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Evaluating your property purchase

March 24, 2010

When you visit a house during an open house or an appointment with your property agent, take your time. Carefully weigh up the following factors before deciding if the property that you are looking to buy is right for you:

  • Price The price is the main criterion for most of us. Learn how you can or can not afford to pay, request a mortgage pre-approved before you start viewing any properties. Perform a thorough due diligence on the price of the property and in case of buying investment property for sale, make sure that the discount offered is genuine. Perform the due diligence before you even step out to see the property to save you time on being disappointed and wasting a trip if the price des not stack up.
  • Fees Yet, even if you can pay for a property mortgage, other property costs such as property taxes and service charges could put it out of your reach. In some new areas, property taxes are lower until the facilities and services such as sidewalks, parks, fire stations and schools are built. You must have an idea of future property taxes for properties you are considering.
  • Architecture Determine if you like the style of the house. Evaluate how the house will be easy to maintain and clean. If you are buying a rental property as a buy to let investment, then make sure that the property layout and number of rooms lend themselves to providing you the maximum rental value.
  • Alterations and size Ask yourself if the interior will meet your requirements today and tomorrow. Are there enough bedrooms and bathrooms? Is there a room for a home office or game room, if necessary? The garage is about the right size? Do you need a garage at the property? Is there enough storage space?(The old houses are full of charm and can sometimes be bigger offering more storage space.
  • Lot Size Again, you should consider your current and future needs. Review the property size for its rent ability to make sure it will appeal to the type of tenants you plan to target for the rentals. If it is to be a family home then does it have enough space for a family? Or are you buying the property for occupation by single people or couples who would rather have a smaller property with a smaller garden to manage with no lawn to mow
  • Landscaping Are you looking for a property requiring minimal landscaping and hence low management or looking for a property that you intend to occupy and want the charm of spending a few weeks a year in the garden? You need to assess the type of garden to assess the costs of maintenance. Its again a question of money and time
  • Maintenance and refurbishment Are you likely to need to upgrade the heating and other utilities? Does the water supply need work? Is the roof requiring replacement soon or in the coming years? Will you need to redesign your kitchen or bathroom soon? Consider these expenses as part of the purchase price when you speak with your buy to let mortgage advisor. To assess the overall expense, you would ideally want to carry out a thorough property survey to determine the exact costs of any further work required to bring the property up to the state you want it. A full survey requires a lengthy discussion and we will not go into any lengthy detail here.
  • Extras Know exactly what is included in the price of the house and what is not. Appliances, curtains, blinds, central vacuum and air conditioners If you are in doubt, ask questions and get answers in writing.
  • General Condition Should the exterior should be repainted, does it need rendering, repairing, brickwork replacing… or any other extra work? The windows; are they safe and waterproof? Is exterior lighting sufficient? Are there any cracks in walls or floors? Does the flooring need replacing soon? Is there an alarm system? Is the water pressure sufficient? Do the hot water or cold water taps do they work properly? Is the heating system in working order? Does the property need rewiring? Check for damp, mould, signs of wood rot or any sign of wood worm, any other structural problems.

The idea is to make sure that you do thorough homework on the property and make sure that you don’t end up with any nasty surprises later down the line after the purchase!

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Property Ownership Costs

March 24, 2010

When you buy a new property to live in yourself or buying an investment property, there are a number of costs you need to consider to make sure that you can afford the overall expense of owning a new property. These costs go beyond the mortgage payment costs that you incur each month. Property ownership involves two main categories of costs:

Non-recurring costs

Some of the costs you can expect to bear during the purchase of your home:

  • Closing costs and other additional costs associated with the home. The closing costs that you pay depends partly on the size of your mortgage, the value of your property and the province where you purchase. For example you will need to consider solicitors fees, mortgage broker fees, any stamp duty that may be applicable to the purchase of your property, survey costs when applying for a mortgage, your deposit payment, property insurance and so on.
  • Moving Expenses Whether you hire property movers to pack, move and unpack your belongings or you do it yourself, it will cost you something.
    • Costs related to new home Think about what you need and everything you want to feel at home in your new home, especially if it’s your first. Then, think about what you need just to move, e.g. cleaning products. These short term costs are additive, so try to take into account the initial costs.

Recurring costs

What are the costs you can expect to pay monthly, quarterly, or sometimes every season:

  • The mortgage payment will probably be your biggest regular outgoing towards the cost of your property, whether you have a normal residential mortgage or an investment buy to let mortgage. Several factors affect the amount of mortgage that you make, including: the amount financed, term, rate, type of mortgage product and payment schedule. If you want to pay off your mortgage more quickly and reduce interest costs, you can make payments more frequently, for example bi-weekly (at the same time as your pay). Adding a little to your monthly payments or making an extra payment each year can be extremely useful.
  • Property Taxes Depending on where you are, you will receive a council tax bill that is normally paid annually. Nowadays, it is possible to pay property taxes in several ways: by writing a check to the council, by online Banking or if your council allows, automatic debit from your checking account every month.
  • Property Insurance Your lender will require that your property is insured at closing, and it is an expense that you can not avoid when you buy the property. The property insurance protects the replacement cost of the structure in case an unfortunate event occurs. Your property insurance should also cover your personal valuables: jewelry, art, furniture and computers, among others. Your property insurance should also cover liability insurance, in case someone gets hurt on your property or you damage property accidentally by a neighbor. (From time to time, make sure your coverage fits with the value of your property.)
  • Service Charges If you buy a flat or an apartment, you will undoubtedly be asked to pay a service charge for maintenance of the property inside and outside, including common shared areas used by the public. Ask before you buy all the details on these expenses, among others, from the management company..
  • Utilities Each month you will need to pay the heating bill, gas, electricity, water, telephone and cable (or satellite television).

Regular Maintenance. A well maintained property retains a higher market value and contributes to the enhancement of the neighborhood. Proper maintenance can even increase the value of your property. Sometimes these expenses are a little too easy to postpone. But if you neglect certain maintenance tasks, you will find perhaps that repair costs are much higher. A regular maintenance schedule covers a multitude of tasks from mowing to snow removal, through the roof repairs and periodic maintenance of heating system.

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Protecting Against Renovation Property Risks

February 28, 2010

It’s all about risk assessment…

This is especially true when it comes to property investment. Property investment is guaranteed to deliver healthy long term profits for many people and hence makes it a very attractive proposition. However, it is an investment that should not be made lightly. People should be aware of the facts surrounding the property investment business. Property investment is more than just easy profit, as there is a decent potential of making bad investments

If you plan to invest in renovation property, you must take precautions that will limit your risk and exposure when you can. If you cannot reduce the risk, be prepared for financial loss and be mentally prepared to accept potentially life changing losses. In property investment there are several risks that you need to look out for, including:

Loss of investment

When you are dealing with property, it is possible that you may lose some or a lot of the investment that you make to purchase your property. If your investment is high in a renovation project but the demand is low for the end product, then you may be dealt a devastating blow if your property does not sell for at the price or the speed at which you expected. So researching the market to choose a property that is in the right area and in demand is critical. Also research the pricing levels of the properties in the area and what the end cost will be to renovate a property and how that is likely to affect any profit (or loss) when it comes to renovating and selling.

In addition, do the obvious and be aware of the market conditions within which you are planning to sell. Be aware of the potential of a non sale. If you strategy is to renovate, hold and rent the property then assess the rental potential of the market and make sure that you get a suitable return to keep you in the black against your outgoings and mortgage.

Also make sure you take out appropriate insurance cover during the renovation process to make sure that you are covered against unexpected occurrences.

Cover Your Risk

Remember that in property investment, there are sometimes unforeseen costs that you may not initially allow for. Here are some examples:

Natural Disasters - the economy collapses - the local market is crumbling - people change their minds when you are trying to sell - accidents or injury claims when someone is working on your property and so on

Anyone of these things can lead to real consequences and can end up being catastrophic. The above events are totally beyond your control. Therefore you must be prepared to account for such risk.

In addition to these risks, there is the risk of discovering unexpected flaws in the actual property. Most investors tend to abandon a good inspection and often end up discovering unwanted and sometimes costly problems. The repairs will cost money and these costs will eat into any potential profit on the horizon. So never buy with your “eyes closed”.

If you have found problems with your property, you generally have two options:

- Firstly, you can undertake the repair work yourself before putting the house on the market.

- Second, you can sell the property as is and reveal the problems to potential buyers.

To save the hassle, it is very important to locate these problems before buying the house. Make a careful inspection of the house and that way you will discover any potential costly faults that may adversely affect your property investment. This will not only save work but will also save a lot of money.

Keep in mind that you should not let the two risks to stop you from investing in this market. However, as an investor, you need to clearly identify these risks so that they are priced into the investment and assessed accordingly to make sure that the anything you buy is worth buying in the first place.

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Finding the right property manager

January 2, 2010

Many property investors will choose to manage their own properties, particularly if they live a short distance from the property. However, for many investors it may not be feasible to take over the management of their properties if the properties are located across different parts of the country. In this case a property investor may want to appoint a property manager to take care of things on the leasing and property management in exchange for a monthly fee.

The benefits of appointing a property manager for our property investment can easily outweigh the reasons for not to have a manager in place. A good property manager will always communicate effectively with the owner in all circumstances and perform well.

Duties and functions of a manager of property are extensive and will vary depending on the conditions and demands of the property owner. Here is a list of some of the responsibilities a property letting agent may assume:

  • Advertise for and interview (credit checks, referees contact) potential tenants
  • Gather initial payment of deposits
  • Collect monthly rents
  • Arrange any necessary repairs
  • Periodic inspections and inventory checks of property
  • Paying workers, gardeners, council tax and other bills out of incoming rent
  • Make the regular lease payments to the owner
  • Contact the owner of tenants giving notice to vacate property
  • Contact the owner to arrange for repairs above a certain value
  • Notifications and appropriate to issue letters to tenants
  • Provide reports of rent and expenses to the owner

The above is just a sample of functions performed by a property manager. A good property letting agent/ manager is not necessarily someone who charges lower fees. Most managers around where your property is located charge similar fees, however their ability to control the property according to your requirements differ and so it is necessary to follow a strict screening process to choose the right letting agent for your needs.

The best way to select the right property manager is to interview a number of property managers and ask them a series of predefined questions. Some owners prefer to do this in an interview, while others are content with perhaps a call and email to phone.

So what type of questions should you ask? There are several different aspects of property management that must be looked at and so I have listed some possible questions accordingly.

Fees and services offered
What monthly fees do you charge?
How many properties do you control?
Do you charge a fee to leave?
How often do you conduct inspections?

Reporting
How often are payments made to the homeowners?
Under what circumstances do you contact an owner?

Tenants
How do you find and interview prospective tenants?
How often do you collect rent?
What is the typical period of notice?
How do you treat non-payment of rent?

Maintenance
What action is taken if a tenant should damage the property?
How do you control the major and minor repairs?
How long have you worked with your preferred trades people?

These are only sample questions and will differ depending on your situation, however they provide an outline of what you may need to ask.

At the end of the day, do not settle for less than what you expect from a property manager. After all, your investment property, bought with your hard earned money, is placed in their hands. Make whatever effort you need to ensure that your property is in the hands of someone you consider capable and trustworthy.

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Variable Rate Mortgages

December 27, 2009

The use of variable rate mortgages has increased and more and more people are using this strategy. This strategy, by its nature (variable), is about taking a risk that must be assumed but in recent years it has shown very good results.

Description

The interest rate on a variable rate mortgage changes with the base rate of the Bank of England. The lender does not give you a fixed rate but a discount off the basic rate. For this reason, variable rates are expressed as the base rate less a percentage.

Example: “if the rate is based on base rate minus 0.90% in this case, if the base rate is 6.00%, the customer will pay their mortgage rate of 5.10% (6.00 - 0.90%) for this period of time. Some time later if the base rate is 5.25% then the mortgage rate of the mortgage will be 4.35% (5.25% - 0.90%) for this period. The Bank of England sets the interest rate every month. That does not mean that the rate will change 12 times but its more a review and a decision of whether the rates need to change, and deciding on a new rate if the rates need to change.

Advantages Of Variable Rates Mortgages

Historically, this is a very good strategy, especially when rates are stable or decreasing. This strategy allows borrowers to:

  • Take advantage of rates that go down during the term of the mortgage.
  • Payments are usually lower.
  • Available from many lenders.

Disadvantages

  • Rates are variable, so they can ascend or descend (a risk factor).
  • Payments vary with interest rates.

When Using The Long-Term Strategy

It is clear that the variable rate is a good choice when the rates tend to go down or are stable. Since it is difficult to know for certain which way the rates are headed, if you take a variable rate mortgage, you will have to keep a close eye on the trend of interest rates every month.

All products offer a variable rate has also an option to convert the variable rate to a fixed rate. It is a fairly easy process: you call the lender and you tell it to convert your loan to a fixed rate.

Caution: Lenders Increase Rates When You Switch To Fixed Rates

If you see that the interest rates are rising and you wish to change your mortgage from a variable to a fixed, you need to take account of the fact that the fixed rate offered will usually be higher. When someone wishes to convert a mortgage from a variable rate to a fixed rate, lenders are usually known to increase the fixed rate offered to a borrower.

How To Stay Updated On The Movement Of The Base Rate?

Due to the fact that your mortgage rate varies with the base rate, it is important to keep an eye on the base rate. Keep note of the following points to track the interest rates:

First, the base rate may change as much as 12 times a year. When the Bank of England adjusts its policy rate this news is usually disseminated to all mass media (newspapers, radio and television). Your mortgage broker will also have first hand knowledge of the interest rates so keep in touch with your broker and keep an eye on the media. The interest rate announcement is usually made on the first Thursday of every month by the Bank of England.

Consider A Variable Rate With Ceiling

Some lenders offer variable rate with a ceiling. That is to say that if variable rates rise above the ceiling rate, your mortgage will be adjusted so that your rate is equal to the ceiling. Your maximum rate therefore, is the maximum rate for your mortgage.

Conclusion

The strategy of variable rate is often an option that must be examined carefully. Several thousands of pounds can be saved as a result of the right choice. Consider the following 2 tips before choosing your variable rate mortgage:

  1. Choose a variable mortgage with the right lender. There are so many variations in the variables rate mortgages.
  2. Stay up to date on interest rates or make sure your broker is in contact with you to advise you.
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Mortgage Broker Expertise

December 26, 2009

A mortgage broker with the right expertise is an important factor that should be considered when choosing a mortgage broker [See: Choosing a mortgage broker]

Over the years, many mortgage lenders have added or changed dozens of mortgage products. There are hundreds of mortgage products available for borrowers and trying to choose the right mortgage product can be daunting. Choosing mortgages is a full time job. It requires the mortgage broker to know all the options, products and strategies in the mortgage market today.

Some signs of an expert mortgage broker

When you contact a mortgage broker, look for signs to determine how knowledgeable the broker is likely to be. Pay particular attention to the following:

  1. He does not speak only of a mortgage product (eg 5 year fixed), but several opportunities to handle the mortgage strategy.
  2. He knows the factors that influence the rise and fall of interest rates and can explain clearly the current situation in the cycle of interest rates.
  3. He knows all the products offered by all lenders in the market and can easily compare. As an example, the best variable rate of 5 years is with the lender XYZ because … while the best mortgage line of credit is offered by ZYX because …
  4. He is able to compare the best rates available for each lender and at the same time you can select one with the best offer.
  5. The broker tries to understand your situation and your goals.
  6. He shares with you ideas about how your mortgage may be repaid quickly.
  7. He is authorized by the Financial Services Authority (FSA)
  8. He works for a company that has a good volume of business
  9. He explains clearly and easily the concepts and ideas of more advanced mortgages
  10. A new trend in the mortgage market is to see more and more mortgage brokers who specialize in a certain market area.

There are specialists for:

  • Mortgage customers who have a good credit score.
  • Bad credit mortgage clients with less than perfect credit history.
  • Mortgages for construction.
  • Mortgages for residential property buyers
  • Buy to let mortgage specialists
  • Commercial mortgage specialists

The fact that some consultants specialize enables them to better understand the nuances and details of specific mortgages and can better understand a strategy and products available in that specific mortgage market.

The expertise of your mortgage consultant will be a big benefit for your property purchasing strategy and could help you save thousands of pounds.

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Mortgage Broker Integrity

December 26, 2009

An important part choosing a mortgage broker is to ensure that the mortgage broker has integrity. [See: Choosing your mortgage broker]

Integrity in a person is defined as: “Good character, as a person of integrity, incorruptible, whose conduct and actions are beyond reproach.” A mortgage broker with integrity will put your interest before their own and the lender

If you have any doubts about your mortgage broker then keep looking for another mortgage broker. You must have confidence that the advice or recommendations he/ she gives you is good for you (not him/ her!)

Finding a mortgage broker with integrity

When you are searching for a mortgage broker and are in the selection process, the first step is to have a telephone conversation with the mortgage consultant and see if he/ she listens to you without saying exactly what you want to hear. (Example: Do not tell the broker that you are looking for “the best mortgage rates for 5-year fixed” but instead ask him/ her of their recommendations for a mortgage). Let him/ her speak and answer your questions. A good adviser will probably start by understanding your situation and your goals to be able to advise you properly.

More than a product or an interest rate

If your broker speaks instantly of an interest rate or product (5 years fixed, a line of credit mortgage or even a variable rate mortgage), he/ she is probably too focused on a quick transaction rather than a long term relationship. The biggest savings come from little things over the years. Your advisor should be able to give good advice to pay your mortgage more quickly (and save interest) without putting strain on your budget.

A good mortgage consultant will probably have several solutions (preferably with several lenders) custom made for you. The best mortgage consultants have even developed several strategies they use with mortgages to save money for their customers.

All these are signs of integrity to the profession – he/ she tries to save you money

A long-term relationship

Find a mortgage broker who has a management approach to your ongoing mortgage needs. Such a broker will contact you annually to review your situation, check your mortgage strategy and give you advice.

Advisors who want only a quick transaction are easy to find, but a good advisor who is in touch year after year are in a class of their own.

  • In summary, take time to find a mortgage broker who:
  • Does not look only for a fast mortgage product,
  • Does more than just shop for interest rates,
  • Has no conflict of interest with you

Helps you save money with a good mortgage strategy

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Choosing a Mortgage Broker

December 26, 2009

Choosing your mortgage consultant?

The repayment of a mortgage is a “sport” of endurance. There are several strategies that can help you gain (paying less interest). A good mortgage consultant is an important asset who can help you get a good mortgage with a good mortgage strategy helping you year after year to pay off your mortgage faster without changing your standard of living.

Finding a good adviser does not have to be rocket science. It is like hiring an employee who works for you. If you plan to pay your mortgage in 15 years or 25 years, your mortgage professional will be there to help.

Here are some considerations that can help you find a good mortgage consultant.

Types of mortgage consultants

There are 2 main types of mortgage consultants who each have their strengths and weaknesses:

The representative of the bank branch offers products from a single lender, is responsible for several tasks including mortgages and is an employee with a possible annual bonus.

The mortgage broker: Offering products from several lenders, specializes in mortgages and works only on commission (paid by the lender) and some charge an additional one off fee.

Factors to consider when choosing a mortgage broker.

Choosing a mortgage broker is primarily a question of trust. There are 2 things that normally help us trust a professional:

  • Integrity Will the mortgage broker put my interests before his own and that of the lender? “The negotiation of a mortgage involves two parties who are opposed and whose interests diverge: the lender and the borrower. It is important that you are confident that the recommendations of your advisor reflect the best strategies and solutions for you.
  • Expertise: Does your mortgage broker have the ability to offer the best solutions? Your mortgage broker should be able to compare for you the various mortgage products and determine which is best for you.

The two components, integrity and expertise are necessary for trust. Here are two examples to explain this point:

A good used car salesman probably had the expertise to sell you a car, but will you trust him? It depends!

Even if your car salesman is the most honest man you know and works hard, does he the right knowledge and expertise to be able to select the best car deal for you?

Choosing

Trust is often a feeling that one has with a person. It is based on the fact that we think that this person demonstrates integrity and has some expertise. If you find the right person to be your mortgage broker, you will probably end up with a professional who will be able to advise you for many years.

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Mortgage Strategy

December 26, 2009

A good mortgage strategy is the basis for significant savings: thousands and even tens of thousands of pounds in savings on a mortgage of £100,000.

Choosing the right mortgage strategy

The easy answer for choosing a good strategy is to contact a mortgage broker who specializes in creating customized mortgage strategies for the clients.

Why?

There are three good reasons:

1. Nobody knows the future of interest rates in the UK.
2. Good strategy must take into account the current economic climate and changing situation.
3. It must be customized with your goals and your personal situation.

Working with all this is not an easy job and it is better to check a mortgage professional who does this day after day.

But do not stop there.

You need to take on the more difficult task of analyzing several factors to create a mortgage plan.

In order to choose the right mortgage strategy, you need to:

know the strengths and weaknesses of the mortgage products available;
identify your current position in the cycle of interest rates, and
assess the probability of higher or lower rate for the next 10-15 years.

Cycles of interest rates.

There are basically 3 types of scenarios and 2 basic rules to understanding interest rates (all this could take several books but we’ll keep our issue at the way).

Scenario:
1. Rates are generally higher
2. The rates are generally falling
3. The rates are generally stable.

Two Rules of Interest Rates:

• Interest rates below inflation. When the index of consumer prices rising rates are increasing.
• Interest rates are linked to the economic health of UK. When the economic situation is healthy, the interest rates rise and when things go wrong rates go rates down.

Nobody knows the future of interest rates. We just need to remember that each scenario requires a particular strategy and getting it wrong can prove very costly. For example, it could be disastrous for a strategy to be linked to lower interest rates and they start rising.

A borrower may want to “stay on the safe side” and opt for a pre-determined risk strategy with a mortgage that is fixed at the same rate for say 5 years. Alternatively, someone may want to opt for fixed rate for much longer, but at times this strategy has proved costly. Choosing the right product, therefore, is crucial to saving thousands of pounds on the long run.

What are the different strategies?

There are several basic strategies, each may have several options and it is often advantageous to combine two strategies together to take advantage of the market. The most important thing is to consult a certified professional in the mortgage market.

Properly evaluating the different the strategies means a borrower can enjoy a proper mortgage planning and savings throughout the duration of a mortgage. Remember that a good mortgage strategy is significantly more important than simply negotiating the best interest rates. Each strategy deserves an explanation must and be customized and combined with your long term goals and the state of the economy today.

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Property Appreciation

October 25, 2009

Before we discuss the benefits of property appreciation, we first have to define the concept of appreciation in terms of the property business. Appreciation is the positive effect of property investment in which the price or value of the property goes up as the years go by. The factors that cause the appreciation are supply and demand, inflation and capital improvements among others.

The first benefit of property appreciation is that the decision of renting versus buying a property is made easy. If you know that the property will soon rise in value in the next year or so, it will be more advantageous if you purchase it. Not only will you get your money back once you sell the property, you will also earn a sizeable profit by just waiting a couple of years or so.

Appreciation is not only a term for property value but also in personal value. If you currently have the money and you are deciding whether to buy a house or a luxury car, property appreciation can tilt the decision in favor of a property purchase. If you buy a car, after five years, the value of your car would have depreciated, meaning it will cost less than what you originally paid for it. However, if you buy a house, it is immediately considered as an appreciating asset. On the long term, properties will most likely appreciate than depreciate, and this will add value to your personal worth. Purchasing a property is sometimes the option exercised by successful investors to generate sizeable long term profits.

If property appreciation is high enough, and you buy and rent a property, you can actually buy a property at a minimal cost to you. If you buy a property on a mortgage and rent so that the rental covers the mortgages and property maintenance and taxes then you effectively end up owing a property without paying most of the cost. Given that the property market conditions are favorable, all you do is wait for the property value to appreciate to cash in on some healthy profit.

Property appreciation is out of the hands of a real estate investor. What he can control is his decision on what properties to buy and where. Make informed and smart decisions by researching the market and asking the opinion of the experts in the field.

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