Golden Rules of Property Investment

People have been investing in buy-to-let property for years, nothing new there.  For centuries tenants have been renting from landlords, but it’s only been recently that the average ‘man on the street’ has had unprecedented access to finance products to use for investment purposes.  Until the credit crunch bit, lenders were practically falling over themselves to provide buy-to-let finance.

However, since the economic downturn, the cost of buy-to-let finance for lenders has increased dramatically.  Lenders are now reviewing their lending criteria so that only those cream of the crop investors get the best deals.

If you are serious in investing in property and you have the finances to do so, the market is still viable, but you should review our golden rules of property investment before you start.

Research is King

You wouldn’t buy a car without knowing the make, model or mileage and the same principles apply to property.  Even more so!  Research your market thoroughly including the area you are thinking of buying in, any regeneration plans, the local transport links, and also other amenities such as schools and shops.  Any property 10 minutes away from transport and local amenities is a safe bet!

Location, Location, Location

Consider who your ideal tenants would be.  You need high quality locations to attract quality tenants.

How to Buy Well

When purchasing a property, consider content and price.  This could save you money in the long run if white goods and furnishing could be included in the price too.

Make the Numbers Work

Buy a property that supports capital appreciation.  Make sure you include all the costs involved in the property purchase including legal fees, service charges, stamp duty, contingency and ground rent so that you can afford any void periods that occur between tenancies.  Many people ignore these costs and it can be a catastrophic mistake.

Use the Right Advisors

It’s essential that you use good mortgage and letting advisors.  A regulated advisor will ensure you have access to the best deals that are free from any fees and which operate in alignment with your investment plans.  A good letting agent will work to keep void periods to a minimum.

Don’t Expect to Get Rich Quick

Property investment needs to be approached with care and patience.  This is a long-term investment opportunity.

Supply and Demand

Speak to local agents to see what is particularly needed in your chosen area.  This will help you to meet the need and to attract tenants easily.

Head Not Heart

Don’t be ruled by your heart when making decisions.  If you are not going to be living in your investment property you should only furnish and decorate it to a clean and basic standard unless you want to attract high end professionals.  Speak to local agents to understand the quality that is expected.

Avoid the Gimmicks

Be wary of any deals offering incentives, such as no money down for example.  Also, so-called get rich quick schemes should be avoided like the plague.  A few years ago these might have been worth a punt, but not right now.

Keep Pricing Real

Never pay over the odds when purchasing an investment property.  You should never pay up-front fees, finder’s fees or commissions prior to completion.

In summary, your aim should be to find a property that generates long-term wealth.  There are many solid investment opportunities out there for those with the finance available.

Spotlight on Below Market Value (BMV) Property

Put simply, Below Market Value or BMV properties as those that are available to purchase below their market value.  Normally this is because the previous owners experienced financial difficulty or needed to dispose of their property quickly without the protracted sales process.  The reason for this is usually the threat of repossession.

The official guidance from the Royal Institute for Chartered Surveyors (RICS) about how a surveyor should value residential property is contained in Appendix 5.1 of the Royal Institute for Chartered Surveyors Appraisal and Valuation Standards (Red Book).  The foundation for the valuation of a residential investment property is normally its market value.  Market value is defined in the Chartered Surveyors hand book as:

‘The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.’

If a property was marketed properly and then a sale agreed, a landlord might consider that they got a BMV bargain.  But this isn’t always the case.  For instance, let’s say an investor buys a property for £180,000 and a year previous to that a similar property sold for £200,000.  The landlord may consider that they have bought the property at 10% BMV.  If we look at the guidance set out by RICS the investor has just actually paid the market price.

So, do BMV properties really exist?  They do and it all depends on whether the property was fully marketed before sale or not.  These situations occur when buyers are given access to ‘motivated or distressed sellers’ who don’t want to go through the normal process of sales and marketing or cannot afford to.

Locating motivated sellers is usually quite simple if you are in a good position to buy.  Targeting your local area with adverts or leaflets is one way.  You could also contact your local estate agents highlighting your interest in property bargains and that you are a potential cash buyer of residential investment properties.  Even if you need to arrange a mortgage for a bargain property it’s still possible to flush out some good deals.  Persistence pays in the current market.  Make your name and number known and make it clear that you are serious about making a purchase.

As with any industry, the BMV industry is rife with rogues and dishonest middlemen.  Those posing as BMV gurus are often anything but and just after preying on those desperate to sell and in a distressful financial position.  Their main concern is with making a massive profit between desperate seller and landlord.  It is much better and easier to search for BMV properties through local estate agents or by offering your own direct service to local customers.

Of course, there are dangers with buying BMV property and this is mostly down to the provisions of the 1986 Insolvency Act.  These provisions could result in a landlord who has bought BMV property legitimately being sued by the previous seller.  If several years down the line the seller has become bankrupt they can take out a court order to reverse the sale or claim the difference back between market value and the agreed sale price.  The reason for this is because the Insolvency Act allows the trustees of a bankrupt to prevent the bankrupt from giving away or selling assets below the normal market price.  A landlord who purchases BMV properties can be exposed to these provisions for up to 5 years.  However, there is a way to protect against this instance by asking the seller to execute a Deed of Solvency.  This declaration states that the seller was solvent at the time of sale.

Build it Yourself? 1 in 3 Would!

You may have considered building your own home yourself or know somebody who has taken the plunge.  More and more people are starting to take up the challenge in a bid to build their dream home and a more efficient living space.

A study conducted by Norwich and Peterborough Building Society has revealed that one in three people in the UK would think about building their own property in the next five years.

The research has shown what could be strong demand for more self-build projects in the near future with 12% of those questioned saying they would consider undertaking the project in the next 12 months.

So, what’s the big attraction with self-build?  It seems the most important draw is the freedom to design and build a home to meet the needs of the individual.  Around 25% also said they liked the idea of self-build being cheaper than buying an established property of the equivalent size and location.

One fifth of those questioned also said they were attracted to self-build because they could build a much more energy efficient and environmentally sound property.

Richard Barker, mortgage manager at N&P, said: “Self-build is a market with huge potential which could have many benefits for those willing to carry out a self-build project.”

N&P said that those who choose to enter the self-build market are usually ardent property developers or those in their 50’s who have significant funds to build their own homes.

The National Self-Build Association reported that over 15,000 people choose to build their own property in the UK each year and that the market is worth around two billion pounds which equates to 1.4% of the mortgage market in the UK.

The Government is now looking to increase that figure to 50,000 homes annually across the next few years by launching a number of initiatives to make self-build more appealing.

Barker said: “It’s definitely a tall order for the government, but it does have the backing of the National Self Build Association, which has the same goal.

“In addition, Housing Minister Grant Shapps is also looking to open up self-build to more people and is holding working groups to discuss how to finance it. This should all help towards boosting the market.”

If you are interested in building your own home we’ll be publishing a guide later this week that will tell you how to get started, the pitfalls, the advantages, and details about costing.

Firstbuy scheme: Mixed news for first time buyers?

Here at The Big Property List we have been highlighting some of the issues facing first time buyers who are trying to get involved in today’s housing market. Quite often, it can be a real rollercoaster ride if you’re in this position and this weekend summed that up perfectly. On the one hand there was good news as more details emerged with regards to the Government’s First Buy scheme but there was a warning that it may not be the breakthrough that many buyers were hoping for.

Essentially, FirstBuy will allow homeowners who are able to put down 5% as a deposit to take out a mortgage at just 75% of the cost of the property, with a shared Equity loan being made available for the remaining 20%. The first properties will be made available from September and the qualifying household income must be less than £60,000. At first glance, the news seems to be the perfect answer for those struggling to get a foothold on the ladder but there are some disadvantages.

FirstBuy only applies to new homes and that fact alone rather limits the choice. Although it’s not exactly a hardship for a first time buyer to ‘settle’ for a new property, if there aren’t any new developments in your area it does restrict your options. Moreover, it’s likely to mean that demand will outstrip supply and that is already being seen in London where the money that has been made available is only likely to help around 940 buyers.

Property developers have however welcomed the scheme and it’s believed that up to 100 companies will lend their weight to the Government’s initiative. Taylor Wimpey, Barratt and Bovis are among those taking part.

Meanwhile, four lenders have so far indicated their intentions to back the scheme with Nationwide, Halifax, Melton Mowbray Building Society and Barclays expected to be joined by around 16 more providers.

There is no indication that there will be help among those lenders for those with a less than perfect credit history.  While there may be help for those with a chequered credit past under the Homebuy Direct scheme, there is no indication as yet that FirstBuy will assist in any way.

The whole project has been met with some cynicism and it’s felt in some quarters that it is merely a scheme to help developers clear overpriced properties. For many buyers however, this could be the answer they’ve been waiting for, providing that the meet the criteria.

The Big Council Sell Off

St Giles Hospital in Camberwell is set to be sold by NHS Southwark.  With its imposing turrets, wrought iron gates and clock tower you would be forgiven for thinking this Georgian hospital was way outside the budget of your average house-hunter.  Whilst the price has not been announced yet, this Grade II listed building is set to be one of the bargain historic buildings on offer as part of a country-wide ‘sell-off’ by local councils.

Conisbrough Priory near Dorchester, the public swimming baths in Rotherham, and two large Georgian terraces in Greenwich are also amongst the buildings that will be on sale.  Property investment experts said shrewd house-hunters could snap up a real bargain as a result of the ‘Big Council Sell Off’.

Let’s take a look at those prices then.  Doncaster Council has given Conisbrough Priory a guide price of £275,000 whilst the swimming baths in Rotherham are up for a measly £150,000.  Lluesty Hospital in Wales was sold at auction earlier this year for £275,000.  The classical hospital building, which comes complete with a parapet and its own court yard, was snapped up by a group of property developers with huge plans to build 70 houses within the grounds.

According to auction houses based in London and Yorkshire, over 100 properties have been put up for sale recently by a number of councils.  And it’s not just local authorities that are getting in on the action.  Central Government is having a stab at reducing its estate with sales hitting £115 million in the past nine months alone.   These sales have included buildings such as Lincoln’s Inn Fiends in London, the former home of the Land Registry offices.

However, before you get out your chequebook and pen it does of course pay to do your research.  Property experts have warned that many of the public buildings on sale could be too dilapidated or large for the novice property developer to take on.

If it’s holiday properties you’re after then maybe you’d like to consider a cottage situated next to the Tate in picturesque and sought-after St Ives in Cornwall.  This will set you back a paltry £150,000.

Investment analysts at Stock Market Review are doling out a lot of encouragement to house and property hunters advising them to keep an eye on the list of buildings that are put up for sale each month.  A post on their website read “People who want to renovate a former public building into a modern residential home could scoop a bargain if what they want does not sell well in the auction room”.

How much did Sarah Beeny pay for Rise Hall?

Everyone keeps asking me if I’ve seen Sarah Beeny’s new TV show, Sarah Beeny’s Restoration Nightmare, which I mentioned in the blog last week.  This tell me two things, 1. its very popular and 2. not many of my friends read my business blog.

Since the last piece we’ve received a deluge of enquires asking ‘How much did Sarah Beeny pay for rise Hall’?  Usually  I refer to the brilliant houseprices.co.uk which instantly tells you the sold price of any house in the UK – from the year 2000 onwards.  And here lieth the problem –  Rise Hall was bought in March 2001 but its sold price is not freely available online.

So to answer the question we went to the the Land Register (www.landregistry.co.uk) where all property trancsactions are formally registered and recorded.  Records are available to the public (at a charge) and nowadays you can view them online (in the past you had to either go to London or order copies in writing).

So to satisfy your collective curiousity we paid £4 to get a copy of the registration documents of Rise Hall and can reveal that Sarah Beeny’s husband, Graham Swift paid £441,101 for Rise Hall on 16th February 2001 and it is registered solely in his name.

If you want your very own Rise Hall – see what £441,101 would buy you today, which according to www.whatsthecost.com would be worth £529,294.18 today taking inflation into account.

Searching for Houses for Sale under £525,000 in Yorkshire on The Big Property List does leave us just over four thousand pounds to spend on any renovations but unfortunately doesn’t offer you much as grand as Rise Hall, but certainly more modern run of the mill dwellings such as a ‘A well presented and extended four bedroom detached family home offering superb living accommodation and located in this highly sought after South side location.This delightful family home is presented in tasteful decorative order throughout.’

Hmmm, not quite the 97 room pile I was looking for thanks.

The after show ‘live chat’ on the Guardian website revealed mixed feelings from viewers, with many viewers and ex-pupils of Rise Hall saying how thrilled there were to see the place being restored.  Others showed an impatience with the show and Ms Beeny at a time when many in the housing market are suffering.

One commenter asked:

‘How does it feel to have contributed so much to the madness of the constipated UK property market by producing endless TV shows that encourage people to become obsessed with the whole thing and are you making this new show now only because the arse has fallen out of the same market and no one can actually buy a decent house to live in anymore – without a TV presenter salary?’

Well, Dimbleby wouldn’t let ’em ask questions like that on question time would he!

Many comments have been deleted by editors and there is no record of Sarah’s responses to the Live chat questions. Either way I enjoyed the programme more than I thought I might and if I happen to be sitting down whilst it’s on this week I will probably watch it.

Catch Sarah Beeny’s Restoration nightmare on channel 4 at 8pm on Thursday.

Have you Seen Sarah Beeny’s new TV show?

If you haven’t, you can catch Sarah Beeny‘s Restoration Nightmare on channel four on thursdays at 8pm.

In her new series Sarah tackles the 97 room Georgian Mansion she bought ten years ago with her husband, a property developer himself,  in an attempt to restore it to its former glory and to make it a venue for weddings and events.

Channel four says:

‘It’s time for Sarah Beeney to practice what she preaches as she tries to save a stately home in Yorkshire from ruin.  Rise Hall has been home to Sarah, her husband Graham and their ever-expanding family for the last ten years.’

Sarah Beeny is best known for her TV series Property Ladder and last year launched private houses sales website Tepilo, which helps individuals market their house online without an Estate Agent.

Does this prove the national obsession with property is no less strong than pre-2007?  Or is this more ‘aspiration media’ – watching someone do what we’d like to do, without the effort or glory?  Like River Cottage and Eat Love Pray however, you wonder if its really possible for most folks to take on this type of experience without TV/ book income.

If you have seen Sarah Beeny’s new show feel free to share your review or comments below.