BY
INDUSTRY
EXPERTS
COVERING
ALL
ASPECTS
OF
BUY-TO-LET
JANUARY 2016
WRITTEN
LANDLORD | PROPERTY | INVESTMENT
TAxINg TImE foR lANDloRDS: wIll IT gET ToUghER?
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gETTINg STARTED AS A lANDloRD: fRom AN INSURANcE ANglE
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how To fIND ThE bEST STRATEgY foR YoU IN 2016
- Simon Zutshi
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wElcomE To ThE jANUARY ISSUE of lANDloRD INvESToR! Editorial Editor
Tracey Hanbury editor@landlordinvestmentshow.co.uk Editorial Contributors
Kevin Wright Leaders Mike Brown Paul Shamplina Peter Littlewood Simon Zutshi Steve Cox Tom Entwistle UKLAP Wayne Treveil
Art Dept. Design Craig Edmonds Advertising
Welcome to the first edition of Landlord Investor for 2016, an issue that explores the future for landlords and also gives you an insight into planning ahead for the year.
coNTENTS Industry Update Tax Advice Landlord Associations
2015 seemed to go by so quickly, and we are Investment Opportunities now faced with a new year and for some, a Investment new start. All of us at LIS Towers are looking forward to having another successful Legal year, and with 14 shows, 11 editions of the Financial magazine as well as our very own programme launching on SKY TV, it is certainly going to be Landlord Insurance a busy one.
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This issue features Tom Entwistle from LandlordZONE discussing the widespread talk of demise for the buy-to-let sector in the UK, and shares his insight into what is to come for landlords. Steve Cox from Alan Boswell is this month covering how to get started as a landlord from an insurance angle by guiding you step-by-step through a case study, showing you how to cover yourself throughout the process.
Beverley Meliniotis
contact 0208 656 5075 landlordinvestmentshow.co.uk /LandlordInvestmentShow @LandlordInShow
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Of course the new year is all about setting goals, and this month Simon Zutshi from property investors network is discussing exactly that; how to find the best strategy that works for you in achieving them. We hope you have enjoyed your start to the New Year, and we hope that this issue makes your 2016 a successful one. Tracey Hanbury | Editor Landlord Investor
Tracey Hanbury
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January 2016
lANDloRD INvESToR
WRITTEN
BY
INDUSTRY
EXPERTS
COVERING
ALL
ASPECTS
OF
BUY-TO-LET
LANDLORD | PROPERTY | INVESTMENT
AUCTION | COMMERCIAL | COMPANY SPOTLIGHT | DEVELOPMENTS | EXPERT ADVICE | GREEN DEAL INVESTMENTS | NEW INVESTORS | LANDLORD ASSOCIATIONS | LANDLORD INSURANCE | LEGAL LOCAL PROPERTY MEETINGS | NEWS | TAX ADVICE
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INDUSTRY UPDATE
Taxing time for Landlords Tom Entwistle - LandlordZONE
Talk of the demise of buy-to-let is widespread, but is this talk premature given the size of the industry (1.4m to 2m landlords estimates vary) and the projected demand for UK rental housing in the future? Yes, things will definitely get tougher for buy-tolet landlords; what with a 3% landlord stamp duty tax, removal of higher rate mortgage interest relief and more rigorous regulations, including the right-to-rent checks being introduced from February 1st next - the landlord’s lot is to be more onerous. It’s really a three pronged attack on landlords: pay more to get into the market (stamp duty) pay more to stay in (reduced tax relief), and operate to a more professional standard.
January 2016
LANDLORD INVESTOR
The accountants, mortgage lenders and investors are still coming to terms with the changes and until the dust settles we are still unsure how the cards will fall. But it is likely that for the small-scale conservative investor in buy-to-let, there will be little change. Those most affected will be those who have really “pushed the boat out”; the investors (speculators?) who have built-up large property portfolios based almost entirely on borrowed funds.
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With first-time buyers finding it hard to scramble onto the housing ladder, buy-to-let, with full interest relief, proved a one-way ticket to easy street. But it brought a lot of negative media attention and a lot of resentment, no doubt the politicians got a real ear-wigging from young renters and their parents at the election. Prior to the May 2015 general election the fear was that a Labour victory would lead to their favoured anti-market strategy of rent controls and mansion taxes. So, when the Conservatives emerged victorious there was relief all round; only to be followed by gasps of astonishment when the Chancellor’s first post-election budget proposed a financing crack-down. Some would argue that George Osborne’s attack on buy-to-let landlords is worse than Labour would be contemplated, but on closer examination the effects will be selective. The intention is to “cool” escalating buy-to-let lending, both to curb lending excess, which could destabilise the whole economy if there is another economic down-turn, and to slow escalating property prices. This to give home-buyers a chance – Conservative policy favours home ownership over renting.
The negatives for landlords include:
Removal of mortgage interest relief above the basic rate of tax Removal of the 10% wear and tear allowance, to be replace by like for like replacement tax relief Stamp duty on buy-to-let and second home purchases Capital gains tax on sales to be paid within 30 days Increased regulation including retaliatory eviction restrictions, right-to rent checks and more stringent rules for section 21 eviction claims, though thankfully and critically the section 21 no-fault eviction process has been retained. For those landlords involved with low or no-income tenants, restrictions on Housing Benefit payments will have an impact, though the policy reversal on tax credits helps. Buy-to-Let mortgage lending criteria is likely to be tightened - Barclays responded by seeking proof that rental income is at least 135% of the mortgage cost, up from the traditional 125% figure used for years. Interest rates will inevitably rise at some point, given that US rates have seen a recent rise. This is bound to put some highly geared landlords under pressure.
The Chancellor’s exemption for substantial and corporate landlords reveals a desire to emulate a US and German style rental market. There, large institutions own and manage large blocks of rental housing, compared to the UK’s near 90 per-cent of properties owned by small-scale landlords; 70% or so with less than 3 properties and at least 50% with no mortgage finance. The economics for large-scale corporates, up against the latter, is still questionable, as is the strategy of some existing landlords incorporating their businesses to avoid stamp duty, while still retaining the ability to claim tax relief.
LANDLORD INVESTOR January 2016
INDUSTRY UPDATE
The attraction of property as an investment has been its security: the safety and steady appreciation of capital, with a good investment income return to-boot. It’s been hard to find comparable safety and returns in any other investment medium in recent years. With interest rates and general inflation at near zero, I hardly need to tell you what house prices have done over the past 20 years.
INDUSTRY UPDATE
8
One landlord with 36 properties worth £4m in Cardiff and south Wales told the Guardian newspaper that she makes a £50,000-a-year profit from the rent after mortgage costs, likely to drop by around £10,000 once the 2017 tax changes feed through. What worries her though is the possibility of an interest rate rise which she fears could push her profits to near zero. However, most UK landlords anticipate that they will cope well with rising borrowing costs, with three quarters saying they foresee no issues paying their mortgage. A survey conducted by YouGov found that the majority of landlords are financially resilient, with 60 per cent expecting that their rental income would remain higher than their mortgage payments. 40 per cent say they have already saved enough money to account for the higher borrowing costs. CML chief economist, Bob Pannell, has said: “The reduction of tax reliefs available to private landlords from 2017/2018 onwards, announced by the chancellor in the summer 2015 Budget, will adversely affect the future cash flows for affected landlords. Landlords should be able to mitigate the direct financial impact in a number of ways. Indeed, the YouGov research corroborates our view that the overall impact will be to lift rents higher and to narrow the availability of homes in the private rented sector.” Campaigners and tenant groups, as well as firsttime buyers, have welcomed the clampdown on buy-to-let, but they have yet to feel the effects of this. Though house prices may stabilise in the meantime, there’s no sign that they will fall, and there’s every sign that rents will increase.
January 2016
LANDLORD INVESTOR
Small-scale landlords, on the whole, are confident they can ride the coming tax changes, even though many may curtail making further purchases. Larger landlords are more likely to shelter their property investments in limited companies in a move to protect themselves from some of the tax, though the economics of this are yet to be fully explored. Given all of the above it seems pretty obvious that the government is intent on curbing the excesses of buy to let, while at the same time making the landlord operators more professional. There is to be a clamp down on rogue landlords in coming legislation, which should make it easier and quicker for local authorities to bring offenders to book and stop them in their tracks, something responsible landlords will welcome. Meanwhile, schemes will emerge that help landlords skirt around the difficulties; for example purchases below £40,000 are stamp duty exempt, and there are plenty of these types of property yielding £300 per month rent in the north-east of England and some other locations. Build-to-rent will become a possibility for some landlords: this will not only please the government by adding to the housing stock in in-fill locations, it gives landlords the benefit of no VAT or stamp duty and a new property worth thousands more than the build-cost. Historically, new builds command higher rents with lower maintenance costs and can deliver better returns. As long as landlords can find and develop land with brand new homes, residential property investment in this way can be relatively easy and safe. One company offering a find, plan, design and build service is Benfield ATT Group.
9
What do the tax changes actually mean? INDUSTRY UPDATE
The mortgage interest relief restriction is probably the most significant change to taxation for landlords in years. Under this proposal, subject to the passing of the Finance Bill, a restriction on mortgage interest relief will be phased in over a 4-year period from April 2017. This will apply to all those buy-to-let landlords who are higher and additional rate taxpayers. This move will gradually reduce the 40% and 45% tax relief for mortgage interest until it is fully removed in 2020/21. Landlords will be able to make a claim for a tax credit of up to the basic rate of tax (currently 20%) of their financing costs. This will be a blow to those landlords who currently deduct their finance costs - mortgage interest and fees, interest on loans to buy furnishings etc - from their rental income to arrive at a taxable profit figure. This will no longer apply and will impinge on those basic-rate tax paying landlords who are pushed into a higher rate tax band when other forms of income are combined. The Finance Bill includes measures affecting higher and additional rate tax payers on income from their residential properties from 2017-18. For tax year 2017-18 finance costs will be 75% of the total, reducing to 50% in 2018-19, 25% in 2019-20, and zero for 2020-21.
Individuals will be allowed to claim a basic rate tax reduction (currently 20%) from their income tax liability but only on the portion of finance costs not deducted in calculating the profit as above. The allowable tax reduction will then be capped at the basic rate (currently 20%) of the lower of: (1) the profits of the property enterprise in that tax year, and (2) the landlord’s total income (excluding savings income and dividend income) that exceeds the personal allowances for that year. Where there is an excess of finance costs on which basic-rate tax relief cannot be claimed, for example, where these finance cost exceeded the rental income, these can be carried forward. Where a landlord has a large highly geared portfolio of properties, and given the possibility that interest rates will rise in the near future, it is quite possible that the individual’s tax liability could exceed the net rental income. In some cases with gearing in the higher range the landlord could effectively be paying tax on this income at over 100% after April 2020.
LANDLORD INVESTOR January 2016
10
INDUSTRY UPDATE
What about sheltering in a company? Effectively the tax liability in the above situation could be halved if the properties where held in a corporate structure, taking into account the Budget changes to the taxation of company dividends. The landlord would get full interest relief for his mortgage interest but would need to factor in the increased accounting and company audit costs. Any decision to sell currently privately owned properties into a company would likely incur stamp duty and possibly capital gains tax liabilities, though under some in circumstances some of these costs could be avoided or deferred until the properties are sold. Anyone contemplating such a move should seek professional advice. It may not be economically viable to incorporate small portfolios, but other measures such as transferring assets between spouses could be, and when incorporation is a viable option, allowing profits to accumulate within the company long-term makes it even more sense. According to lenders Aldermore, 42% of their brokers have seen a surge in applications for buy-tolet loans from limited companies as landlords prepare for tax hikes starting in April. And the latest Buy-to-Let Index from specialist mortgage broker Mortgages for Business found that 38 per cent of its applications by December 2015 were companies. This figure was up from 15 per cent in October, the month before the second tax change was announced in the Autumn Statement.
January 2016
LANDLORD INVESTOR
These figures come at a time when Aldermore have reduced their rates and removed the fees on its limited company mortgages in anticipation of this increased demand, but investors need to be aware of the risks and costs involved. This may involve landlords in giving personal guarantees and while companies can still get the mortgage interest relief, only businesses with more than 15 properties will be exempt from the stamp duty surcharge. Also, there is also always the regulatory risk that the tax rules may be changed again in the future. The Chancellor thinks his changes make the tax system fairer by taxing more those landlords with higher incomes, making sure they no longer receive the most generous tax treatment. However, some are predicting that it will be tenants who will really suffer from these changes, through increases in rents caused by a reduction in the supply of rental property on the market. ⌂ Tom Entwistle is Editor of LandlordZONEŽ
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12
INDUSTRY UPDATE
Rogue landlords, agents and tenants will continue to operate Wayne Treveil - Tenants Plus
Following the announcement from The Home Office that from 1st February 2016, the Right to Rent scheme will be extended across England. Wayne Treveil, CEO of Tenants Plus Ltd, who provide a property marketing and tenant lead service to the industry, declares that it will have little impact on the private rented sector, but also throws a warning to landlords and agents; “make sure it’s included as part of your comprehensive tenant reference check to ensure you’re being compliant.” Says Wayne. He continues: “It’s debateable as to what impact the rolling out of this scheme will actually have on the private rented sector; I can’t see it having much at all. Rogue landlords, agents and tenants will continue to operate under the radar with reputable landlords and agents, who fortunately make up the majority, continuing to act in a responsible manner. It will have little or no effect on their current processes and operation with a large number of agents already seeing and copying the prospective tenant’s passport ID and if they are overseas tenants from outside the EU, checking their visa status as part of the pre-tenancy checks.
January 2016
LANDLORD INVESTOR
Having said that, landlords who don’t make the checks could face a hefty penalty of up to £3,000 per tenant if they are found to be renting out a property to someone who is in the UK illegally, so it’s important landlords are aware of the scheme and act accordingly. Letting agents also need to protect their landlord clients and ensure it’s in fact part of their credit check and referencing service.” Tenants Plus use a specialist referencing provider, Van Mildert, to undertake any additional Right to Rent checks. Wayne says: “All our tenants have undergone the complete pre-tenancy Right to Rent checks prior to viewing properties with letting agents. This gives our registered agents and their landlord’s complete peace of mind that the tenants are legally permitted to rent in the UK.” ⌂
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14
TAX ADVICE
Taxes, taxes wherever you look - 6 new taxes Peter Littlewood Southern Landlords Association
Wear & Tear Tax number 1 you probably know about. The Chancellor is proposing (i.e., it will happen) to remove the 10% Wear and Tear Allowance enjoyed by landlords of furnished properties. In a consultation document it is proposed that as from 6th April 2016 the ‘Wear and Tear Allowance’ is to be replaced by a new ‘Replacement Furniture Relief’ (RFR) for all landlords whichever type of property, furnished or unfurnished. The rules allow for the deduction of costs actually incurred for the replacement of furnishings. The type of items will be limited to those used by tenants. Certain items are deemed to be part of the fabric of the property itself (e.g. baths, toilets, boilers, and fitted kitchens), replacement of these will still be treated as an allowable ‘repair’ to the property itself.
Interest tax relief Tax number 2 is the proposed way that mortgage interest tax relief is to be changed over a 4 year period from April 2017. The change is that top rate tax payers will only be able to claim the basic rate of tax - 20%, rather than 45%. Note that another effect of this is that many landlords currently paying tax at 20% might find themselves in the 40% tax band for part of their income.
January 2016
LANDLORD INVESTOR
Quarterly returns Tax number 3 - Buried deep in the details of the last Budget was the information that landlords making more than £10,000 per annum profit will have to file quarterly tax returns by 2020. This affects self-employed workers, landlords and small business owners. If you use an Accountant to prepare, or check your returns these costs will rise as well. Whilst not stated, is this the first step to landlords having to pay their tax returns quarterly as well?
15
Stamp Duty
At the moment there some exceptions to the extra 3% rule. Firms owning more than 15 properties will not have to pay the increase - but this is subject to a Treasury consultation. Commercial property; house boats; caravans and mobile homes are all exempt (at the moment). So perhaps now is the time to diversify - Buy to Let House-Boat anyone?
Capital Gains Tax (CGT) Tax number 5 - CGT on profits on property other than the main residence will have to be paid within 30 days of completion of the sale, from 2019. A (small) silver lining to the extra 3% stamp duty cloud is that currently the increased costs will be claimable against Capital Gains Tax (CGT) when you sell - unless a future budget closes that facility.
Insurance Premium Tax (IPT) Tax number 6 - With effect from 1st November 2015 the standard rate of IPT was increased from 6% to 9.5%, and that will reflect in your buildings and vehicle insurance policies and is an increase of over 30%. Landlords should note this increase, as when they receive their insurance premiums any increase will, in part, reflect this particular tax.
Use an experienced tax accountant It is vital that you take expert advice on these matters as soon as possible. Don’t put your head in the sand. ⌂
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LANDLORD INVESTOR January 2016
TAX ADVICE
Tax number 4 - both buy-to-let landlords and second home purchasers will, from 6th April 2016, find that Stamp Duty will rise by 3%. Example: a £250,000 property purchase could cost £7,500 more in Stamp Duty alone.
16
LANDLORD ASSOCIATION
Your Investment and the Law. UK Landlord Accreditation Partnership
Whether you have one property to let, or many hundreds, it is vital that you keep abreast of legislation; and you protect your investment. The UK Landlord Accreditation Partnership (UKLAP) is the umbrella organisation for the major accreditation schemes in the UK and offers a plethora of courses to bring landlords up to letting speed, and then to maintain that competitive edge. They do this through their impressive range of training courses – to be seen on their web site www. londonlandlords.org.uk (the scheme originated in London, hence the London name).
January 2016
LANDLORD INVESTOR
Added to this, UKLAP are just about to run their third biennial awards ceremony, at which those landlords; agents and local authorities who give that extra mile will be recognised. The awards ceremony is to be held in the Grand Connaught Rooms, London on Friday March 18th. Entitled ‘Your investment & The Law’ the conference has top rated speakers on:
legislative changes in the PRS; finance, and a tax exit strategy; mortgages and market concerning your investment.
regulations
The main sponsors of this magazine, the Landlord Investment Show, are proud to be a platinum sponsor of this conference. Now in it's fourth year, the Landlord Investment Show has grown from strength to strength, sucessfuly holding over 27 events and reaching 10 counties in over 16 locations throughout the U.K. So whether you are keen to get the latest information from the industry’s leading speakers; network with other landlords/agents; get dressed up to the nines; enjoy a top quality meal and a thoroughly memorable night out, then you can do them all at the Grand Connaught Rooms on Friday March 18th. See www.londonlandlords.org.uk for details.
⌂
INvESTmENT oPPoRTUNITIES
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INvESTmENT oPPoRTUNITIES
wokINg - wIllIAm booTh PlAcE
wokINg - mIDhoPE cloSE
wEYbRIDgE - wEIR coURT
£315,000
£299,950
£375,000
Two bedroom apartment En-suite bathroom Full width balcony Underground parking No Onward Chain
First floor apartment Two double bedrooms Close to transport links Gas central heating Over 900 years on Lease
Two bedroom flat Open plan lounge/diner No onward chain Lift access Parking space
Yield: 5.00% Number: 01932 850 030 www.leaders.co.uk
Yield: 4.76% Number: 01483 762 626 www.leaders.co.uk
Yield: 4.60% Number: 01483 762 626 www.leaders.co.uk
wEYbRIDgE - fERNIhoUgh cloSE
mANchESTER - cITY lofT
mANchESTER - AlExANDRA RoAD SoUTh
£369,950
£197,000
£179,950
Two bedroom house Close to transport links Fitted wardrobes Pretty rear garden Parking to front of property
Two bedroom apartment Close to transport links En-suite bathroom Ceiling to floor windows 24hr concierge service
Yield: 5.50% Number: 01932 850 030 www.leaders.co.uk
January 2016
lANDloRD INvESToR
Yield: 5.63% Number: 0161 249 2820 www.leaders.co.uk
Duplex apartment Two double bedrooms Secure development Excellent finish through-out Overlooking Alexandra Park
Yield: 5.67% Number: 0161 249 2820 www.leaders.co.uk
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TASMAN ROAD
Eaton House
Franklin Way
£900,000
£499,000
£235,000
A large five bedroom terrace house Suitably arranged over four floors Good-sized double bedrooms Loft space and extra storage Stylish shower room and separate bathroom Enormous Kitchen and Diner - open plan Secluded rear terrace Great location well served by local amenities
Two bedrooms Fully fitted kitchen Stylishly decorated bathroom Good storage space Door entry system
Two bedrooms Purpose built flats Communal garden Close to local amenities Close to transport Larger than average flat
Yield: 6.00% Number: 020 8683 0012 www.top-moveuk.com
Yield: 5.3% Number: 020 8683 0012 www.top-moveuk.com
Yield: 5.6% Number: 020 8683 0012 www.top-moveuk.com
Rigby Close
Gomshall Gardens
£260,000
£245,000
Canterbury Road
Three Bedrooms No onward chain Double glazing Cul-de-sac location Ground floor flat Investor friendly
Yield: 7.0% Number: 020 8683 0012 www.top-moveuk.com
£255,000
2 Bedrooms Own Garden Near Kenley BR Quiet location Cul-de-sac Priced for quick sale Investor Friendly
2 Bedrooms On-street Free Parking Rear Garden New lease (optional) Close to local transport and amenities
Yield: 5.9% Number: 020 8683 0012 www.top-moveuk.com
Yield: 6.0% Number: 020 8683 0012 www.top-moveuk.com
LANDLORD INVESTOR January 2016
INVESTMENT OPPORTUNITIES
INVESTMENT OPPORTUNITIES
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INVESTMENT
How to find the best strategy for you in 2016
Simon Zutshi property investors network At all of the 51 property investor network meetings, around the UK this month, the theme is “How to find the best strategy for you in 2016”. This is such an important topic, especially with all the changes in the property market over the last six months, that I thought it would be useful to cover some of the main points for you in my Landlord Investor article this month.
One of the biggest barriers to most investors achieving their goals is not using the correct strategy. With so many strategies to choose from it is very easy to become confused and over whelmed or spend too much time chasing shiny pennies trying this strategy, then that strategy, and never really getting any tangible results. Unfortunately, there is not one strategy that fits all. The strategy you use will depend very much on what you want to achieve, the resources available to you and to some extent your geographical location. The other problem is that most people simply don’t know what they don’t know. How can you work out what strategy is best for you if you are not aware of all the strategies?
January 2016
LANDLORD INVESTOR
This lack of knowledge can be very expensive because it means that you could be leaving a huge amount of money on the table by walking away from profitable deals just because they don’t fit your personal strategy and so you don’t know what to do with them. In this article I would like to take you through a thinking process to help you start to work out which might be the best strategy for you given the resources available to you. Before I do this, we need to consider what might happen to the UK property market in 2016 as a result of all the changes announced by the Government in 2015. There is no doubt in my mind that the proposed changes to tax relief on mortgage interest, removal of the 10% wear and tear allowance and of course the 3% stamp duty, will put off many amateur investors from getting into property and may even encourage a few long term investors to sell up their property portfolios sooner rather than later.
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Hopefully you can obtain Buy to Let mortgages as this means there will be more opportunities open to you. If you can’t get a mortgage right now, then don’t worry.
Alternatively you could use strategies such as joint ventures where you put the property into the other person’s name and have a deed of trust put in place by solicitors to protect your interests. This might actually be preferable for the joint venture partner if they are putting all the money in as it may give them more security for their investment.
I think this will cause either a fall in supply (or a slowdown in the increase in supply) of private rented accommodation, which combined with an increasing population will cause rents to rise in 2016. This is of course is good news for landlords but not so good for tenants. I think there will also be a mini boom in the property market before April caused by investors who are keen to purchase before the extra 3% stamp duty charge is applied. To conclude it looks like prices and rents will rise in 2016 so time to get a move on. But what strategy should you follow?
What is your financial position? The starting point to work out which strategy is best for you is to look at your personal circumstances in terms of finance. There are two aspects we need to consider here: First of all your ability to get mortgages, and secondly your access to deposit money. Let’s look at Mortgages first. Can you obtain Buy to Let mortgages? This may seem like an obvious question but I meet many investors who just don’t know if they can get a mortgage or not. It is a very good idea to speak to a fully independent mortgage broker to get a decision in principle (dip) just to check if you can get mortgages or not. Factors that will affect this are your income, your credit score and even factors such as you being on the local electoral register.
The second consideration as far as finance is concerned, is how much money do you have. No matter how much money you have or don’t have, you will run out of your own funds at some point so it is good to get comfortable with the concept of using other people’s money (OPM). The first place to look for OPM is with your family and friends. Don’t worry if your contacts don’t have lots of money in the bank as you can use OPM in the form of equity in properties or even money tied up in other people’s pensions Most people don’t like to approach their contacts asking for funds because they feel like they are begging for help. If you think like this, no wonder that none of the people you ask seem to have any money, or that they want to lend to you. A better approach is to offer to share some of your profits with other people and see who is interested in that. Done in the correct way you will have a very different response. Very often people will only lend money to you if they can see a track record of proven success. If you have enough money for one deposit then you should use your money first and show potential lenders what you have achieved already. If you don’t have enough for a deposit then Rent to Rent can be a great strategy to start with to build up some track record.
LANDLORD INVESTOR January 2016
INVESTMENT
It is not a problem as there are still plenty of profitable strategies you can use, such as Rent to Rent or Purchase Lease Options whereby you don’t need a mortgage.
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INVESTMENT
How much time to do you have? One of the main reasons many people invest in property is to replace their income so that they can spend their time however they wish instead of having to work for a living. Sounds great but you do need to put in some time upfront in order to create the income from property to replace what you currently earn. The amount of time you have available will affect the kind of strategy you should use. If you are short of time, then you probably do not want to do a Rent to Rent strategy which is very hands on. Alternatively if you have plenty of time you can focus on finding some fantastic property deals and then find other people to fund those deals. The important thing to remember here is that, in the same way that you can use other people’s money, you can also use other people’s time through the use of leverage. You don’t have to do everything yourself, in fact that would be a really bad idea. You should focus on the things that you are really good at, where you add the most value and get other people to do everything else for you. Remember the quote from Robert Kiyosaki’s book, Rich Dad, Poor Dad; “ Poor people spend their time to save money. Rich people use their money to save time.” You really must value your own time. I see investors doing things they really should not do just to save money. An example would be an investor deciding to paint a property themself, rather than get a professional decorator in to do the job because they want to save money. Yes they might well save themselves some money but what is the opportunity cost of their time? What could they be doing with that time rather then painting a property? A much better use of their time would be finding the next great property deal, which could make them tens of thousands of pounds in profit. All the time they are stuck with a paintbrush in their hands is time they are not out looking for the next deal. This is a very common mistake that I made myself 15 years ago because at the time I did not know any better. There were no magazines like YPN, no webinars, no network meetings, no seminars it really was a case of learning by trial and error! Nowadays you don’t have to learn the hard way on your own.
January 2016
LANDLORD INVESTOR
Do you know what you need to know? The good news for you is that there is so much information available these days. The bad news is that all this information can be overwhelming. When people are overwhelmed they get paralysed into inaction. The main problem is that you may not know what you don’t know. Reading this magazine and talking to other investors at property investors network meetings is a great way to raise your awareness of some of these strategies, which other people are using right now in your area. Once you have identified what you want to know it makes a lot of sense to invest in your own education to gain the specialist knowledge you need to make sure you get it right, rather that learning the hard way by making mistakes doing it on your own. Education is not as expensive as ignorance. It is amazing how many people I see making really bad, expensive mistakes with HMO’s, Rent to Rent, Purchase Lease Options and even Commercial to Residential all because they did not want to spend the money to educate themselves properly, and so end up wasting a lot more money than they would if they gained the correct training. These days there is no excuse for not knowing what to do with so much information readily available
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My Invitation to you
When you find the strategy that meets your needs and works with your personal resources you need to educate yourself, do your due diligence, and then keep going. Be persistent and never give up.
As a follow up from the January property investor network meetings at which our Property Mastermind coachers and pin meeting hosts will be talking about “How to pick the best Strategy for you in 2016” I am running a 90 minute, no cost, online training session about how to raise your awareness of some of the other property investing strategies and overcome the overwhelm when you don’t know what strategy to follow.
FOCUS is an acronym for, Follow One Course Until Successful. I believe you should spend 80% of the time you allocate to investing, focusing on that one main strategy. 15% of your time should be focused on secondary property strategies that can make you money and 5% of your time you need to spend on educating yourself, researching new strategies and learning how to improve on what you are currently doing.
To join me on this educational online training session just register your interest at this website and we will send you all the login details for this special training. www.pinwebinar.co.uk/2016
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LANDLORD INVESTOR January 2016
INVESTMENT
You need to focus!
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INVESTMENT
What is a Ninja Investor? Kevin Wright - Positive Property Finance
A Ninja is a person skilled in ninjutsu, a Japanese martial art characterized by stealthy movement and camouflage. So a Ninja investor is someone who buys property using stealthy movement and camouflage. In real terms that means someone who knows things that others don’t and is able to do things that others can’t. The keys to success are knowledge, mind-set and swift action – here are my Top 10 characteristics of a Ninja Investor.
1.
2.
3.
4.
They grow their portfolio (and bank balance) faster than most property investors. They don’t tie up their capital in buy-to-let mortgages or limit their ability to buy more properties each year. They have a cash buyer mind-set, so they don’t think in terms of mortgages and deposits. They know that the cash buyer mind-set means they only need thousands, not hundreds of thousands, to buy like a cash buyer. They are able to buy at lower prices with less of their own money in each deal. They often get BMV offers accepted for the properties they purchase.
5.
They can buy properties that traditional lenders won’t touch; properties that are unmortgageable – although not necessarily high risk (and they know how to assess the difference).
January 2016
LANDLORD INVESTOR
6.
7.
8.
9.
10.
They know how to negotiate crazy deals at well below market value rates and sell properties at a much high price than the one they’ve paid. Bigger profits are a given. They often get any money they’ve invested in the property out on completion, keeping their cash free for the next project. They know that, when buying at auction, the most profitable deals are often those bought pre or post auction, rather than in the highly-charged auction room. They understand that increasing the value of a property doesn’t necessarily mean a refurb – and know how to use the buy/no refurb sell model effectively. They make bigger profits, whether they buy to sell or buy to let.
If you don’t think this is consistently possible, I can introduce you to many people who operate their portfolio exactly like this. People who have:
Bought a house with less than 10% deposit and made £62K profit in three months. Borrowed 112% of the purchase price – and created an additional £37K in equity.
Bought a property and sold it two months later with a profit of nearly £33K – without a refurb.
Put in a deposit of £3K and made £51K in three months.
These are all real case studies. Positive Property Finance has a wide range of bridging lenders and will match you up with the right one for your property deal. We can also teach you how to use Ninja Investor strategies on a 2-day workshop. Give us a call on 01206 586586. ⌂
Property Mastery : Recycle Your Cash
Is your property investment giving you the results you want? If you’re finding: • The best deals slip through your fingers to cash buyers • You want to recycle your cash but your portfolio is growing too slowly because all your cash is tied up • Financial freedom is still not within your reach
Your Ninja Trainer Kevin Wright
The Ninja Investor Programme will reveal: The Fast Funding Formula™ Discover how to buy property like a cash buyer – without a 6 figure bank account The Negotiation Transformer™ Find out how to make ridiculously low offers – and get accepted The JV Profit Retainer™ Make sure you don’t give away any of your profits that you don’t need to The Rapid Cash Recycler™ Learn how to predict post-refurb value accurately, before purchase And Ninja Investor Strategies™ Transform your mind-set to enable you to transform your property investment.
DOUBLE GUARANTEE • If you’re not happy with the course and tell us by lunchtime on day 1 - you’ll get a FULL REFUND; no quibbles. • When you bring your first deal to our bridging brokerage; - you’ll get the FULL COST OF YOUR COURSE REFUNDED at completion.
NEW for 2016 - 2 day format with even more hot tips and smart strategies. Join a Ninja Investor Programme in: London 16/17 January London 16/17 April 2016 Bristol 6/7 February 2016 Leeds (new) 27/28 February 2016 Birmingham 19/20 March 2016 Find out more – and book your place
07889 526979 • www.ninjainvestorprogramme.co.uk
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lEgAl
lANDloRD AcTIoN cAllS foR A RogUE TENANT lIST Paul Shamplina - Landlord Action
ThE hoUSINg AND PlANNINg bIll IS cURRENTlY mAkINg ITS wAY ThRoUgh PARlIAmENT followINg A govERNmENT coNSUlTATIoN oN 'TAcklINg RogUE lANDloRDS AND ImPRovINg ThE PRIvATE RENTAl SEcToR.' They are proposing a blacklist of persistent rogue landlords and letting agents. In response, Paul Shamplina, Founder of Landlord Action, is calling for a blacklist of persistent rogue tenants to be made public. Some of the consultation’s key discussion points in tackling the worst offenders within the private rental sector include, introducing banning orders and civil penalties of up for £5,000 for rogue landlords, speeding up repossessions of abandoned properties and producing a rogue landlord/letting agent blacklist. It is currently suggested the blacklist of rogue landlords and agents would be available to local authorities and central Government, enabling them to keep track of those who had committed offences.
January 2016
lANDloRD INvESToR
Paul Shamplina, who was part of this consultation, is calling for the Government to show greater equality and more openness. He argues that if there is going to be a list of rogue landlords and letting agents then it should also include agents that have multiple money judgements against them by landlords for non-payment of rent. Mr Shamplina believes that all associations and redress schemes within the PRS should also put their banned members on this list. He thinks that the list should include rogue tenants and, most importantly, all the information should be made public. He explains “We are constantly hearing about ‘rogue landlords and agents’. But to address issues in the private rental sector, we should also consider ‘rogue tenants’. Last year there were 161,000 possession claims issued in England and Wales.
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Mr Shamplina continues “The Government is clearly committed to improving standards in the PRS.
Fed up with your tenants complaining about condensation, mould and ‘damp’?
Lost money re-decorating your properties?
Lost income from your tenants who move?
One of the greatest challenges is finding a balance between supporting good landlords and agents, whilst cracking down on criminal activity without burdening the sector with unnecessary, expensive regulation. I believe that one of the best ways to do this is by giving the consumer (landlords and tenants) access to information. Allowing them to have freedom of choice about who they rent from.” 92% of respondents to the Government survey are agreement that there should be a blacklist of persistent rogue landlords and letting agents. Mr Shamplina says making the information available to the wider public would support those reputable landlords and agents and act as an effective deterrent. ⌂
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lANDloRD INvESToR January 2016
lEgAl
At present, there is no central database where possession orders with money claims are registered, as the courts do not recognise possession claims with arrears as a County Court Judgement. If they did, this information would show up on tenant referencing. At present, a rogue tenant can move from property to property running up rent arrears and it does not show up on referencing unless the landlord goes to additional expense of trying to enforce the money order. If we are to protect landlords at pre-let stage, in the same way we wish to protect tenants, this should also be made available.”
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FINANCIAL
Helping you to finance your investment Mike Brown Crystal Clear Financial Services The financials around Buy to Let are a significant part of how mortgage applications are assessed and offered. Lenders are increasingly cautious and their criteria reflects this. Mike Brown, Director at Crystal Clear Financial Services, explains: “Whether you are an experienced landlord or new to property investment, lenders want to satisfy themselves that your income, rental calculations and portfolio size are right. “When looking at income, lenders want to be sure that you have the disposable income to support rental voids. Employed applicants often need to supply payslips, and self-employed clients will need to provide their latest SA302 and Tax Year Overviews. Lenders are also keen to see proof of rental income. “An increasing number of landlords are caught out on rental calculations. With tenants in situ, it is easy to miss regular rent reviews. However, not meeting rental calculations can prohibit refinance and make it difficult to maintain your purchasing power.” 2016 is an important year for landlord investment, with many changes due to take place. If you are looking to invest in property, you may want to consider the impact of: Lender income criteria, Changes to Stamp Duty for second homes and Buy to Let properties, Lender portfolio sizes, Buy to Let regulations and Increasing lender rental calculations.
January 2016
LANDLORD INVESTOR
A good mortgage adviser can save you time and money – here at Crystal Clear Financial Services, we make complicated things seem simple. Our financial experience means we can work with you and a range of lenders to find the best deal and investment for you. We are a whole market broker. In addition to Buy to Let, we could help you with:
Let to Buy HMO A Limited Company purchase Bridging finance Secure loans.
Crystal Clear Financial Services are proud members of Checkaprofessional.com and were shortlisted in The ESTAS Top 9 Brokers for 2015. To discuss your situation and mortgage requirements, call us on 01483 487417 or email business@crystalclearfs.com You can also visit our website at www.crystalclearfs.com or find us on Facebook /CrystalClearMortgages and Twitter @crystalclearfs ⌂
LANDLORD INVESTOR TV YOUR SOURCE OF PROPERTY INFORMATION
Landlord Investor TV is a television show dedicated to the world of property, serving the commercial needs of those working in and around the property industry. Airing monthly on Sky channel 238, LI TV is a show dedicated to education and up-to date information about the property market, investment and legislation covering:
LEGAL ADVICE
TAX ADVICE
MORTGAGES
REFERENCING
FINANCE
DEPOSIT SCHEMES
PROPERTY SOURCING
BUYING AT AUCTION
The blend of informative content ensures a wide range of viewers, from the general public to landlords, investors and property industry professionals. This in turn creates brand authority and offers a unique platform for our clients to showcase their services. LI TV gives companies the opportunity to advertise and sponsor the show. For further information and advertising rates please contact a member of the team:
0208 656 5075
www.landlordinvestmentshow.co.uk/LITV
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LANDLORD INSURANCE
Getting started as a Landlord: from an insurance angle Steve Cox - Alan Boswell Group Driving supercars, going on Caribbean holidays, buying landlord insurance and seeing a world cup final. Just a few of the items on people’s bucket lists! Well maybe not all of them are, but if you are becoming a landlord then one should be on you’re “to do list”... Landlord Insurance.
Whilst the supercars and holidays will hopefully follow as you become a successful landlord, getting the right landlord insurance in place is essential. Landlord insurance and associated products are there to protect your property, your investment income, yourself and your tenants. However there is a big difference between just having insurance and having the 'right' insurance.
January 2016
LANDLORD INVESTOR
GETTING IT RIGHT Choosing the correct insurance comes down to what you are doing with the property and there are a number of questions that need to be thought through:
Are you going to live in the property while you prepare it for letting? Is the property going to be vacant for a period of time? Are there major renovations taking place e.g. turning a house into flats?
What tenant type are you looking to attract: professional couple, students, family?
Will you be letting out the rooms individually or the property as a whole?
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Landlords insurance – provides cover for buildings, contents and your liability as a property owner.
Vacant property insurance – insurance for buildings that are vacant in the mid to long term.
Renovation insurance – if a property is being renovated, full insurance is essential even if you are not living there. Rent guarantee insurance – covers loss of rental income if your tenant defaults on their rent. Legal expenses – provides cover for expenses incurred if you enter legal proceedings in relation to your rental property e.g. eviction
Home emergency – helps with a variety of emergencies in the home e.g. boiler breakdown
Tenants policies – there are also policies for tenants that provide an additional element of cover for you as a landlord – Tenants Contents and Tenants liability
Don't get caught out Insurance products come with a number of exclusions, limitations and conditions or in layman’s terms “catches”. If you don’t get the right insurance product for your property you could find your property plans going up in smoke both physically and metaphorically. Having an expert work with you from day one to understand your short, medium and long term plans is essential as Steve Cox, property insurance expert from insurance broker, Alan Boswell Group outlines: “There are hundreds if not thousands of products available in the market for landlords from an insurance perspective. It’s our job to hand hold landlords through the process and help them choose the right products. “New landlords should not be expected to know the in’s and out’s of every policy and what it does and doesn’t cover, let alone the terms and conditions applying.
"We have been working in property for over 30 years and have seen the various paths that landlords take. Over that time we have tailored our products and service to what landlords need. Whether it’s a first time landlord buying a two up two down to rent out, an accidental landlord who has inherited a property or a first time investor looking to develop a property into a House of Multiple Occupancy (HMO), we know what their needs are.”
So I have a property to rent, what do I need to do? To explain the insurance process we’ll use an imaginary case study. Mrs & Mrs Green have purchased a property to rent. Mr and Mrs Green already have their own home and have paid off their mortgage and have received a windfall, which in conjunction with a buy to let mortgage allows them to purchase a property to rent.
Step One: Purchase Landlord Insurance The couple need to purchase landlord insurance for a number of reasons.
Buildings Cover To protect your investment, the main structure of the property. If the property were to subside, burn down, or be damaged by extreme weather, your buildings insurance policy covers the costs of rebuilding or repair.
Loss of Rent Cover If there is a claim that leads to the property being uninhabitable Mr and Mrs Green could lose rental income. This cover ensures they will receive the income needed to pay their mortgage.
Liability cover In case of injury to the tenants or damage to their property due to the owners negligence.
Contents cover This will protect the white goods and other fixtures and fittings that the couple have in the property. LANDLORD INVESTOR January 2016
LANDLORD INSURANCE
Knowing what you are doing with the property at the start and in the long term is fundamental to purchasing the right insurance and associated products. As a rough guide these are some of the products available:
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lANDloRD INSURANcE
STEP Two: TENANT REfERENcINg Now Mr and Mrs Green are ready to rent the property they need to ensure they have the right kind of tenants. This is an important part of the process and can stop problems occurring down the line. Tenant referencing covers the following:
cREDIT hISToRY A record of the prospective tenants borrowings and repayments.
EmPloYmENT AND AffoRDAbIlITY To ensure they can afford to pay your rent.
PREvIoUS lANDloRD chEckS To identify if there have been previous rental problems.
STEP ThREE: lEgAl ExPENSES AND RENT gUARANTEE As long as the tenant has passed tenant referencing or a guarantor has, then the landlord has access to either legal expenses cover or legal expenses plus rent guarantee.
lEgAl ExPENSES covER offERS:
Legal advice line
Legal expenses to evict tenant(s)
Legal expenses for problems emanating from a property, e.g. smell
Rent guarantee and legal expenses cover are both very important products, given there is a mortgage on this property it is essential for Mr and Mrs Green that they have paying tenants in the property. In the event of a tenant defaulting on their payments, ‘rent guarantee’ will actually pay you the monthly rent whilst your solicitors are obtaining payment from the tenant. This means you will not be out of pocket during this difficult process. These products also have strict notification periods and it is important that insurers are notified of any problems such as defaults as soon as they occur.
STEP foUR: homE EmERgENcY covER Home emergency cover is ideal for first time or single property landlords who do not want to be on call day or night for any emergencies. Home emergency cover provides the tenant and you with peace of mind in the event of the following: This cover offers peace of mind if the house becomes inhabitable. There are costs built in to the policy to try and fix the problem or if not possible, it will cover the costs of moving the tenants to alternative accommodation for the night.
Boiler or heating breakdown Utilities failure Inoperable toilet (where there is a single toilet)
RENT gUARANTEE INSURANcE cAN oNlY bE PURchASED IN coNjUNcTIoN wITh lEgAl ExPENSES, IT covERS:
As per legal expenses Rental income of up to £2,500 per month Cover up to £25,000 or 12 months cover (whichever is exceeded first)
January 2016
lANDloRD INvESToR
Failure
or
damage
to
external
locks
on doors or windows
Infestations of pests Failure of roofing/guttering/piping Blockage, flooding or breaking of sewerage
This cover offers peace of mind if the house becomes inhabitable. There are costs built in to the policy to try and fix the problem or if not possible, it will cover the costs of moving the tenants to alternative accommodation for the night.
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No such thing as a "typical landlord" This would be a very typical example of a first time landlord. There are of course many other variations with specific needs.
RELOCATION This would be where a landlord moves away from their own home but rents it out. In this instance it is imperative that the landlord changes the insurance from a home insurance to a landlord insurance. Whilst some home insurers will cover change of use there won’t always be the necessary covers and there may be restrictions applied to the property.
MULTIPLE TENANTS Initially it could be a couple but they split and a friend moves in. There are various definitions of what is considered as an HMO and various rules dependent on the council you reside in. If your property may be considered an HMO it is important you speak with your insurance company to clarify you are covered.
Right to Rent – whilst a very new legislation for most of the UK there undoubtedly will be an impact on insurance if the Right to Rent legislation has not been followed. From 1st February 2016 Landlords must check tenant’s documents to check they are legally allowed to rent in the UK.
Damage to rental property – if there is damage to property and it is not rectified there could be liability claims and problems in the future if an eviction occurs. Regular inspections can help restrict these issues. Being a landlord can be frustrating and challenging but done right can be highly rewarding. Insurance, whilst not the most exciting purchase you will ever make, is a very important element. The world of insurance is always changing. Having an adviser that understands you and your property plans really can make a difference and keep you ahead of the game with any problems you could face with the constant changes in the sector. ⌂ Need advice? Alan Boswell Group are one of the UK’s leading sources of Landlords Insurance and can help arrange suitable cover for your buy-to-let properties. For further advice contact Steve Cox. T:01603 218 031 alanboswell.com/landlords scox@alanboswell.com
M:07766 715 654
Things to watch out for As a new landlord you have 101 things to do and the ongoing introduction of new government legislation doesn’t make it any easier. Failure to follow legislation and local rules could leave your insurance invalid so it is important that you adhere to these. Some other areas of caution are:
AST – Assured Short Term Tenancy agreements are highly recommended and for some insurance companies having these is essential even if it is between family.
LANDLORD INVESTOR January 2016
LANDLORD INSURANCE
Working from home – Always clarify the tenants use of the property as working from home does have different consequences for insurance and tenancies dependent on the level of work.
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lANDloRD INvESToR
T H E U. K ’ S F A S T E S T G R O W I N G P R O P E R T Y R O A D S H O W
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