Why Seller Finance Makes Sense In A Rising Market – Rick Otton Analysis

The Real Estate Institute of Queensland found that properties in the southern part of Brisbane’s CBD are among the fastest selling in Queensland.

Here is the average time to sell property in these areas:

• Cranley – 14 days
• Glenlee – 26 days
• Mansfield – 29 days
• Carina Heights – 31 days
• Annerly – 31 days
• Holland Park – 33 days
• Keperra – 34 days
• Chermside – 35 days

It is clear that there is strong demand in these areas. Typically, whenever there is strong demand, consumer confidence grows and when that happens, everyone just wants to jump in the bandwagon.

However, whenever demand is strong, it follows that prices will creep up. For most people, rising house prices is a good thing. After all, that is why their investing in the first place. They want to benefit from the appreciation of their investment.

On the flip side, when house prices are rising, it also means you have to pay more in order to get in and not a lot of investors have that kind of money to invest, which certainly makes building a property portfolio all the more difficult.

When following the traditional process, the higher the sale price, the bigger the upfront payment and the bigger loan. So in a rising market, it’s very easy to overcommit to an expensive mortgage and once you are committed to an expensive mortgage, you become at risk of going negative if the housing market suddenly turns.

That is why seller finance becomes a more practical alternative when investing in a rising market. When using seller finance, you are capitalising on the flexibility of payment terms to make the buying process much more convenient. For instance, in the traditional method, an investor typically gets 80-90% financing from the bank and then shoulder the remaining balance out of his own pocket. If house prices average from $400,000 – $600,000, you’re talking about an upfront payment ranging from $40,000 to as much as $120,000. And those numbers are staggering.

But suppose you can adjust the way you pay. Rather than taking out a new bank loan, what if you assumed the existing financing and then negotiated to pay the remaining equity in increments? Isn’t that an easier alternative? And because you don’t have to take out a huge hunk of your savings to get in the property market, you are in a better financial situation to adapt to ever changing conditions.

 

http://webuyhousesradio.com/why-seller-finance-makes-sense-in-a-rising-market-rick-otton-analysis/



PPB Blog - Go Where The Money Flows

For ordinary property investors… It will not turn out well.

They will trundle out into the real world trying to attract finance at London Business Angel style networking events & end up destroying any chance of walking away with private finance.

The second worst mistake to make is to go to business angel investing events in the ring and pitch.   The first worst mistake is not to go. Where else can you meet so many millionaire investors under one roof?  {Type ‘business angle event’ into Google; you’ll see}

As much as the heavy weight investors are there to invest, many of the pitches in the LBA format are weak and you are very exposed.

As soon as they know want their money, they don’t want it .

Yes it can be all so overwhelming at first: hi/new tech companies. Pitches 8-12 minutes long: in and out like branded cattle and thrown into the fire for questions from the Vultures. But you don’t play by their rules, you play by yours

We never pitched (scared to at first!) and it helped us get in the ‘inner circle,’ of investors quicker as we had the right ‘badge.’ Experience has taught us that the best strategy at events like this are the following:

Go (regularly), and get to know as many of the investors as possible. This is easy because they will have the right badge, and they are familiar with the organisers. >  They don’t know what you’re thinking.

They can’t smell the lack of experience you think you (don’t have) and it’s not tattooed on your forehead…  So just go and listen to people.

Network with them and get them talking. Build some familiarity and exchange cards. That’s all. Now you have that person as a contact, you haven’t pitched, and you haven’t publicly ‘dropped your trousers.’ The goal should just be to have them want to speak to you again.  That’s all.

Then later and more comfortably build a relationship outside the business angel environment (as they will always look at you with the tinted glasses of the environment).

Once they are isolated from that environment, then it becomes about you and them: your relationship and you don’t get compared.

If you think about this; it’s actually not rocket science. You are simply highlighting events that have the right grade and quality of people, getting to know them in an amicable and professional way, being careful not to pitch too soon or in their ‘living room,’ and then when the time comes and the relationship is forged, things start to happen naturally, in a different, more comfortable environment

This is actually how most partnerships are unconsciously formed anyway: we’re simply (reverse) engineering the process.

Mark Homer
Co-Founder and Director at Progressive Property

http://www.progressiveportfoliobuilder.co.uk/go-money-flows

Buy-To-Let Property Supremo Shuts Door On Housing Benefit Tenants

Sale of nearly 1,000 homes in Ashford and Maidstone area likely to net Fergus and Judith Wilson at least £100m

Britain's biggest buy-to-let landlords, Fergus and Judith Wilson, are to withdraw from the property business, selling their entire portfolio of nearly 1,000 homes in the Ashford and Maidstone area in a deal likely to net the controversial duo at least £100m – and spark speculation that property prices have peaked.

The Wilson's met with widespread condemnation earlier this year when it was revealed they had sent eviction notices to 200 tenants on housing benefit, saying they preferred eastern European migrants who default much less frequently than single mums on welfare. They first shot to prominence in 2006 when it was revealed that they had built up Britain's biggest buy-to-let empire, sometimes snapping up a property every day in the early part of the decade.

Fergus Wilson said a bounce-back in the local property market to above 2007 levels has prompted him to quit. In an email to The Guardian, he said: "We are selling up the whole lot! The market has recovered and passed the 2007 level.

"Who to? An intermediary is handling it. Is it China Money, Indian Money, Saudi Money? We will see. I am sure there will be much interest. It has been going on for just over three months and another three to run. I would like it to end up in English hands but it is a case of who will pay top dollar!"

He said existing tenants will be protected, with their rental contracts switched to the company or landlord that buys the portfolio. "We are protecting the Agents and Tenants who pick up a new client and landlord respectively. That is important to me. I will be broken hearted to say goodbye to my property portfolio but I cannot take it with me! It has been a lot of fun over the years."

Houses on the Park Farm estate in Ashford, where the Wilson's own scores of two- and three-bed properties, have jumped in value from a 2009 low of £150,000 to around £185,000, according to local estate agents Gould Harrison. "Over the last 18 months we have seen a strong recovery," said Nigel Gould, a partner in the firm.

Rents have also jumped, with new tenants of the Wilson's paying nearly £1,000 a month for a two-bed home compared to £725 in 2008.

Wilson did not disclose the price he is expecting to obtain for the properties, or the amount of mortgage debt attached to them. In 2010, he said the difference between his borrowing and the value of his properties "is around £180m, although it was as high as £225m." Since then, he has sold off some properties on a piecemeal basis. It is the second time the couple have attempted a trade sale of their portfolio, having been thwarted previously by the onset of the financial crisis.

Investors who are purchasing a rental portfolio are likely to value it on the yield – the level of the rental income – rather than the price individual houses would fetch at an estate agent.

After quitting the property market, Wilson said he will offer to help the government on housing policy.

"I might help sort out the Governments Housing Problem if they pay me enough money but I am not doing it for free! There is no magic wand to create overnight the number of houses required to overcome the Housing Crisis."

• Emma Lunn-  Saturday 4 January 2014, http://www.guardian.co.uk/theguardian

MMR impact on lending appears subtle, rather than dramatic, says CML

New CML data released today on the profile of UK lending in May 2014, including first-time buyer, home mover, re-mortgagor and buy-to-let lending, shows:

 

• The number of loans to first-time buyers rose by 9% in May compared to April, and was 19% higher than in May 2013. By value, lending to first-time buyers was up 11% on April and 30% higher than in May last year.
• Both the number and value of loans to home movers increased month-on-month in May by 8%. Compared with May 2013, growth was up 9% by volume and 21% in value.
• Reflecting these trends, overall home-owner house purchase lending in May rose 9% on April by both volume and value, with year-on-year growth in number of loans up 13% and 25% by value.
• Remortgage lending dipped in May, down 18% in number and value compared to April. Compared to May 2013, remortgage lending declined 26% in volume and 15% by value.
• The monthly number of buy-to-let loans was up 4% in May with value up by 5%. Compared to April 2013, there was a 14% increase in number of loans and a 22% increase in overall value. 

The Bank of England reported earlier this month gross UK mortgage lending was £16.8 billion in May, a 2% increase compared to April and 14% higher than the total in May last year. 

Lending for home-owner house purchase

Home-owner house purchase lending in May increased month-on-month totalling 57,900 loans, up 9% compared to April, and the value of these loans totalled £9.6bn, also a rise of 9% on April. Compared to May 2013, the number of loans increased by 13% and the value of lending by 25%.    

Chart 1: Number of loans for home-owner house purchase per month

 

Source: CML

Table 1: Loans for home-owner house purchase and remortgage

	Number of housepurchase loans	Value of house purchase loans, £m	Number of remortgage loans	Value of remortgageloans, £m
May 2014	57,900	9,600	21,600	3,300
Change from April 2014	8.8%	9.1%	-17.9%	-17.5%
Change from May 2013	13.1%	24.7%	-26.3%	-15.4%

Lending to first-time buyers

First-time buyers took out 26,800 loans in May, up 9% compared to April and 19% more than in May 2013. The total value of these loans was £3.9bn, which was up 11% on April and 30% on May last year.

First-time buyer affordability changed fractionally, with first-time buyers typically borrowing 3.43 times their gross income, compared to 3.42 in April. The typical loan size for first-time buyers was £123,200 in May, up from £121,500 in April. The typical gross income of a first-time buyer household remained unchanged at £37,000 compared to April.

The relatively low level of interest rates means borrowers' payment burden remains relatively low at 19.5% of gross income being spent to cover capital and interest payments, this remained unchanged from April but up from 19.3% in May 2013. 

Chart 2: Number of loans advanced to first-time buyers per month

 

Source: CML

Table 2: First-time buyers, lending and affordability

	Number of loans	Value of loans £m	Average loan to value	Average income multiple	Proportion of income spent on interest payments	Proportion of income spent on capital and interest payments
May 2014	26,800	3,900	84%	3.43	11.7%	19.5%
Change from April 2014	9.4%	11.4%	83%	3.42	11.6%	19.5%
Change from May 2014	18.6%	30.0%	82%	3.29	12.1%	19.3%

Lending to home movers

The number of loans advanced to home movers for house purchase totalled 31,100 in May, up 8% compared to April and 9% compared to May 2013. Home mover loans totalled £5.7bn in value in May, which was up 8% on March and up 21% on May last year.   

Chart 3: Number of loans advanced to home movers per month

 

Source: CML

Table 3: Home movers, lending and affordability

	Number of loans	Value of loans £m	Average loan to value	Average income multiple	Proportion of income spent on interest payments	Proportion of income spent on capital and interest payments
May 2014	31,100	5,700	73%	3.07	8.9%	18.8%
Change from April 2014	8.4%	7.5%	72%	3.03	8.8%	18.6%
Change from May 2013	9.1%	21.3%	70%	2.87	9.0%	18.2%

Lending to home owners for remortgage

Home-owner remortgage activity in May totalled 21,600 remortgage loans advanced in the period. Unlike house purchase loans, the number of remortgage loans declined in May compared to April, down 18% and down 26% on May last year. These loans totalled £3.3bn in value, a decrease of 18% month-on-month and down 15% compared to May 2013.

Chart 4: Number of loans advanced for remortgage per month

 

Source: CML

Lending for buy-to-let

Buy-to-let lending in May totalled £2.2bn, representing 16,000 loans. This was up 4% in number of loans compared to April and up 5% in value. Compared to May 2013, this was a 14% increase by volume and 22% by value.

Within the overall total of buy-to-let loans, 8,700 were for house purchase and 7,100 for remortgage. The total number of buy-to-let house purchase loans was up 7% compared to April and up 21% compared to May last year. The loans totalled £1.1bn in value, up 10% month-on-month and up 38% on May last year. 

The number of remortgage loans declined slightly compared to April, down 1% in total number of loans but up 6% compared to May last year. These loans had a total value of £1.1bn, unchanged on April but up 22% compared to May last year.

Chart 5: Number of buy-to-let loans advanced for house purchase and remortgage per month

 

Source: CML

Table 4: Loans for buy-to-let house purchase and remortgage

	Number of Gross BTL advances in period	Value of Gross BTL advances, £m	Number of BTL house purchase loans	Value of BTL house purchase loans, £m	Number of BTL  remortgage loans	Value of BTL remortgageloans, £m
May 2014	16,000	2,200	8,700	1,100	7,100	1,100
Change from April 2014	3.9%	4.8%	7.4%	10.0%	-1.4%	0.0%
Change from May 2013	14.3%	22.2%	21.2%	37.5%	6.4%	22.2%

Paul Smee, director general of the CML, commented: 

“With May lending figures, we get our first glimpse at the effect the Mortgage Market Review has had on lending trends and, at least so far, the impact appears subtle, rather than dramatic. First-time buyers and home movers continue to be key drivers in market growth and their activity does not seem to have been noticeably disrupted. There was no cliff edge; lenders and intermediaries had been methodically working towards applying MMR changes for months leading up to implementation and the figures appear to reflect this."

Notes to editors

1. The Council of Mortgage Lenders' members are banks, building societies and other lenders who together undertake around 95% of all residential mortgage lending in the UK. There are 11.3 million mortgages in the UK, with loans worth over £1.2 trillion.

2. Source: CML Regulated Mortgage Survey for all home-owner mortgage data. Buy-to-let data is sourced from a sample of CML members and has been grossed to estimate the industry total. The CML began collecting monthly data in January 2013 and will from now on report monthly buy-to-let data in this press releases, alongside our home owner house purchase data. 

3. The Council of Mortgage Lenders does not publish statistics for mortgage approvals. The data in our monthly Regulated Mortgage Survey and gross lending press releases relate to mortgage advances only. A mortgage approval is the firm offer to a customer of a specific amount of credit secured against a particular property. A mortgage advance is the total amount of loan actually provided to the buyer, by the lender. Please see the mortgage statistics timeline on our website for further information.

4. The June 2014 data will be released on Monday 11 August 2014.