Currently, there is only one topic dominating the press.
As investors what concerns us is the effect on the market. The effect is actually good……..if you’re an investor.
There are a couple of issues to be mindful of. One is don’t expect to be in and out of the deal quickly. The point being, you can go into the deal, but you may not come out very soon. The truth is no one actually knows what the situation will be in the future. We are all speculating.
Although, this is actually not as bad as it sounds. A point of distinction needs to be clarified, what I am saying is the onward sale is unpredictable. However, this does not necessarily mean your money is trapped.
Let me illustrate this with an actual deal. We are in the process of closing a deal in Fulham. The site comes with the benefit of planning for a few apartments and a commercial space.
Due to the uncertainty in the market place, this deal cannot be considered on the basis the apartments will be sellable at the anticipated price once the development is complete; the environment is likely to change.
In order to address this problem, we have turned the plan for this deal around from a buy and sell deal, to a buy and hold deal; with one proviso, the money should not be trapped in the deal, it needs to be released.
We will take this deal and go back into planning. The new planning will be to turn this into a ten unit HMO. This is expected to enhance the rental yields to about 10%. We have had experience with this borough previously and have run this by our planner who has confirmed the viability of this plan.
As a hold and rent proposition this deal would ordinarily trap your funds in the property. Most BTL deals in London are restricted in terms of what you can borrow, not by the mortgage product of the loan but the rental cover. Mortgages have a stipulation of 145%, or some are more generous and use 125%. This means the rental must be higher than the mortgage amount. This is the ceiling when applying for a loan.
By turning it into an HMO your yields start touching double digits. Then, instead of your cash being trapped in the property, you’re able to release it. Your enhanced rental income allows you to refinance. You will be left with a cash cow, providing you with income for as long as you hold it.
Rentals are a lot more stable than capital values. With rentals you’re in a market which is driven by a need. The need for shelter.
This is actually an extremely good strategy. There are investors who only focus on these kinds of deals with good reason; you’re largely insulated from the turbulence of the economy. The current market forces one to think and act in a leaner and more creative manner.
Agony Agent Is Here To Help!
Q: Should I take out a boiler care agreement for my BTL property?
A: In the run up to Christmas we had four boiler failures with no heating or hot water. Two boilers had completely given up, and one underfloor heating system was just simply not playing ball. Usually at this time of year it is a real task to get a contractor out to fix such issues, as everyone seems to get them at the same time. If you have a boiler care agreement then you would normally have a visit within 48hrs, without one, you might end up having to wait four to five days!
If you have a new boiler then the chances are you will not need it, as you will have a warranty, and this will be covered as long as you service it regularly.
But if your boiler is an older model then I would highly recommend it.
Most boiler covers may include the following but please make sure you double check as they will differ from provider to provider: unlimited call outs, labour costs covered in the event of an issue, sometimes parts depending on value, 24hr assistance, same day call out if you have someone under 3 or over 65 years old; and on the odd occasion they might even supply alternative heating for a complete breakdown.
Before looking around for cover, perhaps contact your insurance company first, and ask if they offer this type of cover as some insurance companies do.
If you need any other BTL property guidance, please do get in touch.
Richard Bond
The Present is Your Present
Napoléon Bonaparte, the great French conquering emperor, was known for his ability to focus on one task at a time.
Think about it - the only thing that truly exists is the “ever-present present”. Each moment that we experience, at the timing of that moment, is the only thing that actually exists. The past that that moment has left behind no longer exists. And the future represented by the moment after the present moment also does not exist.
The only thing we all have is this ever-present moment.
My experience is that I am far more effective and more fulfilled when I am absorbed in the task at hand until that task is completed to its natural limit.
The same goes for relationships. When I am focussed on the person in front of me and not distracted then the experience is more fulfilling and the person I am with feels more valued and respected. Don’t you dislike it when the person you are with is constantly distracted with calls/Whatsapps/Facebook etc.?
So, this is a key practice for me. I can write down my list of action points for the day. But the only list I need to be aware of moment by moment is the task I am doing now. Nothing more! And no distractions.
The “ever-present present” moment is your greatest present. It is your gift to a more effective and fulfilled present.
You can then let the future take care of itself.
Abraham Goldberg
