Property investment has not been immune to the calamities of recent years. Why would it be? Property is very closely aligned to the economy and particularly to the availability of finance, whether credit or mortgages.

Bold Spirit spotted the opportunities in this sector and began dealing in distressed property back in 2008. Indeed, we bought Bold Spirit House, our office in the central business district of Liverpool, at the height of the Credit Crunch. This was one of the reasons we got such a great bargain: timing.

And the time is now ripe to secure bargains. Bold Spirit has been very successful purchasing properties with outstanding returns. In all cases, we have had buyers for the properties even before we’ve legally completed on them. The demand for high yielding, high quality, hands-off property investment is high, evidenced by the fact we have a waiting list for Bold Spirit-developed properties.

Some properties require renovation, which we do to a very high standard, whilst some have other issues which we remedy. But in all cases, the value of that property is determined by the income, not any theoretical concept of ‘market value.’

Market value is such a subjective concept. Properties in the same street, with different aspects, fittings or décor can have very different ‘market values’ but to a buy to let investor, it should be the income which determines the value, not the property.

If one property is selling for £100,000 and the other for £130,000, but both rent for the same price, all other things being equal, the value is in the cheaper property. Sometimes, regardless of the ‘forced value’ – or cost of renovation – of a property, the rent (and the resale value, for that matter) hits a ceiling, particularly with social housing.

Unless you are buying in London and areas in the commuter belt or a listed property which has a scarcity value then, in my opinion, if you are not achieving a minimum 9% yield then you are overpaying for the property. It doesn’t matter how many percentage points it is ‘below market value’ the reality is, at yields of less than 9%, it’s still overvalued!

If you wish to comment on this newsletter, or read and comment on other property and economics related articles not published here, then see my blog at www.dominicfarrell.com

Best wishes

Dominic Farrell

Having returned from New York recently, I was not surprised to read in the Wall Street Journal yesterday that the US ‘housing market has turned’.

It is fair to say that we have experienced a few false dawns over the past 5 years of slump, but some of the numbers coming out of the US now are encouraging.

According to a number of economists the US property market has bottomed. Forty four economists agree with this statement whilst only three do not. Economists are not always right, as we saw with the credit crunch and financial meltdown, but, in this case, the data are encouraging.

10% more existing homes were sold in May 2012, than in May 2011. According to the Wall Street Journal these purchasers were investors who plan to let them with a view to selling on for a profit as the market turns; this shows a level of confidence which has been absent from the market in recent years. Investors are looking for income now whilst anticipating capital growth in the future – a good strategy at this stage of the property market cycle.

Builders began work on 26% more US family homes in May 2012, than in May 2011. The stock of unsold new builds is back to levels last seen in 2005, whilst construction is now adding to economic growth and accounted for 0.4% of a US national growth rate of 1.9%.

So, how does this news affect the UK property market?

It’s all about confidence. The Credit Crunch and subsequent financial crisis emanated from the US and spread to the UK and Europe and manifested itself in a full blown sovereign debt crisis and banking meltdown. Real estate is a huge store of wealth for governments, banks, corporations and individuals and, as such, any improvement in asset prices is most welcome. It’s almost like printing money and as the financial system is fixed, these assets can again be leveraged. The only question is how long this will take.

In the meantime, Bold Spirit has seen huge interest at home and abroad for high yielding UK properties. There are a number of reasons for this:

1. Cash rich investors are switching money out of banks and into property. This can be explained partly by the UK government guaranteeing only £85,000 per account per authorised firm (bank, building society etc..) if the bank becomes insolvent. This means wealthy individuals will need to spread their risk widely. For example, if you have £850,000 in savings, then you would be wise to deposit the cash with a minimum of 10 individual authorised firms to spread the risk of a financial institution failing. This risk is very real in 2012.

2. Investors are seeking to protect their cash from inflation. The real rate of return from a large number of banks is negative.

3. Savvy investors are buying income today and will trade it for capital growth tomorrow. These investors view UK real estate as a long-term savings plan.

4. Experienced investors are aggressively seizing the opportunities which the present recession and banking crisis are presenting. The market for distressed assets has never been better which is evidenced by the speed at which Bold Spirit sells properties.

5. Finally, property investors holding foreign currency are taking advantage of favourable exchange rates with Sterling.

As a rule of thumb, in the present UK market, you should aim for a yield of not less than 9%. In many cases, higher yields are easily obtained, but as a guide to value, income is the best measure.

Best wishes

Dominic Farrell

Our line has been consistent.  London is a tale of two cities and recent research goes someway to providing evidence to support this premise.  In our view, prime London is the most blue chip of all capital city property investments and in times of financial crisis, money flows into properties in Chelsea, Knightsbridge, Westminster and other prime boroughs. This ‘safe haven’ label to central London property is justified.  The same cannot be said for, what I would call ‘non-prime’ London.

The price gap in London, revealed in data from estate agent Knight Frank, highlights the effect that demand from wealthy overseas buyers is having on London’s housing market. It’s not just the safety of London property which investors are seeking, but it’s also to ‘cash in’ on Sterling’s relative weakness. You get a lot of bang for your buck in the UK.

In Westminster, prices rose 32 per cent in the three years to April taking the average house price in the borough to £752,785.  In contrast, prices in Barking and Dagenham fell 0.5 per cent over the same period to £218,597.

Now, if you were to conduct a comparative analysis on the return on investment of say £200,000 in terms of income, you could expect more than double the income from property in Liverpool or Manchester, than one in Hounslow. Spread over a few properties, rather than just one, the risk from voids on your £200,000 investment is considerably less.

Our advice to investors is simple. If you are not in the market for prime London, take a look further afield where income levels are high and property prices are suppressed. Look at distressed assets in our great cities of the Midlands and the North of England.

Best wishes

Dominic Farrell ]]> http://www.boldspirit.co.uk/2012/06/london-property-a-tale-of-two-cities/feed/ 0 http://www.boldspirit.co.uk/2012/06/misery-loves-company-%e2%80%93-the-decline-of-the-euro-first-greece-now-spain-where-does-this-leave-the-uk/ http://www.boldspirit.co.uk/2012/06/misery-loves-company-%e2%80%93-the-decline-of-the-euro-first-greece-now-spain-where-does-this-leave-the-uk/#comments Tue, 12 Jun 2012 10:29:25 +0000 Ian http://www.boldspirit.co.uk/?p=4574 Dear Investor

I have been saying for some years now that we are currently living in historic times that will be studied by students of economics long after we have all departed this earth.  As events continue to unfold, almost daily, we reach new milestones, new records and new levels of misery.

Yesterday, US benchmark borrowing costs hit lows not seen since 1946, whilst German 2 year bond yields hit zero for the first time, which means investors are giving their cash to Germany for ‘safe keeping’ with no return.  UK borrowing levels fell to 1.64%, the lowest since records began in 1703!

This flight to safety came as worries about Spain and Italy panicked markets and concerns about the outcome for the Euro sent it south against the US dollar to under USD 1.24 for the first time in 2 years.

The UK is seen by the outside world as a safe haven.  The government controls its own fiscal policy (no more taxes on pasties!), its monetary policy (interest rates) and there is a culture of citizens paying taxes.  A liberal democracy such as the UK, with a strong legal system and safe haven status is a scare commodity in these turbulent times.

UK property has seen a huge influx of capital from around the world.  The two main UK markets (London and everywhere outside of London) are performing differently to each other but nevertheless provide safety for investors.  Additionally, investors are getting a great return on cash.

For instance, we recently purchased from a receiver a converted Victorian property in one of the best roads in its postcode.  I believe our bid was not necessarily the highest, but it seems the receiver found it more credible than others.  My investor paid £60,000 per 2 bedroom apartment, each of which is huge in size, with quality fixtures and fittings.  There is also potential to develop the cellar or, alternatively, convert a ground floor apartment into a very large duplex.  The development has an enormous garden which also has potential for other uses in the future.  It is well thought out, recently converted and it is a shame that the developer went bankrupt probably due to events completely beyond his control.  Similar apartments in the next road are selling for £130,000 or 117% more than the price paid per apartment.

One man’s misery is another man’s gain, however, and there are some excellent opportunities out there for those in a position to buy right now.  Acquiring property with a good yield generally means that investors are not paying over the odds and, given the current poor return on cash in the bank, investors are opting for the income, potential future growth as well as security that may be derived from UK real estate.

There are many ways in which you may be able to benefit from working with us.  If you wish to discuss your specific requirements, then please fill in the form here and we will contact you in due course.

Best wishes

Dominic Farrell ]]> http://www.boldspirit.co.uk/2012/06/misery-loves-company-%e2%80%93-the-decline-of-the-euro-first-greece-now-spain-where-does-this-leave-the-uk/feed/ 0 http://www.boldspirit.co.uk/2012/05/a-greek-tragedy-or-is-it/ http://www.boldspirit.co.uk/2012/05/a-greek-tragedy-or-is-it/#comments Wed, 09 May 2012 10:02:50 +0000 Ian http://www.boldspirit.co.uk/?p=4549 Dear Investor

Elections in France and Greece over the weekend and, in the UK, last Thursday, have changed the political landscape across Europe and may be the beginning of the end of the Eurozone as we currently know it. In a nutshell, anti-austerity won the day.

The markets have reacted badly to the news. As a direct consequence, the Greek stockmarket is at a 20 year low and Greek 10 year bond yields are extremely high (23% today). The effect of the fallout on the euro is a windfall for British tourists this summer, however, as sterling is at its highest since 2008. Even the UK government is benefitting from the crisis, as borrowing costs plummet because investors are buying UK government bonds in the quest for a safe haven. This morning, the UK’s current cost of borrowing over ten years is 1.93%.

So what?

Well, since the onset of the Credit Crunch, the world has faced one financial crisis after another. The contagion has spread from private sector debt to sovereign debt, particularly in Europe. Countries such as Greece (there are others), which never should have been welcomed into the EU, are now seen as its Achilles Heel.

Unless Greece and others countries leave the Euro, then the economic malaise affecting the UK, Europe and beyond will continue indefinitely. Bail outs, fiscal pacts and summits, will not fix what is, essentially, a flawed system that was designed, developed and encouraged with a Franco-German political agenda in mind.

I, for one, welcome the outcome in Greece and wish it God speed in exiting the Euro. Until this happens, we will continue to move from crisis to crisis. As Churchill said after the famous victory at El Alamein, “This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”

Best wishes

Dominic Farrell ]]> http://www.boldspirit.co.uk/2012/05/a-greek-tragedy-or-is-it/feed/ 0 http://www.boldspirit.co.uk/2012/05/distressed-assets-an-opportunity-amongst-the-gloom/ http://www.boldspirit.co.uk/2012/05/distressed-assets-an-opportunity-amongst-the-gloom/#comments Tue, 01 May 2012 15:40:26 +0000 Ian http://www.boldspirit.co.uk/?p=4533 Dear Investor

I was interested to note that the subject matter of my newsletter of 2 weeks ago regarding Detroit property investment was taken up five days later by the Financial Times and others. Here’s me thinking that only my mother reads these missives!

Anyway, onto more pressing matters, it’s certainly not been a good week for the Eurozone. Unemployment figures from Spain are incredibly bad, with 25% unemployment overall,  50% for young people and Spanish bond yields currently peaking at 6%; this is likely to be the next major challenge for the EU. In the meantime, the usual suspects continue to struggle. Greek bond yields are currently at 20.5% rather resembling a rugby score, whilst the Portuguese government pays 6 times more than Germany to borrow money over ten years. It’s a complete mess and the problems are not going away anytime soon.

Over the weekend, David Cameron said, that he thought we were halfway through the Eurozone crisis, but I think he’s either being very optimistic or, worse, rather naïve. The truth is, just as nobody predicted the credit crunch, nobody knows how long it will last.

My firm view is that those people who purchased property and land in these countries, need to stick it out and try to utilise the system to best advantage:

- If you’re in difficulty with the bank, speak to someone who has authority to make a decision. Ask to have your payments reduced or put on hold for a period. I have seen some people been offered 12 months respite and sometimes more. Remember that you will not be the first, and certainly not the last, to seek the bank’s help in these historic times. Although many banks are in turmoil themselves, most understand that they need to help borrowers if the banks and borrowers are to get through the crisis.

- UK taxpayers who let their properties in the EEA (European Economic Area) are entitled to a very generous tax relief from HMRC for furnished holiday lettings. Losses can be offset against other income, thus reducing your tax burden. There are qualifying periods, determined by the availability and actual rentals, but the benefits are significant. These benefits also apply to UK holiday lets. Don’t underestimate this tax relief; it puts actual cash into your pocket.   As the rules are complex and have changed recently, any specific questions you have regarding this tax relief will need, however, to be directed to your accountant.

Back in the UK, we are in the worst economic crisis for 100 years. Some people are calling it the Great Depression 2. Whether the Office for National Statistics (ONS) has its GDP figures right or wrong really amounts to just semantics, played out by politicians and journalists.

If it looks like a recession, feels like a recession and smells like a recession; it is a recession.

On a more positive note, the benefits of recession in the distressed assets market are there for all to see. Bold Spirit has acquired some incredible deals recently for investors and, indeed, last Friday we placed a bid on another entire development on behalf of a fund.

It’s easy to feel depressed with all the bad economic news, job losses and general problems around the world, but if you focus on the opportunities which arise as a result, then you will appreciate that that now is the time to maximise on acquisitions and portfolio building which, I believe, will reap huge dividends for the investor in the future as well as significant income today.

I am presently overseas, but will be in the office all day Thursday if you wish to discuss your property investment requirements.

Best wishes

Dominic Farrell ]]> http://www.boldspirit.co.uk/2012/05/distressed-assets-an-opportunity-amongst-the-gloom/feed/ 0 http://www.boldspirit.co.uk/2012/04/repossessed-property-the-holy-grail/ http://www.boldspirit.co.uk/2012/04/repossessed-property-the-holy-grail/#comments Mon, 23 Apr 2012 12:49:23 +0000 Alex http://www.boldspirit.co.uk/?p=4523 The on-going Credit Crunch, recession (de facto) and sovereign debt crisis have given rise to a new class of buy-to-let property investor, which I call the ‘repossession chaser’ after the lawyers who follow ambulances in the hope of welcoming a new client as he is rushed into A&E on a stretcher to make a quick buck out of their misery. Is this analogy fair?

It isn’t, but the word ‘chaser’ is what I wish to focus on.

Sadly, many developers have gone bankrupt as a consequence of the economic crisis and individuals have been repossessed as a result of defaulting on mortgages or other loans secured on property. Banks, building societies or other financial institutions attempt to sell these properties through receivers or other insolvency agents, in order to set off losses on the mortgage debt. The clear aim is to receive as much as possible from the sale of the development or individual property in order to recoup any losses for the bank.

And there’s the point. The aim is not to give a huge potential profit on a plate to a potential investor. The aim is also not to take any offer in the pursuit of a sale. In many cases the marketing of repossessed properties can take some time as the banks have an obligation to achieve the best possible price, although the highest bid is not necessarily the winner (the subject of another newsletter).

For example, we will be completing on a small development in the next week or so, which has been in and out of the trade publications for repossessions as the offers, including ours, were not considered sufficient by the bank. It’s not a given that any bid is accepted at the ‘best and finals’ stage. This particular development went to ‘best and finals’ three times! I will discuss this in greater detail when the deal has completed legally and use it as a case study on how to beat the competition, as interest in this scheme was intense.

Further, not all repossessed properties are good value; many are not. I have baulked at some of the guide prices published by receivers or their agents. Additionally, guide prices at some auctions for many repossessed properties display no sense of reality in the current market. However, many auctions are rooted in the real world and their percentage sales achieved are testament to that. We have our preferred auction houses and those we avoid, based on efficiency and guide prices. Auction houses with poor sales as a percentage of lots, should review their pricing and reasons for underperforming their peers.

There are some great opportunities in the UK repossessed property sector, but not all properties are equal. We have seen many properties over the past 4 years which, when the refurbishment is taken into consideration, plus fees and taxes, are not bargains at all.

Further, why would anyone expect a bargain property to be on a list? Lists are for properties which haven’t sold, but many inexperienced investors don’t see that. As we keep telling people who phone Bold Spirit House asking for our repossessed property list, we don’t have one. As we receive properties and conduct thorough due diligence, they are sent directly to clients without advertising.

We have been in this distressed property market since 2008 and have a wealth of experience and many notable successes. But equally, for the properties we bid on, either through receivers or at auction, we reject about 90% during the research phase! Because a property is tagged as a ‘repossession’ it doesn’t mean that you’re getting a fantastic deal. But fantastic deals are out there. It’s just knowing where to look and not always chasing the repossessed tag.

If you would like to discuss how Bold Spirit can help you find, secure, tenant and manage repossessed investment property, fill in the form here, or call 0151 243 5432 from UK or +44 151 243 5432 from overseas.

Best wishes

Dominic Farrell

But what surprises me most, is why any UK based investor would want to invest in Detroit, when there are fantastic investment opportunities at home? So, some background.

Prior to the Credit Crunch and the collapse of Lehman Brothers in September 2008, investing in overseas property was a national pastime, as UK buy-to-let was in the preceding years and Tech Stocks before that. Trains, planes and automobiles carried advertisements for villas and apartments in far-flung lands and property shows extolled their virtues. I invested myself as at that time, it was a sensible thing to do and I don’t regret it.

Although markets move in cycles no one foresaw the meltdown in the global economy and the on-going credit squeeze and European Sovereign Debt crisis which in 2012 continue to weigh heavily on economies, property markets and banks. Ironically, it is this fact and the aftermath of 2008 which has made UK property the bargain it is today and the investor pendulum has swung again to buy-to-let.

Pre Credit Crunch – Swing from UK Buy-to-Let to Jet-to-Let

• UK property values during the mid-2000s were stretched and overseas markets opened up, buoyed by easier credit and the expansion of the European Union.

• Investors were wealthy on the back of rising UK property prices and equity release fuelled consumerism and real estate markets

• Governments taxed, borrowed and spent, further exacerbating the situation.

• Bank lending went unchecked as market share became more important than the security of the loan.

Post Credit Crunch – Swing back Jet-to-Let to UK Buy-to-Let

However, the biggest economic downturn since the Wall Street Crash of 1929 put a dramatic and devastating stop on jet-to-let property investment as buyers defaulted, commercial tenants folded or changed plans, developers were foreclosed or had their cash accounts ransacked by banks, themselves under siege from depositors, and countries, once elevated by the markets as sound AAA bets, came crashing down on a mountain of debt.

The World has changed in many, many ways over the past 4 years and you would have to have been living in a cave to fail to recognise this.

Current position

In terms of property investment, nowhere on the planet now beats the UK as a secure, transparent market at the lower end of the risk spectrum. The weight of foreign capital hitting these shores is testament to that.

I received a telephone call from India last Friday from a client wishing to bid on a very large development in the UK. He was in and out of signal, as he is ‘off the beaten track’ but I’m expecting to continue the conversation today. We take enquiries from around the globe every week. The UK is seen as a blue chip investment in a very turbulent world; a safe haven for foreign capital.

Detroit USA

So what’s the fascination with Detroit (USA) property investment? It’s easily explainable.

My company, Bold Spirit, was offered last year a very generous commission to sell Detroit property to our clients. The proposal was that on a USD 39,000 property, we would receive USD 10,000 in agent’s commission – at 26% that is huge by anyone’s standards; indeed in the 8 years we’ve been trading, I’ve never heard of such a ridiculous amount. So if the agent makes 26% and the developer would clearly not be making any less, and probably a lot more, then what is the ‘real’ value of the property? And how can it be such a great investment for the buyer?

The show stopper for me was that the case for Detroit property investment didn’t stack up and still doesn’t do so today.

To quote Trevor Brunckhorst at Michigan Property Managers as reported in The Detroit News 22nd February 2012:

“As a local property manager that has a sizable Detroit portfolio, this article needs to go international. Too many foreign investors are buying junk right now on false promises from some slick salespeople. Too often, they’re left with a worthless property, stripped of anything of any value, and too high property taxes. Only then are a lot of them deciding to call a property manager to help get the situation corrected. Often, it’s too late at this point, because they don’t have the additional $10-$20k needed to make the property tenantable again. Also, why are people spending $45,000 on a property in Detroit? You can buy 3 properties for that amount! If people want to over pay for properties, feel free to call me. I am sure I have at least 100 properties that my clients would LOVE to sell for $45,000! As someone already said “if it sounds too good to be true; IT IS!”

I couldn’t sum it up better than Mr Brunckhorst.

One of the key reasons to invest in low-cost (but clearly relatively highly priced) Detroit property was that the tenancies would be guaranteed by the state. But it appears the state doesn’t agree:

Any housing investment claiming it can guarantee a Section 8 housing tenant should raise red flags, said Eugene Jones, an executive director of the city of Detroit’s Housing Commission. “It just doesn’t work that way. It’s a lengthy process for any property to be qualified, and there is no guarantee that the property will be chosen,” Jones said.

While the city of Detroit has 6,000 housing vouchers for people under the Section 8 housing program and a waiting list of 40,000 people, he said, “there are not many people with Section 8 housing vouchers that are looking for residences.”

In conclusion, I fail to see the investment case for Detroit. I didn’t see it when first approached and definitely don’t see it today. Further, why aren’t American nationals flocking to buy these investments and ‘crowding out’ foreigners? Doesn’t the fact they are not doing so send out a warning signal?

My advice is stick to the UK market as there are tremendous bargains to be had. Properties can be purchased significantly below market value, with high yields and in sterling. There are reputable UK property companies that will charge a relatively small fee (eg, 2.95%) for sourcing UK investment property on your behalf which is a steal by anybody’s reckoning compared to 26% commissions for buying property in the US. Value indeed!

* Purchased for £1,010,000

* Discount to current value 45%

* Gross yield 10%

Contact Us – Distressed Properties in the UK

We continue to see a wide gulf between prices in the South and those further afield, dare I say it, north of the M25. Investor fixation with London remains, but as prices are forced up through enthusiasm and the sheer weight of cash (often foreign), many investors are missing fantastic opportunities elsewhere.

Bold Spirit distressed assets formed at the height of the financial crisis, in September 2008, as Lehman Brothers went to the wall. Very quickly, we were acquiring properties in London, via receivers and administrators as well as by auction. The deals, some of which you’ll see on our website were outstanding and clearly our clients were and remain very happy.

However, as prices rose and yields compressed, we looked outside London for better returns and have been concentrating in the main on the NW of England for the past 12 months. With two of the UKs’ major cities, Manchester and Liverpool and a host of wealth creating industries and services, this is a prime area for undervalued property investment with strong income.

Bold Spirit acquired 3 properties/developments for clients last week all of which are more than 50% below a realistic valuation.

The first property was acquired at auction, a great source for undervalued stock, particularly if the property in question has issues such as planning, unlimited liabilities on completion, structural etc…For the casual observer these issues are show stoppers, but for those who know what they are doing, they present an opportunity. This property is over 50% below market value and yields 26% – yes 26%! When a property yields 26%, you have options.

The second property, a development, had a formal valuation where unusually the valuer commented on the price being paid. He spoke in terms of ‘doubling your money overnight’ a sentiment which was not news to me. This property has been acquired through a receiver and is part of a wider portfolio of a development company which has folded. An impressive period building, fully refurbished to a very high standard, with the potential for further development and quality professional tenants.

And finally, on behalf of a trust fund, we completed on a development on Friday, where the average price per unit is £83,000 whilst units in a less prestigious scheme 100m away are on Rightmove now being sold at £185,000, £189,000 etc….This was a long complex negotiation involving one of the leading insolvency partnerships in the UK and even at the last minute looked like being pulled, due to the price we were paying. The fund has asked us to bid on another 3 developments I have on my desk.

I think you would agree that all 3 examples illustrate the considerable value which can be secured in this present market, all outside of London. Not all insolvency properties are 50% below a realistic market valuation, but many are 25% plus with strong yields.

Further, auctions are a great source of value, but only if you know what you are doing. Bold Spirit provides an auction service where we can guide you through the entire process and even bid on your behalf. You can secure a fantastic bargain at auction from as little as £30,000. If you would like to speak to us about anything we’ve mentioned in today’s newsletter, then please feel free to fill in the contact form on the website or telephone 0151 243 5431 from UK or +44 151 243 5431 from overseas.

Best wishes

Dominic Farrell