Suppose every day your bank kindly deposited £86,400 into your account, just after the stroke of midnight.
However, there are some stipulations to this lavish gesture;
Everything you don’t spend that day will be wiped clean just before midnight, and the balance will return to £86,400 the following morning.
You may only spend the money; no transferring it to high-interest savings account or drawing out cash.
Lastly, the bank withholds the right to withdraw the gesture any time it sees fit.
Pause for a brief moment to think about this scenario.
Ask yourself some reflecting questions…
What would you do with the money knowing the rules?
Would you buy everything you could for yourself, your family and friends because you know it is getting replaced tomorrow?
At what point, knowing this could stop any day would you start to invest the money in your future and your education?
Would you try to spend every last penny since the balance is to be wiped at the end of the day?
Would you rise the very minute after the stroke of midnight and begin the colossal task of spending, knowing it’s a tall order to get this spent in 24-hours (of course, you would).
Who can honestly say that they would not use every opportunity to use every single last penny of the £86,400 that has been generously gifted to you that day?
Well, this 86,400 is a gift we are all blessed with each day we are lucky enough to wake.
The gift isn’t money. However, IT’S TIME.
Each morning just after the stroke of midnight, we are ALL blessed with 86,400 seconds to achieve exactly what it is we want on that day. As we head off to bed this time is not credited, but rather the time we have not used is lost forever, and each day it all begins again, but just like the bank withholding their right, this can be taken away at any time.
When you look at your life and assess what you can achieve in a given day, imagine what you can achieve in a month, a year, ten years. But time is continually counting down. Scientific studies show, time and time again that the longer we leave something, the further it slips away from us.
Time is a gift.
86400 ticks of the clock each day, how many of them matter to you? What will you do with your 86,400s today?
Let us know in the comments below how your spending your time today.
In order to understand the commercial viability of a property investment, it is important to understand not just the numbers but the nuances of what those numbers represent. There are plenty of deals out there that look fantastic on the surface but delving a little deeper exposes frailty.
Your property investments should be treated as a business, so even though you may seek the advice of experts, you need to carry out your due diligence with the same rigour as if you were about to present the deal to the Dragons Den.
There are lots of different figures bandied about, so I am going to concentrate on just four key numbers; namely below market value (BMV), cashflow, yield and return on investment (ROI). For each one, you need to understand how it is calculated, what it represents and why that is important.
To be able to calculate how much below market value a property is being sold for you first need to calculate the market value; that should be self-explanatory, it is the value of the property right? OK, so is that what the vendor or agent is telling you? Is it based on 2-year-old comparables adjusted for market inflation or the figure that bloke Dave gave you when you met in the street whilst assessing the condition of the roof? An economist will tell you that the value of something is what a buyer is willing to pay for it, but that isn’t particularly helpful either.
So, if you are new to an area the best way to value a property is by using all the figures you can gather (except for Dave’s) and applying some emotionally detached and objective common sense. The big but here is that you need to, as far as possible compare like with like so factor in the condition of the property as far as possible. Do not compare the price of a run-down repossession with that of a well-maintained family home two doors down.
The BMV is calculated by simply working out the discount over the market value, so a house sold for £90,000 that could be sold for £100,000 on the open market is 10% BMV. Why would anyone sell BMV? That is for another time but suffice to say the vendor is more motivated by the speed and certainty of the sale than the sale price.
Why is BMV important? Well firstly it gives you instant equity in the property, so you are now a proper investor. Maybe more importantly, it reduces your risk. So, for instance, if there is a change in circumstances with the house, personally, financially, in legislation or any other factor, you have an exit strategy even if prices have dropped slightly. If you are managing risk, you are now properly in business.
BMV concerns the capital and equity of the purchase, the other three indicators all concern the ongoing financial viability of the investment. If you are buying to let, then we would always advise planning to hold the property for at least a few years because otherwise, the transaction costs will eat up a considerable proportion of your profit.
Cashflow is easy in explanation but requires careful attention to the detail for the calculation. It is the estimated monthly income less expenditure. Income will be rent (although not necessarily exclusively); the main items of expenditure are mortgage fees, agency fees, allowances for voids, allowances for maintenance (including accruals for large expense items such as boilers and roofs), service charges, ground rents etc. These expenditure items can be difficult to estimate so be detached and as objective as possible.
Cashflow should always be positive, and you need to set a minimum level that you will accept to act as a buffer; I have heard various figures used from £50 to £250 per property. If it is positive, then you are in business, if not then do not buy a liability.
Yield is the annual return of the property expressed as a percentage of its value. The nuances here depend on what you include or exclude. You can decide what you include when you know what you want to use it for.
Most investor folk use it to compare the headline returns of properties. At WOPT towers we also find it useful as an at a glance review of the risk when using finance. As a rule of thumb, the worst case scenario is that finance will cost about 6% and other costs (maintenance etc.) are around 2%; then the minimum acceptable yield for an investment will be 8%.
Return on investment.
ROI is a similar calculation to yield, but it strips away figures to reveal how hard the investor’s money is working. It is calculated by dividing the net cash flow in a year by the investors capital; that is the equity in the property.
ROI is the actual return on your money similar to the interest rate at the bank and therefore allows the investor to compare investments across not only different properties but also different investment asset classes, e.g. shares gilts and bonds etc. This is important as it allows the investor to check that they are making their money sweat as hard as they can.
Before we finish, it is worth mentioning that the figures are the sum of several estimates. So, to be really thorough you should calculate a best, worst and most likely scenario, only then will you have a true grip on the business case.
First, I need to write that this article is not meant to act as legal advice in any way, shape or form.
We don’t think the law around the holding of deposits is particularly complicated, but we are certainly not qualified to give it advice.
The law/rules/guidance around what you can and cannot withhold from a deposit is, well, almost entirely subjective and frankly a can of worms (here is the advice the tenants are getting – link below).
So, the purpose of this blog is a discussion of the nature of deposits and highlight what you should be aware of and possibly do more research into you can do that >>here<<.
Should I even bother to take a deposit?
Yes, you absolutely should…….. DEFINITELY!!
OK, so it almost goes without saying that a tenant can cause far more damage than will ever be recovered through the withholding of a deposit.
In many ways, the monetary value is secondary to the commitment to the property and superior financial management that the tenant is displaying in getting the deposit together.
Frequently the first question you’ll get asked by the tenant when they submit their Notice to Quit, is ‘when will I get my bond back?’.
It is quite clearly in their mind, and if that thought holds during the tenancy and they take that little bit of extra care with your property, then you are onto a winner.
The tiny bit of extra daily care that a tenant may take with your property will add up and, although I will never be able to prove this, I believe you will have fewer issues with tenants if you take a deposit. And if that is too woolly and ethereal for you – well you have the cold hard cash from the deposit to cover any repair costs.
How much should I take?
Amount taken tends to be relative to the rent the equivalent of somewhere between 1 to 2 months.
However, there are a number of reasons why you would want to take a bit more; if the tenant wants to have pets, if the tenants are foreign and a greater potential to skip payments at the end of a tenancy are but two examples.
There is no right or wrong (although as at December 2018 the Labour Party are pushing to have an upper limit on the deposit – so watch out)
So that’s easy, I’ll take a deposit. Now, what shall I do with the money?
Simple – register it with or submit it to a government-backed scheme.
Tenancy deposit protection was introduced on 6 April 2007 as part of the Housing Act 2004 and updated in the tenancy deposit provisions (section 184) of the Localism Act which came into effect on 6 April 2012.
Much of the justification for the acts was the sharp practices by some landlords predominantly betterment. Betterment (made up word alert?) is the practice of spotting a small defect and then using it to justify making the property better at the tenant’s expense, for instance, a small mark on a wall could be used as a reason to re-decorate a whole room or house.
The deposit schemes are meant to bring greater parity between tenants and landlords about what the deposit monies can be used for.
Has it worked? We have no idea, but it certainly has changed the relationship and also created a new opportunity for the no win no fee lawyer if the deposit is not correctly registered and the correct paperwork served; You have 30 days from receipt of the money so act quick.
What is this ‘Deposit paperwork’?
The details of what paperwork needs to be served will be available on the scheme’s website, we haven’t listed the requirement here for fear of going out of date and thereby being misleading.
Broadly, it is a document that tells the tenant about which scheme you have used (the prescribed information) and T&Cs/leaflets that give greater depth of detail about the scheme.
To register or go custodial?
The schemes offer two options; in the custodial scheme the deposit is paid the money into a third party account managed by the scheme and registering the deposit involves the payment of a fee to register the deposit which is then held by the landlord/agent.
Which scheme is better? Only you will be able to decide as it is very much linked to how you manage your affairs and the types of tenancies you have. Bear in mind that you can use different schemes for different deposits if you so wish.
At the time of going to print the following providers were available, these are the only government schemes available, easily found on google.
Deposit Protection Service (DPS)
Dispute service (TDS)
Were all done then?
Yes and no. It is also important to ensure that you complete a detailed condition report (inventory) of the property.
This should be a combination of at least a written report and photos; taking videos is also commonplace.
The inventory should be completed with the tenant prior to the point they move any of their belongings and must be signed off by the tenant as a true and accurate (It also is good practice to get them to witness the testing of fire and carbon monoxide detection equipment and take the meter readings at the same time, but we have now strayed to a different subject matter!)
The inventory will then form the basis of any future claims against the deposit if the tenant disputes any monies that you intend to withhold.
If you are not feeling confident, then you can use an inventory service.
You are not tied to this service forever, and it could be quite useful to get them to draw up the inventory in the first instance anyway!
As soon as you start your property business you should be concerned with making it as efficient as possible. The best way to do this is to systemise your approach. We have laid out an overview of how to achieve this which we hope will give you a clearer idea of the what, where, how and why?
Are you crazy? I don’t have a business, I just have a couple of rentals?
Even if you currently only have one property and don’t intend to go any further; you should still treat it like a business otherwise it will turn into an unwelcome hobby. Nobody knows what the future holds neither of us thought we would be sat here 12 years on writing blogs, delivering training courses, running property management companies and reaping the rewards of a passive income through property investing.
The aims of systemising are to make the management of your business quicker, easier and more consistent. You should do this even if you do in-fact only have one property…… currently!!.
So how do I start?
Following a meeting at WOPT towers, we produced the diagram below to show my headline processes. Each of these processes can then be broken down into a series of activities, we use a checklist to track what should be done next and keep an overview on progress.
Each process will have associated documents; be it letter/email templates, notices, reports etc. The first one you write, copy or ‘benchmark’ will become the template which you should store somewhere safe and obvious in order that you can use it next time; at which point you will no doubt improve it and so on.
Sounds straight forward. Can I have a look at your checklist?
Of course, he is a sample from the end of tenancy process – to see what other checklists are available, click here
1. Informed of tenant’s intention to quit.
2. Collect the signed Notice to Quit receipt from the tenant.
Notice to Quit form
3. Deliver a rent statement and check-out letter to the tenants.
Check out letter
4. Initiate the Letting Checklist for the property.
5. Agree date of the check out meeting with the tenant.
6. Print up to date rent statement.
7. Collect the check-in inventory and the property keys.
8. Conduct the end of tenancy meeting
End of tenancy report.
This all sounds very stone age – is there an app for that?
We recommend never using tablets or stone to document your system because other than the obvious weight issue any system should constantly be reviewed and improved.
There are numerous property management applications, and it is becoming more common that they are scalable, so you don’t need to pay a hefty monthly payment whatever the size of your portfolio.
We won’t recommend a particular package as selection depends on what your criteria is both now and how you see your business developing in the future. Needless to say, there are numerous articles on property forums and websites that recommend applications based on the author’s view of the world. Just make sure you are GDPR compliant!!!
One of the experts at WOPT Towers uses Excel for just about EVERYTHING, (pretty sure he creates his shopping lists on it), and it works well for him so as ever there is no right and wrong… Other than NOT systemising.
Sounds really simple, anything else?
Well no, not really, it is that simple when you break it down but it is remarkably effective in achieving the aims of making business quicker, easier and more consistent.
Property Training at WOPT
Here at WOPT we only offer responsible and ethical property training.
We believe firmly in transparency and will never sell you the dreams of yesteryear and never try to guide you to the impossible. We believe firmly that success is a journey and NOT a destination and that setting impossible targets can be counterproductive.
We believe in honest, straight-talking guidance, that’s why our training courses have become the best around because we genuinely care about your success.
We are so confident in our unique and personal approach that we even offer a no quibble money back guarantee.
All our articles are for information purposes only, and we ALWAYS advise you to use them as part of the overall picture building process and not as your sole reference point
OK, so you have just sailed through GDPR, used the new stamp duty and tax regime for property income to out manoeuvre your competition; what is the government planning next? Well, one thing is Making Tax Digital (MTD) also referred to as Real Time Information (RTI) in some press sources.
What is the difference between MTD and RTI?
Well for the purposes of this article nothing really. Making Tax Digital (MTD) is the name given to the specific government project whereas RTI is a generic term for any recording of information in a digital format thereby making it more accessible and ‘real time’. It is just the case that MTD will turn accounting information into real-time information (RTI).
So what is Making Tax Digital (MTD)?
Making tax digital is the government’s scheme to move all our tax accounting onto digital platforms. It was due to be introduced for businesses and landlords in April 2018 but as is so often the case with government IT projects it has been delayed.
The Government statement on July 13, 2017 read; ‘the changes mean that the smallest businesses and landlords will be able to move to keeping digital records for tax at a pace that is right for them.’
Lots of references to businesses, my portfolio isn’t structured as a business?
Maybe not but the legislation is now more often than not lumping the property investor in with any changes affecting businesses. This appears to certainly be true with MTD.
Then what do I need to do now?
Keep your eyes peeled and remain vigilant, This one is coming. The new timeline is businesses will need to move onto the digital accounting platform in April 2019 to meet VAT obligations. If you are a non-VAT business the government have stated that you won’t need to move onto the digital platform before 2020. We will of-course keep you fully updated and posted along the way so watch out for our next article on this.
With EPC’s firmly back in the spotlight and with the new regulations approaching we take a close look at what the changes are, what you need to do to comply and how they may affect us as landlords or property managers.
What is an EPC?
Ok, so we are not about to patronise you here and demonstrate the sucking of the proverbial egg. You don’t need to be a property guru to be familiar with the term EPC, but for those who are completely new to the industry and perhaps are not familiar with the term, we will give you our 8-second layman guide to an EPC.
EPC stands for ‘Energy Performance Certificate’ and just like Ronseal it does exactly what it says on the tin, and by that I mean it is an overview of how a particular property performs in relation to energy or rather more accurately how energy efficient the property is.
It has been law to provide tenants with an EPC since the 6th of April 2008 and to clearly show the EPC rating on any property advertised since the 9th of January 2013. The latter has been enforced by the threat of a £200 non-compliance fine, but the new laws which come into effect on 1st April 2018 and 1st April 2020 respectively are set to throw all this wide open and maybe just maybe cause a very small stir for a very small amount of you.
What do the new regulations state?
Here at WOPT our team have been working tirelessly to develop simple ‘no-nonsense’ guide to the changes, and we think we have it here for you, for free, because we care!
Simply read through our list below and see which applies to you to see if there is any action you need to take
If the property has a current EPC rating of E or above your activity level, as a result, is that not too dissimilar of a sloth, garden slug or giant tortoise. And for those of you who are not zoologists or are not 100% clear on this, it basically means nothing at all!
If the property has a current EPC rating of F or G but has a current AST in place, and you have no plans to renew that tenancy, i.e. you are continuing with your rolling contract then again your immediate action levels are that of a sloth, garden slug…… ok, you get the gist! Job done!
However be prepared, you will need to make previsions to get your overall rating improved and up to a rating of E or above by 1st April 2020.
If the property has a current EPC rating of F or G but has a current AST like in our example above, BUT you plan to renew this at the end of the term, then the minimum efficiency standards will apply as soon as you renew the contract. It may be worth considering a rolling contract at this point if you are unable to bring the rating up to standard in that time. Remember that this will need to be implemented before 1st April 2020 anyway.
If the property has a current EPC rating of F or G and is empty or untenanted, then you will be required to adhere to the new law as of 1st April 2018. This means you either let the property before this time buying you a couple of years grace or you do the inevitable and bring the property up to standard before you rent it.
Somethings to be noted on the above scenarios are:
If the initial fixed term of the AST (shorthold or non-shorthold) comes to an end after the 1st of April 2018 and subsequently falls automatically to a rolling tenancy or a ‘statutory periodic tenancy’ then this is deemed a new contract or new letting for these purposes and the new regulations need to be adhered to.
An example being, the six months fixed term was started in December 2017, therefore the initial term ends in May 2018, one month after the new laws comes into effect. This would usually mean that the tenancy is an existing tenancy, and would harbour no action. Think again. If the property has an F or G rating, then you need to make previsions to bring the standard up to and E.
2. This one may confuse or baffle you, BUT there is a loophole that will reflect a very small portion of existing tenancies out there. Like previously mentioned it became law to provide your tenant with an EPC from 6th April 2008, however EPC’s only last 10 years and there is no obligatory requirement to obtain a new EPC if the tenant is still in place.
This means that if your property has a rating of F or G, but you are still letting to the same tenant in 2020 (meaning the tenancy is more than 10 years old), then there is no need to obtain a new EPC, therefore no need to adhere to the new regulations. As soon as this tenancy ends, of course, there will be a mandatory requirement to bring the property up to specification before you either re-let or sell the property. As far as we are aware, there are no plans to close this loophole.
Note: here at WOPT we believe in responsible letting so even in the case of the above we would always recommend that the property is brought well in line with the required standards.
Flats, Bedsits and HMO’s
Self-contained units such as flats need their own EPC. Even if the building has its own obligatory EPC, then it is the individual flats, not the building’s certificate that needs to be issued to show that the minimum standard has been met.
This one could open a can of worms so I am going to keep it light and general so as not get roped into the whole S21 argument.
So IN GENERAL, non-self-contained units such as some bedsits or HMO’s do not need their own EPC, however, if the property has an obligatory EPC, like in the case it has been sold or bought since it became law to provide EPC’s with the sale AND this EPC is current then, yes you guessed it, the minimum standards do apply, until of course, the EPC runs out!
Exemptions to the rule
Ok, so there are some exemptions to the rule. Listed buildings, devaluation of the property, unable to gain consent, cost-effectiveness and even a six-month grace for new landlords, but if you feel that you may be mitigated because of one of the above you should seek further advice.
Be warned that non-compliance can carry hefty fines of up to £4000
The Government has declared its wish to raise these standards further, such that the minimum standard is likely to rise to a D rating and a C Rating in 2030.
To see if your property has a valid EPC certificate and to see its current rating, simply accept the terms and input the relevant postcode into the following link online EPC register