Introduction
Hello and welcome back to Mortgage Advisor on F.I.R.E. This week I will be discussing Deal Packaging and Direct to Vendor Marketing. First, however, I will have a look at the past week.
Weekly Update
I think I’m getting better physically. I can walk more freely around my flat with pain that is manageable. I still need crutches when I’m out and about, as much for security as anything. I can take a few steps but then my feet and ankles start to hurt, and the crutches help take some of the burden. The only issue with the crutches is that they are causing discomfort in both of my shoulders, which have both been surgically repaired in the past.
Mentally, I am not in a good way. It is difficult in the week when your friends, family and partner are all at work. It would not be so bad if I could leave the house and grab a coffee in a café with a book. I’m comfortable doing that; it’s something I really enjoy, just sitting in a crowd in my own company and a good book. This injury/injuries has taken that away from me. Without sounding too melancholy, I’m feeling lonelier than at any other point in my life.
I’ve had a better day today (Thursday, as I write this). I met up with a friend for brunch and we had a good catch up. It was so nice to have a conversation that did not revolve around my health. About my health, however, there have been some updates since my last post. I saw a Rheumatologist who was very friendly and thorough in his consultation. He completed a full examination of my joints, spine, breathing and blood pressure (120/80: much lower than it was a couple of years ago when it was around 197/130). We also spent a long time going through my extensive medical history, to which the consultant commented “you have the medical history of a man in his 60s, not his 30s.” It felt good for a medical professional to look at my entire medical history and agree that something does not add up. I choked up a little going through my history over the last decade or so as it’s not been a pleasant experience.
I will be seeing the consultant again in just under two weeks to discuss the results of the blood tests he ordered. I’m in the unusual situation of hoping there is something wrong; something that can tie together all, or most, of my medical history. I want to be able to point at something and know that it has been responsible for the numerous injuries and health scares I’ve endured. I want something that I can fight, and to know that in time my situation will improve. I stated before that for many years now, my physical health has been in decline. I’m not sure that mentally I could cope with much more pain, or the mental and emotional isolation that comes with physical ill-health.
I know I have people that love me and care about me, and it helps to an extent. I’m sure that anyone who has experienced chronic physical pain will agree that a support network helps, but only to a certain extent. Eventually, something must give. I need to get right physically. I know what I need to get right mentally; I need social interaction. I need physical exercise. I need mental stimulation. To get right mentally, I need to get right physically. It’s a relationship between the two. This blog is providing some mental stimulation, and I look forward to addressing it each week.
Financial Update
Premium Bonds: £13,000 (no change from last week).
Stocks and Shares ISA: £8,608.17 (up £373.84 from last week).
F**k It Fund: £1,513.11 (no change from last week).
Property Value*: £181,626 (no change from last week).
Total Assets: £204,747.28
Credit Card Debt: £0.00 (down £47.06 from last week).
Loan Debt: £3,370.33 (no change from last week).
Mortgage Debt: £133,960.57 (no change from last week).
Total Debt: £137,330.90
Total Wealth Figure**: £67,416.38 (up £420.90 from last week).
Investment Income in 2020: £0.00 (Target £2,000)
*valued at £181,626 according to lender’s index.
**total assets minus total debt
My ISA has increased in value due to my monthly investment being applied and a general increase in the market. I’m in the final week before payday so the next instalment of the blog should see and increase again to the Premium Bonds and F**k It Fund.
Financial News
Since I started this blog, I’ve been making a bit of an effort to network with other property investors. I’ve made a couple of contacts but my mental state, and general social anxiety and introvert nature, mean that I’m hardly likely to be the life and soul of any party in the near future. For me, networking is about sharing ideas and best practice and seeing if there is a way to build common ground, and possibly an ongoing professional relationship. It can’t be rushed. It’s organic and will evolve in unexpected ways.
There are some people that view networking as an opportunity to sell, and I find that extremely off-putting. I’ve had several Deal Packagers contact me via social media and manipulate an introduction into the hard sell in less than a dozen messages. It goes something like this:
DP: Hi there, I see you are investing in property in Sheffield.
Me: Hi, yes, I am, or at least hoping to.
DP: What are you doing in property?
Me: Looking for my first BTL. What about you?
DP: I find properties for other investors and I’m using the cash raised to buy my own BTLs. What type of property you looking at?
Me: Cool. Houses mostly, 2-3 bed.
DP: What is your budget?
Me: Around £100,000.
DP: I’ll let you know what I find.
Me: Er…
I’ve had several of these exchanges in the last few weeks and it frustrates me on several levels. The first thing is that what I thought was a chance to network, has turned very quickly into a sales pitch. I can use Rightmove myself. I can crunch numbers myself. I don’t have an issue with anyone approaching me with a sales pitch so long as they do it in the right way. Tell me it’s a sales pitch for a start, and at least then I can tell you that you’re barking up the wrong tree.
I’m not sure how I feel about Deal Packaging. It just seems like an unnecessary link in the chain. I get that there are people who are cash rich and time poor. I don’t think there are enough of these people to sustain a Deal Packaging industry, especially now that it seems so many wannabe investors are jumping on the No Money Down bandwagon.
What is Deal Packaging?
It is where someone finds a property for an investor and then sells them the information. The Deal Packager may also agree a purchase price, and research the likely cost of bringing the property up to spec. They would then be paid either a flat fee or a percentage of the purchase.
It’s an industry that I can see having a limited shelf life. After all, it does not take long to set up alerts on the various property search engines. I don’t think we are too far away from having more complex algorithms for computers where software can search for property that meets your requirements and then fire off an email to the relevant agent according to a set template. It’s not that much of a stretch to see a time where a cash-rich-time-poor individual pays an IT expert to set this software up, whilst at the same time setting up similar emails that go to tradespeople and builders to get quotes on necessary work.
I predict that in less than five years, Deal Packaging will be old news.
Direct to Vendor Marketing
For the most part, I’m firmly opposed to Direct to Vendor Marketing (D2VM). It’s a fancy term to describe the act of mailing whole streets or communities with letters that state you are a Property Investor or Property Solutions Expert and that you are looking to buy properties for cash, quickly. It is often done in conjunction with Deal Packaging. I’m concerned about the morals of the industry. It’s very easy to see how vulnerable people can be ripped off. Let’s use an example:
Bob Smith (a fictional man) living on 123 Fake Street has been left in a dilemma. He bought a house for £100,000 in his own name for him and his partner to live in. Shortly after moving in, his partner left him. Bob Smith then had a bout of ill health and lost his job. He is now struggling to afford his mortgage. As someone who is not financially savvy, and has no one to turn to, he wonders what to do.
One day a letter comes through the door saying that a Property Solutions Expert wants to buy properties for cash, quickly, in the area. Bob calls the number on the letter and is asked a few questions like “how much do you owe on your mortgage?”
During the conversation Bob tells the person on the phone he owes the bank £79,000 and is behind with his payments. The bank is sending letters out threatening to repossess the house. After a long conversation on the phone, Bob feels like he has someone on his side willing to help. The next day some guy comes around to talk to Bob. This “Expert” has read a couple of books and attended a Property Investing course but has never owned a BTL and has no formal financial qualifications. This “Expert” tells Bob that he can have a deal done and dusted for the property in weeks, but as it will be done so quickly the purchase price will be no more than £80,000.
Bob is worried about the low price as he only bought the house a year ago for £100,000. The “Expert” reminds Bob that £80,000 will pay his mortgage off and get the lender off his back. After some cajoling, Bob agrees to the deal.
Is this making you uncomfortable yet?
Anyone who has worked in mortgages for any length of time will be screaming at their screen telling Bob not to go with this deal. Lenders do not like to repossess properties. It takes a lot of time and effort to do this, as well as a lot of money. It must go through legal channels and it rarely happens. Missing payments is a bad thing, but lenders will work with customers to move through financial difficulty so long as the customer is open and communicative. Not many people realise this, and Bob Smith is the very definition of a vulnerable customer.
The “Expert” thinks they are solving Bob’s problem, but where will Bob live when he sells the property at a £20,000 loss?
In this scenario, the Investor who buys the property will either sell it immediately on at something close to the actual value or will rent it out and then a few months later pull the equity out.
I see these D2VM letters and leaflets often. I’ve received several myself, and I know many people who have also received them. Apart from increasing awareness, I’m not sure what the answer is to stop vulnerable people from being ripped off. I accept that there will be many Deal Packagers and D2VMs who want to do the right thing, but I fear there is an increasing number of people who have drunk the kool aid and are convinced there is plenty of money to be made by finding below-market-value properties, agreeing a deal and then selling those leads to investors. My concern is for the vendor; the person selling the property on the cheap and who may not have been given the best advice.
I wrote a few weeks ago about the industry surrounding Property Investing Courses and how it needs to be regulated. I think the answer to Deal Packaging and D2VM is that it should be regulated, and those practicing should be certified, and each deal should be logged with an independent body and checked to make sure no one has been ripped off.
Final Notes
Thanks again for reading Mortgage Advisor on F.I.R.E. There will be two more instalments before I have a break for India. I’m looking into the possibility of having a guest blogger to post in my absence and I will update regarding this in the next week or two.
If you have enjoyed this article, or others in the past, please share the article on social media. Thank you in advance.