Should I Repair or Replace my Boiler?

Yes it’s that time of year again when everyone starts to put on their heating systems and complains about it getting too cold. As the heating systems have not been in use throughout the summer, now that they are being tested faults with the system are occurring some problems which could have been resolved earlier if tested rather than now when it’s unbearable to go a day without heating.

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I spoke to a landlord just this week who owns a property in the derby city centre, she was upset at the fact that she had to find cash for a new boiler as the engineer who she normally uses advised her that it would be more cost effective for her to replace the boiler which is approximately y 14 years old.

She emailed me after following the derby city blog in recent weeks, and asked for my advice as to when it’s the right time to reinvest into a new boiler and is it worth repairing the old one. With all my experience in Property Management in Derby I can honestly say it varies boiler to boiler but usually after 13 years its best to replace a boiler that has a significant fault.

The reason for this is old boilers will develop problems almost every year, on average if it’s costing you £150-£200 to repair every year or needs a one off £350+ repair once a major component goes or when 2 components go, is it really worth it?

On average it costs approx £1100-£1200 to change a boiler. A boiler at this price should be good for 10 years without developing any problems, so on average if a landlord puts away £100 a year towards the cost of a new boiler after 11 years you will have the money to change it without feeling the pinch.

Now in the long run comparing £100 a year towards saving for a new boiler vs. £150 every year on average repairs is a no brainer. Not only is it cost effective but it leaves you with the peace of mind that for 10 years you don’t have to worry about this problem. The £100 a year saving is better option even when comparing to taking out a insurance policy which will cost you around the same on yearly policies but once you need a call out the excess charges will hurt your pocket more so. Insurance companies are there to make a profit so it is common sense to know in the long run it costs you more.

After seeing the calculations we both agreed that if she spent £400 to repair her boiler and there was no guarantee that another part would go, it’s not worth the risk. As you could imagine spending £400 one year if the following year it developed another £200 fault you could have been half way through a new boiler. Some repairs are worth the risk others not so, it’s best to take the advice of your gas engineer, if in doubt get another quote as it is probably one of the biggest one off costs in a buy to let property it is good to be sure.

If you have any property related issues please feel free to message me and hopefully we could go through your costings.

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Highest % return properties in Derby

I’ve been asked the question on which properties make the best investments in derby a hundred of times, so after being asked again today I thought it was time to put this into my blog so my readers can know a trade secret which has been very successful for me in the Derby Property Market.

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When considering investing in a property there are two things you should consider:

  1. Return on investment
  2. Capital growth

Now with 2/3 bedroom terraced houses being the most popular form of property investments in derby and successfully bringing in a healthy yield of around 6% per annum. It is a base to which portfolio landlords build on, as smaller investment amounts help spread their risk on investors’ money and give them more flexibility.

The attraction to this form of terraced houses provides a good cover for a hidden gem of an investment. This is a conversion of a terraced house into 2 flats. Let me give you an example in regards to the derby property market, here the average 2 bedroom terraced house in de23 or de22 sells at £65000 giving you a rental return of £400pcm. At least 40 of these properties have changed hands over this past year, yet a 2 flat conversion has remained on the market for a full year at £75000, it is currently let at £250pcm for each self contained flat, this is well below market value, these flats combined should give a return at minimum £600pcm which is just under 10%.

These properties are a safe haven for investors, even if one flat is vacant it is enough to cover the mortgage repayments for both through the one that is tenanted, however borrowing on these types of properties can be difficult which maybe one of the reasons they are overlooked.

If you have come across one of these properties and want to discuss please email me, or even if you have seen another property you are interested in.

Leasehold vs Freehold – Buy to let landlords prospective

After meeting with a prospective landlord last night we started to discuss his feelings to purchase either a leasehold or freehold property. So leasehold-vs-freeholdi thought I’ll write today’s blog on what we discussed:

In general terms, there are three forms of legal ownership of property in the UK:

  • Freehold, where you own the land and have control over the building
  • Share of freehold, where you own a share of the freehold and can influence decisions of what happens to the building
  • Leasehold, where you own a lease that gives you permission to occupy the property for a certain period; a freeholder retains ownership of the land.

The majority of flats and maisonettes in the UK are sold on a leasehold basis. For houses, freehold has been the traditional type of tenure (although this is beginning to change, with registrations of new build leasehold detached houses more than doubling in 2015).

So when you’re looking for properties that would make a good buy-to-let investment, does it matter what kind of ownership you look at?

From the perspective of a landlord looking for a low-risk investment property to own and tenant for the long term, leasehold properties have different issues to freehold properties, which all landlords need to be aware of.

I have always been a fan of freehold over leasehold for a number of reasons.

  1. Leasehold means service charges and ground rents…

…which can significantly bite into your cash flow. How much? It depends on the contract with the freeholder. It might add up to less than £100 a year but you need to check it because sometimes it can be many hundreds or even thousands of pounds.

  1. Leasehold means that you will never own the property, only the lease.

Is this just a legal distinction? No – it effectively means you, the landlord, also have a landlord – with all the issues in the points to follow. Also, bear in mind the freehold can be sold to the highest bidder.

  1. Leasehold means being restricted in what you can do with the property

You cannot develop the property on your own initiative, therefore it is harder for you to add value and grow your investment that way.

  1. Leasehold means being beholden to a freeholder and their demands.

Your landlord can recover unpaid ground rent going back 6 years – they can even ask you for the full amount in one go. You will probably have to pay maintenance charges – which you might find excessive, given the quantity and quality of the work they carry out. Or when major building works are required, perhaps the price you’re paying includes an over-generous “management fee” for the freeholder.

Some freeholders are reasonable in their demands, but by no means all of them.

  1. Declining lease lengths can cause the property to decline in value.

The market value of your leasehold property depends on the length of the remaining lease.

It drops in value sharply when the lease length goes below 80 years (more detail in the next two points). Really, to preserve the value of your investment, you would want to avoid the lease going below the 90-year mark during your ownership.

  1. It can be expensive to extend a lease.

The cost levied by the freeholder to extend the lease depends on how many years are left to run, and could leave you looking at a significant outlay (take for example: the £13,000 fees being asked of homeowners in Cramlington, Northumberland). Also in most cases you would need to own the property for two years before you earn the right to extend the lease.

  1. Mortgage lenders generally prefer freehold to leasehold

If you are funding your investment with a buy-to-let mortgage you may find it difficult to get finance for a property with a shorter lease.

The exact threshold varies from lender to lender but in general, finance companies are reluctant to lend on a property with a lease shorter than 70 or 80 years

  1. Disputes can often arise between leaseholders and the freeholder.

Buying a leasehold property means entering a relationship. Just like any other relationship, it can be good or bad. Some freeholders are reasonable. Some reach aggressively for lawyers. And some seemingly cannot be contacted at all – see the next point…

  1. If the freeholder disappears, it can be a nightmare scenario to resolve.

“Absent freeholder” can be a real problem – just see the number of threads about this.

It means you’re legally bound to a relationship with an entity you don’t know and aren’t able to contact. Although in some ways this can mean a nice quiet life for a while, it can pose significant problems when it comes to buying and selling, particularly where mortgage lenders are concerned.

  1. Leasehold can mean depending on other leaseholders, too

Just as leasehold puts you in a relationship with a freeholder, buying a leasehold flat means you are potentially affected by the actions of other owners on the same building or plot. You have a commercial dependence with other leaseholders to pay their service charges. If they don’t, the whole plot or building could suffer.

  1. You depend on the freeholder for building maintenance

If the freeholder does not maintain the building to a high standard, the value of your property can be affected. As a leaseholder, you depend on the freeholder acting in your mutual best interests. As you can deduce from some of the points above, this is by no means guaranteed.

One more reason to consider freehold over leasehold…

With the sharp increase in leasehold new build houses that we’re seeing at the moment, freehold homes are becoming (relatively) scarcer. I believe that where there is scarcity, there is value – therefore freehold houses will command a premium in the future.

To my mind, landlords should now be looking to secure freehold houses. I believe that they will have better capital appreciation because they will be more desirable in the future.

So which type of ownership should you favour for buy-to-let?

As a landlord, it is vital to understand the differences between leasehold and freehold from a cash flow perspective, a future value perspective, and a “desirability” perspective.

If you want to discuss any leasehold or freehold opportunities and would like a second opinion, i would be happy to discuss !!!

298% Rise in Derby Properties since 2000

Derby house prices since the Millennium have risen by 298%, whilst average salaries in Derby have only grown by 51% over the same time frame. This has served to push home ownership further out of reach for many Derby people as they have to battle against raising considerable deposits and meet sterner lending criteria, as a result of new mortgage regulations introduced in 2014/5.  The private rental market in Derby has grown throughout the last twenty years with buy-to-let investors purchasing a high proportion of newly built residential properties that were built and designed for the owner occupier sales markets.  For example, in the city of Derby, roll the clock back 20 years and there were 94,807 properties in the City, whilst the most recent set of figures show there are 105,100 properties – a growth of 10,293 properties.

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However, anecdotal evidence suggests that quite a number of those 10,293 were bought by Derby buy-to-let landlords, as over the same 20-year time frame, the number of rental properties has grown from 32,524 to 40,043 in the city – a rise of 7519 properties.

Nevertheless, some say this historic growth of the Derby rental market might start to change with the new tax rules for landlords. Yet the numbers tell another story. Across the board, mortgage borrowing climbed to a 9 year zenith in March this year as the British property markets traditional Easter rush corresponded with landlords hurrying to beat George Osborne’s new stamp duty changes – buy-to-let landlords borrowed £7.1bn in March 2016 (the latest set of figures released) which was 163% up on the £2.7bn borrowed in the previous March.

 You see, from my point of view, I don’t think things will get worse in the buy-to-let market in Derby and these are the reasons why I believe that:

Firstly, what else are Derby landlords going to invest in if it isn’t property – the stock market? Since the Millennium, the stock market has risen by an unimpressive total of 5.54%, quite different to the 298% rise in Derby property prices?

Secondly, its true the 3% stamp duty is the first blow on top of a number of other tax changes to be phased in between 2017 and 2021, such as landlords facing a constraint in their ability to offset mortgage interest and, if sizeable numbers of landlords do take the decision to sell their portfolios, this will lead to a substantial amount of second hand properties being put up for sale. Yet that might not be a bad thing, as I have mentioned in previous articles there is a serious shortage of properties to buy at the moment in Derby: the stock of property for sale being at a six year all time low.

.. Thirdly, if there are fewer rental properties in Derby, as supply drops and demand remains the same (although ask any letting agent in Derby and they will say demand is constantly rising) this will create a squeeze in the Derby rental market and as a result rents will rise. In fact, I predict even if landlords don’t sell up, Derby rents will rise as Derby landlords seek to compensate for increased costs, which means more landlords will be attracted back.