80% LTV Interest Only Property Disasters Waiting to Happen
We had an investor who told us this morning that he can get almost 20% return and our deals do not stack. What he also mentioned was that he was getting a 80% LTV loan with interest only. All we told him was “Lovely” end of discussion…All we thought was this will be another investor who will blow up at some point in the future. We have seen this 3 times already in our careers since 1994. During the last property turn down we saw so many investors and even bridging companies blew up. The problem was over leverage. Even bridgers blew up in the States lending at 70%. Things in Property got very bad. All one has to do is look at Ireland.
What we learned is the new normal is 50% LTV BORING…BORING. We saw investors who were prudent sail through the last property crisis. No foreclosures…people needed houses to live in due to repossessions. Their properties were fully rented.
It seems everyone wants to borrow and over leverage today. Leverage used in the right proportions are excellent for property investors however. The social HMOs are cash only which turn off many investors. However for those looking for boring solid returns like us, this is a strong avenue. We will be soon developing blocks of family houses which are used for Social housing. We will be preparing 10 of them that we will refurbish, tenant and then have them cash flow. These will be mortgage able….with returns approx of 9%-12% plus. We are viewing 10 properties tomorrow…Fingers crossed …
Low leverage …no management…no maintenance…no voids…Solid approach going forward. Anyone who is and has been in property know that management is the key to property success. We figure with management…voids and maintenance….costs can run over 15- 20% after everything is said and done.
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