£0 to £100,000 in ONE Property Deal | Wealth Strategy 2021

[@PaulSmithTouchstoneEducation]

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[@kefehu2]

Dear Paul, I think there is an arithmetic error in the first calculation. 163k + 35k = 198k.

[@PaulSmithTouchstoneEducation]

Correct.. do you still like the deal?

[@PaulSmithTouchstoneEducation]

OK everyone, here is the news! I am human and I very happily agree I made a simple calculation error... can anyone say they have never made a simple error? Here is the real news... this strategy will make you wealthy: higher cashflow, less stress and costs plus you are helping a family to buy a home after 7 years that they otherwise couldn't. Do you think it is a better use of time to try to pick holes in my maths (no point you doing it too many others have) or how about learning how to make lots of money and help lots of people?

[@pauldavies5655]

THIS can work ----- mainly because the tenant now has an interest in that particular property ! you ll really need to look at the contract you give them and make sure all parties are aware of the pitfalls , the main problem is actually FINDING people who love that place so much they would want to buy it ---- so refurb is a MUST !

[@mirzafazlic5339]

It seems unlikely you can buy a 3-4 bedroom house for £163K for £1,100 rent. For that rent the house would be minimum £250K even if you did a BRRRR strategy. You have to minus the 105K by the 12K mistake as Dr Norbert suggested below. Plus you will pay the 18% or 28% capital gains tax. So the profit would be less. I also question why anyone would do this strategy because you could just put the top up money in a ISA for 7 years and then buy whatever house you want. Also it's not very ethical to do this strategy with people that are desperate and have bad credit score or CCJ's. There is a high likely hood they will not last 7 years and they will lose their deposit. So it's quite unethical. You just end up taking people's deposit money over and over again. There really is no advantage to the tenant, they should just rent and save up money for a deposit in an ISA. It's a much better idea.

[@annied2863]

Quite apart from the most basic maths mistake at 18:30 (£163k+£35k=£198k, not £188k), there are so many questions that remain unanswered from this video. Firstly, with the tenants hard-earned deposit at jeopardy all through the 7 year scheme, this has “miss-selling scandal” writ large all over it, especially given Government sentiment to private landlords. In areas where house prices are stagnant or may actually fall in the post-pandemic economy, how are these poor tenants going to raise a 90% first-time mortgage on the compound 4% built-in house price valuation in 7 years time? I also thought that resi mortgage lenders don’t loan on these lease option-type agreements? Also, as the landlord, BTL mortgages normally require an AST tenancy agreement not a Lease-option agreement, which this is.

[@PaulSmithTouchstoneEducation]

Hi Annie, we use a modified AST so no problem with BTL lending. Correct I did make the maths error you describe. I do make errors from time to time. For the landlord if this still a good deal? At the time of purchase it is simply a 10% deposit and an agreed sale price. If it is not for you then no problem. For me it is a win for the landlord, a win for the tenant who becomes a home owner (which they otherwise could not) and a win for society as another person is removed from our ongoing lack of homes crisis. Are you in favour of helping people buy homes?

[@annied2863]

@@PaulSmithTouchstoneEducation Of course, I am all for people buying their own home but the jeopardy here is all on the tenant. 7 years is a long time and they risk losing (or forfeiting) their savings for multiple reasons in that time frame including (but not limited to) change of circumstances (just think of what’s happened to so many people in the last year), family break-up and being unable to mortgage the purchase at the pre-agreed (potentially over-inflated) price at the end of term. These are not risks they would be exposed to by saving monthly into an ISA, for example.

[@Paul-Thomas-LifeCoach]

@@annied2863 You're right in thinking that the term of top ups is fraught with opportunity that something happens. However, people who would typically enter into this type of arrangement have poor credit scores or inability to save or some other reason. Investing in an ISA, unless it's a cash ISA, is more troublesome as the value can go down as well as up.

[@annied2863]

@@Paul-Thomas-LifeCoach Paul, I did mean a Cash ISA as that is the closest equivalent to the "Top Up" account being used by this scheme, but with none of the risk of forfeiture. Leaving aside the maths miscalculation which is not central to pros and cons of this type of scheme, my main issues are 1. Do these clients really understand the jeopardy to their savings, which aside from the moral issues with this, may also expose the landlord to claims of misselling in a FCA regulated market 2. In areas of low capital growth in the housing market (and there are many areas in the North that fall into this category), it is highly unlikely that the property will be valued by any residential mortgage company at the pre-defined lease option purchase price, which means that the tenants will not be able to achieve a 90% first-time buyers mortgage on that price and lastly 3. for the landlord, post-refurbishment 75% mortgages on revised values will only apply if the rent valuation (which may be lower than the rent being charged) also meets the BTL mortgage company stress test of 125% rent at 5.5% APR.

[@ryanm2613]

AnnieD : l think the numbers sound great on paper, but with all the different scenarios brought out, I’m not convinced this is a fool proof method. Perhaps if the numbers worked out for both parties over half the time period, then this may be construed as being more reasonable and workable. I too have a BTL which was bought by the previous owner in 2007 for £95k, and now in 2021 l have purchased it for £127k. With a 25% deposit + SD, legal etc + It required work to let it out for a decent amount ie new windows, bathroom, redecorating etc this cost £12k, but it’s unlikely to mean that a few months later it’s now worth say more than even £150k to £160k for remortgage valuation - so my best option l think is to let it out, pay the mortgage, letting fees etc & just wait!!! Also with landlords not being currently favoured, l do think there is a potential for this RTB to turn into a PPI like scandal along with any potential unethical concerns. Paul @ TE, l think you’re doing great things with advice on other areas, but not convinced this is one of them

[@alexisguillemot5707]

Hi Paul, You buy the house with 80% mortgage so need £37600 deposit. You pull 12k out so have £25600 left in or am I missing something. Thank you

[@Paul-Thomas-LifeCoach]

As a BTL mortgage, they are normally 75%LTV. Remember, you are letting it out to a tenant. The tenant buyer can get a 90% mortgage when they are ready!

[@PaulSmithTouchstoneEducation]

Tenant will but it with a 90% mortgage so needs 10% deposit. It is their home.... not BTL

[@Paul-Thomas-LifeCoach]

@@PaulSmithTouchstoneEducation think Alexis was referring to the Investor's initial purchase which would be via a 75% LTV mortgage.

[@alexisguillemot5707]

Fully got it now. Yes that's a great strategy. Thank you

[@PaulSmithTouchstoneEducation]

R2B Truly is amazing!!

[@dzyahscloud8256]

I think I've got it too 😆

[@PaulSmithTouchstoneEducation]

@@dzyahscloud8256 perfect! Paul

[@thinkingjoe5440]

Hi Paul, I'm aware that CCJ's and defaults as long as they're settled, stay on your record for 6 years so in that respect, the 7 year contract is good as it allows any barriers from them applying for and receiving a mortgage to be removed by the time they come to buy. But what if they incur more negative credit markers during their stay and are not in a position to take out the mortgage? Can you evict them, give them their deposit and put the house up for sale?

[@ashok-kumarbharadwaj4691]

198000.Paul.

[@abupasha9967]

Normally, I'd hold onto the property for say 15+ years. This means that capital gains tax won't come into play for at least 15 years. However, if I am selling a property after 7 years, I will be taxed at 28% correct? Is there any way to mitigate against this ? What if I sold the property after 7 years and within the same tax year, I took all the proceeds and bought another property? The tax situation is what is putting me off.

[@PaulSmithTouchstoneEducation]

If you buy with the intention to sell (even in 7 years) then it is trading profit not capital gain. If you do this through a company then you can of course set expenses against any profit. Pension contributions, car mileage at 45p per mile etc. Hope this helps. Paul

[@abupasha9967]

@@PaulSmithTouchstoneEducation Thanks Paul.

[@legendaryletsserviceaccomm6116]

However, HMRC will take their cut, still good but don't forget to factor them in!!!!

[@PaulSmithTouchstoneEducation]

Of course.. we do this via a limited company and it is trading profit as the intent is to sell.... quite a lot in this video already! I thought that level of complexity might be too much!

[@mixerman8]

Love your videos Paul, got 3 buy to lets now. Looking at setting up a ltd with an HMO and 3 family homes with additional ones that I want to recycle like this. Can you use the same SIC code that the rental business uses?

[@PaulSmithTouchstoneEducation]

Thank you! any company can have up to 4 SIC codes... Free online to add another if you want

[@mixerman8]

@@PaulSmithTouchstoneEducation thanks for that, very inspiring informative videos. I've got MS doing quite well at the moment but its uncertain. So im going all out next 5 years every spare penny invested to create a snow ball effect. Going to be in touch with Diamond Estates next week to tally some figures up aswell. Im in Sheffield so not far from me. Keep up the positivity, im the same at work trying to explain about investments to first time buyers with first time buyers isa's etc and to change their spending habits, it gets through to about 1 in 4 if that which is a shame. Its amazing what's out there and people don't realise. Financial education is key and I'll certainly be obtaining some of your reading material :]

[@PaulSmithTouchstoneEducation]

@@mixerman8 I love your positivity. MS is tough and glad to hear you are doing well. Contacting Diamond is a good idea. Stay strong, love the fact you are helping others with education and whenever it is safe hope to meet you maybe at our offices? Paul

[@mixerman8]

@@PaulSmithTouchstoneEducation definitely nip down for a brew in future.

[@graintocask1615]

Paul I love your comments and videos and have watched them all. But you really need to work on your book case (obviously keep the awards you love they are great) just fill it up. :0p

[@PaulSmithTouchstoneEducation]

This bookcase is to be filled up with books I have written and books my students have written... its on my vision board!

[@ryanm2613]

l think the numbers sound great on paper, but with all the different scenarios brought out, I’m not convinced this is RTB is a fool proof method. Perhaps if the numbers worked out for both parties over half the time period, then this may be construed as being more reasonable and workable. I too have a BTL which was bought by the previous owner in 2007 for £95k, and now in 2021 l have purchased it for £127k. With a 25% deposit + SD, legal etc + It required work to let it out for a decent amount ie new windows, bathroom, redecorating etc this cost £12k, but it’s unlikely to mean that a few months later it’s now worth say more than even £150k to £160k for remortgage valuation - so my best option l think is to let it out, pay the mortgage, letting fees etc & just wait!!! Also with landlords not being currently favoured, l do think there is a potential for this RTB to turn into a PPI like scandal along with any potential unethical concerns. I think this scheme relies on “everything being great”, which is unlikely to be the case for many reasons Paul @ TE, l think you’re doing great things with advice on other areas, but not convinced this is one of them

[@PaulSmithTouchstoneEducation]

Thanks for the feedback. Maybe I am not doing a decent job of communicating it properly. This is the strategy for our current environment. I will work on the message and thank you. Paul

[@ryanwollacott1087]

Would the Landlord be getting less rent than they could elsewhere to factor in the top up as to ask the tenant to pay rent plus a top up is a big ask?

[@malcolmbrownson5205]

PAUL.....Pity you do not have Tennant-Buyers....Seeking Homes in SPAIN.

[@arsanykanawaty5426]

Dear Paul, Thank you for sharing the video. I just had question. At the start with the purchase price - when you say then put a mortgage on? Does that mean that it was bought initially with cash ? Or was it with a mortgage and then after the refurb then remortgaged. Sorry I’m just new and trying to understand. Thank you.

[@alchemisttttt]

Good question... pity it hasn't been answered...

[@john-km3dy]

What if after 7 years they don’t want to buy it? What if they can’t afford to buy it?

[@PaulSmithTouchstoneEducation]

Hi John, if they do not want to buy it they can either renegotiate with you to extend the deal, sell it to somebody else or if they really do not want to buy it (and why on earth would that be after 7 years of saving?) they can leave and the landlord keeps the top-up.... 10% of property value.

[@hrd9910]

Don't trust this Gordie fella.

[@Gizimizi]

What's more the tenant is paying £1500 for rent, as well as probably £400 for bills and council tax. For effectively 2k you as a tenant are taking all the risks with no reward. What if you don't like the house after 7 years. TE are just selling this idea to poor desperate tenants that are not financially educated. It's a shame I thought you had more integrity. Just pure BS and a money making machine