The Perfect Business Opportunity for the Property Investor

by Sally Lawson | Mar 17, 2016 | Property Investors | 0 comments

If you are a property investor, you are probably experiencing a few things:

• Difficulty finding great property deals that stack up
• Never having enough free cash to buy the deals you want
• A property management headache building with all the properties you have bought that need managing

This is where running a letting agency could solve all of these issues AND be a great asset in its own right (Leverage FREE too) plus it’s a load more tax efficient.

A Letting agency builds healthy continuous on going management monthly income from the property management margins and for an established business in the Midlands this would be around 30k per month, every month (before you open the doors).

This is why letting agencies are reaching the highest levels we have ever seen in the industry at the moment, and why the big boys are buying agencies as fast as they can to build their residual income.

You also get to utilise other people’s time and property to build yourself a valuable asset, the true definition of a business.

We are all aware of the new breed of Gazelle type business that are experiencing never seen before growth right in front of our eyes right NOW, and these are not ASSET based companies, they are “SERVICE based” which means they have no limits, they can service everyone and just keep growing and growing, and they are.

Think of the following examples:

• Alibaba, the largest worldwide warehouse but owns no stock,
• Facebook, the largest content machine that creates no content
• Uber the largest taxi firm that owns no cabs…
• Rightmove owns no estate agency but valued at £95million

Slightly different but along the same lines, it’s like the gold mine rush in California in of 1855, where everyone rushed to pan for gold, because they wanted to make it rich, but quietly behind the scenes, it was the it was the suppliers of the buckets and spades that made all the money.

The problem is that relying on asset building alone as a business model is too restrictive because you either run out of leads of great properties to buy, you get short of cash to secure the ones you want, or in the end give up through lack of motivation.

Monetising other people’s assets

The difference with building a “serviced based” business is that you are monetising other people’s assets, which means there are no restrictions, you can keep growing indefinitely, no barriers, no Mortgage restrictions, the sky is the limit.

It’s no surprise that at the moment well run and systemised letting agencies are achieving 2x turnover when sold, which means if you build your business in 5 years, to a £750k turnover then your business would be worth up to. £1.5million if sold.

The real bonus is that unlike property, it would be cash, free of any debts or leverage in most cases, as well as much more favourable than property is, with entitlement for entrepreneurs relief for taxation purposes too (as opposed to capital gains tax).

Another real bonus for a property investor of running a letting agency is that you will get a never ending source of leads driven into your hands of people wanting to sell their properties, the continuous residual income to fund them and a property letting and management solution right under your nose for everything that you buy too.

The Truth is…

Which is why when I was asked last week on an interview, “What properties are you investing in right now?” and the truth is I’m not.

Now I confess I have been a very active property investor, I was buying 4 per month at one point for clients and myself, and at 27 years old, I owned over 2.7 million pounds worth of property assets and I personally had purchases for rental, refurb, holiday lets and re-sale on the go continuously throughout the 90’s and early 2000’s but not now, it doesn’t stack up for me.

You see I would prefer to buy property agency stock, I can buy 100 properties under management for around £100k and this will generate over 60k income every year, with no additional expenses, because I have the management team in place already… 60% return!

It’s a no brainer, but I accept this is not for everyone, but we handle enquiries regularly from people buying agencies that then need a “system” to put in place to handle them and of course we are happy to help, so it’s definitely catching on.

So to summarise, to build a gazelle type business, utilise other people assets, and other peoples time, which means the sky is the limit, this will release the cash you need and the opportunities to carry on investing in fixed assets with a letting and property management solution built in (if you still wish to invest in property that is)

http://www.propertyagentscircle.co.uk/the-perfect-business-opportunity-for-the-property-investor/

What does Brexit mean for UK property market? Experts warn of house price reverse as sales to plunge by up to 20%

Britain's property boom is expected to end following the Brexit vote, housing experts warned today.

Some predicted heavy falls in sales and valuations in the months ahead amid the uncertainty surrounding Britain's exit from the European Union. Richard Donnell, a director at property specialists Hometrack, said: 'The near term prospects for the UK housing market now look very uncertain.'

He explained: 'The immediate impact is likely to be a fall in housing turnover and a rapid deceleration in house price growth as buyers adopt a wait and see the short term impact on financial markets and the economy at large. 

'History shows that external shocks can reduce sales volumes by as much as 5 per cent to 10 per cent nationally, and 20 per cent in London with sales volumes in the capital already down over the last year.'

The drop in sales is expected to hit house prices, with Howard Archer, chief economist at IHS, predicting a fall in values of 5 per cent during the second half of 2016 and another 5 per cent drop next year. 

However, the Bank of England's Mark Carney spoke immediately after the Prime Minister's resignation this morning to reassure the financial markets, including those invested - or looking to invest - in the property market.

He said: 'We will not hesitate to take any additional measures required.'

These measures could include a cut in interest rates that could reduce homeowners' monthly mortgage payments - a measure repeatedly taken during the financial crisis of 2008.

James Roberts, chief economist at Knight Frank, said: 'In the light of the above risks we expect the Bank of England, seasoned by the experience of financial crisis, to respond quickly. An interest rate cut of 25 basis points is a strong possibility at the Monetary Policy Committee's July meeting, or perhaps earlier if required.'

He added: 'We may also see a return of quantitative easing, if there are signs that investment is deteriorating. This should in our opinion help restore confidence as the summer progresses. 

'The underlying strengths of the UK economy remain in place, and ultimately real estate is an investment that works best for those who pursue long-term goals.'

Ultimately, it will be down to how confident buyers feel in the months ahead.

'No market likes uncertainty, the housing market least of all

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: 'When there is uncertainty it affects confidence and people put off making decisions.

'Those who were thinking about buying property may now decide to leave that decision to say next year, in the hope that property prices will fall in the meantime.' 

Buying agent Henry Pryor said: 'No market likes uncertainty, the housing market least of all. We now have uncertainty with a capital U and buyers - the party that decides what a property is worth - will now be sitting on their hands wondering at what level they should commit. 

Experts said a strategy to manage Britain's exit from the UK was required to help iron out the certainty and allow buyers to plan head.

Hometrack's Mr Donnell suggested that the decision to leave the EU will impact the London housing market the most.

He said: 'The decision to leave the EU will be most keenly felt in the London housing market, which is fully valued and already facing headwinds.

'Across London, where house price growth is running at 13 per cent, we expect the rate of growth to slow rapidly on greater uncertainty and market activity in the capital is set to remain disrupted until consumers and the financial markets can see a clear strategy to manage the process to a position where the outlook for the economy, jobs and mortgage rates becomes clearer.'

Stuart Law, chief executive of Assetz Property, said: 'Today's result to leave the EU has only increased the cloud of uncertainty cast over the British property market, but it is not the time to just sit back and watch the events unfold.

'We still expect prime London prices to continue falling and many of the tens of thousands of luxury homes in the pipeline to be mothballed as demand from all over the world fails to meet that potential level of supply.

'The rest of London will definitely be hit by a perfect storm of several factors hitting house prices which is great news for house-buyers but not for investors and homeowners.'

Experts urged buyers to focus on long-term property goals, with Jeremy Leaf, a north London estate agent, saying: 'In the medium to longer term, the underlying strength of our economy will drive activity and investment.

'The UK and particularly London property markets are long-established and sophisticated so have always attracted investment and should return to some form of normality, whatever that means now, after an initial period of indecision. It's now up to the politicians to keep the changeover and time for reflection as short as possible although we may anticipate waiting up to two years before more major economic decisions are taken.' 

Hamish Pound, senior investment manager at IP Global, said: 'Despite short-term turbulence, the longer term trajectory for the UK property market is onward and upward, driven by the UK's resilient and globally-focused economy, transparent legal system, cultural, educational, lifestyle offerings, and rich history of adaptation and evolution.' 

http://www.dailymail.co.uk/property/article-3658068/What-does-Brexit-mean-UK-property-market.html

Landlords urged to remain calm after Brexit vote

There is no need for landlords to panic following Britain’s decision to exit the European Union, according to the National Landlords Association (NLA).

Landlords have already been hit in the pocket by various tax measures announced by the Chancellor George Osborne, including higher stamp duty rates, while mortgage tax relief will be cut from next year. Tougher buy-to-let mortgage lending criteria has also been announced. But the NLA does not necessarily believe that a Brexit should add to landlords’ woes.

The NLA does not necessarily believe that an exit from the EU will have an adverse in impact on the private rented sector, especially now that the Bank of England and the Treasury have confirmed that they have extensive contingency plans in place to ensure the country’s financial stability.

Richard Lambert, chief executive officer at the National Landlords Association (NLA), said: “Let’s just everyone, take a long, deep, calm breath.  Leaving the EU is completely unknown territory, and jumping to conclusions isn’t going to help anyone.

“We welcome the Mark Carney’s steadying words and his reassurance that the Bank of England and the Treasury have extensive contingency plans in place.

“Any knee-jerk reaction will have a real impact on our members’ mortgages, tenants’ rents and overall confidence in the market.  So we would urge the policy as regards to interest rates should be, to continue the Prime Minister’s analogy, one of steady as she goes.”  

https://www.landlordtoday.co.uk/breaking-news/2016/6/landlords-urged-to-remain-calm-following-brexit-vote

UK commercial property market could see short term weakening due to Brexit

The UK commercial property market is likely to see a weakening in demand due to the decision of the British people to leave the European Union.

Foreign investors in particular are likely to cool while the terms for the country to leave are thrashed out as uncertainty about direction and timing affect decision making, according to experts.

Even if it is effectively ‘business as usual’ for the UK in terms of trade and legislation until 2018 when the actual exit is likely to take place, such a major change will inevitably create uncertainty in the economy and real estate markets, according to Chris Ireland, chief executive officer of JLL UK.

He explained that in the event of a well-managed exit these impacts will be largely confined to the UK. ‘In the short term we may see a weakening in occupier demand. The impact on rents may be limited by tight supply, but activity will be adversely hit while initial uncertainty about direction and timing continues,’ said Ireland.

‘Investor sentiment may also remain subdued in the short to medium term. For property markets, the initial correction may be most severe but should be followed by an upturn as opportunities re-emerge in UK core markets and benefits of weak sterling are recognised. Sentiment and relative pricing will be key,’ he pointed out.

‘Much will depend on the speed of negotiation, the wider political picture and whether a clear direction of travel and timetable for an EU exit is established early on,’ he added.

According to an analysis by JLL occupier demand will weaken in line with economic growth and declining business sentiment. The impact on rents may be limited by tight supply, but activity will be adversely hit.

It also suggests that investor sentiment will deteriorate further, subduing capital flows in the short to medium term and there is likely to be a negative capital value adjustment over the next two years, estimated at a fall of up to 10% with yields moving around 50bp.

It points out that London sectors remain most vulnerable to correction given current keen pricing and their multinational occupier base but much will depend on the speed of negotiation, the wider political picture and whether a clear and favourable direction is established early on.

According to Mark Clacy-Jones of international real estate firm Knight Frank the decision will cause volatility across all investment markets, and real estate will be no exception and he predicts that uncertainty over future economic conditions in the UK will cause some deals on hold to be shelved, and occupiers will reconsider the amount of space they need outside of the single market.

‘A fall in the value of sterling, combined with falling property values will be a buy sign for opportunistic overseas investors once the initial correction has occurred. This will cause a widening yield gap as real estate yields rise and bond rates fall from further Bank of England monetary loosening and will make property a favoured asset class in an unpopular investment destination,’ he said.

In particular, the vote to leave the EU creates both threats and opportunities for the central London office market, according to his colleague at Knight Frank Patrick Scanlon. ‘Economic uncertainty is rarely a positive for any market, and in the short term we should expect some occupiers to delay committing to new office moves as they take stock of what the new landscape means for their businesses,’ he explained.

‘London represents the largest market for euro-denominated trading, and major banks with euro trading desks in London may find that they need to relocate some of these functions to office markets within the EU. While this does not necessarily mean a wholesale relocation, we should expect some vacant space from banks to come to the market once this restructuring has taken place,’ he said.

‘However, it should be noted that many businesses with a large London presence are focused on markets outside the EU, and the UK’s exit from the Union will have a limited impact on them,’ he pointed out, adding that global operators such as Deutsche Bank, Thomson Reuters, Ashurst, Google and Facebook have made significant long term commitments to London.

However, he believes that there is likely to be some release of office space as businesses tighten their belts to weather the period during which trade treaties are being negotiated. ‘Currently availability levels are particularly low and the development pipeline remains fairly limited. The market has capacity to absorb a rise in supply before there is a possibility of a fall in prime headline rents,’ said Scanlon.

‘The impact on the investment market is likely to be less obvious. While the economic uncertainty during our exit negotiations will undoubtedly deter some domestic investors, the relative discount available to purchasers in foreign currencies will attract significant interest. In the medium-term however, Central London commercial property will continue to offer a higher yield than most other asset classes, and may even benefit from the instability in the equity markets,’ he added.

Craig Hughes, UK real estate leader at PwC, pointed out that real estate is a capital intensive business and real estate investors do not react well to uncertainty and in recent months that has had an impact on the real estate market.

He believes that there are immediate consequences resulting from exiting the EU, but also longer term uncertainties arising from political uncertainty, the timing of the submission of Article 50 and the reaction of European officials and citizens.

The decision may create short term volatility but over the long term the UK is set to remain attractive to real estate investors, according to Manish Chande, a senior partner at Clearbell. ‘We saw during the referendum campaign that this created buying opportunities at significant discounts for savvy investors. As the uncertainty gradually lifts and investors are reminded of the strong fundamental factors that make UK real estate attractive, we’d expect real estate activity to pick up,’ he said.

It is difficult to forecast the effects that Brexit will have on the commercial property markets, according to Philip Woolner, director of Cheffins Commercial. ‘Ultimately, the UK is such an attractive market for overseas investment that any knock-on effect is likely to be short lived,’ he said.

‘There is a possibility of a period of stalling across investment sectors, with occupiers choosing to stay put, however, the fundamental prospects of business will still be strong,’ he added.

http://www.propertywire.com/news/europe/brexit-commercial-property-markets-2016062412070.html

Coming soon interviews with the top experts in the Property World

We are super excited with what we have planned for you. We have interviews with the  top experts in the Property World.

We will ask them in depth questions about their journey. How it all started? What were the challenges? What were the setbacks? How were they overcome?

We asked the questions that you wanted to ask. The interviews are fun yet informative.

Brexit vote creating lethargy in prime central London property market

There are signs of lethargy in the prime property market in central London ahead of the vote on the future of the UK in the European Union, according to a new research report.

But beyond the distraction of the EU referendum there are signs that demand is strengthening, according to the research from international real estate firm Knight Frank.

Overall annual growth in the prime central London property market slowed to 0.1% in May, the lowest since October 2009 and the Brexit effect means demand is subdued even where asking prices have fallen 10% or more.

On top of this the number of active buyers to available properties has halved over the last year and Tom Bill, head of London residential research at Knight Frank, described it as a price sensitive market.

‘Demand remains relatively subdued but in a change from recent months, the primary cause in May was the Brexit vote rather than new rates of stamp duty. Indeed, there are overlapping layers of uncertainty affecting supply and demand that are difficult to differentiate but which produce a cumulative impact,’ Bill explained.

‘There has been a discernible Brexit effect on the UK economy as decisions are delayed and the London property market is no exception. Buyers and sellers are postponing decisions because of the prospect of entering unchartered economic and political territory,’ he said.

‘The market has become price-sensitive due to higher levels of stamp duty, but an indication of the Brexit effect is that demand in May has remained subdued even for properties where asking prices have fallen by 10% or more,’ he pointed out.

He also pointed out that demand was already more restrained as a result of the impact of two stamp duty increases in the space of 18 months and the ratio of active buyers per available property in prime central London has fallen to 4.8 from 10 over the last year.

However, despite the looming referendum, there are signs underlying demand is strengthening, according to Bill as buyers drop asking prices to reflect higher transaction costs.

The number of transactions between January and the middle of May was flat this year compared to 2015. Meanwhile, viewings increased 31% between January and April versus last year, suggesting a degree of pent-up demand.

Overall, prices have grown 2.4% over the last two years and it has been three and a half years since annual growth was last above 10% in October 2012.

A breakdown of the figures show that in the 12 months to May 2016 prices have increased 7.4% in Islington, by 6.3% in the City, by 1.9% in Mayfair, by 1,7% in Kensington, by 1.3% in Tower Bridge and by 0.3% in Riverside.

Prices remained unchanged in St John’s Wood and Marylebone but fell by 7.5% in Knightsbridge, by 4.8% in Hyde Park, by 4.6% in South Kensington, by 3.5% in Chelsea, by 1.7% in Kensington, by 1.5% in Notting Hill, and by 0.2% in Belgravia.

The report also points out that housing was the key political battleground ahead of May’s London Mayoral election, with both candidates pledging to build more homes to address affordability concerns.

Sadiq Khan, the winning candidate, said he wants to double the amount of houses built to 50,000 a year by 2020. He also plans to increase the number of affordable homes and has talked about tighter restrictions on overseas buyers and controlling rents.

Full details have not emerged but the high level of political scrutiny on housing means the new Mayor is likely to adopt an approach that is economically viable for developers in order to ensure his target is met, according to Professor Tony Travers, a local government expert at the London School of Economics.

‘All the evidence so far is that pragmatism is triumphing over ideology. The last thing he will want to do is emit signals that undermine the capacity to deliver at least as many homes as last year. What is essential is that the number of new homes built doesn’t fall,’ he said.

‘What was unusual about the 2016 Mayoral election was that enough numbers were traded by the candidates to create a measurable benchmark, which his opponents in 2020 will point to if he falls short. With that in mind he needs to keep developers broadly onside,’ he added.

He explained that the relatively slow pace of announcements regarding policies and appointments since Khan won the election, was also a sign of a pragmatic approach. ‘If this is an indication of what is to come, the lack of rash promises suggests the cautious approach of a professional politician,’ he said.

However, the backdrop of the EU referendum has dominated Khan’s early days in office. ‘If the UK voted to leave and London voted to stay in, the Mayor would be well within his rights to argue for greater autonomy from the rest of the UK to ensure the city’s economy is protected,’ added Travers.

http://www.propertywire.com/news/europe/central-london-prime-property-2016060211988.html

What impact will Britain’s vote to leave the EU have on the PRS?

Today marks a very important day in Britain’s history. The public vote in favour of Brexit is a shock to many people and has already resulted in a sharp decline in global markets and the value of the UK pound, while the David Cameron has announced that he is to step down as Prime Minister later this year. But what impact will the outcome of the referendum have on the private rented sector?

The economy

Early indications are that the fall in the pound’s value, as well as the stock market, could very well lead to a technical recession, higher unemployment, which in turn may result in a cut in interest rates and possibly even further quantitative easing.

Borrowing rates

A reduction in interest rates could actually lead to cheaper borrowing levels – although this remains to be seen as there are other factors at play.

Transactions

Most experts we have spoken with this morning estimate that there will be an immediate slowdown in housing market transactions, in the order of around 15%, resulting in downward pressure on property prices in the short-term.  

International investors

The dramatic drop in the value of the UK pound will alert many shrewd international property investors, with many buyers from Asia, as well as from the US, looking to take advantage of a more favourable exchange rate and snap up bricks and mortar in the UK.

Property prices

House prices could fall across many parts of the country in the near term as prolonged uncertainty and a potentially weaker economy has an adverse impact on the market. But the general housing shortage means that prices should rise in the medium to long term.

New housing supply

Based on recent comments from leading housebuilders, many residential developers will be less willing to commit to new property projects due to the uncertain economic climate. This will make it much harder for the government to achieve its target of building 1m new homes by 2020. This will add to the supply-demand imbalance, placing upward pressure on house prices and rental values in the longer term.

Rental demand

Both buyers and sellers are clearly anxious, as reflected by a noteworthy drop in sales market activity in recent weeks, and with uncertainty set to continue for the foreseeable future, as would-be buyers adopt a ‘wait and see’ policy, demand for rented accommodation is set to rise.

Rental prices

The cost of renting will rise across many parts of the UK as demand from tenants increases and new housing supply falls. The biggest affect could be in London, where rent prices have been pushed sky-high due to huge demand.

Conclusion

The rental market will carry on functioning healthily despite the UK’s decision to exit the EU. 

https://www.landlordtoday.co.uk/breaking-news/2016/6/what-impact-will-britains-vote-to-leave-the-eu-have-on-the-prs

Rental market to remain unaffected if Britain votes for Brexit

The EU referendum still remains too close to call, but whatever the outcome of today’s vote, letting agents do not believe that it will have much of an impact on the rental market.

A new report from the Association of Residential Letting Agents (ARLA) suggests that supply, demand, or rental costs will not be significantly affected if the UK votes to exit the 28-member state today.

Two thirds (65%) of ARLA agents expect supply to remain stable if the UK votes to leave the EU, compared to just a fifth (22%) who forecast that it will fall as international landlords pull out of the market.

A third (31%) see demand decreasing, as relocating to the UK becomes a less attractive prospect, but over half (55%) think it will remain as high as it currently is.

In London, almost half (43%) of agents expect the number of prospective tenants per property to fall in the event of a ‘Brexit’, as international demand weakens.

While one in five agents (19%) of agents expect a Brexit result will cause upward pressure on rent costs, the majority do not think it will have a major impact on tenants’ rents.

David Cox, managing director of ARLA, commented: “There is no avoiding the EU Referendum at the moment; and whatever the outcome, we are likely to feel the impact of the fallout of this debate in different ways. However, it’s important to put this into perspective and not get carried away in a zeitgeist. As outlined in our recent Brexit Report, the letting market hosts a large number of non-UK born citizens and any change in migration policy is likely to have an impact down the line, especially in London. However, our monthly report clearly shows the sentiment amongst members is that the immediacy of this effect is likely to be minimal.”

Meanwhile, ARLA report that a third (37%) of agents have seen a decline in the supply of buy-to-let properties since the stamp duty changes came into effect in April, with almost half of agents (48%) expecting supply to fall further in the coming months as more landlords walk away from the market as a result of the mortgage interest relief changes coming into force next year.

Cox added: “The EU referendum debate in many ways has stalled policy making and following the vote we need to move from political debate to action. We need supply to increase dramatically and quickly to really deal with the housing crisis as this is one of the most pressing problems facing UK society today.”

https://www.landlordtoday.co.uk/breaking-news/2016/6/rental-market-to-remain-unaffected-if-britain-votes-to-leave-the-eu

How Long Should A Tenancy Agreement Be? Anything But Long!

I know I’ve mentioned the shit-storm that is long-term tenancies in the midst of various other posts, but I can’t remember if I’ve previously thrown the issue onto its own platform. I have a nagging feeling I may have. Urgh, my declining memory continues to haunt me like a cluster of fiery genital ulcers.

A simple search through the blog archives would quickly provide an answer, but the fact I can’t remember off the top of my puny little head tells me that if I have done, it was probably many moons ago, and therefore most likely a decaying pile of turd, so it’s probably best if I don’t torture myself by crossing paths with it. Ever again.

I’ve discovered that reading through old blog posts is like looking through old photos, it’s utterly self-loathing and a remarkable method of self-torture. And let me assure you, I truly looked like an unbearable greasy little tit during my youth. My stomach turns violently when I look through my photo albums. Of course, at the time, I thought I looked like a formidable force to be reckoned with. Ladies watch out. In reality, the only thing they needed to watch out for was the oozing, gooey hair-gel dripping from my glossy hair; it was a health hazard. It looked like 20 guys spunked over me. What was I thinking?

Point being, even if that illusive blog post does exist in the darkest depths of this cesspit, it probably needs burning to the ground and rebuilding. So if you’re a long time subscriber, forgive me if the following post sounds a little too familiar in parts.

Page contents:

• The Tenancy Agreement fixed-term length
• What defines a “long term” tenancy agreement?
• Tenants and long-term tenancies
• Landlords and long-term tenants
• How long should you offer a tenancy for?
• Letting agents & renewal costs

THE TENANCY AGREEMENT FIXED-TERM LENGTH

My interest in this particular subject, ‘the length of a tenancy agreement’, was recently reignited after I caught a glimpse of a scuffle on Twitter, between someone that goes by the alias ‘Rent Rebel’ and some other veteran Landlord I’ve been following for some time now.

‘Rent Rebel’ was showing a particular passion for long-term tenancies and grilling the landlord for allegedly not offering them to her tenants (I have no idea how the drama started). From what I gathered, he felt landlords only give a shit about themselves, because not enough of us offer the security of long-term contracts to our tenants.

Of course, any chimp with a brain the size of a toenail will know that’s not really the reason why landlords don’t offer long-term tenancies. In his defence though, I think he’s some kind of ‘Tenants Right Activist’, so he’s only naturally going to be deluded and incapable of being objective.

Should long-term tenancies be mandatory? If you ask me, no, because that’s the dumbest shit I’ve ever heard.

What if I only want to rent my house out for a year? What about those tenants that only want to rent temporarily? Would those popular and required markets suddenly close and/or become extremely limited?

Let’s not forget, my mate Ed Miliband was proposing to introduce mandatory 3 year tenancies as part of Labour’s pledge in 2015… and they lost. Oh well.

Ok, anyways, onto the core question, and I’m sure it’s a question all new landlords will ask themselves at some point, how long should the fixed-term of a tenancy agreement be? What’s the most sensible length? I’m going to give my thoughts, but I’m going to answer the question by explaining why long-term tenancies are generally a pile of shit and why they should be avoided like a steaming barrel of rat piss.

WHAT DEFINES A “LONG TERM” TENANCY AGREEMENT?

Obviously “long term” can be conceived as an objective metric. I’ve had relationships last for 6 months, each of which I’d classify as a life-sentence, while others would consider relationships with the same duration meaningless flings. So there’s a discrepancy.

In terms of a tenancy agreement’s fixed term, I personally classify 2 years long-term. But perhaps 3+ years is where the general consensus is among landlords and the common folk. Agreed? Cool. So now we have an agreeable measurement.

SOME TENANTS WANT THE SECURITY OF LONG-TERM TENANCIES

I get it. I so get it.

I’m sure many do want the security. No tenant wants to spend resources on making a house into a ‘home’ and then continually have that uncertain feeling of repossession hanging over them. That sounds like a terrible situation.

However, I have a feeling that a large portion of those fighting for mandatory long-term tenancies like the idea of it more than the actual reality of it. I’m not convinced they would sign on the dotted line even if they had the choice. So let’s delve into the “reality of it”…

How many tenants would actually sign a 3 year tenancy before living in the premises for at least a few months? That’s the real question. Bear in mind, a lot of tenants are probably in favour of the argument based on the fact they want the security of remaining in the property they are “currently” joyfully settled and living in. That’s obviously an obscured and puzzled look into the situation, because tenancies, whether they’re short or long, mostly begin before having the opportunity to birth the feeling of comfort. Quite the gamble for the tenant. I’m not sure that everyone supporting the idea of long-term tenancies thinks about that.What do you chumps think?

Ok, I’m sure there are still a bunch of hippy-dippy tenants out there that are die-hard supporters of long-term tenancies. They want the security. They need it. They crave it.

I wonder though, how many of those tenants would commit to paying 3 years rent upfront (assuming they had the finances) for a property they haven’t lived in, while also being uncertain of how reasonable their landlord is? I don’t think many would, but those same people want that same level of commitment from the landlord; they want us to trust them in our investments for 3 years when we generally don’t really know shit about them.

They want us to invest in them, but they won’t invest in us. Mind-boggling, right?

SOME LANDLORDS WANT THE SECURITY OF LONG-TERM TENANTS

I also understand why many landlords, mostly novice ones that live in cloud Cockoo land, which have yet to be burned by a rat-weasel tenant, would favour long-term tenancies.

In theory, it means benefiting from ‘guaranteed rent’ for the next 3 years, and the avoidance of having to endure the painstaking aggravation of having to find new tenants any time soon. Sounds incredible. And it certainly would be, if every tenant on this planet always adhered to the terms and conditions they agreed to in the tenancy agreement, and “guaranteed rent” wasn’t mythical bullshit.

While the argument for long-term tenancies can seem extremely desirable on the surface, I’d say the opposing arguments to offer short-term tenancies are a hell of a lot more attractive for both landlords and tenants…

WHY LONG-TERM TENANCIES ARE JUNK

I genuinely believe avoiding long-term tenancies is in the best interest of all parties involved, but I’m going to tackle the issue from a landlord’s perspective, obviously ’cause that’s what I is:

• It’s difficult to evict/remove tenants during the fixed term
  One of the most effective and ‘cleanest’ methods of evicting a ‘rogue tenant’ is by serving a Section 21 notice (repossession notice), even though technically a Section 8 notice (eviction notice) is designed to rid of tenants that have breached the terms and conditions of the tenancy e.g. failing to pay rent.
  When using a Section 21 notice, you’re essentially telling your tenant you won’t be renewing the tenancy after the fixed-term has expired, so they’ll have to vacate on the termination date specified (assuming the notice is served correctly). A landlord doesn’t need a reason to repossess their property in this case, and no one can dispute the landlord’s right to do so. Like I said, clean as a whistle.
  I won’t get into more detail about what the differences between the two notices, but for those of you that don’t know, you may want to read the post on Section 8 Vs Section 21 before continuing.
  So let’s translate the difficulties of removing a doughnut tenant during a long-term tenancy using a real practical scenario. If my tenant falls into arrears 3 months after starting a 3 year long-term fixed tenancy, my only sensible option is to serve a Section 8, as opposed to a Section 21 (because the end-date is nothing but a mere dot in the distance future).
  The problem with a Section 8 notice is that the grounds for possession can be disputed by the tenant, unlike with a Section 21. If after serving the Section 8 notice the tenant refuses to vacate, and then proceeds to fight the grounds for eviction (simply because they want to be difficult, which they can), then there’s a good chance you’ll have a legal battle on your hands, and you may require a court order. That’s when landlords get screwed, because this process can take several painful months, especially if your tenant drags their heels (which they usually do so they can remain in the property for as long as possible, and often without paying rent). Plus, it’s not even guaranteed you will win your case by the end of it, particularly because Judges often sympathise with the tenants, despite their wrong-doing(s). It’s a real sucky state of affairs.
  So what’s my point? By offering a long-term tenancy you waive your right to rely on a Section 21 for the vast majority of the tenancy (unless there is a break clause riddled in the tenancy agreement), and that’s a very stupid and dangerous position to throw yourself in, my brother.
  In conclusion, a section 21 is a very useful tool against dipshit tenants, and by keeping your tenancies short you’ll always be relatively close to the period where you can serve a Section 21 (instead of a Section 8), so the damage can be limited.
• Landlord’s circumstances might change
  I don’t know where I’ll be tomorrow.
  I don’t know whose bored wife I’ll be screwing next week.
  I don’t know if I’ll have a roof over my head next week. Incidentally, it’s not that uncommon (and I don’t know why) for landlords to require possession of their BTL because their personal living arrangements have changed, and now they need their BTL for their own residency.
  My point is, long term tenancies make landlords a lot less flexible/liquid.
• Tenant’s circumstances might change
  I’ve lost count of how many tenants have notified me of unforeseen changes to their financial situations. It’s not uncommon for perfectly adequate tenants’ to quickly become an unstable bubbling irritable boil, prime to splatter.
  Here are a few examples:
  • My tenants got divorced mid-tenancy, which meant one of them had to vacate. While both were still liable for paying the rent, it still made the situation risky and uncertain. My working professional tenants certainty weren’t as appealing as they once were.
  • One of my very first DSS tenants (this was years ago, when I actually accepted DSS tenants) suddenly had her benefits revoked.
    That was tragically unexpected, because I was told by my loyal and trusting letting agent (this was also when I used high-street letting agents to find tenants) that the beauty of DSS tenants is that rent is guaranteed because the Government pays on their behalf. If you can’t trust the Government, who can you trust, right?
    Needless to say, I fell for my agent’s spiel, and it was just one of several myths that was stuffed into their sales-pitch. They got me good. Shafted. Rent is NEVER guaranteed.
    I was regularly receiving my tenant’s rent directly into my account for several months, and then one day it stopped without warning. No reason was given, and there was nothing I could do about it. Most disappointing was the fact that the local council were beyond useless when I reached out to them.
    In any case, unsurprisingly, my tenant quickly fell into arrears and I had to start the process of eviction. In fact, she encouraged me to send her an eviction notice so she could move up the council house priority list. Don’t get me started!
  • One of my tenant’s lost their job, and she claimed it was due to unfair dismissal. Something about discrimination in the workplace. I don’t remember the precise facts. All I remember is that I didn’t really give a shit.
    So after her dismissal, what did she do? She spent the last of her savings on a Solicitor so she could take her employer to court. She was adamant she had a good case and was due a big payout (because that’s what she was told by her Solicitor), therefore rent wouldn’t be a problem! *slaps forehead*
    You can probably guess how that ended. She soon lost the case, and her husband wasn’t earning enough to cover the rent and bills. They quickly fell into arrears with everyone. I literally mean everyone. They had several debt collectors chasing them for years after they vacated my property. God, they were such a pair of plonkers. The memories and utter stupidity is coming flooding back.
    If she was discriminated against for being a cock-eyed donkey, I’d say they had a point, and the final outcome was always going to go one way.
    But obviously the joke was on me, because they left me £850 out of pocket and with a bathroom saturated in mould.
    Merry Christmas.
  So, even if you have found the perfect tenants, one’s you even feel excited and comfortable with offering a long-term tenancy to, bear in mind they’re not immune to morphing into tenants that aren’t worth pissing on, even through no fault of their own. Circumstances frequently change for everyone.
  Sadly, tenancy agreements aren’t like insurance policies, they don’t suddenly become void if circumstances changes. Although, they really, really, really should be.
• It’s more difficult to make amendments to the tenancy e.g. increase rent.
  I’m not just talking about the prospect of increasing rent, that’s just the obvious one, and probably the easiest to translate into a real example. But let’s be real, it’s probably the one aspect most landlords give a shit about. I’m not saying I agree or disagree, but I know this is a business (despite popular belief).
  Anyways, essentially, long term tenancies may impede on your ability to increase rent when needed- and I’m not talking about increases out of greed, I mean necessity.
  The premise of a ‘fixed term’ tenancy is typically what it says, the tenancy T&C’s remain the same for the duration. That could mean you will need to keep the rent fixed for the entire 3 years. That’s incredibly short-sighted, because you have no idea if or when your costs will increase, whether it be due to inflation or a new unforeseen legislation, which will require landlords to pull an additional £500 out of their asses *Ahem* Selected Landlord Licensing Scheme.
  Landlording is like any other consumer based business, in the sense that if our running costs increase, we need to fairly pass on the costs to the end consumer. Otherwise we’ll be running at a loss. It’s bad business.
  But let me clarify, I’m not saying it’s impossible to make changes to a tenancy agreement during its fixed-term, but it’s certainly more difficult, and it may mean you’ll need to be extra careful with the clauses in the tenancy agreement, which enables lawful flexibility/amendments.
• Enforcing a long-term tenancy does NOT work in the landlords favour
  This is probably my biggest gripe with long-term tenancies, and the reason why they make no sense at all to me.
  Assuming you have a long-term tenancy with an eager prospective tenant. They’re hyped, you’re hyped, and you’re both confident it’s going to be beautiful.
  What happens if 10 months down the line your beloved tenant wants to ditch you like a bad case of Syphilis? He officially hates you. You didn’t fix the broken leaking tap in a reasonable time. You’re a piece of garbage as far as he’s concerned.Your tenant wants to end the tenancy agreement agreement.
  So what are you going to do? Force someone that hates you to stay in your property? Bear in mind, they’re bitter, they want to use your nutsacks/clit as golf balls. Would you trust someone like that in your property? Do you want to have a working relationship with your tenant under those circumstances? Oddly, I know many landlords do try and force the tenants in these situations, although I’ve never really understood why.
  Any reasonable landlord will just allow the tenant to surrender the tenancy despite how long is left of the fixed term, subsequently side-stepping the potential drawbacks of caging an animal. The only type of tenant worth a damn is a happy tenant. Every other type is a ticking time-bomb.
  Now this brings me to my point. A long-term tenancy does NOT work in the landlords favour, because if the tenant wants to break it, it’s safer just to break it. On the other hand, if the landlord wants to break it early, what tangible bargaining chip do we have? Absolutely none, so the tenant has no reason to surrender early on our request.
  If you’re a hopeless optimist, you could argue that the landlord could intentionally fail to meet their obligations to repair and maintain. But that’s not technically true, and it’s definitely not a bargaining chip, because the landlord can be prosecuted for failing to meet their legal obligations, which includes the responsibility to repair and maintain.
  So question has to be asked, what security do landlords actually gain by offering a long-term tenancy?

HOW LONG SHOULD YOU OFFER A TENANCY FOR?

Most landlords offer 12 month tenancies. That’s pretty standard. It’s also what most tenants expect.

6 months is also quite common, and I’ve an avid fan of the duration because I feel it’s the safest, particularly with tenants I don’t know or trust. Legally, you can offer a shorter tenancy, but it makes little sense, because you can’t repossess your property earlier than 6 months into a tenancy unless you have grounds for eviction or there’s a mutual agreement to terminate. So really, what’s the point? Plus, offering anything less just seems weird, unreasonable and quite frankly, psychotic.

I personally wouldn’t offer less than 6 months or more than 12 months. When offering a tenancy I make it clear to all my prospective tenants that I’m looking for long-term tenancies (assuming that’s actually the case, which it always is), and the initial 6 month fixed-term (which is what I usually offer) is in place to protect both our best interest (which is true).

If after the fixed term both parties are happy, I’m happy to either offer a new 6 or 12 month contract or allow the tenancy to become periodic (I prefer the periodic option, it’s the most flexible). Whichever the tenant prefers, but once again, I emphasise it’s still a long-term commitment as far as I’m concerned.

From my experience, most tenants are more than happy with those conditions, and it’s never hindered my progress of quickly finding or retaining good tenants.

The reality is, most landlords want good long-term tenants. However, I don’t think it’s safe or sensible to legally bind the long-term aspect of it into a tenancy agreement.

LETTING AGENTS & RENEWAL COSTS

Fair warning notice.

If you use a lousy, money-grabbing, greaseball high-street letting agent to sniff out tenants, you’ll be subject to tenancy renewal fees, which means you’ll have to pay a fee each time a new tenancy is signed by the same tenants. You may want to bear that in mind if you renew the tenancy every 6 months, because you’ll be charged a couple of hundred quid a pop. Yes, daylight robbery considering you’ll be paying them to fetch a couple of signatures.

If you’re unsure if you’re subject to the fee check the T&C’s of your contract or ask your letting agent. The good high-street agents won’t enforce such ludicrous fees, or at the very least, will have reasonable rates.

If your agent is hard-selling a 6 month duration, it’s probably because they stand to profit from it, as opposed to it being in your best interest (even though it is). So buyer beware.

So, what are your thoughts? Are you in favour, against or indifferent about long-term tenancies? What do you offer?

Love & Peace xoxo

http://www.propertyinvestmentproject.co.uk/blog/how-long-should-i-offer-a-tenancy-agreement-to-my-tenant/