Hello, welcome to today’s video which is where
we’re going to be looking at how you can stop getting stung on your next property deal by
looking at seven property scams and specifically how to avoid them. Okay, number one is risks and reward. If you
are looking at property deals that have returns that are far too good to be true, that can
sometimes be the sign that a property deal or an investment is not really all that it
seems. To give you some idea, when we’re looking at property deals there’s some general rules
of thumb. We try to target buy to lets that are around 8% plus rental yield where we can.
Now, some city center locations is going to be slightly lower just because of the higher
prices of the properties and you might get buy to let yields around 6% plus for those
locations. If you’re really keen on that area and you like that tenant profile, then that
can be a good aim to look at. That’s straight forward buy to lets. Number one we’re looking at other types of
strategies, we also look at things like HMO’s, which is a houses of multiple occupation and
returns for those types of deals can sometimes be around 12% plus gross rental yield. That’s
what we look for generally across the board. Now, you’ll get lower value areas that will
give you much higher yields than that, but we want to try and focus on good quality locations
as well. That’s why we target that 12% plus range. If you look at development projects,
typically we try and target about 20% return on investment, around a 20% net return for
any development deal and that’s after all costs, all the refurbishment, the buying and
selling fees. At the end of the project we try and target about 20%. That gives you some
generic rules of thumb to consider. Unfortunately there are some property scams out there, there
are investment scams out there that gives some wildly inflated returns because they’re
trying to get people to invest on that basis. That’s why we always say, look at the fundamentals,
do your due diligence, look at other things, other aspects than just the return. Are those deals legitimate? Is there an exit
strategy with them? Do the properties make sense compared to local values, whether that’s
bricks and mortar or yield values if you’re buying a ready to go HMO and it’s being sold
on a more commercial type basis. Just be wary about those sort of figures that you’re looking
at. If the figures are very inflated, very high compared to other types of deals then
it might be a sign that something’s not quite right. That’s the first thing to look at,
is those returns that you’ll get on those property deals. Okay, number two is looking at some joint
ventures when it comes to property deals. I say some because not all joint ventures
are bad. We do joint ventures with our properties and clients and some partners, friends, families
that we’ve worked with on deals and they’ve performed very well, and we know customers
and clients that are doing it and colleagues as well are doing it very successfully. Some
joint ventures are structured incorrectly from the beginning, that’s very important
is try to understand how the property deal comes together. Don’t skip speaking to your
accountant, don’t skip speaking to your solicitor, make sure they’re on board to try and understand
the best structure of the joint venture for you when you’re looking at a particular property
deal, which is some things to consider. When we’re doing properties and joint ventures
of clients and when we speak to colleagues and how they’re structuring them as well,
very often the client owns the property in their name if they’re putting all the funds
into that deal, so they have 100% security over that investment. However there are some companies that do joint
ventures with clients and how they structure it is slightly different. They will typically
ask for the client to send them the money, now that’s very dangerous because you then
lose control over that particular investment. Obviously the funds go into a bank account
that you probably don’t have control of, they go to a company that you are not maybe a director
or a share holder of, so again you don’t have any control over that investment. If you are
doing joint ventures, they can be very lucrative, they can be very successful, but it’s important
you structure them right. Speak to your solicitor, speak to your accountant, make sure the structure
of that joint venture works for you and ultimately try and structure it so you have control over
that property deal if you’re putting all of the money into that deal. Buy it under your
own name or your company name so you have control of that asset. Okay, number three is looking at deposits
and how you specifically reserve a property when you’ve seen one that you like if you’re
buying through a property source or an investment company. The reason why this is important
is two fold. One is the amount you’re paying as a deposit to reserve that particular property
and two his how that deposit is paid, structured, secured, how it goes towards the deal or not.
Now, it’s not just about how it’s done but it’s trying to understand the reasons why
it’s done. For example, there are some companies that we’ve seen set up, fly by night companies
that set up and disappear within about six months time frame. Typically what they do,
is they charge quite large deposits, reservation fees, for customers to reserve a deal, it
doesn’t really exist or it might not be a true property that they’re selling on fantastic
deals or fantastic location, whatever it might be that is their selling point, but that property
isn’t real it doesn’t exist. The reason why they do this, obviously it’s very lucrative
for them, they set up and then they disappear after a couple of months. To get around that, a couple of things to
consider. First of all is the amount you’re paying in a deposit. If you’ve just reserving
a property, say it’s of plan and you’re paying stage payments or you’re not doing something
called an exchange with delayed completion where you maybe pay 10% or large amounts up
front for a property via solicitors, but you’re just reserving a property, you’ve seen a property
you like, you speak to the seller or you speak to the sourcing company and you say you want
to buy that particular property, they shouldn’t really be charging you high reservation fees.
Average reservation fees for the industry are anywhere from about 500 to 1,000 pound.
If you’re within that range, you should be there and there abouts. A figure that makes
sense. Anything wildly above that, then you want to start to question why those reservation
fees are so high and try and understand what it is you’re reserving in terms of what stage
of he process you’re at. As I’ve mentioned, if you’re doing and exchange
with delayed completion for example, it’s a slightly different process than just a simple
reservation of a property that you’ve seen with a company. That’s the first thing to
consider. Second thing is how to secure it. Some companies charge that fee directly and
you will pay them directly under set terms and conditions. That’s absolutely fine, as
long as those terms and conditions outline when you get that deposit back or when that
deposit is payable and retained by the company. For example, if the seller pulls out of the
deal, will you get your deposit back and is that outlined in the terms and conditions?
That’s a situation that’s completely out of your control as a buyer so you shouldn’t be
penalized if that happens. It’s important to understand that structure. The other reason
why terms and conditions help, is to see where that deposit goes. Are you paying it to company
and it stays in their customer account or client account, or are you paying to a solicitor
or to an [astro 00:07:18] company. Either of them is fine, as long as those terms
and conditions outline as we said, the reasons when you might get it back or if you don’t
get it back the reasons why it goes to the company. That’s important to consider is,
how you reserve those particular properties. Make sure you deal with companies that are
legitimate, have some internet presence ideally, that have been around for a long time, that
you can check on that company, speak to previous customers of theirs maybe, look at previous
developments of theirs so you know that they’re an established company and they’re not going
to disappear in a couple of months time. As long as that deposit structure is right, as
long as you’re paying the right amount, it’s not too high and as long as it’s been secured
in the right way or it’s been paid in the right way with terms and conditions, then
you should be protected. Okay, number four is looking the inflated
figures. This isn’t the return on investment you might get in terms of rental yields, things
like that and general ROY on the deal. It’s more about looking at, do those market comparisons
make sense for that particular property? This happens very often with, certainly overseas
stock, it can be fallen into this trap where it’s hard to understand local valuations,
but it does happen with property deals around the UK as well with some companies where you
look at the local comparison figures and you compare that to the property you’re considering
buying and the figures are quite wildly different. It’s important to understand the price of
the property that it’s being marketed up, the price you’re paying, if that’s different
or if it’s the same, and then what the local comparison properties are on the market for
and also selling for. Whether that valuation is close or real. Not just for sale prices
but also for rental values. Very often you can see properties that are
sold that anticipate a rental amount of 600 pound per month, but the actual local market
rent is maybe only 500 pound per month and that’s very dangerous when it comes to doing
that particular deal. If those rentals aren’t the same and then you purchase it and go to
rent it out and you’re receiving a much lower income, then that can be very worrying on
that particular deal for you because obviously is going to affect your income over a period
of time and the figures will look a lot different than what you’d originally anticipated. A
property scam, unfortunately that some companies do try, is they would inflate the price that
they say the market value is for the property or inflate price that they’ll say the potential
rental yield is for the property. It’s very important to do your due diligence, speak
to local agents, local letting agents, understand your own comparisons and properties that are
on the market, properties that have sold, properties that have rented and are currently
being advertised for rent. Try and get a grasp for those figures, make
sure they’re in line with what the property deal is you’re looking at and you should be
okay, you should make sure you’re in the right ballpark and looking at the right kind of
figures. Okay, the fifth property scam is unfortunately
companies that sell refurbishment type products or properties that require a large scale refurbishment
and they do that as a package deal for you. There’s unfortunately some scams in and around
that part of the industry. Doesn’t that mean that particular strategy or way of buying
a property is wrong, it’s just important about trying to understand how it should be presented
and the type of deals that you should get involved in if you are looking at that. The
issue here is the type of refurbishment that’s being done in terms of the amount that you’re
paying for the refurbishment and when you pay those payments. Some companies charge
an upfront fee, it’s like a package deal for the property, and they’ll say, okay well you
make a payment for us, not just for sourcing the property but also for the refurbishment,
and the refurbishment could be 40,000 so we want 20,000 or 40,000 on day one, and again,
which is very dangerous. You shouldn’t be in a position where you’re paying for a full
refurbishment on day one on any property that you’re considering because it should be staged.
There’s no real reason why you should have to pay all the refurbishment costs on day
one. That doesn’t happen even with new build developments,
doesn’t happen with conversions and even smaller scale refurbishment. If you’re doing something
that’s going to require work on the property, you should be able to make stage payments
for it. If a company is saying that they require all the money upfront for the refurbishment,
I’d just be a little bit concerned on that and try to understand why and see if you can
make it in stage payments. For example, how we work with our refurbishment company is
we typically pay on stage payments once per week. They will do the week’s work, we’ll
then assess it during that time frame, so we usually go on site twice a week, and once
usually either the beginning or the middle of the week to see how things have started
off and then once right at the end of the week to sign off that week’s worth of work
and that’s when we’ll make payment. It’s very important that you pay quickly to make sure
you keep the development and refurbishment team on site, but stage payments should be
the norm within the industry. Certainly look at that if you are looking at refurbishment
or conversion type projects. The sixth property scam or investment scam
unfortunately is land. This is very prominent in times of recession or growth, when people
are looking for alternate type of investments and maybe something that’s a bit different
than the norm. What you tend to find is a lot of companies, not a lot of companies but
some companies set up and sell land as development land or property or land that you could potentially
develop at some point in the future. It’s very speculative. You’d buy now with the ambition
that in maybe five or 10 or 15 years, you may get planning on that land. Where this
sometimes becomes a scam is that they’re selling land that’s greenbelt and that really has
no potential opportunity or chance to get planning permission on it because it’s possibly
protected. Also land that’s being sold at a slightly higher value or sometimes a much
more higher value and inflated value without planning permission than what it should be
with planning permission. Some companies will sell land and say, okay,
well on this land you could build a apartment building or small housing estate or one particular
property, depend on the size of the land, and they’ll sell it or market it at a rate
that’s with planning permission. Land with planning permission is valued differently
than land without planning permission because sometimes that planning permission can be
hard to get, so there’s much more value in having that planning permission. If you are
looking at land deals, make sure you understand the cost per acre or hectare, whatever type
of land it is you’re looking at buying and really analyze that and see if it’s potential
really to get the plans that you want to do on that site, and what it’ll be worth with
planning permission and then if that investment is worth it. It’s very often easier to look at land with
planning permission in place and then you cut out a lot of the risk that might be associated
with that, but if land is your thing, if you want to start looking at land development
sites just be aware of the different values essentially of what land should be with planning
permission, what land should be without planning permission in and around that local area and
also what the potential likelihood is of getting the planning permission and for that particular
location. Last on the property and investment scams
is something that’s more recent actually, that we’ve been speaking to our solicitor
about, is fishing of bank details. This might sound a bit strange in relation to property
but what you’ll find obviously in normal scams that you might get on email, people looking
to try and pinch bank details, that type of stuff. Specifically in property, what’s happened
in a couple of transactions recently is the fraudsters have hacked in to solicitors and
emails and then sent an email from or cloned an email from that particular solicitor to
potentially clients and sent out, “If you’re looking to buy a property at that point in
time.” You’d usually send money to your solicitor to buy the property. You will make a wire
transfer from your account to solicitor’s account to allow that purchase to happen.
That’s completely normal, but what the fraudsters will do is they’ll hack that, send email through
to the client and say, “Sorry, there’s been a change of bank details, can you send it
through to this account instead?” The client then sends all the purchase money
to a bank account that’s not the solicitor’s account, it’s the fraudsters account and then
they lose all of that money. That’s something that’s more recent, it’s not wildly prominent
as in you shouldn’t be worried about it to the extend that you don’t do property deals,
but it’s something you should really have this conversation with your solicitor and
just before you make a bank transaction speak to your solicitor about it over the phone,
rather than just relying on email. That way you should try and overcome those particular
issues that some buyers are experiencing at the moment where they might get a fishing
issue from a fraudster saying, “Look, here’s new bank details and then that money goes
disappearing. Obviously there’s that very big cost if that happens. It’s a lot of money
to lose on a transaction. All I’d say for that is just make sure you speak to your solicitor,
make sure you have a conversation with them and see what their protocol is in place, again
to make sure that shouldn’t happen and then you should be absolutely fine. Hopefully those seven tips have given you
some guidance, a little bit of understanding and knowledge of what to look for when you’re
considering your next property deal. Any questions on this particular video, feel free to ask
in the comments below, more than happy to help and looking forward to catch up with
you soon. Take care. Thank you for watching this video. If you
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