APRIL 2016
WRITTEN BY INDUSTRY EXPERTS COVERING ALL ASPECTS OF BUY-TO-LET
LANDLORD | PROPERTY | INVESTMENT
CHANGES WILL NOT SLOW DOWN THE BUY TO LET MARKET
- Tom Entwistle
OH WHAT A FINE MEES WE HAVE: TAKING NOTICE OF YOUR EPC
- Peter Littlewood
BUYING INCOME AT AUCTION: DOING YOUR DUE DILIGENCE
- David Humphreys
POSITIVE GROWTH IN THE
BUY TO LET MARKET
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WELCOME TO THE APRIL ISSUE OF LANDLORD INVESTOR! Editorial Editor
Tracey Hanbury editor@landlordinvestmentshow.co.uk Editorial Contributors Chris Holroyde David Humphreys Paul Shamplina Peter Littlewood Simon Zutshi Steve Cox Tom Entwistle
Art Dept. Design Craig Edmonds Advertising Beverley Meliniotis
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Now that we have let the 2016 budget announcement settle in to our plans, it is time to start looking towards the long term future impact it will have on buy to let. In our last issue, many of our writers explored the possible negatives that the 2016 budget announcement could bring along with it. In this issue, Tom Entwistle from LandlordZONE is looking at these implications in a positive light by stating that buy to let is here to stay.
CONTENTS Industry Update Auctions Landlord Associations Expert Advice Investment Landlord Insurance Legal
06 12 20 22 26 30 32
Also in this issue, Peter Littlewood from the Southern Landlords Association explores the Minimum Energy Efficiency Standards for landlords across the U.K, informing us how we can improve our energy rating. Finally, analysing property at auction this month is David Humphreys from Buying Auction Property. David is sharing his tips and inside knowledge into how to do your due diligence when next buying at auction. This month has been incredibly busy for the Landlord Investment Show. Not only have we had an incredibly successful show in Croydon, we are also returning to Kent for the fourth time (on 27th April) and have also been in the process of moving into our very own office space. We are all very excited to share the story with you in next month’s issue. Happy reading!
Tracey Hanbury | Editor Landlord Investor
Tracey Hanbury
April 2016
LANDLORD INVESTOR
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TRENDS IN THE PROPERTY MARKET: WHAT IS THE FUTURE OF BUY TO LET?
- Tom Entwistle
WIGGLE AS MUCH AS YOU LIKE: STAMP DUTY
bEST STR ATEgY how To fIND ThEfoR 6 IN 201 YoUSimo n Zutshi
- Peter Littlewood
WHY LANDLORDS SHOULD BUY IN EAST LONDON
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INDUSTRY UPDATE
TAX CHANGES WILL NOT KILL-OFF BUY-TO-LET Tom Entwistle - LandlordZONE
EVERYONE IN THE PRIVATE RENTED SECTOR, THE PRS INDUSTRY; LANDLORDS, AGENTS, MORTGAGE PROVIDERS AND THOSE PROFESSIONALS WHO SERVE THE INDUSTRY, IS WONDERING WHAT THE LONG-TERM EFFECTS OF THE CHANCELLOR'S RECENT TAX CHANGES WILL HAVE. There is no doubt that the government’s policy of (1) encouraging institutional investment into buy-to-let, and (2) promoting home ownership, will have an effect on the businesses of the small to medium size landlords: those with say one to 20 properties, and in particular those who operate as individual taxpayers as opposed to through company ownership.
April 2016
LANDLORD INVESTOR
The removal of mortgage interest relief, albeit on a gradual and sliding scale over a four to five-year period, will hit high and higher rate taxpayers the hardest. This will be in terms of the income tax they pay on rental income, on top of their other income, which will now, after 2020, be capped at the lower rate of tax – 20 per cent currently. At first sight even that does not seem too bad, until you realise that this is no longer a tax deductible business expense, but a tax credit to be deducted from total income after the tax calculation. It means some of those receiving rental incomes will be pushed further up the tax band scales.
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Given that tenants and their voting parents represent something in excess of 12 million people, whereas landlords in total only represent in the region of 1.9m tops, and that Conservative policy has always been in favour of home ownership, then it’s easy to see that on balance any government will always favour the former group.
GOVERNMENT IS STILL IN FAVOUR OF BUY-TO-LET Housing Minister Brandon Lewis strenuously denies claims that the government is trying to “kill-off” buy-to-let (BTL), on the contrary he says, he wants to “create a more professional private rental sector and eliminate rogue landlords.” Speaking at the Association of Residential Letting Agents (ARLA) conference recently, Mr Lewis defended the government’s stance, insisting that it was never the government’s intention to damage the private rented sector (PRS) by killing-off buy-to-let. Mr Lewis told letting agents at their conference that the government is still backing the private rental sector through schemes such as Build to Rent, though it is obvious that this will be of far more benefit to institutional investors, rather than the 1.9 million or so small-scale landlords making up over 90% of the PRS. Mr Lewis stressed: “Our primary focus is increasing supply and homeownership. Most people (86 per cent) want to own their own home, but we also want a private rented sector. We want more institutional money and more professionally managed property. Buy-to-let is still an area with capital security and revenue returns, so there is still an attractive revenue model.”
INDUSTRY UPDATE
There have been other tax changes such as the wear and tear allowance adjustments, changes to capital gains tax, when it is paid, and landlords are to be excluded from the recently announced CGT reductions, plus a 3% stamp duty surcharge on buy-to-let purchases. But the mortgage interest relief withdrawal will have the biggest effect on buy-to-let profitability long-term.
Lewis thinks that schemes such as Right-to-Rent and other rule changes will crack down on rogue landlords. In addition he indicated that there are plans to look into introducing electrical safety rules in England, similar to those now in operation in Scotland, and he is interested in looking at measures to make it easier to avoid court proceedings in tenant evictions.
TAX CHANGES CAME AS A SHOCK TO LANDLORDS The recent budget tax announcements have caused a furore within the PRS industry, an outcry from landlords, agents and their professional representatives which has yet to die down. Tax specialists have been furiously delving into numerous schemes which might help landlords avoid the worst of the tax measures, but so far there have been no obvious solutions. One glimmer of hope is that Cherie Blair QC has agreed to represent a group of crowd funded campaigning landlords who have now launched the second phase of their campaign for a judicial review. This will challenge the government’s move to remove landlords’ ability to deduct mortgage interest from rental income as an expense item before income tax. Private landlords Steve Bolton, founder of Platinum Property Partners, and Chris Cooper, a small-scale landlord with around 15 properties, set a target of £250,000 to fund the next stage of their judicial review court case.
April 2016
LANDLORD INVESTOR
INDUSTRY UPDATE
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The aim is to have the Treasury withdraw the change on the established principle that businesses have always been allowed to charge interest on loans as an expense against their taxable income. Cherie Blair’s barrister chambers, Omnia Strategy, will be challenging the ruling on the grounds it is a breach of individual landlords’ human rights because they are being treated differently to other businesses. Appealing for donations through the crowd funding platform, Crowd Justice, Mr Bolton and Mr Cooper have managed to raise an initial £50,000 for a consultation with the legal firm and are now attempting to raise another tranche of funding to take the case to the next stage.
CHANGES WILL DO LITTLE TO QUELL BUY-TO-LET Others in the industry have argued that the new rules will do little to quell the buy-to-let boom which, since the introduction of the assured shorthold tenancy (AST) and the buy-to-let mortgage in the 1990s, has developed a momentum of its own. In fact, the figures show that a minority of landlords will be seriously affected by the restrictions imposed by the tax changes. Granted, a 3 per cent surcharge on buy-to-let purchases will add around £7,000 to the average £200,000 purchase, but in the scale of things, and taking into account the ups and downs of property prices, over a 10 or 20 year buy-to-let investment, the impact will be quite minor. Again, increased restrictions to be introduced on mortgage approvals will bar some purchases, but most investors in buyto-let now – excluding many of the no money down scams - will have the resources to obtain a basic mortgage.
The Bank of England has done its bit to help cool the BTL market. It has announced its new standards for buy-to-let lending, which it said “will lead to a decrease in the number of cumulative new approvals for buy-to-let mortgages by about 10 to 20 per cent by the third quarter of 2018”. Together, all the new measures are supposed to halt the decline in owner occupation rates in the UK. The proportion of homes owned by households with a mortgage fell from 42 per cent in 2001 to 31 per cent in 2014. Between 2007 and 2016 buy-to-let doubled its importance in total mortgage lending from 8.5 per cent to 17 per cent as the proportion of households living in the PRS increased from 11.5 per cent to 16.3 per cent. In addition, a surge in the number of young adults living with their parents means that anyone claiming “an Englishman’s home is his castle” is living in the past. The key question is: will all the new tax and regulatory policies have a big or small effect on the BTL market? The answer, some argue is, it will be quite small. For a start, the three percentage point increase in stamp duty for BTL and second home purchases will likely bring the price of property down a little overall, but it is unlikely to be significant enough to help firsttime-buyers, if they were unable to raise sufficient funds before.
April 2016
LANDLORD INVESTOR
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GENERATION RENT WILL STILL NEED TO RENT
“Underwriting standards for owner-occupied mortgages correctly insist on strict house price to income limits. But potential landlords are not caught by these restrictions because the underwriting standards relevant to them test rental income against future interest burdens and such is the demand for homes that buy-to-let still generally passes. “The fundamentals of Britain’s housing market is therefore still skewed towards buy-to-let. I am not saying this is necessarily bad. But whatever the authorities might pretend, it is here to stay,” says Giles.
Secondly, changes to higher rate mortgage interest tax relief will by no means affect the majority of landlords. Many thousands buy their rental properties mortgage free and scores of others rent out properties they inherit. According to the Bank of England, their research shows that around two-thirds of landlords with a buy-to-let mortgage are basic rate (20 per cent) tax payers. Therefore, those landlords that are seriously affected, the high or higher rate taxpayers with substantial borrowings, will be in the minority.
Recent research by Price Waterhouse Coopers (PwC) tends to confirm this, predicting that only 26% of 2039 year olds (‘generation rent’) in England will live in a home they own by 2025. More than half (59%), PwC thinks, will be renting privately by 2025. Previous PwC research highlighted the plight of “generation rent” – the group of 20-39 year old adults at risk of being barred permanently from the housing market due to high prices, high deposits and eventually rising interest rates.
The Bank of England’s (BoE) new regulations should be relatively easily met by the majority of investors – around three-quarter of all BTL loans already meet the new underwriting standards. The expected effect of all this by the Bank is that mortgage lending growth will slow down over the next two years to something like a 17 per cent increase compared to the current 20 per cent.
April 2016
LANDLORD INVESTOR
INDUSTRY UPDATE
Writing in the Financial Times, Chris Giles argues the buy-to-let boom has occurred because British house prices have become detached from incomes.
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INDUSTRY UPDATE
The PwC analysis looked at tenure trends across different age groups, finding that:
•
•
•
By 2025, 59% of 20-39 year olds will be renting privately, up from 45% in 2013. Only 26% of those in generation rent will own their own home by 2025, down from 38% in 2013. Older generations, who have benefited from huge increases in the value of the homes they own, will largely be insulated from these trends. Three quarters of over 55s own the home they live in now and this will still be the case in 2025.
Richard Snook, senior economist at PwC, said: “Our updated research sets out the scale of the challenge faced by those in generation rent who are trying to get on the housing ladder. The continual advance of house prices, which have far outstripped growth in earnings, is fundamentally changing the way people live. “With the majority of 20-39 year olds living in the private rented sector by 2025, policy will need to adapt. This could include encouraging a better quality of private rented accommodation including longer tenure periods, and more rental properties designed for families.
April 2016
LANDLORD INVESTOR
“Demand for housing in the UK has outstripped supply for more than two decades. Changing the outlook for generation rent will require us to build more houses than needed just to match population growth in order to make up the past shortfall between housing supply and growth in demand.”
BUY TO LET WILL CONTINUE TO GROW My conclusions are that buy-to-let is here to stay and will continue to grow. The tax and regulatory changes will not have the impact in aggregate that many fear, but landlords and agents are going to have to work harder to meet more demanding standards set by regulatory reforms that have recently been imposed on lettings. Returns on a buy-to-let investment will still compare favourably with other forms of asset investments, and long-term asset appreciation will off-set the shorter term impact on income by increased taxation – property investment is a 10 to 20 year project. Those who want to build larger portfolios may need to consider incorporation in the future. Tom Entwistle is Editor of LandlordZONE®, an experienced landlord with residential and commercial property. ⌂
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12
AUCTIONS
BUYING INCOME AT AUCTION David Humphreys Buying Auction Property
NOW, MOST PEOPLE GO TO PROPERTY AUCTIONS TO BUY PROPERTY THOUGH A FEW, PARTICULARLY THE SELLERS, GO TO WATCH PROPERTY BEING SOLD. Some even go to find & buy one of those “bargains” and, by that, I mean without even viewing the property or doing any Due Diligence. I once sat next to a couple in a Cardiff auction who bid & bought a nice looking property (catalogue) that was actually little more than 4 walls and roof for 24K, I had viewed it, which was probably wasn’t worth even 10K. On asking why, they said they had come over the “Bridge” from Bristol for a day out and to look at auctions and to find a 3 bed terraced house for less than 25K just had to be a bargain so they bought it!
April 2016
LANDLORD INVESTOR
Few if any go to buy income, literally a pot of money, or maybe a wad of £50 notes, that you will receive about one month after the auction and then every month after that and yet, in that same auction, the probability was that income was for sale which could have been a real bargain depending on how much you would pay for that pot of money, wad of £50’s? Property auctioneers selling income call it property to start with and sell the property along with an occupier (tenant) who every month will give you that pot of money and yet this source of income is, broadly speaking, ignored by most investors who are, presumably, happy putting their money into a savings account or maybe some shares and receive far smaller pots of money and fewer £50’s for their troubles.
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Now before getting you all excited I must include some caveats.
1.
3.
AUCTIONS
2.
I am not recommending that you buy any similar lots to those mentioned in this article. It is essential that you carry out thorough due diligence both in respect of both the property and occupier (tenant), didn’t follow the example of the Bristol couple. You should take independent qualified financial advice before committing yourself to any property purchase and I am not qualified to give such advice.
All figures are purely for demonstrative purposes; their accuracy is not guaranteed and cannot be relied as Due Diligence. On April 14, Auction House London held a 110 Lot auction at the Landmark London Hotel 222 Marylebone Road, a number of which are offered with tenants in occupation. Often London auctions include properties which are located a considerable distance from London, which was the case with this auction, and six of the properties deserved closer inspection by virtue of their relatively high yields when dividing the annual rent by the guide price to produce the gross yield.
These let properties can turn out to be real bargains because often local investors aren’t going to travel to London to buy a low-cost property and likewise a London investor isn’t going to travel a distance for the same low-cost property when there is so much opportunity closer to home so the number of interested punters can be few if any! In the case of these six properties, 2 were located in Northumberland & 4 in County Durham. As a bonus guide prices were all below the new SDLT threshold of 40 K, effective April 2016, so provided successful bids were less than 40 K, subject to any Special Conditions in the legal pack, the only extra costs would be the Auction House premium of £600, VAT inclusive & your legal costs. On the downside, the properties may not be mortgageable. Ignoring any lender criteria a minimum mortgage is 25K needing a bid/offer of just under £33,500 at 75% LTV (£25,125). Increasing the LTV to 85% reduces the minimum bid to £29,500 but you need to be absolutely certain that you can get an 85% LTV mortgage for any of these low-cost properties, I mean bankable DIP’s. Over the years I have bought many tenanted properties and in each case carried out due diligence, but before going into the detail it is essential that you prove the tenancy as it is not unknown for unscrupulous landlord investors to make up fictitious tenancies as often the hammer price is based on the rent and the return the investor is looking for and in some cases the investor never visits or views the property.
April 2016
LANDLORD INVESTOR
14
AUCTIONS
every month. In reality the probability is that there will be repairs to carry out as landlords seldom sell property in pristine condition, also you won’t be getting the keys until at least a month after the auction during which further wear and tear may have occurred. To calculate the value of the pot, I’m assuming an 85% LTV to keep my tied-up cash to the minimum, an interest rate of 4% and 20% of the rent to cover operating costs including letting & management. The first of my Lots is No 56. The rent is £5,100 PA and, as a percentage of the Guide, returns 26% before any tax-deductible costs which is a bit more than current savings account! Lot 56
For example, an investor looking for a 10% gross return would pay £100,000 for a gross rent of £10,000. The same principle can be applied to buying net rents and cash-on-cash returns. I know of one case where the property was auctioned as a fully let 10-room HMO and on viewing it seemed that all rooms were “occupied”. Post-auction it transpired that all rooms were occupied by “friends” of a single tenant who was also a friend of the landlord and staying at the property for security purposes! Suffice to say that the auction was subsequently voided because the “arrangement” constituted fraud. By prove I mean that the property is let to the person(s) named on the tenancy agreement, check the utility bills & Council tax and the rent quoted in the auction catalogue, check the rent receipts. Also if you get a chance, talk to tenants and generally satisfy yourself that they really are resident at the property in the room designated.
At 85% LTV the hammer price would need to be £29,500, somewhat more than Guide and even Guide +10%, the recommended variable. So, at this point, assume a cash purchase and reduce the rent by 20% for operating costs leaving you with around seven £50 notes each month. Question is, how much do you pay for £350 each month or £4,080 each year. If you would be happy with a 15% return, way above savings accounts, bid £27,200. Not enough then to get a 20% return on your cash, bid £20,400. The calculation is simple, divide the annual rent by your target percentage return. In the event the hammer came down on Lot 56 at £35,000, considerably above the 20K guide and the effect on the numbers & returns is as follows and remember you are using cash to buy income and therefore the higher the cash-on-cash return the better the investment.
So, let’s look at buying income, and I’m not talking about buying a property which needs fixing up to generate tax-free rent & NMLI, though the rent could become tax-free if you are running my Tax-Free Strategy concurrently. Ideally, over and above the deposit (15%-25%), legal fees & disbursements + auctioneers premium there shouldn’t be any other costs to pay before the pot of money (£50 notes) starts to flow into your coffers Lot 74
April 2016
LANDLORD INVESTOR
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35K hammer price, @ 85% LTV raises £29,750, above the minimum, with a cash deposit of £5,250.
AUCTIONS
In addition we have to pay £600 auctioneer’s premium & £500 legal fees plus £2,610 seller’s costs, which I will come back to, increasing the cash spend to from £5,250 to £8,960. The current rent of £5,100 nets down to £2,880 after deducting £1,020 (20% operating costs) & £1,180 (interest @ 4%). Result, a cash-on-cash return of 32%, which is way above any return that could be achieved with a 100% cash buy. Excluding auctioneers premium & legal fees this property has cost £37,610, 35K hammer, £2,610 seller costs which have had the effect of grossly inflating the cost and therefore value of the property, but it is quite common for Sellers of low-cost properties to recover all their costs from the buyer. Generally you find reference to these costs in the “Special Conditions” which is part of the Legal Pack and often not available until close to auction day. Given that the best previous last-sold price (2015) was 25K it may be that a valuer will not confirm a mortgage value of 35K and, if he did, the lender may not agree to an 85% LTV. Either or both will reduce the cash-on-cash return. Hopefully both negatives will have been part of your pre-auction DD report on this property, so no surprises. Interestingly this sale was subject to a 14, as against normal 28 day completion.
What I am sure about is that the valuer’s valuation will not include any part of the additional £2,610 spent on behalf of the seller. Lot 56 had an interesting history which raises questions. It was sold after a Graham Penny auction in January 2015 for an undisclosed amount with a guide of 25K. January 2016 and the property reappears in the Agents Property Auction only to be withdrawn prior and then reappear, same auctioneers, February 2016 when it was unsold. No apparent changes other than the off-street car space has been fenced off and we have first sight of the kitchen, guide 22K. March 2016 same auctioneer, Agents Property sells the property for 19 K and it then reappears in this month’s Auction House London’s catalogue with a guide of 20 K, same fence, same kitchen but now we have a bathroom pic + another room, all clean and tidy and ready to occupy but of course it’s already let from April 1 for 6 months so outside of confirming that the tenancy is legit there won’t be any tenant performance history another important part of DD with income properties. I never like going to an auction just to buy one property principally because there is always the chance of another bidder buying to house a relative when due diligence and value for money may not be that relevant, so I continued through the catalogue and
Lot 101 & Lot 61
April 2016
LANDLORD INVESTOR
16
AUCTIONS
found Lots 61 & 101. Two flats in the same development giving me a lot of flexibility. I can buy Lot 61 and go home, I can wait on and buy Lot 101 as well, maybe cheaper, I can be outbid on Lot 61, it’s gone to the “housing a relative” bidder and still buy Lot 101. But with 20K guides we are way below minimum mortgage land but it is possible to consolidate mortgages. I raise the point because buying one of these flats will probably fail the 25K test and become a cash purchase, but the pair wouldn’t, so they’re worth looking at as they are generating a yield around 20% on guide. My principal concerns though are that they look a bit “ex-local” though there is no mention of this in the catalogue. Also unless either of the tenancies are extensions, both appear recent with January & March start dates, giving little tenant performance history and Lot 101 is 2nd floor which, in the absence of a lift, will restrict its appeal. In the event, Lot 61 sells for £21,750, definitely a 100% cash purchase and Lot 101 is “sold prior to auction” for the usual “undisclosed amount”. Don’t know if Lot 101 was “sold prior” on or before the auction day, if before notice would be included in the Lot Amendments distributed before the auction started, a very good reason for attending auctions.
April 2016
LANDLORD INVESTOR
Continuing on through this catalogue we come to Lot 74 which is the first of 3 in the SR8 postcode, Lots 74, 80 & 90. Both Lots 74 & 80 guide at £27,000, increasing to £29,700 at guide + 10%, making them mortgageable at 85% LTV (£25,245) but, a bid of £33,529 qualifies for a 75% LTV (£25,147) mortgage which you can virtually guarantee obtaining subject to status. I’m going to look at Lot 80 with the AST rent of £5,700 which in the event sold for £35,000 providing a cashon-cash return over 30% for a £10,440 investment including deposit, auctioneers premium, legal fees & massive seller costs of £4,090! You are not only buying the property but paying to sell it as well but the result is a cash-on-cash return of 32% or £3,370 a year before tax. So for a little over 10 K including legal costs, auctioneers premium & seller costs and possibly some minor repairs you could buy an income of over £3,250 each year for the foreseeable future and into the bargain own an asset worth around £35,000. All base information is courtesy of EIgroup.co.uk with special membership terms available. If you’re interested in Buying Income At Auction and the thorough & extensive Due Diligence that is necessary to identify & authenticate a Property Auction Bargain plus prove their financial viability using my Auction Income Analyser email me, David@PropertyAuctionExpert.com ⌂
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LANDLORD INSURANCE
20
KEEP ON TOP OF YOUR GAME National Landlords Association
TRAINING AND DEVELOPMENT IS THE KEY TO RUNNING A SUCCESSFUL LETTINGS BUSINESS AND THE BEST WAY TO IMPROVE YOUR COMPETENCE AS A LANDLORD. However, reviewing your training needs and keeping an eye on development opportunities isn’t always top of the priorities list, particularly if your letting activity supplements your regular job or income. But the rules and regulations that govern the private rented sector are constantly changing and not staying ahead of the curve could have a dramatic effect on your business and your profits.
April 2016
LANDLORD INVESTOR
DEVELOP YOUR SKILLS WITH THE NLA As part of our commitment to supporting landlords the NLA offers a range of training courses to help you to get the most out of your lettings business. All of our courses give you the chance to network with fellow landlords and are run by expert trainers who are landlords themselves. So if you’re interested in developing a better understanding of the lettings industry and maximising your profits then check out a taster of some of the courses we offer below…
WELFARE REFORM If you have tenants in receipt of housing benefit then this course is for you. The half-day course focuses on the recent changes to welfare payments through government’s Universal Credit scheme and will outline what you what you need to know and how to deal with the changes.
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LANDLORD INSURANCE
POSSESSION
NLA FOUNDATION COURSE
There are a number of reasons why you may need to end a tenancy and this one-day course will equip you with the knowledge to do it quickly and legally on your own; saving you hundreds of pounds. By the end of the course you’ll also understand what to expect if your case ends up in court and you’ll pick up top tips to make sure you avoid harassment and unlawful eviction.
If you’re unsure about your rights and responsibilities as a landlord, then this one-day course will assist both the new and experienced to develop their professional skills. It also provides you with the foundation level of knowledge required to take the next step and become accredited with the NLA….
IMMIGRATION
GO THE EXTRA MILE WITH NLA ACCREDITATION
Right to rent checks are now mandatory across all parts of England and this course will cover what you need to do in order to carry out the checks and stay on top of the legislation, avoiding potential fines, or worse, jail.
If you want a mark of quality as a responsible landlord to set yourself apart from rogue operators, as well as genuine business benefits such as discounts on local licensing schemes and services*, then NLA accreditation is the next logical step.
CAPITAL GAINS Whether you’re looking to sell property or just unwrap the mysteries of Capital Gains Tax, this one-day course will help you cut through the jargon, understand the implications on your own portfolio and put a long-term plan in place to make the most of your investment.
SAFER HOMES Quite simply, this course will give you the practical guidance you need in order to provide a safer home for your tenants, covering all your legal obligations as well as examples of where things can go badly wrong if you don’t stay on top of everything.
Accreditation is based on development and good management practice and it’s the perfect response to rising consumer awareness and increasing pressure on the lettings sector. It’s a national scheme that offers greater consistency and it means that tenants – looking for a reputable landlord – can be assured that your home is a safe bet.
BOOK NOW We have events taking place across the UK,with plenty more planned throughout the year. Find out more about upcoming training courses offered by the NLA at www.landlords.org.uk/courses. *Incentives vary by Local Authority.
April 2016
⌂
LANDLORD INVESTOR
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EXPERT ADVICE
OH WHAT A FINE MEES WE HAVE! Peter Littlewood Southern Landlords Association
EVERYONE STAND UP. Now sit down if you have not looked at the EPC’s you get for your rental properties; then sit down if you have read them, but not made an effort to get rid of the ticks in the bottom section? Anyone left standing? But all landlords should have taken notice of their EPC’s, The SLA have been warning for a very long time that those properties having a low EPC rating will have problems, and that time has now come to pass. The Minimum Energy Efficiency Standards (MEES), contained in the Energy Efficiency Regulations passed in March 2015, have just come into effect.
CURRENT SITUATION From last April (2016), residential tenants will be able to request landlord consent to carry out approved energy efficiency improvements, unless certain exemptions apply or the landlord proposes alternative energy efficient measures. This consent must not be unreasonably withheld
April 2016
LANDLORD INVESTOR
This work will be that recommended on the EPC, especially those matters that have a green tick, originally indicating that the work could be carried out under the Green Deal – but the Green Deal was abandoned by the Government in July 2014. However, in a paper published by the Government in 2014 they stated:-
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EXPERT ADVICE
“Running throughout our proposals is our commitment to ensuring that the regulations do not impose disproportionate burdens on landlords, the pass-through of which could also impact negatively on tenants. Through our Green Deal, ECO and other funding support, landlords will not face net or upfront costs for the installation of any improvement measures required under the regulations (my highlighting).” Therefore it will be the responsibility of the tenants to ensure that the works are funded and the intention is that no upfront costs should fall on the landlord, unless the landlord agrees to contribute. Additionally the tenant will have to leave these enhancements behind if they move. A landlord will be reasonable in refusing its consent where:
FUTURE SITUATION
•
another tenant made a request within the preceding six months and the landlord complied with their request;
•
•
a Green Deal provider advised that the requested improvements would have a negative impact on the fabric or structure of the building; or
• from April 1st 2020 this will apply to all residential leases – both new and existing lettings;
•
the improvement proposed is the same or substantially the same as that which the landlord proposed but which the tenant had refused or failed to respond to within the preceding six months.
Alternatively to granting consent, a landlord can make a counter-proposal putting forward its own improvement. The tenant's own request then ceases to have any effect, but the tenant must consent to those works before they can be carried out. It is unlikely that cost effectiveness will apply as it will be the tenants putting forward the proposed works are agreeing to fund the costs themselves. The First Tier Tribunal (Property Chamber) will have the power to determine any dispute as to whether the landlord (or superior landlord) failed to comply with the Regulations. If the landlord/superior landlord is found to have unreasonably refused consent, the Tribunal can order that the energy efficiency improvement requested by the tenant is carried out.
•
from April 1st 2018 it will be unlawful to grant a new lease for residential or commercial property with an EPC rating of ‘F’ or ‘G’;
from April 1st 2023 this will be extended to include all existing commercial leases.
EXEMPTIONS The MEES will only apply to properties requiring an EPC. Among those not requiring an EPC are: •
listed buildings;
•
HMO’s – although every Government has said they are to plug this anomaly. Note that if an HMO is used for a standard let it would then require an EPC;
• properties which use no energy to condition the indoor climate (i.e. no heating; air conditioning); •
religious properties;
• etc.
April 2016
LANDLORD INVESTOR
EXPERT ADVICE
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However there are also 3 exemptions for properties requiring an EPC:
Where the breach is for less than three months, the fine will be:
1.
•
for commercial property – £5,000 or 10 per cent of the rateable value
•
for residential property – £2,000
•
If the breach is for more than three months, the fines will be:
•
for commercial property – £10,000 or 20 per cent of the rateable value (up to £150,000)
•
for residential property – £4,000
2.
Cost effectiveness - Where it has been assessed that the recommended improvements would not pay for themselves over a period of seven years based on energy bill savings. Third party consent - If a third party such as a lender, freeholder or tenant has the right to prevent works from being carried out wit out their consent which it refuses or would grant only unreasonably conditionally.
3.
Devaluation of the property - Where the energy efficiency improvements will decrease the market value of the property by more than 5%. This will need to be confirmed by a report from an independent surveyor. An exemption will last for up to five years and will need to be pre-registered on a central register for a landlord to rely on it. At the end of the period, a landlord would need to carry out new reports and assessments or again seek third party consent (which is refused), for the exemptions to continue to apply and to update this on the register. It was intended that this database would be available from October this year, but that has been pushed back to October 2017. Failure to comply with the Regulations will result in landlords facing a financial penalty or a publication penalty, or both.
Breaches can be published in the exemptions register for a minimum of 12 months. Enforcement authorities can also serve a compliance notice to identify if there is a breach. Failure to comply with a compliance notice will result in a financial and/or publication penalty.
COMMENT Something landlords have to be careful of is that the changes brought about by the new Building Regulations introduced in April 2014 might result in a lower EPC rating. Consequently a current rating of ‘E’ could be downgraded to an ‘F’ if a re-evaluation is required, for example if the EPC expires after April 2017. These regulations do not apply to sales, and apply to England only. So ensure you finally take a look at your EPC’s and if you have an ‘F’ or ‘G’ rating, do something about it. ⌂
April 2016
LANDLORD INVESTOR
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Get advice on Buy to Let from the experts covering the following;
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INVESTMENT
COULD YOU REPLACE YOUR INCOME BY THIS TIME NEXT YEAR? Simon Zutshi property investors network In this article, I have been asked to dispel some of the myths and share with you exactly what it takes to achieve the life changing result of replacing your income by this time next year. We will consider how realistic this is for you and what could prevent you from achieving it.
FIRST OF ALL IS IT REALLY POSSIBLE TO REPLACE YOUR INCOME IN JUST 12 MONTHS? Well yes it is definitely possible because many other people have done it before you which means that you could do it. For some inspiration just have a look at these video case studies here http://bit.ly/ MM18CaseStudy To help you work out if you too could replace your income by this time next year, let’s consider some of the things which might prevent you from achieving your financial independence, so that you can do something to overcome these common obstacles.
April 2016
LANDLORD INVESTOR
LACK OF KNOWLEDGE First of all, you need to know what you are doing. Most people don’t actually have the specialist knowledge they require to achieve their goals. The good news is that you have to learn ALL of the strategies in detail, as this could take too long and also cause massive overwhelm. What we do is give people a really good overview of the main strategies so they can choose, which one is the most appropriate for them, given their personal resources. Then they can deep dive into the areas that they really want to learn about.
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If you don’t have the correct knowledge you will make unnecessary mistakes, which will cost you time, money and effort and may actually put you off investing altogether. Then good news is that with so much information available there really is no excuse for not knowing what to do.
LACK OF FOCUS You need to identify one strategy and stick to it until you get the results you want. Very often people dabble with one strategy, fail to get the results they want quickly enough and so they try another strategy in the hope that this will be the one for them. Then then repeat this pattern and wonder why they don’t get the results they desire. It is not really a question of how much time you have, but rather what you do with that time. 65% of the people on my 12-month Property Mastermind Programme either have full time jobs or they own busy businesses, so they only have a small amount of time available for their property investing, which means that they have to be laser focused to get the results they want. You might want to have a look at my article in last month’s edition of Landlord Investor Magazine about do you need to go full time in property. I know a number of people who are “Full Time” property investors but don’t achieve anywhere near as much as they would like because the tasks they have expand to the time available. This means they are not very efficient with their time but could be much more efficient if they were more focused.
LACK OF ACTION Knowledge alone is not enough. You need to put that knowledge into practice by consistently taking positive action to move you towards your end goal. When you are on your own, it can be really difficult to keep motivated and keep on track. This is where it can be invaluable to have a coach or mentor, who you speak to twice a month, to guide and support you and most importantly hold you to account to make sure you do the things you said you would do. The results that our delegates have achieved are even more impressive since we added One to One coaching to the Property Mastermind Programme.
LACK OF SUPPORT Property investing can be a lonely journey, especially if you don’t have the support of your partner, family or friends. That’s why it is really important to find a like minded group of people who can encourage you and give you the moral support that we all need at times. I would love to claim the glory for the success of all of our delegates but it is not down to me. The power of the group is the truly unique environment that has evolved through the Property Mastermind. This is the only programme which has this incredibly supportive and abundant environment where everyone shares their knowledge and skills for the benefit of the entire group. We are not the biggest property training company in the UK, but we do have the highest number of successful students, who consistently achieve life changing results in relatively short periods of time.
April 2016
LANDLORD INVESTOR
INVESTMENT
Some people think they need to know everything before they can do anything! As a result, they are so busy learning, that they don’t actually do anything with their newly acquired knowledge. Instead of trying to learn everything you need to surround yourself with an expert power team. For example, I understand about planning but I am certainly not an expert on it and so whenever I have a planning issue, I bring in my planning consultant to whom I pay a fee, but she ends up saving me money because the job always gets done quicker and better than I could do it.
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INVESTMENT
LACK OF MONEY This is probably one of the biggest reasons people don’t invest in property because they think they need a lot of money to invest. When you have the correct specialist knowledge, you will realise that you don’t need a lot of your own money to invest, because you can use strategies such as Rent 2 Rent or Purchase Lease Options, which are low capital requirement strategies. Or you can find and work with Joint Venture partners or private investors who can put the money in for you. These are easier to find than you might expect once you get good at finding great deals. If you have your own funds, then of course it should be easier to get going quickly but no matter how much you have, at some point you will run out of money. You may find this hard to believe, but sometimes I meet people who have plenty of money but because they want to make the most of their funds, they are very fussy about what they do with it, and end up holding onto it looking for the perfect deal to put it into, often turning down the opportunity to do joint ventures with people who have great deals, just because they want to save their money in case something better comes along. This is whilst the people with no money just get on with it and use other people’s money. I think a lack of money is actually a lack of the correct mind-set. You really do not need a lot of your own money once you know what you are doing. As we have seen, lack of knowledge, lack of focus, lack of action, lack of support and a lack of money could all hold you back if you allowed them to but they can all be overcome if your vison is big enough and you have the determination to keep going until you get the results you want. As a final suggestion, when you know what your goal is, break it down into smaller bite size steps so that you know what you need to do each month, week and day.
YOUR TIME TO STEP UP If you have been a subscriber to YPN for some time, you will have read about countless people just like you, from all walks of life, from all over the UK, who have achieved incredible result in a very short time
April 2016
LANDLORD INVESTOR
by committing to their success and joining the Property Mastermind Programme. But what about you? When are you going to step up and let us help you to achieve your property ambitions? By this time next year, you could be one of the inspiration case studies sharing your story about how you more than replaced your income. How would that change your life? Since April 2007 we have provided the very best 12-month training and mentoring programme in the UK for people who want to make a step change in the success and results on their property investing journey. The educational content of the 12-month programme is constantly being adapted and updated to meet the ever changing conditions of the property market so that you learn the latest, cutting edge strategies that work best in the property market right now. As we have experienced the property market boom, bust and rise again we know exactly what works and what you need to do to replace your income in the next 12 months. The results achieved by our delegates get better and better each year, so isn’t it about time that you made the commitment to your success and come and join us on the Property Mastermind Programme. We limit the number of delegates on each 12-month programme to create the optimum learning environment. We start two of these Property Masterminds Programmes each year and our 21st Programme starts at the end of April. If you act now you could secure one of the few remaining places. The next Programme does not start until October this year. And finally, you can’t just pay to join us, everyone needs to apply to join. This is because we have a strong track record of results for our delegates, which we are very keen to preserve, so rather than allowing just anybody to join us, we want to make sure that the Property Mastermind Programme is perfect for you and that you are right for it. Why not take the first step now and find out everything you need to know about the Property Mastermind Programme by registering your interest here: www.Property-Mastermind.com ⌂
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FORUM CONFERENCE & BANQUETING SUITES
FREE ENTRY FREE / 9AM ENTRY - 3.30PM / 9AM - 3.30PM WEDNESDAY 18TH MAY WEDNESDAY 25TH MAY
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INVESTMENT INVESTMENT DEPOSIT LANDLORD DEPOSIT NETWORKING LANDLORD INSURANCE TAX ADVICE MORTGAGES INSURANCE REFERENCING MORTGAGES REFERENCING SEMINARS SEMINARS OPPORTUNITIES OPPORTUNITIES SCHEMES ASSOCIATIONS SCHEMES OPPORTUNITIES ASSOCIATIONS
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LANDLORDS
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SEMINARS UP TO 40 DELIVERED COMPANIES UP TO 40 BYSHOWCASING INDUSTRY COMPANIES SHOWCASING EXPERTS THEIR SERVICES
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NETWORKING OPPORTUNITIES
UP TO 40 ALL ASPECTS OF COMPANIES THE PROPERTY ALL ASPECTS OF SHOWCASING SECTOR COVERED THE PROPERTY THEIR SERVICES SECTOR COVERED
ALL TH SEC
OVER 30 OVER SEMINARS OVER2030SEMINARS SEMINARS HELD HELD BY LEADING HELD BY LEADING INDUSTRY INDUSTRY EXPERTS: BY LEADING INDUSTRY EXPERTS: EXPERTS GARETH CLIVE BERTRAM EMSON
MARIE BERTRAM PARRIS GARETH
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How to avoid a An Auctioneers Lot! Potential Loss
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CHRIS CLIVE EMSON ROWELL
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LANDLORD INSURANCE
RENT GUARANTEE INSURANCE Steve Cox - Alan Boswell Group
WOULD YOU BUY A RENTAL PROPERTY AND LET SOMEONE LIVE IN IT FOR FREE? By not taking out rent guarantee insurance you could very well be putting yourself in that situation. Rent guarantee insurance provides a critical safety net for the primary source of income from your property.
WHAT IS RENT GUARANTEE INSURANCE? Rent guarantee insurance (or rent protection insurance) as you would imagine protects the rental income for your property. As long as you follow a few simple steps your rental income can be protected for up to 12 months in the event of a default by your tenant(s). Rent guarantee insurance through Alan Boswell Group also includes property legal expenses cover.
April 2016
LANDLORD INVESTOR
WHAT DOES RENT GUARANTEE INSURANCE COVER? Some of the key benefits for rent guarantee insurance are as follows:
• •
Cover up to £25,000 of rental income Covers monthly rent up to £2,500 of rental income • Cover for up to 12 months from date of claim • Includes legal expenses cover to help with repossession of your property and other property related issues • Access to a 24/7 365 days a year legal helpline • Access to online health and safety documentation
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LANDLORD INSURANCE
WHAT DOES RENT GUARANTEE INSURANCE COST? Rent Guarantee insurance costs £75 on a standalone basis (£60 if taken with Alan Boswell Group landlord insurance). For such a small outlay you can protect up to £25,000 of rental income providing you with peace of mind.
WHO ARE ALAN BOSWELL GROUP Alan Boswell Group is one of the UKs leading Landlord Insurance providers. Current holders of the Insurance Time Independent Insurance Broker of the Year and Landord and Lettings Awards Supplier of the Year. With five star rated unique products and experienced friendly staff we can provide an excellent service for you. ⌂
April 2016
LANDLORD INVESTOR
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LEGAL
PHENOMENON IS A GROWING ISSUE FOR LANDLORDS Paul Shamplina - Landlord Action
LEADING TENANT EVICTION FIRM, LANDLORD ACTION, SAYS THE AIRBNB MODEL POSES A GROWING THREAT TO LANDLORDS. Over the last 12 months, the number of cases Landlord Action has received, where tenants have sub-let properties without their landlord’s permission, has trebled. Aside from breach of tenancy agreement and additional wear and tear to the property, landlords are left exposed to being in breach of their mortgage terms and buildings insurance.
Joy thought she had found the perfect tenant in a young doctor who wanted her home for a three year lease. It all seemed very promising until she started receiving emails and calls from her neighbours complaining about the volume of people coming and going at her house.
The share economy is a growing phenomenon, with models such as Airbnb giving people a platform to view themselves as a business. Unfortunately, it is also enabling those who do not have the right to do so, from profiting from someone else’s asset. The problem was highlighted by one landlord’s ordeal on the Channel Five programme ‘Nightmare Tenants, Slum Landlords’ on Wednesday 20th April 2016. The episode showed Joy Philips, a landlord who decided to let out her West London home so she could afford to take time out to volunteer at an orphanage in Africa.
Joy was shocked to discover that her house was not being used as a home for the young doctor, but being rented out room by room as a boutique hotel on the Airbnb website. Making thousands over the rent being paid to Joy, her tenant was breaking the no sub-letting clause in her contract. By having so many people in the house, Joy’s home insurance was also at risk of being void. Joy was forced to give up her volunteer work in Africa to return to the UK and call in eviction specialist Paul Shamplina, founder of Landlord Action, in the hope of getting her property back.
April 2016
LANDLORD INVESTOR
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Paul Shamplina, who recently highlighted his reservations surrounding Airbnb in an interview with Richard Quest on CNN, comments:“We have had concerns for some time now regarding the protection of properties which are being uploaded and offered as holiday lets via Airbnb.
Whilst Airbnb do provide a level of protection for hosts, naturally certain conditions and limitations do apply. My concern is that there is not enough safeguarding with regards to obtaining proof from the individual who is advertising the property that they are the legitimate owner. Or, if they are a tenant, that they have consent from their landlord to rent out the property in this way. Banner Advert for landlord zone W190mm x H130mm D2.ai
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This is a growing trend which needs to be stamped out as soon as possible. It’s extremely important that if landlords start to receive complaints, especially if they have never had any such trouble in the past, that they carry out an inspection of the property to ensure it is not being used in this way without permission.” ⌂
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April 2016
LANDLORD INVESTOR
LEGAL
We continue to receive a growing number of instructions from landlords who want us to start possession proceedings against tenants who have sub-let their property via Airbnb without consent.
We have seen cases where, quite clearly, tenants are making thousands of pounds from exploiting the service to a high volume of holiday makers on a weekly basis. In a recent case, it was thought that more than 300 people stayed in a landlord’s property in one year, unbeknown to the landlord. As well as damage to properties, landlords have received complaints from block managers with regards to being in breach of their head lease and unhappy neighbours in relation to anti-social behaviour, and that’s before considering issues regarding HMO licensing and possible invalidation of insurance and mortgage terms.
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April 2016
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THURSDAY 7TH JULY 2016
Due to the massive success of our Landlord Investor Race Evening (July 2015) at Epsom Downs Racecourse, we are delighted to announce its return... Thursday 7th July 2016 - 2pm - 9pm - FREE ENTRY! This time it’s going to be bigger and better with an exhibition in the Duchess Stand (Doors open at 2pm) which will Include many exhibitors within buy-to-let and seminars delivered by “Industry Experts” which will cover Landlord Tax Advice, Tenancy Deposits, Landlord Insurance, Investment Opportunities plus much more. (More information on Exhibitors/Speakers to be announced shortly). Come 5pm the venue will be transformed for the exciting racing event will be staged at the picturesque Racecourse itself in Surrey. Located only 35 minutes from central London. What better way to spend a summer evening combining business with pleasure, than at Epsom’s Landlord Investor Race Evening. Come see us on 7th July, tickets are totally complimentary to attend the Exhibtion and the Landlord Investor Race Evening.
For more information and to book your COMPLIMENTARY tickets for the day, simply visit:
LANDLORDINVESTMENTSHOW.CO.UK/RACEDAY2016