Tag: Properties

Landlords Losing Money

One of the principles of quality in industry is customer focus, and this is something that most landlords do not even consider, as all they are interested in is filling voids. It is in the interest of landlords to keep their tenants as long as possible in their property because in the long run it saves the landlord money as there is a regular cash flow going into the bank account. Landlords can go a long way to ensure that they not only help their tenants but also themselves. The following are but a few suggestions that landlords should consider if they want to keep their tenant and in some cases be able to charge a premium for what they are offering.

Tenants are not money trees they too need to earn and save to pay the rent; however, it is becoming increasingly difficult for them as their wages are below inflation. This means that bills have got higher, so they are trying to cut down wherever possible to make ends meet. As landlords you can help them, not by reducing the rent, but by helping them reduce their bills. Consider for instance of replacing all bulbs with LED bulbs, replacing shower heads with water efficient ones. from the 1st April 2018 there will be a change to the Energy Efficiency Standard Regulations to ensure that any property that is privately rented will have to have the minimum performance rating of ‘E’ on an Energy Performance Certificate (EPC). So, if you must update it go beyond the ‘E’ rating and make it even more efficient.

Customer focus is not all about helping the tenant reduce bills, its also about being responsive when a tenant reports a problem. How many times have we seen a tenant report an issue only for the landlord to ignore it until the tenant has made several complaints. Gone are the days where a landlord could afford to do this as the tenants today are much savvier and will take to social media to tell everyone about the issue and the poor response. It does not take long for a landlord’s reputation to be ruined and it will take a very long time for that reputation to be built up again, and in the meantime the landlord may have lost the tenant and find it difficult to fill the void.

Landlords also need to consider their tenant’s needs, for instance tenants may want to have pets, and are willing to pay either slightly higher rents or a bigger deposit in order that they can have their beloved animals. They may want to paint walls different colours so that it feels homelier for them, the landlord should allow them to do this on the understanding that it is returned to the original colour at the end of the tenancy. Let the tenants hang pictures again on the understanding that the tenant will make good any walls where he has made holes. Consider freshening up the property every few years with some paint, either paint it for them, or give the tenant the paint so that they can do it themselves. As tenants are often busy people, especially the professional tenant, then the landlord should consider offering services such as gardening, window cleaning etc. the tenant will often pay a higher premium for such a service.

Landlords who self-manage could also make it easier for tenants to report an issue by being able to do it online rather than having to phone, as quite often the tenant only has the time to report things out of office hours due to their own workload. So, give the tenant their own portal so that they can report and track the issue that they have reported. The landlord can also use the same portal to inform the tenant in advance when inspections are due, therefore allowing the tenant to arrange for someone to be in attendance.

By doing these little things not only will landlords keep their tenants for longer they will also have happier tenants who will become the advocate for the landlord and help find tenants for other or future properties that the landlord may have.

In summary by focusing on your customer you will enhance your reputation as a landlord and you will find opportunities to be able to charge a premium rate.   

Is your property investment area in a buyer’s or seller’s market?

How many people really understand their property investment area? Quite often they are told to go where the housing stock is cheap, offer below market value and build up their portfolio of buy to let houses. So off they go and put in offer after offer without understanding the local area and whether they’re in a buyer’s or seller’s market. So how can you find out if the property that you are interested in will potentially accept your offer especially if you are looking to put in a low offer? You can use easily obtained data to help you make an informed decision on your potential target property.

You start by looking at how many houses of the same type including the number of bedrooms that are within a ¼ mile radius of the property that you are interested in. This information can be found through the property search engine RightMove. Once you have this number write it down. Then within the same search engine, there is a tab called house prices, then from the drop-down menu select ’Sold House Prices’ then enter the postcode of your property. Then filter the information so that you are looking at property within a ¼ mile radius of your, and set the filter for sold in the last year. This will give you the number of houses sold, again make a note of this figure.

Now for some simple maths. Take the number of housing sold in the last year and divide it by 12 to give you an average. E.g. 36 houses sold in the last year, 36/12 = 3, then you take your current number of houses for sale and divide it by your average figure, e.g. 7 houses currently for sale, 7/3 = 2.33. This figure of 2.33 represents your current month’s supply of housing stock, if it is less than 6 then it is a seller’s market, so there is no point in you putting in low offers, because unless it is a stressed owner, the seller will know that their property will sell quickly at on or very close to the asking price. If the figure is 6 then it is a balanced market, so you have a 50-50 chance of having a below-market offer accepted. If the figure is above 6 then it is a buyer’s market, therefore you can put in a below-market offer with a good chance of having your offer accepted because the market has a lot more properties that are up for sale.

In summary, using data is the best way of making an informed decision that can make a big difference to finding the right area and property. You will not only save time but also money, therefore it is wise to spend a little time checking the data before adventuring out to put in offers.

Rental Yield

When investing in property you should always look at the Return On Investment (ROI), as you are buying the property to make money. Therefore you need to calculate the rental yield to ensure that the property that you are interested in will make you the most money on your investment. Yield uses the rental income over the initial cost of buying the property and it is expressed as a percentage. There are several ways of calculating yield, but for buy to let (BTL) we will use the most common one known as rental yield. This is calculated by the rent minus the running costs and dividing it by the total amount invested to purchase the property. This will give you a percentage, the higher the percentage the better the deal.

So our formula would look like this:

 

Yield = (((Monthly Rental – Running Costs) *12) / Investment)*100

 

Let us do a simple worked example:

Suppose that you have found a couple of potential properties that you are interested in but now you have to decide which one to choose. Property one costs £175,000 with a potential rental of £650 per month. Property two costs £200,000 with a potential income of £800 per month.

 

Property 1.

Monthly Rental Return = £650

Investment = £175,000

£650*12 = £7,800 (Annual Rent)

£7,800/£175,000 = 0.044

0.044*100 = 4.4% Yield

Property 2.

Monthly Rental Return = £800

Investment = £200,000

£800*12 = £9,600 (Annual Rent)

£9,600/£200,000 = 0.048

0.048*100 = 4.8% Yield

 

Although property two costs more to purchase it gives a higher yield, therefore a better return on investment.

 

The above examples is a simplistic version, as it does not include things like voids which can skew your calculations, so you may want to stress test the calculations by using a figure of 10 months annual rent instead of 12 months. You also have to obtain accurate information which includes the following:

  1. Cost of property
  2. Stamp Duty
  3. Mortgage
  4. Mortgage arrangement fees
  5. Building Insurance
  6. Survey Fees
  7. Legal fees
  8. Tenant acquisition fees
  9. Refurbishment costs
  10. Maintenance Fees
  11. Voids running costs (Council Tax, Utilities etc.)

There may be other items that you need to add to the above list e.g. for HMO you may need to include a licence fee and furniture, so do your due diligence and be as accurate as possible.

 

Be wary of yield figures that are given by agents and developers as they are often based on the basic cost of the property so that it makes the deal look more attractive. So do not be afraid to ask questions and ask how they have come up with their figure and use your list as a checklist to help you. Also, do your own due diligence and do a comparable check of local property prices within a ¼ of a mile of the property that you are interested in and what they sold for and also do a similar local search for the rentals in the area.