5, no, LOTS of Reasons why you should NOT let your property in Clapham using Gumtree

Honestly I could write a book about this. Time and time again through my agency career I would have landlords calling me, desperate for advice after they've placed a "lovely" tenant in their property using a free (or low costs) DIY advertising website. The tenant presented themselves as honest, open, and above all very capable of paying the rent.

But the truth is a different matter. They got into the property by deception, and ended up costing these landlords thousands of pounds in damages, unpaid rent, and above all stress. These landlords had to cover the mortgage whilst funding the legal battle. One made very difficult because they weren't aware of all the legislation surrounding lettings. This could prejudice their position in court. Didn't serve the Prescribed Information? Didn't register the deposit within 30 days? That means the tenant could actually sue YOU for 3 times the deposit amount! And there's more...

It has been said that some 30% of the PRS is made up of accidental landlords (Source: Landlordnews.co.uk). Here lies the problem. As an accidental, or amateur (not a bad thing!) landlord, it is unlikely that they invest the time to make themselves aware of all the legislation surrounding lettings. There is a lot, but as the saying goes "you don't know what you don't know," so most are blissfully unaware - until it goes wrong, and they can do with disastrous consequences!

If you saw last night's episode of "Nightmare Tenants, Slum Landlords" on Channel 5 then you will know more. Paul Shamplina, Director of Landlord Action advocates against using such sites. I say there is a time and a place for DIY platforms. After all, there are certainly elements of the process you can do yourself - IF you are able to dedicate the time to it. After all, opening a door and doing a viewing can cost very little time and effort if you are local. If you need to travel from work to the property in Clapham and then back to your home in Finsbury Park after work it could become a very tiring process, especially factoring in the inevitable no-shows. 

There are certain elements of the process, and depending on which you can do, you can choose a service to suit you.

Presentation

This is the first hurdle where most people fail. Miserably. The average rent in Clapham is £1750pcm, or £21,000 per annum. I would suspect that if you are looking to part with over £20,000 then you would expect to see something immaculately presented and shiny. Like a car. Ever seen a dirty car in a showroom? No? I wonder why. Let's compare and contrast with letting your property. iPhone photos will not do. Unmade beds? No. In order to achieve the best result (best price in the shortest space of time with the most enquiries, viewings and offers to choose from) you want to present the property to the best of your ability. Present well, clean, and use a professional photographer. I can highly recommend a few that are reasonable and will do all the digital editing required. An investment of £100 goes a long way, if you achieve £2 per week more rent then it's paid for itself. And remember the photos last for a good number of years, you don't need to redo them.

Marketing

Where are you likely to attract a professional tenant for your £20,000 a year property? Not in a free advertising site like Gumtree that is impossible to navigate, sort any meaningful way and so forth. You want to get on Rightmove and/or Zoopla. These two portals is where 95% of home movers look. That's where you want your property. Any good quality agent will be on both of these. Beware of agents that are NOT on both of these in favour of a third platform called Onthemarket.com. In essence they are trying to compete with Rightmove and Zoopla but failing miserably and they don't want to admit it. Tenants on the whole don't look here, advertise elsewhere.

Price

This is key. Whatever you may think, it is unlikely that your property is the best property in Clapham. Harsh but true, there will be better properties out there. A good look on Rightmove and Zoopla will give you an idea of prices. Talk to a local agent that you respect - do they have good quality properties? Well-presented? Good photos? They probably know what they are doing, speak to them. And price competitively, you want it to let after all. Time is also key. If you start advertising 60 days in advance and you think "well, I'll start high because I have time" then you may miss out on those excellent tenants who plan ahead. A lot of landlords I know tend to drop their asking price with 3 weeks left on the tenancy because they know that is roughly when it really comes down to decision time for most. And indeed my experience tells me that tenants tend to make their decision 2-4 weeks in advance. I have, however, let properties long in advance but they tend to be 1bed apartments where the more organised of the couple (tends to be the female) would like to plan ahead. So they price ambitiously for 4 weeks to have satisfied themselves that they have "tried to get a better price." But what if they've missed out on an organised tenant? After all, do you want someone who makes last-minute decisions? I personally would rather have someone that is organised.

Legals

Do you know about deposit registration? Tenancy agreements? (no, not the ones downloaded for free off the internet) Repairing obligations? Gas Safety Regulations? EPC regulations? Right to Rent checks? These are just some of the things that you need to do when placing a tenant. If you don't, you could find yourself in a spot of bother. When you serve a Section 21 notice (a notice to end the tenancy) you will find that the notice is INVALID if you haven't sorted all the aforementioned! Having a professional estate agency take care of this is invaluable. A few % commission takes care of all the viewings, paperwork, legwork and numerous phone calls that comes with letting a property.

Viewings

Linking back to the beginning, time is money. If it takes you 2 hours to carry out a viewing (adding in travel) and you need to do an average of 15 viewings the 30 hours you spent to save some money becomes less valuable. Add in the legal paperwork, referencing, right to rent checks and so forth you are probably talking closer to 50 hours of your work. Say you earn £80,000 per annum. Divide by 52 weeks and 40 hours and you're earning about £40/hr. 50 hours = £2000ish. I'd argue it's worth paying a professional agent that to benefit from their time, expertise, knowledge and near guarantee of a better result.

So to summarise - free (or low cost DIY) advertising websites are fantastic for getting rid of an old desk or sofa, probably not the place to advertise for the professional tenant you want for your rental property. They are possibly professional scam artists. And they know who to target. Do you know how to avoid them? Do you have systems for referencing? Can you afford to have them know more than you, and take advantage? I certainly can't. There are many great resources you can use to educate yourself, such as joining the RLA (I have a referral code, email me for a discount) and reading blogs and listening to podcasts, but unless you immerse yourself in it fully you are likely to miss things. I've been in property in South London for nearly 15 years and I know what a minefield it can be. If you would like help and advice on letting your property in South London then get in touch via email or come down to the Clapham Property Meet on 28 March and let's talk property.

Rents are set to rocket in Clapham - are yours?

The title will have many investors licking their lips with joy of course. Rents on the up, lovely. Mortgage rates at an all time low, excellent - all ingredients for a nice slice of profit pie. Let's take a moment though and analyse the why, how and what effect this will have on the medium to long term future. Don't worry, on the whole it's good!

The Royal Institute of Chartered Surveyors (RICS) reckons that rents will rise 20% over the next five years (source: Landlord Today). That's not actually that much I believe, some 3.7ish% compounded. That's really low in my opinion. But I'm a London investor and my clients are London based. The RICS also reckons that property prices will rise 18% over the next five years. If you are reading this and you know anything about the property market within the M25 you will laugh. Fact of the matter is that it is very well possible to get gains like that in 2 years! So why the "pessimistic" statement from RICS? Well as with any of these claims and opinions they are cast over a very great geographical location, ie nationally. Some parts of the country will not rise at all, whereas in London it is near certain that prices will go only in one direction. Near certain I emphasise - in general London property price rises do exceed other parts of the country.

So what will actually happen and why?

Allow me to whip out my crystal ball. Based on 15 years of London property market experience I see the following happen:

1. Accidental landlords and small-time landlords will start to sell up. Why? Increased taxation and the perceived stun of the capital growth in London ("uncertainty" due to Brexit will have smaller landlords sell up. They are likely only making a few hundred pounds after the mortgage. Factor in repairs and perhaps a void because they can't or don't want to spend time on their property (they have a career, perhaps children by now) and it becomes a millstone as opposed to an investment. These properties are likely to be FTB homes, such as they were when they were bought. This will feed the demand from this audience of buyers. They are now no longer competing with investors - after all, they are priced out from buying these flats because of stamp duty and lack of mortgage interest relief now make these types of property a poor investment.

2. Investors will shift to investing in larger properties. 1 bedroom flats have historically always been easy to rent, and a favourite among smaller investors because, put plainly, they are cheaper than a big house with lots of bedrooms. Lower barriers to entry. So you take that away from them and investors will scale up. Bigger properties hold the key to good returns. Landlords now buying property will most likely go for 3-5 bedroom properties, perhaps even bigger if they want to properly scale up. They are not afraid of HMO regulations, or even doing some work on a commercial unit's upper flat in order to rent it out as a massive unit with 5-8 bedrooms. Scale is king, you see, offering far superior returns. I actually find the sweet spot between 3-5 bedrooms and two storeys, staying clear of most HMO requirements. Each to their own of course, but larger number of bedrooms per unit certainly yield better returns. This is compounded by the ease of purchase, after all there are no FTBs chasing these bigger properties, and smaller landlords will want something easier, they may get out of property altogether if they are not ready to adapt. So commercial to residential conversions to provide a large number of bedrooms will be popular!

3. Rents will rise dramatically more than aforementioned in London. It is not uncommon for the London landlords to refinance frequently in order to reinvest, or purchase a bigger home for yourself. I would wager that a lot of property in the London PRS is leveraged quite substantially, and if care is not taken to minimise the finance costs then the lack of mortgage interest rate relief will hit hard. It will hit everyone to a certain degree; my prediction is that rents will really start rising next year (2018) once the first Self Assessments in Jan 2018 are done and the realisation of the dramatic increase in running costs will lead to a phone call to the agent to certainly be bullish on the prices this year. The thing is the majority of landlords will be raising their rents. Everyone will be at it, so renters have no option but to pay. I predict you won't have a void if you raise your rents because your competition - the landlord next door - will be raising theirs too. 

4. The last point that I'd like to make on rising rents, and this is slightly further in the future, is that the consultation over tenant fee banning has not yet abolished said fees, but is likely to. What this means is that in the long run agents will have to charge the landlord more for their work in order to remain in business. You can't simply ask this fee to go away, you see. Businesses need to be paid in order to run, and if you take away 25% of their revenue it is very hard for them to swallow. Short term this may be swallowed, but it's certain that ultimately Mr. Landlord will have to pay. And that means rents will go up. If a business (be it letting agency or property rental portfolio) is not producing a meaningful profit then it will cease to exist. Tenants will pay for this in the long run. The cost will be spread over a longer term, but they will pay. I guarantee it.

What will this mean for my investments?

Well be prepared for more shake-up in the industry. Watch what happens with rents and talk to you agents and fellow investors as you will likely be able to command premium rent (because, of course, you offer premium product). The scarcity of good accommodation is still real, so if you continue to do what you do and offer good housing you will not have voids. I predict that your buy to let in London will likely see 5-8% rent rises if not more. I feel that once there is clarity on the fee ban this could  give rise to double digit rent (%) rises in Clapham.

What should I do to improve my portfolio and achieve greater profits?

1. Look at your costs. Borrowing: You likely have property in your personal name. Don't rush to get these transferred as currently is the craze. Stamp Duty, CGT and transaction costs will outweigh any benefits for a long time. And then the government will think of something else. So my thoughts are to stick with what you've got. If you are buying new properties then incorporating is wise in my opinion, this at the very least spreads your risk and allows you to reinvest your profits relatively tax efficiently. Take advice though, everyone's circumstances are different. Secondly speak to your broker (and I'd happily recommend you one if you want, just ask) to make sure you are paying the lowest monthly payment you can.

2, Are you getting top rent? Get a portfolio review. Speak to your agent or email me if you like, I can advise you too. This will mean looking at your current rents, maximising your existing rentals in terms of layout, furnishings and overall presentation in order to get the best price.

3. Do you have money floating around? Look at what you can achieve if you spent it on your current property - you don't necessarily have to buy another property to invest the money wisely. For example if you can get an extra £1700pcm by adding two bedrooms to your house by way of a loft conversion that costs £50,000 that would mean a return of 40%. You can't buy a whole new property with £50k, let alone get a 40% return!

So in summary there is lots you can do to get better returns. Be mindful that these "rocketing rents" don't just land in your pocket, you will need to ensure you are doing everything right in order to capitalise on this rising market. Invest in bigger units, cut costs, make changes to enhance profits. If you would like a one-to-one to see how you can get better returns why not get in touch on jeroen@claphampropertyblog.com or come down to the Clapham Property Meet. This month we'll be focusing on building a property portfolio for long term wealth; building from the ground up and refinancing in order to keep the properties as long term rental investments. If you are interested in coming along then join the meeting group and RSVP YES.

5 reasons why the phrase BMV is a complete and utter farce

There, I've said it. I absolutely hate the phrase "below market value," or BMV. Hate is a strong word, but there is simply no other way I can describe my feelings. BMV does not exist. It is merely a throwaway phrase to describe "a good deal." Let's delve further into this...

So what is BMV?

As the phrase indicates it is a purchase price lower than what you would normally expect to pay for a property. So if all the flats on Clapham Road with two bedrooms and approximately 600sqft are £550,000 and this particular seller sells at £440,000 you will be buying at 20% below market value.

Why?

Yes, indeed, why on this green Earth would someone give you £110,000 off simply because you can complete quickly, or act confidentially, or any other rubbish that the "gurus" spout that will help you convince sellers to sell cheap? In a market such as London one merely has to drop the price a smidgeon to get interest. And don't tout the old "it was £550,000 and now it's £525,000 rubbish, that just means it was overpriced to start with.

Creating genuinely good buys

So what creates "discount?" Well there's no such thing as discount. It's price. If the price you want to pay is lower - and as an investor you will want to pay as little as possible - you have to look for the right set of circumstances. Reverse these if you are selling of course. 

1. Timing - Don't go in straight away with a low offer (low compared to the asking price, not to the value, more on this later) or you will be laughed out the door. Everything is about timing. Day 1: seller is hopeful to get over the asking price, a million bidders outbidding each other for his crummy, pokey, dated flat. You want a deal? Look for properties that have been sitting around for a while. Sort by date listed on the portal and work backwards.

2. Presentation. A cheap agent is generally a bad agent. A good one charges what he's worth of course. So look for properties on Zoopla. Rightmove is expensive and cheap agents can't afford to advertise on such a posh portal. What does a pen cost in WH Smith vs Harrods? Right, same pen, different price!

3. Cheap sellers. Linking with the previous point, the cheapest sellers will be the most ill-educated. Property-wise of course, they probably have pHDs (eyeroll emoji). There is a time and a place for DIY agents, but I will go on a limb here and say that the vast majority of sellers that sell through Yoga, PurpleMortar, Tipelo, HouseDifficult, ZMoove are confident that their iPhone quality photos of their dirty-toilet-with-lid-up-shot as the first picture will attract viewers by the dozen. If you are reading this you must agree that, in the vast majority of cases, good photography, a description written by someone that has proper command of the English language (or has a computer with a spell check function) will attract more interest/viewings/offers and thus a higher price. So... want a deal? Look for DIY agents' listings. They're not getting any other viewings or offers so yours is best by default!

4. Circumstance. These all link together, but "I love it when a plan comes together." In an ideal world you want the smelliest property that you can find, simply because it completely puts off owner occupiers that normally offer about 20% above what it's worth already refurbished. So when you call the agent... "oh, it's tenanted you say?Access is tricky? Oh no Mr. Agent, well I'll wait for your call then, do try and get in for me!" Now I've been down this road a fair few times. Mr. Seller has probably let his property through ClosedRent, zPad or some other "upload rubbish photos here and attract the worst tenants possible" portal and not had the foresight to keep a set of keys. Now he doesn't want to get rid of the tenants when he's selling because he wants to squeeze every last penny of rent out of the property. Well that's good for you, the investor, because the tenants are smelling the place out like a medieval cesspit, not airing or heating the property and they work unsociable hours so viewings are nigh on impossible. What do you think these circumstances do to the achievable price of the property? Yes, 10 points for you, nobody can get it and view, let alone offer on this lovely pile of opportunity. Good for you! Keep chasing that agent, set a reminder to call him every 2/3 days and make sure you get in, you'll be the only one and when you do, give that agent an offer and make sure you tell him it's the best he'll get. It will be, mind you, and he will do his best to shove that offer down the seller's throat with his size 10s simply because he doesn't want to go through the hassle of trying to arrange another viewing on it. Industry average is an offer every 10 viewings, but if getting another 10 means 10x the man hours he's already put in he'll definitely be pushing your offer - it will be easier for him!

5. Relationship building. This comes after you've actually booked an appointment. I hate all these things floating around saying that you must take estate agents out to lunch/dinner/coffee/buy them flowers and otherwise schmooze them. Rubbish. Estate agents want a solid offer, a solid deal and they want the transaction to go smoothly. So talk to him (or her) about the potential other offers that they won't get because they've had to spend 10 hours of phone calls with the tenants just to get you in and they will side with you and your offer. Then when it gets agreed and you go through with the deal with professionalism and returb the property to them for the follow-on transaction they know you are a serious player and will come to you with difficult flats first. Results mean a good relationship. 

Ultimately though, chase the property, not the agent.

So - BMV - fact or fallicy? I say it's a farce. Market value is determined by a distinct set of circumstances surrounding the property, nothing else.

If a seller wants to sell quick, you can buy and you have a little more equity in the deal because if you sell at "market value" and just take your time you'll find it's worth more. Like a commercial property that's empty, the inverse is true for residential. Filled with a smelly tenant the value plummets. So you want to sell for top dollar? Sell to an end user buyer (owner occupier) so get the smell out (and the tenant) and do some work to maximise value!

So as we've established, smelly tenants (not to be confused with good tenants that keep the place tidy and add value of course) and other problems such as decoration and refurbishment requirements reduce the market value. Beware though, a property that needs £50k worth of work to get to £600k market value is not worth £550k! Do your numbers because by the time you add in stamp, legal and finance costs you'll probably need to buy at £400k to make any meaningful money. Perhaps you can sail closer to the wind if you are looking to hold long term, but you will want to buy at less than the work costs you. As a rule of thumb you should make £2-£3 for every £1 spent on costs on building works. For example on my latest purcahse the £25k refurb added £85k worth of value, thereby trebling my investment.

So, go out there and find the most difficult to access properties and be tenacious. Winston Churchill said "Never ever, ever, ever, ever, ever, ever, ever, ever give up," so go forth and find those impossible to access flats. Because nobody else will get over the threshold to offer. Where there is no competition the price is low.

If you are looking for investments and are on the verge of giving up because you can't get over 10% return on your investment come and talk to me. I source properties on a retained basis for clients and I can help build you a profitable portfolio. Read my blog, you will see the projects I do for myself and the numbers are in plain sight. Follow me on social media, come meet me at the Clapham Property Meet or send an email: jeroen@claphampropertyblog.com

Build to rent in Clapham?

Thank you all very much for joining us back at the Jam Tree for another great evening of networking and learning from true property professionals.

Martin Smedley gave us valuable insight into the world of commercial property finance, Trevor Cutmore updated us on the latest market trends and I told our guests more details on my projects and how to generate 20% returns in Zones 2 and 3 in London!

For next month we have Lloyd Girardi joining us and telling us about his Build to Rent strategy. You'll know I'm a very big fan of passive income so I hope that you can come enjoy his talk, I'm sure I will!

Lloyd Girardi & Andi Cooke started property investing through developments. In less than 3 years they have built up a portfolio of 42 properties using none of their own money. They have raised to date around £7m of joint venture finance and have done 100% funded developments AND after paying the investors off, they have maintained the properties as their portfolio generating a generous cashflow.

Lloyd & Andi use the increasingly popular strategy BUILD-TO-RENT. Having started in 2014, they have a proven model that they now share with you, giving you the mindset and knowledge to go and do this for yourself. They say that you should earn no less than £100,000 profit from your first deal!!! 

Lloyd & Andi share their story and strategy with you, they will show you how you can become a developer, raise 100% funding, maintain the properties and rapidly increase your portfolio. They will share their secrets in raising money through crowd funding for developments and show you that developments are easier than you think.

So... join us next time for an exciting meet. Book tickets now by joining the meetup group and getting your tickets today! Follow us @ClaphamPropertyMeet. See you on Tuesday 28th March at the Jam Tree Clapham!

Maybe Airbnb isn't the way forward for your rental, be it in Clapham or elsewhere...

Let me start this article by saying that I admire entrepreneurial spirit. Naturally maximising return on your investment should certainly be applauded. Things that are, however, high on my agenda are sustainability and longevity when it comes to property investment. Oh, and I like passive income...

So with that in mind, let's delve deeper into the phenomenon of Airbnb.

What is it?

In case you didn't know, it's essentially a property website for tourists that matches would be hotel guests to property owners that are in the position to rent out a room, or even the whole property for a "short let." So anything from a night to say... 365 nights.

Why Airbnb?

Well simply put, a property is worth more by the night than it is by the week/month/year. A bit like a hotel. For £150-200 a night you can book a room at the Ritz, but you can also rent a swanky 2 bedroom 2 bathroom penthouse with some river views. Self-catering mostly, but there is something awesome about staying in a plush new build rather than a hotel. So there's definitely appeal from guests, and the monetary incentive is there for the owners. A market - and Airbnb provides the platform.

But?

No problem as yet, no. There is demand, there is supply, there is basically a Rightmove of short lets connecting owners and guests, so what's the problem? Well, hang on to your hats...!

Caveats:

1. A lot of leases will prohibit using the property for commercial use, ie serviced apartment style short letting arrangements such as the one on Airbnb. If you're just renting out a spare room it may be another story though, but naturally if you want to make money from it like you would to a buy to let then you'd let the whole property. In contravention of most leases... As the age old saying goes, RTBL (Read the Bloody Lease)!

2. Mortgaged property - your mortgage company will probably have stipulated in their terms that you have to let your property to professional, working tenants, maybe even restrict the length of AST (commonly 12 months) and crucially let on an AST. A short let is not an AST for one, and the interest rate you pay reflects the risk that the lender is taking by lending to you. A short let/holiday let type business is more risky and requires commercial finance. Lower LTVs, higher rates.

3. Factor in your time. You will need to meet & greet, deal with late arrivals (and believe me there are plenty, if not all) and damages need to be fixed pronto before the next guest. But hey, you wanted to be a self-employed hotelier, didn't you?

4. Just pay someone to do it? No problem, there's plenty of people that can manage your Airbnb listing. They'll charge you 15% of every booking on top of Airbnb's costs and perhaps even a charge for every meet & greet they do. Profits dwindling pretty fast there. Beware though, a lot of them won't tell you about the legal obligations in this article. If they have Ts and Cs they will have a tick box you need to tick to "indemnify them against all claims" of such nature and they will assume that by signing "you have sought all the necessary consents." Problem is, up until reading this article you may not even have known what they were.

5. Insurance. You took out landlord liability insurance right? Well you've just invalidated that by short letting. Fire? Trip? Guest hurt themselves? Game over.

6. Planning permission? Yes that's right. If you're reading this I'll take a wild guess you live within the M25 and therefore your Airbnb will probably be too. You can only short let for 90 days or less in any one 365 day period without applying for planning permission to change the usage class of your domestic dwelling from C3 to C1, Hotels, Bed & Breakfast, Guest Houses, Inns, Motels

and Halls of Residence. No problem you say? Well, see points 1 and 2 above, your freeholder most definitely won't like it and chances are your lender won't either.

So what next?

It's abundantly clear from the above there are a lot of legal hurdles to jump over if you want to do this whole "get rich quick and make £200/night as opposed to £200pw" thing. So why are people still doing it? In my opinion the legal aspects are being completely flouted. Does that make for a sustainable business? A passive investment? Nah. Sustainable? Well put it this way, what if you wanted to remortgage the property and you told your new lender that you think you'll achieve £2000pcm. "Great" they say, "can you supply us with last year's tenancy agreement?" Game over, you won't have one because your last "tenant" was backpacker from Venezuela. Good luck with that...

So don't be suckered in to people telling you that the "profits are amazing" and "I've never made so much money by changing some sheets" take a moment to factor in, if nothing else, the time element of managing it all. I happened to run an Airbnb listing myself and thanks to a very good, local help I was able to stay hands-off. Truth be told though I didn't make much more money than a long let, if any once I factored in voids. You're never going to let it 7 nights a week and you still need to pay for all the bills whilst it's vacant.

There's the other aspect of Airbnb changing neighbourhoods and driving rents up, but I think that argument is slightly far fetched. Regulations are there for a reason and most people will understand they need to adhere to these. However for the flouters - beware - councils are cracking down on these short lettings under nuisance/ASBO laws and can take drastic action. If neighbours complain to environmental health about noise nuisance then things can go pear-shaped for a flouter quite quickly!

So, speaking from experience, I would always invest in a sustainable, less labour intensive form of property investment. I am currently achieving very good returns for clients by sourcing them good investments, or they invest in my projects and learn the process hands-on. If you would like to know more about some of the projects I'm doing at the moment - sustainable, legal, profitable, passive investments - then do get in touch via social media or email: jeroen@claphampropertyblog.com

PS: A little video in the link below that I'd like to share with you for a laugh, essentially highlighting some of the pitfalls of Airbnb. Facts above, fun below, some of it is a little exaggerated! Happy investing

https://www.youtube.com/watch?v=n0eTLdQ1cQc