ASK536: Would you buy a property with arrears? PLUS: Will this help me save faster?

0:02Rob B:Hi, I'm Rob. And I'm Rob. And this is Ask Rob and Rob.

0:06Rob D:Yes, it is Ask Rob and Rob. And we are here once again because it's Tuesday. And that means we've got two property questions to answer on behalf of our listeners. And we do do this every week. So if you've got a question of your own and you'd like to send it in, Rob, it's so easy.

0:19Rob B:It's super easy. Just go to one place, propertyhub.net forward slash ask there. You can find the phone number if you want to call in and leave an answer phone message. You can leave a message directly there on the web page, or you can submit a written answer as well for our Sunday Times column. We do not mind, but for this show, audio is kind of important. And luckily, we've got two great questions in this week. Let's listen to the first one. Hi, Robbie Rob. So I have a question for you. And that question is, would you buy a tenanted property if the tenant has rent arrears? So a bit of background, I created a system using Claude using AI, because I know you're former members.

0:58Rob B:You talk about it a lot in your show. So I create a system, and basically what the system does is it scrapes where I move for my particular criteria. I then put that into a Postgres database. For each property in that database, I then send off requests for particular metrics that I'm interested in. So those metrics will be classed as something called endpoint. And those endpoints are information that I will retrieve from a website called property data. And they have an API, so I have a account of them, and I collect information for each endpoint that is important to me for my criteria. So for example, if I wanted to get capital growth figures for the last five years, I would request capital growth and I would combine them to get a five-year.

1:37Rob B:If I wanted to get a three-year, the same thing. And I can see how the capital growth has increased, how strong it is in that particular area. If I wanted to get crime, if I wanted to get schools, demographics, all that sort of information. So I have this set criteria and I send off these endpoints and then I get the information back and then I rank each property based on that information and what is important to me. So there's a property that keeps coming up within that data set. And this property is based in Liverpool. It meets all of my criteria. It's also tenanted, which is one of my criteria and a keyword I search for within my scraping of Rightmove.

2:10Rob B:However, there is an issue after contacting the agent, because the sales end is also the letting agent for the landlord, they've informed me that the current tenant does have rent arrears. Now, they have said to me that the reason for these rent arrears is because the landlord a few months ago increased the rent substantially, and therefore there's a slight deficit. Now, this deficit is only around£350, I believe, which again, obviously needs to be verified. But the tenant has lived in the property for 15 years, and the current rent that they're paying now on that property is significantly less than the average in the area, but based on the purchase price of the property, it's still a very, very attractive yield.

2:51Rob B:And there would be capital growth figures on that property in particular in that area are consistently high and they're not outliers either. They're consistent across the board. So based on all of that information, I'd like to know your opinion. Would you go ahead with the purchase of this property or do you think that that's a red flag and you would run a mile? Anyway, thanks for your opinion, guys. I really appreciate your help on this one. James, great question. Would I? No. But would I be shocked if others did? Also no. So the quick answer for me why I wouldn't. It's too much hard work. I don't want property to be a job.

3:30Rob B:I just want it to be easy. Of course, I've had arrears. It's been well documented on the podcast, some of the trepidations I've gone through as an investor and landlord. It will happen. But because I don't like it. I don't want to volunteer to go straight into that situation. Now, what it could do, though, and the reason why others may choose to go in this path, and I don't think they're wrong for doing this. It's just choices and strategy, right? Is that you may be able to get a better deal because of it. And when I say maybe, if you don't get a better deal because of it, then what's the point?

4:06Rob B:So it's the trade-off of pushing hard to say, okay, well, this property has a fair value of x now the person selling it is going to find it really hard because of that tenant in place if i'm willing to go through the process of putting this tenancy right which is either bringing the tenant back up to where they need to be or moving them on then i want to be rewarded for that and that should be in the form of a discount against its fair value now if you're getting several thousand pounds off its fair value then it may be a fair trade-off time but you have to remember that it could cost you thousands of pounds if it goes towards the worst case scenario so I would want a significant buffer in there to make me comfortable with moving forward so is it right for you well that depends on you the amount of discount or fair value you're able to achieve once you know that number then you can say okay well let's say this tenancy may cost me another 10 000 to put right 20 000 to put right of course we're playing worst case scenarios here that's not expected if you then get 40 000 off the fair value because of that then amazing are you happy to go through the process great if you only get a 5 000 pound discount and the downside could be potentially higher than that then not great so just look at it that way don't look at it in an emotional way just look at it as an assessment of cost and time and what you're able to get as a discount because of this situation and move forward from there best of luck great advice i think that's

5:45Rob D:a really good way of looking at it okay let's move on to our next question now this one is from matt hey rob and rob thanks for all you do amazing information on the podcast as always it's matt here from studly and i wanted to ask a question based on your response to a previous caller that was asking about savings within a business um what is the best way to save that next deposit i think the response was there's essentially no shortcuts um you know keep saving keep the expenses low and yeah the poor rate of interest that's generally seen within business bank accounts is kind of is what it is wanted to hear your comments on um something that's been mentioned by creators like Damien Talks Money.

6:29Rob D:I know you've been on his podcast. He's featured platforms like Lightyear have business investment accounts where you could essentially put some money in there, have that sat in pretty low risk money market funds. It is invested rather than kind of sitting within a bank account. So there is obviously going to be an element of risk. But as far as money market funds go, they're a pretty low risk category of investment. I wanted to hear your opinion on this because they obviously have a much better rate of return than you would typically get in a business bank account. Again, amazing work as always and interested to hear your response.

7:08Rob D:Cheers. Matt, thank you for your question and you are absolutely right. If you're saving a deposit that you're going to need within the next few years, then you really can't be doing anything exotic with it. Because yes, you could put it into the stock market and the expected value over time would be positive but over the next few years anything could happen. You really are stuck with cash or something that's cash-like which would describe a money market fund. So a money market fund is effectively super short-dated bonds. So the risk is not zero but the risk is very close to zero because with longer duration bonds you have interest rate risk that can really move their value quite significantly.

7:41Rob D:When you're looking at something that's less than 60 to 90 days out that's not really a thing and the advantage as you say compared with just accepting whatever your business bank account gives you is that the return is pretty much set by the market whereas what your bank account pays you well that's just a contractual arrangement and it depends on how keen your bank is to attract deposits and how hard they think they need to work in order to keep your money so yes what you've described is absolutely feasible i haven't heard of the platform that you mentioned in particular but you can do this via basically any kind of platform that allows corporate customers so i know interactive brokers is one of those and then just pick a money market fund so feasible absolutely better than you get from your bank pretty much definitely but still not going to be a game changer the difference between the two figures will be something but it's not going to be enough to get you to that next deposit dramatically faster so it helps it probably makes you feel better that your money is working as hard as it can given that you have it ring fenced for that next purchase but ultimately matt it's still a grind it's still that tedious process of saving up which is just the reality in that early stage of building the snowball but as we said many times over the years as that snowball builds as the rent keeps coming in and can get rolled back into the next purchase it does speed up and it all becomes a bit less of a grind so matt thank you really

8:59Rob B:interesting question and i hope that helps so that's just done for another week thank you for listening we'll be back with the main event the property podcast on thursday until then take care have fun bye-bye bye-bye