SOLD! 2 BED FLAT : headline 8% return and only £90k

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I like the look of this 2 bed flat in the Duston area which has recently come onto the market with another agent. It's advertised at £89,995 which probably isn't a bad price, but it looks like it needs a bit of improvement in places so hopefully it could be bought for slightly less and the difference spent on making it shine a bit. Stamp duty would be under £3,000 too.

The rental prospects for this sort of thing are very good. It's likely to achieve about £600 per month which is a return of 8% based on the asking price. There will be costs to deduct but the Local Authority is usually the freeholder of these things which means the charges are reasonable. I own a very similar one and get over 7% return AFTER the service charge has been considered - this flat should be no different.
I increasingly hear investors bemoaning the fact that returns aren't as good as they were a few years back and due to recent house price rises this is partly true. But properties like this one buck the trend - where else can you get around the 7% mark other than chancing your arm at the bookmakers!
Happy to discuss this and any other property with interested parties. richard.baker@belvoir.co.uk if interested.

BLOG CHANGES : I'm going back to basics!

I’ve been blogging about the Northampton property market since 2010 – not quite sure where the time has gone(!) and in that time my figures suggest I’ve helped over 150 landlords buy investment properties in the area.

The blog started as an information source, but rapidly grew into a way of promoting properties I’d seen locally that ‘needed buying’. The first was in April 2011 (still on the blog if you look - http://lettingsblog.blogspot.co.uk/2011/04/potential-investment-with-9-yield.html). One of my landlords paid £40,000 for it, spent £6k on it and rented it straight away. It’s been empty for 2 weeks since, rents now for £450PCM, and is worth £75k without trying. I’d buy 10 of these at £40k if I could now!

Times have changed – property prices have risen and returns have been squeezed. In 2016 a few of my competitors have copied, and also have their own blog – although they use these generally to promote their own properties rather than looking at what may be a good buy from another agent.

My mailing list has grown too – I know how many people read the blog and it’s grown into something quite big. I also know how many of my competitors read it, and I’m pleased to continue educating you(!) – I especially liked the agent who, when asked a legal question about tenancies, told his landlord to go and read Richard’s blog!

But the purpose of me doing this originally was to provide information in an understandable format, and to help people who didn’t know much about being a landlord to make the right decisions – whether that’s purchasing a property or managing it once purchased – and that’s what I need to go back to. I get too many emails these days from people who think they know what they are doing, asking immediate questions about ‘best price’ or ‘discount’ – clearly they are still living in 2009 when repossessions were plentiful. In the current market anything half decent and sensibly priced sells immediately - there's no need for a vendor to sell cheaply - would you do this yourself?

With that considered, going forwards I won’t be emailing out new blog postings en-mass as it’s in danger of becoming ‘another property mailing list’. The blog will still be there, and I remain committed to identifying purchasing opportunities that represent good value, but I’m only sending these out to people who confirm they are ACTIVELY LOOKING TO INVEST. If this is you, you’ll have been in touch with me recently, and I’ll know who you are. You’ll also be aware that, in the current market, anything half decent gets snapped up in roughly 30 seconds – as an example we recently advertised a bang average 3 bed recently that was overpriced in my view (I won’t say which one) and we had 20 viewings on it within 7 days. That’s the Northampton property market in 2016!

TAXATION CHANGES : important for ALL landlords

A few changes here, and ones which most landlords really NEED to understand. However despite extensive media coverage most landlords clearly DON’T understand what’s happening, so I’ll try to explain as simply as possible.

STAMP DUTY

This is payable when you buy ANY investment property. From now on you have to pay extra stamp duty when you buy an investment compared to buying your own first property. As an example, spend £125,000 on something and the stamp duty will be £3,750.

There’s a lot of panic about this, but my argument is that it’s the lesser of the 2 evils – it’s a one off cost that within time will be factored into the purchase price of properties – the market will adjust and is adjusting already.

FINANCE COST RELIEF

For many landlords, this will be the KILLER. It affects landlords that have mortgages on their properties. Currently when you have a mortgage you can deduct the interest element as an expense, and only pay tax on the profit. As an example I have a property I rent for £600 per month (£7200 per year) and I have an interest only mortgage of £400 per month (£4800 per year). My profit is hence £2,400 per annum (maybe a bit less after a few maintenance expenses have been deducted) and I’m a higher rate tax payer so I’ll pay 40% of that. My tax bill for the property is hence £960 per annum.

But that will change as the government are stopping landlords treating mortgages a deductible expense. Between 2017 and 2020 the amount of the mortgage you can deduct is dropping by 25% a year – so by 2021 I won’t be able to deduct ANY of my mortgage payment. At that point I’ll pay 40% tax on the full £7200 which will mean my tax bill is £2880. That’s a BIG jump.

Many in the property industry are up in arms about this change – there’s a legal challenge underway with some landlord groups seeking a judicial review – but as things stand this is happening and it’s starting next year.

Most landlords I speak to haven’t got a clue about this. Some have heard of it but don’t completely understand it. Others haven’t really heard of it and as it’s not happening now the mainstream media isn’t really reporting on it. But they will!

WHAT SHOULD YOU DO?

At a simple level you need to make sure you understand what’s happening and how it will affect you. Everyone will be affected differently, but the indications are that this will affect the smaller investors (with 1 or 2 properties) more than the larger investors. If you’re not sure, speak to your accountant and ask the question now. There may be a number of strategies to deal with this, and so far the following options have been mentioned:

·          Transfer your properties into a limited company – these are currently exempt from the changes. There’s an associated cost and it will work for some but not for others.

·          Create a ‘trust’ for your properties and use that. Sounds a bit iffy to me, but a decent accountant will explain more.

·          If you have a larger portfolio, sell some properties and use the equity to pay off mortgages on other properties.

·          Sell your investment properties. For a few people this may be the only option.

·          Do nothing. Most will do this by default and although it may be absolutely fine for some, it will be completely the wrong thing to do for others.

As I say, the main thing at this stage is to understand the change, and take some advice so you can come up with a plan! What you must NOT do is ignore it until the change comes in then stick the property on the market – a lot of landlords will take this approach as they only react, rather than plan. When that happens a lot of property will get dumped on the market at roughly the same time, which may cause a price dip. A sensible landlord will be mindful of this and aim not to get caught up in it!

Need accountancy advice? I’m not an accountancy expert myself but can put you in touch with local accountants who seem to have done good things for other landlords.