LANDLORD | PROPERTY | INVESTMENT
LANDLORD INVESTOR MAGAZINE 33 RD EDITION | 2017
LANDLORD INVESTMENT SHOW 2017 REVIEW / HAMMOND’S HOUSE BUILDING VISION / TOP 10 TIPS FOR LANDLORDS / SHOULD YOU BE DOING DEVELOPMENT PROJECTS? / WHY PASSIVE PROPERTY INVESTMENT SUITS THE VAST MAJORITY / TPO LAUNCHES PHASE THREE OF LETTINGS FEES CAMPAIGN / GOVERNMENT BY CONSULTATION? / LANDLORD INFORMATION OF WATER COMPANIES ONLINE / BUY-TO-LET ROLE IN UK HOUSING / COUNCIL ADVISES TENANT TO BREAK IN / GATHERING WINTER FUEL
HAMMOND’S HOUSE BUILDING VISION TOM ENTWISTLE DISCUSSES THE GOVERNMENT'S PLAN TO EASE THE HOUSING CRISIS
WRITTEN BY INDUSTRY EXPERTS COVERING ALL ASPECTS OF BUY-TO-LET
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Welcome
With the Budget now announced and the additional taxation for landlords not coming to fruition as feared, it’s been mixed year for private landlords. The Government is now permanently raising the price at which a property becomes liable for Stamp Duty Land Tax to £300,000 which is likely to fuel house price changes, rather than help first time buyers, yet will landlords see any effects of this unless they’re selling up? For the Tories, it may not be great news either - the 300,000 homes pledged to be built to ease the housing shortage won’t be happening until 2020, and the Tories are having had to deal with younger voters deflecting in their droves – especially as housing prices are likely to continue to rise. Even so, the Conservatives policy moves (help-to-buy, build-to-rent and freeing up the planning system) over the last few years have shown long term results. See Tom Entwistle’s feature on page 13 to get his take on how this availability of new housing will affect the BTL market in the next few years. For those new to the market, there is a lot to take on board –Russell Conway from Oliver Fisher Solicitors offer advice on the landlord’s position where the law is concerned to and how to ensure they don’t fall foul of it. For the larger scale landlord, there is always the allure of the larger development to make a profit – and in this issue, Simon Zutshi, entrepreneur and best-selling author, takes us through the potential pitfalls to avoid. Similarly, Paul Mahoney at Nova Financial gives advice on getting the right experience and building slowly in the complexity of your projects as you gain more skills, in order the minimise risk. Here at Landlord Investor Magazine, we’re looking forward to the next National Landlord Investment Show at Olympia in March where we will be hosting another Expert Property Panel on the challenges arising from these recent fiscal announcements. With 8 shows announced for 2018, including a new venue in the property hotspot of Liverpool, it’s a perfect chance to keep up to date and network with experts, landlords and leading suppliers for buy-to-let services to ensure you have the knowledge you need to make your investments a success. Register today at landlordinvestmentshow.co.uk Happy 2018!
Editor Tracey Hanbury editor@landlordinvestmentshow.co.uk Design Marc Riley Advertising Beverley Meliniotis Marketing Anna Jackson
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LANDLORD INVESTOR MAGAZINE
Editorial Contributors Tom Entwistle Russell Conway Simon Zutshi Paul Mahoney Peter Littlewood Andrew Turner Mike Morgan
Contents
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Statements and opinions expressed in articles, reviews and other materials herein are those of the authors; the editors and publishers. While every care has been taken in the compilation of this information and every attempt made to present upto-date and accurate information, we cannot guarantee that inaccuracies will not occur. Tenants History Limited and our contributors will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through the promoted links.
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Show Update Landlord Investment Show 2017 review
Industry Update Hammond’s house building vision
Professional Advice Top 10 tips for landlords
Investment Should you be doing development projects?
Investment Why passive property investment suits the vast majority of people
Regulatory Update TPO launches phase three of lettings fees campaign
Industry Update Government by consultation?
Industry Spotlight Landlord information of water companies online service
Buy-to-let update Buy-to-let could play an evergrowing role in UK housing
Landlord Action Council advises tenant to break back into landlord’s property
TDS Gathering winter fuel
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SHOW UPDATE
2017 shows in review The 11 National Landlord Investment Shows in 2017 have drawn to a close, hosting over 20,000 landlords and investors, 600+ exhibitors and over 180 seminars.
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33RD EDITION LANDLORD INVESTOR
SHOW UPDATE
Throughout 2017 the show seminars have reached a total of 10,000 attendees.
Our UK’s leading landlord exhibition provided new and seasoned landlords/ investors with solutions, networking, advice and support within the buy-tolet market. The flagship London Olympia shows were each attended by more than 3,500 landlords & investors. These shows also introduced our Expert Property Panel debate, which featured property experts on the panel and an audience of 450+ attendees per debate. The panels featured names such as Rt Hon Iain Duncan Smith MP, Fionnuala Earley, Chief Economist of Countrywide UK, Richard Bowser, Editor of Property Investor News, David Smith, Economics Editor of the Sunday Times. The inaugural debate at June’s Olympia show sparked off lobbying to Parliament by guest speaker Iain
Duncan Smith MP. These debates have gained national and industry press coverage around prohibitive landlord laws. Iain Duncan Smith spoke further in the November Show about Universal Credit, tax changes and which conditions can work in favour of landlords now and in the future. The show has enabled renowned industry suppliers such as Ikea, RBS, Shawbrook Bank, Endsleigh Insurance, Purple Bricks, Less Tax for Landlords, Loft Interiors, and Countrywide the opportunity to reach landlords throughout the UK, becoming a vital platform for brands to launch new products and services direct to the property market. Paul Mahoney MD of Nova Financial attests to the show’s effectiveness, 'National Landlord Investment Show has been great for our business. We speak with a very broad range of people from 1st time investors to very experienced portfolio landlords. We have been
What the market says... 'Landlord Show - great event. Please keep them running, very informative and wide range of new businesses in the industry, which is great.' Client in Wimbledon, 10 November 2016, verified by email on Checkaprofessional
'On the day, I attended 4 very different presentations. All the speakers were experts, gave very useful advice and were very helpful. Well worth attending.' Client in Warlingham, 9 November 2017
'Absolutely brilliant show, busy, lots of people, excellent seminars and the panel debate was superb. Thank you.' Client in St. Neots, 7 November 2017
LANDLORD INVESTOR 33RD EDITION
exhibiting since 2015 and have steadily grown our presence due to the success of the events.' Throughout 2017 the show seminars have reached a total of 10,000 attendees and have been delivered by market leaders offering complimentary insight and advice. 2018 sees the National Landlord Investment Shows reaching 8 destinations throughout the UK, with the addition of a third London Olympia show in March and a brand new location - Liverpool. Exhibitors already confirmed for next year includes Mortgages for Business, Envirovent, Barnet Homes, Shawbrook Bank, The Loan Partnership plus many more. For more information and to view the Official Show Video please visit landlordinvestmentshow.co.uk
About Landlord Investment Show National Landlord Investment Show is the UK’s leading property investment exhibition, providing solutions, networking and advice for new & seasoned investors in the buy-to-let market. Established in 2013 and operating in property hotspots throughout the country, it has now run 54 shows successfully, and has provided property investment solutions for over 20,000 landlords in the last 12 months alone - a growth of 31% since 2015. www. landlordinvestmentshow.co.uk
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SHOW UPDATE
Olympia show highlights
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33RD EDITION LANDLORD INVESTOR
INDUSTRY UPDATE
TOM ENTWISTLE LANDLORDZONE
Hammond’s house building vision The government has a problem with the housing market. It’s a serious one for the Conservatives as, among other issues, it’s resulting in younger voters looking to Labour.
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33RD EDITION LANDLORD INVESTOR
INDUSTRY UPDATE
In their frustration with spiraling housing costs, and the impossibility for many to get onto the housing ladder, the young, and particularly “Generation Rent” are deserting the Conservatives in their droves. So for the Conservatives, the party that was always traditionally the one favouring and promoting home ownership, the November Budget is a crucial one; not just for Philip Hammond’s personal future as Chancellor, but also for that of his party at a future election, whenever that may be: the Conservatives know they must do something pretty drastic to “stop-the-rot” where young voters are concerned. Granted the growth in renting has been a boon for buy-to-let investors, with the number of UK households making money from property tripling since 1980, while young would-be first time buyers are kept off the housing ladder. But the resulting social divide is becoming too stark for comfort: whereas younger people are priced out, some paying up to 50% of their income in rent in London, their parents
and grandparents are the beneficiaries of several decades of way-above inflation house price rises. To compound the matter even further, many of these parents and grandparents, the “Baby Boomer” generation, are the beneficiaries of rental income themselves. More than 6% of UK households are now receiving additional income from spare rooms, holiday homes and rental properties. However stark the social problem, the proposed solutions are equally stark and they are binary: whereas labour want to cap and control rents, increase security of tenure for tenants, and build state owned housing, the Conservatives’ approach is to leave the existing housing tenure rules largely alone, but use the market itself to bring housing supply and demand into balance, mainly by persuading the private sector to build more housing. The former approach is anathema to most landlords: it would undoubtedly result is a mass exodus of landlords from the private rented sector (PRS).
What investor in their right mind would continue to support an industry where their returns are capped, their properties become a maintenance liability and they are unable to remove bad tenants without going through a long drawn out and tortuous legal process. Buy-to-let would no longer be the attractive investment it has been, and the knock on effect would be even fewer houses to let, and higher rents. On the other hand, the Conservative’s approach is more long-term; dependent on the private sector being willing to really step-up their investment into the sector, providing more low cost housing (something that to some extent is against their profitability objectives) and more houses for managed renting. To be fair, the policy moves (help-tobuy, build-to-rent and freeing up the planning system) over the last few years are showing results: there is a lot of this type of development in the pipe-line, and it is beginning to have an effect, unfortunately, in some locations, to the detriment of the small-scale private landlord.
However stark the social problem, the proposed solutions are equally stark.
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INDUSTRY UPDATE
Mr Hammond has pledged to build 300,000 homes a year.
The fact that the cost and availability of housing has become a hot political issue in the UK, as it has in other developed countries around the world, is focussing the minds of politicians more than ever. The budget has been dominated by measures around housing because of this. However, there is one school of thought that says that it is not so much a shortage of housing - though shortages do exists in some locations - that causes high house prices and rents, it’s more to do with the availability of cheap credit and high land prices. Labour blames the “housing crisis” on a failure to build more government funded social housing and the sale of council housing, and the Conservatives tend to blame it on the inertia of a “nimby” influenced bureaucratic planning system. Mr Hammond has pledged to build 300,000 homes a year, but in fact the current figures show they are not all that far behind this. According to the FT, in the year to March 2017, 183,570 homes were built in England, the most since 2008. But conversions and changes of use (many of these will have been provided by private landlords) took the total net new supply to 217,350. Accurate statistics in this area are hard to come by and are sometimes contradictory. For example, in 2008, it was estimated that 280,000 UK homes would be required until 2016. But by
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2012, after the financial crisis hit, that estimate dropped to 231,000 a year. Add to this the complications with mass immigration and the Brexit effect on household formation and you have a situation where it’s hard to foresee and plan exact numbers for housing supply and demand. But that does not get away from the fact that people are very angry about the current state of the housing market. At around one-quarter, the number of young people still living with their parents is quite a bit higher that in was in the 1990s, and according to the Resolution Foundation around 40% of under 30 year olds are renting privately. There’s a lot of pent-up frustration within these figures and potentially a lot of votes for whichever party can come up with convincing answers. These statistics show that house prices are a real issue with young people, but are high house prices solely a matter of unbalanced supply and demand? Going back to the 1970s, mortgage availability was severely restricted, and the buy-to-let mortgage was unheard of; landlords could borrow only at commercial rates, quite a bit higher than residential mortgages then were. Move on to the more relaxed era of credit regulation starting in the 1980s, and a much bigger expansion in lending brought about by the pre-crash securitisation model, and a world-wide housing price boom was the result.
So, easier credit, poor returns on savings and favourable tax treatment for property ownership created an environment where people with money favoured investing in rental houses above other kinds of savings and investment. This was because they perceive them as familiar, tangible and safe. But the picture has been rather different when it comes to investing in, and the building of, new housing. According to an FT study: “The steep rises in the value of land as it moves through the planning process are a major driver of profits for landowners and housebuilders, who have the legal expertise and financial resources to endure the often lengthy process. But the fact that land with permission to build is so costly, up to half the final selling price in some areas, is a major reason why British houses are small, poor-quality and expensive.” Building more homes is undoubtedly a laudable aim for the government, something that will increase choice and availability, but its effect on house prices will be more long-term. Reducing available credit to any great extent will be politically unacceptable, and any major reform of the planning system will be up against the wealthy residents such as those of the prosperous Home Counties around London and the South-east.
33RD EDITION LANDLORD INVESTOR
INDUSTRY UPDATE
Increasing the supply of houses to rent is likely, at least in the short-term, to be a more effective way to reduce housing costs, if not the price of housing. In this regard, the government has a programme to incentivise institutional investment in rental housing - the buildto-rent scheme - which is having some success. It is perhaps understandable that the government has to some extent clamped down on extending more and more credit to buy-to-let landlords, for fear of another market crash. And it is being forced politically into creating a more regulated PRS due to the antics of a not insignificant cohort of rogue
landlords. But are these policies, along with punitive landlord tax measures, preventing the very thing that could help save the housing market: small-scale buy-to-let landlords investing more of their own hard-earned money? Increasing the supply of rentals would undoubtedly have a positive shortterm impact on the housing market. So, although a stamp duty cut will be a headline grabber, much more meaningful in my view would be a strategy of growing the private rented sector as an alternative housing tenure. It would reduce rent levels and incentivise first-time buyers to save for a deposit for longer-term ownership.
Fixing the housing market by building more homes has been a key objective of governments going back several generations, and none has so far achieved it. That’s not to say it’s not a good thing for the present government to meet its stated house building targets. Helping private landlords to increase the national stock of private rentals, in the face of high house prices and continuing high demand from tenants, would be very desirable in the short-term. Tom Entwistle is Editor of LandlordZONE® and an experienced landlord.
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LANDLORD INVESTOR 33RD EDITION
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PROFESSIONAL ADVICE
RUSSELL CONWAY OLIVER FISHER SOLICITORS
Top 10 tips for landlords Russell Conway is speaking at the National Landlord Investment Show, 15th March at London Olympia. For more information please go to www.landlordinvestmentshow.co.uk
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33RD EDITION LANDLORD INVESTOR
PROFESSIONAL ADVICE
1. The most important part of the tenancy happens long before a tenant actually moves in. The landlord has to know who his tenant is going to be and that involves due diligence. Credit referencing, hard-core documentation such as the tenant’s last six months bank statements, pay-slips and P60s. What landlords do not need is kind words from friends or relatives who may not have the landlords interests at heart. Until a landlord is absolutely sure that the tenant is going to be good for the rent and not going to trash the property the tenant should not be allowed to progress with the letting. 2. Landlords need to get their ducks in a row before the tenancy is granted. The deposit needs to be protected. Details of this are given to the tenant along with statutory information which is required. An EPC (Energy Performance Certificate) must be given in each and every case along with a Gas Safety Certificate in the required format and the Department for Communities and Local Government (“How to Rent” Guide). If you do not serve these documents at the commencement of the tenancy problems can arise if you need to serve a Section 21 Notice on the tenant . 3. A proper inventory check should be carried out in every case whether or not the premises are furnished or unfurnished. The inventory check-in should be accompanied by as many photographs as possible, setting out the condition of floors, windows, furniture and decoration. The photographs should show the inside of cupboards, refrigerators and ovens.
4. Do not let your tenant move in without cleared funds in respect of the rent and the deposit and never let a tenant move in until the Tenancy Agreement has been signed. If there is a guarantor make sure that you have done your due diligence on the guarantor as well as the tenant and ensure that the tenant does not move in before the guarantor has signed up. Only give the keys to the tenant when you have done all the above. 5. Check the flat regularly. You will not want the flat being used as a cannabis farm or a brothel nor would you want the flat to be used as an Air BNB. It is good to keep an eye on what is going on and who is living in the premises. 6. Keep a careful eye on any breakclause that you have in the tenancy agreement. Most break-clauses are quite prescriptive as to how they can be exercised and when they can be exercised. If you want the premises back at the end of twelve months you need to know exactly when a notice needs to be served. If you make a mistake it could be that if the document has been drafted in a certain way you may have to wait another year. 7. If the tenant moves out amicably and by consent you must do a check-out report, take photographs, and ensure that the tenant has complied with the terms of the tenancy agreement. Most tenancy agreements would have a clause compelling a professional clean. Has such a professional clean taken place? Again, it is of essence that you
take photographs so that if there is a dispute at the tenancy deposit service you can show the condition of the property when the tenant vacated. 8. If the tenant will not move out the landlord cannot just throw the tenant out. That is breach of the Protection from Eviction Act. Instead you will have to commence possession proceedings in the county court. Be careful with possession proceedings as some of the papers that need to be filled in at the court can be complex. If you need help with possession proceedings or you want to do them yourself perhaps an hour’s interview with a solicitor will give you the basics as to how to complete the documentation. 9. Having obtained an order for possession in the county court you still cannot get rid of the tenant. You have to instruct the county court bailiff, The county court bailiff can be very slow and in parts of London you can wait six weeks to get an eviction date. There is an option of transferring the matter up to the High Court Sheriff but that does involve extra documentation and considerable extra fees. 10. If the tenant has moved out without possession proceedings and the premises are in good order you must make a judgment call on how much of the deposit you return to the tenant. With the tenant’s deposit protected at one of the deposit schemes if you choose not to give all the tenancy deposit back you may get yourself involved in arbitration or worse still court proceedings.
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LANDLORD INVESTOR 33RD EDITION
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INVESTMENT
SIMON ZUTSHI
Should you be doing development projects? Over the last few months in Landlord Investor, there have been several articles and features about doing bigger deals such as commercial to residential conversion projects. These development deals can be very profitable and so they are very attractive to many investors, but are they right for you? This article is designed to help you find out and pick the right strategy for you.
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33RD EDITION LANDLORD INVESTOR
INVESTMENT
I love doing big development deals. If done effectively, it is possible to make hundreds of thousands of pounds from just one deal. However, doing these larger deals is very different from straight forward property investing. They often take much longer than expected, cost more than you thought and they usually don’t make as much money as you hoped. Don’t get me wrong, big developments can still be well worth doing, but I think is it really important to understand what is involved so that you can decide if this is the best and most appropriate strategy for you to follow. Doing bigger developments maybe something you should consider doing in the future, but is it the right thing to do right now? Why are you investing in the first place? When I ask people why they are interested in investing, they often respond by saying they want to make money. Well yes, property can
certainly make you money, but you need to be clear, do you want to increase the amount of capital you have or do you want to gain cash flow from property? With development projects you make your money at the end of the project, when you either sell the completed units, or refinance and then rent them out. These projects can take as long as a year or more, during which you gain no cash flow, in fact you usually have to put a lot of money into your development project, which can be a drain on your cash flow. Whilst you can make a big lump sum of cash at the end of the project if you sell the completed units, you are never going to make any more money from that project. To make more money you need to do another deal. This is why I like to hold property for the long term to benefit from monthly cash flow as well as long term equity growth. Most of the people I meet who want to start investing in property, want to gain cash flow as soon as possible to
replace their income, or give them a safety net in case something happens to them. If this describes you, then I suggest you use strategies to give you monthly cash flow first, then you can consider doing some of these bigger development deals. Do you have the specialist knowledge? You may already be a successful property investor and even have completed a number of small property refurbishments, but buying property is very different from being a developer. There is so much more involved in big developments in terms of specialist knowledge, regulations and requirements that you need to make sure you don’t try to run before you can walk. Many of my students have progressed onto doing large development projects but only after becoming proficient at small projects on which they have learnt and sometimes made mistakes, which is much better than making mistakes on bigger projects, where mistakes can be very costly.
You may already be a successful property investor but buying property is very different from being a developer.
How do you finance your projects? Larger deals require more deposits and more funding. I have worked mainly with private investors to fund most of my projects when I realised how hard it can be to raise money from traditional banks. This is why I set up the property specialist, peer-2-peer lending platform www.CrowdProperty.com to help developers to raise the money they need to fund their profitable projects. This has proved very popular with experienced developers who like the idea of paying all of the loan interest at the end of the project, instead of having to give profit share away to an equity partner. If you are looking for funding for any development project, you should have a look at the CrowdProperty platform.
LANDLORD INVESTOR 33RD EDITION
If not development, which strategy is right for you? There are many different ways to make money in property. There is no one strategy that fits all. The most appropriate strategy for you will be influenced by a number of factors such as: what you are looking to achieve, your timescales, your experience, and the resources you have available to you, in particular time and money. Do you have the right team around you? Although I have completed millions of pounds of development projects, I don’t claim to be a property development expert, far from it. There is a huge amount that I don’t know
about development, which is why I rely heavily on my team of expert advisors. Instead of trying to learn and do everything myself, I bring in experts in each area who are far more experienced than me, and will do a much better job than me. Of course, I have to pay these people for their expertise, but there is plenty of profit in the deal that I can use to cover this expense. A mistake that I see many investors make, is that they don’t like to pay for expert advise. They cut corners, try to scrimp and save, and end up making mistakes which wastes time and money. I pay planning consultants, and experienced project managers to oversee the development projects on my behalf, to make sure we run to time and to budget. The money I spend is well worth it and factored into the overall projects costs.
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INVESTMENT
There are four different Strategy profiles which are: Funder, Finder, Connector and Elector.
I would like to share a free resource with you, which will help you identify which strategy might be most appropriate for you given your personal resources. You can take this free test here: www. StrategyProfileTest.com It is a very quick test where you answer just five questions and it will generate a 6 page pdf report which will help to identify the most appropriate strategies for you. I recommend you take the test now. It is completely free and it could save you a huge amount of time and effort by avoiding doing the wrong strategy. For example, if you are short of time, then picking a strategy such as rent to rent may not be a suitable strategy for you because it is generally a labour and time intensive strategy. The Strategy Profile Test has been designed to help you identify which property investing strategies might be most appropriate for you, given your personal circumstances in relation to the amount of time and money you have access to. There are four different Strategy Profiles which are: Funder, Finder,
Connector and Elector. Once you know your Strategy Profile and understand the other three Strategy Profiles, then you will be in a better position to identify other property investors who may have access to resources that you don’t have, which means that you can reach your goals faster than you would otherwise with just your own resources, which may be limited. You can be far more efficient at property network meetings finding the right people who you can help and who can help you. At some point you will run out of your own resources. Successful investors achieve much more by working with other people for mutual benefit. I hope you have found this article useful in deciding if you are ready to be doing big development projects or not. Invest with knowledge, invest with skill Simon Zutshi Founder property investors network, author of Property Magic.
Take the test now Invest 60 seconds to take the Strategy Profile Test now to confirm exactly which profile you are, and learn more about how you can make the most of your strengths and how to find other investors who can make up for the resources you lack. You will learn more about the strategies which are best for you and also how to move forward. You also get access to some free online training all about the strategies most appropriate for you. Take the test for free now: www. StrategyProfileTest.com It can be a lonely journey as a property investor, but you don’t have to do it on your own. One of the best ways for you to: gain support from like minded people, be inspired by what other people like you are achieving in your area, and learn some of the specialist knowledge you need to help you achieve your property goals, is to commit to your own success, and regularly attend your local monthly, property investors network (pin) meeting. There are 50+ pin meetings all over the UK so there is bound to be a pin meeting close to where you live, work or invest. Why not give yourself a great start to 2018, and book your place at your local January pin meeting now: www.PinMeeting.co.uk
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33RD EDITION LANDLORD INVESTOR
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INVESTMENT
PAUL MAHONEY NOVA FINANCIAL
Why passive property investment (not property development) suits the vast majority of people 20
33RD EDITION LANDLORD INVESTOR
INVESTMENT
When it comes to investing in property, we really view it the same as we view any other investment option, and that is as a means to an end, a way of better utilising your money to better contribute toward financial freedom in the future, or an early retirement, or even just a normal-age retirement but with a comfortable lifestyle.
We meet with a lot of people who are looking to buy and renovate or convert commercial properties to residential property or from scratch property development, and that is often spurred by something they've read, or a TV show they've watched, or maybe a seminar or a program that they've attended.
expertise cannot be learned in a matter of days, or weeks, months or even years. It's a very detailed process, and I've come across far too many people that have been burnt, that have taken that leap to develop property without the right experience and without the right expertise. There is just so much that can go wrong.
might incur, and then also making sure that you're not going to run into any economic issues such as a recession half way through your build, which might impact upon your funding or the stability of your contractors and their ability to actually deliver on the promises or the contracts that you've put in place.
Often, those people that we are meeting have absolutely no experience when it comes to developing property or to managing a project of such a scale. An analogy that I often use for this is that you don't read an article, or do a course, or attend a seminar and then start performing brain surgery.
For example, if you do go down the route of choosing a main contractor to manage all of your subcontracts such as an electrician, a plumber, a plasterer, all those things that are required for a renovation or a development project ... If you choose somebody else to manage that for you, then that person essentially has your livelihood in their hands. You need to have absolute confidence that they're going to do the best possible thing for you to minimise cost, minimize time, get everything done as quickly as they can and therefore, deliver the most possible profit.
There is just so much more risk involved. Property Development is a business. It's a profession. It is very, very different to passive investing and therefore, of course you'd expect to make more profit from it because you're taking so much more risk which isn’t always the case. Any development or renovation projects will male 10-15% which we’ve had clients outperform just by buying off plan and doing nothing. For all the success stories that you hear in this realm of property investment, I'm telling you there are significantly more failures, especially when we're talking about people that don't have experience in this area.
The reason for that analogy is property development is a profession not a hobby. It's something that people spend years and years perfecting and working for other people to learn that trade, how to manage contractors, or even just a main contractor to make sure they're doing the right job for you and deliver a profitable project. That's not something that you can just learn overnight. Regardless of the people that you might speak with that tell you that there's so much money to be made in property development, and therefore, why would you want to go and invest in property passively and achieve average returns of 5 to 10% yields and 5 to 10% growth? To be honest, that can actually be quite strong returns, especially on your deposit when you're using leverage to multiply that return on the overall asset. In our experience, though, you are far better off investing passively if you don't have the expertise in property development, and I must stress that
LANDLORD INVESTOR 33RD EDITION
What incentive does that person have to do that to start with? Unless you're incentivising them based upon cost and profit, which of course, you could do, firstly, you need to make sure they're a trustworthy person. You can also do that. You can look at testimonials. You can look at all these things that these people might have done in the past, but again, without any experience, are you going to do that efficiently? If you're going to manage it yourself, things become a lot more complex. I wouldn't recommend that even more so, but I suppose if we break it all down so far as picking a main contractor, making sure there's no issues so far as the design process, a sound structure, or planning or extra costs that you
I'm not trying to be discouraging. I'm being realistic. I would strongly recommend when it comes to starting out in property investment to build your way up in complexity. Start with something quite passive and simple. Build up toward doing perhaps small-time renovations. Then, you can work your way up to bigger projects, which is the general, intelligent way of doing anything rather than jumping in the deep end at the start before you have the expertise or the knowledge to do it. If you have any questions or would like to determine how Nova Financial can be of assistance, please call 0203 8000 600, visit www.nova.financial or email; info@nova.financial
21
REGULATORY UPDATE
Â
THE PROPERTY OMBUDSMAN
TPO launches phase three of lettings fees campaign in Plymouth Phase one and two of the campaign targeted agents in Swansea and Dorset followed by Reading, Basingstoke and the surrounding areas. 22
33RD EDITION LANDLORD INVESTOR
REGULATORY UPDATE
The purpose of the campaign is to improve awareness of the current legislation that requires agents to display fee information, and ensure more firms are fully compliant to avoid fines being imposed by Trading Standards. The campaign requires agents to submit evidence and any firm that is found to be displaying the information incorrectly is given additional guidance and the opportunity to amend and re-submit to ensure they are compliant.
to display the required information or are unwittingly breaching the law by not displaying it correctly, which is why our campaign is phased so we can offer agents additional guidance and support so they can put things right and avoid risking a fine from Trading Standards.”
The first two phases of the campaign saw 445 agents asked to submit photographic evidence, and 99% and 95% of agents were displaying fees correctly as a result of the campaign. Agents that fail to comply and submit evidence will be referred directly to Trading Standards Officers, who can impose fines of up to £5,000.
To date, seven agents are due to be referred to Trading Standards for falling short of the standards outlined in TPO’s Lettings Code of Practice and failing to display their fees in accordance with the law.
Katrine Sporle, Property Ombudsman, said: “We’ve had an excellent response in the regions the campaign has focused on so far, with the vast majority of agents demonstrating they are compliant. This campaign is about educating agents that are either failing
It has been reported that in the last three months, agents in London alone have been issued with fines from Trading Standards totaling as much as £370,000 for not displaying fees correctly1.
While the Government has confirmed its intention to ban agents from charging tenants letting fees in the future, as laid out in its Draft Tenants’ Fees Bill this month, there is no confirmation on when this new legislation will come into effect. This means that the current law still applies and agents in England and Wales must display any tenant and landlord fees prominently, along
with their redress membership and any Client Money Protection (CMP) scheme membership details. This information must be displayed at all premises where agents deal face-to-face with tenants and landlords, and on the agent’s website. Furthermore, regardless of the future ban on tenant fees, letting agents will still be required to display fees charged to landlords. Therefore, TPO and CTSI’s joint campaign to ensure agents display their fees in accordance with the law will continue. As before, agents in Plymouth will be asked to provide photographic evidence to demonstrate they are correctly displaying their fees in both the branch and on their company website, as required by law. Katrine added: “TPO has also been in contact with a Trading Standards Officer from Plymouth who is focusing on display of lettings fees and TPO and Trading Standards Plymouth hope to work collaboratively on this project to ensure we continue to see positive results or encourage agents to make changes where necessary.”
To date, seven agents are due to be referred to Trading Standards for falling short of the standards outlined in TPO’s Lettings Code of Practice.
LANDLORD INVESTOR 33RD EDITION
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INDUSTRY UPDATE
PETER LITTLEWOOD SOUTHERN LANDLORDS ASSOCIATION
Government by consultation?
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33RD EDITION LANDLORD INVESTOR
INDUSTRY UPDATE
The Government has been going mad recently on consultations.
There have been many Government consultations recently, including: • Call for evidence on the reform of the Green Deal Framework – closed Oct 12th • Banning Letting Agent Fees – closed Nov 1st Note also a new Bill just published – Draft Tenants Bill • Private Rented Sector: Combatting 'rogue landlords' inquiry – closed Nov 24th • Protecting consumers in the letting and managing agent market: call for evidence – closed Nov 29th • Mandatory client money protection schemes for property agents – due Dec 13th • Review of the Smoke and Carbon Monoxide Alarm Regulations 2015 – due Jan 9th
2. What are the main obstacles to effective intervention in the private rented sector? 3. How effective are landlord licensing schemes in promoting higher quality accommodation? 4. What approaches have local authorities taken to promote affordable private rented sector accommodation in their areas? 5. How effective are complaint mechanisms for tenants in the private rented sector? We answered along the lines: 1. Local Authorities have many existing powers under Section 1 of the Housing Act, and other Acts, but seem to be loath to use them. This is probably because of 2. a lack budget and staffing.
I am writing this on Budget Day (Thursday Nov 24th) and the Chancellor has announced yet another consultation, this time on longer tenancy agreements, so await that one as well. Depending on the terms of reference we will probably be responding that many landlords are not adverse to longer term tenancies; provided the tenant can be easily and quickly evicted in the case of arrears. Many landlords rely on the Section 21, so won’t get locked into long tenancies.
This might be helped by recent amendment to the law which allows Local Authorities (LA) to issue a Fixed Penalty Notice for certain offences. The main difference is that the proceeds go direct to the LA. This notice acts much like a parking notice, the recipient has to either pay it or challenge if they believe it to be incorrect.
Naturally it would be nice to be offered some kind of incentive(s) for allowing longer tenancies. But as I say, this one is to be announced.
It is generally used by LAs to raise extra income, not to control poor landlords, as it is supposed to do. In fact a LA that starts a far ranging licensing scheme just gets overwhelmed with trying to process applications from law abiding landlords they don’t have time to see the poor/ rogue/criminal landlords – they are just swamped.
The main one that has recently come up was the Combatting 'rogue landlords' inquiry. The SLA responded to this. The 5 questions raised were: 1. Do local authorities have the powers and capacity required to enforce standards in the private rented sector and deal with 'rogue landlords'?
LANDLORD INVESTOR 33RD EDITION
3. This is the question about licensing. For those of you who have read my stuff before you will be aware that I am not a fan of wide spread licensing.
4. The question about LAs already promoting affordable renting was more aimed directly at them. 5. The final question was about a complaints mechanism for tenants. As decent landlords we should not
be frightened by this, but welcome the opportunity to deal with genuine problems. Obviously there will always be vexatious complaints, but with appropriate proof these can be weeded out. The draft Tenants Bill followed some 12 days after the consultation on this subject, strongly suggesting the Government had already made its mind up. As the MD of ARLA, David Cox, commented ‘the consultation was no more than a ‘tick box’ exercise and they haven’t appropriately taken the industry’s views into account.’ Cox further went on to predict doom and gloom in the industry with job losses and increased rents. We keep getting told that this system works in Scotland, so should work here. We wait to see. The new consultation on mandatory client money protection schemes for property agents – due Dec 13th is about the method of introducing Client Money Protection (CLM) – and is long overdue. I remember going to a talk given by Baroness Hayter about three years ago on this subject, and she has been relentless in pursuing it since. And rightly so. It is totally improper that anyone can set up as a letting agent without any protection to their clients – both tenants and landlords. Any monies held by agents must be legally protected and I welcome this one. Finally, the consultation on Smoke alarms and carbon monoxide alarms is trying to establish whether the existing laws are known about, and whether they are being followed. I urge all of you to take part in consultations; it is a democracy in place and your chance for your views to be heard. I appreciate that there is a view that Government has already made its mind up, but if you come up with something radical you might be listed to. It is your democratic right, use it.
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INDUSTRY SPOTLIGHT
THAMES WATER
Landlord information of water companies online service 28
33RD EDITION LANDLORD INVESTOR
INDUSTRY SPOTLIGHT
In excess of 80% of the outstanding debt for water and sewerage charges across the industry is due from the occupiers of tenanted properties; largely because the tenant’s details are not known to the water companies. The OFWAT website stated that the cost to customers who do pay their bills is an additional £21 per year.
In 2011 the Coalition Government in England consulted on whether to introduce regulations that would make landlords jointly liable for the payment of water and sewerage bills if they failed to provide the water companies with details about their tenants for companies wholly or mainly in England. In response to the consultation, the majority of landlords organisations called for a voluntary rather than a regulatory approach, arguing that their members would be very willing to work with the water sector to agree a proportionate approach to information sharing, making further regulation unnecessary. The Coalition Government agreed that trying a voluntary approach would be preferable in the first instance. In response, the water industry committed to the government to provide a single, easy to use and secure, national website for landlords and their managing agents to provide information as to those tenants responsible for charges wherever they or their properties were located and the then Secretary of State for Environment, Food and Rural Affairs wrote to landlord representative bodies welcoming the water industry’s proactive response and requested landlords and housing bodies demonstrate that a voluntary approach can be effective and that further regulation is not needed: “I would
LANDLORD INVESTOR 33RD EDITION
encourage you and your members to collaborate with their local water companies and with Water UK to ensure that the implementation of this database is a success”. In Wales, a different approach was taken. As a result of the introduction of Regulations in January 2015, it is now a legal requirement for landlords to advise water companies of those responsible for water charges. Despite efforts to promote the use of the national website (Landlord Tap), and the provision of an interface which enables property owners and their agents to export a file to the portal thus avoiding the need for landlords and letting agents to re-key data which already exists within their own systems, take up of the service is relatively low and growth in the use of the service is very slow.
The Water Industry are encouraging Landlords to make greater use of the Landlord Tap portal.
The water industry are encouraging Landlords to make greater use of the Landlord Tap portal. The desired reduction in the amount currently added to the bills of those who do pay is unlikely to be achieved without the provision of such information. To use the water industry’s national website visit your local water companies website and follow the link or go directly to www.landlordtap.co.uk.
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BUY-TO-LET UPDATE
ANDREW TURNER COMMERCIAL TRUST LIMITED
Buy-to-let could play an ever-growing role in UK housing Data from the latest English Housing Survey underlines the growing trend in the UK towards renting property and suggests that the buy-to-let market has an important role to play in the future housing needs of the country.
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33RD EDITION LANDLORD INVESTOR
BUY-TO-LET UPDATE
A recent Civitas report has forecast that the UK’s population is set to expand by 500,000 a year.
Increase in private rental homes 2007 – 2017
Number of privately rented homes in Millions
5m 4m 3m 2m 1m 0 2007
2008
2009
The key data, commissioned by the Department for Communities and Local Government, underlines that statistics for the 2015-16 period reflected an enormous rise in the number of people privately renting, compared to 200506. According to the report, there were 4.5 million private rental homes in the latest data, up from 2.4 million a decade earlier, representing a 47% increase. The number of young people (aged 25 to 34 years-old) entering the private rental sector as tenants has doubled in the same time-frame. Whilst many younger people want to buy their own home in the future (59% of those surveyed confirmed this), many feel that affordability is holding them back from realising their ambitions.
LANDLORD INVESTOR 33RD EDITION
2010
2011
2012
2013
2014
This data clearly underlines the growing trend towards more private rental demand and that means there is likely to be an expanding market for prospective buy-to-let investors. The culture of renting is not new in the UK, but its growth in recent years would seem to be in a large part down to younger people not being able to afford the deposit for their first home buy. As a result, it is taking longer for many young people to save up to buy and these people are increasingly turning to the private rental sector. This circle shows no signs of breaking any time soon, creating opportunity for buy-to-let landlords.
2015
2016
2017
To add further pressure to the housing market, a recent Civitas report has forecast that the UK’s population is set to expand by 500,000 a year, resulting in an extra 9.7 million people living in the UK by 2039. Population growth will of course add further strain to the housing market and the onus could fall increasingly on the private rental sector to help accommodate more people. Certainly, the findings of the Civitas report suggest that the current situation of high demand for rental properties is unlikely to change significantly with the arrival of a larger population. Andrew Turner is chief executive at Commercial Trust Limited.
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LANDLORD ACTION
HAMILTON FRASER
Council advises tenant to break back into landlord’s property It has been widely reported that in a bid to cope with Britain’s housing shortage, councils often advise tenants facing eviction, and in need of social housing, to stay put in buy-to-let properties when landlords ask them to leave. This is because, with resources already stretched, councils are reluctant to rehouse tenants until they are legally evicted and ‘technically’ homeless. Now for the first time, specialist tenant eviction company, Landlord Action, has been instructed by a landlord whose tenant vacated his property only to subsequently break back in, allegedly on the advice of Havering Borough Council. Mr Lewis Selt, a landlord from Hertfordshire, has owned his two bedroom first-floor flat in the town centre of Romford, Essex, for many years. A little over a year ago, he let his property to a single mother in receipt of housing benefit. A local letting agent, which manages the property for Mr Selt, confirmed that the tenant and the rent guarantor, in place to ensure the tenant’s ability to fulfill her tenancy obligations, passed all referencing checks. However, after 4-5 months payments became irregular and eventually stopped altogether. By this point, the twelve month tenancy agreement had come to an end and with £2000 rent arrears accrued, the landlord had no choice but to serve the tenant notice. The tenant surrendered the property and left with her belongings on the agreed date. The agent retrieved the
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keys from the property on the same day whilst carrying out his check-out report. However, the next day the tenant along with her guarantor returned to the letting agent to ask if she could have the keys back and return to the property. She informed them that Havering Council had said they would not rehouse her because she had voluntarily made herself homeless and that she should have remained in the property until she was evicted. When the agent refused, she explained that Havering Council had advised her that if the agent would not give the keys back, she should get a locksmith and break back into the property. Robert Gordon, Property Manager for Mr Selt said: “I went to the property the next morning to ensure everything was ok but my keys no longer worked. I could see that furniture had been moved back into the property. In an attempt to resolve the matter, I drove straight to the local council but no-one would speak to me or identify who had issued such ludicrous advice to a tenant who felt she had no choice but to break the law.” Mr Selt is now faced with a sitting tenant and having to start eviction proceedings. Although he could take legal action against the tenant under a trespassing law, he has decided to serve a Section 21 notice and a Section 8 notice in a bid to get his property back and recover money owed as quickly as possible. It will now take approximately six to eight weeks for
a judge to grant a possession order and if the tenant still refuses to leave, which she is likely to do based on advice by Havering Council, bailiffs will be called. Landlord, Mr Lewis Selt, said: “Not only am I not receiving rent on my property, I’m now faced with eviction costs and yet I’m powerless to do anything about it. The agent has done everything possible to protect my interests but landlords and agents are facing a losing battle if local authorities are going to issue such ridiculous advice.” According to National Landlords Association (NLA), nearly half (49%) of tenants who have been served with a section 21 notice by their private landlord say they have been told to ignore it by their local council or an advice agency such as Shelter or the Citizen’s Advice Bureau (CAB). In March 2016, the former Housing Minister Brandon Lewis wrote to all chief executives of local councils telling them to stop routinely advising tenants to stay put until the bailiff arrives. Paul Shamplina, Founder of Landlord Action, the company instructed by Mr Selt to evict his tenant, says: “Local authorities are forcing landlords to go to court to gain possession, running up considerable costs. Landlords are losing confidence in the system and turning away from communities which rely on their private housing to bridge the gap in the chronic shortage of social housing. This advice is exasperating the problem and something needs to be done.”
33RD EDITION LANDLORD INVESTOR
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ADVERTORIAL FEATURE
KEVIN WRIGHT NINJA INVESTOR PROGRAMME
Get the edge in property investment The world is divided into two camps – those who think property is a mug’s game and should be avoided at all costs and those who see it as an opportunity to create a comfortable income. The property investors I meet often report that their families and friends fall into the first group and they experience a relentless torrent of negative comments. You know that saying ‘If you tell someone something often enough, eventually they’ll believe it’? It’s hardly surprising that some investors give up before they’ve really got going. All it takes is some changes in the legislation and there’s a really good ‘reason’ to quit. The lesson from this is that mind-set is the key to success. Logically, as there are some people are doing very well with their property investments, it IS possible; it’s just a case of knowing how. That’s one reason I’m launching a series of one-day Masterclasses next year. When I was putting the format together I asked myself - what are the biggest stumbling blocks to successful property investment? From the hundreds of investors I’ve trained over the years it was pretty clear that these were: • Mind-set • Financing • Finding the right deals
All big barriers – and all relatively straightforward to overcome, if you know how. That’s what guided my thinking in putting together the Recycle Your Cash Property Finance Masterclasses and this is the format I’ve come up with: • We’ll kick off with a two hour session on mind-set, exploring the techniques I use in all aspects of my life, including kicking level three cancer into touch in 2016 in just a few weeks. • We’ll be looking at a number of strategies to find deals that other investors either won’t consider or don’t think they are viable because they can’t afford them. Imagine what deals you could find if you could buy like a cash buyer – even without having a bottomless bank balance! - You could find out about buying 50% BMV – yes, that’s possible – and better still you can get finance against actual value. - You could discover how to use very little of your own money, with 90% flips when you buy properties others can’t
(or don’t believe that they can). - You could explore a process that will show you how to get all your money out on the day you complete. • And that’s not all. There’ll be a two hour Q&A session where investors can ask me ANY question about property finance. Whether this is a challenge you’re currently facing or something you want to explore before taking action. I’ve run these sessions as stand- alone both face-to-face and as webinars and the feedback has always been enormously positive. ‘Very useful in terms of sharing and gaining knowledge, and your input on several issues was very insightful.’ ‘invaluable as not only did he give us immediate feedback and solutions to our respective problems, he was also able to generalise so we could all learn from each other’s situations as well.’ ‘I learned massive amounts about the key issues surrounding financing projects including completely new strategies that I would never have thought of.’
The new series of Recycle Your Cash Property Finance Masterclasses kicks off in January in London (11th) Leeds (16th) with Bristol in April and Birmingham in May. Find out more on www.recycleyourcash.co.uk/masterclass. Will you be there?
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33RD EDITION LANDLORD INVESTOR
London 16-18 Feb Leeds 23-25 March Bristol 18-20 May Birmingham 22-24 June
TENANCY DEPOSIT SCHEME
MIKE MORGAN TENANCY DEPOSIT SCHEME
Gathering winter fuel With the Christmas break beckoning, we thought it timely to look at heating oil tanks and claims for refilling them at tenancy end. Start at the very beginning: In one dispute seen by TDS, a check in inventory stated that the oil tank was full. The tenants amended the report to indicate that the tank was only half full at the start of the tenancy, and that the gauge was not working. No evidence was produced to counter this claim. The check out report indicated that the tank was one third full at the end of the tenancy. The agents claimed the difference in cost between one half and one third of the tank (a little over ÂŁ100.00). The tenants agreed that the tank was not full to the correct level when they left the property, but disputed the claim on the basis that there was no means of definitely ascertaining the amount of oil in the tank and the figure reached had therefore been calculated on the basis of unreliable estimates. The adjudicator decided that whilst the estimates may not be completely
40
accurate; there was sufficient evidence that the oil level at the end of the tenancy was lower than at the start. As it was not possible to take definitive readings the adjudicator was unable to award the landlord the full amount claimed but accepted that the landlord was entitled to something. In the absence of further evidence and in order to reach a reasonable compromise, the adjudicastor awarded ÂŁ50.00 towards the cost of refilling the tank. So what are the options? Some landlords work on the basis that the oil tank is (near) empty at the start of the tenancy and the tenant leaves it (near) empty at the end. This saves the landlord from funding the cost of filling the tank and encountering refilling issues at the end of the tenancy.. Judging when and by how much to fill the tank in order to have it empty at
the end of the tenancy, can be difficult, especially if the tenant unexpectedly has to give notice.Running an oil-fed heating system dry can cause airlocks in the system and drags contamination from the tank into the system, leading to further problems. Other landlords find that an empty fuel tank can put tenants off renting the property. An alternative approach might therefore be to include terms in the contract that the landlord will provide a full tank and expect it to be full when the tenancy ends (or there will be deductions from the deposit). A full tank is not necessary, but the level must be agreed and recorded to obtain a like-for-like result at the end, similar to taking meter readings. Whichever approach you adopt, make sure that oil gauges are checked and tested regularly. Check in and check out reports need to identify oil levels using a measure that can be compared for start and end of the tenancy.
33RD EDITION LANDLORD INVESTOR
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