BY
INDUSTRY
EXPERTS
COVERING
ALL
ASPECTS
OF
BUY-TO-LET
OCTOBER 2015
WRITTEN
LANDLORD | PROPERTY | INVESTMENT
the roller coaster ride continues: the story of buy to let
- Tom Entwistle
Manchester: every buy to let investors dreaM
- Christine Schulz
letting to students: what you should Know
- Steve Cox
HAPPY 1ST BIRTHDAY landlord investor
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3
HAPPY 1ST BIRTHDAY
welcoMe to the birthday issue of landlord investor! We are celebrating our 1st Birthday this month and I cannot believe how quickly the year has gone!
editorial Editor
Tracey Hanbury editor@landlordinvestmentshow.co.uk Editorial Contributors
Christine Schulz David Humphreys Katrine Sporle CBE Lee Albino Louie Burns Nick Gill Peter Littlewood Scott Hendry Spencer Rose Steve Cox Tom Entwistle Wayne Treveil
art dept. Design Craig Edmonds Advertising Beverley Meliniotis
contact 0208 656 5075 landlordinvestmentshow.co.uk /LandlordInvestmentShow
I would like to thank all our contributors, feature writers, advertisers and indeed our designer Craig Edmonds for all of the hard work that goes into producing this magazine each month, we hope you have enjoyed reading each issue. We had our 25th Landlord Investment Show on Thursday 24th September in North London. The day was extremely busy from start to finish with over 500 Landlords & Investors in attendance. The exhibition room was buzzing all day long and delegates were greeted by over 40 exhibitors covering all aspects of buy to let. A big thank you to everyone who attended, as well as our exhibitors and guest speakers!
contents Buy-to-Let Analysis Expert Advice Industry Update Lettings & Management Auctions Financial Leasehold Extensions Tax Advice Student Accommodation
06 18 14 20 24 28 30 34 38
In this month Tom Entwistle explains the roller coaster ride that Landlord face, Christine Schulz explains why Manchester is every buy-to-let Investors dream and Steve Cox explains everything to consider when renting to students. Our October events include: Manchester Landlord Investment Show – Thursday 1st October – Old Trafford Football Stadium Maidstone Landlord Investment Show – Thursday 22nd October – Mercure Hotel We hope you enjoy this issue, happy reading and we look forward to see you at one of our events soon! www.landlordinvestmentshow.co.uk
@LandlordInShow
Tenants History LTD Southbridge House Southbridge Place Croydon CR0 4HA Statements and opinions expressed in articles, reviews and other materials herein are those of the authors; the editors and publishers. While every care has been taken in the compilation of this information and every attempt made to present up-to-date and accurate information, we cannot guarantee that inaccuracies will not occur. Tenants History Limited and our contributors will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through the promoted links.
Tracey Hanbury | Editor Landlord Investor
Tracey Hanbury
landlord investor October 2015
4
Meet the teaM
show locations
tracey hanbury editor & sales director
T: 0208 656 5075 M: 07931 308 875 tracey@landlordinvestmentshow.co.uk
steve hanbury director
T: 0208 656 5075 M: 07429 683 046 steve@landlordinvestmentshow.co.uk
october 1st - Manchester Manchester united football club
les hanbury director
fran robins
sales & events Manager T: 0208 656 5075 M: 07950 284 615 fran@landlordinvestmentshow.co.uk
october 22nd - Maidstone - Kent Mercure great danes hotel
ryan dennington sales & events Manager
T: 0208 656 5075 ryan@landlordinvestmentshow.co.uk
beth littlewood sales & events Manager
T: 0208 656 5075 beth@landlordinvestmentshow.co.uk
noveMber 4th - south coast southaMPton football club
beverley Meliniotis advertising sales Manager
T: 0208 656 5075 beverley@landlordinvestmentshow.co.uk
craig edMonds creative designer
T: 0208 656 5075 craig@landlordinvestmentshow.co.uk
noveMber 19th - london olyMPia conference centre
if you would liKe any inforMation about our 2015 shows, Please get in contact with a MeMber of the teaM or alternatively, visit our website at: www.landlordinvestMentshow.co.uK
October 2015
landlord investor
Secured loans
Residential mortgages
Nick Jones
Tracey Bailey
Bridging finance
All together now.
Buy-to-let and commercial mortgages Irene Thomas
Chris Baguley
If you liked us as Auction Finance, you’re going to love us as Together. As a group, we’ve been lending for over 40 years and we’re able to help with bridging finance, residential mortgages, secured loans, commercial and buy-to-let mortgages. There’s a new name and still the same expert knowledge available in person at auctions up and down the country. Good property doesn’t hang around, so neither will we when it comes to securing your funding. People, not computers make our lending decisions. It’s just common sense.
For fast, flexible auction finance call the auction team on 0161 933 7155 For other products visit togethermoney.com For professional use only. Together is a trading style of Auction Finance Limited. Auction Finance Limited is registered in England and Wales Company Registration Number 04949929. Registered office address: Lake View, Lakeside, Cheadle, Cheshire SK8 3GW.
Auction finance Scott Hendry
6
BUY TO LET ANALYSIS
Manchester:
Every Buy-to-Let
Investor's Dream Christine Schulz - Knight Knox
If you're looking for the best place to invest in buy-to-let property, look towards the North West of the country - in particular towards Manchester.
Manchester is a city that is truly flourishing: As of late, it has been voted the most "liveable" city in the UK. This great city has something on offer for everyone, be it watching a football match at the grounds of Manchester United or Manchester City, catching a show or a concert at one of its many famous venues, enjoying a superb shopping trip to Manchester Arndale or the Trafford Centre, paying a visit to a trendy café or popular bar, or enjoying a meal in one of its many renowned restaurants.
October 2015
LANDLORD INVESTOR
But that’s not all. Thanks to its selection of go-to destinations, Manchester’s economy is booming. The city received one of the UK’s largest Devolution Deals last year, worth £1bn, in line with Chancellor George Osborne’s Northern Powerhouse Initiative to even out the imbalance between the country’s economic and financial north-south divide. Hereby the city’s government gained more power over decisions over the budget for the likes of infrastructure, housing and transportation, to tailor these to the city’s specific needs and requirements.
7
BUY TO LET ANALYSIS
Additionally, Manchester is seeing a lot of regeneration projects taking place over the next few years, such as Airport City or the highly anticipated and hotly discussed HS2 Speed Railway Network, along with a broad selection of regeneration schemes throughout the city. In fact Manchester is said to be the nation’s favourite destination in terms of foreign investment outside of London, having attracted a total of over £1bn worth of property investment alone over the past few years.
But why exactly is Manchester such a thriving buy-to-let destination? According to HSBC, Manchester is Britain’s top buyto-let hotspot, yielding its investors as much as 7.98%, the highest returns in the country. Comparatively, the capital’s property market is slowing down as house prices skyrocket to new extremes, causing families and professionals to seek out more affordable cities to live in. Due to extreme house prices locking people out of homeownership, demand for rental accommodation is growing, causing rental prices to rise in line. In general, it is estimated that investors in the capital’s buy-to-let market are seeing yields of approx. 6%, a lot lower results compared to topperforming regional cities such as Manchester and Liverpool. Whilst these northern cities typically have lower house prices, they are simultaneously seeing growing rents due to strong demand for rented accommodation in their city centres. In addition to people flocking out of the country’s capital, businesses are also increasingly toying with the idea of leaving behind the extreme house prices in the London property market and re-locating their offices to more affordable major cities such as Manchester. An example of this is the BBC and ITV, who have both moved their headquarters to the Salford Quays area of Greater Manchester. However, it is particularly the demographic of young professionals that are turning away from the capital in favour of regional cities like Manchester, Liverpool and Leeds. The country’s house-price gap between the north and south has widened dramatically: nowadays the price of a detached house in London has increased to £849,653, meaning that for the price of one detached house in the capital, you would be able to purchase a total of four in Manchester.
Due to their preference for flexible tenures and central city centre locations, young professionals have changed the landscape of Manchester’s property market: buy-to-let properties today make up in excess of 25% of Manchester’s total housing stock, more than anywhere else in the UK. Additionally Manchester’s student population of over 70,000 is causing the rise in demand for rented accommodation. Looking forward, it is estimated that Manchester is set to see even more positive changes: economically, Manchester is set to create as many as 5,000 additional jobs every year, as it will increasingly position itself as the leading force of the Northern Powerhouse. Its overall population is forecasted to increase by as much as 125,000 over the next decade thanks to a thriving economy and overall increase in student numbers. With Greater Manchester’s economy and population both set to increase, 10,000 new homes will be needed each year to meet the increasing demand for housing stock. Yet the Government continues to struggle to meet the the demand for rented accommodation in the city. This presents a favourable market opportunity for property developers and savvy investors alike who are increasingly realising the market potential of Manchester’s thriving buy-tolet market. Given that Manchester is the preferred investment destination outside the capital, with more international businesses and thus an increasing numbers of jobs and people coming into the city, Manchester has become one of the fastest growing cities across the UK. ⌂
LANDLORD INVESTOR October 2015
8
EXPERT ADVICE
The Story of Buy-to-Let Tom Entwistle - LandlordZONE
The roller coaster ride continues as the UK's private rental sector (PRS) goes through yet another period of its development; a period of change and challenge for those involved. You could say it's an exciting time, if you're one of the winners, but for some it could be a bitter sweet time. Will the good times continue, or will the weight of an increasing regulatory burden, a less favourable tax regime and concerted anti-landlord media campaigns finally “turn the tide” and start another longterm decline in the buy-to-let market?
October 2015
LANDLORD INVESTOR
Since the recession hit in 2007/8, apart from a minor blip, the private rented sector has fared extremely well: buy-to-let has just had its best year for new investment since before the panic, so much so that the Chancellor, in his post-election Summer Budget, took serious steps to cool the market down. The Government and the Bank of England were getting “twitchy” about the success of buy-to-let, despite the dire need for housing, because of the amount of money out on loan to landlords. They feared that a small rise in interest rates could result in serious problems for the banks if landlords struggle to service their debt and consequently there’s a landlord stampede out of the market, causing property prices drop suddenly.
9
The Regulatory Burden
The Deregulation Bill 2015, which ironically adds a slew of new regulations to the private rented sector (PRS), introduces measures which will restrict the eviction of those tenants that can show that so called “retaliatory eviction” is threatened, when repairs have already been reported. Efficacious as this may seem, there will inevitably be those tenants who try to use this to their advantage, and therefore landlords will need to have management strategies in place to stymie any attempt at this. We will be publishing some guidelines to help landlords with this in the near future on the LandlordZONE® website, and useful control documents can be downloaded here: http://www.landlordzone. co.uk/documents There will at least be welcome changes to the section 21 notices, which should simplify the process of serving a valid s21 notice. It should help prevent the many errors which occur with this process resulting in many eviction claims being thrown out because of technical defects in the notices, particularly wrong end-dates.
All relatively straightforward and some would argue sensible measures, but taken together they represent a lot of administration work for landlords and agents, which if not done correctly can result in very costly legal problems. Coupled with the less favourable tax regime going forward, the result is likely to be some landlords running for the exit and, inevitably, tenants paying more in rent. But some want to go further. Changes coming in Scotland and Wales could bring in even more restrictions on landlords and move back to a more “tenant friendly” pre-deregulation era. The Scottish Government has recently completed its second consultation on reform of private tenancy legislation. The Scottish and Welsh governments are considering ways to give tenants more security by limiting the landlord’s right to recover possession and allowing longer lease terms. What is worrying for developers and investors with large schemes under way is that these regimes are toying with some measures to control rents, a move which is not lost on campaigners in England.
LANDLORD INVESTOR October 2015
EXPERT ADVICE
A raft of new regulations affecting buy-to-let came into effect from the 1st of October and most onerous of all, “Right to Rent” immigration checks are on the way. So, couple this with the Budget measures, the serious tax changes curbing mortgage interest relief and the wear and tear allowance, and you have in prospect a more challenging environment for the average buy-to-let landlord going forward.
Other not so welcome changes mean that landlords and agents will need to provide tenants (and also for court possession claims) with current Gas Safety and Energy Performance Certificates (EPC), along with proof of timely deposit protection, correctly served deposit statutory notices, and of course the letting agreement itself. There is also a requirement to provide tenants with the current version of a Government (DCLG) booklet on “How to Rent” at the start of every new tenancy. Those landlords with licensable HMOs will also need to show a current licence is in place. There is also the possibility that mandatory licensing will be extended to all shared accommodation in the near future.
10
EXPERT ADVICE
Buy to Let - A Major Industry Buy-to-let is now a mainstream industry vying with the motor industry in size, albeit consisting of lots of small-scale landlords, most with just one or two properties, housing 4.4 million households in England. 95% of all private residential landlords in Britain own between one and four properties according to one private landlord’s survey carried out in 2010. Although the quality of privately rented housing has improved markedly over the past decade, with surveys showing that 84% of private renters are satisfied with their accommodation, and staying in their homes for an average of 3.5 years, there’s a hard core of rogue landlords that have brought the regulatory and media spotlight upon the industry.
Anti-Landlord Media Campaigns Listen to the emotive rhetoric from the left-wing of politics and you would think landlords were the scum of the earth, the scourge of tenants, rather than people investing their hard-earned cash, their savings and borrowings, into renovating dwellings to let out which benefit the whole community. Here is a sample from Bright Green, a “green progressive movement” and other similar press: “In 1988, Margaret Thatcher scrapped rent controls… laws limiting the amount landlords can charge in rent that had been in place since 1915. And it’s been a disaster." “Sky-rocketing house prices mean few can buy, the demolition and privatisation of social housing mean waiting lists are decades long, and so the young and the poor have nowhere else to go but to rent." "The size of the sector has exploded, and rents have exploded with it. Rents are now so high that tenants become completely trapped… driven into poverty and homelessness by the greed of private landlords." "In the UK private landlords make £77.7 billion pounds a year, four billion more than the entire GDP of Morocco. They are also subsidised to the tune of £26.7bn in tax breaks and housing benefit. The cost of landlord subsidies to Britons is £1011 per household."
Shelter says it conducted a survey of 3,792 renters and found 60 claimed their landlord or letting agent had been abusive towards them or another tenant in the last year. (It appears the organisation, which relies on charitable donations from the public and other organisations, simply extrapolated their survey figures to the total landlord-tenant populations using the English Housing Survey and Census data to arrive at the figure of 125,000 tenants being abused.) This kind of rhetoric from campaigning groups, and most noticeably The Guardian newspaper, has gained traction within the public psyche. House prices have been driven up through a shortage of supply, through no fault of buy-to-let landlords, but still, this kind of publicity does little to help those landlords trying to earn an honest living. It leads to this kind of comment: "I am currently a provider of affordable accommodation, but increasingly demanding tenants (whose dissatisfaction with perfectly decent properties is fuelled by anti-Landlord propaganda) combined with the imposition of ever more costly regulations, Local Authority licensing schemes and so on, are taking their toll on returns… This has led me to consider taking my properties out of the private rental sector and into holiday lets instead." (Recent comment on LandlordZONE®)
October 2015
LANDLORD INVESTOR
11
The Buy-to-Let Boom
We’ve moved on from the days of the “landed-gentry” landlord. Now the average Joe can own a buyto-let portfolio; one which provides a public service, by providing much needed housing for a flexible workforce, while at the same time a safe and secure income and pension pot for the enterprising man in the street. This is all funded through private money that social housing providers – councils and housing associations - have failed to match by a country mile.
The post deregulation turn-around in the last 25 years has been dramatic. Growing from less than 10% of all housing in 1990 the private rented sector now represents just short of 20% and heading for 25% over the next 5 years. The growth in demand for private renting in a growing economy has been largely met by private “buy-to-let” landlords.
One hundred years ago the private rented sector (PRS) consisted of wealthy private investors owning around 90 per cent of all British homes. From the war time measure of rent control brought in in 1915, until the 1988 Housing Act, the PRS went into terminal decline. After all, what would-be landlord would put their hard earned cash into property for rent when the law prevented them from ever getting their property back, but forced them to maintain it on a peppercorn rent, with not a prospect of an economic increase? Consequently, over a 75 year period, until the then Thatcher government de-regulated the PRS in 1988, rent controls, right to buy, lifetime security of tenure for private tenants, and a big increase in council house supply effectively killed off the private rented sector. In the 1970s no new private rentals were coming onto the market and tenants were desperate for homes. When I started letting property, an advertisement in the local press would bring up to 30 telephone enquiries on day one, the shortage was so severe.
During that same period, demographic and social changes; rises in house prices, student loans and an increasingly mobile work force, with a far greater number of temporary workers from overseas, have meant that the average 30-year-old was an owner as recently as 10 years ago, but is now a renter. The situation is unlikely to change over the next 15 years, so despite the noted threats, the prospects for buy-to-let and the private sector still look extremely good. To quote John Tovey, John Laing’s boss: “The population is growing out of control, there’s going to be another 15m people in Britain over the next 15 years, that’s equivalent to two new cities the size of London now… what are we going to do to house, transport and take care of these people?” The recent changes may discourage some private buy-to-let investors. The recently announced tax changes (restricting mortgage interest relief to 20 per cent) as well as the confirmed or threatened stream of regulation, but the PRS is now just too big and too important to be allowed to fail. In the meantime, part of the housing market solution may come from the emerging “build for rent” (BFR) sector. This form of PRS sees pension funds and other institutions financing large scale development of new housing specifically built for rent, not for sale. This can be seen in London where a new wave of government incentivised investment and development in the PRS sector is taking place. There is no doubt that this is a good thing to keep rents reasonable for the current and next generation of workforce in London who need to be accommodated to keep the capital’s wheels turning - schools, hospitals, public transport and so on.
LANDLORD INVESTOR October 2015
EXPERT ADVICE
The Working Landlord
exPert advice
12
Despite all the hysteria over shrinking property ownership, the rise of a strong, well-run private rental sector is to be encouraged and does present lots of opportunities for private as well as corporate investment. It is important therefore that the diverse interests of parties either living in or involved in this growing sector are considered carefully by all governments, as only then will it thrive. From a consumer’s perspective, there’s a lot of work to do in changing expectations so that renting is viewed as a viable, safe and sustainable alternative to home ownership. The product needs to evolve and adapt to meet the needs and aspirations of “generation rent”, without too much market interference from government. For today’s landlords keeping upto-date with and complying with the increasing regulation and standards will be challenging enough, but it is achievable. There is no doubt that there needs to be a shift towards a more professional private rental sector as demand for rental properties increases. Local authorities and government need to redouble their efforts to drive out the rogues, without making life intolerable for the responsible landlords.
what of the future? Will buy to let be sustainable given what’s been said already? There is no doubt that the Chancellor’s buy-to-let property tax regime changes are a bit of a game changer. But the lenders, whose money it is that’s at risk, still seem pretty sanguine: Joe Macklin, senior manager, risk & analytics at MIAC Acadametrics: “…it is difficult to conclude that the sector is more exposed to default risk than other mortgage sub sectors. The buoyant rental market coupled with borrower’s resources as a backup means there is builtin default resilience. Whilst lending criteria stays as prudent as it is today, and challenges remain with getting on the bottom rung of the housing ladder, the BTL market will continue to prosper.” A Government drive for a large institutionally funded house building programme is unlikely to be the whole solution to the housing shortage; private renting by the small scale-landlord will still be extremely important to government and the nation. The finance writer Bob Panell for the Council of Mortgage Lenders (CML), says: Even if government policy helps to deliver the 250,000 or so homes needed in England (and 300,000 in the UK as a whole) over the next decade, 90% or more of the housing stock that will exist in 2025 has already been built, and is being lived in by somebody. Government measures that nudge towards better use of the current stock could contribute materially to the supply-demand picture. Property prices look set to remain stretched relative to incomes because of this long-term imbalance between supply and demand. And the widening gap between house prices and earnings has been exacerbated by low inflation and interest rates, therefore keeping property ownership out of reach for many people. Private renting is here to stay, and whatever measures the bureaucrats bring in, they will need to be tempered by these realities. ⌂ Tom Entwistle is an experienced landlord and Editor of the LandlordZONE® website.
October 2015
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14
INDUSTRY UPDATE
TPO announces new Property Ombudsman Katrine Sporle CBE The Property Ombudsman
From 1 November 2015, Katrine Sporle CBE will take up the role of Ombudsman at The Property Ombudsman, taking over from her predecessor Christopher Hamer, whose nine year term comes to an end on 30th November. Previously, Katrine Sporle was Chief Executive of the Planning Inspectorate for England and Wales (2003-2011), which involved being responsible for all aspects of the Government Executive Agency, 1000 members of staff and a £60m budget. She was directly answerable to Parliament and regularly reported to the Secretary of State for Communities and Local Government (CLG), and the Minister for Housing and Planning in the National Assembly for Wales. “The scope for influence on the economic, environmental and social wellbeing of the nation as a whole was enormous, and exercised through impartiality of decision making to the highest level of professional expertise” comments Katrine Sporle. Prior to that, Katrine was Chief Executive of Basingstoke and Deane Borough Council for eight years, controlling an overall budget of circa £58m. She provided inspirational leadership to develop the potential of the Borough as a whole, gaining a reputation for economic, cultural and social success. Katrine Sporle’s role as the new Property Ombudsman is to impartially review complaints made by members of the public against agents, based on the evidence submitted. The aim is to promote a resolution in full and final settlement of a complaint.
October 2015
LANDLORD INVESTOR
Where the Ombudsman is satisfied that the actions of an agent have disadvantaged a complainant, and taking into account relevant parts of the TPO Codes of Practice, she will determine appropriate redress. Upon appointment of the new Property Ombudsman, Lord Richard Best OBE, Chairman of the TPO Council since 2009, commented "Selecting our Ombudsman is a key responsibility of the independent TPO Council and we are truly delighted to have secured someone with the breadth and depth of experience - at local and national levels - which Katrine brings to this role. Christopher Hamer is a very hard act to follow; but I am confident we have found a great successor. I know all TPO's members and well-wishers will join me in extending the warmest of welcomes to Katrine when she starts in November." Bill McClintock, Board Chairman of The Property Ombudsman Scheme added: 'I welcome Katrine Sporle as the new Ombudsman and endorse Lord Best's comments. I believe her broad employment background will be a huge benefit in performing her new role.' ⌂
15
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16
INDUSTRY UPDATE
What is the Government doing? Peter Littlewood Southern Landlords Association There are a lot of changes heading your way, but the Government keeps messing it up!
Section 21 There is a new Section 21 being released for use for new AST’s commencing after October 1st. Firstly the guidance notes to be used in conjunction will not be released until October 1st, so I can’t tell you what they contain; secondly, there is a major error in the legislation which might (but unlikely) make the planned release date late. Assuming it still goes ahead, the points about the new Section 21 are:
To be ‘prescribed form’, and same format for both types of tenancies (Fixed Term & Periodic).
Cannot be issued in the first 4 months of the tenancy.
Must be used within 6 months of service – i.e., use it, or loose it; Landlord required to give tenant a booklet entitled ‘How To Rent’ with information about their rights; Invalid if no valid EPC; gas safety inspection report; correctly protected deposit; property licence (if required); Tenants will have statutory right to claim back over-paid rent if S21 used.
October 2015
LANDLORD INVESTOR
17
Where a tenant makes a complaint about the condition of a property in writing, the landlord will have to respond within 14 days in writing setting out what they intend to do about it and what the timeline for doing this is.
If the landlord (a) fails to reply or (b) replies by serving a section 21 notice or (c) gives a reply that is inadequate, then the tenant may complain to the local authority who must inspect the property.
If the local authority then serves an improvement notice or carries out emergency remedial action, any section 21 notice already served will be rendered ineffective and no further notice can then be served for six months.
The new S21 has to be used on all AST’s commencing after October 1st, additionally can be used on any existing AST, and will have to be used after 3 years (currently October 1st 2018).
into a rolling or periodic tenancy the section 21 notice would only bevalid for four months from the date that it is served on the tenant. This contradicts the Deregulation Act, which makes clear that the required period to regain possession of a property where a tenancy is a rolling or periodic tenancy, should instead be four months from the date the section 21 notice expires. The new format is quite easy to use, and the fact that it applies to all AST’s is a bonus. Previously a S21 to be used for Periodic AST’s had to expire on the last day of the period of the agreement. We were told that over 80% of these S21’s going to court were incorrect, generally because of the complication of this requirement; If you intend to get a tenant to leave after 6 months, you will have to be very quick to issue this S21 on the first day of month 5. Note that will you have to allow time for the actual service. It is not clear if the booklet referred to has to be issued at the commencement of the AST, or at the time of issue of the S21. We look forward to clarification of this. Also, not clear if the EPC has not been issued at the commencement of the AST (as currently required) whether it can be arranged after the commencement, but prior to the S21.
LANDLORD INVESTOR October 2015
INDUSTRY UPDATE
Retaliatory eviction: Comments major error is that the legislation currently states tenancies after Oct 1st 2015 The that where a fixed term tenancy ends and then turns
18
INDUSTRY UPDATE
This also applies to the gas safety inspection report – but that is a criminal offence not to have. But the most important one is the Retaliatory Eviction part. If a landlord gets a complaint about work to be done to the property they MUST respond in writing, within 14 days. The legislation states that the tenant should complain in writing, but I would strongly recommend responding to all complaints, no matter how they are received. That response might be that nothing needs doing, or that the matter can’t be progressed in the 14 days – especially if quotes are required. The main thing is to get an ‘adequate response’ within 14 days, in writing.
Mandatory Smoke and CO alarms Finally became law, but had a rocky ride because the House of Lords initially threw it out because the Government hadn’t done enough to inform landlords. Forced through on the second reading. This covers all properties, so make sure you adhere immediately. A smoke alarm needs to be fitted to every floor of Let property. Any requirements for more alarms under Licensing law still apply. A carbon monoxide alarm has to be fitted in every room having a solid fuel heater – i.e. wood burning stove; open fire etc.
October 2015
LANDLORD INVESTOR
Whilst the legislation states it should be a working solid fuel heater, I would strongly suggest you include one in a room with an open fire, even if it is never used. I can see a zealous EHO claiming it is working. Perversely this does not cover gas heaters, but the DCLG ‘strongly recommend one to be fitted’. Quite why they didn’t include them is beyond me.
Green Deal Amber Rudd, the new DECC minister has abandoned the flawed Green Deal policy. However, the Energy Act is due to be enacted next April, which will lead to it being illegal to rent a property with an EPC rating of less than E after 2018. This was initially brought in in the basis there was no excuse for landlords to improve their EPC rating because it could (generally) be done free under Green Deal. Additionally the EPC still has the Green Tick at the bottom to indicate work can be done under the Green Deal. ⌂
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landlord investor October 2015
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lettings & ManageMent
tenants Plus, a uniQue new service for letting agents Wayne Treveil - Tenants Plus Tenants Plus, a new service that matches pre-referenced and credit checked tenants to properties available for let, has launched to the market increasing efficiency and reducing costs for letting agents during the renting process.
the Private rental sector continues to eMbrace technological innovation that enhances the services Provided by letting agents to their clients.
He says. “After spending 15 years working in the lettings and property management industry, and being concerned about this situation, I have developed a service that provides the solution.”
However, Wayne Treveil, Founder and Chief Executive Officer of Tenants Plus, noted one thread that remained unchanged which significantly affected all parties involved in a lettings transaction, “no system was available in the market that helped prevent letting transactions falling through due to failed referencing.”
Tenants Plus provides pre referenced tenants to agents prior to viewings taking place as well as matching them with their available properties. Wayne says: “In a market that can be fairly complex, our service provides invaluable benefits for agents which will undoubtedly make their job much easier.
October 2015
landlord investor
“Currently, referencing and credit checks are carried out after a viewing has taken place and an offer made. At this point the tenant has paid a holding deposit to secure the property as well as administrative and referencing fees that are generally non-refundable. If the tenant fails the referencing there are significant delays and cost implications for the letting agent.”
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Agents can conduct viewings with peace of mind that the tenant is ready to go and when an offer is accepted, there is no chance of a deal collapsing due to failed referencing.
Pre tenancy admin and collection of documents, ID and references are completed before viewings take place which speeds up the letting process. The only cost to the agent is when they purchase a report from Tenants Plus which they would only do after they have negotiated an offer. Agents do not pay for the lead and there are no monthly membership fees.
Having only just launched, Tenants Plus is already marketing over 2000 rental properties in London, with this number growing daily, for those agents registered to use this unique marketing and tenant lead service. Tenants Plus is not a property portal, the only people who can view the available properties are active tenants who have registered to find a property through Tenants Plus. “We are receiving new agent registrations every day� confirms Wayne. Getting started is simple. Agents need to create an account to set up a company profile. Once they have done this, they can either manually upload properties or it can be done via an automated data feed, and they are then ready to receive pre referenced tenant leads from customers who have been matched to their properties. For more information or to register please visit: www.tenantsplus.co.uk ⌂
Less time and delays waiting for referencing information to come back. If an agent has an offer from a Tenants Plus tenant, its money in the bank.
LANDLORD INVESTOR October 2015
LETTINGS & MANAGEMENT
Benefits include
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auctions
auctionlets looKing for investors following a successful year in business Spencer Rose - AuctionLets AuctionLets, which follows a similar easy-to-use format to that of one of the most popular mainstream auction sites, has been providing landlords with a unique alternative to the way property has traditionally been let since its launch in January last year.
"Our site has been successfully tested with great results. A number of bids have gone through and both tenants and landlords have been happy with their service and the outcome." “We know our concept works, we know landlords and tenants want it, but what we now need to do is spread the word in order for us to develop the business further and re-launch. This is why we have decided to actively seek investors whether it’s via crowdfunding or through private investors.” The property finding site enables landlords to upload their vacant properties whilst potential pre-qualified, referenced tenants can bid on the property they desire. All properties are advertised on Rightmove. AuctionLets offers all the online savings all the others do, but presents the ability to landlords to maximise their rental income, as well as offering tenants the chance to let the property they can afford. Spencer continues: “Tenants bid for the property in a legally binding online auction, a new concept in the rental sector. They are pre-vetted so that they can only bid for what they can afford and have the ability to bid on multiple properties until they are successful. To avoid signing up for more than one property, prospective tenants are only able to be the current highest bidder on one property, once they are outbid
October 2015
landlord investor
they can move onto another property. Landlords on the other hand, get the reassurance that the tenants bidding on their properties are quality pre-referenced tenants whilst having the opportunity to maximise their rental income or let their property quickly. They decide a realistic minimum rent per month and simply sit back and wait for the bids to come in. They also control the end time of the auction and move-in date.” Spencer believes that the market is now ready for a change and for AuctionLets to really ‘shake up’ the property industry. He says: “Tenants and landlords have been in the hands of agents, whether these are online or with a high street presence, for far too long now. It’s time for landlords and tenants to take a bit more control.” For more information, visit www.AuctionLets.com. If you’re interested in talking to someone about the possibility of investment, please contact Spencer on 020 8281 1010 or spencer.rose@palmhurstgroup. com. Due to the success of AuctionLets, Spencer has plans in place for AuctionSales next year providing further cost savings to buyers and purchasers. ⌂
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auctions
together's toP tiPs for auction house Professionals Scott Hendry - Together
auction finance director scott hendry froM sPecialist lender together has established a rePutation nationwide as an checK the legal PacK industry exPert. With more than 20 years’ experience in financial services, and over 10 of those specializing in finance for auction purchases at Together, Scott deals with landlords and property investors on a daily basis and helps them find the funding solution that’s right for them. Here, Scott shares a few of his top tips for things that even the seasoned buyer needs to look out for. He says, “Often properties which come up at auction may need more work, change of use, or some imaginative and creative thinking to make them commercially viable – all of which an experienced property professional can take in their stride. “However, as in any fast paced environment, there are ever-changing rules, regulations and circumstances which even the seasoned auction bidder needs to remember to consider.
October 2015
landlord investor
You may have seen legal packs hundreds of times, but each one will have differences relating to the particular property. Make sure you’ve read it carefully, especially the small print, as it’s often in these sections where surprises such as covenants, restrictions and rights of access are noted.
don't get caught out by the six Month rule Banks generally won’t lend on a property until it has been owned for six months. However, what is not as commonly known is that the vendor should also have owned it for at least six months. When buying at auction even seasoned professionals can be caught out by this, so it’s important to find out how long the vendor has had the property, otherwise it could be a problem with a high street lender.
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Be aware of potential issues with the property
Check the planning consents If there is planning attached to a property, be careful to check when it expires. If it is due to lapse, don’t automatically assume you’ll be able to get it again. Check with the local planning department what the likelihood is of renewing.
Many property professionals look to auctions to pick up houses of multiple occupation or HMO investments. These are growing in popularity amongst buy-to-let investors. However, you may not be aware that for larger HMOs, by law, the property has to be licensed with the local council. These licences usually have to be renewed every five years and you can be fined up to £20,000 for renting out an unlicensed HMO. Each council has different rules and regulations for these licenses so make sure you speak to the local authority for your planned property bid about what’s required, to avoid any nasty surprises.
Investigate any tenancies If the property you are planning to purchase is tenanted, take the time to find out some background information about both the tenant and the tenancy agreement. Regulated or life tenancies can cause issues for finance as the tenant has the right to remain throughout their lifetime and can sometimes transfer the tenancy to a child, so you need to be aware of the specifics of the agreement. “Our team are at auction houses up and down the country, so If you need more advice just come and speak to us - we’re always happy to help.” ⌂ Find out more about auction finance at www.togethermoney.com
LANDLORD INVESTOR October 2015
AUCTIONS
There are some things which will immediately make funding more difficult, such as kitchens and bathrooms which are not up to scratch and can be considered unsanitary, or Japanese knotweed which can damage the property and make it very difficult to obtain finance from traditional banks. Knowing about these in advance means you can approach specialist lenders, like Together, who are flexible when it comes to funding less standard properties.
HMO regulation
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FINANCIAL
Short Term finance: making your money work harder Lee Albino - Shawbrook Bank
"Flipping property" seems to be a popular activity... Both for those actively doing the “flipping” and also for those just thinking about entering this space in some way (which is essentially everyone), it’s a good bet that this concept has been around since the dawn of time where one caveman installed a ‘central fireplace’ at home and persuaded the couple a few caves down to part with a few extra mammoth hides at point of exchange. Purchasing property and conducting some light refurbishment to increase capital value for sale or to benefit from potentially attractive rental income remains a huge market - not just within the UK but on a global scale. For your average landlord, this type of investment is an important part of portfolio activity but this sector brings with it several challenges with sourcing appropriate finance being the most crucial. There are a multitude of lenders operating in this space from the high street banks to the more specialist lenders and challenger banks. It is important not to discount the alternative finance market out of hand as this avenue can often yield far more tailored, service driven products to suit the needs of the property investor.
October 2015
LANDLORD INVESTOR
Shawbrook is a well established challenger bank offering a suite of lending options for property investors. Our range of Short Term lending products have been carefully designed with refurbishment in mind and provide a range of products for various levels including light and heavy refurbishment. Perhaps most interestingly from a customer point of view are the rates available on the range of Short Term loan products which start at 0.59%...
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Shawbrook work exclusively through the intermediary channel, using professional brokers as our route to market. This underutilized model brings a great deal to the table for customers wishing to source tailor made finance as it provides a whole market view across multiple lenders. With speed often being the driving factor in the short term lending space, (auction purchases being just one example), the dedicated Short Term Lending teams within the Bank have a reputation for their efficiency in dealing with brokers to secure the desired finance for landlords, investors and property professionals. Amongst several ‘service level agreements’ within the bank, one is the pledge to deliver terms backed with a credit profile assessment within 4 working hours - hugely attractive for customers wishing to move quickly.
Although we do not currently offer much for the first time investor and operate more with seasoned property investors, in no way should this be seen as a negative. The Bank is here for the long term and we are determined to build a sustainable future for our customers driven from a highly stable and service focused lending platform that is designed to deliver the best possible outcome. We have a commitment to transparency that ensures our customers are fully aware of all costs and fees associated with any given product, and all this is built within a robust risk framework that manages to retain a sense of the personal. Even though we transact via the broker channel, there is always a Shawbrook voice at the end of the phone should you have any queries across existing or new property deals. ⌂ If you would like to talk through any potential investments with the team, please contact our sales desk on 01277 751 112 or pi@shawbrook.co.uk. THE OVERALL COST FOR COMPARISON IS 12.8% APR. THE ACTUAL RATE AVAILABLE WILL DEPEND UPON YOUR CIRCUMSTANCES. ASK FOR A PERSONALISED ILLUSTRATION. ANY PROPERTY USED AS SECURITY, INCLUDING YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT. A BROKER FEE MAY APPLY.
An additional advantage is the ability to move the short term loan onto a term product once it reaches maturity. The benefits are threefold – firstly this allows the investor to change their mind should the capital value not stack up as predicted (or if the rental income is too good to ignore), and tenant the property over the longer term. Secondly, should a mainstream lending institution have a problem with an aspect of the property that the bridging or short term lender has overlooked, the customer may be stuck with no exit at maturity – quite a serious predicament.
LANDLORD INVESTOR October 2015
FINANCIAL
Shawbrook provide this strategy for our short term loan customers offering security of exit. A final benefit is that there is no minimum ownership required. Typically, the high street lenders will insist on the property being held for at least 6 months before sale whereas Shawbrook do not. In fact even if you were to carry out your light refurbishment within a week, we are comfortable for you to swiftly re-finance - a refreshing product highlight bringing even more flexibility to the process.
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LEASE EXTENSIONS
Have you been offered an 'informal' lease extension? Stop! Do Nothing until you have read on...
Louie Burns - Leasehold Solutions Louie Burns, Managing Director, Leasehold Solutions, and Partner, Leasehold Valuers, explains the dangers of informal deals.
If you are a leaseholder trying to decide how best to proceed down the path of extending your lease, an informal offer from your freeholder to do so might seem like a perfect and timely solution. But, in my experience, nothing could be further from the truth! These informal offers are offered to you by your freeholder when you want to extend your lease and are designed, at first glance, to look as though you are getting a great deal.
October 2015
LANDLORD INVESTOR
At Leasehold Solutions we call these offers ‘Trojan Horse’ offers; they look like a gift but, when you look inside, the details can be catastrophic.
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Brilliant deal! Or is it?
Freeholders, who are often property professionals and not ‘accidental landlords’, buy freeholds of buildings to make as much money as they can from each leasehold flat within it; if they can convince you to accept an informal lease extension, it can turn into many thousands of pounds for them.
By offering to extend the lease back up to 99 years, the lease would need extending again in 17 years - so the freeholder gets paid to extend the lease – AGAIN! Alternatively, you might get offered a 125year lease extension. Sounds better? Watch out for this common trick, as what your freeholder may have omitted to mention is that the 125-year extension starts from when the original lease was granted and the offer is NOT the 74-year lease extended up to 125 years! If you are unhappy with this, you have no legal recourse to argue with your freeholder. You do not have the legal right to an informal lease extension – it is a take-it-or-leave-it deal.
How do freeholders make their money? They make their money from some or all of the following: Licensing fees hidden in the terms of the lease ’Finder’s fees’ they get back from your building insurance Service charge fees The ground rent you pay each year The money you have to pay them for the lease extension itself Let’s say that your flat has a current lease length of 75 years. If you extend your lease by exercising your statutory legal right, the lease would then be 165 years with zero ground rent and it would be 85 years before the lease needed extending again. It would also be a reasonably cheap exercise as there would no longer be a ground rent element. Furthermore, the lease length issues will have been rectified once and for all and therefore present no future value for your freeholder.
What about ground rent? If you extend your lease using your statutory legal right, the ground rent is reduced to zero. Informal offers will contain details of ground rent; the offer could be £250 a year, doubling every ten years, instead of the original ground rent of £75 per year, doubling every 33 years. Which is actually £2,500 more than it would have been if the flat owner had exercised their statutory rights for the next ten years! The ground rent then increases as the lease on the flat is extended time and time again. This is considered to be an onerous ground rent schedule and could affect the future saleability of the flat. Lease terms are also a very important consideration. If you extend your lease using your statutory rights, you are protected by law and your freeholder cannot alter the existing terms of your lease.
On the other hand, if your freeholder can convince you to take an informal lease extension, it can turn into many thousands of pounds. It’s worth remembering that you do not have any legal right to an informal lease extension. So, what does an informal offer to extend a lease back up to 99 years look like? Typically, an informal lease extension could offer savings in excess of £1,500 in costs to extend and the associated fees. Furthermore, ground rent is reduced and the terms of the lease merely modernised (more of which later). Oh, and they’ll complete the whole process in just three months instead of the minimum of 12 it would take on the statutory route.
LANDLORD INVESTOR October 2015
LEASE EXTENSIONS
Freeholders
LEASE EXTENSIONS
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If, however, you accept an informal offer, you are not protected and your freeholder can make any changes they wish. If you think the terms of your lease will have little impact, think again! Your leaseholder can insist on additional licences to your lease that mean you will have to pay them to alter your flat in any way/ sell it/rent it out/get satellite television, and so on. The list is extensive.
As you can see, informal offers and the associated process can be highly complicated. At Leasehold Solutions and our partner firm, Leasehold Valuers, we have spent 13 years empowering flat owners to take control and deal with informal offers on an almost daily basis. Whatever your predicament, we are sure to have seen it before and know all the tricks a freeholder will use. ⌂
If you sign a new lease, with any new terms and conditions, it is now your reality and there is nothing you can do to remove them.
For further information on how we can help you, please call us for a no-obligation conversation with one of our expert team:
The other area to keep an eye on is timescales – and with this the tricks freeholders employ to make more money. By dragging their heels after making an offer, the time for you to extend using the legal process reduces, as the statutory route has very strict timescales by which all parties - your freeholder included – must abide. Often the offer is then withdrawn and the freeholder’s investment has risen by thousands of pounds.
Leasehold Solutions: 0808 1311 109 (Freephone) info@leaseholdsolutions.com www.leaseholdsolutions.com Leasehold Valuers: 020 8688 8984 slyall@leasehold-valuers.com www.leasehold-valuers.com
Perhaps you are selling your flat and have a buyer lined up, with everything resting on this lease extension. Freeholders have a tendency suddenly to find a mistake on the valuation, which leads to a demand for a higher sum. The chances are you will just pay it; after all what choice do you have?
October 2015
LANDLORD INVESTOR
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landlord investor October 2015
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tax free rent: TAX ADVICE
REPAIR VS IMPROVEMENT David Humphreys Property Investor Online Last month, I outlined a 5-Year Strategy of generating Tax Free Rent with NMLI (No Money Left In) the deals, allowing investors to perpetually develop their portfolios without relying on market-driven increases in value for re-mortgage purposes and ended the article by saying that, next month I would look at the type(s) of property that is ideal for this strategy.
Repair (renovation) versus improvement. In last month's article I talked about generating tax-free rent by "renovating" property rather than use the term "repairing" property. My use of the word "renovation" rather than "repair" could lead to misunderstanding the rules regarding the treatment of tax-deductible maintenance & repair costs of properties being let. In simple terms, the cost of a repairing a habitable property, except for a PPR before the 1st let, is tax deductible against the rental income whereas the cost of any improvement is only tax-deductible against any CGT liability arising on the sale of the property.
October 2015
LANDLORD INVESTOR
Some/most might think that “renovation” would inevitably result in improvement but that doesn’t matter for our purposes except where the property was not habitable prior to works, when all works are an improvement. So, what exactly constitutes a repair or an improvement for tax-treatment purposes? Certain works such as re-decoration are always a repair, the introduction of the letters "re" indicate that the property has been/was decorated and now is being "re"-decorated", a repair, whereas the installation of a fixture/ fitting that did not exist before, such as an extractor fan/shower would be an "improvement" and not tax-deductible against the rent but would be tax-deductible against any CGT liability, if and when the property is sold.
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For NMLI, read profit, the greater the profit percentage, the greater your chance of achieving NMLI, also the higher the LTV (loan to value) that you are prepared to operate at, again, the greater the chance of achieving NMLI.
Take a fixed up value of 100 K, at 75% LTV (commonly available) the overall project cost must be no higher than 75K. Increase the LTV to 85% and the overall project cost can rise to 85K and still achieve NMLI. So, in simple terms, repairing/replacing what exists, walls, roof, fall into the "repair" pot whereas installing or upgrading what exists, therefore improving, falls into the "improvement" pot.
It should be remembered that valuers, valuing for re-mortgage purposes, are generally more conservative in their assessment than is the case when the property is being valued for mortgage purposes to fund the purchase.
And yet there are some contradictions. Replace an existing 4 unit kitchen with 5 units is an "improvement. In the past you were able to split the cost, apportioning 4/5 to the "repair" pot and 1/5 to the "improvement" pot, but no more. If the renovation/ repair includes any element of "improvement" the whole becomes an improvement with the full cost dropping into the capital pot.
Also, the more you spend on repairing/renovating a property, the greater the percentage uplift. Buy a property for 50 K needing "refreshing", new kitchen, bathroom, redec and a few repairs costing say 7K, giving an overall project cost of 58K, including transaction costs, is unlikely to value higher than 65K, unless the buy price was a real bargain, releasing 55K at 85% LTV, 3K short of NMLI.
And yet if you were to replace existing single glazed metal frame windows with double/triple glazed UPVC windows, which most would regard as an "improvement", the whole cost is deemed to be a "repair" and therefore tax-deductible, because, in the words of HMRC, you are using "modern technology". This ruling has been made by HMRC.
Whereas buy the same property, by type & location, for 34 K, spend 24 K on a much higher spec repair/ renovation achieving a slightly higher fixed up value, after all everything is new, of 70 K then, at 85% LTV, a re-mortgage releases 59,500 against a project cost of 58K and NMLI has been achieved and you can move on to the next similar repeat project.
I often wonder whether HMRC would apply the same logic to replacing an old coal/wood burning open fire with an up-to-date gas-fired central heating system including a condensing boiler! Of course replacing an existing non-condensing boiler with a condensing boiler, now a requirement, would be tax-deductible.
Now you need to have a high degree of certainty about both the type of property and the numbers.
In last month's article I said that the concept was relatively simple, it's the execution that is not so simple and generally speaking, requires knowledge on the part of the investor. The aim is to achieve 2 objectives. 1, tax-free rent by carrying out substantial "repairs". Two examples, UPVC double glazing and re-roofing. 2, NMLI, no money left in the deal following re-mortgage.
In the last article I told you how to find locations that suited your budget, your buying cash pot, by looking at the auction results published by EIGroup. Having identified your "investment location", next job is to put numbers to the various works that you are going to carry out using local labour & material rates, so much for the redec, re-roof, rewire, replaster, re-render, replacement kitchen, bathroom, heating, windows, DPC, wall ties, rotten timbers. Note all the "re’s" and for "re" read "repair" for tax-deductible purposes.
LANDLORD INVESTOR October 2015
TAX ADVICE
So let's look at numbers in simple terms. To achieve NMLI, the fixed up value must be greater than the overall cost of the project, which is the property cost, fixup cost plus transaction costs.
TAX ADVICE
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Next job is to identify a local valuer who is on the list (panel) of local mortgage valuers. What you need to know from him/her is what they "like" and equally "don't like" and the value they would place on your property properly fixed up to your pre-agreed/explained spec. When I started to develop tax-free, NMLI portfolios in the North East (County Durham), I used to work with Colleys. The deal was that we discussed in advance the repair/renovation spec that we would carry out in every property to achieve the maximum fixed up value. Before buying we had already agreed with our preferred lender that they would use Colleys for valuation purposes. On identifying a property that might work we got a fixed up desktop/drive-by valuation from Colleys, which gave us our buy/hammer price. Fixed up value less fixup & transaction costs, less re-mortgage deposit. Taking the above example, fixed up value 70 K, fixup cost 24K, 85% LTV releases 59K, buy/hammer price 35.5 K. The only way to increase the buy/hammer price, and increase your buying success rate, is to reduce the fixup cost accepting that there is little chance of achieving a higher valuation. This is why it is important to cost every individual job, however small, and don't expect to increase the buy price by reducing the quality of your work. A reduction in quality will impact on the valuation and probably result in a loss of confidence on the part of your valuer.
October 2015
LANDLORD INVESTOR
Now we negotiated and dealt with the manager of the local Colleys’ office, which gave rise to an interesting situation. With one deal we got a drive-by valuation from the manager at 60K but when we came to have the property valued, post refit, by the “local” Colleys’ valuer, responsible for the neighbourhood, she valued the property at 55K. No, I said, Mr Manager gave me a post refit drive-by based on the specification that we have carried out of 60K, so please adjust your figures. The answer, No! Back to Mr Manager, told him what had happened and asked him to sort it out, and sort it out he did. Came back and said that he couldn't override the opinion of his valuer because it was her name on the block and, as it was her location, she was more up to speed on values in that location than he was! Result our re-mortgage was based on 55K, so if you're going to use this strategy as a basis for your numbers it's important to double-check how reliable any post fixup valuation is when it is being used in the buy price calculations. It's also important to know whether your valuer has any prejudices that could/would impact on their opinion. In other words, start off with “look for and buy what your lender loves” and likewise, include what your valuer also loves. At the end of the day the valuer always applies a few rules to keep himself out of trouble. All valuers assume that you will go belly up resulting in re-possession. So, in that case, will the property be easily lettable and easily & quickly saleable (at auction) to recover the lender’s money.
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So what sort of property generally fails these tests? Some, but not all, flats over shops, houses/flats close to shops, property overlooking rail lines & major roads, property liable to flooding damage, property close to power lines, phone masts.
2nd example, the house was about 100 yards from a development of council houses which were now in the process of being extensively renovated because of the historic problems. With this example the valuation was 15% lower than a duplicate property that we had also bought and fixed up in the same street, in fact it was opposite this down-valuation. Suffice to say that we refused to have this particular valuer work with us anymore.
TAX ADVICE
These are a few, but not all, and don't include a local valuer’s personal idiosyncrasies/prejudices. Two examples, I had a house in a quiet village down-valued because it was too close to a pub where there had been "trouble" in the past. Somewhat surprised I made enquiries locally and learned that the "trouble" referred to had been a single brawl between guys from rival villages and had taken place about three years earlier, also my house, was about 300 yards from the pub, though on the same road.
Next month I will go into much more detail on what is possible with different types of property in the UK, detached, semi, terraced, maisonette, flat etc, to generate both Tax-Free Rent & NMLI but, in the meantime, I want to leave you with another, virtually unknown, source of free valuable information to help in tracking down properties which are "fit for purpose", distressed needing fixing up, and that is the EPC Register. www.epcregister.com. Whether a property is being sold through an estate agent or at auction, it has to have an EPC Certificate. In last month's article I referred to a property, a 2 bed semi in Hartlepool (lot 36) that sold for 35K. It had an EPC rating of "G", the lowest band, with a "potential" rating of "B", 2nd highest. Judging by the auction detail pics, this property is capable of being lived in; judging by the EPC Summary, there is little that does not need repairing/renovating. Google street view shows a tidy street of ELA semi’s off a quiet dual carriageway opposite more, possibly private, semi’s. Had it not been sold it would certainly be worth more Due Diligence including viewing because it would appear to be an ideal candidate for both aspects of this strategy, Tax-Free Rent & NMLI and right by sea at that, but but, is that a derelict sewage works over the bank at the back of the houses!? ⌂
LANDLORD INVESTOR October 2015
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STUDENT ACCOMMODATION
Letting to students: What you should know
Steve Cox - Alan Boswell Group Steve Cox, Property Insurance expert from Alan Boswell Group, discusses some of the common issues when considering leting to students and tells you what you should know.
With a new university term well underway it's highly likely that you have been approached by or are already letting your property to students. October 2015
LANDLORD INVESTOR
Letting to this audience is generally seen as a safe bet for property owners. While other letting markets can be unpredictable, the demand from students remains constant, is remarkably resilient and surprisingly lucrative. Steve Cox, Property Insurance expert from Alan Boswell Group, discusses what you need to consider when renting your property to students.
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Your responsibilities
The majority of students won’t be able to afford exorbitant rents but they generally don't expect too much in return. A roof over their heads, somewhere warm, dry and secure where they can sleep, study and socialise is all they really need. Because they've only just left home and aren't earning they will expect a property to be at least partly furnished, with beds, desks in each bedroom and a sofa and chairs in the communal lounge. These don't have to be brand new, just robust; indeed, you should be prepared for an above-average level of wear and tear with a group of young people living together away from home for the first time.
You will of course also need comprehensive landlord insurance, including contents insurance for items you provide, like sofa’s and furniture, plus buildings, liability and rent guarantee insurance cover. Some insurance companies are wary of insuring student properties but don't be tempted to conceal the nature of your tenants. If you do have to claim this could be considered withholding a material fact, and your insurers could refuse to pay out.
Pros and cons of letting to students Students' reputation for rowdy and destructive behaviour is generally over-stated; The Young Ones was only a TV show and most of today's students are respectful and reasonably conscious of their responsibilities. However, you will need to make allowances for youth, inexperience and occasional over-exuberance. Noisy parties are an occupational hazard and complaints from neighbours must be dealt with fairly but firmly. On the plus side, if you get a reputation as a good landlord with the university accommodation agency then you'll have a regular flow of tenants without needing to advertise. Remember, you'll generally only be renting for nine months of the year but the assurance of new tenants should make up for this, and you can use the summer months to carry out repairs and refurbishment.
Check with the local council about your specific obligations as a student landlord. Most student houses count as multiple occupation in respect of gas, electric and fire safety regulations. Make sure you check with your insurance company that they provide cover for a property where three or more tenants live (forming more than one household) and share a toilet, bathroom or kitchen facilities. Alan Boswell Group are one of the UK’s leading experts in Landlords Insurance and can help arrange suitable cover for your buy-to-let properties. For further advice contact Steve Cox. ⌂ T: 01603 218031 M: 07766 715654 W: alanboswell.com/landlords E: scox@alanboswell.com Alan Boswell Insurance Brokers Ltd is authorised and regulated by the Financial Conduct Authority.
LANDLORD INVESTOR October 2015
STUDENT ACCOMMODATION
What students need
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STUDENT ACCOMMODATION
To Furnish or not To Furnish? Nick Gill - Intus Lettings
For a long time the choice of whether to furnish or not furnish rental accommodation has left landlords divided. There are practical pros and cons to both sides of the argument. Landlords don’t want to lose out on tenants who don’t want to have to buy furniture; neither do they want to alienate tenants who already have their own things.
October 2015
LANDLORD INVESTOR
However, when it comes down to the wire, it has recently been revealed that tenants are willing to pay significantly more for a home with furnishings included. A Countrywide report highlighted the importance of furnishing to potential tenants- on average, a furnished apartment can charge 8.1% more, and a furnished house can expect 2.8% more, than an unfurnished property.
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STUDENT ACCOMMODATION
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Money aside, furnished apartments also offer a host of additional benefits to landlords. For example on the whole, void periods tend to be reduced because tenants don’t need to organise removal companies, either taking their furniture in or out of the flat, which facilitates a quick change over and minimal losses of rent for the landlord. Another advantage of furnished properties is how they appear when taking potential tenants on viewings. When considering a property, already having furniture, as well as more homely touches- a laid dining room table and a nicely made bed, allows tenants to imagine actually living there. On the other hand, an empty room may seem cold and less welcoming. Even if they have their own furniture, it is not always easy to picture it in an unfamiliar home, and this can leave potential tenants not choosing that property. However, despite all the advantages of furnishing your property, it does not suit every type of tenant. It is crucial that a landlord thinks about what kind of tenant they expect to attract to their flat or house when making the decision of whether to invest in furniture for it. Furnished properties favour students, who are unlikely to own any furniture themselves or are able to pay for it, and instead will pay more rent for fully-furnished accommodation. Similarly, young professionals are also attracted to already furnished properties so they can take advantage of the efficient
October 2015
LANDLORD INVESTOR
move-in procedures, making going from one property to the next a lot easier. On the other hand, a more settled couple or family for example, are more likely to already have their own furniture that they would like to bring with them to their new home. As for the professional opinion- Nick Gill, Lettings Manager of Intus Lettings, an innovative national lettings and management company noted, “The buoyant rental market really favours furnished properties at the moment as tenants are looking for the perfect houses and apartments to move into quickly.” “We are certainly seeing more interest in our furnished properties at the moment, particularly when it comes to students and first-time renters who are newly moving out of the family household and who don’t have the money to completely furnish their new home.” Regardless of whether you have furnished or unfurnished properties in your portfolio, the ease with which they are rented out can certainly be helped by using an experienced lettings agent. Contact Intus Lettings today for advice on managing your portfolio and to take advantage of a fantastic introductory rate. ⌂
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