Brexit and Your Rental Property

By Chris Chambers

Chris is the owner of Proudhouse Property Management and Lettings based in Yeovil. Proudhouse provide dedicated lettings and property mangement services in South Somerset and Dorset. Proudhouse are based at Park House, The Park, Yeovil and are your alternative to the typical High Street Lettings service that many landlords have become used to. 

Chris is a landlord himself and has rental properties (flats, houses and HMOs) in Cardiff and Yeovil. 

This text was originally written and sent to all my landlord clients - I have now published it for general interest. Please don't plagiarise but feel free to repost and share (or reference this text with the line "Chris Chambers, Proudhouse Property Management").  

Dear Landlords,

I thought I would take this opportunity to give you our thoughts on Brexit and some considerations for your rental properties. I am not an economist nor do I have any crystal balls! I simply want to pass on some industry advice and also provide a brief opinion of my own.
Brexit could be a storm in a tea cup... or a cataclysmic demise of the UK... but probably somewhere in between. It will affect many areas and many people will be concerned about the housing market.

Interest Rates
Interest rates are unlikely to increase for the time being. This means that the cost of your borrowing should not dramatically alter in the short term - in fact, consumer wariness combined with recent tax changes might even generate better deals among mortgage providers to entice new business - so re-mortgaging might be an option. We're more than happy to arrange access for valuers if your property is managed by us.

Rental Demand
ARLA expect demand to remain the same or initially increase in the short-term. There is a shortage of homes (and slow rate of supply) in the UK and this will not change significantly in the near future. So rentals will be a safe investment. Furthermore, tenants planning to buy this year may now be put off and wish to remain renting as tenants.

Rental Values
These are almost certainly going to increase. This is not good news for tenants - let us not underestimate the effect this will have on the national mood. There are 5.7 million homes in the Private Rented Sector - increased costs to landlords (tax etc) are almost certainly going to cause an increase in rental prices. However, from a landlord's perspective, rental yields could increase slightly.

House Prices
Probably not a good outlook - but Proudhouse does not do sales and I don't want to speculate on this subject too much.

Tenant Fees
These continue to be a contentious subject and there are some legal cases taking place against some high-profile agents in the South East. Capped, or a ban on, tenant fees in the future is not unforeseeable - this could have a major impact on and knock-on for agents nationally - agents who have built their businesses around these revenue streams could feel the pinch and would be left with no alternative but to increase and transfer costs to landlords. Our fees are low (we've foreseen this issue since we started trading) and we operate with lean overheads. I don't see our management fees increasing for the foreseeable future.

How is Proudhouse affected?
So far it is very much business as usual - we have lost one potential client who was acquiring a rental property (and also in the early stages of using our services) but has now withdrawn their offer - they cited Brexit as their reason. Otherwise we've had 2 new clients this week and continue very much as normal so far.

What am I doing with my own personal portfolio?
I have rentals and HMOs in Cardiff and Yeovil and I own these with a business partner. Our aim is to secure good quality tenants on a long-term basis. To that end I am considering renewing tenancy agreements and considering 12 month fixed terms in order to help generate stable rental income and cash-flow. As with my advice to Proudhouse clients, I'm keeping rental asking prices "middle of the road" and reasonable and keeping tenant application fees low - this generates high levels of interest/enquiries and greatest choice of tenants. I'm building good relationships with tenants and aiming to provide them with a good service and stability - in return, I believe this builds loyalty and cooperation which is crucial when needing to inspect and maintain the properties. Voids (vacant periods) are expensive and avoiding these are a priority - the property ladder may become more accessible for some tenants if house prices stagnate, alternatively, tenants might be wary of buying in a falling market... either way, keeping my best tenants happy and in my properties is my aim!

Summary.
Keep calm and carry on.





I hope this is useful. If you have any queries then please do not hesitate to contact me.

Good luck and best regards
Chris

This email has been sent to every landlord who has enquired about our services at any time. If you have received this by mistake of if you would like to be removed from our list or if this is irrelevant to you then let us know and we will update out records.
This email has been sent to every  landlord who has enquired about our services. If you would like is to remove you from our list or if this is irrelevant to you then let us know and we will update out records.

Landlords and Legionella - some myth busters!

Legionella - Information for Landlords and some Myth Busters!
You may have heard in recent months of new requirements for landlords to have legionella risk assessments carried out at their rental properties. The aim of this blog article is to advise you on legionella and on how to fulfil your obligations as a landlord. The information provided here is, where indicated, all referenced from the HSE Website www.hse.gov.uk

What is Legionella and what are the risks?
Legionnaires' disease is a potentially fatal form of pneumonia caused by the inhalation of small droplets of contaminated water containing Legionella. All man-made hot and cold water systems are likely to provide an environment where Legionella can grow. Where conditions are favourable (e.g. suitable temperature range, aerosols, water stored and/or recirculated,
'food' for the organism to grow such as rust, sludge, scale,biofilm etc.) then the bacteria may multiply thus increasing the risk of exposure.
http://www.hse.gov.uk/legionnaires/legionella-landlordsresponsibilities.htm

Shower Heads can harbour legionella

The Law
The law is clear that if you are a landlord and rent out your property (or even a room within your own home) then you have legal responsibilities to ensure the health and safety of your tenant by keeping the property safe and free from health hazards. 

http://www.hse.gov.uk/legionnair/legionellalandlords-responsibilities.htm

There are the Regulations and there is a Code of Practice. The regulations are:
Section 3(2) of the Health and Safety at Work Act 1974
Control of Substances Hazardous to Health Regulations 2002

The Code of Practice:
The best means of compliance is to fulfill the requirements of the L8 Approved Code of Practice; ie conduct a formal risk assessment. However, bear in mind that this Code of Practice covers a wide range of circumstances and not just rental properties. In fact, rental properties form only a very small
subject area and domestic systems are generally considered to be low risk.

You can read the Code of Practice here:
http://www.hse.gov.uk/pubns/books/l8.htm

Proudhouse feel the best advice can be provided by dispelling a few myths which are being bandied around by agents and landlords:

A combination hot water cylinder.

Myth busters
Myth 1: A written legionella risk assessment is a legal requirement for rental properties. Not strictly true! However, it is the best (and probably only) way of demonstrating compliance with the regulations.

Myth 2: Only a qualified risk assessor can undertake a legionella risk assessment. Not true! In fact HSE guidance specifically states the following: “Most landlords can assess the risk themselves and do not need to be professionally trained or accredited”

Myth 3: Risk assessments are a necessary expense. Again, the HSE website advises to the contrary: “In most cases, the actions landlords need to take are simple and straightforward so compliance does not need to be burdensome or costly.”

Myth 4: A legionella risk assessment requires technical knowledge of plumbing and water systems. Not really! HSE guidelines state:
"For most domestic hot and cold water systems, temperature is the most reliable way of ensuring the risk of exposure to Legionella bacteria is minimised ie keep the hot water hot, cold water cold and keep it moving. Other simple control measures to help control the risk of exposure to Legionella
include:

• Flushing out the system prior to letting the property
• Avoiding debris getting into the system (eg ensure the cold
• Water tanks, where fitted, have a tight fitting lid)
• Setting control parameters (eg setting the temperature ofthe hot water cylinder (calorifier) to ensure water is stored at 60°C)
• Make sure any redundant pipework identified is removed."

Myth 5: A risk assessment needs to be carried out every year. Not true! HSE guidelines state the following:
“The law does not prescribe that the risk assessment be reviewed on an annual or biennial basis. It is important to review the assessment periodically in case anything changes but where there are difficulties gaining access to occupied housing units, appropriate checks can be made by carrying
out inspections of the water system, for example, when undertaking mandatory visits such as gas safety checks or routine maintenance visits”.

Myth 6: A landlord is legally required to keep records for 5 years. Again; HSE guidance is very helpful here: “Landlords are not necessarily required to record the findings of the assessment (this is only a statutory duty for employers where there are five or more employees), but they may find it
prudent to keep a record of what has been done for their own purposes”.

What does Proudhouse advise?
The reason why we have highlighted the myths above is because we are hearing of quite a few examples of landlords being incorrectly informed and then having to pay for an expensive risk assessment (£120+ per property). We think this is unfair and some agents are being selective with their advice. However, we want to help you fulfill your duty and we understand that there is a good chance that you will not be in a position to undertake an assessment yourself or that you may not feel comfortable visiting your tenants etc. 

Contact us for more information or to arrange a Legionella Risk Assessment by our approved assessor and at a reasonable fee.

Legal Disclaimer. This content is not intended to be legal advice or an official source of information. Landlords and/or agents should seek official advice from a relevant professional or official organisation in order to assist them to satisfy their legal obligations.

Copyright and plagiarism. The photos and content in this blog article are original material authored by Chris Chambers. Downloading and printing for personal use is permitted. Reproduction in a public forum, eg on a website or a link on a social media, must include suitable references and identify Chris Chambers of Proudhouse Property Management as the author.  

Smoke Detectors in Rental Properties - 6 essential tips and an example of what not to do!

This article references The Smoke and Carbon Monoxide Alarm (England) Regulations 2015, BS7671 Requirements for Wiring Installations and also BS 5839, Fire Detection and Fire Alarm Systems for Buildings. The author, Chris Chambers, is a registered Full Scope Domestic and Commercial Electrician who has hands-on experience of installing or maintaining Grade A, D, E and F fire detection systems. Chris' Primary business is owning and running Proudhouse Property Management and Lettings.

Since 1st October 2015 it has been a mandatory requirement for all rental properties to be fitted with smoke detectors. The regulations are actually not too stringent - at least one smoke detector is required on each floor and a Carbon Monoxide detector is required in each room where a solid fuel appliance (eg a fireplace) is located. The detectors must be proved to be working at the commencement of a tenancy.

However, I am seeing more and more confusion on this subject and the regulations are wide-open for interpretation! I'll try to avoid a lengthy article with some quick points about the requirements - I'll then give you some tips for easy installation of alarms:

1) Smoke detectors come in 2 forms: Ionisation sensor (cheapest but prone to nuisance alarms) and optical. You can install either but if you install an ionisation alarm near a kitchen it will activate with cooking fumes; your tenants could well get frustrated with it and tamper with it to disable it - which defeats the object of installing it!

2) For the purposes of the regulations, I would advise that a Heat Detector is NOT classed as suitable equipment - these should be used in addition to smoke detectors.

3) BIG AREA OF CONFUSION: Mains powered smoke detectors and interconnected smoke detectors with a battery back-up (ie a Grade D system) are undoubtedly a superior system but they are NOT essential when retrofitting in a rental property nor are they a requirement of the regulations. Standalone battery smoke detectors are just as suitable for retrofitting. A Grade-D system is only required in new build properties or new build extensions/conversions.

4) However, installing mains-connected smoke detectors to a property (either via a new dedicated circuit or via an existing lighting circuit) is a good option but MUST, under Part P of The Building Regulations, be installed by a registered electrician.

5) Any smoke detector must be installed in accordance with the manufacturer's instructions in order to comply with BS7671/BS5839/BS14604. This means they should not be physically altered or located in areas not detailed in the instructions.

6) Smoke detectors usually have a 10 year life (not the battery - the whole unit). Just because the alarm operates when tested does not mean they're functioning correctly - the sensor weakens with time.

So what's the best solution for retrofitting in a rental property?

1) Don't go for the cheapest! It's a complete false economy!

Bad Example: This new system was recently spotted by Chris on a visit to a friend's 
house (a rental property). The supply cable had been surface mounted in trunking and
this alarm had a hole hacked in the side to allow for cable access (this model
is designed with only one cable side- entry point for surface cable, but the clumsy way 
it has been configured requires 2 side entry access points). This means the cable
is routed underneath the base and sandwiched between the base and the ceiling.
 This was installed in 2016 and almost certainly as a result of recent legislation.

2) The installation cost of a mains-powered system on a dedicated circuit could be in the region of £200 - £400 depending on the ease and concealment of routing the circuit etc (For an example of a really CRAP retrofitting look at the attached photos!).

The trunking is unsightly and snakes through the house with messy silicone sealing the 
joints. Ok, it works - but if I was the landlord I'd be horrified by the ugly, botched 
nature of this work! Landlords - seek professional advice and use the correct tradesman. 
I suspect this is an example of DIY or an unqualified tradesman. Battery operated 
radio linked detectors would have been SO much easier/tidier!

3) There are some excellent battery-only smoke detectors - tip: go for a lithium battery with 10 year battery life - these batteries are sealed in the unit and cannot be removed, which means tenants cannot tamper with them and there is no issue with batteries going flat

4) A REALLY GOOD SOLUTION, which is easy to install is a 10-year, lithium battery alarm which is radio interlinked. Eg FireAngel WST637. They're about £60 each but you, or a friendly handyman, can install them very quickly and easily meaning your installation fee is negligible (an electrician is not required). The risk of tampering/removal/life of batteries is also significantly reduced which means you should have fewer, if any, ongoing costs.

5) If you want to install mains powered alarms then consider radio interlinked alarms such as the AICO EI168 and compatible detectors. These can draw their power from a nearby light fitting (assuming a permanent live conductor is present - remember, a smoke detector needs to be installed no closer than 300mm to a light fitting or other electrical accessory. You should consult an electrician for advice as RCD protection may also be required). Whilst the cost of the units is more expensive, the installation is much easier than a system requiring cable to be routed between floors.

6) Finally - don't mix up your manufacturers of alarms on the same circuit. It's bad practice, probably not compliant with the aforementioned references and they might not work properly together.

Summary
If you need advice or are unsure then contact us for a friendly and free consultation. Your local
fire brigade will give you advice and, possibly, even free alarms. When it comes to electrical installations then consult an electrician accredited to the Registered Competent Person-Electrical scheme.

TOP TIP: Falls from ladders cost the UK 60 million a year, account for a third of major injuries and is the number one work-place killer. Be careful installing smoke detectors!

By Chris Chambers


Legal Disclaimer. This content is not intended to be legal advice or an official source of information. Landlords and/or agents should seek official advice from a relevant professional or official organisation in order to assist them to satisfy their legal obligations.

Copyright and plagiarism. The photos and content in this blog article are original material authored by Chris Chambers. Downloading and printing for personal use is permitted. Reproduction in a public forum, eg on a website or a link on a social media, must include suitable references and identify Chris Chambers of Proudhouse Property Management as the author.  

Rental Valuations - it's a strategy! Find out why less is more...

Your rental valuation strategy should be all about not aiming too high. You don't want to ask for too much monthly rental income. "What?!" I hear you cry. It's true! In this game, less is more. Much more sometimes - possibly several hundred if not a few thousand pounds more over the course of several years. Read on and find out why.

2016 has been a really interesting year so far - and it's only February. But with SDLT changes happening in April we are seeing a flurry of activity and requests for rental valuations of prospective rental properties. Some of these requests are coming from new landlords who are keen to make their first property investment before April. We're also getting a good run of interest from experienced landlords who are reconfiguring their investments and portfolios. Proudhouse Property Management are possibly the leading independent rental specialists in Yeovil and South Somerset. The stats from Zoopla show that for house rentals, Proudhouse is currently 4th with only multiple-office and sales-led businesses taking the top 3 places.

Stats from Zoopla, market share, Feb 2016, Houses, BA20, BA21, DT9 Postcodes

As a dedicated rental specialist it is important to us that we advise our clients fairly, and also correctly manage their expectations. Which is why we're finding it disappointing to engage with a few new landlords whose expectations of rental income have been completely mismanaged - usually because some over-zealous sales agent, or developer, has plucked a sky-high rental figure out of the air as a way of incentivising their buyers. Or sometimes a new landlord has, unfortunately, made some comparisons to other rental properties without factoring in all aspects which has distorted their expectations.

However, there is a big difference between the experienced landlord and the newcomer!  

The experienced landlords all have something in common. They understand one key concept which is really simple: Void periods! (Voids are periods when the property is unoccupied) These landlords will usually say to me, "Chris, I'd rather the house was let than standing empty". Well that sounds like a no-brainer but experienced landlords are willing to drop their price-per-calendar-month expectations - and that is how they secure a better overall income within any given year. Example:

Landlord 1
Has a well presented but average 3 bedroom house which is valued ambitiously at £800pcm. It goes on the market on April 6th 2016. Interest is luke warm as most tenants are looking in the price band £600 - £799. A month later a tenant secures the property, gives one month's notice on their current home, and then moves in at the end of May. This leads to a total of around £8000 paid in the 2016/17 financial year.

Landlord 2
Has an identical house in the same area but has valued it at £725 pcm and it also goes on the market on April 6th 2016. However, this property is valued in the middle of the target price band. It gets lots of interest. Heck, it's even better than some of the more expensive properties. 6 viewings are lined up in the first week and the landlord is spoilt for choice. A couple of the tenants are so keen that they offer to take the property immediately which the landlord agrees to. The house is rented by mid April. The total amount of rent received in the 2016/17 financial year is £8337. That's £337 more than landlord 1!

Now also bear these factors in mind:

1) Many tenancies only last 12 - 18 months so avoiding voids is essential over the years and over the course of several tenancies.

2) Lower asking prices will likely generate more interest and therefore more choice of tenants which in turn means better chances of a good match between tenant and property = happy tenant and happy landlord.

3) Tenants are less likely to leave a property where they think the rent is fair, where they're treated well and with no mandatory renewal fees or other ongoing agency expenses. This means, no void periods caused by needing to re-let.

But my property has a superb, premium, high-end interior? Surely that's worth more?

A great interior - will let your property quicker!

In South Somerset (and unlike a major city area), great interiors with high-end features can command a slightly higher asking price. But only slightly higher. The "going rate" is a powerful market force and the practicalities of space, room size and location are, more often than not, higher up on tenants' lists of priorities than premium fixtures and fittings. However, great interiors can be incorporated into your strategy! A great interior, coupled with an attractive rental value will let your property quicker! Time is money so use your premium property as a mechanism to avoid voids!


Summary
If you're deciding on rental valuation then think "average"! Think "less is more"! Avoid the voids! You will be better off in the long run. Be suspicious of any agent promising gloriously high price-per-calendar-month figures - they're just trying to win your business and are probably setting you up for a disappointment. 

By Chris Chambers
Owner at Proudhouse Property Management

Proudhouse manage properties throughout South Somerset and are are gaining a reputation for excellent customer service through a range of lettings and property services. Proudhouse are dedicated to property rentals and offer a first class personal and professional service. Proudhouse are not a sales office, franchise or part of a corporate chain.

Right To Rent... Bigger then Ben Hur

Right to Rent checks are now in force! This very important requirement of the Immigration Act has been causing much debate in the lettings industry and in various blogs, articles and magazines - however, there is no reason why complying with the requirement should not be fairly straightforward - anyone capable of making and keeping records (ie, any organised person or business) should find it fairly easy to comply but the phrase "Bigger than Ben Hur" springs to mind when I see some of the fuss that is being made. However, busy landlords may overlook this requirement at the tenant find stage and thus risk a big fine. Of course, a good agent, such as Proudhouse Property Management and Lettings, will take care of all this for you along with all the other administration required for setting up a tenancy.

So what's required?

For anyone who is not aware, there is now a requirement for landlords and/or agents to check the identity of tenants (and lodgers) and confirm they have a right to rent a property in the UK. This is for ALL tenants - even if it seems obvious that the tenants have a right to rent. Compliance can be achieved by checking and making a dated copy of an official ID document, within 28 days prior to a tenancy commencing - this record then needs storing. Verification is also to be made that the tenant intends to use the property as their main home. The aim of this blog article is to inform our readers and clients that we are setup and ready for this legislation. The actual requirements are detailed here:

www.gov.uk - Right To Rent

As it happens, we have always done this but we will now be formalising the arrangements in our Service Agreements.

For our existing clients we will contact you (when appropriate) to clarify and assign responsibility for conducting Right to Rent checks (for managed properties we'll do it for you, as will we for our tenant-find only clients).

For our clients who are self-managing and who arrange bespoke services through us then feel free to call us for free advice on your obligations.

For any other landlords out there then you need to be aware of this legislation and comply with it. You could be fined £3000 if you do not comply! We can also arrange one-off services for you and do these checks for you if you require. Feel free to contact us here for a friendly and free consultation.

By Chris Chambers
Owner of Proudhouse Property Management and Lettings.

Proudhouse manage properties throughout South Somerset and are are gaining a reputation for excellent customer service through a range of lettings and property services. Proudhouse are dedicated to property rentals and offer a first class personal and professional service. Proudhouse are not a sales office, franchise or part of a corporate chain.

Tenants - get the property you want. 10 top tips!

Tenants - get the property you want!

House hunting for rental properties can be very frustrating; demand is high and often houses are not on the market for very long. We often hear tenants saying they've been "looking for ages", or that the property they like won't accept pets or that agents are useless and never respond to queries etc. Well... some agents are useless actually but for the purposes of this article we'll concentrate on what you, the prospective tenant, can do. Finding your perfect home is a bit like finding your perfect job - in the same way that you need to get noticed by a potential employer then tenants need to get noticed by the agent. Follow these steps to give you the best possible chance of securing that perfect home.  

1) Keep watching the market - login every day and keep an eye on new listings. Use the well known portals such as OnTheMarket.com and Zoopla

 2) Be pro-active - target the properties you want and phone the agent direct - simply sending an email to an agent with some vague requirements will probably not work 

 3) Make sure the property is right for you before viewing! Ask plenty of questions over the phone - and be prepared to answer queries from the agent - the agent should want to know a little bit about you and who will be living in the property.

4) Don't view properties that are outside of your budget!! Understand the market you're  in and make sure you have a reasonable idea of the going rate for the type of property you're after. Also see point 10 below.

 5) Be friendly and easy going! Moving is a stressful situation and a good agent will understand this - furthermore, landlords can also find the prospect of new tenants stressful. A calm, measured, friendly and understanding approach will allow everyone to think clearly and negotiate the various requirements they each have. 

Don't delay - view as soon as you can!

6) View the property as soon as you can - the rental market place is fast-moving and waiting several days to view might mean you miss out. If you do have to wait then ask the agent if there is a deadline; often agents like to take several viewings and present several prospective tenants to the landlord and tenancies might not be offered on a first-come-first-served basis. 

7) At the viewing give feedback to the agent - if you like, love or hate the property then tell the agent, and if you like it, then ensure you know the next steps to take to start securing the property for you.
The best dog on the world.
8) Pets: if you have pets then tell the agent early on! Most landlords would prefer tenants without pets... and most tenants have pets! Every tenant thinks their pet is really well behaved and house-trained; the agent will have heard this a thousand times before! Instead, say that you are prepared to mitigate the risk through paying increased rent or a pet fee or signing a pet agreement etc. Perhaps offer to make professional cleaning of carpets or flea treatment etc a condition of the tenancy. You could also offer to restrict parts of the house (eg upstairs) to your pet.

Know the costs.
9) Money - know what the agent's fees are upfront and make sure they're reasonable. Be prepared to under go a credit check and if you have CCJs or adverse credit then this could seriously affect your chances; again, mitigate your risk - tell the agent early and perhaps offer a guarantor or 6 month's rent up front. 

10) The rental asking price: there is absolutely nothing wrong with making an offer below the listing price. However a good agent should have valued the property accurately relative to other comparable, local properties. Any offers significantly below the asking price are likely to be dismissed by the landlord - remember, there are a queue of tenants lining up to view the best properties! You may even want to offer more than the asking price if you are really keen! However, that is rare and not expected. 

Good Luck! Proudhouse Property Management are always happy to offer free advice to tenants as well as landlords. Feel free to call us 01935 388456.  

By Chris Chambers. Chris is the owner of Proudhouse Property Management and is based in Yeovil, Somerset, UK. 

Pension Or Property?

By Chris Chambers. Chris is the owner of Yeovil-based firm, Proudhouse Property Management. Chris is also an experienced landlord, and property developer, with his own portfolio of houses and flats in Cardiff and Yeovil. 

This article augments information provided at www.proudhouseproperty.co.uk

This article aims to provide information for our landlords, tenants and potential clients. All opinions are our own and do not constitute formal advice; none of the content is intended to form a contract or promise of services outside of our Service Agreement. Please feel free to browse these articles and use as an informative resource for lettings and property management. We would be delighted to discuss your needs in more detail; for Lettings in Yeovil, Sherborne, Somerset and Dorset please contact us on 01935 388456

Pension Or Property? 

Property rental as an alternative to an annuity?

This month pension rules will change - it will become easier for pension holders to draw cash out of their pension pots and it is anticipated that many people will use this opportunity to invest in property. If you're in this situation then you should be sure that you are taking the best financial decision based on your circumstances and tax situation; if in doubt then you should seek the advice of a financial or tax adviser.

Withdrawing money to invest in Property
The first 25% of a pension pot can be withdrawn tax free; the remainder can be withdrawn and you will be taxed at your marginal rate. So if you have a £400,000 pension pot then you can withdraw up to £100,000 tax free. The rest of this article will concentrate on how you could invest this money in property. If you have multiple income streams, or do not understand the tax implications then you should consult a financial adviser.

Investment Strategy
If you have never invested in property then you maybe wondering where to start; is property investment as simple as buying a house and renting it out? You may be thinking you want to buy a property outright, with no mortgage, and enjoy a monthly income of several hundred pounds a month. Perhaps you are considering a mortgage but don't know whether a repayment mortgage or an interest-only mortgage is best for you. Lets look at some examples based on a cash fund of £100,000 and an annual increase in value of 3%:

• A. Outright ownership: £100,000 should be enough to purchase, outright, a reasonably modern 2 bedroom flat. Advantages: 1) no mortgage therefore no mortgage fees/interest, 2) protection from changes in interest rates, 3) If you have the time, are local, and fully understand your role as landlord, then you could probably manage the property yourself. Disadvantages: 1) Bad tenants or empty periods will provide you with no income, 2) A poorly chosen property (ie not in demand by tenants) in the wrong area could leave you with no income, 3) We're assuming value will increase but it must be borne in mind that your capital is invested in one concentrated asset which could go down in value or, in extreme cases become worthless should an unforeseen event happen eg; subsidence, fire, etc. Value increase after 1 year: £3000

• B. £100,000 deposit on a large house: It's tempting to think bigger is better - £100,000 used as a 33% deposit on a 66% LTV mortgage of £300,000 could purchase a quality 4 bedroom house. Is this a better option than outright ownership as in example A? See the paragraph below on rental yield. Value increase after 1 year: £9000

How to spend money?

• C. 2 x £50,000 deposits on 2 flats at £100,000 each: Advantages: 1) As long as void (unoccupied) periods do not co-incide then some income, if not all, can be expected every month, 2) Better chance of protection from value decreases, 3) Capital gains could be made on 2 properties. Disadvantages: 1) Interest rates can change, 2) More management work. Value increase after 1 year: £6000

• D. 4 x £25,000 deposits on 4 flats at £100,000 each: This approach involves leverage of the £100,000 fund across several assets in the hope of increasing gains. This approach would put you into portfolio landlord territory. Advantages: 1) Good redundancy against void periods, 2) Good redundancy against price decreases (assuming the properties have been purchased in different locations), 3) Good chances of capital gains. Disadvantages: 1) Workload - you will almost certainly want to use the services of a managing agent and will incur their fee (of course, using a good agent, such as Proudhouse Property Management, will ensure you can sit back and enjoy your investments without the day-to-day burden!), 2) Mortgage fees and interest rates start to increase at high LTV, 3) High administration burden - even if you are using an agent, you will still need to be organised with administration and keep track of costs, fees, interest payments etc in order to take best advantage of allowable expenses in the context of tax and self-assessment. This applies to all of the examples, however, more properties requires more work. Value increase after 1 year: £12,000 

The above examples are very simplistic but I hope they show the broad strategies that could be followed. There are many, many more variables to take into account; ground rents, service charges, mortgage fees, arrangement fees, maintenance costs, insurance and not least rental income - on the subject of rental income you should have a basic knowledge of rental yield.

Rental Yield

It is useful to have some sort of financial reference to gauge how well a property rental is performing in terms of income versus investment. That reference is called rental yield. However, it is not as simple a calculation as some agents and advertisers would have you believe - calculation of a true rental yield needs to take account of running and maintenance costs and this can only be calculated once a property has been acquired and been let for a period over which the actual costs can be ascertained. However, a simple rental yield calculation for use as a very basic measure for comparing properties at the buying stage is:

(Annual rental income divide by purchase cost) multiplied by 100

So for example; a £100,000 flat will rent for £600 pcm

(600 x 12) / 100,000 = 0.72

0.72 x 100 = 7.2%

If you use an agent then ensure they
are ARLA registered.

The higher the percentage the better! Anything at 6% or above would be considered to be a good rental yield. However; do the calculation again but this time subtract agents fee, insurance costs, 1 month rent (assuming one void period), accountants fee, anticipated maintenance costs, gas safety check fee etc from the annual income. The percentage will be a lot lower! Bear this in mind at the purchase stage and use this method of rental yield calculation with caution.

But what about capital gains tax?

CGT is only payable when the equity is released - furthermore there is a £11,000 allowance before CGT taxation takes effect. And this is your pension plan - you're probably investing for the long term, or even until death! 

Give your property away! (and make a will)

Think about what will happen to your property when you die - one huge advantage of property over an annuity is that your children can inherit property. Take legal/tax advice on this but it may be that you can gift your property to a child and, as long as you don't pop your clogs inside 7 years, your children should not be liable for inheritance tax. You would not be able to claim any rental income if you did this. An alternative could be to part-gift to a child; annual part-gift increments could be managed in such a way that the value of the gift is below the recipients annual CGT allowance of £11,000. Part-gifting would mean you could still benefit from the property and receive rent.

Summary

Attempting an article on property investing in one blog post is pretty much impossible! There are whole books devoted to it - but I hope this has scratched the surface and provided some basic fundamentals. As an alternative to a pension, rental properties can be an excellent option. There is much research to be done - don't rush in; start looking early, get a feel for the market and feel free to approach us for a lettings consultation. We of course would be delighted to offer you advice which is completely free. We have an excellent lettings and property management service and would love to hear from you. 01935 38845

email: chris@proudhouseproperty.co.uk