UK Repossession Thread - A detailed journey

[MTR]

Great conversation guys and good to see.

Here are some answers to some points raised:

Gross Yields are averaging at circa 15% (Varies by 2 to 3 % each way depending of course on purchase price and reno costs)
OK. For potential investors I would also want to view all outgoings, including rates, pm fees etc. In other words net rental return.

Great conversation on access to funds, the SMSF funds are of course limited, however purchases outside of SMSF for me have the biggest opportunity.
I think it would also be helpful to provide investors with information on what structure is required to purchase in SMSF. I realise you don't have to, however by doing this it takes the headache out of it for investors and provides a better service and could be the difference from walking or doing the deal.

Being UK citizens but Australian residents with an existing relationship with the HSBC we are looking to leverage off cash purchases and have Lines of Credit secured on them releasing 70% of their value allowing leverage going forward.
I don't know how this would work in UK, however I do have concerns when it comes to valuations and foreign investors securing finance. Also interest rates, fees etc. will they be same as what locals are getting?? In US many shonky lenders ripping off investors, they are clayton loans that I would not touch. If any investors went down this road I would recommend contracts be viewed by Lawyers.


Great observation on the Buyers Agent type set up, we had considered this from the off however would prefer to walk the walk ourselves first with demonstrable success and then if others wish to engage us to assist them do the same then we would of course look to provide a service.
Good idea, get a model in place that works first.... but if you want to make some serious dollars then I would consider the BA model to increase turnover.

I think I stuffed up... not clear, anyway my comments to your answers are underlined.

Cheers
MTR

 

[ScottyB]

I think I stuffed up... not clear, anyway my comments to your answers are underlined.

Cheers
MTR

No issues MTR appreciate the comments.

I agree that all outgoings need to be broken down, happy to do this with my examples down to the last penny so that people can see the gross and true net result for each individual property. Anybody entering into a property purchase without having a full understanding of the numbers needs to take a step back and evaluate their process and buying habits.

Purchasing overseas property in SMSF is achievable once you satisfy yourself that all of the ATO "Hurdles" are manageable here are the usual suspects:

Investment Strategy - The trustees of the SMSF must be able to articulate why the particular property purchase is consistent with the investment strategy of the fund. It must be able to demonstrate an understanding of how the risks, diversification, return and liquidity issues associated with the fund are impacted by the investment in question.

Sole Purpose Test - The trustees of the SMSF must be able to show that the investment is being made solely for the purpose of providing retirement benefits for members. No nice "holiday" villa's in the South of France allowed.

Related party acquisitions - The property should not be acquired from a related party - Not an issue in our scenario.

In-house asset rules - This may be an issue if the SMSF trustees are not purchasing the property directly but via a company and or trust. In the USA it is common for property to be acquired by a "LLC" a Limited Liability Company, such an action may be fine in the USA but breaches the In-house asset rules in Australian - We are purchasing directly.

No Borrowing or charges - Generally a SMSF is prohibited from borrowing and from placing a charge over assets unless it is exempt under section S.67a and 67b. Obtaining finance from an overseas bank familiar with these specific regulations can be very problematic hence we stay well away from it. As disclosed earlier we only intend on trying to secure lending on properties purchased outside of SMSF for this very reason.

Arms Length Transactions - Any purchase and subsequent rental of property must be on an arm's length basis. Arms length is not defined in the act, but a useful test is to ask yourself what a "Layperson", acting with due regard to his or her own pension interests, would have agreed to in terms of a contract. E.g. reasonable demonstrable value and purchase price discount, market rate agency fees, Forex Company use to minimize losses during fund transfer etc.

Travel costs reimbursed by SMSF - The trustees have an obligation to manage the investments of the superfund in a way that maximizes the retirement benefits of members. Now we feel you could be successful in claiming back travel fees with a strong case to the ATO, however in the spirit of maximizing return we have decided not to go down this route, we self fund travel which is minimal demonstrating returns in the SMSF as our primary focus.

Those are the obvious ones, there are a few more but I am sure people will get the flavour for some of the challenges.

As for finance your concerns are valid. We have a long term relationship with HSBC and we will have no issues releasing funds from the properties purchased outwith SMSF.

I have to be 100% honest upfront, foreign investors e.g. Non UK voters role/Citizens are going to struggle to secure finance. The products are simply not available/poorly priced, not to say we aren't already speaking in great detail with previous mortgage lenders on our books to see what they can offer, but I don't hold up much hope at this stage.

We are lucky due to circumstance this route will be available to us to provide leverage.

 

[MTR]

I agree, I think you will struggle with finance in UK, foreign investors could not get finance in US unless they were prepared to pay 12% interest and only for 3 years, outrageous set up fees. I know people including my lawyer who tried unsuccessfully.

The other issue was that whoever was sourcing the finance were tacking on 50% margin on top of actual value of the property and passing on to the buyer, in other words the buyers was actually paying for their own loan because they were paying twice as much. I know some investors who jumped into this scam.

As far as SMSF I would make sure that whoever you are using in terms of accountant in UK that they totally understand how SMSF works in conjunction with Aussie accountant.

All the best
MTR

 

[ScottyB]

Apologies for the delay in updates, I have been busy finalising the contracts etc for the Tradesmen who will be undertaking the works on the properties in question.

Not an easy task.

I reckon we are 3 months away from going at this in anger, positioned ready for 3x properties as a minimum potentially 4 straight from the off.

Collecting plenty of Airmiles flying backwards and forwards to the UK

Oh and decided to wait and see what happens with the Scottish Independence vote, scary thought when I had time to reflect on what the impact would be on the Scottish Economy if the break away "Braveheart" lunatics were successful in their "Yes" vote.

Not long now until we find out either way!!!!

 

[Blacky]

Oh and decided to wait and see what happens with the Scottish Independence vote, scary thought when I had time to reflect on what the impact would be on the Scottish Economy if the break away "Braveheart" lunatics were successful in their "Yes" vote.

Not long now until we find out either way!!!!

I have been watching the GBP closely lately, and was wondering how you were getting on.
I don't believe that it will get up. Some Polls are saying the Yes vote leads by a fraction, however, this excludes the "undecided" voters. I have a feeling that if they are undecided at this point they will vote for the known stability. If I was a betting man I would put my money on a 60-40 No/Yes vote.

Fingers crossed I am right - however, Im guessing some cheap properties hitting the market in a few years if the Yes vote wins it.

Blacky

 

[Qlds007]

Obtaining finance in the UK is doable in certain counties although maximum lvr of 50%.

Forget Scotland but Home Counties and around the South it can be done.

Just be prepared to work your way thru hoops.