ASK486: Should I use cash or equity? PLUS: Did this agent break our agreement?

0:02Hi, I'm Rob. And I'm Rob. And this is Ask Rob and Rob. It is Ask Rob and Rob. Thank you for joining us. It's Tuesday. That means we've got two more of your lovely questions to answer. Those heading your way. But if you've got a question of your own, you need to recap how to send it our way. Yes, you do. But it is very, very easy. You just go to this one place and there's a selection of options once you arrive there. Go to propertyhub.net forward slash ask. There you can phone in if you so wish. You can leave a message directly there on that website. Or you can write in and maybe see your question in the Sunday Times.

0:37Whichever option you prefer, we do not mind. But for the purpose of this show, audio helps. And luckily, we've had some audio in. Our first question is from Adam. Hi, Rob and Rob. It's Adam from Liverpool here. I'm currently reading the Complete Guide to Property Investment by yourself, Rob. and it's a real insight so thank you. I'm looking at moving into the world of buy to let with a target for about five properties in the next four to five years. I'm going to set up limited as that seems to be the wise move. I'm looking at terraced houses in the L17 area of Liverpool which is Egberth and around Sefton Park which mainly seem to be two and three bedroom properties.

1:13My plan is to try and take the approach of recycling my cash so otherwise known as BRRR. I have cash pot saved up for about 45k so then I'll decide how to fund the next part of that journey so I see my options as follows release an equity from my home so my house is worth about 530k and I've got about 400k sat in the house so I'll probably take out about 100 to 150k and depending on the target property this would effectively make me a cash buyer and see this is a real strong point for example going for unmarriageable properties etc but the other bit I'm unsure about this is can I take that out on an interest-only basis on my mortgage my mortgage is up in May next year so if I can't take out on a interest-only basis obviously that doesn't maybe work then numbers wise or I could go straight into it with my cash save as a deposit and then take out a buy to let mortgage from the off either way somewhere down the road I will then look to refinance these properties and hopefully recycle my cash or take out as much as possible But I'd just be interested to know what option you would take in terms of taking equity out the home or going straight in with a buy-to-let mortgage.

2:25I'd really appreciate that. Thank you very much. Adam, thank you for your question. So there's a few bits to pick up on here. The interest-only aspect, you might be able to get an interest-only mortgage. I say might because it's not common to have an interest-only mortgage on your own home, but it is possible. It just makes up a small percentage of the overall market, but it can be done. You'll need to speak with your lender or your broker if you have one to see what options you have. But some of the major lenders do offer this as a product and service. And having lots of equity does help your chances of getting one here.

2:58So it's a maybe. Based on the numbers you've talked about, I think it's a decent chance. But you'll just need to do that little bit of extra work and you'll find out soon. I can understand why you want to use an interest-only mortgage for the purposes of investment. And it makes complete sense. So that leads us on to should you do it at all. I'm a little nervous and the reason I'm a little nervous is if you said to me you were going to do a standard buy to let and it was going to give you a return of five and a half percent and you were borrowing at four percent I'd be like great perfect Adam crack on because you are outperforming the borrowing rate so you're borrowing at four but you can achieve a five and a half and then you've got an asset as well so if the return that you can achieve is higher with a buy to let then okay depending on some circumstances a bit more detail but in generally speaking I'd have comfort with you progressing and going forward.

3:53With a refurbishment I'd really want to understand your skill and experience here because it is a higher risk. If it goes well amazing you could get a much higher return than a five and a half percent return by doing a project really well and maximizing the value out of that project you could see returns of maybe up to 20 percent it's not unheard of but what is also not unheard of is people losing 20 percent because they are inexperienced so they didn't get their numbers right or there was unforeseen things that happened and i'm not trying to scare you or spook you it's just that if it was your own cash then it's your own risk but when you are taking money out your home and you are putting it into a riskier project you have to be really sure that it's going to work.

4:38So if it's the first project that you've done this, or it's maybe the second, like you haven't got a lot of experience, then I would tread with caution. I'm not saying don't do it, but go in with your eyes wide open. Don't just assume you're going to win and it's going to be a success. Because a lot of these projects, particularly the first few, things do go wrong because you haven't got the experience to see the pitfalls yet. And those deals that you'll do over time will build that experience and you'll get much better at predicting the returns that are possible. So just be cautious if you proceed that way.

5:12Maybe put a bigger contingency in, but make sure you're not going to get yourself into a project where you lose money because you're not using your own cash, you're using the equity from your home. But wherever you decide, best of luck. Okay, let's have our next question now from Brendan. Hi Rob and Rob. I am a regular listener of your podcast and have always appreciated there. I find myself in a complicated situation at the moment and was hoping you could offer some guidance. I recently purchased a property and employed a letting agency. The property was off-plan. The letting agency are part of the developers.

5:47They are an in-house letting agency. So I have employed them to manage the renting process. However, I've encountered an issue where tenants were placed in the property for the official completion of the sale. They ever placed several months ago there was an issue with the developer delaying the completion days with it there's issues with my solicitors etc their solicitors but they had tenants in months ago as i said the problem is i was never consulted nor gained approval for this and i only discovered this after the fact as the new owner i feel completely powerless in this situation and i'm struggling to understand if the agency's actions are even legal.

6:32Additionally, the rent agreed with the tenants is lower than what was initially suggested by the agency when I first inquired. On top of this, I have not gone provided with a copy of the tenancy agreement or any details about the tenants, which leaves me now in a difficult position. The tenants are now locked into a contract and I have no say in their selection, even though I had specifically requested to approve tenants. In the initial correspondence with the lesion agency, I would request this approval of tenants. I wanted to face any potential candidates and also I wanted to agree to the rent, which hasn't happened.

7:12So my key questions are, is this lawful for the lesion agency to place tenants in a property before the sales officially completes and without my approval? Can I terminate the agreement with the agency given that I feel my rights as the new owner have been filed it and how can I move forward in a way that shows I am in control of my property and the tendency moving forward. I would greatly appreciate any advice or insights you provide on how to resolve the situation. Thanks for your time and I look forward to hearing from you. Brendan this is a messy one let's see if we can start to unpack it a little bit.

7:49So somewhere along the line something is not right. It's just about figuring out which kind of not right it is. Because the agency cannot have been acting for you and put tenants in place before you legally completed on the property. It's just not possible. They can't commit you to an agreement because you're not the owner yet. So they couldn't have been at that point acting for you. They may have been acting for the developer because you said it's like almost like their in-house agency. But if they were acting for the developer and they put tenants in and then you completed, it means that you weren't getting vacant possession.

8:19So the key here is, was there a clause in your purchase agreement saying that you would get vacant possession of the property? Because normally in the vast majority of cases, there is a clause saying that because owner occupiers want to move in and investors want to have their choice of tenant. There are situations where that is not the case, where everyone knows that the property is subject to a tenancy. That's fine. There's nothing wrong with that, but you should be clear about which is the case. And if you should have been getting vacant possession then your solicitor has massively missed something in it because you didn't get it so that's the situation how do you start to unpick it well the first thing to say is although there are things you can do here to improve your position it sounds like your position isn't that bad of course maybe you would have got a higher rent you would have wanted to have your choice of tenant it's not right but in the grand scheme of your investment it sounds like it's all going to be okay so i just want to say that first so you don't overly worry but that aside first thing to do look at your contract and see should you have had vacant possession if yes then i would complain to your solicitor because they basically didn't do their job in making sure that that was the case when you complete it now all we've got is the information that you provided so it's hard to know for sure but i would also say that if it was subject to a tenancy that shouldn't have been a surprise to you you should have had all the documentation as part of the conveyancing process so they've dropped the ball there as well so that's one route i would go down the other is i would then go to the agent and get all the documentation surrounding the tenancy.

9:43You should have the tenancy agreement, you should have the deposit protection certificate, you should have all the documentation. Because you've stepped into this agreement, you should know all the facts around it. So I would get hold of that first and then once I'd got that I would start to kick up a fuss and if you don't want them to act for you anymore then I think you could pretty easily put a case forward about why you want to be released from that immediately without paying them any kind of compensation. They won't like it but if the facts are on your side and again we're only going based on what we know and you threaten to go to the ombudsman and basically make a nuisance of yourself you'll probably end up getting what you want on that one but the one constant is that the tenants are there the agreement is valid there's nothing you can do about that so the main thing that i would not lose sight of in any of this is you need to have control over that tenancy one way or the other so either you're keeping on using the agency or you've got all the documentation and you've got a direct line of communication with the tenants because what you don't want is for anything to go wrong with that and then your income is jeopardized and if you don't have all the documentation and all the facts you're going to have a hard time so brendan thank you for that question after all these years we're still turning up completely new situations like this one so thank you for calling in and i hope you get it all sorted that's just done for another week thanks for listening we'll be back on thursday for the property podcast and we'll be answering more of your questions sunday in the sunday times the home section don't check that one out and of course back here same time same place next week for another ask rob and rob until those wondrous events occur take care have fun bye bye you