Property Investment » Property Investment Tips & Info

Guide On Landlords And Pets

The Landlord — Sun, 25 Apr 2010 09:57:06 +0000

Over the past 4-5 years, I’ve only had one tenant with a pet (which was a dog), and that was because it was forced upon me. Initially, my tenant didn’t move in with the mutt, it happened a year or so after she moved in.

One day I got a frantic phonecall from my tenant saying that her ex-husband was on the verge of kicking their family Staffordshire Bull Terrier out of the house because he didn’t have time to look after her anymore. So I was basically left in a position where my tenant was willing to find another property to rent unless I allowed the dog to become a permanent resident.

Hmmm…now that I think about it, my tenant was a bitch for putting me in a position like that. However, it just goes to show how passionate some people are about their pets. And, when someone is THAT passionate about their pet, the pet is usually well behaved and maintained. With that in mind, and also wanting to avoid the hassle of finding a new tenant, I just took the gamble and allowed my tenant to move the beast into the property.

Fortunately. things worked out well. The dog was clean, well behaved, extremely friendly, and actually quite lovable.

When tenants/landlords discuss “pets”, they’re typically referring to dogs and cats. Dogs are the most common pets in the UK, and if there’s any type of household pet that is capable of destroying a house, my money is on a dog. Smaller pets like fish, hamsters and rabbits aren’t usually a problem. On that basis, I’m going to focus this article with the assumption we’re all here because we want to protect our investments against dogs and cats.

So, let’s look at the pro’s and con’s for allowing pets (typically, dogs), and you can make up your own mind…

Advantages of Landlords allowing pets

Many landlords don’t allow pets, so finding one which does can often be a challenge, which means that landlords that allow pets can often ask for more rent.
Allowing pets opens up a lot wider audience, so you’re significantly increasing your chances of finding tenants. According to a recent survey by the Dogs Trust, 78% of pet owners have experienced difficulty finding accommodation which accepts pets. And accoridng to ‘Pet Friendly Rentals’ by not accepting pets, you will be decreasing your potential market by 50%.
Tenants that are lucky enough to find a landlord that accepts pets will often make every effort to be an exemplary tenant so their tenancy agreement can be renewed. It’s a good hook to find a long-term tenant.
Dogs are a good form of security as they tend to respond badly to strangers, so they will form an extra layer of protection.

Disadvantages of Landlords allowing pets

Pets can be destructive and messy, especially if they aren’t looked after properly.
Pets can smell, especially if their hygiene is neglected by their owners.
Pets can be disturbing towards neighbours e.g. dogs barking at unsocial hours. It’s important to keep a healthy relationship with your neighbours.
Many landlords are hesitant to allow pets as they may affect subsequent tenants who may have allergies.
After a tenant with a pet moves out, there maybe an extra financial cost involved for cleaning the property thoroughly.
Pets that don’t receive regular treatment are at high risk of catching fleas, which can quickly infest the property.
If you’re letting a furnished property, be wary that pets (especially cats, dogs and rabbits) are known to be destructive towards furniture e.g. sofas.

Before accepting a tenant with pets

It might be worth meeting the pet and focus on how it acts around the tenant. It will also be a good opportunity to see how well behaved and healthy the animal is.
You may want to ask to see copies of your tenants pets treatment records from their vet so you’re assured that the animal is properly taken care of. This will reduce problems like infestation.
Try and get a reference from a previous landlord, where the tenant has lived with the pets.
Consider the suitability of the pet for your particular property. For example, a small dog in a small house may be fine, but not a large one.

Tenancy Agreements that allows pets

If you plan on allowing pets, it’s advised to get a Tenancy Agreement which specially has clauses for pets. There will be special clauses stating what the pet-owners responsibilities are e.g. ensuring the tenant is responsible for keeping litter trays clean. Here is a useful blog post on Tenancy Agreements and Pet Clauses
Good tenancy agreements will have a section to record a name and address and contact details in case of emergency. Alternatively, if the tenant goes on holiday.
If your tenant’s pet is causing a problems and breaching the terms in the tenancy agreement, then a Section 8 Form can be served to remove the tenant and their pet.
Landlords can request for a non returnable pet payment, which will cover the costs of a professional clean after the tenant moves out. This can be specified in the tenancy agreement.
It’s worth going over the conditions in the tenancy agreement regarding the conditions relating to pets, so the tenant is clear about what is expected.
Most landlords require a higher deposit where the tenant has a pet which is potentially destructive e.g. dog or cat. This is especially true when properties are furnished
Do a Property Inventory so there’s no confusion about what kind of state the property was in before the tenant/pet moved in.

Marketing your property for rent

As already mentioned, it’s becoming extremely difficult for tenants to find landlords that allow pets. So it’s important that when you’re marketing your property for rent, you clarify that you do accept pets. This may drastically increase the level of inquiries you receive.
Since cats and dogs are the most common household pets in the UK, make sure you specify that you accept cats and dogs, and any other type of animal which you think will improve your campaign.
If you have any strict conditions (e.g. you require proof that the pet gets regular checkups at the vets), it maybe worth mentioning it, so you filter the unwanted applicants.

Points to consider

If you evict a tenant and an animal is left in the property, it is the landlord’s responsibility to deal with it.
It’s important to make quarterly inspections of the property whether you allow pets or not, but especially if your tenant does have pets, so you can monitor how well behaved and clean the animal is.
You can use the tenant’s deposit to cover cost of cleaning the property if it isn’t returned in the same state as it was when he/she moved in
Normal building and content insurance policies don’t usually cover potential pet damage, so you may want to get additional insurance.

Conclusion

I firmly believe that a dog is only as good as it’s owner. If you have a misbehaved dog, then you probably have a poor tenant. That’s why it’s extremely important to meet the pet and it’s owner before signing into an agreement. Judge for yourself.

If you care careful with your selection, there is no reason why tenants with pets should be problematic. Even if the pet does cause irritation to the property, that’s what the security deposit is there for. Additionally, a good tenancy agreement that has the appropriate clauses for pets should protect you from most scenarios.

I think the most appealing aspect about allowing pets is the larger audience you’re likely to attract. Essentially, you could find tenants a lot quicker if you allow pets, which will ultimately save you money.

Do you allow pets?

Just out of curiosity, do you, or would you accept pets as a landlord?

Are you a tenant with a pet? Please share your story i.e. how difficult/easy was it to find a landlord that accepts pets?

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Landlord Guide On Protection Against Bad Tenants

Can You Be Too Old To Invest In Property?

The Landlord — Mon, 05 May 2008 14:12:18 +0000

It’s a pretty obvious question now I think about it, but interestingly, until last week no one had ever asked me whether there is an expiry date on property investors. And to be honest, I’ve never really thought it. But that’s most likely because I’m still hip and funky fresh. Man, I can already feel that I’m going to offend a lot of people in this blog article. Great.

Can you be too old to invest in property? Ultimately, the answer is ‘negative’. However, as we start to turn grey, become toothless and perminantly hunched over like a homeless person picking up change from the street, our options do start to become horridly limited. It’s a funny thing old age- there’s nothing good about it, yet were forced to ride it out. It just doesn’t seem right.

Firstly, how old is “old”? In social terms, “old” is probably in the eye of the beholder. To an 80 year old, being 60 years of age probably isn’t old. But to a 20 year old, it could be a different story. In property investment terms, I’d say 65 years is old, the UK retirement age. The big SIX-FIVE is pretty significant in property investment, and I’ll begin to explain why shortly.

It’s important to recognise that simply buying a property is an investment; the intention of clearing a profit becomes redundant. Consequently, nothing can stop me from buying a property outright on my 90th Birthday and selling for a profit on my 91st Birthday. That alone would be a successful short-term property investment.

The limitations of investing in property at an old age

The biggest kickback of old age and property investment is the access to finance. Very few mortgage lenders, if any, will consider lending anyone over the age of 65 money. And if they do, the amount would be minimal. This is because lenders want mortgage loans repaid by normal retirement age, which of course makes perfect sense. Even someone at the age of 55 would struggle getting a 25year mortgage; they would most likely only be able to get a 10year mortgage. Most lenders work around the 65 age bracket.
Once you really start getting to the very late years of life, your risks start to become greater. I say that because you no longer have the luxury of investing for the long-term, but purely for the short-term. For example, if you’re 80 years old, and invest in property during a property boom, in 2 years time the market may start to dip. The market may recover after 10 years and put you back into high profits. But those 10 years is not a safe bet, because you may no longer be around (how do I say that respectfully?). So essentially, the older you are, the shorter your opportunity becomes for a long-term investment. At a younger age, you have the opportunity to recover from early hits.
Not exactly directly related to property investment, but this issue is definitely an important factor- stress. Buying property can be stressful. Why wouldn’t it be? Almost 99% of property trades have at very least minor hick-ups, and a lot of money is put on the line. Buying property is a big deal, regardless of how big your portfolio is. At an old age, the added stress of investing in property can speed up the process of hearing that final nail getting hammered into your coffin :) It’s important to consider whether it’s worth putting your body through so much stress at such a late stage of life, when you could be chilling like Snoop Dogg.

The options of investing in property at an old age

If you’ve got the cash, you can pretty much buy a property at any age. As mentioned, it’s when you need financial support that property investing can get a little bit tricky. But if you were born in the 50′s, and like most of those veterans, have a mattress full of cash, the only thing that limits you is your budget. You can purchase a property outright and put it on the rental market, or even leave it empty and sell it after a few years in a climbing market.
For the courageous with spare time and in dire need of a project, there’s always the option of property development. Again, it depends on whether the finance is available to its entirety. But this could be a great short term project to make a big chunk of change, regardless of what age you are. As long as you have the cash flow, enthusiasm and a strong heart, that’s all that is required when it comes to development.
Property investment doesn’t just need to be about personal gain, it can also be a good vessel to give those we love a boost in life. As mentioned, buying property alone is an investment, so who says we need to prosper through our own investments? Have some spare cash lying around? Buy a property and leave it behind in your will to someone you love.

Out of curiosity, has any of the elder generation invested in property? If so, what’s your story?

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Why Are Classified Property Websites So Useful?

The Landlord — Tue, 19 Feb 2008 22:43:33 +0000

I often reference websites like rightmove, primelocation, findaproperty, and propertyfinder in my blog entries. They’re probably the most popular property portals online that assist thousands of estate agents to market their properties which are currently on their shop window.

It’s a good idea not to limit them just for property/estate agent finding search engines, because they can be utilised for so much more. I’m constantly using those portals and a few others to extract useful information about the property market when I’m under all kinds of circumstances- when buying, selling and/or renting property.

There’s no doubt about it that most estate agents advertise their properties on at least one of those websites, consequently it’s easy to do your own accurate research and analysis of your local market.

Here are the ways I utilise these portals from a buyers, sellers and landlord’s point of view:

Comparing House Prices

Perhaps the most obvious way of using these portals, but definitely the most powerful information you can obtain. If you search for local properties in your area, you can not only detect what the going rates are, but you can also see how prices vary in neighbouring areas. Some times it’s worth looking 10mins away from your intended target spot because you might end up getting more for your money.

Local Condition of market

If you analyse house prices for long enough, you can get a very accurate idea of which way your local market is swinging. It’s important to remember that “national” statistics won’t necessarily reflect on your local market, so some times it’s worth doing your own local research. For example, for the past 4 months I’ve been spying on very similar 2 bedroom houses in a very specific area. By watching the prices over the last 4 months, I’ve been able to see if prices have been steeping up or creeping down. In my particular case, the prices have remained very stable.

Are Properties selling?

Again, if you monitor for long enough, you can pick out all sorts of trends. Whilst monitoring my local market for 4 months I noticed that in the first 1 month there was plenty of movement in the market- properties were being sold and fresh properties were being added on a daily basis. However, midway through the 2nd month, I noticed a slowdown in movement. A lot of the same houses were left on the market and not many were being put on; essentially the stock list was remaining pretty idle. What did that tell me? Well, it leads me to believe a few things. 1) people are starting to get scared of buying 2) vendors aren’t willing to reduce their prices 3) people are waiting to see what happens before they make any moves. Perhaps the local area is starting to get affected by the much speculated slowdown…

Which types of properties are selling?

Take note of which types of houses are being put on the market and which one’s are actually selling, then you’ll get a good idea of what people are after. In most cases, 2/3 bedroom houses exchange the quickest because they’re the most sought after. If you have a big family home, you may find the market is pretty static, so you may want to prepare yourself for a lengthy wait. But of course, you could be living in an area where there is a shortage of family homes, which will give you the opportunity to increase your asking price. For example, not long ago I was looking for a bungalow to buy. However, in the area I was looking, there were barely any bungalows for sale, so the very few that were, were extremely expensive and way out of my price range. However, those bungalows got snapped up pretty rapidly. In conclusion, take note of supply and demand.

How much rent can I get?

Most of these portals have a “property for rent” section. That part of the site is particularly useful for me because I am an active landlord. It tells me how much people are asking for rent in my local area. That’s extremely useful for 2 reasons. Firstly, it tells me how much money I should be charging and if inflation is affecting the rental market. Secondly, if ever I’m looking for a property to buy-to-let, it will tell me what my rate of return will be, which will ultimately tell me if my investment would be worthwhile or not.

Letting agents can give you the same data, but from my experience you can get a better guide from these websites because they show you what EVERYONE is asking for, consequently you’re not just limited to one letting agents guide price. Last year when I was looking for a tenant, I got told that I could get £700-£725pcm for a 2 bedroom property by a letting agent. When I looked online, i found out that some people were asking for £775pcm for very similar properties in the same area. That’s a significant difference. The agents clearly didn’t know their market (or they were trying to pull a fast one on me). I ended up putting an advert in the papers, a week later tenants moved in that were willing to pay £775pcm.

Which properties are renting?

Similar to the “which properties are selling” tip, you can also find out which properties are renting. If you monitor which types of property have the most aggressive turnover, you’ll know which properties are renting the best. For example, if there are ten 2-bedroom properties for rent one week, and they’re all gone in 2 weeks, you know they’re sought after. That will tell you which type of property would be the wisest buy-to-let investment in your local area. Because remember, properties that don’t rent quickly WILL lose you money.

Have I missed any points? Perhaps. If so, let me know. Perhaps you use classified property websites in alternative ways. if so, how? Let me know…

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How To Extend Your Lease

The Landlord — Tue, 05 Feb 2008 20:47:11 +0000

This is probably the one single question I get asked the most frequently- “how do I extend a lease on my property?” The thing with leases is that they can significantly affect the value of a property. The sooner the lease is due to expire, the less the property is worth and the more expensive it can be to extend. Buyers usually look for properties that has a minimum of 95 years; anything below may scare away potential buyers.

Before I conitnue, i’d just like to apologise for the really horrible “extension” analogy of the ladder image. I seriously couldn’t think of anything more suitable :( If anyone has a better suggestion for an image, please let me know. Right, back to business…

A flat with a lease of 100 years is worth roughly the same as a property on a freehold. An apartment on a lease of 60 years, could be valued at approximately 60 per cent of the freehold price. Point being, leases are a big deal.

What is a lease?

A lease simply means the right to occupy a property (usually a flat) for a period, which is generally set at 99 or 125 years. At the end of this time, although you can stay on as a tenant, the freeholder will own your property. For information on freehold and leasehold properties, you can go to my Freehold And Leasehold article.

Here’s a quick guide on how you can extend your lease on your leasehold property.

When Should I consider extending my lease?

If a lease has less than 80 years unexpired when you seek to extend it then as part of the price you will have to pay what is known as a marriage value to the freeholder. This could be significant. It is a key reason why you should consider extending sooner rather than later.

You may encounter difficulties if you want to sell your flat if the unexpired term is less than is regarded as mortgagable by most lenders. Different lenders have different criteria but they are generally looking for an unexpired term of at least 60 years.

1) Check your lease

The lease runs from the date it was drawn up, not when it was purchased and not the date when the lease was granted. For example, a 99 year lease that was purchased in 2005, 15 years after the lease was actually drawn up (1990), will expire in 2089 – leaving 82 years to run.

2) Check Eligibility

You can only extend a lease for a property that you have own for at least 2 years; you have a right to extend your lease for an additional 90 years at a peppercorn (zero) ground rent. It doesn’t matter if you haven’t been in occupation. The original lease needs to be long (over 21 years) and it should be residential, as opposed to commercial use.

The law is that you cannot compel a lease extension until you have owned the proeprty for 2 years but that doesn’t stop the freeholder agreeing to give you one in the meantime – but if the landlord is canny (or an ass, depends which way you looka t it), he/she will ask a bit more to reflect the fact that you do not have a right to require it!

However, there are exceptions. You can’t force the freeholder to extend a lease if:

The majority of the leaseholders have applied to obtain the freehold
Your lease has already ended
You have sublet your home on a lease of at least 21 years
The lease was originally granted for less than 21 years
The freeholder is a charitable housing trust, the National Trust, the Crown (although they may agree), or the property is in a cathedral precinct
If your freeholder wants to demolish or redevelop the property (in which case you would be entitled to compensation).

3) Solicitor instruction

After insuring that you are eligible for getting an extension, you should contact a solicitor. A solicitor will handle all the legal documentations for extending your lease. The solicitor will start the process by serving an Initial Notice on the landlord, which will offer a premium for the lease extension. Some of the stages in the process of extending a lease have strict time limits. It is very important to instruct a solicitor who is familiar with the legislation. It’s best to get a recommended solicitor that has a strong history in this specific field. Alternatively, contact the Law Society for a recommendation and get a written quote first.

4) Valuation of lease extention

Firstly, a valuer, usually a chartered surveyor, is needed to put a value on the lease extension. I say “needed” because it would be extremely unwise not to have a valuer specialising in this field. He/she will use the valuation formula in the Leasehold Reform Housing and Urban Development Act 1993, as amended. Contact the Royal Institution of Chartered Surveyors for a list of local surveyors who specialise in lease extensions. It’s best to get a quote in writing first.

Most surveyors will charge a fixed fee to prepare the report. This fee should cover the initial inspection of the property, reading the lease and making all the calculations.

There are extra charges if the surveyor is asked to negotiate with the landlord or their agent or for any further work required if the valuation cannot be agreed.

5) Dealing with the freeholder

The owner of the freehold will be given a minimum of two months in which to respond to an offer and if he/she does not, then action can be taken by applying to the County Court for an order that the lease extension be granted on the same terms set out in the initial notice.

Usually the Counter Notice is served in time and a period of negotiation follows between the parties or their respective surveyors.

You should also remember that whilst the law will ultimately be on your side when extending a lease, if a freeholder wants to be difficult he/she can drag the whole process out for ages. The freeholder can still suggest a high figure on the basis that it will take you quite a bit of time and money to challenge it.

6) Valuation Problems

If an agreement is not made on the valuation then the deal could end up in the Leasehold Valuation Tribuna. However, that is quite unusual.

An application to the Leasehold Valuation Tribunal must be made by the flat owner (i.e. the lessee) no later than six months from receipt of a valid counter notice, failing which, if the premium cannot be agreed within the six month window, the initial notice is deemed withdrawn. This means that the lessee will have to pay the landlord’s reasonable legal and surveyor’s fees in addition to his/her own costs and wait for a further 12 months before being able to make a fresh claim under the Act.

This will be costly for the lessee, especially if waiting a year results in the lease term dropping below 80 years! If the applicant meets the criteria by law the freeholder cannot prevent extention of the lease.

Once the Initial Notice is served on the freeholder, then the applicant will be responsible for the reasonable valuation and conveyancing costs. The Notice is also important in setting the valuation date.

7) Further Entitlements

Under the Act the applicant is entitled to a further 90 years on your lease with no ground rent payable on the original term or extension– that is incorporated within the cost of extending. However, there will still be a service charge under the terms of the lease.

8.) How Much Will It Cost?

How much the extension is worth and calculating how much you will have to pay is difficult to estimate accurately. The value consists of three main amounts. The first two are to compensate the landlord, for loss of ground rent during the rest of the existing term of the lease, and for not receiving possession of the property at the end of the term.

Thirdly, as already mentioned, where the lease has less than 80 years to go, there is what’s known as a ‘marriage value’, which is arrived at by deducting the value of the property before the extension from the value afterwards, plus the value of the landlord’s interest.

The Leasehold Advisory Service gives an example of a flat with a 68 year unexpired lease, on a ground rent of £50 pa, with a current value of £150k, and an improved value £165k. An extension of 90 years is likely to cost £8,250. But the same property, on a lease with only 35 years to run, could set you back a whopping £55,368. However, if the current lease is 95 years (and, therefore, attracts no ‘marriage value’) the cost of an extension would be only around £734.

It’s important to note that the leaseholder is liable for both parties’ legal and valuation costs, unless the matter ends up at the Leasehold Advisory Service, who may apportion the costs differently.

Although it may be an expensive business, remember that you are adding value to your property, and, in addition, you will no longer have to pay ground rent.

9) How Long Does it Take

Subject to how efficient you are, plus your freeholder, his solicitor, your solicitor and your surveyor, this whole process could take from 3 -12 months – unless of course it lands up in court because you cannot agree values. However, there are legal timelines in place to prevent the process from dragging on.

Please note

This is just a rough guideline to the process of extending a lease; each case may vary depending on individual circumstances. On that note, Happy lease extending, people…

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My Property Investment Strategy

The Landlord — Tue, 22 Jan 2008 01:44:16 +0000

I’ve recently received a few emails from curious beavers asking me what my property investment strategy is, and what the best way to invest in property is. I’m always reluctant to sell the ‘best’ method because it’s a subjective question and the answer is based upon an individual’s situation and intentions. Ultimately, it depends on how you want to play the game- low or high risk.

I’m not a “power-buyer” by any stretch of the imagination. By that I mean that I don’t buy several properties per year. Firstly, I couldn’t afford it, and secondly, that’s just too high risk for me. I’m a bit of a pussy. My portfolio is slim, but I believe it to be sound and profitable for my future. All I’m trying to do is secure my future and perhaps attract shallow women and buy a Ferrari along the way.

Admittedly, I’m a bit of cynic, perhaps it’s not the best way to go into business, but it is my way. I base my investments on “what if shit happens” scenarios, so I always take the low risk route, ensuring that if shit does happen my back is covered. The rewards may not be as fruitful as those well-executed, high risk, power buyers, but I know I’ll get my fruit in some shape or form eventually, and that’s perfectly acceptable to me.

I don’t use any magical formulas. Property isn’t like buying stock; property is far simpler, in my opinion. You just need to buy property where the figures stack up i.e rental income covers the repayment mortgage- ‘repayment’ being the operative word.

Just to clarify, I’m not recommending my strategy to anyone. My strategy works for me (it’s all about me), it involves a method that I feel secure with. I believe in my strategy; it’s simple and easy; most idiots can manage it. However, some times I underestimate the power of stupidity, so it’s best I don’t encourage anyone, in case a highly evolved, mutant idiot bites the bate and messes up completely by doing something ridiculous.

So what’s my strategy?

I try to buy 1 property every 1 to 2 years
I put down a 25-30% deposit on each property
research the areas, so I know my rental income will cover a repayment mortgage
I check what the demand for rental property is like with in the area
I get a good mortgage plan that allows me to remortgage and make overpayments without any penalties before a maximum of 2 years
I use the rental income to pay off complete debt over a period of the mortgage. I don’t buy-to-sell, I buy-to-own.

Why is choosing a repayment mortgage so important to my strategy?

Most buy-to-let investors have interest-only mortgages, so they’re completely relying on equity growth through a generous market. Historical data shows that eventually, property prices always go up. But like I said, I’m a “what if shit happens” kinda’ guy. If house prices don’t increase, those investors won’t make a dime and they run the risk of having negative equity. That scares me. I don’t want to rely on hiking house prices alone. Interest-only is fine for short-term investors, but unbelievably impractical and risky for an investor that wants to eventually own the property debt free.

By having repayment mortgages I’m able to chip away at my outstanding balance every month, consequently building equity. I make sure my rental income covers my mortgage so I don’t have to pay out of my own pocket. When my mortgage comes to an end, so will my debt. I will be debt free, I will own the property outright and all I invested was the initial 25-30% deposit.

Remortgaging is also extremely important. I save a lot of money by evaluating my mortgage plan every few years. If there is a better deal on the market, I will switch policies. More details on The Importance Of Remortgaging.

Why is putting down such a high deposit important?

Most investors put down a maximum of 15% deposit. It’s extremely difficult to make the figures stack with a low deposit. The odds are you won’t be able to find a property that will generate enough rental income to cover a repayment mortgage on a monthly basis with a 15% deposit.

I’d rather save up 30% and make the figures stack. Essentially, in real money, that’s no different than putting down a 15% deposit and paying out of your own pocket for a few years to cover the shortfall you may encounter on a monthly basis. In due time, the monthly payments will eventually reduce, consequently the rent will eventually cover the mortgage. However, that method requires discipline. I’d rather save until I can pay the 30%, buy, and let my rental income do the best of the work. That way I don’t need to budget every month for my mortgage payments.

What makes my method low risk?

Long term property investments with repayment mortgages won’t be affected by blips in the market. If the market dips and house prices drop, there will still be time to recover. Whereas, short-term investor who has owned a property for 1 year on an interest-only mortgage can easily get into a bracket of negative equity if the market takes a turn for the worst. The investor will either need to hold onto the property or sell at a loss.

A property crash won’t affect my plan. After 20 years of investing my rental income into various properties, the market can take a 70% hit and at worst I would breakeven. The odds of a 70% hit are extremely unlikely, but if “shit happens” I’ll be ok. How did I calculate that 70% cushion? Well, I put down 30% on each property, and the rest of the mortgage is paid by rental income, so I only stand to lose that initial 30%. After 20years, my mortgage debt would have been cleared, so I can take up to a 70% beating.

It’s extremely low risk, but as mentioned, the rewards probably aren’t as fruitful as the more savvy power investors out there. It’s all about your intentions…

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Investing With Friends And Family

The Landlord — Wed, 21 Nov 2007 23:27:40 +0000

Flying solo on a property venture can be a scary concept because the responsibility falls onto one person’s head- YOURS. Let’s face facts; it’s a lot easier to sleep at night knowing that if shit hits the fan, the shit will fall onto multiple overalls.

However, it can also be heartbreaking to split the profits from a successful run. But that’s not where the main concerns lay when working with friends or family on a project, it’s the deadly trap of developing spiraling confrontation with your loved ones. Granted, you can get into a heated and uneasy situation with any partner, but there’s a fundamental difference- you can walk away from an emotionally void business partner, you can’t walk away from friends and family as easily. Well, some of you maybe able to.

A lot of people form business partnerships with their established peers, but is it a good idea? Here’s some food for thought on the issue to help you piece together your own conclusion…

Advantages of investing with friends and family

Expressing yourself naturally to an established peer comes easy. So if you dislike a certain aspect of a property, you can say so without hesitation.

It’s easy and convenient working with someone you know. Sometimes it’s inevitable, you need a business partner whether it is for financial support or additional expertise, and in that situation it’s easier to work with someone you already have an established relationship with.
You’re working with someone you know and trust. Knowing that your business partner isn’t going to pull a fast one can be a major stress reliever.
Friends and family are generally much more aware and immune to each others habits.
You’ve already adapted to one another’s personality on a very specific level, whether it be on friendship or family orientated level, so you have a fundamental understanding of what one another are like.
Responsibility is shared, so when the plaster starts to crumble, you won’t be alone under the doorway. As already mentioned, it easier to go through the tough times with loved ones.

Disadvantages of investing with friends and family

You’re not only putting a business venture on the line, but also your relationship with your loved one. You may find yourself in a situation where you’ll have to pick between the two if things go badly wrong. Which would you choose? You end up walking away with a broken heart as well as a broken business
You’re not in complete control. This can be a big problem for those with strong controlling complexes. You may find yourself in situations where you can’t always have things your way, regardless of how passionate you may be about the issue. Failing to compromise will cause major tension, it means someone in the camp is going to have to live with a decision they despise.
By working with friends and family you may lose a particular professional edge. You’re not thrown into an environment where you need to compete or impress other people, and that can hinder your progression. If work feels like a social gathering as opposed to a business environment, which it easily can when you work with friends and family, then that’s probably because you’re not being professional. It’s easy to slip into the “comfort zone” when working with friends/family.
Friends and family can be more forgiving. That’s not necessarily a good thing, because you need to run a tight ship. But it’s all too easy to be slack when your business partner is a friend or family.
If you’ve been a friend to someone your entire life it’s big ask to suddenly think of them as your business partner between working hours. You’ll probably still always see them as your friend. That puts you into a difficult position, especially if your partner doesn’t want to pull his/her weight. What are you going to do? Shout at a friend? That’s not going to work because your friend is comfortable with you, so he/she will just tell you to eat royal shit.

It’s amazing how powerful money can be. Profit, or the lack there of, can cut through kinship like knife will cut through hot butter. Remember, you don’t stand to lose a business partner; you stand to lose a business and someone you care about.
Not only are you going to be working with this person but you’re also going to be socializing with this person or perhaps even living with this person. Can you really be around someone for so long in a working environment and a social environment? It could start to feel like you’re at work all the time.
Your relationship with your friend/family will transform into a combination of business and friendship. So if there’s tension in the office, they’ll also be tension outside of the office.
The focus of the relationship can start to lean towards business, success, and financial profit, so soon your entire relationship will be about work and then the fundamental factor that made the business partnership possible in the first place will be lost.
Emotional attachments with your business partner can affect your business judgment. For example, you may end up making decisions that will help your relationship as opposed to helping the business prosper.

Extra notes

You may love, trust and respect your family and friends but that doesn’t mean they would be your ideal business partner. Hey, you may want to spend the rest of YOUR life with them… but that doesn’t mean every single minute.
Consider why you’re actually teaming up. Is it because they have a lot to offer the business or perhaps simply because it’s an easy option? Make sure the partnership is built on pros that will add something positive to the development.
If you’re considering working with a friend or family you should first establish whether you want the same things out of the proposed business. Make sure your aims and objectives sit well with each other. Do they share your vision of how to run your business and where it will be in one year’s time. Two years time? If you can’t agree on the fundamental business plans, then it’s best to pull out before you invest any further time or money into the project.
Even little things like differing on paint colour can cause a strain between friends and family. It’s important to delegate specific rolls with anyone you work with, so you don’t cross paths too often. For example, with a development project, one should purely concentrate on interior design while the other handles the construction.
Be fully aware that if things go wrong you don’t only stand to lose your business, but someone a lot more important…

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Long Term Investors Shouldn’t Fear A Crash

The Landlord — Wed, 14 Nov 2007 16:25:07 +0000

One likes to watch the casserole slowly stew, while the other likes to barbeque the fillets on full heat. That’s the difference between a short and long term investor. Both can potentially be a satisfying meal, but the short-term investor is looking to get satisfied a little quicker while the long-term investor is happy for nature to take its course, even if that means taking a few knocks along the way.

It’s the short-term investors that twiddle their fingers and worry about a melt down in the property market. Short-termers, as I like to call them, don’t hang onto properties for long. They like quick turn-arounds, meaning they don’t have a huge margin of time to play with. It’s a rapid, yet powerful way of generating a huge chunk of change. However, if the market collapses or anticipation of a rough patch is lurking during the flipping stage, they could start to feel the burn. It’s at that point when they could find themselves in a situation where they either have to sell at a loss or hold onto the property longer than planned.

Being in the armchair of a long term investor allows me to stay on track regardless of a property crash, and here is why:

1) One of my mortgages will be cleared in less than 15 years by rental income, and the others with in 20. The condition of the market is unlikely to disrupt my target. Those with a repayment mortgage will reap the same rewards. If there is a crash, demand for rental properties will drop but there will always still be people wanting to rent.

2) History has shown that after 10 years a property will double in price, that’s even after suffering a crash.

3) As a long-term investor I’m looking to clear my mortgage balance with rental income. After my mortgage balance is cleared, everything I receive from rent will be profit. At that point, it definitely won’t matter which way the market turns.

4) Long term property investments are tailored for blips in the sense that over a 25yr period there is plenty of time to recover. If a blip occurs at the later stage of the period, as already mentioned, appreciation on property should still leave room for profit.

So there you have it. I don’t think I have anything to worry about, do you? I pay no minds when people tell me that property investment is a lost cause. It’s only a lost cause if you’re too lazy to see the bigger picture.

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Listed buildings

The Landlord — Sat, 03 Nov 2007 15:08:33 +0000

Are you interested in buying a property that is listed or do you own a listed building and are unsure what it all means? Here’s a quick guide for you.

What is a listed building?
If a building is listed it mean it is protected because it is deemed important in some way, usually in a cultural or historical context.

If a building is listed you will need to require permissiom to make any alterations internally or externally.

Why is a building listed?
Historic buildings are a precious and finite asset, and reminders to us of the work and way of life of earlier generations. The architectural heritage plays an influential part in our sense of national and regional identity.

Listing ensures that the architectural and historic interests of buildings are carefully considered before any alterations, either outside or inside, are agreed.

How are buildings chosen to be listed?
Buildings can be listed because of age, rarity, architectural merit, and method of construction. Occasionally English Heritage selects a building because the building has played a part in the life of a famous person, or as the scene for an important event.
The older a building is, the more likely it is to be listed. All buildings built before 1700 which survive in anything like their original condition are listed, as are most built between 1700 and 1840. After that date, the criteria become tighter with time, so that post-1945 buildings have to be exceptionally important to be listed.

De-Listing
There is no formal right of appeal against this decision, at the moment of listing, but an owner may at any time put to the Secretary of State evidence that his building does not possess the architectural or historic interest identified.

Different Grades of listings
There is a grading system, so various properties may have different listing grades from one another. The buildings are graded to show their relative architectural or historic interest:

- Grade I buildings are of exceptional interest
- Grade II* are particularly important buildings of more than special interest
- Grade II are of special interest, warranting every effort to preserve them

Making changes to a listed building
If you want to make changes to a listed building, whether interior or exterior, you will need to get permission from the local planning authority. Alterations that may seem minor, such as stone cleaning all or part of the property, may require listed building consent. It’s always best to make sure before you make any alterations, regardless of how small and irrelevant you may think they are.

What is the Local Authority’s role in listed building consent?
The local Planning Authority is the main point of contact for all applications for listed building consent. The Planning Authority will consider applications in the light of the advice given in Historic Scotland’s Memorandum of Guidance and other national policy documents as well as their own policies.

Appeal Procedure
If an application for a listed building consent is refused by the planning authority, or if the conditions are felt by the applicant to be unreasonable, there is a right of appeal to the Secretary of State.

Advantages of a Listed building

the investor is buying a piece of history and a building with character
Listed buildings are unique
Listed buildings are unlikely to lose value as easily as regular buildings
VAT is waived on the costs of alterations to listed buildings, although it still applies to everyday maintenance works, allowing for investors to make “huge savings”
Owners that cannot afford repairs can apply for a grant that is available for buildings of ‘outstanding architectural or historic interest’. Grants are made towards re-roofing, treating dry rot and other structural repairs, but not normally towards decoration or works of regular maintenance. Grants cannot be made for work already started or completed, so requests for assistance should be made before work is begun.

Disadvantages of lited buildings

you need permission from the local planning authority before making any changes
your request for making changes can be denied; ultimately you will not have the final say
If a local authority consider that a listed building is not being properly preserved they may serve on the owner a ‘repairs notice’ under Section 115 of the Town and Country Planning Act 1971. This notice must specify the works which the authority consider reasonably necessary for the proper preservation of the building and explain that if it is not complied with within 2 months the authority may make a compulsory purchase order and submit it to the Secretary of State for confirmation. If the owner deliberately neglects the building in order to redevelop the site, the local authority may not only acquire the building, but may do so at a price which excludes the value of the site for redevelopment.
Even though there are various schemes that will help an owner with repairs, there is a possibility that they won’t fall under those that are suited for a grant, consequently may need to make hefty payments for necessary repairs.
Repairs on a listed building are likely to be more costly than repairs on a standard building because they may need specialist tradesman to complete the work, at a certain high standard.

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Crossover Leases

The Landlord — Thu, 25 Oct 2007 10:11:13 +0000

What is a crossover lease?

A crossover lease is when two people live in the same building, but have their own flat. Essentially, a building with two seperate flats. Each homeowner has a lease to the flat they own AND the freehold to the other flat in the building. They are commonly used with maisonettes. Here’s a visual:

Things to remember about crossover leases

There will always only be two people involved with a crossover lease (unless one person owns both flats), and they are the two owners of each flat in the building. There is no external landlord.
The lease of the one flat and the freehold of the other always stay together and should always both be mortgaged to the lender.
Not all mortgage lenders will give you a loan on a property involved with a crossover lease. If you plan on purchasing, you should arrange a mortgage offer before making any offers.
Crossover leases are common in certain areas of the country but considered a defective title in other areas.
Crossover leases aren’t clear-cut to deal with. You should consult with your solicitor to find out all the implications involved with the property.
If the property has a roof, it’s important to carefully scrutinise the leases to see if development is allowed in that space and who has right over the space.
If you’re a leaseholder, you should check the freeholder’s (your neighbour’s) lease to see if you need permission to make alterations to your flat and vice versa.

Unfortunately I don’t know too much about crossover leases. If anyone else knows more about the subject, please let me know and i’ll fill in the gaps.

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What Are The Signs Of An Approaching Property Crash?

The Landlord — Sun, 09 Sep 2007 22:52:07 +0000

Recently, there’s been a lot of talk about a property crash approaching. Granted, there’s always been a huge group of cynics waiting for a bust for the past 5 years or so, but over the previous months I’ve noticed a slow growth in numbers for “team cynic”. Please note, I’m not implying a property crash will occur anytime soon, I’m just going to provide some information on property crashes in general.

What does a property crash look like?

When do property crashes occur?

Well, in the past, property crashes occurred when unemployment was rising, as were interest rates. The rising interest rates were putting homeowners under immense pressure. Eventually, a lot of homeowners can’t afford their mortgage repayments so are either forced to sell, or have their property repossessed. At that point, a tonne of properties get put on the market, but because unemployment is high, people can’t afford to buy homes. In essence, that’s when you’re in the middle of a property crash.

What are the signs of a property crash?

Well, the most obvious sign is a lot of “For Sale” signs up, especially if the same houses have the sign up for months. That implies that homes aren’t shifting; it’s a sign of stagnation (a state of inactivity).

Keep an eye out on interest rates. The higher interest rates get, the more likely people will struggle with their mortgage payments. And as soon as people start to struggle, homes get repossessed.

The problem with repossessed homes is that they sell cheaper than face value. If a lot of houses in the same area get sold at repossessed rate, it will bring down the average price of the entire area.

Who will benefit from a property crash?

It’s the people that have been struggling to get on the property ladder that will benefit the most. A property crash is the perfect time for first time buyers to get on the ladder as property starts to become affordable. Once the crash is over, house prices start to increase, and the first-time buyers are quids in.

Property Crash strategies

I’ve read a lot of theories in regards to what property investors should do if they think a crash is fast approaching. I think it depends on your personal circumstances and goals.

If you’re in property investment for the short term, then you should sell if you believe a crash is fast approaching. Once you’ve sold, you should rent. Once the crash has taken its affect, and you think property is it it’s lowest value, you should start buying again.

Knowing when prices have hit rock-bottom is difficult, but you can make a pretty good estimate if you do a little research. Speak to estate agents, watch what’s going on in the area and using your local knowledge to determine which way the market is going..

If you’re in property investment for the long-term, and aren’t a full-time active investor, then I think you should just keep hold of your property, as long as you can afford your mortgage payments. Even after a property crash, properties have always managed to exceed the value at their peak before the crash.

For full term investors, with very active roles in the industry, it’s probably in their best interest to sell, and make the same movements as the players that are in it for the short term.

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