On Friday we managed to complete two deals, one in St John’s Woods and the other in Quebec Court, W1. This day happened to be Dhanteras. This auspicious day is celebrated two days before the festival of lights, Diwali.
On Dhanteras, Lakshmi - the Goddess of wealth - is worshiped to provide prosperity and wellbeing. It is also the day for celebrating wealth, as the word 'Dhan' literally means wealth and 'Tera' comes from the date 13th.
The completion date was not arranged by design, but by coincidence. The property in Quebec Court was actually supposed to complete two days prior, however due to a contentious unforeseen service charge, the completion took place later.
I have no doubt both properties will bring wealth for the investors involved. Both are below market value, the one in Quebec Court, in Seymour Place, has the added advantage of benefiting from the ability to short let which could return a rental yield in the double digits.
It’s location in Marble Arch is in the epicentre of the West End and is attractive to tourists; and offers a cheaper stay when compared to the Cumberland Hotel which is around the corner.
Another deal was also agreed on Friday, which is for a 38% below market value property, freehold in Marylebone. The property is finished to a high standard, and is ready to rent with very little down side. There is no planning risk and being freehold no managing agents to contend with; it too can be rented very easily on a short term basis.
As property prices have increased strongly since 2009 with a dampening of the market only recently, rents have not kept pace with this rise. Typically, the rental yield on a centrally located property will now be between 2-3%. This has severely impacted the amounts you can borrow. The amount one can borrow is now less based on the actual value and more on the rental of the property.
It used to be the case where you borrow at 75% loan to value subject to a rental cover of 125%, meaning if your mortgage is £100 pm your rent needs to be £125.
As prices have increased now the rental cover decides how much you can borrow. This is going to increase even more. A major BTL lender is bringing in a rental cover of 145%, based on an interest rate of 5.5%. This is to accommodate the removal of the interest relief on rental income which is likely to be introduced in 2017.
The consequence of this policy will mean buyers will need a higher deposit when purchasing property. I suspect this will lead to a move to outside of London where yields are much higher, and also there will be an increase in investing in property through online platforms. The move to investing via online platforms will negate much of the risk in holding properties directly, making the process smoother and hassle free.
Repairs, repairs, repairs
As a landlord you are not just an investor, you have certain responsibilities to your tenants. Investors are just that, they invest in the property and then reap the rewards at the end of the investment. A landlord on the other hand must offer a property that satisfies basic requirements, such as adequate weather proofing, heat, water, and electricity, sanitary, and a structurally safe home. This may seem like a big task to undertake as you look at the empty shell that you have just acquired!
You could contact the local council, they typically set specific standards, such as the minimum requirements for light, ventilation, and electrical wiring; however this will more than likely put your head in a spin. It is important to make sure that before a tenant moves in to the property, you have done everything you can to reduce possible future issues.
Tenants also have the responsibility to keep the property clean and sanitary. If they do not, they can't simply call you and ask you to tidy up their mess as this will be down to their negligence.
Once a tenancy has started there will always be issues, but we will be there to sort out the issues as quickly as possible and determine if the issues are related to the tenant’s neglect or not. There are a few steps that can be taken when the repair is your responsibility as you can usually request the tenant to repair in exchange for a reduction in rent. If the tenant fails to do the job well, however, you are not excused from your responsibility to maintain the property in a habitable condition. It is often quicker and more cost effective to arrange for a contractor to attend to the issue and have it resolved by a professional.
In a worst case situation if you ignore the repair issue a tenant can withhold the rent until the problem is fixed; call the Council, who can order you to make repairs; or even sue you for a partial refund of past rent, discomfort, annoyance, and emotional distress caused by the poor conditions!!!
Chances are that your investment that you thought would look after itself may involve a little more hard work than you first expected, so you may want to use a full lettings management service to reduce your headache. At Sow & Reap not only can we find a suitable tenant for your investment but we can also take over managing your property. So why don’t you allow us to be the middle man and handle all issues that may arise, leaving you with more time and less stress. Contact our office and have a chat with me to discuss your investment.
