Renting forever..?

According to a recent poll by Barclays 44% of people think they will be renting FOREVER. 30% think they will be renting LONG TERM, and 26% think they will be renting SHORT TERM.  I'm not quite sure what long term and short term means in this poll, but I am sure what forever means!

It seems that we are not the home-owning country that Maggie Thatcher opened the way for.  Although many people aspire to own their own home, it seems to be a dream that remains a long way in the distance for most. So many young people are priced out of the market by the need for large deposits and secure incomes to qualify for a mortgage, it is no wonder that it remains a life goal that one day they might achieve. And for those who replied to the Barclays poll, one that they think they will never achieve. 

However we have also become a nation of 'spend now, pay later' junkies. Consumer credit is still cheap and plentiful and so in the absence of owning your own plot, perhaps you satiate the desire for roots by spending cash til it's going out of fashion.

Unfortunately that is not going to help to save for a deposit on a property! There are places in the UK where you can buy small and suitable 'starter' properties at not much cost. Ok so they're not perhaps the most desirable locations, and yes the interior may need moving into the 21st century, but that's why they're cheap. Yes you may have to compromise - but that is part of the growth process of learning about property. Knowing what is something worth compromising on to get a better deal later. 

It takes discipline, determination and time to do it, but it is possible to save for a deposit and to start at the very lowest rung of the property ladder. And from there, who knows where it will lead? 

If you write a plan, stick to it and rigorously work to make it happen, you can turn your forever into long-term, and your long-term into short term, and your short-term into NOW!

The Green Deal

The Green Deal is a government scheme to make houses and properties more energy efficient. I suppose this means the householder paying less for fuel (electricity and gas) due to extra insulation in lofts, walls or floors which then retain heat better, plus the installation of modern boilers which use less gas to heat the same amount of water, plus double glazing which also loses less heat from the house.

All fairly simple and self-explanatory. 

How the Green Deal works

You can make energy-saving improvements to your home or business without having to pay all the costs up front through the Green Deal.

Energy-saving improvements include:

• insulation - eg loft or cavity wall insulation
• heating
• draught-proofing
• double glazing



Then you too can use this logo! Smart!

• renewable energy technologies - eg solar panels or wind turbines

Getting involved

1. Get an assessment of your property - this will tell you what improvements you can make and estimate how much you could save on your energy bills.
2. Choose a Green Deal provider to carry out the work. You discuss with them what work you want done and whether the Green Deal is right for you.
3. If you go ahead with the improvements you must sign your Green Deal Plan - this is a contract between you and the provider stating what work will be done and how much it will cost. The provider will then arrange for a Green Deal installer to do the work.
4. Once the work is done, you’ll pay off the money in instalments through your electricity bill

You can get an assessment now, but work can’t start until 28 January 2013.

If you’re a landlord, you must get your tenant’s permission before you sign up, and if you’re a tenant you must get your landlord’s permission to sign up - this also applies to social housing.

Download a Quick Guide for Landlords here 

Top ten tips: Buy to let

Love this article from About Property.com

Thought you might like it too, so I have reproduced it here:

Buy-to-let is a hot topic at the moment, with lending on the up and more and more people choosing to become landlords.

While sales in the housing market are flat, the rental sector is booming, particularly in major cities like London and Manchester.

Average gross rental yields are far in advance of the interest you can earn in a savings account, but with that comes a challenge.

We've caught up with Nick Cooper, managing director of national letting agent Northwood.

He gives his top ten tips on how to be a winner from the buy-to-let boom.

1. Always research the market

Check local rental conditions and determine the types of renting in your area. Look for tell-tale signs that there’s a healthy rental market, like large company relocations, the opening of young/upmarket bars and shops. Don’t forget to consider the proximity of good schools and choose property with features that will appeal to the general market.

2. Decide on your target tenant

The kind of tenant you are hoping to rent to will influence the location and type of property you buy.  If you want to let to students, it will need to be close to the university or at least have good transport links to it. Don’t worry about luxury – it just needs to be clean and comfortable.

Families, on the other hand, are likely to have their own furniture and belongings so they will be more interested in ‘blank canvas’ properties which they can rent over a longer time period.

3. Look for bargains

You may be able to get a discount on a property if you can promise a quick sale or if you can pay in cash. Auctions can also be a prime place for property bargains too.

4. Ensure that the property is in sound condition

It seems obvious but it’s worth a reminder: Buyers should always visit all properties, pay for an independent survey and get a solicitor to check the paperwork.

5. Compare the mortgage market

Research the various buy-to-let mortgages on offer to find the one that’s best for you. Mortgage comparison tools enable would-be landlords to research and compare a comprehensive range of products and quotes from across the mortgage market and submit an application.

6. Account for every penny

Before you buy, make sure that the sums add up and don’t forget any extra ‘hidden’ costs.  As well as mortgage repayments, think about landlord insurance, gas safety certificates, maintenance fees etc.

Look ahead too and don’t just look at the present and near future. Try to calculate projections for five, ten, twenty years' time. You could use a rental income calculator to help with the sums.

7. Brush up on the Green Deal

The Green Deal is a government initiative aimed at improving the energy efficiency of properties, through the installation of energy efficient boilers, double glazing, draught proofing, loft or cavity wall insulation to name a few.

Under the Green Deal, landlords will be able to make energy efficiency improvements to their properties without having to pay for them upfront. Tenants will repay the cost of the measures through their energy bill savings whilst enjoying a more energy efficient home. Financing for the Green Deal will become available in early 2013.

8. Consider using a letting agent to manage your property

Agents can handle a range of letting-related jobs, charging commissions based on the level of workload that they take on: from simply finding a tenant through to fully managing the property.

Therefore the right choice of letting option for any landlord depends on the level of responsibility, time, energy & risk that they personally are prepared to take on, compared to paying for a letting agent to do it for them.

9. Embrace the opportunity to have your rent guaranteed

The most common day-to-day risk to the landlord is having a vacant property or a tenant who stops paying. The most recent statistics from the National Landlord Association revealed that 49 per cent of landlords have experienced rental arrears in the last 12 months with the average void period lasting for 69 days – more than two months rent.

Northwood’s guaranteed rent service is a minimum 12 month contract whereby Northwood effectively becomes the tenant: it guarantees fixed monthly payments to the landlord, regardless of whether the property is vacant or whether the tenant stops paying.

10. Take your time

Investing in several properties can spread risk, but invest in too many of the same type, in the same area and you may risk oversupplying the demand.

If your first buy-to-let investment has gone well and you’ve caught the property bug, keep a level head about investing in more. Remember the points above, think carefully about your next investment and thus reap the rewards of buy-to-let investment.

Be warned - do your homework first!!

As anyone who went to school with me will testify, homework was not my strong point. When asked why I had not completed a particular piece of work, I would launch into a pre-prepared speech exonerating the values of verbal debate over written expression, explaining how homework had lost its value in an age of discussion, where an era of feminist thought was leading girls into professions of the highest calibre where only verbal repartee characterised true proficiency.  This did not fool my teachers though, and I had to do some quite expert and creative editing before my parents saw my school report. Much of it contained the phrase 'needs to stop talking'.

Nowadays, though, I can see the importance of homework. No not essays and the such like, useful though they may be in structuring thought and language. Homework in this case, which is akin to research. It should be a familiar and necessary process for anyone considering becoming a landlord. Homework about the area, the possible rental yields, the preparedness if things go wrong, the systems you will utilise to manage the property effectively. If you don't do this and jump in with both feet before you're really ready, you may have some problems later down the line which no amount of banter can talk you out of!

http://www.thisismoney.co.uk/money/mortgageshome/article-2236164/Buy-let-landlords-risk-left-pocket-fail-simple-checks.html

The latest house purchase

If you have been reading my blog from the start, you will know that a few months ago, I put in an offer for a rather large but outdated property whilst I was still testing the theory of  HMOs. I didn't know whether our 'new' approach to rental income would pay off and there I was making an offer on number 2 HMO before number 1 was up and running.  (HMO= House of Multiple Occupation). * And yes I did rather have to grovel when I got home and explain myself rather humbly and detail EXACTLY what this opportunity meant! (All was well though when DH saw the property  - he became as excited as me)!

Just to recap then, number 1 HMO was a two bed terrace which we converted into a 4 bed by way of using the downstairs living room as bedroom number 3, and then having a wall built in the through kitchen/diner to create bedroom number 4. All rooms were decorated in neutral colours, and new carpets laid. Wardrobes were built-in and new furniture purchased (my favourite bit)! Apart from the necessary gas and electrical safety checks, and some deep cleaning, I did nothing more (oh yes and we installed broadband wifi too). The house already had a central heating system and double glazing. The kitchen and bathroom were fine, and the back yard was paved and maintenance free.

So, with number 1 HMO now up and running and rented out nicely, we are just about to complete on number 2. A few things have held up the exchange of contracts - most notably our deposit, which is coming from the re-mortgage of another house (not an HMO). Once that comes through (hopefully later this week) and the money is with the solicitor, we shall have the keys to what I hope will be a fantastic income-producing property.

The new house is a large three-bed double bayed terrace house with oak coloured double glazing. Hm... not exactly my choice but in a good condition and expensive to re-fit. So that's staying. However, the obsession with wood doesn't end there. Panelling, tongue and groove, cladding, beams - you name it, this house has it. I sometimes wonder whether the previous owners once holidayed in Sweden and decided to take the sauna theme home. To Crewe. Yes well, it takes all sorts I suppose ... So there are some wooden extras which will be removed, although I will try to paint and otherwise disguise that which can be hidden. 

Downstairs has two large reception rooms (each forming another bedroom) and the piece de resistance is an attached workshop at the back of the house which will hopefully be bedroom 6. There is a downstairs toilet which will need to be reconfigured to form a downstairs bathroom, and a large kitchen, which we hope to transform into a kitchen /diner. The upstairs has a large shower room, which needs little attention, and the plan is to install two new ensuites to the larger of the bedrooms upstairs. It also needs gas central heating, possible re-wiring and certainly re-decorating throughout (or I'll be dreaming of pine cladding for the rest of my life). 

The cash to do it up is coming from the re-mortgage and as usual it's a little nail biting! I have written a financial plan and cashflow forecast, and with the experience of number 1 under my belt, I am much more prepared for the process and the unexpected occurrences that are inevitable. I am feeling pleased, excited and a little nervous about this house. It has cost us £93,500 to buy which is an absolute bargain, but I reckon we'll be spending nearly £20,000 to get it to the standard we need to rent each room out successfully. 

The jewel in the crown

The rental income looks highly promising though and this house has the potential to be the best income-producing property we own.  - we just need to keep our nerve. The key I believe is to keep our eye on the ball at all times, manage the cashflow, manage the contractors, and ensure that the project doesn't drift. Will I be crowned the property queen? Perhaps -  if I can make this one the jewel in the crown ... which I sense, nay, predict might. just might be the case. 

* See my entry for 23rd August:  'I just couldn't resist it' 

http://buildingwithsomethingmore.blogspot.co.uk/2012/08/i-just-couldnt-resist-it.html

What's lurking under the surface ... (part 2)

He's got the whole world in his hands?

When I got into the house rental business I didn't really think much about the tenants who I would be renting to. Oh yes, I hoped that they would be nice, kind, organised (enough to pay their rent on time!!), reasonable, kind of average people. But I didn't consider just how different, unique and frankly, interesting they could be. Over the last few weeks I have got to know a couple of our tenants more just by being around the house they rent, and it's been a great opportunity to find out more about them.

Without breaking confidences (they might read this blog after all!), it shows to me that however comfortable, confident and positive people seem, there are often niggling fears, worries and doubts sitting just below the surface. It might be worry about being secure in the future. It might be fear about being alone. It might be concern about the jobs market. I'm not convinced that owning your own home allays these fears, although I expect tenants would say that being in rental property is not exactly a recipe for certainty.

Life is terribly uncertain for many people. Even those who seem to be able to make a plan, carry it out and succeed. Suddenly the unexpected occurs and their inner strength or lack of it shows up. That's why we need something in our lives that is unfailing, can be trusted not to leak or break, and will do just what it says on the tin. Psalm 20: 7 'Some trust in chariots and some in horses, but we trust in the name of the Lord our God'. Not money, not skills, not material possessions or achievements. Not even bricks and mortar. They will eventually all fail. There's only one person who will never fail us or let us down. I think you know who I'm referring to! I make no secret of the fact that despite my own uncertainties and worries, He's the best landlord this tenant could ever have - and with Him I could  never be more secure. 

What's lurking under the surface..?

Recently we discovered that one of our properties had a bit of a condensation problem. Well a bit more than a bit actually. The tenant noticed that three of the rooms which faced north and were connected via the same outside wall were covered in droplets of water on the inside wall. This occurs from the process of heating a slightly damp house and the water that is invisibly present condensing on the cold wall surface (fairly basic physics which even I can understand). The house itself is not actually damp, but drying clothes inside, not opening windows sufficiently, or letting bathroom steam escape into the house are all reasons why this can happen.

This is quite a serious issue as it can lead to mould, which is not only not nice but can really exacerbate health problems like asthma.

There are a number of remedies which we are currently implementing - the first being sufficient insulation. Warm Front grants are still available until March 2012 although in some parts of the country they are being withdrawn by December 2012. These grants enable you to have loft insulation and cavity wall insulation for free, if you qualify. Go to the website to check out if you meet the criteria.

So that's our first plan of action. The next is to try to remove some of the moisture invisibly present in the air. We have provided the tenants with a dehumidifier, which hopefully will produce some immediate benefits. We are going to have an extractor fan fitted into the bathroom too, and also replace the air bricks in the rooms which have condensation problems.

There are various sources of information for dealing with damp and condensation (by the looks of it many people suffer with these kinds of problems) - so here are a few links to discover more.

I love this one from Falkirk council!!

A guide to condensation for landlords

Envirovent

HMO success

Much of the time in life, success surprises me. Perhaps it's because I'm too self-critical but I often don't believe my own hype! I could sell ice to the Eskimos (although I think they'd prefer a nice cup of tea - wouldn't you - sitting over a hole all day hoping for a fish to take a bite)?

When I do get a 'yes' to a question that I am expecting a 'no' for, I am not only pleased but taken aback. Of course it's a reaction I try to internalise - I don't want to create the thought in my customer that they are the first/only/unique person to say 'yes' to such a crazy question, or they might decide to retract their answer. 

I am pleased to say that, although it has been hard work, investing in an HMO, has definitely produced the returns so far that I had hoped for. I was somewhat doubtful that my plan would work. I HOPED it would - I had seen and read of other people's success and decided that if they could do it, so could I. But confidence is not a predictor of success. It just helps you overcome difficulties when they do arise. 

So with a plan that was fairly conservative in nature - underestimating income, overestimating expenditure - I stepped out in trepidation to execute this new venture. 

In the space of 6 weeks, we have four tenants who are all professional, working people. The house is working well and the tenants are managing to rub along well together. We have had a few niggles with the heating and plumbing (an old system), and today I went down to the house and the back gate had come off its hinges. Fortunately my builder dropped in to talk about another piece of work that needs doing in another property, and deftly fixed it (thank you Andy)!

It all seems to be working well so far. Can I call it 'success'?? Well, I suppose the old phrase 'time will tell' comes to mind. We still have a credit card bill to pay off, and there are always things that could be improved. However, if I was an Eskimo right now I'd put the kettle on. This HMO fish has been landed. 

 Sometimes you can only get results when you are cold, wet and tired

Franchising property opportunity

Last month, my DH and I attended a very interesting presentation by Platinum Property Partners. You can look them up to see exactly what they do. Suffice to say it was a thorough and detailed presentation on the benefits of growing a property business on the HMO model. There were people present who had sunk a lot of money (theirs and other people's) into property, and after a lot of hard work and courage, were now making very good money. Platinum prides itself on the standard of HMO housing offered. They believe in offering high quality 'beautiful' accommodation, for discerning, professional clients. We looked around one of the properties owned by a PPP landlord, and saw for ourselves the high standard achieved. It was impressive! 

Each bedroom had an ensuite bathroom, the decor was to a very high standard and the fittings, fixtures and furniture were hard wearing and attractive. The systems for advertising, renting and managing the property were all part of the PPP package and so for the new landlord who has no prior knowledge, this sounded like  an excellent franchise. For that is what it is. A franchise opportunity. However, the initial cost of £130000 was rather steep for us, and the additional costs also put us off!

For those without the experience, and with the money I'm sure PPP offers a fantastic leap into the deep end of the HMO property ownership swimming pool, but with the benefit of well-inflated water wings provided by the PPP organisation.

by being a property investor

One of the drawbacks of being a franchise partner is that you commit to developing properties within a certain geographic location. Many franchises operate this rule - there are only so many Avon reps any town can cope with!! That's why franchisors usually force franchisees to limit the area within which they operate.  It is no different with PPP. And that was another one of our concerns. What if we saw a fantastic opportunity a few miles outside of our agreed geographic location? We were led to understand that PPP would not support us buying a property like this outside of our agreed area. The difference between a lipstick business and a property business is that one is successful if high volumes of sales are generated; the other is successful if high yields are generated. While it is possible to generate high yields in the same geographic location, one of the skills of the property investor is to be able to take advantage of  opportunities presented wherever they appear. 

Another is always to be made up and look good (Avon, here I come) ...

So for us, the PPP model was fascinating and worthwhile but not something we felt we could invest in. In the memorable words of a certain Mr Bannatyne ' I'm out'!

The fear factor ...

Worrying about property prices?

Everywhere you look these days there are reasons NOT to invest in property. The uncertainty in the market, the lack of lending by the banks, the vagaries of housing valuations, the reduction in available finance. Over the years I have read various articles shunning the idea of property investment - 'Property values about to plummet'; 'Investors fear the impact of interest rate rises'; 'Property investors selling up due to crash fears' etc etc. Most of those stories often coming from a weekly journal I long gave up on - Money Week.

Even last week, I saw the headline from Money Week -

'How far could house prices fall in 2013?'

One of the great aspects to investing in property - if done wisely- is how it can shield your money from the roller coaster ride of the money markets. When the market is in a slump, property prices tend to be lower, interest rates are also usually on the lower side, and it is what is known as a 'buyer's market' - in other words, you can find a bargain! When the market is on a high, prices are higher, as may be interest rates, but finance is easier to come by and of course, you may find that quite quickly your property has increased in value, unlike in a slump where it may take years to grow in value.

Both of these scenarios offer hope to the property investor - on the one side, you will have tenant demand from those who cannot get a mortgage and cannot afford the deposit, and on the other, you may have to work harder to find tenants, but the property itself is growing faster in value.

Guess which side of the market we are experiencing right now? Yep, you guessed it, the slump. Me on a Friday night. After a week of kids, hubbie, cooking, work, thinking and emails. But there are some rather nice aspects to being in a slump if you can overcome your fear of the unknown. Apart from a large glass of red that is. 

For example, there is a sense of opportunity and bargain hunting. If, like me, you LOVE a bargain, then this is the time for you to seriously consider buying property. Prices may still fluctuate over the next few years and they may reduce further, but you will probably have bought more or less at the bottom of the market, so things can only improve long term. The benefit is that you should be able to rent out your property for a reasonable sum and make a little extra per month as mortgage interest rates are so low. 

Don't expect to see massive capital growth though, unless you are buying in a hotspot (like London's East End for example). Buying now should be part of a plan for long-term financial benefit - not a get rich quick scheme. If you are serious about buying property for investment and want to grow a portfolio that can give you long-term financial freedom then being able to ride the storms of the markets is an absolute necessity.  Emotional intelligence, strength, and determination, count more in the end than interest rates, property deals, or bargains.  Overcoming fear is one of the biggest challenges to anyone investing in property, and is something which you face regularly whether the market is boom or bust. There are huge gains to be had from property - felling the fear and doing it anyway is just one!

What a week!

After a month of HARD slog, the latest house is now occupied with two tenants and another moving in this weekend. The house looks great - clean, pretty, modern and yet it has retained a character of charm and uniqueness that it had when we bought it. Interestingly the two downstairs bedrooms were rented out first  and then the front upstairs room. The single room is taking a while to shift ... I'm not sure whether that is due to the price, the fact that it is a single room, or something else?

However, it is somewhat rewarding to be in a positive cashflow position after a few weeks of not being! All the utility bills are now set up and running nicely. One flaw in the plan has been with John Lewis. Oh how I wish I could ordinarily shop at John Lewis. However, did you know they have recently set up their own broadband service? https://www.johnlewisbroadband.com/

A good deal it looked and so it was booked! At least, should I say we had it in OUR diaries. Sadly, their engineers did not. So although we had advertised free broadband, we could not provide it as John Lewis decided they could not now install it until November. My DH researched the market and discovered Mifi from 3 and that is the temporary solution we have now implemented.

Tenants gone from pleasant and understanding (but was there underlying irritation I wondered) to delighted and pleased!

We now have broadband, a toastie house, tenants settling in and a £50 refund from John Lewis for the inconvenience they caused in not delivering when they said they would.

The only dilemma now is whether I reward myself for all this hard work with a coffee and a cake at a local supermarket of excellent reputation... but you know who owns Waitrose don't you?!

The little black book

Euphemistically known as the 'little black book', your list of people who can help you in your property business will become invaluable over time. I manage mine electronically - Google contacts is such an invaluable tool - particularly as it is synchronised to my phone on a regular basis! That way I always have to hand the number of an electrician, plumber or general D-I-Y person who can deal with a property problem as it arises. If I need to ask a question about mortgages, I have the numbers of a couple of mortgage consultants I trust. If I have a legal question, the details of my solicitor are ready and available (much to his dismay)!

In fact the other week, I was at our local Wacky Warehouse giving my youngest son a chance to let off steam with some of his friends, when a call came in from one of our tenants saying that water was leaking from the bathroom and dripping onto the hall below. There was a light fitting situated near the water leak and the tenant was understandably concerned about the risk. I couldn't escape the clutches of the ball pool, having found myself in there playing referee to about 5 boys and their superhero fantasies, so I pulled out my trusty Nokia, dialled the number of a certain guy I know, and hey presto! he was on the case!

An hour and a half later, he called me with a progress report and the solution he'd implemented, while I was happily observing Bat boy flying through the rafters of the padded tunnelling above me. The leak was fixed, the light was safe, and all was well at house number 5. I sipped my latte contentedly, calm in the knowledge that this particular workman is thorough, trustworthy and reliable.

You may have problems bigger than this when managing property

Being organised with your contacts is vital if you too want to have a life and run a business. You might not choose to spend your time at the Wacky Warehouse, but the skill of getting out of that ball pool was a great reminder to me of the necessity of people power when you are stuck in a tight spot.

Dressed to impress

Yesterday the boys (all three of my current home-based brood, aged 18, 14 and 4) came and helped 'seal' a new plasterboard wall we've had erected to create another bedroom in the latest property. Diluting the paint 50/50 with water they keenly applied said mixture to the walls and approached the whole activity with gusto and enthusiasm. It was rather like watching the three bears decorate, with daddy bear's industrial size roller brush, mummy's value roller, and baby bear's mini roller. All three happily splashing and painting and rolling together, trying not to get in each other's way, but not too worried about coming out looking like dalmatian pups without the black spots. One stood on the step ladder to reach the highest edges, one rolling more-or-less at face level, and one kneeling to get down into the corners.

It wasn't all sweetness and light though. The first spat was between the two older boys over who should have the step ladder - arguing about who was the tallest. Then they ganged up on the youngest, who was merrily painting any blank space he could find, whether or not it was near the paint tray, thus trailing paint across the floor before walking in it. The dust sheet was abandoned half-way through the job as 'another annoyance that mum's brought with her'.

I was trying to guide/direct/train them but really I was a totally unnecessary accessory to the whole event. No matter what I said the boys were quite happy to do it their way, and experiment with what worked (and work out their conflicts without external mediation)!

She's looking a bit too clean for me

We finished after a couple of hours and exited from the house looking decidedly white and spotty. Hair, hands, arms, faces and clothes - spattered and spotted with paint! I had warned the boys of the necessity of old clothes and I was glad we had worn our oldest and scruffiest clothes. Except when we approached the counter at McDonald's 10 minutes later - spotty, bedraggled, unwashed and greasy - looking like something the cat had brought in.

But you know, there's something terribly freeing about wearing your oldest, dirtiest clothes. Then getting them covered in paint and dust and dirt. Having unwashed hair, no make-up on and one's nails a bit chipped and broken. Yes you do feel a bit like a tramp. But it is totally liberating. I think if I get into this more I may have to develop a 'property developer's wardrobe' (now there's a thought). A selection of items designed to give the impression that hard labour has been partaken of during the day, whether that be drilling, sawing, painting or building. In fact, I'll probably have been sitting at my desk all day, updating the finances, reviewing the marketing plan, or analysing the market. And when I collect the youngest from school - they'll never know quite what I've been up to!

Gearing up!

In four words

The word leverage always brings to my mind a mental picture of a frail old lady gardener, who, on finding a large rock in her carefully tended flower bed decides to get rid of it. She tries to grip it and lift it but to no avail. She tries to force it out of the ground with her bare hands but it won't budge. So finally she goes to the shed and chooses the strongest long-handled spade she owns, and tucking the blade under the rock, she presses down on the end, to find that with some pressure, she can slowly lift it into the air. Note the contrast between the lady and the stone. One is spindly, the other is heavy, but the force of the spade (and the length of the handle - not too long) enables her to lift a gargantuan weight into the air: something she definitely couldn't achieve by lifting it on her own.

Leveraging (or gearing as you might hear it called in the UK) is what in finance is equivalent to the action that the old lady takes by using a tool to raise something much more than she could alone. In property, you might not have much to begin with, but leveraging allows you to punch above your weight in terms of the finance you can access. Using other people's money (OPM) combined with your own, you have much greater purchasing power, and much greater possibilities of future income. In property investment terms it might look a bit like this:

Hilary Hopeful has been saving money for a rainy day but has decided that her savings are not really going anywhere. She has a total of £100,000 saved up. She decides after much consideration to buy a property to let so that she can have some income from her money, and as a bonus she might make some money long-term if the property rises in value over time. She finds a property for £100,000 and uses all her money to pay for it. She rents out the property for £500 per month. Therefore she has an income of £500 x 12 months = £6000 *. This counts as income, so she will have to declare it to the Inland Revenue, and if she has other earnings she will probably have to pay tax on the £6000.

Pauline Purposeful has also been working hard, saving for a rainy day and has saved £25,000 so far. She also has decided that money in the bank is next to useless and wants to get into property. She too sees a property for £100,000 which she makes an offer for and buys for £100,000. In Pauline's case though, she is using a mortgage to fund the other £75,000 which she hasn't got. So £25,000 of her money and £75,000 of someone else's money are together making the £100,000 she needs to buy the property.

She too rents out her property for £500 per month. However, she also has a mortgage to pay of £400 per month. Of which £200 is interest. She has an income therefore of  £500 x 12 months = £6000. She is able to claim the interest cost of the mortgage (£200 x12 = 2400) against her income. Therefore her income is reduced by £2400 to £3600.

You might think 'well I'd rather have more monthly income so I think I'll follow the example of Hilary Hopeful' . And yes, you could do this if the amount of income is your major priority. But lets look at the return on investment (another three letter acronym - remember I mentioned these much earlier in my blog?!) or ROI.

Hilary has invested £100,000 and is making £6,000 - in other words 6% return on investment.
Pauline has invested £25,000 and is making £3600 - in other words 14.4% return on investment.

Who is getting the highest return on their investment (ROI)?

(Wish that you had paid attention in 'O' level maths now?! -  I just wish they had taught this stuff in 'O' level maths!).

So you can see how actually Pauline is a more savvy investor. If she invested £100,000 in this way, by putting £25,000 in four properties, she would actually be getting £3600 x 4= £14,400. Much more income than Sylvia - simply by leveraging what she puts in more effectively.

THAT is the power of the lever!

* this is only a simple example - you could get more, you could get less income than this, depending on the property!

Pregnant with possibilities

Ahhh...

This morning I met up with a friend for coffee to talk about her plans to get into the buy-to-let market. As a couple they own their own house, and baby number 2 is on the way. The wife wants to gradually exit the rat race and develop a plan for financial freedom so that as the children get older, both she and her husband can spend more time with the people they love, doing the things they want, at a time and in a place that suits them. Something I can heartily relate to!

In my experience, our children have provided us with the ultimate impetus for improving our financial future! In fact our initial reason for getting into property was to be able to provide a house for each of our 2 children ... the problem was we kept having children. And so we had to keep buying houses! After 4 it became rather a habit, and we've just kind of continued. [Property that is, not children. I have definitely done my bit for the survival of humanity]. Maybe it's something to do with the wonder of conceiving ... first babies, then business ideas...

My pregnant friend is getting serious about starting to invest in property but recognises that the first place to start is with their personal finances. Investor sensibilus! Until she has a simple system that she can use to manage her own finances, she will just be adding to the complications with another property. We discussed how we manage our finances and I made some suggestions:

• Simplify your systems
• Streamline your spending
• Analyse your accounts
• Regularly reconcile
• Decide to be disciplined (particularly about non-essential spending, and ensuring you put aside a proportion of your income into savings/investments each month )

Each of these areas, done properly and regularly, can really help you to understand where you spend your money, where you could save money and when you could realistically think about buying your first, or next, property. There are many websites and books around to help with organising your money, and others which can help you analyse just how much (or little!) you have. There's a fab online course from Ohio State University that you can work through here to help you do this.  Once you get good at managing your own finances it is so much easier to think about using other people's money to invest (a vital concept).

One of the keys to successful property investment is emotional intelligence - and there's nothing that can wind people up faster than the colour of money. Losing it, winning it, making it, spending it. There's usually a great deal of emotion attached to these behaviours. So to be able to take the long-view, and not get too wound up when the rent hasn't been paid or a tenant is being a pain, or to be patient and wait for the right time to buy a property when the housing market is on a roll, or to avoid getting over excited and mortgaged to the hilt when your property value rises, all takes emotional intelligence.  Coupled with knowledge and some experience, emotional intelligence is one of the core aptitudes that investors need to master. If you can demonstrate to yourself emotional intelligence with regard to your own money, you will be much more confident about property investment. Being confident that you can make financial decisions based on logic rather than impulse is something that only you can know. But unless you have demonstrated to yourself that you can do this with your own finances first, you are not likely to be confident in your abilities as an investor, and consequently much more liable to make basic mistakes.

My friend is very level-headed and intelligent. She is taking her family's financial matters in hand and de-tangling some rather knotty financial transactions and accounts. Despite her bump being a literal barrier to the laptop, her nesting instinct is driving her to consider how they can enlarge the nest further and so she's spending time getting to grips with the family finances. I say to her: Go girl! She's analysing her priorities and asking questions about their spending - do we really need another Laura Ashley cushion on our sofa, or could I save that money into a property investment account??

I'm excited for her because once she knows her own situation back -to-front and inside-out, she will be ready to start pushing (get it??) another integral part of their future - property investment.

The landlord's armoury

Some tenants may make you feel like this

It is useful to have a number of items in your 'landlord armoury' in case of serious diversion from the intended plan. Our intended plan being: buy property, rent property out, get income, next. In case of part three (get income) not happening due to a tenant's refusal / inability / recalcitrance to pay I suggest a blowtorch and some blood pressure tablets as part of said armoury.

We heard last night that our 'problem' tenant has decided to sit it out for the full length of the notice period (8 weeks) without giving us a penny in rent and without any intention of  looking for alternative accommodation. After some hitting of heads on walls and tearing of hair (our own not hers), we discussed the potential courses of action open to us. Following much discussion and deliberation, our top three in no particular order were:

1)  Go round with the blowtorch and melt all keyholes so that the locks have to be changed (and we'll keep the new keys all TO OURSELF so tenant can no longer get in)
2)  Pour paint over tenant's car
3)  Dance the performance of a wild banshee outside the front door until tenant agrees to leave

Unfortunately each of these either falls into the a) immoral, b) illegal, c) both or d) insane category of behaviour. So instead I think we'll continue along the path of legal eviction and possession, under the Housing Act 1988.

Instead of taking out our frustration on our own property, the tenant or her property, the armoury will be called upon to help us in this situation. Therefore as well as the aforementioned blood pressure tablets, and blowtorch I also suggest an amount of cash savings to call upon in case of such emergency. Not of course to pay the mortgage with, but to put down as a deposit on our next holiday. Goodness knows we'll need it.

Getting off the blocks

Brett Alegre-Wood is the chairman of the YPC (Your Property Club) group and has some great advice and information about getting started in property. Look at this video to understand what you need to have and to do in order to get off the blocks!

(Click on the link below to open in a new window):

Why you need money to invest in property

Sleep tight!

I often have problems sleeping. I can dose off but at about 3am my eyes seem to react to light or noise (or a bathroom call) and I find the starter motor in my brain revving up. I have to remind myself that this is not the time to be planning next year's holiday / deciding what to wear tomorrow / worrying about whether bisque tint was the right colour choice for the new property's back bedroom. Even though I don't always get a full night's sleep, I rarely, if ever, worry about our property portfolio. In fact I seem to have mastered the art of not getting too worked up about money - full stop. Perhaps this is a gift, perhaps it is an attitude, or perhaps it is the blessing of the ignorant! I am grateful that I don't worry about money and that I believe that if it all went disastrously wrong, we'd still be OK.

Perhaps we assume that it is normal to worry about money much of the time, and that that demonstrates responsibility and good stewardship. Actually I think worrying about money does only one thing - make you more worried. Worrying about it will do no good! I have never worried about something so much that it changed the situation. It just made me more anxious as I considered all of the other things that might go wrong as a result. In fact worrying has the effect of causing petrification - quite the opposite reaction that is needed if you wish to alter your circumstances.

Education in money and finance and property is so important if you are going to arm yourself with the skills needed to be not only successful in property, but also to be peaceful!

The ability to sleep well at night comes from knowing that you have planned for emergencies by having the necessary 'PLAN B' up your sleeve. And knowing what your 'end-stop' will be should everything go wrong. There are many ways you can educate yourself about money and finance and one of the best books that many property investors refer to is 'Rich Dad, Poor Dad' By Robert Kiyosaki. I think it's a tremendous book that is very insightful and tremendously inspiring. It has certainly helped me assess my attitude to money - one of the fundamental necessities if you are going to be successful financially. It made me realise that I have at times made money my god, and not seen it as another resource that the good Lord gave for us to use!

Arm yourself with knowledge and learning for then you will find something more than you had before - and that something will catapult you into the future you hope for.

Success seems to be connected with action. Successful people keep moving. They make mistakes, but they don't quit.
Conrad Hilton
Do what you can, with what you have, where you are.
Theodore Roosevelt

Annoying tenants

Notice

No, that is not an oxymoron. It is very possible, in fact I predict LIKELY, that at some point in your landlording experience, you will come across tenants you could describe as annoying. There are alternative adjectives you will probably also choose to use (which I won't as this is a family-friendly blog) especially if they abuse your property or fail to pay the rent. Or both.

If this situation arises, and as I say it probably will at some point, there are a few choices open to you as a landlord. At present, we are facing this very situation. A tenant who has been living in one of our properties for no more than 8 months is in arrears by a couple of months' with the rent and has told us she is unable to pay us anymore. I suppose we should be grateful for the unflinching honesty of this declaration. Fortunately there is no evidence of any destruction to the property itself. This though leaves us in a difficult situation. We have enough spare cash to cover the mortgage for a few months, but if the situation is not resolved by Christmas we shall have to sell the house. Even then, legal process has to be followed with a tenant in situ.

As it happens we have acted very swiftly and immediately issued her with a Section 21 notice.
What do you mean you don't know what a Section 21 notice is?? And you call yourself a landlord??

Well, no I didn't really either truth be told, until about a month ago, because frankly, I had never needed to know [sheepish grin]. Basically it is the process by which you start proceedings to evict a tenant who is at least 2 months in arrears on their rent. The law covering this procedure is the Housing Act 1988. And the timings are VERY specific and detailed. It is imperative that you wait the required length of time before issuing the notice or before starting possession proceedings (heaven help us if that happens).

So we have issued the notice with the required dates and the tenant has now agreed that she has to leave.

Time will tell whether she does leave of her own accord, and with some gentle persuasion from us that this would be in her best interests.

It is a very tough and stressful situation. Actually, I feel for this tenant, who has little ability to manage life let alone money, and I think has probably been dealt a challenging hand. She refuses to return phone calls, she never replies to texts or emails and we have even reduced the rent to enable her to stay. Unfortunately I think  that life has a funny habit of knocking us around when we have lessons to learn, and maybe there is a lesson here that she so far hasn't learnt. There's a lot of lessons for us to learn too, and I'm actually seeing this episode as a test of our ability to engage with the legal process effectively and ethically.

In the meantime, we are sustaining our mettle by addressing the situation promptly, ensuring that our communication with her is professional and courteous at all times, trying to be helpful to her in her situation and support her with other options, and remaining resolute about the need for her to leave.

If you have other suggestions, please let me know!!


http://www.landlordzone.co.uk/section-21-notices.htm

http://mybadapple.co.uk/blog/section-21/section-21/

Tenants

Love em or loathe em, unless you have em you aint got no business.

Mostly I have found our tenants to be absolutely reliable and reasonable people. They don't want to have lots of hassle about accommodation. They want to live in a well maintained, decently modern, fair-rent house. And for that they're happy to pay on time, do their bit in keeping their end of the deal by looking after the property and communicating if they have problems. We do our bit by phoning them back as soon as possible, addressing any problems as quickly as we can, and sorting out niggles like sockets not working or leaky taps as soon as they arise.

That way, you develop something that all relationships need in order to be fruitful and fulfilling - TRUST. We have to trust them, they have to trust us. And yes we do have a contract that in effect, defines the duties and behaviour of the two parties to the contract. But you know even contracts can't cover everything. Some things you just have to work out between you.  For example, who mows the lawn?

Grass is just a flower bed in waiting

In one of our properties which is on a large corner plot, we always had a gardener. Yes, a real, live personal gardener! He came with the property (now there's an added extra you hadn't thought of)! It meant that the tenant had no worries about where to keep the lawn mower, and could spend valuable weekend time with the family rather than the lawn mower. Tis true that the addition of a gardener is not a benefit for those who would rather be with the lawn mower, and who spend their Saturdays ruminating over seed catalogues when the grass growing season diminishes to a standstill. That's when the secateurs appear I suppose.

However, in this particular property the addition of a personal gardener proved super-attractive to a prospective tenant who had ME. Not being able to garden, yet with two young children to care for, she absolutely LOVED the idea of a built-in gardener (sadly for her he was not as built in as the dishwasher). With two young children to care for, it meant that she could spend her time watching them play in the garden rather than worry about how to find them (and fish them out) in the vastness of an unkempt prairie which would have resulted had she not had the gardener.

With the change of tenant came a review of this particular benefit, and sadly we had to say goodbye to our man with the super duper ride-on mower. The new tenants were more than happy to take on the garden, and   demonstrate to the neighbourhood what Monty Don never discovered. That a pair of blunt shears and a Flymo can be just as effective in creating a postmodern landscape feature as any fancy tools you choose to use.

Ok, so the garden may need a bit of an added tidy up when they leave. But for now, we're happy. The lawn is being mowed (to a degree), the house is being cleaned and most importantly the rent is being paid. We could insist on green-fingered tenants in this particular property, but we've found that if they're reliable in paying the rent, take their tenant responsibilities seriously, and the relationship works well, then we'd be foolish to think that the grass was greener on the other side.

Cashflow ...it flow in ..it flow out

A pretty cashflow diagram

I awoke this morning with the words of my DH ringing in my ears - 'cashflow makes or breaks businesses' ... and then wondered why I found myself tossing and turning for ten minutes unable to get back to sleep. I admit, there are better thoughts to wake up with on a Saturday morning (is there enough bacon for us all for breakfast or can I hide the smell before everyone else gets up) kind of thing.  Of course you may have other suggestions too ...

While breakfast calls, I make do with a cup of Rooibush tea (my favourite early morning cuppa) and spend some time pondering my decisions and my fate... no that should read outcome. My decision a few days ago to make an offer on another property which does have fantastic potential and offers an exciting prospect of the eventual rate of return, has also presented me with certain mental challenges to do with the finances!!

In order to purchase this one, we will have to remortgage another property in our portfolio, which does have a good return (level of rental income compared to mortgage repayment). Even with the increased mortgage payments the rental amount will still comfortably cover the mortgage repayments, and in doing so we get the deposit (and some cash for refurb purposes) for this new property. So on paper, it looks like a win-win.

However, juggling these finances is not an easy task. I have a cash flow spreadsheet that I use to plot the income and expenditure of our portfolio, and it includes all the incidental costs that arise including insurance, safety checks, an amount for emergency work etc etc

Usually the spreadsheet ticks over month by month, and is a great tool for ensuring we've got some contingency funding should any surprises occur! However, with a refurb project like the one I'm about to embark on, I know that this is gonna get a LOT more complex. We are not going to have any income on the property for a few months while it is being refurbished, so I must prepare for payment of the mortgage and bills with no income. So, I am pondering my dilemma as I write - do I 'borrow' from our savings or do I borrow from the bank or do I get a loan? Each has its pros and cons to do with interest rates, rate of payback, complexity of financial accounting associated with it. I am going to spend some time this weekend analysing the cashflow forecast to identify exactly where our pinch points are going to be and then make a financial plan to ensure there is cash available to cover all costs on time.

However, for the time being there's a much more pressing dilemma. A bacon buttie or full fry up? Ah, decisions, decisions ...

I just couldn't resist it ...

I know I know, they say you should never buy on a whim... but yesterday I did just that!  You know I do admit to being a carrier of 'domesticus bitius' (the house buying bug) and it finally got the better of me. I put in a cheeky offer for a house that needs some significant work, having viewed it only once, and despite all my logical reasoning telling me 'watch out, be careful - WHAT ARE YOU DOING'? I still went ahead and did it. Whether it was the fact that having trawled round various estate agents windows, I hadn't seen another property on a par with this particular one, or whether it was the look of 'I dare you' in the estate agents eyes when I crossed the threshold, or whether it was sheer madness, I will soon know I suppose.

I had been mulling over the details for days and it looked like a great prospect - three large upstairs bedrooms with built-in wardrobes, an upstairs shower room recently refurbished, two large reception rooms downstairs and a good sized kitchen. A downstairs loo that can easily be transformed into a shower room - and the pièce de resistance - a large attached brick built workshop with huge potential.

The competitive edge in me was spurred on by the fact that another bidder was lurking in the background. He had placed an offer a few days earlier, only to be rejected as the offer was too low. So I knew I had to make a fair offer, but I also wanted a bargain (how else could I explain this moment of madness to my DH)?

A phonecall was placed to the vendor and the waiting began - with nearly the same tension as that moment before the last advert break on Location, Location, Location - (will they, won't they?)  and within 10 minutes we had our answer. The man from Del Monte says YES!!! I swaggered out of the Estate Agents with a swish only to be compared with the ones created by the voluminously-dressed Kirstie. She of EXPERT house buying status.

Kirstie insists you do it

Oh, and btw the reaction of the DH was utterly wonderful - he is very pleased, very pragmatic and just a teency weency bit proud!

Starting up

Hansel and Gretel were here

If you're the kind of person who is interested in property, it's a kind of bug that you just can't get away from. Whether it's searching for your next house, or watching the property market, or finding out about mortgage deals, it's one of those hobbies that takes hold of you and before long you find you need your daily dose of rightmove.

I started investing in property 16 years ago, although at the time I had no idea that I was 'investing', I just sort of had a hunch that this was a more sensible use of my money than it would be if I put it into a bank. Since then, our property portfolio has grown and we are about to embark on our seventh property - and this time, we are venturing into the HMO market. (Don't worry, in no time at all you too can learn the three-letter-acronym lingo that goes with the territory. The property territory that is. This one means House of Multiple Occupation)*.

I began to think that maybe my experience (albeit small) might be able to help others, so here is my bricks and mortar guide to buying property for investment purposes. Compared to many other landlords, ours is still a modest portfolio (I've always wanted to sound like a prospective art student and have a portfolio). But it is growing, and like many other b-t-l (buy-to-let) landlords we intend to grow our investments by purchasing more properties in the near future.

So hopefully you can learn from our experience and mistakes, and also gain confidence to enter what seems to be a daunting yet exciting world. Once you have your first property deal under your belt you'll soon be wondering when your finances are ready for the next ...and the next ... and the next. And before long you'll be conversant with the world of yields and profits without sounding like you're an agricultural speculator.

* A property that you let (or plan to let) to at least three tenants who form more than one household and who share (or will share) toilet, bathroom or kitchen facilities. Usually, these need a licence from your local authority.