Shona Lindsay: Hello and welcome to Property Question Time. I’m Shona Lindsay and I’m here in the studio with two resident property experts and we are also joined by the Joys of Technology on video link with another. Let me introduce you to the lovely men that we have here today. So first of all we have Simon Zutshi.
Simon Zutshi: Hello.
Shona Lindsay: Hi, how are you?
Simon Zutshi: Good, thank you.
Shona Lindsay: Simon is the founder of Property Investors Network. And we also have in the studio Stefano Lucatello.
Stefano: Hello Shona.
Shona Lindsay: Hi. International Property lawyer and senior partner of Kobalt Law International Lawyers.
Stefano: That’s me.
Shona Lindsay: And via video link, hello, we have Tony Gimple who is the founding director of Less Tax for Landlords. Hi Tony.
Tony Gimple: Hi, good morning. Great to be here.
Shona Lindsay: Hi Simon. So we’ve got our first question for you if that’s all right.
Simon Zutshi: Yeah.
Shona Lindsay: So my wife wants to buy an apartment to rent out and have as a future investment. We’re in North Manchester and prices aren’t great. 130,000 pounds will get a two bedroom with a rental income of around 650 pounds a calendar month. There is also a service charge for us to pay out of that. I’m thinking down the line of a multi occupancy house. For example, there is a double-fronted, end terrace near the Metrolink for 140,000 pounds and that could be easily turned into a great four-bedroomed HMO with on suite in each room and a shared kitchen. We’d be looking at around 110 pounds a week for each room, less council tax and bills. So the return would easily be more than three times in renting out an apartment. Am I missing something here? Is it supply and demand thing? Is it too much hassle to rent out an HMO, or what?
Simon Zutshi: Okay. So there are lots of things there. First of all, I believe that buying a house and renting that out is better than buying an apartment. In London it’s a bit different, but in Manchester and most places around the country, personally I believe you’re going to get better capital growth from a house than you will an apartment. And also when you have apartments, you have things like service charges, which will eat into your monthly profit you’re going to make. So in principle, I think he’s thinking on the right lines. However, depending on what you buy, it depends on what the demand is in the local area. Houses in multiple occupation, HMOs that were mentioned can be a great strategy to give you a much higher cashflow. Typically you rent out four or five, six rooms in a property, the tenants come in, the rent they pay covers all the bills.
So the landlord pays the bills, whereas in an apartment, the tenants would generally pay the bills. So there are a few differences to understand. But when you add it all up, you’ll get probably much more monthly profit cashflow, i.e the money leftover after all the expenses with an HMO than you would with a single let flat. But an HMO is going to be more work to manage. So again, into the decision you’ve got to factor in, well do you want to manage it yourself? How close is it to where you live or could you find a good letting agent to manage it for you? Likewise with an apartment, but there’d be a lot less touring and ferrying with tenants in an apartment. So these are the things you need to bring into the conversation. You can find good letting agents who can manage HMOs. Most letting agents don’t know how to do them, but there are some specialist HMO letting agents, but they’ll want certain locations, certain specification in order to take that property onto their books to rent out.
So always do your due diligence. Go on spareroom.co.uk and check out the area that’s the best website people use to advertise rooms that are available in HMOs. And also tenants go on there advertising that they want rooms. So check out there’s demand on there, speak to local letting agents, work out who’s going to live in your HMO. If you want students, it’s got to be very, very close to university because proximity is very important. They’re generally quite lazy. They don’t want to have to walk too far. They won’t get on two buses to get to uni. It’s go to be easy. But it might be young professionals. They mentioned the Metrolink. So there’s really good transport in city center, that could be really good for people to get access to work. And then around the property, are there good facilities and amenities such as supermarkets?
Are there bars and restaurants? Young professionals want to be able to go to those in the evening. So check, is the location going to be right for the type of tenants you want to put in a property? But a very long answer there to the simple question, I would personally definitely look at HMOs if you understand the implications.
Shona Lindsay: So with an HMO, if for example they were going to rent to students, are there dark periods or are there periods of the year where it’s less rent? How does that work?
Simon Zutshi: Okay. So again, it really depends from location to location. So each university will have an accommodation office and you can call them and get a really good understanding of how the student market works in that particular city. So where I have student property in Birmingham, we actually went all year round. So typically the contracts will start beginning of July, run through to the end of June.
The tenants, some of those don’t move until September. Sometimes they’re there in the summer, so in some locations you might have a reduced rent in the summer, some locations you only get 10 months rent. Now in some cities like Oxford and Cambridge, that can work very well because the landlords might rent those out on short term lets to tourists and holiday makers who go to those locations. So again it can work really well.
Shona Lindsay: So perhaps somewhere like Manchester where there’s a thriving cultural area there as well.
Simon Zutshi: Yes.
Shona Lindsay: I mean, if they’re going to be near to soul food as well, there’s new theaters there. So perhaps you could go onto Theater Digs Lists.
Simon Zutshi: Absolutely, yes.
Shona Lindsay: Perhaps in those[crosstalk 00:05:48]
Simon Zutshi: Yeah. So it’s about understanding what happens in the local market. And the other thing just to be aware of student HMOs that we’ve kind of gone down that route, is there are lots of big purpose-built student blocks in many cities. And so the demand for typical houses, HMOs has kind of gone down. And in many student areas there are empty student HMOs, but they’re generally the ones that are slightly further away from the university or the ones that aren’t in such good condition. But if it is a good location, there’s a possibility to actually acquire one of those to renovate it to a good standard and then you’ll be able to rent it to students. But be aware of the academic year.
If you get a house ready for students in August and think, “Well I’m going to put them in September.” Most of the students moving in September, have already sorted their contracts at the beginning of the year and you probably missed the cycle. There will be some students looking at September but less and they’ll go for the best property first. So you’ve really got to understand the cycle if you wanted to rent to students.
Stefano: Wouldn’t you register Simon with the universities and the education institutions?
Simon Zutshi: You absolutely have to. Yep.
Stefano: I mean when I was a student, we used to go to the [crosstalk 00:06:52]
Simon Zutshi: You’d go to the combination office.
Stefano: Absolutely, and they would tell you [crosstalk 00:06:54]
Simon Zutshi: Yeah, and if you are… It usually has to be an Accredited Landlords, which is just a day course you can do. If you’re accredited landlord you can often get on their notice boards and that’s something you can definitely do as well. Very often in most student areas there are students specialists letting agents who can again help you fill those [inaudible 00:07:13]
Shona Lindsay: You mentioned earlier about the specific letting agents. Would you expect a higher fee because there’s potentially more work with an HMO? Would you be charged a higher fee?
Simon Zutshi: Well, it’s interesting that there is more work with an HMO. However, the fee you get charged by an agent is a percentage of the rental, and the rental is so much higher. So actually most specialist letting agent will charge 10, 12% plus VAT, which is similar to a normal letting agent. If an agent is saying, “Well we’re going to charge you 15% because it’s so much more work.” I would say they probably don’t really realize it’s going to be a lot more income and I would still, because you’re paying too much for that. Some might even charge less. I’ve paid as low as seven or 8% because they recognize it’s a percentage of a much higher figure. Yup.
Shona Lindsay: Great. Thank you very much.
Simon Zutshi: Thank you.
Shona Lindsay: Good. So now a question for Stefano. I’m moving to France.
Stefano: Lucky you.
Shona Lindsay: I wish I was. This is the lovely person who’s written and they are moving to France. And they want to know something about the buying process. I’ve heard that there is a cooling off period for the buyer to pull out and a right of first refusal by the local authority, which means that they can buy the property I want, at the same price as I have offered. How does this work?
Stefano: Right. So in France, like any other country abroad, you would go to a state agent, you pick the property, you would take it off the market by signing a reservation agreement and paying five, 10%, which would then be taken off the final completion monies. When you then have done all your due diligence, your research, all the searches that you need to do, you would sign the contract, the Compromis de Vente, which is the bilateral contract which a vendor and a purchaser sign. However, once you have signed that, what happens is as the vendor, the contract will be sent to you as the buyer and you would then have 10 clear days from the day after you receive the contract in the post to say, “Yes, I want to pull out.”
So it’s a cooling off period in as much as you are not bound by that contract until you sign it. Two implications here, if you sign it because you know you’re going to sign it because you want to proceed with it, no problem. You are bound from that moment. But if you leave it and you don’t sign it and you don’t return it signed within that 10-day period, you are out of that contract. So whether you know that you voluntarily don’t want to sign it, or whether you’ve forgotten to sign it within the 10-day period, you can be bound by that. So you’ve got to be very careful.
So you’ve got to do something either to stay in it or to get out of it. By not doing anything, you will be bound to stay in that contract. You’ll be bound as if you had not taken any notice of it and you will be bound by it.
Shona Lindsay: This is the seller?
Shona Lindsay: This is the buyer?
Stefano: This is the buyer. So when you receive the contract from the seller, you will have 10 clear days starting from the day after you received it to sign it and return it. Or if you don’t do anything, you will be bound at the end of that 10-day period. So you should only sign it if you want to proceed. But if you don’t want to proceed, then you should return the contract within that 10-day period to the vendor saying with a recorded letter, “I do not wish to proceed for whatever reason.” And you can then have your deposit back if you’ve paid one or your reservation fee back. And so that’s the first point.
The second point is that once you have signed the contract and once the vendor has signed the contract, it’s not just green light and off we go. What happens is that that contract needs to be sent to the [notaire 00:10:40], the local notaire who is dealing with the sale. And He sends that contract to the local authority in the area, which has a right of first refusal. Every property in France is subject to this.
Shona Lindsay: Wow.
Stefano: So it’s usually for architectural, historical or natural beauty reasons. So there may be something of value nearby and they may say that they want to buy it. And what happens is that you have to give the local authority a right of first refusal, which can be up to three months dependent… In the south of France for example, in Nice, in that sort of area Cannes, [inaudible 00:11:13] that sort of area, it takes up to three months and you cannot do anything. So you cannot move forward, you can’t complete, you can’t do anything until the local authority comes back to the notaire and says, “Yes, we don’t have an interest in the property. We have no interest in buying it. You can go ahead with the transaction.” He will then receive a certificate of conformity and he can move on to the next stage, which is he’ll agree for the vendor and the purchaser to attend his offices at some point in the future and if they’re getting a mortgage, the bank representative as well will come to the notaire’s office and they will sign the documentation and complete the transaction in front of the notaire.
But beware, you cannot be rushed into completing a transaction until the notaire has confirmed that he has received the reply back from the local authority saying, “Yes, you can proceed because we have no interest to buy this property.”
Shona Lindsay: So the buyer can’t push you say, “Why are you taking so long?” Because this is a legal thing.
Shona Lindsay: It’s quite hairy time for both parties then, isn’t it?
Stefano: It usually as I said, Shona, it only comes into force when there is a building of outstanding beauty, something of historical nature, something of artistic value that the country doesn’t want to go out of its possession to a Russian or some foreigner basically who buys the property. That’s the reason behind it. It very rarely gets exercised, but it is part of the procedure that you must know about. You can’t do like in England, where you exchange contracts and you could complete the next day.
Shona Lindsay: Yeah. That’s not going to happen.
Stefano: You can’t. No, you can’t do that. And then of course, let’s say you attend the notaire’s office, you do the signing and then the property is yours. And that’s it basically.
Shona Lindsay: And so now by the wonders of technology, we’ve got a question for you Tony. So I’m thinking about remortgaging my main property to pay cash for buy to let property. Am I allowed to put the new property in my children’s names? They are seven, five and three and use their annual tax free income allowance. Where would I stand with capital gains tax?
Tony Gimple: Well, minor children, those under the age of 18 cannot give a receipt, that’s the technical term, so you can’t put the property in their names. The bigger question is, why are you looking to buy a rental property? Are you going to be an accidental landlord? In which case it might not be the right thing for you. Or are you looking to build a longterm professional property business? In any event, putting property in children’s names can be problematical. You’re making yourself susceptible to accidents in their life, their lifestyle, who they marry, their business interests, whether they get the sack or not. But in any event, you shouldn’t let the tax tail wag the planning dog. Look at this as a business first and seek professional advice.
Shona Lindsay: Thanks very much, Tony. That’s really helpful. Right, we’re heading into a break, but we’ll be back really soon with some more questions for our resident experts to answer. Welcome back to Property Question Time. I’m Shona Lindsay and I’m joined here in the studio by Simon Zutshi, Stephanie Lucatello-
Shona Lindsay: And via video link, Tony Gimple. So I’m going to go straight to you Simon with a question if I may.
Simon Zutshi: Yep.
Shona Lindsay: Our landlord has expressed a desire to sell the house that we’re in. He’s had an estate agent come around to value the house with our cooperation, but we don’t know the value. We love the house and we’d like to buy it. The landlord has asked us to make an offer. Even though we’re not the owners, can we ask the estate agents to visit to the property for evaluation?
Simon Zutshi: Okay. So I would suggest that it makes perfect sense for the landlord to sell to the tenants if the tenants want to live there because they don’t have to actually pay an estate agent. And as long as they can agree on a price, which might be the only sticking point, that can be a really good strategy. And in fact there are certain mortgage products out there, at the time of filming, where the landlord can actually help the tenants with part of the deposit, a part gifted deposit. There are only a couple of lenders who will do it, but that might make it easier for those tenants to actually buy the property. And I think that’s actually quite nice. If someone’s lived in your property for a number of years and you give them first refusal, I think that’s a good thing to do as a landlord, if you come to the decision that you really need to sell that property for whatever reason.
So it might be that the landlord is just chancing his luck seeing what they’re prepared to offer for it, but I would throw it back to him, “So well what do you want for it?” Now they could probably ask an estate agent to come round and value the property, saying they’re thinking about selling. And probably on that initial first viewing, the agents probably wouldn’t know that they didn’t actually own the property. Now if they took the property on then obviously they need all the identification proof to stop people selling properties they don’t own. But on that initial viewing, there may be no issue. And they can get a good idea of the ballpark figure for that property. Or they could go onto Rightmove and Zoopla, look for a similar style property in that area and see what other properties are being sold for.
Now take into account that property prices will vary depending on the [inaudible 00:16:28] Some might have an extension or conservatory or not. So they’ve got to compare like with like, but that will be a really good idea to get a view there. And I would speak to the landlord because if they can come up with a price that works well, they’d say to the landlord, “Well look, we’re not going to pull out. If you want someone else to buy, you’ve got to pay an agent and one in three sales fall through for whatever reason. Whereas we want to stay here, we don’t have to move. So we’re really incentivized to buy this property. So let’s see if we can sit down and sort something out between us.”
Shona Lindsay: And also the rent is going to continue up until the date [crosstalk 00:00:17:03]
Simon Zutshi: Absolutely. Whereas what happens is, when a landlord says, “Well, I’m going to sell the property”, sometimes tenants get spooked and decide to give the notice to move out, and there might be months and months when the property is empty and the guy is getting no rental income. And also, he’s got to pay the insurance and the bills and you know, an empty property is not a good thing to have. More chance of being broken into and vandalized or whatever. So actually it really is in the sense of the landlord to stop messing around and actually work with the tenants and see if there’s a mutual win-win for everyone.
Shona Lindsay: Brilliant. Thank you very much.
Simon Zutshi: Thank you.
Shona Lindsay: So Stefano, a question for you. I’m buying a property in Spain with my wife. I’ve been sent the contract to sign, but the agent says I must attend in Spain to sign it and go through it with her. I can’t get any time off work at the moment, so is there another way of dealing with this without me being there in person? Do I need to get a UK lawyer’s advice before I sign it?
Stefano: The first, the starting point with anything as it is in England, anywhere else, is due diligence. You’ve got to do your due diligence. Don’t sign anything until you’ve done the due diligence. As I’ve said before, when you buy a property only sign a reservation agreement, make sure that the reservation agreement has a clause in it that says that between seven and 21 days, if you decide against it, you can get your money back. If it’s not in there, get them to put a clause in. If it’s not something they want to put in the estate agent then walk away and go somewhere else. There are millions of properties for sale. It’s a buyers market, not a sellers market. That’s the first point.
The second point is that presuming they have done their research and they’re now ready to sign the contract, they don’t have to be in Spain to sign the contract. I don’t see why the contract can’t just be emailed to them and they could sign it. Now, if for some reason they have to go back at the town, I can’t think of one, to go back to Spain to sign the contract in front of the estate agent, and there isn’t I think any good reason that that should be the case. But let’s say that they have to, they should do, and one of them can’t attend. Let’s say the wife can’t attend because of her job, her husband can, she could right a power of attorney to her husband in favor of her husband in English and in Spanish in this case. We would draft that. I mean we quite often do that. We could draft it in English and Spanish. She would then attend in front of a notary public in the United Kingdom.
She would sign the document in front of him or her. The notary public would then legalize and notarize the document, send it to what’s called a Foreign and Commonwealth Office for the apostille to be put on it. The apostille is a certificate in English and in French, which is put on the back of the document that needs to be recognized abroad, which otherwise wouldn’t be recognized because it’s been signed in absentia of the local lawyer who doesn’t know whether the signature is real or not. But anyway they would sign it. It would have the Hague apostille put on the back of it and then it will be sent in this case to the notary in Spain who would have to, the state agent, who would have to take notice and recognize the document as if it had been signed in front of them but sometime in the past.
This is all to do with something called The Hague convention of 1961 and there are 148 countries that have signed to this. And if they are member states that have signed, then this procedure must be followed. The notarization costs about a hundred pounds. The preparation of the power of attorney is about 350 pounds and the apostille fee is 75 pounds, a fixed fee that’s payable to the Foreign and Commonwealth Office. You can either have a day service if you need it urgently, or you can have a three to four day service if you don’t need it urgently and the fee is less. So that is what he or she must do. That’s the only thing I can think of. What else was there Shona?
Shona Lindsay: Well, having a UK lawyer, but also the fact that they want them to be there in person to attend in Spain.
Stefano: Yeah. As I was saying, I can’t think of any reason why you should have to be there in person to sign the contract. As regards to a UK lawyer, yes. I mean that’s what I do. We advise, as specialist lawyers we advise clients who buy property abroad. No you don’t need me, but it’s always better, I would say, to have a UK lawyer that speaks your language, that talks to you in language you understand, that writes to you in English that is on your timescale. In our case, we are regulated by the Solicitors Regulation Authority, so we have 3 million pounds worth of indemnity insurance. If I commit an act of negligence, you can sue me for negligence. Never happened in 32 years of being a solicitor, touch wood and I know it won’t happen again. Oops, it won’t happen at all. Sorry, Claudia said that. And so those are the reasons for having a UK lawyer. Spanish lawyers are not obliged to have indemnity insurance more than a particular level, and if they do it’s very rare.
Shona Lindsay: Right. Okay. Thank you very much. I’m going to go with our last question of this episode to Tony now. Hi Tony. So Tony, can a landlord overcharge council tax to a tenant. The council tax is in the landlord’s name and the tenant has been paying it directly to the landlord. Obviously, I told my friend that there is a freeze on the council tax this year and told him to query his rates at the council, which he did. Any advice please?
Tony Gimple: There could be all sorts of reasons behind it. It doesn’t smell right to me. Yeah, they’re clearly up to something they don’t want to disclose. It could be they’re trying to avoid licensing. Gut feeling is don’t do it though. The last thing you want to do is end up with problems which could rebound in your work life or when you come to move onto another property. It’s a bit of a warning sign.
Shona Lindsay: Thank you. Thanks Tony. Well, that’s all we’ve got time for today, but please, please, please get in touch. Do email us on email@example.com or get in touch via the website, which is www.property-tv.co.uk. Thank you so much to Simon Zutshi.
Simon Zutshi: Thank you.
Shona Lindsay: To Stefano Lucatello.
Stefano: Thank you.
Shona Lindsay: And Tony Gimple. Thank you for all for being with us today and we’ll see you soon. Bye.