Tips for Landlords/property investors who are struggling ....

[Vanessa]

I am increasingly being contacted in private by people who are struggling with mortgage repayments, and they want my advice.

 

First of all, if you are struggling, it is very important to get the correct advice from the correct person, otherwise you will become very confused.  Stuff like "just hand back the keys" from the property "expert" down the pub is not good advice!

 

I am not qualified to give advice, but, what I do say, is that, in the first instance, CONTACT YOUR LENDER, and let them know that you are in difficulty.

 

They are obliged by law to help you as much as they can.  This can include payment holidays, concessions, reduced payments etc.  I believe it is vital to keep up an open and honest communication with them.  If you cut off all communication, that is when things start to go out of control and they will be less forgiving than if you have been seen to be trying to deal with it.

 

There are also specialist debt advice services who can help.  Some offer a free consultation to assess your individual situation.

 

It is worth noting that it is very important to pay your service charges and ground rents.  Make that a priority in your bills.  Failure to do so can mean forfeiting the lease!  If these are not paid up to date, you will not be able to get additional financing either, so be sure to prioritise them above other bills.

 

If you have a void, do whatever it takes to get the property let.  80% of something is a lot better than 100% of nothing!

 

I am hoping that some of the mortgage brokers and other professionals in the Tribe will add some further tips.

 

Understand that you are not alone and that others can support and help you and may have been through what you are going through and be able to offer a friendly and supportive shoulder to lean on.   That is one of the benefits of being a member of a Tribe!

 

[Helen Eade]

Vanessa, I'm very happy to help anyone having difficulties with their overseas property investments.

I'm also being contacted more and more frequently by investors in real difficulties - some can no longer cope with the negative monthly cashflow, others can't complete on off-plan purchases they committed to several years ago....and a whole range of other issues.

My first recommendation to anyone who thinks (or knows) they have a cash flow problem is ...do NOT ignore it. A problem needs to be acknowledged before it can be resolved. The same goes for problems with completing on purchases - the worst course of action is to do nothing.

For investors in a fix, I provide one hour's free assistance - that's often enough to review the problem and propose some solutions. I like to be able to put some good back into an industry that has its fair share of not-good! ;-)

All the best
Helen
Overseas Property Investment Support & Client Champion

[LisaOrme]

Some good tips already V and a good thread.

Just a small point on priorities as to where your cash does go; well before service charges and ground rents would be insurance and gas certs. The consequences of not getting these aren't even worth considering. I am horrified by how many landlords dont bother with either when they hit a tight spot.

Lenders - as Vanessa said speak to them first and foremost. Be honest and frank with them but don't make threats such as handing back the keys or cancelling direct debits! If they repossess you are responsible for any losses incurred and that may lead to the loss of your other assets including your own home.

The more open you are the more they can try to help. But do remember on one hand the lenders use repossession as a last resort and don't want to have your properties back, conversely they're not responsible for your bad decisions either. Trying to keep hold of your expensive lease car or that flash holiday while asking your lender to reduce your payments isn't going to hack it!

In this regard if you do ask the lender for help then they will go into every detail of your portfolio, income and outgoings. So make sure you prepare your financial overview thoroughly first and make sure you've made your own cost cutting measures before asking the lender to help you.

Many investors will have mortgages with MX and they have special portfolio managers who will help you review your situation. I am aware of them amortising arrears, allowing mortgage payments to be used to pay for repairs/maintenance and even releasing equity across multiple property portfolios to reduce LTVs elsewhere to balance out payments or allow a sale.

Some lenders are offering discounts to leave; if you are unmortgagable so can't take advantage of discounts there are other ways to do so, one is to sell of course but there are other options too.

Mortgage/Financial Advisers - seeing one is an absolute must. Those that see themselves as advisers rather than brokers are there in an advisory capacity so will look at your situation holistically and this is what you need. I can't speak for anyone else but I'm always happy to speak to people with no obligation. Only yesterday I spoke to a lady and advised her she was probably better to sell than remortgage. No business but that doesn't matter because I believed it to be best advice for her.   

With Mortgage Works now going to 80% there may be options to refinance onto better deals or release cash from one property to pay down a loan on another. As I said in another thread ignore all the spiel about not being able to get mortgages right now; the only clients I haven't been able to help have had major credit issues, everyone else I have. In fact even then there are options. And there's not necessarily a requirement for a job or minimum income either.

Increasing cashflow - totally agree with Vanessa about holding out for higher rents; financial suicide. If your rent is £600 PCM and your mortgage is £500 and you lose one month you're down £1100. If you took £550 for a fast rent your fifty quid up! No brainer yet I see it all the time.

Do a rent review; you don't want to lose tenants but if you're charging BMV rents get them up.

Offer incentives you can charge for and make a premium on; rents that include utilities, appliances, AV equipment, cleaning, gardening, etc. 

Consider converting properties to HMOs (beware regs) to increase cashflow.

Consider LHA tenants; especially if you have properties with 2 reception rooms. You can offer a 3 bed as a 4 bed LHA and up your rent considerably.

If your property requires minor works/decoration knock hundred quid off and let a tenant do it.

Don't leave it to the agents to let it; get it on Gumtree, UPad etc. yourself. Also as one tenant leaves ask if they know anyone else; one of our leaving tenants showed the house to half a dozen people she knew and we then selected a new tenant as a result. They move in as she goes; no voids.

Allow kids, pets, smokers to reduce voids.

Switch your properties to rent to own or shared ownership to release equity and or increase cashflow. Our partners shared ownership/joint equity scheme allows you to effectively gear up to 90%. 

There's plenty of lease option buyers seemingly short of opportunities and they'll even take negative equity deals so turn the tables and give them a call!

Debt Management - Finally if push comes to shove and you need debt advice seek it from those who can handle your situation. With all due respect the CAB and some of the other debt counselling charities just can't provide the level of advice and support investors may need. We work with a fee charging debt company and don't make a secret of that fact; but they are very skilled in what they do. A recent example was a property investor with a portfolio of over 100 properties who kept over 50 of them plus his own home even though he declared bankruptcy. Many investors are afraid to go down this route for fear of losing everything and again rumours that you'll lose your own home when this may not be the case at all. In fact debt restructuring may mean that you don't lose anything and don't even enter into an IVA or bankruptcy. You'd pay to seek legal advice from an expert so seek debt advice from those who know what they're doing. It's no ones choice to go down this route but if that's where you are then you need to face it and deal with it. But as V said you are far from alone; put the embarrassment aside and get help.

HTH, Lisa
www.keys-mortgages.com
 

[Vanessa]

Great input from Helen and Lisa. Thank you ladies!

Helen, we had someone on here recently who could not complete on a property in Cyprus due to not having the rest of the deposit.

What is your advice to people struggling to complete on off-plan purchases?

[Helen Eade]

Hi Vanessa,

The person you're referring to did contact me direct, and I was able to give some guidance, specific to that investor's situation.

In general, for those struggling to complete on off-plan purchases, the first thing I recommed is a reality check! Many investors don't acknowledge that they've entered into a legally binding agreement and signed a legally binding contract. Many investors don't want to acknowledge that they made a poor decision in entering into a purchase where the figures don't stack up, but the marketing methods of many deal-brokers has persuaded a lot of very astute and intelligent people. People were swept up in the hype, and many over-stretched themselves. That's why I recommend an objective review of the costs of purchasing, the property as an investment, and the investor's ability to manage it post-completion.

Each investor's situation will be unique, but advice that would apply to ALL investors who find themselves in this difficult position - don't ignore the problem and bury your head, and get assistance. It's not always the best policy to open negotiations with the developer as a first course of action - the developer may be taking advantage of an investor's lack of contractual knowledge, or ignorance of their rights - so talk to someone independent, knowledgeable and trustworthy.

There may be flaws in the purchase contract or in the developer's handling of the purchase process which hand the investor an exit route on a plate ...if they're aware of it. There may be room for negotiation with the developer, to get all/part of the deposit back. There may be the option to assign the contract to a new buyer. I'm an advocate of negotiation rather than legal action, as even when the law is on the side of the purchaser, legal action can take years with no guarantee of the outcome or any funds being returned at the end....and it's expensive, no matter which country the investor is purchasing in.

There are many variables of course - the calibre/integrity of the developer, which country the investor is buying in, when the preliminary contract was signed, whether it's staged payments or 15/85% deposits, the validity of the documentation....all of this needs to be reviewed to find the best course of action for an investor who cannot or does not want to complete.

Above all, any investor finding themselves in a difficult position with an overseas property purchase needs to ACT - debts incurred overseas can and will follow the investor back to the UK, and that's reason enough not to stick one's head in the sand!

Although this is very general guidance, I hope it's still useful - I'm happy to talk to anyone who's stuck and point them in the right direction.

All the best
Helen

Overseas Property Investment Support & Client Champion


Vanessa said:

Great input from Helen and Lisa. Thank you ladies!

Helen, we had someone on here recently who could not complete on a property in Cyprus due to not having the rest of the deposit.

What is your advice to people struggling to complete on off-plan purchases?

[Stephen Fay ACA]

Superb thread ...

Helen - just a thought ... losses on holiday let properties in the EU can be offset against other income for 2008, 2009 and 2010 tax years. As you know I have dealt with a client of yours who received a 4-figure tax repayment i.e. actual cold hard cash.

Just on Friday I took on a new client who is due around £6000 tax repayment ... although it would have been more had he been a client of mine last year when I would have advised him to switch the ownership from 50-50 ownership with his wife, to 99% owned by him ... his 'saving' of a few hundred quid in accountants fees ended up costing him about £4k in lost tax repayments.

These claims can be turned around in 2 weeks or so if I have the info needed, and my software allows direct payment from HMRC to client bank account.

Of course, a bad investment is still a bad investment ... but up to 40% contribution from HMRC softens the blow a little ...

Stephen Fay ACA
FREE Resources for Property Investors on my website
http://fyldetaxaccountants.co.uk/

[Helen Eade]

Absolutely Stephen - this shows the benefit of discussing issues with professionals!

I would just emphasise though that the reclaim structure you're referring to is on holiday lets, rather than standard buy to let investments in the EU - am I right? The majority of the property investments I deal with are standard BTLs, not holiday lets and I think HMRC's definitions are quite clear on this.

Having said that, I always advise my clients to make their UK accountant of any overseas property investments, whether there's a gain or a loss. Their accountant should be able to tie it in with their UK tax planning....and if not, they should talk to Stephen Faye who IS able to do this.

Helen
Overseas Property Investment Support & Client Champion


Stephen Fay ACA said:

Superb thread ...

Helen - just a thought ... losses on holiday let properties in the EU can be offset against other income for 2008, 2009 and 2010 tax years. As you know I have dealt with a client of yours who received a 4-figure tax repayment i.e. actual cold hard cash.

Just on Friday I took on a new client who is due around £6000 tax repayment ... although it would have been more had he been a client of mine last year when I would have advised him to switch the ownership from 50-50 ownership with his wife, to 99% owned by him ... his 'saving' of a few hundred quid in accountants fees ended up costing him about £4k in lost tax repayments.

These claims can be turned around in 2 weeks or so if I have the info needed, and my software allows direct payment from HMRC to client bank account.

Of course, a bad investment is still a bad investment ... but up to 40% contribution from HMRC softens the blow a little ...

Stephen Fay ACA
FREE Resources for Property Investors on my website
http://fyldetaxaccountants.co.uk/

[Stephen Fay ACA]

Hi Helen

Yes, this particular tax repayment relates only to holiday lets, not 'long-let' properties (see my first sentence, above).

I do come across a lot of investors who havent declared their overseas property losses ... which is a big mistake for a variety of reasons. It's also a legal requirement to declare the income.

Stephen Fay ACA
FREE Resources for Property Investors on my website
http://fyldetaxaccountants.co.uk/
Helen Eade said:

Absolutely Stephen - this shows the benefit of discussing issues with professionals!

I would just emphasise though that the reclaim structure you're referring to is on holiday lets, rather than standard buy to let investments in the EU - am I right? The majority of the property investments I deal with are standard BTLs, not holiday lets and I think HMRC's definitions are quite clear on this.

Having said that, I always advise my clients to make their UK accountant of any overseas property investments, whether there's a gain or a loss. Their accountant should be able to tie it in with their UK tax planning....and if not, they should talk to Stephen Faye who IS able to do this.

Helen
Overseas Property Investment Support & Client Champion


Stephen Fay ACA said:

Superb thread ...

Helen - just a thought ... losses on holiday let properties in the EU can be offset against other income for 2008, 2009 and 2010 tax years. As you know I have dealt with a client of yours who received a 4-figure tax repayment i.e. actual cold hard cash.

Just on Friday I took on a new client who is due around £6000 tax repayment ... although it would have been more had he been a client of mine last year when I would have advised him to switch the ownership from 50-50 ownership with his wife, to 99% owned by him ... his 'saving' of a few hundred quid in accountants fees ended up costing him about £4k in lost tax repayments.

These claims can be turned around in 2 weeks or so if I have the info needed, and my software allows direct payment from HMRC to client bank account.

Of course, a bad investment is still a bad investment ... but up to 40% contribution from HMRC softens the blow a little ...

Stephen Fay ACA
FREE Resources for Property Investors on my website
http://fyldetaxaccountants.co.uk/

[Helen Eade]

Thanks Stephen.

For many of the investors I speak to, who are struggling to meet their existing commitments, the thought of adding in accountant's fees (or Clockwork's fees) is not something they want to even consider. That's understandable, considering they're attempting to reduce commitments, not increase them. However, I always recommend that they at least speak to an accountant who specialises in property tax issues (eg. Stephen Fay) because there may well be some tax planning that would work to their advantage and allow them to hold on to more of their money.

And as I've mentioned earlier, I'll provide up to an hour of my time, for no fee, to discuss an overseas property investment problem. If I can answer general questions on this forum, I will, but it's often difficult to do so on any open forum without mentioning names and details, hence private message/email or telephone is more appropriate.

All the best
Helen
Overseas Property Investment Support & Client Champion


Stephen Fay ACA said:

Hi Helen

Yes, this particular tax repayment relates only to holiday lets, not 'long-let' properties (see my first sentence, above).

I do come across a lot of investors who havent declared their overseas property losses ... which is a big mistake for a variety of reasons. It's also a legal requirement to declare the income.

Stephen Fay ACA
FREE Resources for Property Investors on my website
http://fyldetaxaccountants.co.uk/

[Shay Johnson]

Hi Helen,
Could you please email me your details to my email address or call me on 07796 260496 and I will call you back
Regards
Shay Johnson

[Steve Sims]

Hi

I am not a debt expert by trade, but do run a property accountancy business with my wife and have done so for several years.

We have many clients who are struggling and we are helping them follow BBA debt guidelines for negotiating with banks and building societies. we have also negotiated successful tax repayment plans with HMRC and managed to reduce outstanding monies due in tax by dealing effectively with compliance investigations. This can stop the hassle of phone calls and letters.

It's not possible to write debt off, but we can offer relevant advice where we can. There is no magic solution and my warning would be IVA, bankruptcy or taking expensive insolvency advice is a last resort.

The problem is many regard property as a business and the debt advice available to consumers does not apply, but business advisors consider investors as consumers, so they fall between two stalls.

I can offer some pointers to those looking for free tax advice or debt management software, but I am afraid I have bills to pay as well so can't work without payment.

Like the others - best advice is don't ignore credit problems and don't ignore the taxman. They won't go away.

Steve Sims
www.property-investment-expert.com

[Tumi Hawkins]

Lisa,
as always, excellent advice. A few points that i wanted to comment on.


LisaOrme said:

In this regard if you do ask the lender for help then they will go into every detail of your portfolio, income and outgoings. So make sure you prepare your financial overview thoroughly first and make sure you've made your own cost cutting measures before asking the lender to help you.
Many investors will have mortgages with MX and they have special portfolio managers who will help you review your situation. I am aware of them amortising arrears, allowing mortgage payments to be used to pay for repairs/maintenance and even releasing equity across multiple property portfolios to reduce LTVs elsewhere to balance out payments or allow a sale.
 

I take the point about Lenders using repo as last resort. However, I know also that the MX PMs have been inconsistent in their dealings with portfolio landlords. Within a group of about 5, there were 4 different approaches. Some were not allowed amortisation, even when one was, level of repayments being asked for also varied significantly and had no bearing on level of arrears, and it was difficult to understand why this was happening even though they were all supposed to be singing from the same hymn sheet. They seemed to act differently depending on which part of the country they operated in. One PM I know was so bad, she called in receivers because one agreed arrears payment had been missed. And she had the income/expenditure information for the landlord, so knew that there was good reason for the missed payment. She revoked it eventually, but caused havoc in her wake. Same wouldn't allow any rents to be used to cover essential repairs such as boiler replacements. Without which props could not be relet- catch22. Not sure what their approach is like now, as things seemed to have settled into some semblance of order.

LisaOrme said:

Some lenders are offering discounts to leave; if you are unmortgagable so can't take advantage of discounts there are other ways to do so, one is to sell of course but there are other options too.

 

Unmortgagable is a term I understand quite well - credit rating shot to pieces 2 years ago and have never found out why the rating went south nearly overnight, creating a domino effect. Still here though :-)

Good points about negotiated rent, LHA, HMOs, pet friendliness. They come with their own issues, but not insurmountible. I take higher deposits for tenants that come with dogs/cats. A few sneak in the dogs after, but hey ho! They tend to want to stay longer if they have pets-cos not many LLs will accept them.
Ironic about HMOs now, with the new regs. I was doing HMOs before they became fashionable. Management intensive, but in right location, great earner.
LHA - is paid 4-weekly in arrears, for those who want to take them on, and it gets paid direct to the tenant - unless they are classed as vulnerable.

Rent skills swap works a treat (low rent for doing work on prop).

Debt Management -may be worth chatting with the likes of Payplan - no fee, bit slow, but do get results.

[LisaOrme]

Hi Tumi,

completely understand re MX PMs. I think it basically depends how far up the MX food chain they are as to what level of service you get.

I have been utterly astounded by (generally) what a great service brokers get from lenders compared to what I experienced as a customer! So my advice would be to see a broker and let them deal with the lenders on your behalf. It may yield better results.

I would say I was quite excited by one particular way to help people that MX mooted to me but when I probed they had only allowed it on one property so I understand where you are coming from most definitely. Not to mention I was pretty annoyed when they pulled the chance to extend mortgage terms overnight leaving a few people high and dry.

KR, Lisa