Safe as houses

Wednesday 18th April 2018 11:58 EDT

I was recently referred to a contact who is looking to deploy a large sum to invest in the UK, he is based in India.  He needs a place to stay for a couple of years and in parallel wishes to invest. His requirement is two fold, an immediate place to reside and also a good investment to develop out.  It was only after the meeting when I Googled his name, I found out he is a big shaker in the movie industry, and surprisingly also a big player in the Mumbai real estate industry. The exodus of funds from India are still flowing strongly.

In fact he has been in the real estate business in India for over three decades.  It is unusual to have a strong foot in both industries. But actually, when you think about it, it is a very sensible move to make, as the movie industry is one of the most unpredictable industries to be in.  Real estate would be a way to neutralise the fluctuations. It is a good safety net for any business.

There have been many case studies of entrepreneurs drawing upon their real estate portfolios during times when their main business was not performing so well, and even on the brink of collapse.  Even self-invested pension funds allow investment into residential property, via some controls being in place. The point being, as far as business goes, property is probably the safest business to be in.  After all, the bank is still prepared to lend up to 75% of the value of a property investment, and though mortgage requirements have increased, there are still a few lenders out there who will pass the application with relatively little paper work, when it comes to Buy to Let cases.  

There is good reason why the term ‘safe as houses’ exists.

On the plain vanilla Buy to Let side, this statement is true; especially at the bottom end of the market.  As you go higher, the risks increase, as on a down turn these will be the properties which get hit the most.  This is something we have become painfully aware of on one of our deals.

Last week, I viewed a couple of freehold houses which were just stunning.  One of them has an outside area and even a separate dwelling for staff. It even has planning potential.  The property consists of over 6300 sq. ft., and the asking price is £8m, which equates to only £1,200 a sq. ft.  This is only the asking price, I was told they would take an offer and the vendors need to sell.

Unfortunately, the seller fits into one of the three D’s, in this case Divorce.  They are in the midst of divorce proceedings and need to sell the family silver and the matrimonial house to be able to move on with their lives.  This is what a buyer seeks - a motivated seller. To put this deal in perspective, council flats in nearby locations are selling for circa £1,000 per sq. ft.  Here you have a property which is like a rare diamond. There are only two like this in the street, and it is difficult to purchase freeholds in this location.  This end of the market has been hit hard. Previously, this type of property would have reached as high as £2,000 per sq. ft, achieving a price of £12.6m.

This kind of deal suits an investor with deep pockets, someone who can ride through the sluggish market over the next two to three years.  If they can hang on, this property refurbished with some light development should be well able to achieve this kind of figure, giving a very handsome return to the right type of investor.

Please get in touch if this type of deal interests you.


Agony Agent is here to help!

Q:  I have just purchased a BTL property.  What are my maintenance responsibilities? And do my tenants have any responsibilities?

A:  This is a question that comes up every now and then, even with the most experienced of landlords.

Basically, you offer and maintain the property to basic requirements, such as weather proofing, heat, water, electricity, sanitary, and a structurally safe home.

Local councils typically set specific standards, such as the minimum requirements for light, ventilation, and electrical wiring.

As of October 2016, all properties require smoke alarms and CO alarms where solid fuel may be used; furthermore in April this year, you also need to make sure that the your property meets the minimum energy efficiency rating E.  As always, there are severe penalties for non-compliance. These are just a couple of examples of the legal requirements of a landlord.

On the other hand, tenants have a responsibility to keep their own property clean and sanitary.  If they do not, the tenants can't come to you and request repairs that are due to their negligence, for example, infestations of pests such as ants and rats.  In that case you as the landlord could have the work done and send the bill to the tenants (not all the time, but in some scenarios).

You may at some point, depending on who your tenant is, be able to request the repair to be arranged or carried out by the tenant, in exchange for a reduction in rent (if the tenant agrees).  If the tenant fails to do the job well, you as the landlord are not excused from your responsibility to keep the property in a habitable condition.

If you try and avoid your responsibility to make required repairs, a tenant usually has several options, depending on the problem.  These options include but are not limited to:

  • making the necessary repairs and deducting the costs from the next month's rent
  • withholding the entire rent until the problem is fixed
  • paying less rent while the property remains substandard
  • calling the local Council, who can usually order you to make repairs
  • moving out without paying for future rent, even in the middle of an agreement

You may also find yourself being sued by the tenant for a partial refund of past rent, and in some circumstances, can sue for the discomfort, annoyance, and emotional distress caused by the poor conditions.

Your best bet is to handle repairs as soon as possible.  Take care of major problems, such as plumbing or heating problems, within 24 hours.  For minor problems, respond in 48 hours. Always keep tenants informed as to when and how the repairs will be made, and the reasons for any delays.

The chances are, you thought your property investment would look after itself, but it actually involves hard work if you manage it all yourself.  At Sow & Reap we can handle all this for you, leaving you with more time and less hassle. Get in touch to discuss your needs.

Richard Bond

Lettings Manager

Sow & Reap

comments powered by Disqus

to the free, weekly Asian Voice email newsletter