Bryony: Hello and welcome to Property Question Time. I’m Bryony Billson and this is the show where you get the chance to have your questions answered by our resident property experts.
So let’s see who we have in the hot seat today. A warm welcome to Garrett O’Hanlon, director of MAP Chartered Surveyors. We also have Neil Cobbold, CEO of Pay Prop. And last but by no means least, Paul Mahoney from Nova Financial Limited.
Welcome today, gentlemen, thank you for giving up your time. We’ve got a few questions to get through today and I’m really looking forward to hearing some of your top tips. First of all, I’m going to go to you, Garrett, with our first question.
“I just had a survey done for a property I’m buying. Issues identified include minor roof repairs, such as pointing, potential blocked or broken drains at the front of the house, drainage issues, dampness in the kitchen. And as it’s my first time buy, I really need some help. Is it essential I get a second opinion on the drainage and dampness issue, and who pays for the drainage inspection?”
Garrett: It’s a good idea, you do need to get further reports on this certainly, because some of it is concealed elements of drainage, dampness, you need to determine the full extent, associated issues that might be consequential from that dampness. You need to get yourself reports for different prices so that you can compare those, you need to make sure you get those reports yourself and they’re commissioned by you, so any liability from those contractors is to you. And also, you need to gather all of that information together before you can decide whether you want to moderate the price which you’re offering for the property, because your initial offer can only be a considered position after you have all the information together which you need, which comes from that survey, and from those further reports.
Bryony: Thank you. Neil, do you have anything to add to that about getting the right surveys to do a damp, it seems like quite a big problem for some people.
Neil: Yeah, I mean, they’re doing it for home buying but actually within the letting market we find more and more that damp’s becoming an issue. And often it can be because people are getting the surveys, or more importantly not getting the surveys done after it’s come through, or they’re starting to take a cheaper option to fix it. And actually, then once living in the property, when the ventilation or the lack thereof becomes a factor the damp returns, the spores, which have a health and safety factor, that actually is becoming something that people need to be more aware of. That actually it needs to be dealt with properly, and it needs to be fully investigated.
But I think too many people look at it as a cost, and again, as it happened here that we’ve put it down as an issue, but do I have to address it, how far do we go? And so, as I think Garrett eluded to in previous issues where we’ve been always go through to your surveyor, always ask them, because the reports saying there are damp, to what extent? Get it further investigated, because that’s not enough for you to base a decision on.
Bryony: Thank you, take it seriously then, and-
Bryony: Get the right advice.
Garrett: And I don’t think you can expect that because the work costs 10,000 pounds you will necessarily get a 10,000 pound reduction, because we’re probably not buying a brand new property, so you can’t expect it to be brand new, but a contribution to that is probably fair.
Bryony: Thank you. Okay, so I need to go to you next, Neil, for our next question.
“I’m renting out a property, and the agent has offered me direct debit to collect the money from the tenants. I’ve done this, so should I do it, or stick with a standing order?”
Neil: There is more of a market change where people are going to direct debit collections, and it’s been part of our lives, we pay our utilities, we pay our insurances, we pay our mortgages and our finance by direct debit, why shouldn’t the rent be paid? There has been an inherent issue that agents haven’t been able to secure, but new technology companies are now providing that and making it an open access. And there’s always been this worry that the direct debit guarantee has an unlimited claw back, but actually that was made a little bit tighter this year, there is more an owner [inaudible 00:04:03] being able to prove the ability to have the money back. And actually, it’s a very small, it’s like not .15% of all direct debits that are ever claimed back. So the exposure’s very, very low.
So actually as a landlord, the idea that you go and take the money from your tenant’s account, rather than relying on them to actually send the money, can only be the agent looking out for the landlord and I would definitely go with it. But as with all things, keep an eye on it, monitor it, make sure how it works. But saying whether it’s better one against the other for the standing order, I don’t think there’s any reason not to go on the recommendation. If you’ve gone with the agent and you’re using them for their expertise, and you’ve gone to that and this is what they’re telling you to do, it’s the best choice to go for that as an option.
Bryony: Thank you. So really considering as well whether it works for you as an individual. Thank you for your advice there. Okay so, Paul, we’ve got a question being sent in for you.
They say, “I’ve been looking in investing in HMOs given the high yield they provide. Are they a good investment, and are there any other high yield options you’d recommend?”
Paul: Okay. Yeah look, HMOs in the right circumstances can be a good investment. And generally, the attraction to them is through the yield. Whenever somebody says though that they’re looking for a specific thing, I’ll always ask why. Because I think what’s more important is the outcome rather than the product. So HMOs are one way of creating a strong yield, but of course they’re not the only way. And I think a lot of people base their kind of investment decisions on something that somebody said to them at the pub a few weeks ago, or maybe they might have read in a magazine, and I suppose not really understand why that’s specifically what they want, but just think that perhaps it is.
So yes, HMOs in the right circumstance, scenarios where they’re actually allowed, firstly. And secondly in areas where they’re not really clamping down on them, because I know they are doing that in a lot of areas across the UK at the moment. Partially through the misuse of them, I suppose. You know, creating tiny little … a hundred tiny little bedrooms in one house, maybe a bit of an exaggeration, but you take my point.
So yes, they can be a good investment, there are obviously other ways of achieving high yields in property. Whether that be things like purpose built student accommodation, there are other commercial type investments now like care homes and hotel room style investments, that can work better for certain people. HMOs tend to be more hands on type of investment, so either you need to be prepared to apply a lot of your own time, or pay somebody else above the odds of a usually property to apply a lot of their time. It’s almost like if you have an HMO with six tenants, it’s almost like having six properties. Because it’s six separate agreements and those six different people can have six different issues. So you need to understand that. It can be one good way of generating yields.
There are other more passive ways of generating in some cases similar yields. So my take on that would be to explore your options. Don’t just say … don’t just go for HMOs because that’s what you’ve decided you want. Focus more on what you’re trying to achieve, and then work backwards from there so far as what can deliver that.
Bryony: Thank you, yeah, brilliant advice there, thank you so much. And like you say, HMOs, so it can be a good option, but definitely explore the other things available to you.
Bryony: Right, now it’s time for a golden nugget, and we’re going to go to Garrett for a top tip. So what do you have for us today?
Garrett: Well it’s kind of a tip for home buyers, really, to in a sense do the surveyors out of business by saying just keep your eyes open a little bit more, because it’s amazing how many times we carry out surveys for people, repeat surveys, and sometimes they’ve decided not to proceed from the first one on the basis of things which we have told them, but which actually they probably could’ve discovered themselves by looking just a bit more carefully than they did.
And I think so many people in this country buy a property, the biggest thing you’re ever going to buy, on more or less a once over. They don’t go back unless it’s to measure up for the curtains some way down the line. And because we’re British and reserved, they’ll often be introduced to the bathroom by the homeowner standing in the door and going, “This is the bathroom,” and they don’t even look at it properly. So actually, be a little bit more nosy, be a bit more pushy, ask a few more questions, look at the ceilings, and the things that you perhaps wouldn’t pay quite so much attention to, are there stains up there, are there worrying things there that you could ask questions about. So yes, you still need your surveyor, but actually you might save yourself a little bit of money in the long term by just applying yourself in more of the way that you would if you bought a car. Because we go round and we kick the tires, and we open the doors, and we want to test drive it, we want to see that it performs as it’s supposed to perform. But it’s that quick once over with the house.
So just take a little bit more care and attention yourself.
Bryony: Thank you for advice on that one, yeah, so be a bit more … take a bit more confidence when you are-
Bryony: Looking around, and I like that idea of treating it a bit like buying a car.
Bryony: Poke around a bit more and see what you’re really buying.
Garrett: Kick the walls. Hasn’t got tires.
Bryony: Thank you. Coming up after the break, we’ll be getting further golden nuggets from our experts, as well as putting them to the test on a few more of your questions. We’ll see you shortly.
Welcome back to Property Question Time, with me Bryony Billson, and on my panel of experts today we have Garrett O’Hanlon, Neil Cobbold, and Paul Mahoney. I’m going to go straight to you Neil with a golden nugget.
Neil: I’m going to keep on the same theme and kind of going through as an advice to landlords. At this moment in time there’s a lot of change, and the different people you speak to, they’re putting more regulation, they’re putting more control into property and depending on who you speak to is how they view this. My view is that landlords should get behind it. That actually making it more of a business, raising the transparency, and actually getting into this as a business transaction will in the long run be better for them. There may be minor hiccups and challenges and interpretation that start off, but the quicker they go into this as a business, the more they’ll be able to plan it. The people that have made money out of property and it going through your institutional investors are far more savvy, far more business minded when they take it.
And I know we’ve had it before about the emotion and it comes through, and it will always be. Your institutional investors have no emotion around that asset and the investment. For them there is a set number of void days I put into it, there is an amount that’s needed for the works that need to be done. A lot of landlords look shocked that it needs it an upkeep, a year or two years down the line of people living in. Whereas if they were a business and if they plan for this, then it would actually run, but actually what they do is get emotionally attached to the asset, and then try and run it as the asset rather than as a business. And if they remove that, and did what the government is trying to do, and the quicker they do that, I think they would reap the benefits and the rewards.
Bryony: Thank you, a fantastic golden nugget there and really helpful for a lot of our viewers, so thank you for that. We are now going to move on to a question, it’s going to go to you, Paul. And one of our viewers has asked, “With all the changes in the buy to let market recently, is it still a good investment, and what way do you see the market going?”
Paul: Okay. So I think it’s a fair question, especially with a lot of the media lately. I’m not going to mention certain papers, but certainly some of have been worse than others. Sort of sat around … often when you read an article like that, the first few lines will seem very damning and very terrible advice, well that’s the worst thing ever. And when you read on, actually, it kind of explains itself away. And what I mean by that is there’s been lots of kind of tests, specifically on London, looking at how yields work with the section 24 changes, and with the extra stamp [inaudible 00:12:14] and things. And whether it still works, mainly just from a cash flow perspective, and I can understand why people would read that and get a little bit worried.
My take on it is that you need to be more selective now.
Paul: You know, with all the changes that are happening and I’ve mentioned it before about yield becoming more important. I still don’t think yield is the most important thing, and people shouldn’t be focusing just on yield, but making sure that the properties, the assets that you’re looking to add to your portfolio do work with the overall sort of change, and the shift that’s occurring in the market. You can actually take advantage of what’s happening. The shift away from the sort of high value, low yielding assets toward lower value, high yielding assets, by investing with that you can actually benefit. Because some areas that still offer the depth and the confidence, but also offer those high yields are actually benefiting from these changes that are coming into place.
So it’s definitely still worth investing in. Just looking at … there’s a report released in 2013 that looked at the previous 18 years of buy to let. And the average return on the cash invested for a 75% buy to let mortgage was 16 and a half percent. Which was four times the [inaudible 00:13:39] share index. Now, that’s UK average, across the board. Obviously some out perform, some under perform. A little bit of extra tax, and an extra 3% [inaudible 00:13:50] on the way in doesn’t change that. At the end of the day, the fact that people are always going to need somewhere to live, we’re in a massively under supplied property market. The UK government target is 300,000 new properties per annum. And we’ve averaged around 150,000 for the past 10 years. So whilst you’re in that sort of under supplied market, which really in reality isn’t going to change anytime soon, investing in the right locations you really can’t go too far wrong.
So by all means, buy to let is still a good investment in the right circumstances. Where I see the market going is I think it’s a two spade property market. I think London and the southeast are plateauing and I think that will continue for the foreseeable future. There was another report released recently, I won’t say who it was from, but another report released recently that said that the UK property market on average will increase in value by around 24% over the next five years. And that London will increase in value by about 8%. So that report indicates that London will underperform the overall UK market over that period of time, which I would agree with. And it’s certainly in contrast to the past.
So not necessarily just focusing on what was previously the safe haven, looking to what works best in the current market and in the market moving forward.
Bryony: Thank you, thank you for your response to that your question there, Paul, as well as your insights as to where you think the market will go.
Going to get to you now, Garrett, for a question. “I’m looking for some advice on how to proceed after the RICS survey on the house that my partner and I are planning to buy. It showed some problems that we weren’t expecting. These included that the flat roof to the bathroom is in need of a complete replacement, and that the kitchen floor would need a total reconstruction in order to meet modern standards.” And they’ve put that it’s lacking in damp proof membrane, and more problems. “The estimated cost associated with these issues are not extortionate, but total several thousand pounds. Now following the house survey, how can I get an appropriate reduction in the price of the house to cover this?”
Garrett: Okay, well they’ve done the right thing in the first place and they’ve commissioned a surveyor to come in and give them a proper appraisal of everything, and it sounds as if, because they’ve got an idea of the cost that they’ve gone on to get some quotations for the various works required. So they’ve done everything correct so far. I’m a bit surprised that replacing a concrete floor in a kitchen isn’t going to be extortionate, because that’s generally quite a big job, so make sure you’ve got at least a couple or three quotations on that to get it absolutely right. If the replacement is because of dampness issues, you want to make sure again you’ve got an insurance backed guarantee at the end of those works.
Now, I always say to people, if you want to offer a variable price after the various things that you’ve … for the quotations you’ve got for the works, put a package together and put that in front of the agent who yes, is there to act for the vendor, but is a professional intermediary. I think if you try to negotiate directly with the vendor, it becomes an emotional arrangement, and it probably won’t go very well. So the agent is there, that is their purpose, to be the intermediary, the conduit in those things. So work in that way and see if you can renegotiate to an agreed price.
Bryony: Thank you. Final question of today’s show goes to you, Neil. “Do I have to allow my neighbors access to my driveway to make getting on and off theirs easier? We have a central driveway between the two houses and we both have a front diagonal access across the front of our houses. To cut a very long story short, we bought a house with a shared drive up the center, but didn’t really understand what that meant. We’ve now had an issue, and both of us and the neighbor parked and used the driveway as we wished. They even told us that there used to be a fence up the middle. However, took it down as their family lived next door, so it made sense to make one big driveway.” Have you come across anything like this before?
Neil: Well, actually, shared access is often quite a contentious issue, particularly when an arrangement has happened between two individuals and one individual then changes, and they’ve not been party to that arrangement, and the other person continues as if it’s still in play, the same negotiation that went at the start. I mean, it comes down to them actually looking to what the title deed says. Often in these instances, there are some where it will be shared down the middle, where you will each have a share and a right to use the other person’s half. It’s more likely that one property will have the ownership of the shared, with the other person having the right of way to actually use it.
But typically then, they are not to be used for parking. Their right of way and access, they have to remain unobstructed. Unless it clearly states that that can be used for parking, then an access driveway probably can’t. But as with most with this, have a discussion. You came to the arrangement with the other, the reason this has happened is because of the communication. I would be having a conversation before going and finding out what a legal standing is, because the legal standing will often just come to a fall down in communication, and you’re now neighbors, that’s … unless you’re planning on moving, it’s not something that’s going to change soon.
And so actually, for the objective of wanting to park your car in a shared driveway rather than pulling it through onto your own, or parking on a street, is it worthwhile upsetting the new neighbors for the problems that would cause? Sit around, explain what used to take place, rather than looking at the legals. Would be advice to you there.
Bryony: Thank you. Seems like some people are sometimes worried about just having those frank and honest conversations, but often I find when it comes to property, just having that conversation honestly about the situation before and how it is now is often … seems to be the best way forward.
Neil: We often don’t understand the other person’s viewpoint. I mean, we’ve said it to the point that often people buy and they base it on other peoples’ judgment without looking at the end goal. Well, now, your end goal is that this person wants to be able to still park their car. But the legal route is not going to be the route to get that. So if that’s the goal, is for you to get it, the easiest and quickest way for you to get to that goal is to start a dialogue and find out if he’s open. You may start that dialogue and find out that there’s a valid reason for why they want it accessed, or at certain times, and you can work around it. But without that information, you’re going down a route that can only look to antagonize the situation between two neighbors.
Bryony: Thank you, yeah, similar to Paul’s point before actually about keeping in mind the outcome of what you’re actually trying to get, so thank you, an excellent response there.
So we have got time for a final golden nugget, and I’m going to go to you, Paul, for your final top tip of today’s show.
Paul: When it comes to investing in property, understanding what type of return is most suitable for you. And in general, the two types of returns are income and growth. Now, generally the default tends to be income, because most people invest to generate a certain level of income at the end of the day, in 10, 20, however many years it is they might want to retire and not have to work anymore. That’s the end goal, and therefore I suppose it stands to reason that income should be the goal initially as well.
The issue with that is if you invest just for income, then you’re going to need an awful lot of money, or a very large asset base to generate the amount of income that you need. For example, let’s say you have 50,000 pounds, and in 15 years time you want to have 50,000 pounds per annum of cash flow. If you invest that 50,000 pounds just for income, and let’s say you get a 10% net yield, the only way you’re ever going to get to 50,000 pounds per annum is by serving 10 lots of 50,000. Which for a lot of people is going to be very difficult, if achievable at all. If you invested that same 50,000 pounds into a 200,000 pound property with a 75% mortgage, and that property doubles in value in 10 to 15 years time, well all of the sudden, your 50,000 is 250,000. And if you do that a few times, then of course you’ll be further on track to achieving that 50,000 pounds per annum.
So understanding that in the wealth creation phase of your like, generally growth is the most important thing, because you’re looking to build an asset base. Then once you have the asset base, then income becomes more important. So I suppose understanding that with regards to your personal situation, therefore implementing that into your strategy.
Bryony: Well I’m afraid that’s all we’ve got time for today. Thank you so much, gentlemen, for sharing your time and all your valuable insights into property, investing, you’ve answered some really tough questions and shared excellent golden nuggets, so thank you again for doing that.
If you have a question that you want to put to our panel, you can email us, firstname.lastname@example.org. You can download our app, or why not go to the website, property/tv.co.uk. And we will see you next time.