Buy To Let Or Bought A Toilet?

With the announcement of the government bail out of Bradford and Bingley first thing in the morning, there has to a be a few quaking in their boots with a buy to let mortgage hanging over them.



What does this mean to everyone?

Northern Rock has been nationalised and seems to be doing OK!

On the face of it, this would appear to be the case. We at the Investment Property Rumour Mill are going to take the toilet brush of property investment and see just how clean under the rim it all is by delving a little deeper and look into how the banks got into this state in the first place, what all this means to the layman investor who thought they might set themselves up for life, and what the likely or possible outcomes are for all involved.

It has long been a British institution to "get a foot on the property ladder" with school, college and university leavers urged on by their parents to buy a house and leave home. We have all heard the saying "as safe as houses". Obviously there aren't too many teenage millionaires these days apart from the most successful of hoodies of course, so one is invariably off to the bank to get a mortgage.

Nothing wrong with any of that you might think, which was true until the banking world discovered marketing and interbank lending, and the concept of buying houses in other countries that we hadn't heard of until last week.

Buy to Let or B2L was born, along with various other acronyms. The criteria to lend came down as the purse strings of the institutions slackened, everyone was jolly with a shiny red smiley government in power offering prosperity and stability and all was good.

When potential property purchasers went to the bank to get a mortgage, few were turned down, and even if they were, there was another bank just itching to lend in on top on behalf of that bank, creating the interbank lending and making the books look good. It even created one of the most amusing acronyms of the mortgage world, a NINJA mortgage (No Income, No Job or Assets)

As a result, the state of play now is a large number of banks with enormous mortgage books that far outweigh their savings and investment balance. According to Bloomberg,

"Deposits at the bank amount to only slightly more than half of loans outstanding, which means it depends on capital markets for about half of its financing. Bradford & Bingley was forced to curtail new business when those markets dried up and the cost of inter-bank borrowing soared causing banks to hoard cash following the collapse of the U.S. subprime mortgage-market. "

So lets just clarify what that means for a moment, Bradders and Bingers, the gents in bowlers have lent out almost twice what they have! Some way to run a bank!

What does this mean for the short term?

Well, those that can pay their mortgages will still need to pay them, the money will just go into the government so it can try and recoup some of the money. The savings arm of Bradford and Bingley will go up for private sale, probably to be hoovered up by the banking behemoth that is Banco Santander.

The medium term?

This is what we fear most have overlooked, and isn't likely to come out for quite some time. The British government is bailing out to because it has no choice, not because it makes financial sense. The Labour party, love 'em or hate 'em isn't fairing well in the polls, and has to earn some brownie points and create some election credibility from somewhere. The key point that remains to be seen here is simple.

The Bank of England sold its' gold reserves a few years ago, (at the lowest price in modern day markets)

The UK no longer exports or produces anything of any significance. As a result, no real income from exports.

The government is about to own a very large number of properties that no one can afford to pay for, (perhaps they can sell them off as Olympic housing, at least they will be ready to use in time!)

The Future of Buy To Let?

Its true, anyone can rant and rave about the failings of others, play the blame game, and say "well you should have" Here are some sound suggestions, take them as you will, they are based on logic, fact and reality, instead of hype, spin and sales banter.

If you are going to buy to let, look for an economy that actually runs on that method. At least with then you know that the common mentality works in tandem with the way you intend to make money.

Unpopular as they might be with the British, the French and German house buying mentality is very different. The general workforce there does not purchase a home until they reach their mid to late 40's, renting for their entire life until then. Why? Partly due to expense, but primarily because they don't have the property ladder greed mentality beaten into them at an early age.

What this means is that as Johnny Foreigner, you can buy a property in France or Germany and rent it to the locals long term, your rent is guaranteed if you do it properly, and you can get a mortgage at Euroland rate.

It wont make you a millionaire in 5 minutes, but then the surrounding properties will still be there and occupied in 10 years time and not sold to a farmer for a fiver because the government needs to buy some paperclips and has run out of cash.

All in all, research first! Just because you can "keep a eye on your investment" in the next street, it doesn't make it a wise investment. If everyone is doing the exact same thing in the same place, no one will be successful. Look to take advantage of systems that work, don't be greedy, and believe it or not, politicians do lie occasionally, and even if they don't, they can get incredibly economical in the truth department. Most of all, beware the seminars and investment property promises of riches. There are some well researched investments out there, just read the small print, research, and make sure you can afford it even if the local economy goes wrong!


Many thanks to Freshome.com for the Toilet Shaped House image.
Apparently the rent on that property is in the realms of $50k a week!

The Instant Access-Inside Track Saga goes on and on

Well after last nights rant at the TV we thought it appropriate that we bring you what is possibly the largest farce regarding the investment robbery world. The tale of Inside Track, Instant Access and all its other brothers and sisters.

There are numerous reports on all of the companies involved from many sources, so for convenience we will list them at the bottom of this article.

The articles mention several companies that all seem to be interwoven like a plot for an Eastenders Christmas special.

Instant Access,

L'Arome, (which went bust in the 90's owing millions)

Fuel Investments,

AfterCare Solutions,

The Pearson Foundation in Panama,

as well as the suggestion of several offshore trusts in the Isle of Man.

For those that are not aware of Instant Access and Inside Track, in a nutshell Inside Track held seminars amidst vast amounts of publicity claiming you could become an investment property millionaire if you paid them 5-10 thousand pounds. For your money they would tell you about the "opportunities they had sourced" (As it happens by people with little or no experience, let alone qualification) Which you the "Qualified Investor" would rush in and buy.

As it happens now, Inside Track and Instant Access are both in administration, no surprise considering the current state of the real estate industry and financing right now.

What the journalists appear to have missed though is a number of astonishing claims on the current Instant Access website made by Jim Moore. (Who signs off as the "Founder" now, when before he was nothing to do with anything at all, how strange!?)

Global Banking and Finance Crisis – IAP’s response for the future

As you will see, a lot of wittering on about how it is everyone elses fault and written in such a way it seems to be treating its' clients like 5 year olds which really adds insult to injury.

The statements that follow further on are just beyond belief though:

"Whilst the current climate is worrying and at best, testing for us all, (and I feel for every one of you with difficult investments at present - I also have my share - some have been the very same developments you may have invested in) I believe passionately in property investment for individuals like you and I, as a powerful complement, and alternative to straightforward "traditional" investments."

"As you are no doubt aware, I founded this business some eight years ago, and so, when other funding could not be sourced, it was left to me to decide the "ultimate fate" of the business.As a result of this, I've worked with my team in "crisis talks" since Friday in an attempt to come up with a solution.Our ongoing aim is to be able to offer you, as closely as we are able, the services and opportunities that you were previously offered, with minimal interruption and disruption. To do this I've been required to commit to further substantial investment in order to take the business forward."

So tell us Jimbo, how are you going to take the business forward? How are you going to get us out of this jolly old mess?

"This has meant it has been necessary to form a new operating company, "IAP Global"."

Whoa! What!!!!?????

"IAP Global is headed up by IAP's previous Managing Director, Tony McKay, and staffed by people I'm sure you will know and recognise.This team will help you to complete on properties that you've invested in, and continue to find new investments in areas of opportunity around the world for you to capitalise on as and when you feel you're ready.
You will appreciate these are difficult times for all of us, and we too have had to restructure and downsize in order to find a solution – as such we would ask you to please be patient with us should you feel you experience any service shortcomings in the near future – the decision was taken that "a smaller IAP was better than no IAP""

Now hold on a moment, let us get this straight. We have been to your seminar. We have paid you say 10K to see all your investment ideas. We have then handed over a huge wedge of cash to a developer that has then paid you a commission. You have let one company fade away, taken out a debenture on it just in time to see that you get paid before any other creditors and now you tell me that a smaller IAP is better than no IAP? Does this mean you can fritter away less of my money?

Apparently not! the page goes on to say,

"In the next few days and weeks, we will be launching a number of new "market appropriate" investment products, with a focus on high growth, minimum investment, minimum risk, and positive returns. IAP Global will also be launching its own website (at the same web address:- www.iaprops.com) - please ensure we have your current email and mailing address, and also, check the website regularly - we intend to make more use of it as a member communication tool.We will make sure we keep you abreast of any changes and developments, hopefully all good from now on. We all know that this is a difficult time for everyone, nobody is immune, but together I believe we can find a way through this and into profit. It’s difficult to be "courageous" at times like this, but you recognised property investment was good when you elected to get involved with us, and fundamentally that hasn't changed."

"Market Appropriate Investment Products". Hold on a moment whilst i climb back on to my chair after falling off it due to laughing so hard.

May we remind you that the last "Market Appropriate Investment Product" you promoted was as much use as a sunbed on a submarine?

An ingenious scheme to calm the heat and extract more cash from already desperate clients, some with debts into the millions already. If you are an Inside Track/Instant Access client, do let us know of the latest propositions. Be aware that any money sent has already disappeared, most likely to the Pearson Foundation in Panama, what is to stop the latest venture going the same way? I can't imagine this lot coming back from Panama in a few years time to face the music!

Irish Independent "On an inside track to a property jackpot"

The Free Library "No more takers for dream of becoming property millionaire"

The Guardian "Champion of buy-to-let boom succumbs to credit crunch"

Yahoo Business "Unanswered questions at Inside Track"

Fools Gold or Golden Fools? Channel 4

Astonished, flabbergasted, lost for words.

If any of you have watched Channel 4's aptly titled "The Price of Property: Fools Gold" with Jon Henly, you too are probably picking up your jaw from the floor. Personally, I have not lived in the UK for over a decade now and whilst no-one has been able to escape the rising house prices in the UK and Europe in general, I find it almost unbelievable to see a woman who managed to spend the best part of a million pounds on property she hadn't seen over a weekend, then on top of that, go to see one of them and wonder why the furniture was made of cardboard and seemed incredibly cheap!?

I must admit, although the numbers quoted seemed somewhat off, it is a stark, long overdue lesson on how not to invest money you don't have in something that is yet to exist and that you can't see! The woman in question (vague as she was) thought when asked that she would be some £400,000 out of pocket if she sold all 7 apartments there and then. (We don't know when this was filmed, so it could well be double that by now!)

The world of property seminars and exhibitions is a very murky one, not just from out and out misrepresentation hype, but the manipulation of the public into parting with their cash for something they know nothing about with the simple aid of a fancy dog and pony show in a posh hotel with big shiny TV adverts. (We'll come back to this murky world in a moment)

First, Ask yourself the question. Do you think you could fly a rocket to your local Tesco and back without crashing after an intensive course from NASA in just a weekend?

"Oh no!, that's just being stupid" I here you cry, well is it? This woman had gambled over half a million pounds of money she didn't have in a weekend.

The Channel 4 show went on, interviewing a young lad on his first "buy to let" investment at auction, saying "I can't lose, everybody needs somewhere to live" HELLO!! has no-one read the news lately???!!! like, in the past year?

Why and how do people manage this? even then when they have, why do they think there is still money in it?

It's simple. Hype, Press and Seminars.

Hype?

Whilst the Channel 4 show in this case has highlighted everyones mistakes after the effect, in an all very nice touchy feely way, we still have the wrath of tv shows to thank for the hyping of riches to be made from property investment, most of which are sponsored by some sales company or another, or in some cases property companies going to the length of buying TV stations to get just that bit closer to your wallet whilst you sip on your Horlicks on a cold winters night.

The press?

Well they will take ads, and sponsor events held invariably by media companies linked to real estate interests in some way or another (we have illustrated just the surface of this in previous posts)

Seminars and Exhibitions?

Dare we say it...... Inside Track and Instant Access. There. What a great idea, send us money and we'll tell you where you could buy. It'll make a profit, honest guv! The Instant Access website(s) does throw some confusion into the mix here, take a look at these 2 very similar links,

http://www.iaprops.com/itsredirect/index.asp

http://www.iaprops.com/

There is a great deal of debate and argument going on around Inside Track, Instant Access and all of it's owners, so we are going to refrain for the moment from commenting in too much depth, leaving you the reader to ask yourselves the question as to why a site might need 2 different versions. Once the dust settles a little, we will have a report on the shenanigans from both of these companies.

Back to the point though, before we rant on any more. Seminars. DON'T go there. No matter what the nice man in a shiny suit tells you or shows you, the chances of you paying off your house 150 times over in 10 minutes if you buy these 5 properties for only 5% down and take a 150 year interest only mortgage and rent them out to all of the 6 million tourists that walk past the front door twice over when it's 40 degrees below in darkest Bulgaria are slim to say the least!

As Public Enemy once said, Don't believe The Hype!

Ocean Estates - The Poseidon Adventure?

This week we take a look at what Ocean Estates is (or perhaps isn't) up to. As the title would suggest is a tale of much peril and trepidation.

Ocean Estates has been around for some 22 years under different owners and guises, of late though, it all seems to be coming to an end with their application for voluntary liquidation of the main business.

A different story from that of Viva Estates that we reported on last week with Ocean having had the foresight to spread its wings into the international market much quicker than its main rival of the times.

The problems that have finally bought it all to a head of late however are interesting to say the least. Earlier this year, there was talk of a takeover of Ocean Estates by none other than Hestiun, "Official Leisure Property Development Partner of Manchester United" under the name of "Royal Resorts"

After much negotiation and book checking however, this threw up a little problem, an outstanding tax bill dating back several years, as a result Hestiun quite rightly pulled out. Well done Hestiun. What has been left behind though is a bit of a mess to say the least.

Ocean still has its' Thai operation running. This was a separate entity from the very start, does very well and provides a fantastic service for clients in Thailand. On trawling around the forums, speaking with a number of agents and ex employees, Ocean Estates Spain does seem to be in rather a pickle.

In a nutshell, Ocean has filed for voluntary liquidation after the outstanding tax bill having been thrown up be the Hestiun/Royal Resorts audit prior to the offer to buy out. The tax bill in question is apparently in the realms of 200k or so. (Not a lot in the high flying world of international real estate!)

Whilst the proposed buy out was being drawn up, much of the Ocean data and sales material was moved over to the new operation, along with a number of members of staff all smiling as they went. At the same time, all of Oceans referring agents (Lead generators) were all being told "All is good, commissions will be through shortly, send us your invoices and we'll get them paid"

Needless to say the situation now for many of those agents is not good at all. The initial filing for liquidation took place around April time this year. To date there is still no resolve. Some agents were asked to "keep sending leads, they will get dealt with" When pushed for payment by agents, Ocean eventually declared the liquidation filing (After requesting invoices for payment) and simply threw up their hands saying it "Was all in the hands of the courts now" Of course, you can't submit the same invoice for payment to another company whilst it's being held up by the courts, so many agents are not thrilled at all.

The Public have not been amused with Oceans antics either, looking at the very popular forum on Eye on Spain there are a number of very unhappy folk, some of which are also ex staff.

Will Ocean survive? Unlikely. As slow as Spain can be in processing paperwork and filings for this kind of thing, if they were able to trade out of the hole, they would have done by now. Ocean is down to one main director as far as we are aware, Paul Blagden who busily fields the calls from agents wanting payment. The Banus office is still there (just) but really just waiting for the final wave to crash over it and drag it to the bottom of the sea.

Why has this happened? The tax situation in Spain is open to much interpretation to say the least having several loopholes in it. What you cannot do though is just say "Oh we didn't know" and expect the tax man to say "Oh that's alright then"

Next week The number of stories out there are extensive to say the least, we still have Red Hot Homes to cover, (We are awaiting confirmation on a couple of things before we bring you that story, please be patient) Polaris is being looked at as we write, and we are compiling something about the various forums out there concerning the real estate industry, both public and insider. Can they be taken seriously? We shall see!

What Happened To Viva Estates?

An incredibly busy week this week in the world of real estate and high finance! Lehman Brothers running around to re finance their failing business, several developers off to the liquidators, MRI's Darragh MacAnthony being hauled through the courts, and the demise of XL airways!

Still, all these stories hit the news and fade away shortly afterwards, often subject to the "Fish and Chip Wrapper" effect. (Today's news, tomorrows chip paper.)

We did promise we would bring people up to speed though with some of the former major players in the international real estate business, the likes of Viva Estates, Ocean Estates, Red Hot Homes and so on, this particular blog seems to be coming up for searches on these companies, so we went to find out.

This week we are going to cover Viva. Set up over a decade ago by Chris Mc Carthy, and having sold according to a press release from last year 8000 properties, one has to ask, where did it go wrong?

Well the truth has been difficult to find and define even when we thought we had it. There are hundreds of people who have worked for Viva over the years, understandable given the time they have been in business and the expansion that went on, but many have jaded opinions, some still have vested interests, and others with the Costa del Sol being the way it is, simply believe if you haven't heard a rumour by 10 am it's time to start one.

Viva had numerous offices on the Spanish Costas, the one pictured is the Los Boliches office, now desolate with a for rent sign in the window. Only 2 years ago you couldn't move for Viva propaganda, front page banner on the Sur in English, Viva plastered all over the buses, and huge road side signs everywhere you looked. Then, Viva Expo took over as the offices began to close. Viva Expo was created to occupy the former Viva head office after that (I would guess) became non cost effective to run. Basically the idea being to fill the huge space with developers, (which of course were charged a rental on the space), then spend some of the rental fees on advertising bringing in new punters from around the globe.

What happened was it produced some astonishing footfall figures for the first month or so, the reason being though was it was all members of the trade looking to see what was going on. The industry had already seen the "Sell your house for 2%" fiasco launched by Viva earlier that year which seemed to disappear never to be spoken of again, and the trade wanted to know what was going on now. Viva Expo now? well the flags are still out, but doesn't look like anyone is home, the Viva website is still up, and Chris is rumoured to have moved back to Liverpool with his tail between his legs.

A great shame to see such an enormous business collapse so rapidly, primarily due to far too rapid expansion with no real thought as to the need to change with the market. McCarthy is on record having said that the height of the market was in 2003, yet in the same breath stating that tourism was on the increase and it was better than ever in 2007.

Viva is not the first, and certainly won't be the last to disappear, the cull of agents in Spain is long overdue having filled up with many rogues who gave up their careers as checkout girls and hod carriers to become estate agents. Fortunately for the public, Viva only really dealt with the re-sale market, meaning most purchasers got what they paid for. Sadly, with the enormous interest in off plan, many companies have exploited the greed factor of those expecting to make a fortune from the off plan market world wide. The reality to come sadly is that many will be caught short with no where to turn, no developer to chase, and no recourse through the non regulated estate agent industry.

We will continue next week to bring you up to speed with Ocean Estate, Red Hot Homes, Parador, possibly Polaris World, and anything else that comes up!

Spanish Developer Colonial, The Next Martinsa Fadesa?

This week we see yet more doom and gloom emanating from sunny Spain in two hefty stories.

The first is regarding the ongoing process of sorting out developer Martinsa Fadesa. In a post on Saidiavacations.com by David Hewitt, Fadesa have failed to file it's half year accounts on time with the CNMV (The Spanish equivalent of the Financial Services Authority) with respect to it's finances. The reason for the delay apparently is two-fold, firstly Fadesa want the approval of the liquidators, and secondly "The chairman of the company, Fernando Martin, declared personal bankruptcy shortly after the company went into liquidation in an effort to separate his personal assets from those of the company." It is claimed that the filings will be made in "A few days more"

A few points of what this likely means to the everyday person out there once you read through the mumbo jumbo and take into account the "Spanish" take on things,

Fadesa wants approval of the liquidators - Likely to mean there is some shuffling to be done with respect to what is where on the finance front, and we have a lot of shredding to do.

Chairman of the company declared personal bankruptcy - Well as much as we don't enjoy kicking someone when they are down, but this could well mean that he knew it was coming, I mean how many billions in debt do you really need to be before the penny drops? Protection of personal assets is likely to be what that is about.

A few days more - Anyone who has lived in Spain has come across the word manana. Contrary to popular belief, it does not mean tomorrow, it means not today. It doesn't state when, just not today. If this is the literal translation of what has been said, then it will be a lot more than a few days before the CNMV get their papers!

Do note though, whilst all this is going on, Fadesa Maroc is still OK as far as we are aware, see our last post about the Morroccan arm of the company.

The second company with major interest is Colonial, they are off for a meeting with shareholders and creditors according to Reuters to have a chat about the possibility of a debt restructuring deal worth 8.9 Billion Euro, a right old tea party by the sounds of it with several major players involved, including RBS (Royal Bank of Scotland) who's shares closed down 3.51% on Friday.

There are others involved in the talks, the likes of Goldman Sachs, as well as Banco Popular and La Caixa, which earned the equity after swapping some debt earlier this year. Some earning that was eh guys!

These two developers will not be the last, Colonial is making the best efforts possible to avoid liquidation, but this isn't likely to disappear over night unfortunately, after the developer bankruptcies, the agents will follow. Some are already in that particular cauldron steeping as we speak, Viva Estates, Ocean Estates, and Red Hot Homes for example. From what we hear, it is sadly unlikely that any will recover.

Having said all that, perhaps it is what the industry needs, a healthy cull within a much hyped business, where almost any Tom, Dick or Harry can set up shop and develop away, or flog houses to unsuspecting people, playing on the "left my brain at the airport" syndrome.

We are researching in depth into the number of developers and agents in main areas of Spain at present that have gone out of business in the past 6 months, and the results are staggering so far, rest assured we will post the report when we are done, and what you can do if you have been affected.