How Small is That House! HMO Regulations Would Not Allow It!

By Matthew Moody | HMO Regulations

A brilliant article on some of the smallest houses in the world.

However, if this were a HMO, then HMO regulations would not allow you to live in a place this small – even though people do and will live in smaller areas than the HMO regulations allow.

I understand and support the need for regulation – however I find myself asking – why is it that space requirements differ according to council and area?  Why is it that somebody in London can live in a space that is smaller than someone in Cambridgeshire for instance?  Why should any person have to endure different levels of living space dependent on where they live in the country?

A prime example I can use myself is where a room in a 6 bedroom HMO that I own has been deemed too small for occupation despite the fact that I had a 6 ft 2 fella living in it for 8 months with no problems at all!

HMO Regulations are there to protect the tenant but at the same time, there needs to be national standards and guidelines applied to ensure that both tenants and landlords are not unduly impacted by a bureaucratic need to differentiate and justify the existence of civil servants.

Should You be Property Investing in 2009

By Matthew Moody | Property Investing

Only you can answer that question but if you are going to be property investing in 2009, now is the time to ensure that your plans are set in place.

But whats going to happen?

Well frankly, it doesn’t really matter.

The key thing you need to focus on is adding assets to your portfolio that generate cash and plenty of it.  And in today’s market, you need to be focusing on the type of tenant who isn’t going to up and leave when the going gets tough – or if they unfortunately lose their job.

So, what type of property investing should you be looking at?

To my mind, there are several that you could look at but only one that has consistently over-performed any other class of property to date – the humble houses of multiple occupation (or HMO).

How can that be?

• your income is diversified and not dependent on just one family or individual
• you can earn twice, threetimes or quadruple the rent a single let would bring you
• you can use both commercial and residential lending
• you can become accredited and thus benefit from additional grants and assistance

There’s lots of advice I could give you for 2009 but there are 5 crucial points that you must ensure you practice no matter what you end up doing.

1. Have a plan
2. Follow the plan
3. Make sure the plan makes you money
4. Review the plan monthly
5. Let nothing stop you from hitting your planned goals

If you want to make your income goals even quicker, then make sure you have some HMO’s in your portfolio mix that are managed/outsourced to somebody else to manage for you (I can help with this if you need some help setting up your systems).

If you haven’t signed up to my 10-part ecourse, please enter your name in the opt-in box at the top-right – I’ve had many great comments about the course and I feel sure that you would benefit from the knowledge I earned the hard way but succintly put in just 10 easy-to-read emails.

It’s Official – HMO Regulations Are Confusing For The Average Person in The Street

By Matthew Moody | HMO Regulations

I was recently reading an article on a great question and answer site about whether or not you can rent a property but only put some of the tenants on the tenancy agreement.

The reason it piqued my curiousity was because it fell under HMO Regulations and started to raise issues.

The question raised was if 2 couples and a single person got a place together in a 3-storey building, did they then need a HMO licence?

Both the question and the answer to me brought many confusions over the HMO Regulations into question but for me; the main question that needed asking was – are the people living together as one household or are they unrelated?

The HMO Regulations are unneccesarily complex and this is one area where normal law-abiding citizens are affected.  According to the HMO Regulations, the real issue surrounding 3-storey buildings comes into place if 5 or more people sharing are living as 2 or more households.

If the people in the question were say a couple and their brother or sister, then technically, they are one household.  That alongside the other couple would make 2 households.  If they are all related, then they are one household.

You can see why its overtly complex, needs re-addressing by the next (hopefully landlord-friendly) government and needs simplifying so the average person in the street can understand the HMO regulations.

Are Valuers Are Hampering Property Investing?

By Matthew Moody | Property Investing

 

Before I got involved in property investing, I thought that a property valuation meant just that; or so I thought.  It didn’t take too long before I understood that the same terminology, “Property Valuation”, can mean very different things.

Here are a few examples for you:

1. A likely sale price in a seller’s market
2. A likely sale price in a buyer’s market
3. The value of the land acquisition, construction of the property and associated costs of bringing the product to market
4. A representation of a banks risk assessment of a property

While 1, 2 & 3 are self explanatory, let me expand on # 4.

By way of example, let’s assume in this instance that a mortgage application is received by a bank to fund the purchase of an apartment or townhouse.

The underlying purpose of the bank carrying out a valuation is a commercial appraisal. The valuation represents their internal risk assessment associated with the proposed loan and will be interpreted in the context of their current lending policies and dictated by that lenders risk parameters. Therefore, the outcome that you and I may receive will be after consideration has been given to the following:

• The individual unit within the development or street.
• A lenders total exposure within any one development as a whole. A bank may be happy to loan up to 85% of an individual unit but they would probably not be willing to loan up to 80% of the total value of all the units in that project as this would skew their risk on the development. Therefore, it can happen that after a certain number of properties have been funded by a particular lender; if anyone else is looking for funding of another property in the same development they may be unable to secure a similar valuation, as those that have gone before them.  A bank may agree to take on another client in that development but insist on a much tighter valuation criteria forcing the purchaser to take up more of the overall exposure to keep the “lenders LTV” down.
• A lenders total exposure within the surrounding area (postcode).  Banks will make a commercial decision on the level of exposure they are comfortable to have in a particular area.  Once those limits are reached they will not necessarily pull out and say no to more units … but any future loan applications in that locality may only be approved subject to tougher valuation guidelines.
• The availability of funds will also affect the banks risk rating.  When funds are plentiful they will be happier to loosen their risk ratings. When the supply of money is tight (as in recent months) they are quick to tighten their risk ratings again.  The sub prime mess in the USA has had an impact on property valuations in the UK… due to the banks difficulty in obtaining more funds from overseas.  NB: This has very little to do with the true value of the property.

The current economic uncertainty impacts a lenders ability to accept risk and as many brokers have wryly remarked “they are all withdrawing back into their shells”.  The more volatility that is seen in the money markets are… the more cautious the banks will be with their risk ratings.  This is driven not only by good business management but as part of their fiduciary and principal duty to shareholders (you didn’t think banks were here to serve YOU did you?). 

Investors need to correctly understand the entire process of property valuations and this then leads us onto the role of the valuer.

The Commercial Consideration of a Valuer

When a valuer is contracted to value a property, they need to consider any future legal challenges.  Suppose the purchaser defaults and the property is “disposed” through repossession channels below market value; if a lender does not manage to recoup their exposure to the loan, they may sue the valuer for losses. One way for a valuer to insure that they never need to make a claim against their professional indemnity insurance policy is to ensure that the purchaser puts more into the deal than the 15% that was rife only 6 months ago.  I have personally challenged the reasoning for low valuations on many occasions and whilst no surveyor has ever admitted it to me… the commercial decision to protect or insure themselves from possible future legal challenge is very transparent and clear.

The Subjective Consideration of the Valuer

This is a big one and probably the one that effects all of us the most!  Everybody has different tastes, likes, prejudices, opinions and so on. The same applies when it comes to property valuations.

While some may say that a valuation is an exact science… it absolutely is not in practice. If the person who valued my last purchase had disliked it or thought I was paying over the odds, he would not have valued it at list price because ultimate, it is their opinion and we cannot effect their decision if they are wrong!  

EXAMPLE 1: Two identical townhouses were valued early this year. In each case the lender appointed the same surveyor to carry out the valuation. The first one came back valued at list price.  About 10 days later the second one came in £15,000 under contract price. Both properties were sold for the same price and were identical in every way.

So why the difference? In this case it seems the only reason was that there were two different staff members from the surveyors were used.  While they worked out of the same office and valued the “same” property on behalf of the same bank, they obviously had different opinions. This is why valuation can never be a science – at best its a parody of what a science should be with emotional elements thrown in for luck.

Confused yet? Wait, there’s more….

EXAMPLE 2: Two apartments were valued in the same complex earlier this year.  They were not exactly the same – one had a larger floor space than the other and an additional bathroom.  The price, lenders and valuers were all different.  However, let me ask you how could the first one be valued for 15% less and the second valued at list price?

Would you rather take the advice of a financial planner who had graduated from university with a degree; but lacked life experience or any financial success himself? The laws states that unless you have the qualifications (piece of paper) you cannot offer any financial advice; regardless of how much personal experience, wealth and success you may have accumulated. If you have the piece of paper, regardless of how badly you lack in personal experience, wealth or success you can advise others.

I don’t say this in a blatant attack on surveyors and do not suggest that all valuers lack experience… but I would dearly love to know how much property investing success they had. After all, if it is a science and they are so sure… within 5 years they should all be well on their way to great property wealth; or so you would think.

In Summary:

1. There are numerous commercial considerations for a lender that a bank will use as part of the valuation process
2. Valuers are usually employees
3. Their qualifications come from classroom training not practical application or understanding.
4. They operate under the commercial guidelines of their employer
5. Their employer is contracted by the lender not you
6. The lender sets parameters to reflect the commercial impacts of their overall risk policy
7. A valuers subjective opinion may reflect in the result given. That opinion may or may not be based on solid research and fact. In the current market it may reflect how the valuer has been impacted by negative media reporting
8. A valuer may not be a property investor (or even an investor at all). This would not disqualify him/her from operating as a valuer
9. In their defence, valuers are not paid anywhere near the money that would be necessary to justify the time required to undertake a proper “scientific” analysis of the worth of a property. The time they can allocate to the job requires them to rely heavily on online data which is normally out of date by the time the information is received from the Land Registry and uploaded. Neither does this program tell anything of the story behind a sale; leaving the valuer to err on the side of caution as always.

So, if you are thoroughly confused, you are forgiven and can go back to being confused!

Property Investing is Backed by The Government!

By Matthew Moody | Property Investing

Following the recent NLA property investing conference held at the weekend, the Government stated that they were committed to not bringing forward knee-jerk legislation that would hamper the growth of the sector but, instead would target the rogue operators which give responsible landlords a bad name.

Given the criticism that has been levelled at this government over the HMO licencing requirements, tenancy deposit protection, energy performance certificates and now possible licencing of all landlords, it seems at last that the government is recognizing that the industry has been a “great tool to help house the people of this country”.

The Minister speaking, Iain Wright, also re-affirmed what most of my readers already know “the people who suffer the most from burdensome regulation are reputable landlords.”.  Their new focus for legislation is to target rogue operators rather than hamper growth.

_{Picture courtesy of National Landlords Association Limited.}

Also speaking at the conference, Dr Julie Rugg spoke about the need for landlords to view what they do as a business and not purely as an investment vehicle.  Property investing has often been touted as the quick route to riches with many large companies claiming that you can make millions in a short space of time. 

Whilst its certainly true that property investing can be very lucrative, I agree wholeheartedly with Dr Rugg that property investing needs to have some controls and understanding around it to ensure people treat this as a proper business.

The Horror of HMO’s – Read What Our Tenants Are Saying

By Matthew Moody | Property Investing

I came across a blog today from someone based up in Manchester calling himself “renter girl”.

He or she seems to be living in an illegal HMO let by a landlord who doesn’t care.

Why do I say this – because they claim that 8 adults are sharing one bathroom and one cooker and fridge – which is pretty appalling I have to say!

This is exactly the type of HMO which I hope my readers are opposed to and are NOT providing.  HMO’s can offer a decent standard of accomodation in an appealing setting where adults can mingle and not feel unsafe or threatened by others.  They can do this in accomodation which caters to their needs and offers luxury accomodation at an all-inclusive reasonable price.

If you want to read the full story and marvel, then renter girl has plenty to say for himself or herself – but I suggest you step back and think like a tenant – and try to over-deliver in everyway to provide excellence in accomodation standards – that way, you won’t have tenants moaning and you will have happy long-staying tenants.

Otherwise, feast your eyes on some of our accredited properties and aim to be the very best.

In the meantime, for more hints and tips on becoming a SUCCESSFUL HMO landlord, sign up to our newsletter today at the top-right of this page.