Beware Rich Dad’s promise of UK property investment success

‘Become financially free by investing in property’, was the promise sold at a recent free Rich Dad Education workshop on property investing, where eager attendees were sold a three-day seminar on the assurance that they would receive detailed information there on how to become “professional property investors” in the local and UK markets.

With a large portion of the workshop marketing opportunities for South Africans to invest in buy-to-let property in the UK– and then sit back and enjoy the inflow of pounds – buying houses on credit cards and investing in social housing were among the strategies advocated.

In the credit card example, the house was fixed up after purchase and a mortgage on the home secured, for about 30% more than the original purchase price. This was used to pay off the credit card debt, while the property’s rental yield covered the cost of the mortgage and provided free cash-flow from day one.

The workshop presenter suggested that there were hundreds of “overseas lenders” eager to offer mortgages to South Africans. When asked after the workshop to name one, he refused.

Moneyweb’s own research suggests that the average South African may well struggle to obtain mortgages on UK properties.

HSBC, for example, requires that non-UK residents have a minimum annual salary of £75 000 (about R1.4 million) to qualify for a buy-to-let mortgage.

Barclays requires a UK credit history or at the very least a Barclays international bank account, while Halifax, a UK bank owned by Lloyds Banking Group, stipulatesthat at least one person named on the loan already owns a property in the UK.

Skipton International, which has an expatriate mortgage programme for British citizens living outside the UK, does not even consider South Africans at all, despite the fact that thousands of South Africans hold British passports.

South African bank, Investec offers buy-to-let mortgages in the UK only to its private bank clients and is not comfortable providing mortgages to individuals with multiple investment properties or who derive more than half their income from property.

All of these banks will provide at most 75% of the value of the property as a loan, meaning a 25% deposit would be required. This excludes legal costs, transfer taxes and mortgage fees, to name a few.

And according to the UK’s largest property portal, Rightmove, property prices across the region remain at all-time highs as a function of demand-supply forces, with the average prices of properties coming to market since March remaining above £300 000 (R5.7 million).

Rightmove’s July figures show that the cheapest average price was just shy of £148 000 (R2.8 million) this month, in the northeast of England.

While the economic and political uncertainty created post-Brexit is expected to push house prices lower, particularly in London, they are coming off a very high level.

Buyer beware

“If you are thinking of investing in the UK at the moment there hasn’t been a better time to make a bigger mistake. In 32 years of buying and selling, I have never seen quite so many variables, any one of which on their own could unbalance the housing market,” warns Henry Pryor, buying agent and UK housing market expert.

A regular commentator on the BBC, Pryor has spent the past 32 years buying and selling close to 1 000 properties.

“For the last two years we have made it more expensive for foreigners to buy, to hold and to benefit from property ownership, as part of the public efforts to make housing more affordable for the domestic market,” Pryor tells Moneyweb.

Acknowledging that uncertainty “brings huge opportunities”, he recommends careful research and professional advice.

“There are no quick and easy routes to riches in the UK today and the housing market has some significant headwinds over the coming months.”

Pryor suggests that the Latin phrase, ‘caveat emptor’ – more commonly known as ‘buyer beware’ – be ‘tattooed on your forehead’ if you are thinking of buying in the UK today.

On social housing and credit cards

Since the workshop specifically made mention of investments into social housing, it’s worth mentioning that there is a well documented and widely acknowledgedchronic shortage of social housing in the UK.

Although the government aims to build 1 million new homes by 2020, there remain strict controls for “social landlords”, who need to be registered with the Homes and Communities Agency and meet various eligibility criteria to qualify.

“It will be very difficult for international investors based in Africa to get a mortgage on a social house, banks are very particular,” according to George Radford, director for Africa at IP Global Ltd.

IP Global provides clients with end-to-end property investment services, including facilitating all the research and paperwork involved with buying and selling.

Banks are less likely to extend loans for properties with a purchase price of less than £150 000 (R2.8 million), adds Radford.

Standard Chartered, for example, insists on a minimum loan value of £250 000 (R4.7 million) when lending to overseas investors, and these properties have to be in the greater London area.

The house bought on credit card in the example used at the workshop cost £26 000, on which a mortgage of £33 600 was secured following renovations.

Minimum annual income requirements for borrowers buying entry-level properties are in the region of £40 000 (about R758 000), notes Radford.

As for buying property on a credit card – other than needing to have an exceptionally high credit limit with your local bank in order to buy property in pounds – it remains a speculative investment, he cautions.

“There’s no guarantee that you’ll get a mortgage, no guarantee that you’ll be able to rent it out and no guarantee that you’ll sell it,” Radford states.

Be prepared to pay more

Based on Robert Kiyosaki’s international bestseller, Rich Dad, Poor Dad, Rich Dad Education is owned by Legacy Education Alliance, which bought out its previous parent, Tigrent Inc, and offers various educational training seminars in the areas of real estate investing, financial instruments investing and personal finance. It was founded in the US in 1992.

Martin Foster, Legacy’s vice president for the UK and international, previously told Moneyweb that the three-day real estate investing seminar provides “all the relevant information to embark on investing in property in the real world”.

“That said, just like any business or investment venture, there is more to specific strategies than can be covered over a three-day period, and should a potential investor wish to pursue one of these strategies then we would suggest that additional strategy-specific training be taken,” Foster said.

“We as a Company also believe strongly in the power of a coach or mentor to aid and guide any potential investor, especially those looking at offshore property investments, and as such we also offer these services to our customers,” he said.

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