get £800 a month renting it out to students who have trashed it.’ Well that's what happens when you believe that the wind can't blow away a house of cards.

Posted by sovietuk @ 11:44 AM (1754 views)
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18 thoughts on “New build scam

  • i wish i knew how to post pics here, i have some of new builds in the states which should never have been built, poorly aligned foundations, skewed walls etc, all are now bank owned, but because of widespread corruption they passed building regs and they are for sale at rock bottom prices, however i should imagine they will fall down pretty soon…

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  • japanese uncle says:

    Just think about what would become of these flats that are already discounted by 70%, say in three years time. 85% drop from the peak cannot be ruled out. Some of the properties in London may follow the same path, ie 85% drop or even 90%. God knows.

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  • Rental John says:

    ‘More than one million homes are for sale in England and Wales for the first time since records began, research claims today.’

    Above sentence from lower down the article. So even if no more houses are put on the market – this is an awesome backlog. If you take an average price of 200K – that’s £200billion of fixed assets going nowhere – except down in value. SH1T! Tullips anyone?

    I read somewhere last year that in the USA their backlog would take 6 months to sell – if no more houses entered the market – but that was LAST year!

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  • Don’t forget inflation. You can add at least an extra 5% to the drop in value since March 2006.

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  • BTL is, simply put, a scam.

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  • The history of BTL will serve as a good example of how greed and the herd instinct can make idiots of quite intelligent people.

    Many had doubts, but kept quiet. Only a tiny minority of bloody minded contrarians (us..!) pointed out that the inherent flaws in the logic would ultimately see the whole episode end in tears.

    In the great rush to get on board the bandwagon, the factor that no-one seems to have taken account of was the fact that tenants are often difficult. People I know who have ventured into this game have all suffered from some of the following:

    1) Tenant trashes the joint

    – one landlord rented a newly decorated flat to a professional couple with a toddler; when the tenancy ended after six months he found a tide mark of chocolate finger marks on every wall.

    – another had to get heavy over unpaid rent. The tenant moved out leaving £5k of damage.

    2) Rent arrears

    – many accounts of rent not paid, mounting legal costs and unhelpful courts (especially if the tenant has young children and pleads poverty)

    – tenants stopping rent payments two months before tenancies end, when there is insufficient time to go to court, is a common tale.

    – one landlord had a tenant on housing benefit, with the rent paid directly by the benefit office. Then the tenant asked for the money to be paid to her instead of the landlord, and incredibly, the benefit office agreed. Needless to say, the landlord stopped getting paid..

    3) Moaning minnies

    – many tales of tenants who never go a week without phoning to complain about something, often things the landlord can do nothing about, such as noisy neighbours.

    4) Rent ransoms

    – good tenants know they are good. Landlords often dare not try to raise rents when the tenant pays on time and doesn’t complain.

    – All factors you never saw mention of when people like ARLA and Inside Track pushed the BTL game…

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  • Re: Uncle Tom @5.

    I enjoy reading your posts and for another point of view, only number 4 slightly applies to me as I’m happy the rent covers all costs and I have a small income coming in. FYI, I set my rental values according to my outgoings (plus a small amount for maintenance) and don’t increase every year because I value the good tenants I have.

    But next year, I have 3 houses coming off the 3 year fixed deals in Q1 & Q2 and have already instructed my management company to inform the tennants that there will be an increase in the rent to cover this. They haven’t had an increase for 3 years and they can’t be blind to the turmoil in the marketand so ong as I am sensible with what I increase b, I expect them to accept is as the reverse applies as they know they have a good landlord (an example of this is that my parents are semi-retired and do all the small maintenance jobs within a few days of them calling).

    My original plan was to go and get another 3 year fixed interest only deal. But if the mortgages had expired today, the high mortgage management fees and having to increase my deposit from 15% up to 25% would mean force me to go onto the LIBOR and make a very small profit per month. Who knows what type of mortgages will be on offer in 9 months time (probably the same as now!).

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  • I lived a few hundred yards from these Leeds flats from 2000-4 (admittedly they had not been built then).

    I was paying £400 (rising to £440 after 4 years) a month in rent for a 2 bedder, a little shabby but very roomy and with off-road secure parking and a nice shared garden.

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  • crash bandicoot says:

    A_landlord, do you have a plan B in place? What happens if your squeeze provokes them to look around and they find that in the next street they can rent for £50 a month less than at the moment? I dare say that if you have any new build flats nearby either your tennants can already buy for less than their current rent or will be able to soon. The best option is to sell while you can.

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  • @9. You make a good point and a good rental relationship only gets you so far, but if they cannot afford the extra £40 to £50 a month then a plan B is needed. FYI, current rent for the houses between £475 and £500.

    This is all new territory for me, but I am thinking that if I have given them an early warning now of the reasons why I have to increase the rent (9 months early), then 3 months before I go onto the variable rate, let them know what the new rent will be and could they confirm by the end of that month if it is acceptable. If not, keep them in but discuss with my letting manager that we need to look for a new tennant and try and swap them over with after giving 1 months notice. There is no point kicking them out then trying to market the place again, It would take too long to recover (if at all possible) the lost rent with the small rent increase, plus I would need to factor in the cost of smartening up the houses before the next tennant moves in.

    It is definately a gamble, as I could be losing a good tennant and may be down a months rent until the next one is in. On the other hand they would be giving up a well positioned 3 bed house with garden, near schools and the town centre, which they haven’t had a rent increase for 3 years and who knows if their next landlord will be as good.

    It is an interesting one who has the power in the negotiating – probably the tennant, but I know that not many good family houses come up where they are and they will have that in the back of their minds too.

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  • it is not just newbuild ‘scams’ lots of back to back 2-3 bedroom terraces in LS4 areas have been bought in last few years at say 110k turned into 5 bed student accomodation some of it bought at eyepopping amounts probably by out of town investors for anything from150k-250k, sometimes more. No doubt these investors bought with the promise of big rental yeilds from the student market, ignoring the fact that lots of smart new student flats have been build within the last few years in leeds so they were unable to rent them out and now you can see these same 5 bed terraces repossessed or back for sale at 120k! Ironically these will probably end up being bought up (at greatly knocked down prices and reconverted to proper houses as they make ok starter homes for couples…

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  • No house price crash then, just a gentle slow down? NOTTTTTTT!

    This one is already looking more severe than the last one (early nineties), and we have only just moved to phase 2. Give it to around November this year and we will be up to our necks in the brown smelly stuff.

    Property sellers have now had to bite the bullet of reality and start to reduce prices. The pertential sellers who were sitting on the fence to see how things panned out I suspect have now gone into panick mode to sell sooner rather than later, hence the big increase in number of properties for sale.

    The storm is brewing in all directions now. Oil and other commodity prices, food prices, unions starting to rattle the battle drum and prospect of rate increases from BoE.

    One more BoE rate rise and that will be it for the economy, it will be the straw that breaks the camels back. Oh, and great to see that the unions have finally woken up to the great inflation con-trick. Strikes are ahead.

    Monday, June 23, 2008 04:14PM Report Comment

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  • A Landlord,

    Nice to see someone reads my scribbles!

    Aside from the loss of capital value, don’t lose sight of the fact that rents will always settle as a loose function of a property’s capital value. If gross rents exceed 7% when the market has stabilised, people will enter the rental market until they drop to that level.

    In recent years, so many people have gone into renting, the gross yield has dropped to a very low level, so ultimately, rents will not fall as far as capital values.

    However, they will fall, and that will spoil the arithmetic for the more cautious BTLers who are not currently in difficulty.

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  • A landlord,

    ” But next year, I have 3 houses coming off the 3 year fixed deals in Q1 & Q2 and have already instructed my management company to inform the tennants that there will be an increase in the rent to cover this. They haven’t had an increase for 3 years and they can’t be blind to the turmoil in the marketand so ong as I am sensible with what I increase b, I expect them to accept is as the reverse applies as they know they have a good landlord”
    If there was suddenly a recovery in the financial industry and morgages where being offered at 3% to 4% for BTL’s.would you be offering to reduce their rent?
    And what happens if they dont accept these increases and they go looking elsewhere as there is plenty of competion now in the rental market.Why do you think your tenants are going to preserve your small profit margin?
    The price of rental properties will be dictated by the market and what people can afford not by individual landlords who have a dodgy business model (all BTL’s since 2004).
    As crash bandicoot said “The best option is to sell while you can.”

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  • What sold_out says. Landlords can’t just “pass on” the higher mortgage costs, in the same way that airlines are unable to “pass on” the costs of higher oil. Airlines are cutting flights, cancelling routes, and going bankrupt due to higher costs. Landlords will be doing the same very soon…..

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  • C'mon Correction says:

    LIBOR has taken a little jump recently and is now at about 6.4%, this will shortly feed into all mortgages, so I doubt many landlords would be able to re-mortgage much below 7.5% and that will include hefty fees putting the cost of the rate to near 9% over 3 years fix.

    The property I rent would have to fall 60% for the interest only cost to be lower than my rent ! That’s a staggering drop of £135,000 worth of capital assuming BTL rates.

    A_landlord – if you REALLY want to make money out of other people you should sell now, take the hit and re-invest in eight years time. If you want to subsidise your tenants for their benefit at your expense, then hold on out!

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  • Landlord,
    one word…. SEEEELLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLL

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  • crash bandicoot says:

    A_landlord, your reply only just made it through (you should really sign up). I think that all of the guys above have pre-empted your response though. Don’t get stuck on the SVR mate, you’ll end up in trouble.

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