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The Difference Between Freehold and Leasehold

by Sarah Halloran

If you are considering owning a property in England and Wales you need to consider the two different types of property ownership that exist; freehold and leasehold.

The majority of properties in England and Wales are freehold which means technically the owner owns their property for an unlimited period.

Leasehold is a temporary right to occupy property or land and will usually involve a lengthy legal document called a lease.  Most flats in England and Wales are leasehold properties and involve lease agreements between landlords and tenants.  The lease document based on contractual and property law sets out the obligations and rights of both the landlord and the tenant.

Leases can apply for a fixed term and historically most flats have leases of 99 years.  More recently, leases have been applied to properties that are valid for 125 years.  You may also see lease agreements citing a period of 999 years although these are quite rare.

Whilst a lease document might be quite complex, the basic premise is that the tenant has the right to live in the property for the lease period stated.  Usually, the lease document will state that the landlord will be obligated to allow the tenant ‘quiet enjoyment’ of the property as long as the tenant meets the obligations of the lease.    The main obligation is that they meet the rent payments on time.

So, what happens when the lease period expires?  If you find that you are occupying your property when your lease expires it could mean that your landlord will ask you to leave.  At this stage you no longer have the right to own the property and the lease will usually include a clause that says the tenant must ‘quietly yield up possession’ upon expiration of the lease.  The good news is, this rarely happens.  The landlord will usually extend the lease well before the current period expires.

When looking for a new property it’s important to know the difference between freehold and leasehold as both interests in land and property vary greatly.  The value of a freehold property will remain maintained when the property market is stable whilst a leasehold property is known as a diminishing asset.  As the lease period gets shorter, the property will start to decrease in value.  The reduction at first is minimal, but over time the value will start to fall rapidly.

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Room for Rent – How Your Spare Room Could Make You Money

by Sarah Halloran

If you’re looking for a little extra income and you don’t mind sharing your home, letting out a room could be a great solution. You could potentially make up to £4,250 from letting out a spare room and what’s more, it’s tax free!

The Government’s Rent-a-Room scheme offers some really great tax advantages and makes it easier to take on tenants. Our guide tells you how to find the right tenant and the type of agreement you should make to ensure everything goes to plan.

Who can let a room out?

Anybody owning a property in the UK who uses it as their primary residence can rent to a tenant under the Rent-a-Room initiative. If you rent your property you may also be eligible depending on the terms of your lease. If you have a mortgage you should check with your lender and home insurance company to ensure you are not contravening any terms or conditions.

What are the advantages and disadvantages of letting out a room?

Of course, the main advantage to letting out a room in your home is money! When you let out a room you do not have to declare the income so long as the total doesn’t exceed £4,250 a year. This means you don’t have to worry about offsetting things such as accountancy services, bills, expenses, or cleaning services against your income.

However, the disadvantages of the Rent-a-Room scheme are also financial. For example, you cannot claim any expenses against the income you receive through the letting. Also, if you receive more than £4,250 per year on total (you may also be charging for meals and laundry services) you will have to declare the additional amount and pay the relevant amount of tax.

Would the scheme work for you?

Before you start advertising a room for rent it’s a good idea to sit down with a piece of paper and work out if the scheme is right for you. Think about how much you are likely to get in rent. You can look around local listings to find out how much the local rent rates are. Also, think about the additional expenses you may incur such as additional charges on your buildings and contents insurance, accountancy fees, and letting agents’ fees if you use one. You utility bills will also increase and you may have to pay for advertising the room. All of these expenses will be deducted from your total income so it is worth working out how much profit you could potentially make before you start.

If your likely income from renting out your room is likely to be in the region of £4,250 with little in the way of expenses then the scheme is a safe bet. If however, your expenses are more likely to be thousands of pounds then you would probably be best to declare the income and pay tax normally.

Finding the Right Tenant

Another VERY important consideration is the tenant. You are going to be sharing your house with a stranger. How does that sit with you? If you are happy to share your kitchen, bathroom and living space with a stranger then you’re ready to proceed. If not, then perhaps it may not be for you unless you can find a friend who needs a room to rent.

Finding a tenant should be pretty easy as there is a big call for rented rooms right now. Advertise in your local paper or on free local listings online. You could also use a letting agent although this will incur a fee.  A tenancy agreement should be drawn up also and you can find templates online or ask your letting agent for assistance with this.

If you have a room in your home that you simply don’t use and that is suitable for letting then this is a great way of making a little extra income.  More and more people in the UK are looking to rent so you should be able to find a suitable tenant very quickly.

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Preparing a Property for the Rental Market – The Essentials

by Sarah Halloran

If you’ve just bought an investment property for letting out, the next step is preparing it for let.  Of course, the essential part of these preparations is to ensure that the property is habitable, in presentable condition and above all else safe.  If you’ve done your homework then you will have chosen a property with good links to transport, in a desirable or safe area, and that doesn’t require major renovations.

Whilst major renovations may be required on some buy to let properties we’ll leave those for another article.  Here we’re going to talk about those minor alterations that can really make the difference in a short space of time.

The good news is that it’s easy to makeover a property quickly and on a low budget.  We’re not necessarily talking ’60 Minute Makeover’ here, but you definitely don’t want to be spending weeks on getting your property ready for the rental market.  After all, it’s an investment and whilst it’s empty you’re not making any money so it’s time to grab a paintbrush and get moving.

Before you start, take a step back and review your property.  You should prepare your property as if you were selling it.  Renters are as savvy as house buyers and will inspect every room and every flaw especially if they are looking for a long-term rental.

If possible you should remove wallpaper and return each wall back to a plastered finish.  When it comes to redecorating between tenancies you’ll find it much easier.  Choosing neutral paint colours such as that old faithful ‘magnolia’ is a good move and means you can cover up any blemishes with ease.

Ensure that anything fixed to the wall such as radiators, heaters or kitchen units are fixed to the walls securely and that carpets and flooring are sound.  You might want to replace carpets with wooden floors as they are long-lasting and will repel any stains that occur during tenancies.  Hardwoods are more expensive, but will last for years and can endure a lot of knocks and scrapes.

Arrange for the heating system to be serviced.  Ask your heating engineer when the boiler might need to be replaced.  It’s a good idea to budget or be prepared for future expense and if the boiler is particularly old you might want to replace it now rather than face the cost of future repairs.

Finally, it’s time to consider furnishings.  If you are letting an unfurnished flat you will probably need to provide white goods such as a fridge freezer and washing machine at the very least.  A dishwasher will be a good investment too if you can afford it.  Many tenants expect these items to be in place and to be in working order.

If you are letting out your property in a furnished state then items need to be robust, comfortable, and attractive.  With so many rental properties on the market you should make your property as stylish and as homely as possible so that people want to live there and are happy to pay the rent you are asking.  This doesn’t mean a trip to the West End shopping for high-end furniture.  A trip to Ikea will more than suffice!

As touched on previously you should prepare your property as if you were putting it on the market to sell.  Once your preparations are complete make sure it’s presentable, tidy, and clean and that all appliances and other furnishings are in good condition.  That way you’ll have a property that people want to live in and one that will take you through many tenancies without any major problems.

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How to Evict the Tenant from Hell

by Sarah Halloran

A couple of weeks ago we published an article on how to avoid the tenant from hell, but what if they have already infiltrated your defences?  They may have passed all the credit checks, ticked all the right boxes, paid rent on time and shown all the signs of being the model tenant only for problems to suddenly occur.  Whether you are having problems with rent being paid or damage being made to your property there are procedures you can follow to evict a tenant if things have gone too far.

Keep Communication Lines Open

Communication is the key issue when problems occur between tenant and landlord and it’s important that you make your intentions clear from the outset.  If your tenant has fallen behind with the rent or is refusing to pay then you have every right to protect your rental income and investigate legal proceedings if necessary.  The good news is many problems such as this can be resolved by finding out what the issue is.  If your tenant has fallen behind the rent because of a certain misfortune you can give them a date by which they need to come good with the rent giving them a little leeway.  After all, it’s going to be a lot more hassle to find another tenant than wait a couple of weeks for the rent that is due.

If your rental property is mortgaged then you may have an obligation with your lender to keep your rental income above a certain level.  If you have no choice, but to start the eviction process then you need to check that certain procedures are followed.

Before you begin the eviction process you must ensure that both yourself and your tenant has a signed copy of the tenancy agreement and that you are confident of the rent schedule.  You should also check that the rental deposit is protected sufficiently and that there are no disrepair issues with the property in question.

Issuing the Paperwork

If your tenant is more than 2 weeks behind with the rent then it’s time to serve a Section 8 notice.  This notice must be responded positively within two weeks of receipt and if the tenant has not done so you should begin legal proceedings immediately.  It can take anything up to 8 weeks for a court order to be issued.

Before you process your claim you should ensure you have all the relevant paperwork and evidence available.  If there are any errors or false claims these will be brought to light at the hearing and could result in a second hearing or a dismissed claim.

Problems with Legally Evicting a Tenant

Of course, in our democratic society, tenants always have the right to defending their position.  The court will send your tenant a copy of your claim to the tenant advising them strongly to seek legal advice.  Free help is available to tenants from Shelter, solicitors, the Citizens Advice Bureau and also their local housing authority and there are also a number of specialist Government websites offering advice to tenants facing eviction.  There is a severe shortage of council and social housing available in the UK right now and these organisations will do all they can to ensure tenants can remain in their rented accommodation.

However, the law is the law and you as a landlord have a right to evict a tenant who has breached their agreement or is refusing to or simply cannot pay their rent.  As long as you ensure you communicate with your tenant and attempt to resolve any difficulties you may be able to avoid the long and arduous process of tenant eviction.

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Rate or Hate your Landlord?

by James Cole

As a property undergraduate I recall sitting in damp digs smoking roll-ups wondering why I was reading about the the history of Landlord and Tenant Law when I could have been shooting pool in The Ship and sinking pints of cider for less than the price of a load in the laundrette.

The purpose of Landlord and Tenant Laws, I learned, are to balance the rights of both landlord and tenant.  With this island’s history rooted in a feudal system where peons lived in hovels at the pleasure of the landed gentry the tenancy laws handed protection to the people with regards their home.  Now we have the European Court of Human Rights and are kicking The Peers out of parliament in favour of Our Peers (in principle anyway).

We also have the Internet, access to more information than ever and we are replacing mob justice with blog justice as brands and behaviour are discussed online – favouring consumer power over public hangings.Rate or Hate your landlord logo

On The Modern Estate Agent blog, Martin Smith recently wrote about the importance and difficulty of managing online reviews for Estate Agents.  Well, Landlords may quiver in their boots now as a new website Rate or Hate your Landlord encourages tenants (yes you guessed it) to rate or hate their Landlord – publicly.Landlords and Estate agents your online reputation is important

PR companies talk of online reputation management, which is fine for big business, but now your small business reputation may sink or swim based on what people are saying about you on social media sites such as facebook, twitter and ratings websites.

From a philosophical perspective you could argue that this is the most virtuous of virtual yardsticks, encouraging fair play and holding business to account in a way not seen since Anne Robinson presented Watchdog and supplementing the statutory rights applied by the Landlord and Tenant Laws.

Or, you could argue that small businesses will become slaves to public opinion and we’ll all start airing our dirty laundry in public.

After all customers are sometimes wrong, Tenants and Landlords can both lie and their are two sides to every argument.  The consumer has nothing to lose posting an anonymous review for a perceived injustice, whether real or not – the business does not share the anonymity and has to live or die buy its reputation.

And as for those damp student digs?  The day we left, the kitchen ceiling fell to the floor – literally.  We lost all our deposits – mainly to replace mattresses and re-seed the postage stamp lawn where excessive wear and tear (football) had resulted in a bald patch – supposedly costing hundreds of pounds.  If only there had been an outlet for us to vent our fury and shame our greedy Landlord.

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Finding investment property is rather akin to sticking a pin in a map

by Ed Mead

Last week we thought about buy to let, and whilst that suits certain investors one of the real issues that’s been pondered increasingly is that of institutional money finding it’s way into residential investment.

Commercial property is a safer bet, at least in terms of a solid income, and simpler to manage.  Most tend to be for 15 years with the tenant responsible for all rent and rates as well as insuring and repairing the premises. With luck the investor gets the rent paid, upwards only rent reviews and is handed back premises in re-lettable condition. Capital growth is of less concern than income.

Residential letting is a different ball game. Tenants come and go more often, with attendant void periods.  Management is often of the micro variety and there’s little control of how the place will look when you get it back.  That’s before legal issues around tenants not paying or leaving are taken into account.

Whilst there’s more protection for residential tenants now landlords can still be at the mercy of rogue letting agents who still don’t (yet) have to belong to a redress scheme or be licensed.  Good management is not cheap and as usual you do tend to get what you pay for and this cost eats into the bottom line.  It’s certainly higher than with commercial lets.

The holy grail of course, and never has so much money been crying out for a good home, is the potential capital growth, and seeming rent increases, available to small time landlords.  Of course both capital values and rents can go down, as was seen a couple of years ago in London when both dropped dramatically, but overall the inexorable rise in capital values is enough to drive money into this area.

One fly in the ointment here is that traditional volume landlords have learned long ago that they don’t do this for income, long term capital growth has been spectacular.  In an ideal world rent pays any finance costs and upkeep as of course every few years the property will need updating.  This is fundamental and has held institutions back.  But the gains these landlords have made, just look at the number of property people in the rich lists, have been enviously watched for many years.

My company seeded and started a fund three years ago (great timing eh!) in only prime property, and given that we have over 50 years experience of managing such investments it’s been a success because we know what we’re doing, but has still been hard work.  Money is still slow to come in as for some reason the FSA has said that a property fund with ANY gearing (ours has 20%) is a “risky” one.  However, it has shown that efficient management is the key, and for any institution looking to start a purely residential fund it is the key.

Sourcing property for investment is also a headache and I was heartened to see an entrepreneurial company looking to help potential investors. Rankdesk (www.rankdesk.com) is currently something of a blunt tool but it seeks to rank properties with the kind of criteria used by potential tenants, i.e. closeness to transport, lift, condition etc.. With take up the efficacy will improve and become of real use, and given that finding investment property is still rather akin to sticking a pin in a map it could be the first step to genuinely helping people invest.

As for the players that control the really big money looking for a home in the resi world, they’re circling, but where will they land.

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