MARCH 2011 |
www.opp.org.uk WORDS | Kevin Macadam
DISTRESSED
MORTGAGES | 53 The only way is up
OPP’s regular mortgage columnist Kevin Macadam, of OMB, takes an expert look at the borrowing picture for agents and buyers interested in the distressed market this month. And whilst he fully admits that lenders remain cautious, but can see a few chinks of light opening up for brave investors ready to move now, ahead of the recovery.
n my last column I mentioned that I felt that the Spanish and USA property markets would take a long time to recover their previous highs. And I still stand by those comments. However, for the investor who is taking a long term view, prices in these “distressed” countries present remarkable value for money in the long term.
I
For those of you looking to invest (or advise on investing) in these markets, with a view to making money from them, I would like to offer a few helpful hints this month on how to do this. The fi rst challenge is to source
properties at the right price. There are a number of pieces of
software on the market for landlords that help you calculate the return on your investment and thus help ensure that you do not overpay for a property. The software works by calculating the
return on your capital invested and takes into consideration the price paid for the property and its rental income. It also looks at any other associated
costs in acquiring the property ... such as fi nance costs and legal fees. In the UK, websites like www.
houseprices.co.uk, which are linked to data at the Land Registry, enable prospective buyers to see what properties in the local area have sold for. Sites like these ensure that neither you, nor your client is going
to end up paying over the odds. In the US there are similar Land Registry systems that provide a myriad data for the investor to peruse and make an informed choice. It’s always worth meeting local estate agents and getting to know them and let them know what you are looking for and that you have money to spend. If you don’t have time to do this, then there are a number of agents that will source property for you complete with tenants.
All you need to do is make sure that the properties meet the return you want. These agents are likely to charge a fi nders fee, however they will save you time and usually provide a one stop shop service. Normally, they will handle the whole transaction for you and the fee they charge should be written off as an acquisition cost.
If you focus on properties that have been repossessed, foreclosures or renovating run-down property, then these are the properties that are likely to provide the greatest return. However it is important that the properties you buy are in good areas which have an opportunity to recover and provide
capital growth. If not, it doesn’t matter how much you spend on the property, you will never realise the money you have invested in it.
Often these run down properties are more diffi cult to mortgage because of their condition, and some of the banks won’t lend on them. You will then need to consider buying the properties as a cash purchase or by raising the money against other property assets you may have. This
Kevin Macadam is managing director of Overseas Mortgage Broker, which specialises in helping international property agents and developers provide their clients with funding solutions around the world. For more information go to
www.overseasmortgagebroker.co.uk
can be done by releasing equity from your main residence. Some clients are reticent to do this as it puts their main residence at risk however it only puts it at risk if they fail to keep up the repayments. Often this can be the cheapest and quickest way of raising the money.
The other alternative, particularly in the US market is private or hard money lenders. These are often rich investors or hedge funds with surplus cash to invest. At Overseas Mortgage Broker we have, through special negotiation,
secured a hard money lender for foreign national clients buying in the USA. Please contact us for further details if the idea appeals. This private money isn’t cheap
however, and the lenders will often have spotted a niche in the market and will lend where other lenders would not. Again the cost should be viewed
as an acquisition cost and a means to secure the property with the possibility of remortgaging to a cheaper rate in future. As I said earlier, lenders worldwide are
still cautious with their money and will continue to be for the foreseeable future. However, remember that when the
Looking up | Access to fi nance will improve, loan to values will soften and lender criteria will embrace overseas buyers again
recovery starts, the investors that got in now will be the ones likely to make the greatest returns. Also, access to fi nance will improve, loan to values will soften and lender criteria will hopefully embrace the foreign national buyer once again. Think positive. The only way is up!
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