UK Property Letting: Making Money in the UK Private Rented Sector
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About this ebook
The private rented sector is still going strong and the market is still a good opportunity to invest in rental property. The book explores investments in buy to let and HMO property. Acquisition, management and sale of property are all covered in this book. Learn how to locate property, find and buy bargain repossessed property, structure your business and define your investment goals. Explore other investment opportunities to diversify your portfolio and build financial wealth through multiple properties. Build a long-term business and secure your financial future into retirement. This book is a must for any small investor looking for success in the property market through straightforward investment techniques.
Anthony Dixon
In the timeless words of Henry Brooks Adams, “A teacher affects eternity; he can never tell where his influence stops.” Embracing this profound wisdom, I believe that a life well-lived is one marked by the continuous exchange of knowledge and wisdom. As the author, I echo the sentiment that if you’ve journeyed through life without imparting something meaningful to the next generation, be it through teaching or learning, you’ve merely existed, not truly lived. Through my writings, I aspire to contribute to the tapestry of wisdom, leaving an imprint that resonates beyond the confines of time. I have written over five hundred Blogs, many dealing with Parenting, Relationships and Safe Driving with the hope that someone will benefit from them. Facebook inspired me to start writing, my first Blog sixty words long was posted on Facebook. From that day on I knew that Social media was a tool to share Knowledge. In the process of writing this Book, I have learned that you can face life, no matter what it throws at you. It’s all about resiliency of the human spirit.
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UK Property Letting - Anthony Dixon
UK Property Letting
Making Money in the UK Private Rented Sector
By Anthony Dixon
Zepp Media
Zepp Media
First published in the United Kingdom in 2018 by Zepp Media
Copyright © Anthony Dixon 2018
The moral right of the author has been asserted.
All rights reserved. No part of this publication may be reproduced or transmitted in any form without the prior permission in writing of the publisher.
ISBN 978-1-97677-917-6 (paperback)
Table of Contents
Chapter 1 Understanding the property market
Chapter 2 The Economics of Buy to Let
Chapter 3 Finding the Right Property
Chapter 4 Finance and Legal
Chapter 5 Conveyancing
Chapter 6 Repossessed Property
Chapter 7 Refurbishing the Property
Chapter 8 Marketing and Advertising your Property to Let
Chapter 9 Managing the tenancy
Chapter 10 How to deal with difficult tenants
Chapter 11 HMO Property
Chapter 12 Organising the Business
Chapter 13 Business Structure
Chapter 14 Alternative Investment Strategies: Diversifying your Portfolio
Chapter 15 Resources
Appendix I Assured Shorthold Tenancy Agreement
Appendix II: General Building Contract
Understanding the Property Market
History of the property cycle – short-term and long-term trends
The property cycle usually spans over 15-20 years and there has been a pattern recurring over many generations. The market will grow and prices will increase over 10-15 years followed by a decline over 5 years before the cycle starts all over again. An investor has to be careful if trying to use a short-term strategy for example during the period of 1990 to 1995 house prices fell by 10 per cent. Investors trying to buy property and sell quickly made considerable losses as house prices were falling quickly. However, in the 13 years after the recession short term development strategies were lucrative as house prices were rising quickly. The market is rising currently as of at the end of 2014 so it is favourable to the short-term investor. A long-term investor can buy a property when the market is dropping in price and hold the property until the prices start to rise. An example would have been during the period of 2007 to 2012 when the market had crashed and prices had declined. Cheaper properties would have been available to the investor who could hold the property until prices started to rise again as they did during 2013 and 2014.
The economy – indicators to invest in property
An investor needs to understand the current and future economic and market conditions and how they relate to the housing market. As what happened in the US that lead to the housing price crash of 2007 when the economy expands – lenders tend to offer too much credit and borrowers’ accept this credit. This results in people taking out mortgages that they can’t really afford, increased credit card limits and hire purchase agreements. When the economic conditions worsen people become unable to meet their repayments, confidence in the housing market diminishes, property prices fall and homes are repossessed.
Inflation should always be monitored by an investor. High inflation and low interest rates indicates a good time to borrow. The real value of your mortgage could be reduced considerably if inflation is high providing the interest rates are low. It would be prudent not to invest all your cash in a property at a time when inflation is high. When evaluating inflation and interest rates other alternative investments such as shares, bonds and high interest accounts should be considered.
A brief history of the private rented sector
Many years ago mortgages were difficult to obtain and loans were relatively small to the value of the properties.
The Second World War resulted in a housing shortage and during this period some nasty landlords began to emerge. A Mr Rachman was famous for unscrupulous landlord practices. Even to this day we have what we call ‘rogue landlords’ like Rachman.
Due to landlords’ unpleasant practices with overcharging of rents the government brought in the Rent Act. This gave tenants protection with a low rent but landlords lost control of their properties. This led to a high number of landlords leaving the market. The number of properties in the private rented sector fell from 50 per cent in 1945 to less than 10 per cent in the 1980s.
The government saw sense and brought in the Housing Acts which made it easier for a landlord to reclaim possession of a property at the end of a let. As a result, the housing stock in the private rented sector has grown quickly to 20 per cent.
There have been recent changes in laws and regulations particularly on tax. These changes have been introduced as a way to limit the private rented sector. George Osborne and the Tory government see the private rented sector as a problem to the first-time buyer. They feel that the sector is partly responsible to rising rents and house prices making it difficult for first-time buyers to get onto the market.
There are many experts who argue against this and that the tax changes could be damaging to the economy. There will always be a need for private rented accommodation as people move around with their jobs.
Assess the market
Short and long term fluctuations have always occurred and as an investor you need to be aware of properties and areas that are increasing in value. Careful consideration should be taken when choosing the type of property, where it is situated and whether it is the right time to buy. The market is rising currently as of 2014 and there is a predicted boom in the future. However, as we have seen after the boom pre-2007 and before the price fall in 1990 the housing market will make adjustments that will lead to a drop in prices. An investor during these times needs to think carefully about their strategy. In the past buy to let investors have hastily put their property for sale on the market due to buying the wrong property that has been difficult to let or has had a negative cash flow. This can lead to higher numbers of the same type of property being made for sale that drives prices down making it difficult to sell. An understanding of why these buy to lets have failed is crucial and careful assessment of the rental market in the area you are planning to buy in is essential.
Barriers to entry
Since the credit crunch and house market crash back in 2007 mortgage lenders have made it more difficult to obtain loans. Capital is always the obvious barrier to an average investor who has a modest income. Couple this with strict criteria from lenders and buy to let looks increasingly difficult to get into. Many lenders will only accept applications for those who earn over £25,000 per year. You will also need a perfect credit history so if there are any blemished such as missed bill payments or not being on the electoral roll then this will count against you.
The other big barrier is experience and this is something you will need for high scale investments such as HMO property. Lenders who provide specialist finance in property development and HMO property will want a track record of success as a landlord and investor.
Recent changes to buy to let investing
The buy to let market has seen changes to taxation such as an extra stamp duty on investment properties. Wealthy investors who are paying higher tax rates have been hit with a reduction in tax relief. Tax relief is now only reclaimed at basic rate (20 per cent) no matter what rate of tax a landlord pays. Landlords that rely on high amounts of mortgage interest to reduce tax will be hit hardest. Regulations are always on the increase as the government want to control the private rented sector and interest rates are on the rise. But house prices remain high and people are still struggling to get on the property ladder, so buy to let still remains attractive to investors.
How much should I invest in property?
This will depend on your attitude to risk but for those with a more cautious approach then no more than 50 per cent of your money. Investors who have a highly diversified portfolio will be able to invest more but for the average investor with just a few properties any more would be a huge risk. You could hand all your money to a property fund manager but that may generate high returns. A lot of your money will be wasted on hefty fees and the manager may be useless. So, in order to make money from property you have to invest in real property not a fund. You have to accept that the housing market is not without risk, there can be downturns where property values and rents fall.
The Economics of Buy to Let
There are two ways you can make money from your property investment. Firstly, you can make money from the rents of the property minus expenses. This is known as