Buy-To-Let Guide 2014

I'm pleased to release our BuyToLet Guide for Northampton which has been updated for 2014. You can view a copy here.

Who does well out of property investment?

I've been meaning to write this blog for a while! I accept there's an element of us needing to wait 20 years to get a definitive answer, by which time hopefully we'll all be OK! But I've been investing myself for 10 years, and I've been a lettings agent for 7 years, so I'd like to think that I've seen enough to offer an opinion. In that time, I've seen loads of landlords buy loads of different properties. Some (in my view) have bought well. Others have bought less well (or to be precise been "sold something"). I've invested myself and have certainly bought things towards the start that I now regret - being within the industry has changed my perspective on what constitutes a good purchase! So what type of landlord seems to do well?

Those who don't overpay.
Property is an investment, so if you overpay at the start, you're forever playing catch up in terms of trying to make that investment work. Some buyers are happy to pay the market rate for a genuinely nice property. Others seek dilapidated properties at reduced prices and generally get good deals even though works are required. Either is fine, but what you want to avoid is paying good money for a property that's actually pretty average - and that's 80% of the market!

Those with a business mentality.
What I'm saying here is that those who become a landlord accidentally struggle to make it work for them. If the house you're renting out was once 'home', there's always going to be an opportunity to feel 'the lawn wasn't like that when I lived there' or 'there are some scratches on that wall I took ages painting'. If you rent out a place you've never lived in, anything the tenant does isn't as personal. 

Those who keep the property up to standard.
It's important that any property kept up to date. If you spend nothing on it, over a few years it will become dilapidated which affects the value of your investment. Equally if you don't repair things quickly, decent tenants will get fed up of you and leave. Your property will churn more frequently and your tenant quality will drop too. You're now in a downward spiral which will cost you far more in the long run than keeping your property in good repair.

Those who don't fiddle.
Good tenants want the 'peaceful enjoyment' of their property and invariably get frustrated by landlords who are overly attentive. We manage one property where I know the landlady (who's a really well meaning lady) has lost 3 tenants in the last few years because they feel like they are being 'supervised' - a property inspection on a 2 bed flat does not take 30 minutes and involve quizzing the tenants on their personal sleeping arrangements(!) 

Those who don't get greedy.

You would be surprised how many landlords are OBSESSED with the amount of rent they are receiving. You can legally raise a rent every 12 months and this is the only date some landlords diary - irrespective of whether the rental market or the state of the property justifies an increase - every year they force through a rental increase even if it's just a fiver. When you have a good tenant who looks after the property and is paying a decent rent anyway, this is a complete false economy as all it does is antagonise the tenant. It's the same with landlords who have got £x for a property previously and will dig their heels in until they get £x again - they fail to understand that you maximise your income by killing void periods and the costs associated with a change of tenant. Conversely landlords whose end of year figures look the best are those who've set a sensible rent to start off with, and once they have a decent tenant don't rock the boat. 

SOLD 9% return - £145k investment

It's not much to look at, but this is a cracking opportunity for someone who's can see past what's there already. It's in Far Cotton - a very lettable area. This is the sort of thing I'd buy myself if I had funds available now. 

Currently it's set over 3 floors, and has 4 lettable rooms, 2 of which are self contained. The Local Authority has closed it as it's not legal. 

The purchaser needs to close off the top floor (which is the main thing making it illegal) and generally refurbish the rest. Once done, he or she will be let with 3 (maybe 4) self contained units which will rent for £425 each. They will also own the freehold. 

It needs to be a cash purchase and I reckon a spend of £20k is required - although it you're in the trade already you could probably get this down. The purchaser needs to have about £145k available to complete the job. 

If you're interested, please email me - richard.baker@belvoirnorthampton.co.uk 

HOUSING BENEFIT TENANCIES : Will they work for you?

UPDATED DECEMBER 2013
In a rising housing market, ex Local Authority properties are becoming increasingly sought after by investors, due to higher returns and more reasonable purchase prices. It works differently to the regular private market though, so you need to understand this before you jump in.

We get asked by potential tenants if we have properties that will accept housing benefits on a daily basis. That’s because there’s huge 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. 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 has fewer quirks. Landlords generally need to consider a tenant on benefits if:

1. their property is in an area where there’s low demand from private tenants, or
2. the local market is such that there’s a shortage of private tenants generally.

Essentially, if you buy a property in Blackthorn, you do so expecting a Housing Benefit tenant. 

What are the Advantages?

If your property isn't in the best area, there are many!

1. The main point is that statistically housing benefit tenancies cause no more problems than private tenancies. They just work differently and need a relaxed landlord. 
2. 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.
3. 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. The bond scheme with Northampton BC works well, and pays out.
4. Housing Benefit tenancies 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.
5. 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.
6. More often than not, we can arrange to receive direct payment from the Local Authority, which mitigates the likelyhood of the tenant not paying.

What are the disadvantages?

There are a few here also. It's important you understand these in advance.

1. Rent is 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 annually, only in smaller chunks.
3. Local Authority administration is pretty bad. When the tenant moves in, the first thing they do is apply for benefits. You won't get paid until the Council has processed this application. This can take 2 months if they are busy, and they don't apologise. They do backpay though, so you'll get your money eventually. 
4. Without wishing to over generalise, tenant often struggle to deal with issues that arise (such as their benefit entitlement being changed) and deal with this by ignoring it, or burying their head, rather than coming and telling you.
5. If the Local Authority overpays housing benefit, they will take it back from whoever they paid it to. As such if we’re getting direct payment for your tenant, and the LA subsequently decides the tenant wasn’t entitled to that money, they will deal with it by simply taking the money back – that's democracy for you! As such we're looking for tenants who clearly ARE entitled to full benefits.
6. 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. You'll get paid rent in the interim though, assuming the tenant remains entitled to it. As such ending a tenancy can take longer and cost money. 
7. 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, and rejects any form of 'discrimination'. We don't lose control completely though, and can filter to an extent.

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! Is this any different to renting privately?

As such there can be problems with accepting tenants in receipt of housing benefit. It’s not a market that suits everyone and if you’re the sort of landlords that treats their rental properties as extensions of their own home, it’s not the market for you. That said, you can pick up a cheap property in one of the less upmarket areas of town and rent it for good money. We have a number of landlords who operate successfully in this market and I have a couple of places myself that I let out to tenants in receipt of benefit. 

Keen to pay £400 for a license to rent your property?

This could be a really significant issue for landlords in Northampton and people should read carefully. 

• Northampton Borough Council is consulting on possible changes to the way they regulate houses in multiple occupation (HMOs). 
• Currently they only take a particular interest in HMOs that are subject to mandatory licensing - these properties have 3 floors and are inhabited by 5 or more adults. 
• Going forward they seem keen to look more generally at HMOs - this could include any property that's inhabited by 2 unrelated people. So the 2 bed house I own in Semilong which is let to a Polish couple and their friend could appear on their radar and require a license - even though it's just a regular domestic property.
• This covers most town centre areas. 
• The suggestion from the Council is that a 5 year license for a single property could cost in the region of £400, payable by the landlord. Plus presumably any work the Council wants done at the property - and they have a reasonably amount of flexibility to demand what they want. 
• As you'll see from their consultation paperwork, they argue that they are trying to improve standards in the private rented sector. 
• As a landlord, I see this more as an exercise in regulation for the sake of regulation. A few jobs will be created at the Local Authority and paid for by private landlords. 
• Whilst I'm sure there are issues in parts of the private rented sector, the Local Authority is unlikely to make inroads into resolving with this by licensing the stock of regulated lettings agents - 99% of what we have on our books is qood quality and perfectly legally compliant. The other 1% we just haven't found out about yet and will deal with when we do. It will be the same at other well run agencies in town. If the Council wants to find rogue landlords I'd argue they are looking in the wrong place.
• If the Local Authority wants to make some easy money at landlords expense without having to do too much work, licensing the stock of regulated agents is of course a good idea!

Further information on this subject can be found by clicking here.

Landlords who feel strongly about this matter may wish to take part in the consultation!