To buy or not to buy..........

That’s the question! Which way is the housing market going? Lots of people comment intelligently on this subject, but in reality, who really knows? I have a number of landlords who are looking to invest further in property, attracted by recent falls in house prices. But should they jump in now, or should they wait? I’d suggest the following:

·        Housing is a long term investment, not a short term one. Over the last few years people have forgotten this and have treated the UK housing market as a ‘get rich quick’ scheme. As a result people who have invested for the short term are very much feeling the pain of being trapped in negative equity. Equally, there are plenty of plenty of others who are relatively unaffected – they are under no time pressure and are unconcerned by the recent dip in fortunes.

·        It’s more or less impossible to pick the bottom of the market, and because of my first point, it shouldn’t really be necessary to do so. If you manage to pick it, I’d suggest it’s more by luck than judgement. To be successful, you just need to make sure you don’t overpay in whatever market you’re buying in. My most successful landlords are the ones that pick up the bargains – they study the market, don’t get pressured into buying by estate agents, but when a genuine deal becomes available they move quickly and decisively. You’ll often find the best buys are properties in poor condition – successful landlords aren’t put off by this and simply include the cost of works in whatever they are offering for the property. However bad the market, well presented properties always command a relative premium and as such usually aren’t the bargains people think.

·        As we stand currently, the sales market is moving slowly in both towns – particularly in Rugby. The volume of sales being achieved by local agents has been low all summer, with sellers holding out for decent prices in an average market. If this continues, there has to be further downward pressure on prices in the next 3-6 months, which presents opportunities for serious investors. This further re-enforces the idea that whilst now is a good time to buy, it is extra important not to overpay.

In both offices, we maintain a list of landlords who are looking for more property in the near future. When we become aware of a suitable property, we email round and generally someone picks up a decent deal. 17 properties have been acquired by our landlords in this way in 2010. If you want to be included on these email lists, even if you’re not currently a Belvoir customer, drop me an email and let me know.

Richard.

Is your Lettings Agent solvent?

Housing Minister, Grant Shapps, recently announced that the Coalition Government do not intend to implement more regulation for Lettings Agents, despite this being a clear recommendation of the Rugg Review into the Private Rented Sector (http://www.york.ac.uk/inst/chp/publications/PDF/prsreviewweb.pdf).

For landlords and tenants, this is surely a shame. Currently lettings agents have little or no regulation unless they impose it upon themselves through membership of professional organisations.

Why does this matter?

Anyone can open a lettings agency. Before long that agency can be holding a small fortune in landlord’s rents and tenants deposits and there is no one checking that such money is properly accounted for. If the agent isn’t trading profitably – say they are charging stupidly low management fees to attract customers – there are additional pots of ‘client’ monies that it’s all too tempting to dip into, to meet their own expenses. Because of the amount of money a lettings agent has coming and going from their accounts, this practice can carry on for a long time (maybe years) before anyone realises there’s a problem.

Another factor is the tenancy deposit. You would assume that if the agent takes it, registers it, then spends it, the agent is liable. Not so! A tenancy agreement is between Landlord and Tenant – if the agent acts negligently or dishonestly, it’s the landlord that is legally liable to his tenant for the full value of the deposit. There have been recent examples in both Rugby and Northampton of Agents ceasing trading, the deposit monies going missing, and Landlords having to compensate their tenants. It is true that the Landlord could then sue his agent for negligence, but if the agent has shut up shop, or spent the money already, the chances of success are slim.

What’s the solution for a landlord?

Ideally, all agents should be regulated and face frequent compulsory checks on their accounting procedures.  I’d actually go a stage further and say that some sort of professional competence test would be useful, but in honesty we’re years away from this. The majority of decent agents, ourselves included, would welcome regulation as we have nothing to hide, and much to gain. It was on the agenda but with the change of government, is no longer.

The best bet for a landlord is to stick to an agent that is a member of a professional body such as the Association of Residential Lettings Agents (ARLA). To become a member, the agent has to firstly have their accounts audited regularly by a qualified accountant, and secondly has to hold Client Money Protection Insurance, so if there are problems, liability to clients is covered. ARLA won’t let an agent in without this, and checks all existing members frequently to ensure that standards are being actively maintained. You can check if your agent is in ARLA by searching at http://www.arla.co.uk/.  

Is your agent handling funds correctly?

If they are an ARLA member, the answer is likely to be yes, as they will have undergone checks – you’re certainly covered if they do go under whilst they are a member. Other tell tale signs to look out for include:

• Rent not being quickly paid to you, despite the tenant having paid the agent. There’s one agent in Northampton currently that routinely pays landlords late, and by cheque, despite never having done this in 8 years previously – something is clearly not quite right here!
• Delays or failure to refund the tenants deposit.
• Delays or failure to administer repairs to your property – contractors don’t like working for agents that don’t pay them!
• Cheap management rates? – Belvoir has over 130 offices nationwide and the consensus is that it’s not really possible to manage a property for less than 8% + VAT. If your agent is charging you less than this, we’d suggest that either a) they aren’t doing everything you’re paying them for, or b) they aren’t doing it profitably, which long term is as much your issue as theirs.

Richard.

Should I take a tenant that receives Housing Benefits?

Most landlords who have been renting property for a while will have been asked this question – my staff get asked on a daily basis whether a given property will accept people who are receiving benefits, or not! Quite simply that’s because there’s big demand for properties that will accept benefit claimants – Local Authorities in Northampton and Rugby have ‘waiting lists’ running into the thousands which continue to grow. Demand is such that some of our competitors have started to specialise in this market, and specifically offer tenants in receipt of benefits, to landlords.

We haven’t gone that far! Whilst we do have a number of housing benefit tenancies, they account for less than 10% of our total portfolio, and that is ticking rather than growing. These tenancies can work well, but it’s really important that the landlord understands in advance how these tenancies work, and what the pro’s and con’s are. I’ll go through these below.

Should I, shouldn’t I?

The main question Landlords should ask is ‘do I need to accept Housing Benefit Tenants to rent my property’?, For the vast majority of Landlords, the answer to this question will be no – there will be a large enough supply of good quality private tenants happy to pay the rent you want. As such you’ll stick to the private market as it is, statistically, less hassle. Landlords generally need to consider a tenant on benefits :

1. if their property is in an area where there’s low demand from private tenants, or

2. if the local market is such that there’s a shortage of private tenants generally.

What are the pro’s?

There are certainly some. I have housing benefit tenants in one of my own properties, and after an iffy start, things have settled down and the tenancy works well.

1. You can get a premium rent for your property – Local Authorities have a set ‘scale’ they pay against, based on the size of the property, and not based on the area. As such if you’ve got a property in one of the poorer areas of town, you’ll get more for it with a Housing Benefit tenancy than with a private one.

2. In many cases the Council will provide a guarantee bond instead of a deposit. This is usually capped at 1 months rent, but in certain instances can go as high as £6,000.

3. Housing Benefit tenancies statistically last longer – if you’re claiming benefit and you want somewhere nice to live, the world is by no means your oyster! As such when tenants get somewhere nice, they tend to stay longer.

4. In certain areas of town, a housing benefit tenant may be a safer bet than a private tenant – a single parent with children is always going to be entitled to funds, whereas a private tenant on low income and in / out of work, may struggle more to pay.

What are the con’s?

Housing benefit tenancies are much maligned. It’s really about understanding the way they work, so you don’t end up disappointed.

1. Rent is generally paid in arrears, not in advance.

2. Local Authorities make 13 rental payments a year instead of 12. You still get the same amount of rent, only in smaller chunks.

3. Local Authorities like to pay the tenant, leaving them to pay the money on to you. Paying the tenant doesn’t happen in 100% of cases, but when it does it can go wrong, often because the tenant simply isn’t capable of managing their finances. If this continues the Local Authority will make a direct payment to yourself as landlord.

4. Local Authorities aren’t geared up to communicate with landlords, and very much see the tenant as their ‘customer’. If the tenants entitlement to benefit changes, you can bet they won’t tell you – the first you’ll know is when the money stops coming in. As such Housing Benefit tenancies can take a lot more management.

5. If you want to / need to get rid of your tenant, you can bet the Local Authority won’t help you – you’ll very much have to rely on the court process unless your tenant is happy to play ball!

6. As an agent we lose a little bit of flexibility on which tenant we let to – the Council doesn’t like to see us making arbitrary decisions.

The secret to success is hence understanding the above and managing it. If you get a reliable tenant, and a relaxed landlord, it can work really well and deliver a great yield for the landlord. If you get an unreliable tenant and an inflexible landlord, problems can ensue!

In the vast majority of cases Belvoir Landlords don’t need to consider tenants in receipt of Housing Benefit. Where we think it’s in your interests to do so, we’ll tell you when we appraise your property. We’ll explain the process clearly, and it’s your decision whether this is the route you go down.

Should a tenant pay a deposit?

You'll see there's a few lettings agents now who offer tenancies with 'no deposit'. This generally means that instead of a deposit, the tenants buys an insurance policy (costing say £10 per month) that's supposed to compensate the landlord in the event of problems with the tenancy. I get asked on repeated occasions whether this is a good thing?

My gut instinct was no, but we trialled 'no deposit' in Northampton about 18 months ago, at a time when it was really hard to find tenants. About 10 tenancies started in this way, and we had trouble with pretty much all of them. As such the trial stopped pretty quickly! There seemed to be 2 main issues:

1. It attracted the wrong sort of tenant - the type of tenant that couldn't save a months rent and a months deposit to move in, and didn't have anyone who would lend it to them!
2. When it came to the end of the tenancy, tenants didn't have to 'behave' to get their deposit back. What incentive was there to leave the house in a clean condition, or give the required notice period? Yes - in severe cases the insurer who had provided the policy would sue them 6 months later, but that didn't help us when we had a dirty property and an angry landlord.

As such now, every Belvoir tenant pays a deposit. It seems that most of the other decent agents have come to this view also. To be honest, in the 2010 market there's been no real reason to incentivise tenants as it's properties that have been at a premium. However some agents still trade with 'no deposit required' on their adverts, which always puzzles me! It may be they have found a way of making this work, but my gut instinct is that whilst this is probably a good deal for a tenant, it's in the landlord's interests to take a formal cash deposit and register it correctly. As we're the landlord's agent that's the course we should follow.

Richard.