Uk Residential Opportunity

UK Distressed Residential Opportunity South east

Cover

Non-status finance Under market value

Hello, Everyone we speak to is aware of the opportunities in UK residential property right now. But turning that into a moneymaking investment can be more difficult than it sounds. There is the issue of finding the right property, funding the purchase, refurbishing it, getting tenants in and managing the situation until a full market recovery brings the right exit strategy. Doing all this at the same time as managing work and family commitments can be a tough call. Time flies when we’re busy and before we realise it the window of opportunity has closed. But the results of rushing into something without doing your homework can be even worse than the pangs of regret. We know how you feel. Our portfolio of properties in the North of England that we bought in 2003 creates more work than a full time job. Thankfully we have Jonty’s mum working full time, as well as managing agents on a 10% fee. Then there is the constant maintenance and accounts. The rewards are there but we often underestimate the work involved, not to mention putting a value on it. How many of us really put a price on our time? Recently we have also been looking to diversify into the South East. It’s the obvious choice as is likely to see the first signs of recovery, has the highest population density and is the driver of the UK economy. But with all the overseas developments we personally take care of we were looking for an experienced company with the same attention to detail to do the groundwork for us. Not an easy task. But we have found that in Steve and David from Allied Land. They have 25 years’ experience in developments, including sensitive government projects. Their due diligence is right. They get things done. It’s always important to check security and risk. The non-status, no-liability finance option, if chosen, operates more like a business loan so the bank effectively assesses the viability of each property, as well as all the usual independent surveys and valuations. The bank also insists on a one-year rental contingency. It might seem overly cautious but it’s actually a prudent step and the cost is included, along with all the fees, in the £20,000 minimum entry point. We are confident that we have found the right product for the current market and have the right team in place to make it happen. These properties are built and ready to rent so give us a call if you would like to be involved.

Alise and Jonty Crossick Contact To talk to one of our property consultants, call us on +44 (0)1273 627 900 or email us at [email protected]

Visit Research our deals, find out about shows, download educational material and more www.ready2invest.co.uk

Subscribe Receive deals as they happen, get free tickets to seminars and more by subscribing to our website.

Address Ready2invest Ltd Olivier House 18 Marine Parade Brighton BN2 1TL

Deal highlights What do I have to do?

Nothing - it’s fully managed • properties sourced and vetted • mortgages arranged • tenants found and managed • annual accounts completed • onward sale of property arranged • Property maintenance • 6 monthly progress reports

Why do I need finance?

Non-status financing available • only leading high street banks involved • properties matched to you and your equity • bank valuations mean strict assessment of property

What are we buying?

Distressed property • we search through 30,000 auction house properties • access to leading banks’ possession portfolio • contacts in letting agents • many novice buy-to-let investors are overexposed and wanting to sell

The window of opportunity • Property prices rise for first time since 2007 • Auction houses “buzzing” • Investors return to the market • Consumer confidence grows • Mortgage approvals jump • Lenders want to lend

Why get involved now?

Exploit the downturn • rising number of distressed sellers • UK house prices down 20% from 2007 peak • buy now when others can’t • fundamental shortage of property in UK • markets expected to turn and start growing again soon

Where are we buying it?

Who’s finding it?

Experienced partner • 25 years’ experience in property • strong network of local contacts • solid track record • rewarded on results

London and the South East • predicted to recover first • strong local economy • affluent population • high demand

Example property This property came onto the market in March 2009. It is a 2-double bedroom flat in a popular central location close to shops and transport links.

Price at peak £215,000 Current market price £150,000 Discounted purchase price £120,000 Discount from peak 44% Discount from market price 20% Rental potential £850 pm Gross yield 8.5% This example is based on 20% discount to market value. This is the minimum discount we expect to achieve but still gives excellent potential.

It’s not just the comparable properties that are checked, Allied Land look at all comparable rentals too to make sure this property is always let out and you get a great yield. They will only follow up on properties that are deemed to have good rental potential as only these properties will qualify for the finance.

Market research Here is a rundown of the checks that Allied Land performed on this property once it had been identified as a target...

Meticulous comparable research Number of similar properties for sale within the same road and postcode.

3

Number of similar properties sold within the same postcode over the last two years. This research helps to identify what the value would have been at the top of the market.

48

Number of similar properties sold within the same road since 2000.

185

Number of similar properties sold in adjoining roads since 2000.

270

Number of similar properties currently available to rent in area. (This helps to establish the potential yield.) Total checks =

42 548

Checklist  Qualified RICS valuer carries out independent valuation.  Solicitors check the Land Registry, leasehold/freehold and planning status.  Independent RICS valuer assesses cost of required refurbishment works.  Compulsory HIPs (Home Information Pack) provide instant essential information.

Further checks from the bank

As with all purchases requiring finance, the Bank will carry out a formal and independent valuation of the property. Also, as these are essentially buy-to-let properties the Bank will also assess the projected rental yields. Both must be satisfactory before any money is formally lent and no property will be purchased unless bank financing is in place. As Banks are taking care to minimise their own exposure, their cautious lending criteria will also work to mitigate your risk.

The time is now As with most things in life timing is everything – and right now it’s a buyers’ market. While everyone fixates on trying to predict the bottom of the market, savvy investors use their heads to find the opportunities in the downturn.

“The time to buy UK property is now”

CB Richard Ellis

This is an opportunity for you to take full advantage of the current property downturn and invest in UK bricks and mortar. Existing properties in the London and the South East will be targeted, in areas of strong rental demand. These properties will: • • • •

Have large discounts to current market value Can (if required) be purchased using non-status finance Be fully managed until sale Have great yield potential

The UK property market has suffered a dramatic drop in value over the last 18 months but the consensus amongst industry experts is that this will slow during 2009 and start a steady recovery soon afterwards. This has created a window of opportunity for investors with ready finance to buy distressed properties at significantly discounted prices before the market begins to stabilise. This deal has been put together where investors can use nonstatus finance to buy property and incur no personal liability for the mortgage. Properties will be sourced, purchased, managed and ultimately sold on your behalf to provide a hands-off investment. The information in this document details an opportunity for you to capitalise on the unique market conditions with a fully managed investment from as little as £20,000.

“Despite the weaker economic climate and outlook we have not altered our forecasts for house price growth for end-2009.” Jones Lang LaSalle, Feb 2009

“We’re at the stage where people are beginning to look at properties, particularly in the southeast, suggesting the bottom is getting closer there.” Lucian Cook, director of residential research at Savills in the Sunday Times, 8th March 2009 Whilst the market continues downwards the opportunities to purchase distressed property increases. However, as soon as the market bottoms out or begins to pick up potential sellers are more likely to hold out for better prices – and the unique discounts currently available will become increasingly scarce.

“There is every indication that the rate of decline in house prices will start to ease.” John Charcol, Independent Mortgage Advisers Feb 2009

Market analysis Recovery - It’s a supply & demand thing

Recovery in the South east

There is a fundamental shortage of housing in the UK. And a growing population coupled with a rising trend for single ownership/occupation is putting even more pressure on the housing supply. Buyers have not left the market, they just don’t have the same access to credit, which is why prices are falling and equity rich investors are benefiting. “The primary reason for the unprecedented speed and level of decline is obvious in retrospect: the sudden restriction of mortgage finance.” Knight Frank, London Residential, 2009. As soon as more finance products are made available by lenders buyers will look to get on to the ladder, building more confidence and pushing prices up to start the whole cycle all over again.

Both Savills and Jones Lang LaSalle – two highly respected real estate agents – have indicated that they believe that London and the South East will lead the recovery. We agree. The South drives the UK economy, has a high population density and most importantly recovered from the recession in the late ’80s and early ’90s ahead of the rest of the UK.

“The gap between underlying housing demand and supply will widen over the next 2-3 years which implies that medium-term prospects for house prices remain strong.” Jones Lang LaSalle, Feb 2009

The graph below plots the historic changes in property prices in the UK by incorporating historic data from both the Halifax and the Nationwide Property Indices. From 2009 onward the graph becomes only a prediction of market movements but gives an indication to the general consensus of the research and views of market analysts.

“The recovery will be led by London and the South East, with a ripple effect filtering out from the capital. The assumption is for London and the South East to recover peak values by 2012.” Savills UK Residential Forecast, November 2008

ÔŽ˜™”—Žˆ†™†—Š‰Žˆ™Ž”“

ȡțț

ˆ Ƞțț

‡

‰

ȟțț

‹

Š

Ȟțț ȝțț

†

Ȝțț

ȝțȜȢ

ȝțȜȣ

ȝțȜȠ

ȝțȜȡ

ȝțȜȞ

ȝțȜȟ

ȝțȜȜ

ȝțȜȝ

ȝțȜț

ȝțțȤ

ȝțțȢ

ȝțțȣ

ȝțțȠ

ȝțțȡ

ȝțțȞ

ȝțțȟ

ȝțțȜ

ȝțțȝ

ȜȤȤȤ

ȝțțț

ȜȤȤȢ

ȜȤȤȣ

ȜȤȤȠ

ȜȤȤȡ

ȜȤȤȟ

ȜȤȤȞ

ȜȤȤȜ

ȜȤȤȝ

ȜȤȤț

ȜȤȣȤ

ȜȤȣȢ

ȜȤȣȣ

ȜȤȣȡ

ț

Historic source: Halifax / Nationwide price indices. Prediction: Various

Quick market recap a. T he previous trough after the last recession occurred in the early 90s. b. Average property price in 2004. c. The market peaked in late 2007 and has been in decline ever since.

d. U  K property prices are currently at 2004 levels. Prices have dropped between 15-20% since 2007. Purchases will be targeted at 20% below this price. e. S everal analysts suggest the market will bottom out later this year/early 2010. Total peak to trough falls of between 2540% have been forecast.

f. Future market prices will eventually return to match previous peaks. The difference here is that the market will be on the way up and discounts from distressed sales will be rare.

How is this achieved? Buying under market value

This is one of the key principles when investing in property, whatever the country. Buying under market value is the most effective way of protecting you against risk and it’s especially important in a falling market. Another thing to remember is that you lock in profit as much when you buy as when you sell. That means that the greater discount you achieve at the start, the greater your chances to profit. By negotiating an under market value price you can potentially buy at the price of the bottom of the trough – but before everyone else gets there. By the time it’s acknowledged that the market is at the bottom, sellers become more confident and are more likely to start holding on for a better price. Some say we have already seen the first rise, others say it’s a blip. Whichever the outcome, serious investors can use it to their advantage.

How much to look for

The Land Registry, widely considered to be the most reliable source of UK house prices, suggests that the average house price fell by 15% in 2008 alone, bringing the full decline to somewhere in the region of 20%. The predictions for how much further prices will continue sliding range anywhere from 10-25%, so building an extra discount – especially a large distressed seller discount – into your purchase price goes some way towards safeguarding against the worst case scenario. Allied Land will be sourcing properties that are at least 20% under the current market value. That means that these properties are already an average of 40% below their peak values. However, 20% is just the minimum discount they will be looking at and often they can achieve much greater discounts, locking in even more value for our investors.

Valued partner

Allied Land is based in the South East and has 25 years’ property experience. They have spent a huge amount of time building up a contacts book of local finders, estate agents and auction houses and are ready to start sourcing properties for Ready2invest. They have access to over 30,000 auction house properties and distressed properties in bank possession. They have been offered in excess of £5million worth of UK property at discounts of over 15% from current market value.

Allied Land: Track record Allied Land has 25 years’ experience in the structured funding and management of property investments. The group has funded and developed close to 1.2million sq ft of property in over 30 projects with a total value of approximately £75million. The developments include residential, office, retail, leisure, industrial and mixed-use projects in the UK and overseas. Most recently Allied Land completed an £18million marina project in Milford Haven comprising 152 retail, office and residential units. All units were sold off-plan to investors and generally refinanced using buy-to-let finance or commercial loans to be held as medium term investments. Allied is now undertaking a further marina development and the company has also been selected by Pembrokeshire County Council to undertake the £10 million redevelopment of the town centre in Pembroke. This will include a waterside mixed-use project of apartments, shops, restaurants and offices adjacent to Pembroke Castle. Allied Land is based in Brighton, UK. For more information please visit www.alliedland.co.uk

Local contacts

It is impossible to put a price on how important good local contacts are. You can’t just walk into an estate agent and be offered the best bargain on their books. It takes time and persistence to build up these relationships and by partnering with Allied Land we are tapping in to this invaluable resource. Allied Land will be looking to the following sources to find properties with the right discount to market value: • At auction • Before auction from private sellers • Direct from banks in possession • From receivers • In block direct from developers • Via letting agents with clients who have buy-to-let properties Properties must offer secure title and rental prospects to meet the bank’s strict lending criteria and qualify for a bank mortgage.

Case study: Steve Taylor “In 2001, we bought a 2-bed apartment in a new development in Milford Haven with Allied Land as a tax shelter investment. It cost £69,000 and was mainly chosen to fit the budget we had to invest at the time. Allied Land were recommended by our lawyers and we were very impressed by the professional approach that they took. We had never invested with a company before but they were very open and transparent from the start, and provided all the information we needed to make the decision to invest. Allied Land explained the process fully and it ended up being very simple and painless – and they didn’t use too much jargon either! During the course of the investment Allied Land took care of the management for a reasonable fee and we only decided to sell the property when we needed to fund some extensive work on our own home. Allied Land arranged the sale on our behalf and we ended up making around £88,000. Needless to say we were very happy and found the process so successful that we have invested with them again.” Purchase

-£69,000

Tax Refund

£27,600

Completion loan

£48,300

Sale

£130,000

Loan repayment

-£48,300

Overall gain

£88,600

Gain p.a. 4 years

32% p.a.

What are the returns? Rental income

Return Scenario

The table below is a summary cash analysis on the example property from page 4. This property would have cost around £215,000 at the peak of the market in 2007. The open market value today is more like £150,000. Allied Land believe they could pick it up for as little as £120,000. That’s a 20% discount to open market value. Over an assumed 4-year period the property could generate a return of 218% on the capital invested. Example property analysis Purchase price

£120,000

Rental income

£850 pm

Equity

-£15,000

Standard purchase costs & refurb

-£4,300

Management costs

-£8,000

Rental deposit

-£10,200

Total outlay

-£37,500

Rental income (over 4 years)

£35,700

Running costs (inc mortgage)

-£30,000

Rental deposit return

£10,200

After your initial investment, there should be no need to contribute any further capital to the property. By buying at a discount the rental yield produced is inflated and income should cover all running costs, fees and mortgage payments. Any net rental income that your property generates will be paid out on an annual basis. However, in order to maintain the commercial viability of the property the managers will retain discretionary rights over how much of this is paid out. For example, some rental proceeds could be held back in your operating account if an upcoming and necessary expenditure is expected. The potential gross annual income of the property on page 4 is circa £10,200. After accounting for void periods, letting and management fees, running costs, contingency and mortgage payments, the net income would still equate to a 3.8% return on the capital investment for that particular property. This figure should be taken as an indication only. The exact amounts will, of course, differ on an annual basis and for each property.

£15,900 Sales price

£185,000

Net proceeds*

£66,000

Total return

£81,900

Return on investment

218%

*Net of mortgage repayment, brokering fee and management performance fee

The potential sales price of £185,000 has been calculated assuming growth on the market value of 0% in year 1, 5% in year 2, 7% in year 3 and 10% in year 4. Please note that this is still 15% less than the 2007 peak value.

Please note: To prepare this financial analysis we have estimated costs based on market averages and have taken into account some void periods, but as each property purchase is unique these figures should be used for illustrative purposes only.

Financial analysis Cost comparison

Obviously there are some extra costs involved with this service but considering the amount of extra benefits offered, and the amount of work and man hours involved, we find the fees to be very reasonable. Costs such as the finder’s fee, mortgage arrangement, ongoing management and accounting costs are added onto the standard costs of purchasing a property such as legal fees and stamp duty (if applicable). However, as demonstrated by the graph opposite, the savings made by the discount easily make up the difference and you can still save considerable outlay. This graph shows the price breakdown for the example property on the previous pages when buying through R2i, compared with the same property when purchased at market value. The normal house is bought using a 75% loan to value buy-to-let mortgage. The R2i product in this example uses a 70% LTV mortgage on the open market price (not purchase price).

Normal house purchase

R2i Product

In this example, even though costs are higher, you would save £14,500 in total purchase outlay and gain £30,000 in equity from the discount.

The benefit of finance

We can offer you non-status finance provided by a leading high street bank. Aside from the extra checks and stricter financial assessment this brings with it on entry, the leveraging effect on your capital also helps boost your returns on exit. Importantly, the bank will lend against the market valuation price of a property, as opposed to the discounted purchase price that is actually achieved. This is beneficial to you as it increases the leveraging affect on your equity and reduces the total amount of capital you need invest. Reduced entry price For example, if your property had a market valuation of £150,000, then the bank could potentially lend up to 70% on this value, providing a mortgage of £105,000. Even if the actual purchase price of the property is less than this, say only £120,000, the bank will still lend you the £105,000 against the market valuation. This means the amount of fresh equity required from you would be reduced to just £15,000. Increased leveraging It is the market price of the property that is affected by market movements, not your purchase price. For example just a 5% increase on £150,000 is £7,500. This, in effect, would be a 50% gain on your equity. Turning £15,000 in to £22,500.

Why don’t I just do it myself? So, you’ve got the equity and you want to invest in UK property, but why should you choose to take this route instead of just buying a property yourself? Non-status finance If required, we are able to access non-status finance for our investors. By using this facility you can take advantage of the distressed discounts that are usually limited to equity rich investors. Remember, the restricted access to finance is one of the major factors holding other buyers back. Fully managed Traditional buy-to-let purchases would require you to be responsible for finding tenants, carrying out repairs and completing annual accounts. Our properties are fully managed for you so you have all the benefits of a buy-to-let purchase but none of the hassle of being a landlord. Under market value Without the relationships with finders and estate agents, individuals are unlikely to be able to find or negotiate the kind of discounts that Allied Land can achieve. Local knowledge We all know how diverse the demand is for different postcodes where we live. Investing in a region that you’re not familiar with can be risky but it’s good to get into new markets and spread your portfolio. This way you can use Allied Land’s local knowledge to your advantage. They will only follow up on properties that are deemed to have good rental potential as only these properties will qualify for the finance.

Incentivised agents You want the people working for you to be making money too. Incentivising people so that they make money whenever you do is the best way to make an investment truly hassle-free. After all, the rewards are there as long as they get the job done. In this case, Allied Land will only be making fees you would have to pay anyway but they have the added incentive of a ‘hurdle rate’. A property must make a 10% pa return on capital for investors before any incentives kick in. Once that level of return is reached, Allied Land will then receive a 30% share, while you receive 70% of the remaining profits. So if the property isn’t in tip-top shape, rented out and delivering returns, they won’t get paid beyond their fees. It’s up to them to make it work.

Deal flow Allied Land is using several resources to find these properties. As they have the ability to purchase in bulk they have access to the best value properties, often before they even reach the market.

“We want to diversify our portfolio which is basically in the North East. I will still keep looking for properties to buy myself but the time it takes to manage them efficiently is restrictive. I would have to pay a managing agent anyway so it’s much better to get someone involved at the start so our targets are aligned and we both understand how to make the investment most profitable.” Alise

Safeguards and security Bank Scrutiny No one is under any illusion about how much hard work goes into applying for a mortgage – this is especially true for a buy-to-let. This investment is no different. The bank (who will be a well-known high-street lender) insists on seeing a full business plan for each property and evidence that the proposed rental price is achievable. The only difference is you don’t have to do it yourself. Independent Valuations The banks are minimising their own exposure to risk at the moment and will be much stricter when carrying out all their standard checks including having the property independently valued. Also as surveyors can be held liable for their reports they are being much more cautious in their valuations adding extra security to the viability of each property. Contingency The bank requires that a full years’ rent is put aside to cover the risk of the property being empty. It might seem overly cautious but it’s actually a prudent step to safeguard your investment against the potential downsides of becoming a landlord.

Due Diligence The due diligence is carried out by a number of parties; namely Allied Land, the Solicitors that act on the purchase and any bank or mortgage lender that provides funding. Allied Land As well as carrying out their own extensive internal due diligence on each individual property (including looking at price and rental comparables), Allied Land will check whether the property has previously been mortgaged as this is a good indicator that it is an acceptable property as security for lending purposes. This means it has previously satisfied a number of important criteria that all mortgage lenders require. Bank Indeed, if there is a bank or other mortgage lender looking to provide finance for the purchase they will instruct their own valuer (to ensure the property is being bought at a price no greater than its current market value) and also instruct the Solicitor to act on their behalf to ensure the property offers suitable security. Solicitors As well as Allied Land and any provider of mortgage finance, the appointed Solicitor will carry out their own due diligence on the property. This will include all legal checks on the title to the property as well as raising numerous enquiries on the sellers, the local authority and other bodies such as the water and drainage authority, environmental agency etc. Only when the Solicitor is entirely satisfied with the property will they advise a buyer to proceed to exchange contracts and authorise the mortgage lender to release the funds. Through the involvement of Allied Land, the mortgage lenders and their valuers and the Solicitors there is an exceptional level of due diligence that is carried out on each property on every occasion. This ensures that the property is not overvalued, has no legal impediments associated with it and is suitable security for the monies being paid.

Be involved If you want to find out more about this distressed UK property opportunity please contact us. You can do this by: Calling us on 01273 627 900 or Emailing us at [email protected]

Notes

Legal disclaimer Ready2invest Limited (“R2i”) is acting as agent. This document has been produced by R2i for information purposes. Whilst R2i make every attempt to ensure the accuracy and reliability of the information contained in this document, this information should not be relied upon as a substitute for formal professional advice. R2i, its employees and agents will not be responsible for any loss, howsoever arising, from the use of, or reliance on this information. R2i make no warranties or guarantees in respect of the content of this brochure. The reader agrees not to hold R2i or any of its employees or agents liable for decisions that are based on information from this document. R2i highly recommends that before making a decision, the reader carries out their own due diligence and collects several opinions related to the decision and verifies facts from at least several independent sources. The reader acknowledges that the value of property can increase or decrease, as can rental yields. No representation or guarantee is given by R2i that statements, views, projections or forecasts contained in this document are specific to any particular property. The information contained in the document merely represents a general picture of the property market in the territory identified and the reader must determine for themselves what reliance they should place on such information. The reader also acknowledges that tax and other legislation may change.