Beware The Property Sharks

Your Property Network 28 March 2011

Monday 20th July saw Paul Shamplina of Landlord Action as the guest speaker at the ever popular Berkshire Property Meet with in excess of 250 investors in attendance to hear Paul's talk entitled Beware the Property Sharks.

Paul's talk was very different from the normal speakers we see who often focus on the upside of property investment, Paul was there to warn us of the very real dangers out there for buy-to-let investors from those who would look to separate us from our hard earned cash.

Paul's talk identified 3 different types of "Property Sharks" which can be split into three categories:

1. The Professional bad tenant
Having handled over 15,000 evictions Paul is well placed to explain what buy-to-let investors can do to avoid these habitual offenders who specialise in avoiding paying rent. Offenders Paul has dealt with include trainee barristers and school teachers and Paul highlighted cases he has been involved where professional bad tenants had cost landlords in excess of £40,000 in unpaid rents, legal fees and property repairs.

2. Rogue Letting Agents
Recently Landlord Action have seen a rise in the number of landlord's who have been victims of rogue letting agents. The economic downturn has led to a worrying trend in these agents stealing rents by not passing them onto the landlord. These rogue agents will often pocket rental payments and end up going into liquidation owing thousands of pounds to their landlord customers. Often these operations will owe monies to people other than landlords and as the police are not interested in pursuing these cases deeming them a civil matter the chances of recovering debt is slim.

3. Fraudulent property sourcers and property clubs
As below market value investors you it is not difficult to get onto different email lists from companies who source below market value property deals. Many of these companies are highly reputable and supply sound property investments for investors who do not have the time or inclination to source properties themselves.

Worryingly recently YPN and Landlord Action have heard of a number of cases of bogus property sourcers who have been marketing property deals that either never happen are not what they are initially advertised as.

The rogue property sourcer is often unwilling to release many details on the property that is being advertised making it difficult for the interested investor to conduct due diligence on the property in question. These deals are often promoted with limited availability and interested parties are pressured into parting with substantial reservation fees before they are able to thoroughly research the investment.

It is common practice for reservation fees of between £2,000 and £3,000 to be taken up front in order to obtain some commitment from the interested buyer. These reservation fees are generally refundable if the property deal does not complete but recently both YPN and Landlord Action have heard of instances of failure to return these reservation fees when the property deal falls over. These rogue traders are actually using reservation fees to cash flow their business operations rather than holding funds on deposit to be returned if deals do not happen.

Packaged property deals that enable investors to buy using little of their own money have become extremely popular since Mortgage Express withdrew their bridge and same day re-mortgage product back in April 2008 and No Money Down deals have become more difficulty to achieve. This has led some investors with limited funds to end up chasing the deals that they do not fully understand in order to grow their portfolio seemingly at any cost or risk. The actions of a few disreputable traders have led many investors to become understandably wary of buying ready made deals.

Paul's Top Tips
Ensure you see at least 3 month's bank statements so that you can see income coming in and rental payment's going out. By seeing bank statements you will also be able to assess whether your tenant is likely to be able to afford the rent.

Don't rely on references from existing landlords - they may provide you a good reference simply to pass the problem onto you!

Beware of bogus references, it's common for these types of tenants to get friends to supply fake referees - if the reference is being provided by an employer that states it's a Ltd company check there is a company registration number

Ensure that you only use agents who are ARLA (Association of Residential Letting Agents) or NAEA (National Association of Estate Agents) registered.

Make sure that on your tenancy agreement the tenant is not lettings agent. The tenant should be marked down as the actual tenant who is going to be living in the property. If on your tenancy agreement the letting agent is marked as the tenant and they are then subletting the property you have no recourse with the person who is actually living in the property.

If things start to go wrong address then immediately, speak to your tenant directly and ask to see proof that monies have been paid to the lettings agent. The sooner you act the less money you are likely to end up out of pocket

YPN / Paul's Top Tips
If a deal looks too good to be true then maybe it is - ensure that you can fully research the property in terms of property values and rental prices and level of demand in the area. Buying property unseen and with little information other than it is 27% below market value in Hull is an extremely risky business. If you end up buying something that is not what you were led to believe as you haven't conducted your due diligence then you have only yourself to blame.

If the property sourcer is unwilling to release information on the specific property deal then this may also be an indication that it is not actually theirs to sell. If the property is not owned by the sourcer or secured by an option agreement then there is a much higher chance that the deal will fall over.

Although it is not a guarantee you can often be guided by other investor's recommendations. If a fellow investor you know and trust has received a good level of service from a property sourcing company then there is a good chance the company is reputable. Search forums and ask at networking events for feedback on individual companies.

Don't try to buy something you can't. Right now lenders are being extremely fussy over who they lend to. If you have CCJ's or have defaulted on payments then it's extremely unlikely that any buy-to-let lender will be happy to lend you funds. If you know it is unlikely that you will obtain mortgage finance then why waste time and money trying to get the deal.

CASE STUDY - BMV BUYER BEWARE
Katie Sylvester was one such investor that found herself victim of one of these rogue traders.

We saw a deal being advertised by a well known property sourcing company that seemed to fit our investment criteria. The property was supposed to value at £100,000 with a monthly income of £1,541 and duly paid a reservation fee of £3000 + VAT. The valuation actually came in at £72,000 and the rental figure at just £375, needless to say this was not the deal we though we were buying.

This all happened in January 2008 and by June I had received no monies refunded, by July I was demanding full reimbursement of the fees I had paid. After many fruitless months we instructed Landlord Action and in December a claim for £4816 including the legal costs we had incurred was proceeded with via the Small Claims Court. The Company in question were given 31 days to pay which they completely ignored. Eventually the court appointed Sherifs then placed a notice to remove on three cars at the home address of companies director. The debt had risen to £7,500 and the next day the payment was made to the High Court Sherrif.