This post starts by discussing the credit crunch, both in terms of the collapse of London Scottish Bank and the further fall of the pound sterling yesterday, both of which are of course affecting the property market.

At the end of the post you will learn the conclusions that I have drawn from this news, and my suggestions as to how you can profit from it.

London Scottish Bank

If you missed the news yesterday you may not be aware that London Scottish Bank, with deposits of just £273 million, has effectively collapsed. The FSA stopped London Scottish taking any more deposits because it didn’t have sufficient capital to continue, and have forced the bank into administration.

The unusual thing here though is that the Chancellor, Alistair Darling, has stepped in and stated that no retail savers will lose any money, i.e. that all savings are guaranteed beyond the official limit of £50,000 per saver.

The reason of course is clear enough because if he hadn’t done this then there would undoubtedly have been a run on all small banks and building societies (there are still around 40 building societies with deposits of less than £1 billion).

Pound Sterling Falls

Yesterday the pound fell again against the dollar. Despite previous collapses last month, this was the biggest fall in percentage terms since 1992.

This would of course be bad enough under normal circumstances, but this happened against an already weakened US economy. Seemingly it was because economic data pointed towards a prolonged recession and further interest rate cuts.

Sharp falls in the FTSE 100 index, which also fell 5.2% yesterday, undoubtedly helped to undermine Sterling. It is therefore looking likely that the Bank of England will cut interest rates yet again on Thursday.

Investing To Make Money In A Recession

The recession we are entering clearly isn’t about to end any time soon, and this can be good or bad depending largely upon your mindset. Whatever government gets in next will have to make some tough decisions because they will have an awful mess to clear up, but that isn’t really the point here.

History teaches us that recessions are the times when fortunes are both made and lost, and you obviously want to ensure that you are the one making the fortune rather than losing it.

At present both general public, and amateur investor, confidence in the property market is pretty much at an all-time low. What this means of course is that right now it is very much a buyers’ market, so as a professional investor it’s an excellent time for you to buy.

But what happens if prices fall further? The short answer is that it doesn’t really matter providing you correctly understand the fundamentals of the property you are investing in (and you are investing in a specific property, not the entire UK property market!) and invest for the right reasons.

So what is the right reason to invest? In simple terms it is for a guaranteed positive cashflow, and by guaranteed I mean where the annual net rental income (i.e. after deduction of any letting agent’s fees, allowance for voids etc.) genuinely exceeds the full annual operating costs of the property (i.e. mortgage payments after the current discounted rates have gone, annual maintenance, gas certificate, insurance etc.). The wrong reason to invest, ever (and it has now been proven beyond doubt), is because you are speculating on short-term capital appreciation!

If you want help with your investment strategy, and to better position yourself to take full advantage of the numerous opportunities that now exist, then you may wish to consider going on one of the property investment courses that are available. Which course is best for you will of course depend upon your current skill level, and to this end we will shortly be reviewing two of them…

- Mark Tolley, The Sophisticated Investor Course

- Glenn Armstrong, The Glenn Armstrong Property Course

…to give you our opinion on what you may expert to learn if you do spend your money on them. The first review will be with you later this week, the second early next week. We have enjoyed writing the reviews and hope that you will enjoy reading them.

Meanwhile, if you run a property investment course and would like us to review it for the consideration of our readers, please let us know.

The next Surrey PWNE Group meeting is tonight (Wednesday) evening. As usual, the hosts are Chris Bignell and Christopher Doran.

As usual it will be a bar-based networking session with no speaker, also no entry charge. This will be the last meeting of 2008.

It starts at 7pm in the usual venue: Bookham Grange Hotel, Leatherhead, Surrey, KT23 3HS.

The club’s website is http://www.pwne.co.uk

Are you struggling to get a BTL mortgage with a high LTV?

If so, you will be interested to learn that we have managed to secure a commercial lender for a tranche of funds for 85% LTV, interest only mortgages, on residential investment properties. Here’s the specifics:

• 85% LTV will available
• Lender’s Base Rate + 2.75%
• Rental cover at 125%
• Interest only available
• 2% completion fee
• No ERC on tracker

There are certain restrictions depending on the investor’s property portfolio in the background, i.e. if you already have a portfolio of 11 or more properties then you will be limited to 75% LTV.

With regards to immediate refinance: there are no hard and fast rules for this because this is a commercial lender, so every application is considered on a case by case basis. The general feel we got from them however is that a purchase at 85% is fine, or where an investor has bought a property for cash through an auction or on bridging finance would be acceptable as a refinance application… however the lender may not allow capital raising, especially in the case of a distressed seller, but they will advise once they have assessed the application.

As ever, there are a few important things to note:

• A product is not secured until an offer is produced 
• Full information will need to be supplied before any agreement or offer is issued 
• No HMOs or multi-let properties will be accepted

The information required to support an application is as follows:

• Asset and Liability statement will be required 
• 6 months personal bank statements (business as well if applicable) 
• Most recent 3yrs financial accounts for any existing businesses 
• Property schedule 
• Copies of all details connected with the initial sale of the property, i.e. sales particulars or auction guide 

If you want to learn more about this product, please complete our Mortgage Application form and we’ll call you back.

As noted above, the lender may not allow day-one remortgage, so you may need to run a bridge for 2-3 months until they will refinance (every application is considered on a case by case basis). We can of course organise bridging for you, so providing the figures stack this could be a method to invest No Money Down (NMD). For more details, please complete our Bridging Application form and we’ll call you back.

==> http://www.summitfinance.co.uk/applynow

Just a quick reminder that the Hampshire Property Club

==> http://www.hampshirepropertyclub.co.uk

meets from 7pm this coming Thursday (6th November) evening at the Holiday Inn, Grove Road, Basingstoke, RG21 3EE. At this meeting:

Parmdeep Vadesha will, at 8pm, talk about “Step By Step Guide to Buying Properties in the Current Climate.” If you have heard Parmdeep speak before, you will not need me to tell you that this will be a presentation worth attending!

==> http://www.hampshirepropertyclub.co.uk

The next Surrey PWNE Group meeting is tomorrow (Wednesday) evening.

It will be a bar-based networking session with no speaker, also no entry charge. The hosts are Chris Bignell and Christopher Doran.

It starts at 7pm in the usual venue: Bookham Grange Hotel, Leatherhead, Surrey, KT23 3HS.

The Property & Wealth Networking Club (PWNC) is organising a Christmas Property Networking & Charity Fundraising event in December, to allow property investors and entrepreneurs to meet in an informal setting whilst simultaneously raising funds to help charities.

This event is non profit making and all proceeds will go to relevant charities.

You can find out all about the event at:

==> http://www.pwnc.org.uk

The current plan is to take over a restaurant in Camberley, Surrey (5 minutes from M3 J3/J4, 20 minutes M4 J8/9/10, 2 minutes walk from railway station) for the evening, but if numbers vary vastly either way from expectations the event may have to relocate.

Tickets are likely to cost £25-£30 per head to include food and a glass of wine, and there will hopefully also be an auction (of property related books, CDs, DVDs, courses etc) to raise more money for the charities.

To give an indication of the likely success of the event, it would be very helpful if you would please answer the questions on the event website. This does not commit you to attending but will help to organise an event best suited to the majority of respondents. It should only take 1-2 minutes, so please do it now:

==> http://www.pwnc.org.uk

A couple of weeks ago when I reviewed Toby Hone’s new book Make Money From Property In The Credit Crunch I promised to write about development projects, how to get 100% development finance for them, and how to thereby make money from property even if you have none of your own money available to invest.

Since Mortgage Express withdrew their same-day remortgage product in May 2008, making money from property whilst putting No Money Down (NMD) has become increasingly difficult. It’s still possible of course - you just need to be a little more creative - and in this post I will introduce you to one way in which you can do this.

The first thing that you need to do is research and identify a development project with a good potential to make a profit. The fact that you don’t have the financial resources to hand, especially when looking at your first development project, is not necessarily a problem. You could of course try to find somebody, perhaps a JV partner, to put the deposit in for you. Another solution though is simply not to put in a deposit at all!

At this point I must make it clear that I am not advocating some dodgy NMD scheme such as are discussed in Mark Tolley’s NMD Finance Exposed report or the free Top 10 NMD Finance Scheme Questions that accompanies it. 

It’s actually not as hard as it sounds because provided your development project offers sufficient scope to make a healthy profit, you can usually borrow all the money you need. In other words, you can both start and complete a development project without having to put in any of your own money. Your property development can thus be No Money Down (NMD): it’s just a very different system from what the gurus may have taught you on their BMV purchasing courses (and what in many cases no longer works).

If you do it right, you can borrow 100% of the purchase price, 100% of the build costs, 100% of the developments costs and even the SDLT. Probably the easiest way to explain this is to use an example that Toby Hone gives in his Make Money From Property In The Credit Crunch book.

Toby bought an empty commercial property at auction for £80,000 because he realised that it had the potential to convert into 3 residential units with a value of around £85,000 each; i.e. he saw how, albeit with some £60,000 development costs involved, he could turn an £80,000 shell into a £255,000 combined residential unit, making around £100,000 in the process after deducting legal costs etc.

Toby’s problem was that he lacked the necessary £140,000 cash to buy the property and carry out the development, so instead he borrowed against the projected end value of the project. In the trade this is called the Gross Development Value, or GDV for short. In this instance the combined GDV of the three £85,000 units is £255,000; the astute reader will realise that in this example the combined purchase and development costs are a mere 56% of the GDV (lucky Toby!).

What is important to know here is that there are a number of specialist development lenders who will advance funds against the GDV, up to their maximum Loan To Value (LTV). Depending upon the lender, the maximum LTV can range from 65% of GDV up to a massive 80% of GDV. Some will cover the full cost of purchasing the development property or piece of land, as well as the build costs, just so long as it doesn’t exceed their maximum LTV.

The keys to identifying whether a potential project has sufficient scope are:

1) Accurately estimating the total acquisition and build costs; and
2) Accurately estimating the final GDV of the project.

As a rule of thumb in the current market, if a development project offers scope to carry out all the building works and developments costs, combined with the initial purchase, for less than 70% of the GDV, you are looking at a viable project for 100% development finance. If you can convince the lenders of this potential (and it’s a lot more complex than applying for a buy to let mortgage - and you will need help if you haven’t done it before) then you are potentially on to a winner!

In practice of course there are many additional issues that you will need to be aware of, and it is handy to know them before proceeding with trying to fund a development. Again, this is where specialist advice comes in very useful, although Toby Hone’s book is certainly a good starting point.

Probably the best place to go for specialist advice is our friends at 100% Development Finance (there’s a clue as to what they do in their name!). You can find them at:

==> http://www.100percentDevelopmentFinance.co.uk

And if you do go there you can download a short report, for free, that tells you more than I am able to in this blog post. Do it now, because it could put you on the road to making money from property in the credit crunch.

We Want Your Money…Or rather, our clients do, and this is Your Opportunity to Make Money!

We have a number of clients who have identified property investment opportunities, both development / refurbishment and Below Market Value (BMV) / No Money Down (NMD) buy to let (B2L/BTL), who are unable to obtain finance in the current economic climate.

In many cases the investment opportunities themselves are excellent, and the client has a track record of making a profit from similar deals. However, our clients often cannot proceed due to a simple lack of funding. It may be that a deposit is required due to the low LTVs currently available, or perhaps a longer-term loan to finance a refurbishment until enough value has been added to obtain a remortgage. Either way, the current credit-crunch offers big opportunities for those who have money (or can team up with those who have money).

If you have liquid cash sitting idle in a bank account (and thus possibly at risk of disappearing entirely(!) as well as earning a poor rate of return) we may be able to introduce you to somebody who will pay 1%-2% per month for the loan of that money, in some cases perhaps also secured by a second charge over an existing portfolio.

We will introduce you not only to a property investor client who can use your spare funds, but also to one of our panel solicitors who will independently advise you of the risk in the deal and how best you can protect your own interests.

If you wish to know more please use the Contact Us from on our website, with the following information:

• Your name
• Your email address
• Your telephone number
• How much money you have available
• Any time constraints around its availability
• Any comments or questions you may have

We must stress that we will not be using this money ourselves but will be introducing you to one of our clients with whom you will then deal directly. We will introduce you to a solicitor who will ensure that you are properly advised and your interests properly protected.

We are not making a charge for this service; we simply wish to ensure that as many of our clients as possible, whether armchair investors or hands-on, are able to benefit from the numerous property investment opportunities currently available. We are working to help you succeed.

If you wish to comment generally on this post or service, please do so below.

So how do you make money from property when mortgage finance is either unavailable or increasingly expensive, and the property price bubble has definitely burst?

One answer is to return to first principles and look at other ways to add value to a property deal. This is what people did before No Money Down purchasing strategies became popular; it worked then, and it still works now.

If you are perhaps unfamiliar with these more ‘traditional’ methods of using property as a money-making vehicle, then the good news is that Toby Hone (author of “Surviving The Credit Crunch“) knows them well, uses them daily, and has written a 100+ page eBook explaining some of them to you.

If you liked Toby’s first book, they you’ll love this second book!

But, back to my review of Make Money From Property In The Credit Crunch. To start with, here’s the link to it on Toby’s own website:

==> http://www.the-home-place.co.uk/MakeMoneyfromPropertyintheCreditCrunchS.php

I’ll start off by saying that while the book certainly “does what it says on the tin”, i.e. it teaches you how to Make Money From Property In The Credit Crunch, the title could perhaps be a little more accurate. Certainly Toby begins with several pages of valuable tips on property sourcing and negotiating, before talking you through the finances with worked examples and a few warnings about potential tax treatments, and even includes details of some deals he has done himself as case studies, but to be honest that’s not really the main thrust of the book.

Toby next gets into discussing property conversion, renovation, refurbishment and development, and it soon becomes apparent that this is not only an area in which he is extremely knowledgeable (as of course is Dr Dennis Coote who wrote Property Development For Profit) but also where some serious money can be made, and that it doesn’t much matter if prices are falling because (if you do it right, as the book advises) you can still take capital out at the end of the deal.

This is in truth what the majority of the book focuses on, hence my earlier remark about the title. That doesn’t change the fact that this book is both well-written and packed with valuable information though.

Toby Hone begins with a discussion of splitting a single freehold into multiple leaseholds and demonstrates through a case study of a conversion he has done himself just how profitable this can be. Of course, things can always go wrong, and to this end Toby lists 17 possible complications that you may trip over with a lease creation. The gotchas are clearly based on bitter experience and cover everything from plumbing and services, through choice of utility meters & planning matters, right through to numerous niggling legal issues. In other words, even though the list clearly cannot be absolutely comprehensive, it will certainly offer many useful tips to anybody who is not experienced in this area.

The book then moves on to refurbishment and, as you will already know if you have studied Dennis Coote’s eCourse, there’s a lot of money to be made here too. Toby starts by setting out his two main rules, namely that the property must be structurally sound and not located in a vandalism hotspot, and then proceeds to explain why. As before, there is a worked example from his own portfolio, and when going through the numbers Toby compares credit-crunch 2008 figures with last-year’s 2007 figures, so you can clearly see the effect of increased financing costs on the deal.

The main thrust of the book however is unquestionably focused on property development, and the entire second half of the book is dedicated to conveying Toby’s experience in this area. It is fair to say that it takes a year to get a year’s experience in property, but the book is effectively a brain-dump of what Toby has learned over a substantially longer period and as such contains numerous invaluable snippets of information, any one of which is worth the £20 cost of the book many times over.

The most exciting revelation for most readers though will be how to obtain 100% development finance, i.e. how to become a property developer using none of your own money. It’s effectively No Money Down (NMD) again, but this time without all the hassles associated with the methods you may have been accustomed to using and that have now effectively disappeared. Frankly, if you have the slightest interest in property development (and you should, because it’s a great way to make money even now), the book is worth buying for this information alone! If you’re interested to learn more about 100% development finance either buy the book now, or leave a comment below and if enough people ask I’ll explain it in more detail in a later post.

==> http://www.the-home-place.co.uk/MakeMoneyfromPropertyintheCreditCrunchS.php

Toby demonstrates the use of 100% development finance well however, again with a detailed case study from his own portfolio including all the numbers, and shows how on a relatively modest 3 unit conversion he made £75,000 for 3 months work… and then proceeds to explain that his target profit had been £100,000 but that he gave a discount to an investor to sell the properties quickly. The exciting part of this though is that this is REAL MONEY, not locked-in and inaccessible equity as in many BMV purchases, and of course Toby explains how you can still do this today without needing to put in any of your own money.

The book contains a short section discussing possible exit strategies, and this is something you must understand before entering into any property development project.

Obviously if instead of selling you want to keep the properties you develop, refinance them on buy-to-let mortgages, find tenants, and retain them in your portfolio that should be easy enough too (even with the credit crunch, providing you are credit-worthy) because then your development ‘profit’ effectively represents a 30%+ BMV purchase price against the full open market valuation (OMV).

Toby walks you through preparing a development proposal for the specialist lenders that provide 100% development finance, and even provides a URL on his website from where you can download copies of all the forms and spreadsheets he uses himself and explains in the book.

==> http://www.the-home-place.co.uk/MakeMoneyfromPropertyintheCreditCrunchS.php

Obviously there are more case studies, and Toby isn’t too proud to show and warn against mistakes he has made so that you can benefit from that experience too (without losing thousands of pounds to learn it the hard way as he did). Key amongst these tips are those that concern relationships with builders, obtaining quotes from them (both the right and wrong ways to do it), and of course due diligence. At this point Toby once again emphasises the importance of understanding all the costs before committing yourself. He also teaches how to haggle the builders down by 5-10%, which by reducing costs helps to increase your profits.

The ultimate conclusion is that property development requires a shift in mindset from where many people will be sitting at present but that it is perhaps also the area that offers the most scope, especially in the current financial climate. Certainly there is a lot of work involved in the up-front research, and then more still in preparing a proposal for the lenders, but the book is designed to help you through this and the ultimate rewards are probably substantially higher than any other method of property investment.

Toby finishes his book by saying that “I hope this book has opened your eyes to other ways that you can make money in the existing climate…” and I think it’s fair to say that, for the vast majority of readers, it will do just that.

My opinion therefore is that if you are a serious property investor, looking for ways to make money and/or expand your portfolio in the current climate, this book is a must-read.

Go to Toby’s website now to grab your copy:

==> http://www.the-home-place.co.uk/MakeMoneyfromPropertyintheCreditCrunchS.php