Welcome to the May edition of ‘How’s the Market?’ – the monthly article designed to highlight the factors affecting the residential sales and lettings markets in Portsmouth and Southsea, answering the question that clients ask me most frequently. Each article will now include an ‘Expert Guest’ – a specialist giving an insight into their field and how it has been affected by the changing property marketplace. This edition will include a section from Kiera, a successful multi-landlord and Director of Wise-Lets, discussing her successes with both conventional Buy-To-Let properties and the less common, more modern concept of Rent-To-Rent.
First thing’s first, let me thank everyone for their response to the first month of ‘How’s the Market?’ Plenty of positive feedback on both the website (www.howsthemarket.co.uk) and the Facebook page (www.facebook.com/howsthemarketPortsmouth/) but most importantly, plenty of discussion points from local people to include in this article – from the young generation struggling to step on the ladder through to certification laws on HMOs. It’s important for me to mention that the objective of writing this is to provide factual, impartial information and not simply voice my own opinion. It’s even more important to remember that this must stay ‘interesting’ and not be a barrage of legal jargon and tedious statistics. If anybody would like to discuss more intricate topics separately, I’m happy to do so knowing that it saves everybody else from having to endure them! (Contact details below.)
Anyone that already follows the Facebook page will have seen a poll that was created regarding house prices – ‘Do you think that house prices in Portsmouth will have increased or decreased by April 2020?’ Of course, house prices increasing/decreasing isn’t the most helpful of numbers to summarise due to the significant variables affecting it – inflation, mortgage interest rates, living wage – actual value is a meaningless number with everything changing at different rates. However, this did provide a platform of discussion with 59% out of 124 votes convinced that properties will be worth more next year than they currently are.
This result could be due to many different things. A confidence in the stability of the economy? An ignorance towards the slightly panicked, saturated marketplace that we’re currently experiencing? Or simply a result of a young demographic being given the opportunity to press on their opinion (this page is followed predominantly by young people, many of whom will have spent many years demoralised as they attempt to keep up with the pace of the increasing cost of purchasing their first home.) I certainly believe the latter will have been a significant factor in the outcome of this poll – the number of people around my age (a few years off 30) that own their own home is disappointingly low. It’s suggested that around 30% of people aged between 25 and 34 in the South-East of England own their own home, a figure that has more than halved since 1996. The Ministry of Housing also announced last year that the average age of a first time buyer in the UK had risen to 31-32.
Whilst it’s obviously a challenge to get a foot on the property ladder, I don’t think it tops the priority list for a large percentage of young people, possibly put off by the thought of the high income and substantial deposit required to acquire their first mortgage and benefit from the stability that owning a home provides. With the government applying heavy pressure on buy-to-let landlords forcing many out of the industry, combined with the schemes in place to assist first time buyers, there’s a great chance that the future could be bright for those looking to complete on their first purchase. But this won’t come for free. It’s going to take some discipline, hard money saving objectives and a knowledge of the assistance that is available to you. Here’s a separate blog I wrote on the steps involved in buying a property if there’s any part of the process that you’re unsure of.
I’ve mentioned the heavy pressure on landlords – I appreciate a lot of people won’t be the most sympathetic after watching them dominate the UK property market for many years but new legislation for landlords has become increasingly stringent in the last three years meaning that significantly more capital is being invested into their property portfolios –
· Second Home Stamp Duty (April 2016)
· Reduced tax relief on overheads.
· Minimum Energy Efficiency Standards (April 2018)
· The Homes (Fitness for Human Habitation) Act (March 2019)
· The Tenant Fee Ban (June 2019)
Whilst we can all agree that most of the above are positive transitions for the overall quality of properties available to tenants, none are free. Landlords are investing significantly more of their own money into providing good quality, compliant rental properties to tenants and it’s likely that associated costs will be passed on in the form of increased rents, even more likely given that the number of new landlords entering the buy-to-let world has decreased dramatically further mismatching the imbalance between supply and demand.
The common concept is one of the ‘old-fashioned landlord’; the aggressive, underhand businessman, seeking extortionate rents for dysfunctional, dated properties. This concept is inaccurate, bar the odd exception. Modern landlords tend to be hard working individuals looking to top up their income or pension pot by investing the income of their labour, often welcoming positive industry changes. Whilst the buy-to-let business model may be considered old fashioned for these reasons, a door of opportunity has opened up for the more innovative concept of Rent-to-Rent; a system that many landlords are exploiting the benefits of. Here is a section from this month’s Expert Guest, Kiera, director of Wise-Lets to explain what it is and how it can be used to provide a great income stream –
‘I came across the concept of Rent-to-Rent in the Summer of 2018, whilst on Maternity leave. I was due to go back to work in the October and even with the rental income from our Buy-to-Let properties, it wasn’t enough to replace my income so I needed something that was going to generate more cash flow as well as giving me the flexibility to spend time with my daughter. Rent-to-Rent in basic terms? You rent a property from a landlord and then you rent it out yourself, to a tenant. Effectively, you’re taking control of the property and acting as the landlord, just like you would if you owned the property yourself.
Of course, this is all pretty pointless unless you make a profit from the arrangement, otherwise you’ve got all the hassle of property ownership with none of the benefits!
That’s why in Rent-to-rent you normally give the landlord a guaranteed rent which is lower than you’ll be able to charge to your tenants. For Rent-to-Rent to be effective, you will need to offer the landlord a guaranteed rent, significantly lower than market value. This may seem like a huge challenge, but in most cases, the landlord is happy because they have a guaranteed income without any of the effort that renting out a property normally involves. We arrange any of the maintenance, so they don’t have to pay an agent management fees and we cover all minor maintenance. I am happy because I am making a profit – my reward for taking on the effort and risk of managing the property.
This sounds like a win-win for all parties, but it doesn’t come completely free of risk.
For myself there is an initial outlay of money. The properties that I have secured have needed some upgrades mainly in terms of the furniture and décor. I currently have eleven rooms over two houses that I rent out – eleven lots of new bedroom furniture, eleven brand new mattresses, new bed frames, living room furniture, kitchen crockery and the list goes on. At the end of the term the landlord gets to keep the new furniture (another benefit to them as they are getting their house back in an upgraded condition). Should I have void periods, I am completely liable for the agreed rent payable to the landlord.
Believe me in the beginning there were some sleepless nights, but you always fear the unknown. Now, I’d like to think I have created nice welcoming shared houses for young professionals to live in. I have adopted the same principles that I have with my single lets. Any maintenance is dealt with as early as possible. Having two Rent-to-Rent properties has given me the benefit of testing the HMO market in Southsea out without all of the financial risk and long term commitment of purchasing. Single lets are obviously much easier to manage and the issues that you get are far lower but the financial reward for me and the time freedom it has given completely outweigh the negatives.
If this is a concept that you are keen to find out more about, I would always recommend doing thorough research. There is so much legislation surrounding not only the properties but you as the landlord and your company. This is not an investment strategy that you can just do on a whim. I would always recommend doing a good lot of reading and listening to podcasts. There are plenty of articles online on the subject, and I know a lot of other Rent-to-Rent operators have paid out for specific training too. Feel free to contact me if you’d like more information. (https://wise-lets.com/) (firstname.lastname@example.org)’
A great insight into a concept that will inevitably become more popular with those wishing to invest money into property. Many thanks to Kiera for featuring.
Next month’s Expert Guest is Jamie from G5 Properties, a local development company who specialise in providing high-end student accommodation, with an insight into how he feels the student market is transitioning.
Within the last month, I’ve been sent a lot of questions from local people, and I feel most have been answered somewhere in the above text. One thing that hasn’t been discussed is a question from Kay R regarding property licensing –
‘Hi Darrell – If you buy a property to renovate then decide to rent it out as a family home, are any permissions or licences required?’
The answer to this one will be relevant to its existing license. If it is a property with a C4 license, renting out to a family home will be sacrificing the C4 meaning that without a new application, it won’t be able to be used for multiple occupation.
The route that many of my landlords are taking, and one that I am suggesting many others take, is to apply for a dual C3/C4 license, giving the benefits of both. If you’d like to keep the house as a long term HMO but put a family in short term (or vice versa), this license will give the benefit of both. There is a fee involved but worthwhile in most cases, particularly for properties further away from the University.
I hope the second edition of ‘How’s the Market?’ has been a helpful read. Of course, there are parts more relevant than others dependant on your individual property needs. To make each monthly article rich of content, I rely heavily on your input – the more questions, opinions and/or theories that I receive, the more there is for me to respond to informatively. Please feel free to contact me by call, text or email below and Like and Share the Facebook page (www.facebook.com/howsthemarketPortsmouth/) where there will be further polls and points of discussion for you to share your views on the article and market conditions in time for the next article on Saturday, 1st of June.
Have a great month.
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