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have been reading my blog from the start, you will know that a few months ago, I put in an offer for a rather large but outdated property whilst I was still testing the theory of  HMOs.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!