Friday 31 August 2012

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.


Thursday 30 August 2012

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.

Wednesday 29 August 2012

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

Tuesday 28 August 2012

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

Sunday 26 August 2012

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/

Saturday 25 August 2012

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 ...

Thursday 23 August 2012

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!

Tuesday 21 August 2012

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.