Beware the buy-to-let marketing patter
In the September 2008 edition of Moneywise magazine, I listed the names of investment schemes we had warned against which had later gone bust or been shut down.
One of these schemes was Inside Track, the buy-to-let property investment firm run by Jim Moore, that seemed to monopolise the commercial radio stations with its repetitive slogan: “Don’t go round the houses, take the Inside Track!”
Moneywise warned – as long ago as 2003 – that anyone who signed up for Inside Track would be asked to attend a highly priced training course, where they would be introduced to mortgage brokers and other advisers who would also charge them hefty fees – a proportion of which the advisers would then hand over to Moore.
The scheme promised buy-to-let investors a property that would cost them virtually nothing because the rent would cover their mortgage repayments. But it only made sense as long as property prices kept rising and there was a never-ending supply of tenants willing to pay high-enough rent.
In April 2008, Inside Track Seminars was taken into administration and its training courses cancelled, and in September, its sister company Instant Access Properties went bust with debts of more than £11 million.
But now Moore is back with two new property schemes. Potential investors who attended a meeting held by IAP Global were reportedly offered property deals in Brazil and the UK. On top of this, he’s marketing a plan to turn a French vineyard into a luxury development of apartments, golf course, restaurants and five-star hotel.
The bait is that you don’t need to pay a single penny as a deposit because the whole scheme will pay for itself. It’s all very reminiscent of Inside Track.
How it works
Property investments in holiday areas qualify for a rebate from the French taxman. The rebate becomes your deposit on the purchase of the property; the rest of the purchase money is provided by a mortgage, repayments on which are met by renting out the property. The bottom line is that you get a luxury holiday home for free.
But, like Inside Track, there are risks. These properties have not yet been built, and the custom in France is that your deposit is only refunded, along with your tax rebate, once the building is completed. If, for any reason, the work is delayed or halted, or the plans substantially altered, you could hit problems.
It’s also unclear what happens if the lettings agent fails to find enough tenants. On the face of it, you would still be liable for maintenance charges, insurance and other bills, as well as years of mortgage payments.
So where does all this leave Moore’s earlier investors, many of whom paid over-the-odds for properties that are now worth less than they owe their mortgage lender? Well, Moore has a scheme for them as well. He has plans for a property investment fund that would make its profits by buying the loss-making flats that his other companies originally marketed.
The new fund would offer, say, 20% below current property values – and, as current values have slid sharply, people who paid heavily for Moore’s advice when they originally invested would be left nursing losses of tens of thousands of pounds. They would also be completely responsible for any outstanding mortgage debts.
Moore himself has certainly lost money – on paper – through the crash of his companies, which were said to be worth £100 million-plus before the credit crunch. But it’s hard to feel sorry for someone who can still afford to live in a luxury apartment in Switzerland, when he’s not sunning himself at his £3-million villa on the Costa del Sol.
So, I shall reserve my pity for those who lost out through his slick marketing last time round, and simply hope that anyone tempted this time will ask all the right questions before rushing in.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.