Streetwise Property Alert

London – Supply & Demand

The Centre for Cities new report, 2013 Cities Outlook, draws attention to the reason why property prices will keep rising, especially in London; it’s down, as you’d expect, to supply and demand. Since 2001, the report suggests that the price of the average London home has gone up by £206,000; that’s pretty much a doubling of prices.

‘Current government forecasts suggest that we need to build 232,000 new homes per year in England alone to keep up with projected household growth while a separate projection puts this number as high as 290,500.’

‘House building in the UK as a whole has only exceeded 232,000 once in the last 30 years. The reduction in the building of new homes since the post-war boom, combined with rising demand for homes, has contributed to a sharp rise in house prices; the sold price of a home has increased by around 300 per cent (accounting for inflation) since 1959.’ Wherever you are investing, look at supply, demand and that pipeline of new supply. More at: www.londonpropertyalerts.co.uk

Tenancy Advice

We’ve had some editorial – more like advertorial to be honest – come in from www.nolettinggo.co.uk That’s not to say it’s not a useful read! ‘It’s always a situation you hope, as a landlord, you don’t have to deal with – when a tenant leaves early. Not only do you have the issues of finding another tenant you also have the potential legal issues to deal with surrounding the tenant’s leaving.

First things first: you should have in your tenancy agreement a clause that covers such an occurrence. This is vital – especially if the tenant’s leaving turns into a legal dispute. When a tenant puts in a request to terminate and leave early from a fixed term tenancy it is essentially a negotiation between them and the landlord. (The issue is clouded if there is one tenant leaving, leaving others behind and this would be covered by ‘Surrender in Part’ and is a slightly different issue). What to do when a tenant leaves a tenancy early?

A landlord is not obliged to let a tenant break the terms of the tenancy but it’s often common sense to negotiate. You need to calculate any loss of fees you may incur – which in itself may be disputed –  or whether your clause for early termination has an actual penalty value to cover the costs you will have to carry and is one agreed by the tenant when s/he signs the contract.

A leaving tenant may also find the landlord a replacement tenant. Do not at any point say yes to the new tenant without carrying out your usual vetting procedures. They may be a perfectly good tenant but they aren’t taking over the tenancy as theirs will be a fresh contract.

This situation is going to occur so it’s more of a situation of how you handle the transition. By working with the leaving tenant you will part on good terms and avoid any missed rent payments. It’s always wise to talk since any costs you incur funding a replacement will have to be borne by the leaving tenant (or, if you have a penalty clause, the costs will be covered by that).

When a tenant decides to leave a property is something of a legal grey area. There is no legislation covering this eventuality and landlords need to set the terms for early termination, notice of termination and how the notice is served. This is purely a contractual matter between landlord and tenant.

This termination date needs to be agreed. You should get a proper ‘Surrender of Tenancy Letter’ which will act as a written document and which will then be proof that the tenant has given up possession of the property to the landlord. If the tenancy agreement between landlord and tenant does not have a break clause and the landlord refuses to accept the termination notice then the tenant is contractually liable to pay the remaining rent balance for the fixed term tenancy.

This is where the art of negotiation is necessary. If there are seven months remaining on the tenancy then you could both settle on four months rent as a settlement to quit. For more information and advice about how to deal with one tenant leaving during a tenancy, contact the UK’s premium provider of landlord services call 0800 8815 366 or go to www.nolettinggo.co.uk.

Prime Property News

We’ve been looking at the latest Knight Frank findings regarding prime country house, Knight Frank state that house prices in this sector fell 1.2 per cent in Q4 2012 meaning an annual decline of 3.8 per cent. As always though, look beyond averages. Oxford, for example, saw a rise of 3.3 per cent over the year.

‘The prime country house market has been under pressure in the last 12 months with concerns over the impact of increasing stamp duty. Overall, stock and viewing volumes are up across the board but buyers have become even more discerning, taking their time to select only the finest homes, in prime locations such as Oxfordshire.’ Interested in this sector? Do check out www.investmentpropertyalerts.co.uk for more coverage.

The World’s Worst Hotel

Most hotels are terrified of getting a bad reputation on Trip Advisor and other review sites. The Hans Brinker hotel in Amsterdam sees things differently. The hotel has embraced a marketing strategy which attempts to build its reputation as the worst hotel in the world. The owners have published a book called The Worst Hotel in the World, and filmed a series of hilarious promotional videos which can be found on Youtube.

For around twenty euros a night, the hotel openly admit that guests can expect wafer thin mattresses, rusty beds, grotty paintwork, broken lifts and scruffy bathrooms. They proudly boast that the hotel has virtually no facilities.

It’s an interesting approach. If you can’t be the best, why not make a feature of being the worst? It certainly differentiates the Hans Brinker from other poor hotels which I’m sure are equally bad. Many people looking for a budget hotel will choose to stay there just to say they’ve been in the worst hotel in the world.

Is this a strategy that you could employ in your market? It’s risky, but it could be worth thinking about.

www.hans-brinker.com

Buying Off Plan

There’s lots of interest amongst members in buying offplan, both in the UK and overseas. Today, let’s offer some basic advice…

Use A Lawyer

Have the contract checked (before signing) by an independent lawyer. To profit from offplan, you need to be able to assign (sell on) up to or at completion. An independent lawyer – i.e. not the developer’s nor the agent’s – can check to see the contract is assignable. It’s not always the case.

Just because the developer or agent says you can, doesn’t mean you can – you need it in black and white. As often as not, the contract will prohibit this. Many developers want to see the development fill and grow naturally rather than becoming a speculative investment for foreign investors. Some contracts state that you must own the property for a certain period of time thereafter, typically 12 months.

There are other issues. Even if selling in-between is possible, it is often easier said than done to call the top of the market. And most follow-on investors prefer to buy new from a developer than flipped from a fellow investor who is clearly making a profit from them. As ever, take independent legal advice before signing.

Due Diligence

Have you looked at supply and demand? Most investors don’t or, if they do, they don’t look ahead to completion and, as likely, delayed completion. Clearly, some thought needs to be given to what you are buying and its USP (unique selling point), if any. What, for example, is going to distinguish this ‘luxury apartment’ from others that may come to market at the same time?

You need to think how the supply of similar properties is going to alter over the next 12 to 18 months or whatever. You want to see a rising market but that generally brings increasing supply too. And the more new-build there is, the more competitive the prices will become at some stage and this will eat into your projected profits.

Look at demand as well and whether that’s likely to keep growing, particularly for the type of property you are buying. That ‘two-bed luxury apartment’ is much favoured by the international investor but may be less suited to the home market. If or when a market stalls it is often these apartments that remain empty.

The ‘What If?’ Principle

Work the ‘what if?’ of delayed completion. The biggest ‘if’ is ‘if’ the unit is built on time (or at all). Even in good times, this is far from certain and it’s becoming less so nowadays when developers are struggling with funding from new investors and banks. You need to consider what will happen if completion is delayed six months, 12 months or if it’s never completed.

Many investors borrow money for staged payments and struggle to keep up repayments as completion is delayed time and again. If the property is completed on time, a common ‘but’ is that part of the remaining development has not been completed or the developer hasn’t had the funds to put in all the infrastructure and facilities.

There is a ‘maybe’ as well – maybe, two years down the line, the market you are buying into today will be a very different one when it comes to selling on. Think how markets such as Bulgaria, Spain and Dubai turned.

Look Well Ahead

Have you looked beyond completion? Too many investors do all their calculations carefully but stop in 18 months; they don’t make plans for beyond completion. It’s wiser to have a plan of action that features various alternatives and exit strategies. What if you can’t flip for whatever reason?

The obvious alternative to flipping is to let the property out. Before signing, it’s worth doing your due diligence on the lettings market here – who rents, supply and demand, and so on. Failing that, you may wish to look at using it yourself as a second home.

Exit strategies are as significant. You make money when you sell, not when you buy. You need to think who might buy from you. A follow-on investor is the common assumption; but they may prefer one of the similar units over the road that the developer is releasing at a knock-down price. It may be better to look at a sale within the home market although many resorts are priced out of reach of local buyers.

The Bottom Line

Make sure you can work to the bottom line. The best case scenario is that everything unfolds exactly as planned and, 12 to 18 months after signing, you flip and pocket those profits. But it’s wiser to look at the worst-case scenarios and, just in case, make sure you can live with these.

Flipping tends to be something that occurs most with cheap, emerging hotspots where a ‘goldrush’ mentality seems to take hold and where investors reserve a number of apartments with the aim of flipping  whilst knowing they wouldn’t be able to complete on them. Is that the sort of market you are moving into?

Before investing, but after taking professional advice and doing your due diligence, it’s worth looking at the worst things that could happen to see if you can live with them. For example, consider the currencies. What happens if a currency devalues? What happens if a developer does something wrong and fails to deliver? It’s not easy to sue a developer in a foreign country.

 

BTL Hotspot

Kinleigh Folkard & Hayward’s latest letting report suggests that the buy-to-let market across London is on the rise. Their Lee Watts says, ‘The South East appears to be the front-runner with the highest yields and price rises. Many areas are reporting high activity in the market with Crystal Palace, Surrey Quays, Southgate, Belsize Park, Kingston and Wimbledon all seeing approximately 30 per cent of the market dedicated to this type of sale.’

‘There appears to be a pattern developing. The majority of all buy-to-let purchases last year were made by those looking to safeguard their pension. Many are in their 40s, 50s or 60s and see property as offering a better return than bank accounts, bonds or other investment vehicles.’ Very true.

All for today. Do get back to us if you want details of the London, care home or Midlands introductions and/or wish to visit. We should have that yields article for you shortly, along with news of that free home study course. You should want that if you are a property investor!

Bridging Loan News

We note that Precise Mortgages is cutting the price of its bridging loans by up to 0.35 per cent per month. Cuts of up to 0.35 per cent a month are being applied to products in the standard bridging category while in the heavy refurbishment category prices are being cut by between 0.10 per cent and 0.25 per cent a month. In the £1m plus category, prices now start from 0.80 per cent a month.

Precise Mortgages’ Alan Cleary makes a useful point for all borrowers when he says, ‘Despite all the headlines last year about interest calculation methods being unfair to borrowers, not one bridging lender has publicised that they have either changed their model or documentation to improve transparency. Always look at the total amount payable to get a true cost of finance.’ As ever, talk to your broker. We can introduce you to one on request.

The Bizinate Solution

It’s a hurdle that faces all young entrepreneurs – they have an idea for a business, but how do they go about getting a cheap online presence and take money via the internet? Bizinate has been set up to solve these problems.

Aimed at creative young entrepreneurs a Bizinate account can be set up online in less than 3 minutes. Each user gets his or her own Bizinate page and can choose the jobs they can do from a list or presets. By filling in their bank details, users can be paid directly through the site. Registration is free.

It’s the availability of tools like Bizinate which make this a golden age for would-be entrepreneurs. It’s never been easier or simpler to get up and running and noticed in a new business.

Rent Your Stuff

If you’re willing to let other people use your car, the UK based easyCar Club scheme allows you to rent it out while you’re not using it. Following on from that, US based FlightCar aims to put cars left at airports to use by renting them out while their owners are travelling. People flying into the airport can then rent the cars from those who have just flown out! Customers obtain a 20%-50% discount compared to traditional renting, while the owner receives 65% of the fee. Perhaps that’s something to look at copying here?

I wouldn’t personally want to rent my car out for that purpose (I’m far too precious about it!) but if you feel differently, it could be a valuable source of additional income.

Cars are just one example of what you could rent out for money though. Give some thought to what expensive items you have laying around unused for much of the time. Could they form the basis of a rental business?