Renting in the UK and Europe

With renting and home ownership in the UK a big talking point, let us examine how renting compares with other major European cities.

Renting remains the choice for the majority of Germans, who are at the bottom of the list of European homeowners, with just 46% of households owning their own home. People much prefer to rent, for a number of reasons which range from the historical to cultural and economic. Wartime bombing destroyed about 20% of residential areas in German towns and cities, at the same time as refugees from eastern parts of the former Reich who had lost everything, streamed into the country and in 1950 there was a drastic lack of living quarters.

Culturally, there is nothing like the drive to want to own as there is in other countries. Banks do not help by being unlikely to give a mortgage to anyone unless they can provide 20% of the purchase price, and on top of that high add-on costs such as extortionate estate agent fees (typically 7.14%) and stamp duty of up to 6.5% do little to entice people to buy.

Renters have felt safe in the knowledge that the law is more on their side than that of the landlord. However in recent years soaring rents in many German cities – often fuelled by largely foreign buyer-driven property booms currently being experienced in cities such as Berlin and Munich – have led to increasing social disgruntlement, sparking a recent wave of street protests across the country.

However, the percentage of their income Germans pay for rent is still relatively low compared with other countries – 25% in Munich, 21% in Berlin, Cologne and Frankfurt, while the national average is 27%. This compares favourably with London, Warsaw, Madrid or Rome, where it is more than 40%. While this remains the case, few people will have an incentive to buy, experts believe.

Spain has traditionally had a high rate of home ownership, about 80% in 2008, when the building boom ended and the bubble burst. It has now slipped back to about 78% but is likely to fall further as unemployment remains high and mortgages difficult to obtain.

An inevitable result has been a rise in rentals and rents. Rents have been pushed up by demand but also by Airbnb and other holiday rental platforms. According the housing platform Idealista, rents in Barcelona have risen 55% since 2012 (23% in Madrid).

Rental contracts tend to be for one or three years, after which they may be terminated or renewed and the rent renegotiated. Rent-controlled apartments dating back to the Franco era have mostly disappeared. Increasingly landlords in tourist areas are demanding excessive rents to force tenants out, so they can turn apartments into lucrative holiday rentals. A flat with a rent of €1,000 a month can make five times that as a holiday let. Eviction also continues to be a serious problem as lenders are reluctant to negotiate terms.

In Ireland, price controls were introduced in early 2017 amid soaring rents in Dublin’s super-heated property market. The “rent predictability measure” caps increases to 4% a year for three years. But, one year later, the rent controls have done little to halt rises. According to website daft.ie, rents jumped 10.4% in Dublin in 2017, and at an average of £1,476 in the north of the city and £1,675 in the south, are now substantially higher than the average for London (£1,276).

Like the UK, high deposits and high house prices – along with strict lending rules – are turning home ownership into a distant dream for many young Irish workers, particularly in the capital. Home ownership rates peaked at 80.1% in 1991, but have now fallen below 70%. Amid a worsening homelessness crisis and a lack of housebuilding since the country’s economic crash in 2007-08, housing has moved to the top of the political agenda. Stories of desperate queues at new housing developments abound, while just a fortnight ago more than 10,000 marched through the capital demanding action on housing.

French tenants benefit from much stricter rules on landlords than in Britain. Rents on unfurnished dwellings are only allowed to be increased by an index, called the IRL. This year it permits an annual increase of 0.51%, and was close to zero for much of 2015 and 2016. Anyone renting an unfurnished property as their main residence is given a minimum three-year tenancy with an automatic right of renewal after three years, or must give three months’ notice if they want to leave. If the landlord wants the tenant to leave, they must give them a minimum of six months’ notice. Landlords must also give the tenant a first right of refusal if they wish to sell.

What’s more, eviction is forbidden in the winter months. A rule called la trêve hivernale (the winter truce) runs for five months from 1 November when landlords are not allowed to evict their tenants for any reason. It is meant as a humanitarian measure, but it also means evictions jump on 1 April.

Rent controls and tenancy protections in the US are decided at the state level. In dozens of states, laws promoted by the conservative American Legislative Exchange Council, such as Illinois’ 1997 Rent Control Preemption Act, prohibit municipalities from passing laws that regulates rent. Last month, an advisory referendum in Chicago to lift the ban on rent control won 77% approval. The “Lift The Ban” coalition says a third of Chicago households cannot find affordable housing, and that a minimum wage worker will have to work 106 hours a week to afford the average city rent.

Elsewhere in the US, New York has the longest history of rent controls. More than 1m apartments in the city are rent-regulated under a complex set of laws. A tiny number have full rent control, with rents substantially below commercial levels. The vast majority enjoy rent stabilisation, controlled by the Rent Guidelines Board. It froze rents in 2015 and 2016 but in 2017 voted to allow landlords rises of up to 2%.

Home ownership levels have been falling in the US in common with much of the developed world. It peaked in 2004 at 69.2%, then fell to 62.9% in 2016, though it has recovered mildly since then.

Investing in Devon

According to some estate agents, Devon is fast becoming a good place to invest in.

Actually, that is not news. The Southwest has often been a good place to park your money in property. The region offers picturesque coastlines, a lovely country feel and loads of open space for your money.

Gill Fielding, founder of Fielding Financial, based in Totnes, claims that Exeter and Plymouth make particularly good investment areas. The towns both have Universities which attract high numbers of students, and hence can command high rental demand.

Also located within the vicinity are good hospitals and sporting facilities, which make them attractive to those actively seeking to rent.

The rise in tuition fees has put strain on students looking to enter University and do a degree and tuition fees of up to nine thousand pounds a year are now common. This has meant that universities which offer degrees for less cost, which would normally not have had a look in, are being considered. Traditionally these have been in the coastal regions, away from big cities, so the lower fees along with cheaper rents have started to make them look attractive to others. Ironically, this demand for rental properties will only push the rates higher for successive students.

How would you invest in property? Find an area that is in demand either by professionals or students. Good transport links, especially rail links or a tram network are essential. This means your property can be easily accessible without the use of a car, and within commute of the big cities. Some landlords even recommend checking out the local rail network timetable to see how often the trains stop, as properties along these areas tend to be more attractive. And if you can find an area that is cheaper to live in, invest in it quick before it is gone!

But it is not just about demand and transportation. Look at the entertainment scene and public facilities. Most rental properties are for younger people who have not yet managed to buy, so if the area you are investing in has an active entertainment scene, such as clubs for bands to perform, or comedy clubs, you may garner more rental income. Pubs, cafes and other social settings are good indicators. Which young person would choose to rent in a place with no social life and feel alone? Not many.

Whatever you do, though, if you do invest, you must make it entirely clear to your tenants that they should not sublet the property out. Increasingly, with the rise of sites such as airbnb, tenants are trying to gain income by even renting out their rented properties without permission. This has resulted in a lot of disputes between landlords and tenants which could have been avoided if tenants had been made aware of their responsibilities. And as a landlord, you would save yourself a whole lot of trouble if you had this point emphasised during the signing of a lease.

In any event of a dispute, remember you can refer to the property ombudsman for mediation. Tpos mediates between tenants and landlords and all other issues relating to property.

Common reasons for property investment

Why property? Many invest in property because it gives them an income and a pension pot, but it’s more than that. It suits their lifestyle, work ethic, skills, risk profile, personality, tax situation and inheritance plans for their children – and these are all things you need to consider carefully. You need to find financial professionals who can advise you properly but or now, let’s simply say that you will need some significant capital behind you if you’re serious about building a portfolio (I’d suggest at least £50,000 for each property you intend to buy) and I’d stress the importance of speaking to a wealth advisor. They can look at all your financial interests and plans for the future and help you decide the best way to invest in property to suit your own, personal situation – and whether property is even the right investment vehicle for you.

What I can do is explain why I chose property. Quite simply, it offers the most reliable, tangible, flexible, profitable form of investment I’ve been able to find, and I can break that down into six key aspects:

1. Leverage. No other asset class offers the opportunity to leverage in the way that property does. Banks and building societies lend against property at the level they do because property is seen as having a fundamental ‘bricks & mortar’ value. Markets peek and trough but a property will almost always hold a certain level of value, so while maximum Loan to Value rates may fluctuate (in the past 8 years, I’ve seen them fall from 125% to 60% and go back to 85%), you can still leverage other people’s money to make a better return on capital than you might otherwise – i.e. you can make your money go further. For example, if there was a 15% rise across all markets: £100k invested in stocks = £15k growth £100k invested in £25k deposits on 4 properties, each worth £100k = £60k growth

2. Refinancing. The ability to refinance a property, as an extension to leverage, means you can end up with an income-producing asset that has none of your own capital tied up in it. You can’t achieve this as quickly and easily as you once could, but if you manage to buy a property at a good price and that particular sector of the market rises sufficiently, you should be able to remortgage in time and release the money you originally invested. By reinvesting that money in another income-producing property, you’re expanding your portfolio and maximising the return on your capital.

3. Income. With all other asset classes, you mainly profit from growth on the capital. Although there may be interest payments on other types of investment, I haven’t found any that offer the same income potential as property.

4. Control. Unlike most other forms of investment, such as stocks or bonds, you have a high degree of control over the investment returns a property provides. While you can’t control either the property market as a whole or mortgage rates, you do have the power to decide: the type of property you buy what mortgage product you have how you let the property the type of tenants you accept the rent you charge (to a certain extent) how much you spend on managing and maintaining the property Essentially, you have a high degree of control over income and expenditure, and, therefore, profitability.

5. Opportunity. The diversity of opportunity to make money from property is really exciting to me, and is one of the reasons it’s used by so many people as a wealth creation tool. Whether you want on-going income, short/medium-term gain, a pension plan, a home for your children in years to come or a lump sum return in the future, property can work for you. You can buy to let single or multiple occupancy units; renovate a property and then sell or remortgage; self build or develop yourself; strike a deal to sell property or land to a developer; get paid for sourcing property; do everything yourself and make it your career, or work with other people to make it a more passive investment… It really does offer a huge variety of options – even one property can allow you to realise different returns at different times in your life, depending on what you need and when.

6. Systemisation. This is a big part of why property works as an investment vehicle for me. If you can put the right systems and team in place to effectively source, acquire, refurbish, let and manage a portfolio, you can reap considerable financial rewards for relatively little of your own time. That frees you up to either focus on high-value aspects of your business, or simply to enjoy some of your lifestyle activities. I said earlier that property is a business, and you need to have the ability to establish and manage a ‘head office’ in a way that works for you. But as long as you can do that, your systemised business should be able to function as a money-earner whether you’re there or not.

Buy to let market slows

Recent reports suggest that the buy-to-let market is cooling after recent measures introduced by the government to control the power of landlords and other individuals buying second properties.

The new 3% additional tax was one of the measures introduced in April 2016. In short, it levied an extra tax on top of stamp duty, which was meant as an attempt to cut back on the accumulation of properties by private landlords.

Another attempt to introduce rent control was the removal of tax relief on mortgage interest altogether which came into April this year.

The laws affected mainly individuals, but not companies, and this has not gone unnoticed. In fact, some individuals are continuing to exploit the loopholes.

One such measure is to buy commercial properties for conversions into private flats. Commercial properties are unaffected by the additional tax levy, and hence at the point of purchase the tax is lower.

Some individuals have also set themselves up as a company, and purchases are done via the company. While many of them claim this tidies up the accounts – as the properties come under the financial expenses of the company, others accuse them of profiting from this because the interest is treated in a business expense.

It appears that many private landlords too are contemplating that the company structure is the way forward for them. Certainly, it seems that many considering investing in buy to lets are setting up companies first, and then making purchases. Those who have yet to set up companies but wish to assimilate this form of structure may find that they are coming under the financial squeeze of the government.

What does that hold for the rental market and the many thousands of young professionals that are dependent on renting as a step to the housing ladder? It appears it may be a step they never come down from. Landlords – in the form of companies – may only resort to raising rents in order to cover costs.

A brief history of housing in England and Wales

The historical recognition of the form of houses tends to be identified by reference to a period of English architectural style, for example Tudor or Victorian. The majority of the current housing stock dates from the middle of the nineteenth century and later, although there are earlier houses in existence, such as sixteenth century (Tudor), seventeenth century (Stuart, Carolingian, William and Mary), eighteenth century (Queen Ann, Georgian) and early nineteenth century (Regency). Nearly all of the extant houses of the sixteenth, seventeenth, eighteenth and early nineteenth centuries are houses that were built for the so-called middle class (e.g. merchants and professionals) and upper class. Only rare examples of cheaper housing from these periods still exist.

The mid- and late nineteenth century (Victorian) saw a huge boom in the construction of housing in response to the mass movement of people from the countryside into the cities as a result of the Industrial Revolution. Cheap terraced houses for the workers, more spacious semi-detached houses for the managers and detached villas for the owners were developed in vast numbers on the outskirts of older towns, often by speculative builders, sometimes by the well-off themselves. These houses had solid walls of brickwork and/or stone, sometimes finished with render, roofs of clay tiles or slates, brick or timber-framed internal partitions, gas lighting, rudimentary cooking, washing and lavatory facilities and coal fires for heating. Much of the cheapest housing was of poor quality, using, for example, sun-baked bricks, and has subsequently been demolished. However, large numbers of terraced, semi-detached and detached Victorian houses are still in existence, albeit modernised at various times during the intervening period.

Houses built in the first decade of the twentieth century (the Edwardian period) are considered by many experts to be the pinnacle of quality in terms of workmanship and materials. Facilities are similar to those of the preceding century but of better quality. This period also saw the rise of the Garden City Movement, based on the writing of Sir Ebenezer Howard, who was highly critical of the urban development of the period and promoted the idea of a planned city with generous public spaces and buildings, low-density houses with large gardens in broad tree-lined streets and separate zones for factories and other industrial development. This led to the creation of garden city towns, such as Letchworth, Hampstead Garden Suburb and Welwyn.

The period between the First World War and the Second World War (the inter-war period) saw much greater state intervention in housing. Previously, involvement on the part of the state had been restricted to the provision of legislation encouraging local authorities to take action, but now the government legislated and provided the funding for the development of council housing, i.e. local authority social housing. There was also considerable private speculative housing development, leading to the suburban expansion of many cities. Both the council and the private housing of the period, particularly the former, reflected some of the principles of the Garden City Movement, especially the low-density housing, large gardens and broad tree-lined streets. This period saw cavity-wall construction and concrete foundations become standard. Floors and roofs were still constructed using cut timbers, bathroom and kitchen fittings were installed as standard, but were still very basic, hot water was often provided by a gas heater and space heating was again based on open fireplaces. Many rural houses still had no piped water, mains electricity or mains drainage.

During both World Wars housing development was suspended and after the Second World War little housing construction took place, apart from repairing bomb-damaged houses, until the mid-1950s when the post-war period of house building really commenced. Both council housing and private speculative development boomed for the next 20 years, although the standards were still relatively low, e.g. few new houses had central heating and roof insulation was non-existent until 1965, and then only minimal. However, most rural properties now had mains electricity and water, and mains drainage became more common.

Gradually, from the 1970s onwards, trussed roofs, often finished with concrete tiles, became standard and modern timber framed construction became relatively popular after a difficult introductory period; even where cavity construction continued to be used, timber or steel framed internal partitions were commonly installed. Central heating became the norm, and during the 1990s, cavity wall insulation and double glazing became standard in new housing developments. Dry wall finishes were also prevalent for new development. During the past 30 years or so, increasing use has been made of new materials and techniques. Examples include composite timber products for structural purposes and finishes and plasticised products, ranging from components such as windows to paint systems. There has also been recognition that many older and sometimes discarded, or unfashionable, products and materials are still relevant, e.g. clay roof tiles, roofing slates, lead work and lime mortar.

Five Golden Rules of Investing

1. Always buy from motivated sellers
Instead of looking for a property you’ll like and then negotiating with the seller, a smarter strategy is to look for motivated sellers who will be flexible on the price and / or the terms of the sale, and then decide if you want to buy that particular property.

If they are prepared to sell at a discount for a quick sale, the amount of discount will vary depending on the motivation of the seller and the general market conditions.

In a rising market you may be happy with a 15% to 20% discount. In a falling market you would want a bigger discount of 25% to 40% to give you more of a safety buffer in case prices come down further.

Just to be clear here, this is not saying that you always need to get a discount off the sales price. Sometimes property is already a great buy at the full asking price because it may already have been lowered for a quick sale. This is where knowing the values in your local market is really important so that you can spot a good deal when you see it.

Many investors get fixated about buying below market value, which means they are likely to miss out on potentially profitable deals because they don’t think they should pay the full asking price. If it is a good deal, investors may sometimes pay the full asking price and more, especially if they can add value to the property. We also need to recognise that some sellers may not be able to offer you a discount because there is no equity in their property. However, if they are motivated, they may be more flexible on the terms of the sale, for example, when you actually pay for the property.

Price is not the only factor in negotiation. This means you may be able to use strategies such as ‘Exchange Delayed with a Completion’, or ‘Purchase Lease Option’. These strategies only really work if the seller is motivated.

2. Buy in an area with strong rental demand
This is a very important rule. As a property investor your aim should be to buy an investment which will not only pay for itself, but also make a cash profit (positive cash flow) each month. There are running costs associated with owning a property, but the basic concept is that the rent you receive from your tenants more than covers all of the costs. If you have no tenants, you have no income, which means you have to cover the costs yourself. Your investment then becomes a liability, rather than an asset.

You need to accept that as a landlord you may occasionally have void periods on your property, which means no tenants, and so you need to meet the costs. You can dramatically reduce potential void periods by only ever buying property in an area with strong rental demand. You want to ensure that if your current tenants decide to leave the property you can quickly and easily rent it to new tenants at the full market rent.

A general rule of thumb is to buy properties in areas with strong local employment and good transport links with local facilities and amenities. When you know how to do it, you can easily assess the true rental demand in any area by using the internet to find like comparisons, speaking to local letting agents, and even placing dummy adverts to test rental demand. If you are not sure about the rental demand in an area, then don’t buy the property to avoid longer than expected void periods, which will cost you money. Due diligence is very important before you make any investment decisions.

3. Buy for cash flow
As already mentioned in Rule No 2, your property should create a monthly positive cash flow for you, so that it is an asset rather than a liability. As prices shot up towards the end of the last property boom, it became increasingly difficult to find properties that stacked up to give a positive cash flow. Many investors were buying properties which would only just “wash their face”, where the rent just about covered the monthly costs. Even worse, in the hope that prices would keep going up, some investors were buying properties that had negative cash flow, whereby the rent was not enough to cover the monthly costs. This meant that the owners had to subsidise the property each month, not a good position to be in, especially if you have a lot of properties like this.

When the property market crash came in 2008, many investors, both amateurs and professionals, owned properties that were worth less than they had purchased them for and were costing money each month just to hold them. In this situation, if you can afford to hold the property, you just need to sit back and wait for the market to recover. But if you can’t afford to continue subsidising it, and you are forced to sell, then that’s one of the ways you could lose money in property. Fortunately, the good news is that, with the benefit of hindsight, you can learn from other people’s past mistakes, so that you don’t have to make the same mistakes yourself.

You should only ever buy property where each month there is a profit from the rental income you receive after paying all of the expenses, including mortgage payments, insurance, repairs and management fees. Positive cash flow is king. Although we expect property prices to rise in the long-term, if you buy your investments ‘as if prices will never go up again’, you will be forced to buy only properties which give you great cash flow now. Extra cash flow will help you to build up a safety buffer, and help you cover potential rises in interest rates in the future.

4. Invest for the long-term buy and hold
Some investors like to buy and sell property to make a profit. This is a good strategy (in a rising market), however, each time you sell a property you will crystallise your profit and you will never make any more money from that particular property. Whereas, if you buy and hold, you can make money from the rental profit each month, as well as long-term capital growth. This way you work once and get paid forever by that property. The real profit in property is in buying and holding for the long-term to benefit from significant capital growth. The key here is being able to afford to hold it and this is why a positive cash flow is so important, so that you don’t have to subsidise ownership of the property. If you plan to hold for the long-term and your property is rented out creating a positive cash flow, you needn’t be concerned by short-term fluctuations in price.

If you do sell a property investors may suggest you reinvest some of the proceeds into another property that will give you a better return. To conclude, many believe it is best to hold property for the long-term. That is how you can become very wealthy and pass wealth on to future generations.

5. Have a cash buffer
Often you meet investors who had to sell their properties because they could not afford to hold them. A problem investors sometimes hear about is of properties occasionally getting damaged or just enduring wear and tear, making them difficult to rent. The landlord may not have the spare cash to make the necessary repairs and improvements and so the property remains void, which ends up costing the owner even more money. This becomes a vicious circle whereby the landlord can’t afford to make the improvements because he has no rent coming in, and can’t get any tenants because he can’t afford to make the improvements. These landlords often become motivated sellers.

The way to avoid this potential problem is to make sure you always have a cash buffer set aside to cover unexpected expenses. In reality, you can get insurance to cover most of the potential issues, including a tenant not paying the rent. However, the more insurance policies you have, the higher your costs and so the less cash flow you will have each month. Investors may recommend you have a cash buffer in place, which you can use if need be. This could be cash in your bank, a clear credit card, or some cash in someone else’s bank that you have agreed you can borrow if necessary. The size of this buffer depends on your personal level of risk. A few thousand pounds per property might be a good idea. This will help you avoid becoming a motivated seller yourself.

An introduction to planning permission

If you are ever considering being a buy-to-let landlord it is likely you will envision at some point making changes to your property in order to enhance its value. Depending on whether you wish to alter, you may need to obtain planning permission. In fact, it would not be unreasonable to go as far as to say that knowing about planning permission is an essential part of any buy-to-let landlord.

In 1948 the right to carry out property development was nationalized. In other words, landowners’ right to build and alter buildings, or to use land or buildings for a different purpose, was taken away by the government. Since that date, anyone wishing to carry out development needs permission to do so.

Permission is given mainly by the local planning authority for the area, which in most cases is the district, borough or city council (collectively referred to as ‘district’ councils). In addition, local government was charged with preparing plans for their areas showing where various kinds of buildings could and could not be built. Thus, the modern comprehensive planning system was born. The system is now overseen by Department of Communities and Local Government in England; the Scottish Government; the Welsh Assembly Government and the Department of the Environment in Northern Ireland.

The planning system was introduced so that property development could be controlled in the public interest. Previously, buildings could be built anywhere, or they could be demolished, and land and buildings could be used for any purpose the owner chose. This was thought to be inefficient and sometimes had harmful consequences. The idea behind the planning system is that new buildings and uses are controlled to ensure:

that incompatible uses are not sited together;
the preservation of important buildings and areas;
the conservation of the countryside and natural environment;
the prevention of urban sprawl;
that the appearance and layout of new development is compatible with existing development;
that resources are not wasted;
that infrastructure can be provided efficiently;
that people’s enjoyment of their properties is protected;
highway safety;
co-ordinated provision of new housing and employment facilities.

However, the planning system is not coercive. It relies on landowners wanting to undertake development. An owner does not have to use land in a particular way just because it is allocated for that use or development. Similarly, even when permission is given, the owner is not compelled to act on it. The system is only concerned with what can be built. It does not deal with how it is built. Structural stability, health and safety, sanitation and so on are dealt with under separate legislation and regulations.

Fundamental to the planning system is planning policy. As well as allocating sites and areas for certain types of development, council development plans contain guidance and standards for buildings and uses, relating to matters such as design, layout, density, garden space, privacy, noise, highway safety, size and mix of buildings, parking and many other issues. This guidance, and standards, is known as planning policy and can be set out in a range of development plan documents. There is a preparation process that development plans must go through and public consultation and opportunities for public comment are built into the procedures.

In addition to local policies, the governments of the UK publish national planning policy documents. Inevitably, these are more broad-brush in nature. Their function is not only to guide decisions on individual development proposals but also to give direction to the development plans drawn up by local authorities. The government indicates what should be taken into account when preparing local plans and, in some areas, the thrust of what they should say. When seeking permission for development, planning law requires the body responsible for making the decision to do so in accordance with formally drawn up local planning policy, unless there are sound reasons for coming to a different conclusion. Therefore, planning policies are the prime consideration in whether planning permission will be given.

Permission is needed for development; consequently there is an application process for seeking that permission. Two types of planning application can be made. First, there are ‘full’ or ‘detailed’ applications. These show all aspects of the proposal and are specific about precisely what would be built, what alterations would be made or what use would be made of land or buildings. Second, there are outline applications. These are made to establish, in principle, whether a building can be built, leaving some or all details of the scheme to be determined subsequently. Outline applications can only be made for buildings not for changes of use, including conversions. The details of the building and site layout are called ‘reserved matters’, because they are reserved from the outline application. Another type of application is then made for the approval of reserved matters within the scope of the original outline permission. Once they have been approved, the outline and reserved matters together are the equivalent of a full planning permission.

Although planning permission is supposed to be obtained for development before it takes place, inevitably building work and changes of use happen without the necessary consent. In these circumstances, an application can be made for permission after the event. This is generally referred to as ‘retrospective’ planning permission.

There are various other applications which can be made after planning permission has been granted. Conditions are attached to permissions and there is a procedure for applying to remove or vary conditions. In certain circumstances, this type of application can be used to make changes to the design or layout of an approved scheme. There is a separate procedure for making very minor changes to a planning permission, called a non-material amendment. One condition attached to a planning permission is a time limit within which to begin the development permitted; this is usually three years for full planning permission (five years in Northern Ireland and Wales). Applications to extend the duration of planning permission are often referred to as ‘renewals’ although they are, technically, new applications.

Of course, not all planning applications are successful and the system includes an appeals process. Appeals are made to central government bodies: the Planning Inspectorate in England and Wales, and the Planning Appeals Commission in Northern Ireland.

The appeals system in Scotland is a little different. Appeals against decisions taken by council officers are decided by a group of elected councillors. Appeals against decisions taken by the council’s planning committee are made to the Scottish Government’s Directorate for Planning and Environmental Appeals.

Appeals can be made when a council refuses permission, fails to make a decision within set time periods, or grants planning permission subject to conditions which the applicant wishes to vary or remove.

Appeals provide the opportunity for the merits of a proposed development to be considered by an independent inspector (reporter in Scotland, commissioner in Northern Ireland), free of local politics. Appeal decisions, and the interpretations they contain, are supposed to be taken into account by councils when deciding planning applications. Thus the appeals system is intended to keep a check on councils and to provide some consistency in decisions between councils.

Adding property value from studies and cellars

One of the biggest changes that has occurred within the family home over the past 10 to 15 years is the growing popularity of the home office. An increasing number of people now choose to work at home, either to create a better work-life balance, to avoid the misery of commuting, or simply to undertake the work they love in the comfort of their own homes.

Britain has become an entrepreneurial state, with many ambitious individuals and small groups keen to set up companies on the lowest possible budget. It’s undoubtedly true that setting up at home cuts overheads significantly, and allows you to work long, productive hours without completely giving up family or home life. Just over 10 years ago, I remember leaving a large practice to start my own business from my spare bedroom. It was an enormous downscale –believe me! However, even though I now have a much larger, fully staffed office, I still like to spend time at home in my own study, in quiet contemplation. It can be an amazing place, allowing me to avoid the distractions of the outside world and focus on delivering work that needs high levels of concentration.

Whether you choose to use a corner of your living space, or create a study or home office in a designated room, it’s undoubtedly important to keep it tidy and make it ruthlessly efficient. But that doesn’t mean it can’t be beautiful. Seamless, integrated storage will keep chaos at bay, and you can focus on creating a comfortable, motivating place to work.

A study is a good place to have if you have to work from home. Another place that can add value is a cellar.
If you are lucky enough to have a small cellar underneath your house –perhaps used for nothing more than some storage or a place to keep some wine cool –you may be able to change this into much-needed, usable space.

One of the problems with existing cellars is that they have no natural light –and no natural ventilation. It is also common for cellars to have very restricted headroom.

If you are working to a tight budget then your best option is to waterproof the existing space as it is, paint and decorate it, install some decent artificial light and some mechanically extracted ventilation, and then use the space as a decent family utility room.

The great thing about putting washing machines and dryers in this sort of underground space is that the surrounding walls give a large amount of acoustic protection. It’s great to move all of these noisy appliances from the ground floor down to the cellar. If your budget can stretch a bit further, why not consider digging out the cellar’s ground slab, and building in a new, insulated concrete floor at a lower level, to give you some increased headroom. If you have a few more spare pennies stashed away, you can always look at enlarging the cellar and extending it underground –either towards the front or back of the property. This may provide you with the opportunity to install some glazing at ground level –to allow natural light into the basement spaces and encourage some good, old-fashioned natural ventilation. This makes your basement utility room a much nicer space in which to spend time –rather than being shut away in a dark and dingy dungeon.

The truth is that any additional space for utility-room storage, which can be easily accessed by a cellar staircase, is always going to be a great asset and a selling point for any good family home. Even with the tightest budget, any conversion of an existing cellar is going to be a good use of space.

The construction processes vary depending on the type of property that you live in, but the general principles of creating a new basement under an existing building go something like this:

1 The basement company constructs a hoarding at the front of your house, which allows them to start digging through your front garden.

2 Once they have dug down to the basement level, they then start to make their way underneath your house, by forming a one-meter-wide tunnel right down the middle of your home. They go down the middle because all of your structural foundations run along the edge of the house. For the time being, they have to stay away from them.

3 They then have a skip located on the road outside your house and a conveyor belt that goes from the underground space up through your front garden –over the top of the street footpath and into the skip on the road. As the guys dig out the mud, they throw it on to the conveyor belt and it goes from the subterranean space and into the skip. The skip is unloaded regularly by a lorry with a grabber.

4 They then tunnel off to the corners of the house and begin to underpin the house with huge, deep, new concrete foundations. They gradually and very slowly do this in sections to provide the much-needed structural support to your foundations before they can remove the surrounding soil.

5 They underpin, remove a bit of soil, then put up some Acrow props to provide some temporary support for your flooring above.

6 Once all of the perimeter walls and foundations are completely underpinned, the remainder of all the soil under your house is removed.

7 Steel beams and steel columns then span beneath your existing ground floor to keep it in place.

8 Light wells are formed at the front and the back of the property, to allow in as much natural light and ventilation as possible. These can either be sunken external courtyards or glass skylights inserted at ground level.

9 Next, the waterproof tanking system is put up against all of the concrete walls.

10 Insulated concrete slabs, under-floor heating pipes and screeds are installed.

11 All the drainage and plumbing is installed.

12 The walls are timber-batoned, dry-lined and plaster-boarded before being given their final finish.

Living room and kitchen design for aspiring landlords

Living rooms have changed so much over the last few generations. In the good old days, your living room might have been known as a sitting room, a drawing room, a front room or a parlour. The living room was often the space in which you could grandly declare your style, status and taste, because it was here that visitors would be invited when they came to your home. In many families, the living room was a child-free zone, kept for ‘best’ to impress! Times have undoubtedly changed, and not that many houses have space for such luxury – spreading out to fill every room in the house instead! In fact, the separate ‘formal’ drawing room often feels like a fairly boring and redundant space – rarely used and usually not very comfortable.

Here in the 21st century, we are much more adventurous with our use of space, and it’s increasingly common to combine the kitchen-dining area, making the kitchen very much the central hub of the home. Many kitchen-diners have their own TV screens, and most homes have a number of TVs scattered throughout. For this reason, the ‘new’ living room isn’t necessarily a place for sitting down to watch TV. In fact, in my home we watch more TV in the kitchen than in any other room. So maybe it’s time that we rethink the way we use our living spaces. Sure, get a TV in there for times when you really want to flop and chill out; however, it makes sense to think about giving your living room a new role.

Today’s living rooms can provide space for reading, listening to music, having a relaxed chat and gathering around the fire. Where kitchens can often feel like ‘harder’spaces, with functional flooring and finishes, the living room wants to be a place where you can curl up and get cosy. It’s important that any living room feels relaxing and comfortable. It’s undoubtedly a space where you can hang out with your kids, but there is also an opportunity here to make this a space that is a little more grown-up. The TV will always be the inevitable focus of any living space (or, indeed, any room in which it is situated), but by planning a room properly there are ways to give equal priority to a beautiful, real fire. Real fires have such a powerful psychological appeal, and represent one of the very best ways to truly relax.

We live in an age in which we all love a greater sense of space in our homes. Most of us don’t want to live in tiny, box-like rooms, all with a similar scale, size and proportion. Instead, we like variety in our homes, diverse spaces with plenty of light and a great flow of air. We like rooms to be sized to match our requirements; in other words, we need them to be big enough to host our lifestyles, and smaller when we want to be cosy. The lighting and finishes are then chosen to create an atmosphere appropriate to those rooms.

If one thing’s for sure, kitchens are the absolute heart of the home. They aren’t just places for cooking, but a hub for socialising with family, friends and relatives. The 21st-century family kitchen is a virtual hive of activity and, for me, it is without a doubt the most important room in the house. Dining rooms are, however, something completely different. There really has been a change in our view of these spaces, particularly in smaller homes. Sure, if you have a grand house with loads of space, then a formal dining room is a fantastic space for those special occasions – huge dinner parties, or family gatherings. However, if you need more space in your house, and need it in rooms that might sit alongside your dining room, then this is the first room that needs to go.

Another reason why we are seeing the death of the formal dining room boils down to the fact that younger families simply don’t use formal dining spaces in the same way that previous generations did. The modern family is much more relaxed and far less stuffy. Times are changing and we don’t seem to mind the idea of entertaining in what is effectively kitchen space.

Your kitchen has to be ruthlessly functional, highly durable, and intelligently planned to suit the exact needs of your family. If it’s not, then you have not only wasted a large proportion of your refurbishment budget (even the most affordable kitchens still cost money), but it will drive you mad every time you use it. Cooking for you and your family should be a pleasurable and rewarding experience, and not a source of frustration.

In the early 1950s, researchers in the US developed the idea of the ‘work triangle’. This is an ergonomic concept derived from research to improve industrial efficiency, which was then applied to the domestic kitchen. Whether you are planning your own kitchen, or enlisting the help of a professional, you can use the ‘work triangle’ method to check the efficiency of your design. The three points of the triangle correspond to the three main kitchen activity zones. There is the wet zone (the sink), the cold zone (the fridge) and the hot zone (the cooker). Their position and relationship to each other is critical to achieving an efficient and comfortable kitchen design.

The recommended overall distance (the total length of the three sides) is 6 metres (20 feet), with no two points being less than 90 centimetres (35 inches) apart. Sound complicated? It’s not really. Read on! If the total is less than 4 metres (12 feet), then your appliances will be too close for comfort. If it’s greater than 8.5 metres (26 feet), then your appliances will be too far apart and you’ll waste time and effort trekking between them. A good way to burn off the calories that you are about to put on, but not an efficient kitchen design! Try to assess the traffic flow across the triangle, too. If you have a large kitchen, people walking through the space may not be a problem, but in small rooms it can reduce efficiency even further.

Design choices affect your rental yield

Some, if not most, people look to property as a way of making money. The attraction with being a landlord is that it offers you lifestyle options, a stream of income that once set up, provides you with income so you can get out and make the most of life. Is it unfair to say there is a secret landlord inside most of us? If you are able to let out a property, making the right design choices may allow you to reap the most income possible, because it gives a good feel to a tenant who would then be willing to pay a high rent.

Every single decision you make – from the smallest design detail to the selection of finishes and furniture, and the overall arrangement or layout of a room – has an impact on the way that your entire home feels. Together, these decisions can have a profound effect on the way you live your life, and the dynamic you create within it.

Building a conservatory or an extension on your home can add massive value. Not only can it transform the quality of the architecture in your ground-floor spaces, but the additional space will also increase the overall floor area of your house, which will automatically increase its value when the estate agent whips round with his tape measure. Best of all, if your new spaces are well designed, you’ll certainly add that ‘wow’ factor. In fact, extensions are a magical way to flood your house with light, create space where you didn’t even know you had it, and open up the rooms in your home to make them work the way you want them to.

The first question that you have to ask yourself is what kind of extension you want and why? Before even considering your options, you need to analyse your existing house plans very carefully to fully understand the impact your extension will have on the design of your existing house. You also have to be sure that whatever you build completely fits your needs. The most common form of extension on a property is a ground-floor rear extension; the most popular form of extension is a rear, ground-floor addition. Both of these can have a substantial and dramatic effect on the way that the ground-floor spaces work.

In many cases, these types of extensions are used to expand the kitchen-dining area, which has pretty much become the heart of the typical British family home. Creating additional space where the average family needs, wants and uses it most means that you’ll not just be making your home more productive in terms of space, but you’ll be in a fantastic position if and when you do come to sell.

Standard conservatories bought directly from a manufacturer can be even more affordable, but it’s worth being wary of this approach. If selected in the wrong style, a standard, off-the-shelf design can conflict with the architecture of the existing house. This doesn’t have anything to do with whether the extension is modern or traditional – far from it. Most people don’t have a preference for either style, as long as the design of the extension is good – and appropriate for your house. Often, however, I find that the standardised conservatories in mock Georgian, Tudor or Victorian styles don’t really work well when added to the back of a house from a different period. A well-designed and well-built extension will always be a good preference over a low-budget PVC conservatory that won’t necessarily enhance the standard of your home. The truth is that agents sometimes wonder why people do go for fully glazed conservatories with glass roofs, which they then cover completely with blinds because they are worried about their privacy! This high level of glazing is not necessarily very comfortable, either! In the winter months you can end up with a freezing-cold extension and, in the summer, the equivalent of an indoor greenhouse. A more considered design, which overcomes the issues of privacy, heat loss and solar gain , is by far the best way forward. Planned correctly, you’ll still be able to achieve fantastic views and access to your back garden.

We live in an age in which we all love a greater sense of space in our homes. Most of us don’t want to live in tiny, box-like rooms, all with a similar scale, size and proportion. Instead, we like variety in our homes, diverse spaces with plenty of light and a great flow of air. We like rooms to be sized to match our requirements; in other words, we need them to be big enough to host our lifestyles, and smaller when we want to be cosy. The lighting and finishes are then chosen to create an atmosphere appropriate to those rooms.

When it comes to bedrooms, they must be beautifully calm and comfortable spaces, for adults and children alike. The ideal bedroom should be cosy and serene, allowing your mind to be cleared of the pressures of the day when you retire to bed. When you consider the fact that we do, on average, spend nearly a third of our lives sleeping, the quality of our beds and the rooms they sit in become that much more important. The space should be beautiful; the bed should be a haven.

It makes no difference if you are a traditionalist, enjoying an over-the-top bedroom and indulging in Louise XIV-style splendour, or an avid minimalist, with a room stripped bare of any ornament, decoration or distraction. In both cases, comfort and cosiness should be the order of the day, and a fundamental part of your design brief. This means that the selection of your finishes and furnishings is actually the most important choice you will have to make in your bedroom. However, to create a fully successful bedroom, all of the principles of good design need to work together.

Bedrooms need to serve a dual purpose – lulling you to sleep and allowing you to languish in bed for those all-too-infrequent lie-ins, but also stimulating you adequately to give you the get-up-and-go you need to get out of bed in the morning. It’s also an extremely personal room, where we undress, dream, mull over the day that has passed and plan the day ahead, and also spend intimate time with our loved ones. We take to our beds when we are ill, and retreat to our bedrooms when we want a thorough rest. It’s not surprising, therefore, that creating the perfect bedroom is a challenge on a major scale.

Think carefully about your needs before working on the design brief for your new bedroom. A bedroom should be a sanctuary, but a functional one at that. Take your time to work out exactly what will work to create the optimum environment.

Factors influencing property development

Deciding to become a property developer as a vocation is an important decision that requires various considerations before you take the plunge.

Developing a property in poor condition as basis for a successful business venture which gives a sound return on investment requires a lot of energy, time, money and luck. How much energy, time and money are required multiplies with an increase in the scope and level of activities. If you move from developing a large, Victorian property to two properties, or more, the demands rise commensurately.

Using project management ideas to succeed – the feat of managing a project based development process, whether of a single Victorian house, a single larger scheme, an old warehouse conversion to provide dwelling units for 20 people, as in for example, a block of flats being adapted for Home in Multiple Occupation (HMO, each require the application of the same basic principles. Even when the challenge is that of working on two sites simultaneously, sites, which are next door to each other, you still need lots of energy. The point of note here is that, each of these scenarios will pose their own challenge.

For some, these challenges can sometimes prove so daunting, that developers with years of experience get into trouble, which is when, some take appropriate, corrective measures and the result can be survival from where they rebuild and live to tell the tale. Others may not be so lucky and go under. You have to keep your eye on the ball in relation to the factors which will help you to not only avoid going down but to move from one successful development project to another. This said I am reminded of the old Chinese saying which goes something like; the glory is not in not falling but in rising even higher after any fall.

When it comes to property investment, as with other times, location and unrealised, hidden values hold the key to success in this business. Furthermore, in a UK context, London and the south of England, are the ultimate magnet for property developers. This is an area consistently identified as offering ideal investment returns on account of; development opportunities, the high rents achievable and the considerable capital appreciation over time are all contributory factors. Demand and supply factors, which favour the developer’s side of the equation, have contributed in no small way to property price appreciation over the last three decades and more, with supply unable to match or catch up with demand in over three decades, especially since the 1990s.

Spreading London ripple effect – what is often referred to as the ‘London ripple effect’ in relation to high prices always sees the higher London price rises, spread to the surrounding regions and beyond. Such ripple effect is dependent on the prevailing economic climate of the time. Examples abound of out-of-London property hotspots like Birmingham, Manchester, Liverpool and Leeds to list a few.

Scotland and Wales Farmers’ diversification into the market for holiday accommodation – for a couple of decades now, it has been noticed that in locations far removed from the hustle and bustle of city life, for example in Scotland and Wales, areas which have not witnessed property price increases, like those found in the south of England, farmers have included diversification from core farming activities into providing accommodation for tourists. For the farmers who have taken advantage of the opportunities opened by tourism, refurbishing old barns and disused farm cottages has become an established strategic route to generating additional revenues. This has to be seen in the context of dwindling grants and subsidies, formerly built into the income streams of members of the farming communities. It is as much driven by political pressures and dwindling government support as by the survival exigencies of the day. You can be sure that where there is a development tag attached, you will soon find a property developer knocking on the door. Could that developer be you in the near future?

Scotland and the City of Aberdeen and surrounding districts – still on Scotland, there had, until recently, over several decades, been intense development activities in and around the city of Aberdeen. This relates to Aberdeen being at the centre of Scotland’s oil industry, with people coming to work in the industry or to study about different aspects of the oil industry at Aberdeen University and the surrounding colleges.

Supply demand factors as drivers – in Aberdeen once more demand – supply factors act as drivers and according to 1st quarter figures from the Halifax Price index, annual price rises in Scotland stand at 9.3%, in August 2016, while that for the UK as a whole is 10.1%. A check on house prices in Aberdeen and its surrounding districts, relating to different types of housing; flats, period properties and new builds, prices are comparable to those in some areas around Greater London. A fact, which may come as a surprise to many of us, cocooned as we are in our city life bubble. The government estimates a shortfall of 3 million homes exists at the present time.

Scotland and the cities of Glasgow and Edinburgh – the cities of Glasgow and Edinburgh, between them have a combined population of just over a million, and 8 universities, four in each city and several colleges in their patch. There has always been a steady hive of development activity by which students’ accommodation needs have been catered for. Over several decades developers and buy to let investors busy themselves working the students’ districts assiduously.

Ever present opportunities – there are constantly emerging development opportunities, which can be capitalised on, if you’re at the right place at the right time, and for those who know their patch, and are also known, they are first to be notified, when opportunities suddenly crop up. And the elephant in the room requires that you be financially ready to take advantage of such opportunities when they arise. These are hallmarks of discerning developers.

The feel good factor as relates to the property market, may come and go and irrespective of the state of the market, opportunities are always there, explained another. When asked about the negative equity phenomenon, one property developer’s response was that the phenomenon which descended on the property market in the late 80’s and early 90’s is a distant memory, and long forgotten. Negative equity was the term coined for properties losing their value – even overnight properties became worth far less than had been paid for them just a few weeks before.

Negative equity may well be a distant memory. However, it serves to remind us that while the last forty years have seen steady property price increases averaging over 9% annually it is worth stressing once more that property prices can go up but they can also come down. A cautionary tale: as distant memory it may be, but it serves to remind us that whilst the last forty years has seen steady property price increases, averaging over 9% annually, it’s worth stressing that property prices can go up as well as come down.

Healthy employment figures – among the many factors impacting on the property market, are recent UK employment figures, (August 2016) which show a high proportion of people in work compared to the years 2007-2010. The importance of healthy employment figures to the property development process lie in its relationship with other factors which impact on the market for materials, labour and income.

Traditionally, factors such as interest rates reflect the state of the market in relation to supply and demand and its impact on the property market. Interest rates is a subject to which we will return later. The simplest relationship which can be adduced is that higher labour costs can lead to higher incomes for the working population. Improved incomes in turn mean those who wish to purchase properties; flats or houses are better able to afford them.

A dynamic market is good for development – a corollary of the above, is this; the greater affordability made possible for those purchasing in any segment of the market; low, high or in the middle, the more dynamic the market is, the better it is for the developer. It means the greater the numbers of people in the market well placed to afford to purchase properties, the likelier the chances the developer has for a quick sale and turnaround, followed by a move to the next project.

A developer who takes too much of a narrow perspective, may end up paying the price, as a result of the adverse consequences which may result from ignoring details from other perspectives, even when such details are minute. For example, using wrong structural engineering calculations or failure to take account of small recommended measurements because the builder thinks you could get away with not doing so. When the correct details are ignored and corners cut, they can result in unstable structures, which end up imperilling thousands of pounds of development investment.

Property development is much like any other economic activity; retailing, banking, running or hotel or any of the businesses we see on the high street. Each one of these businesses requires coordination of human, raw materials and financial resources with the latter acting as the glue that holds the business together.

Deciding to become a property developer is an important decision. There are many considerations to be undertaken beforehand, and during the process. But done correctly, it may be rewarding, both financially and vocationally.

Reasons for investing in properties

A lot of mediation cases result from disputes between landlords who want to maximise their bottom dollar and spend as little as possible, and tenants who feel they are being pushed to do the landlord’s job of upkeeping properties because the landlords are not responsive enough. What makes someone want to invest in property in the first place if they are not prepared to invest time and money into maintaining it?

Cash Flow: Whether you buy with all cash or use today’s favorable financing with a low mortgage payment, positive monthly cash flow occurs when the monthly rent is greater than the monthly expense. This gives you a monthly income from your property investment.

Appreciation: Appreciation is the increase in the property’s value, which generally occurs over time and can also be increased by an investor who adds value to the property through repairs and/or enhancements. This is a great way to create equity in the property.

Depreciation: Even with an increase in the property’s value, the government allows owners a tax deduction on their property over its life span. This annual deduction is called depreciation which you can start taking when you have owned the property for at least one year. By taking advantage of depreciation, the cash flow you receive is protected so that you receive some or all of it tax free. If you are an investor with an income from another source such as a regular job, it can also protect all or some of that income from state and/or federal income taxes. Talk to an accountant to completely understand the full benefits of depreciation.

Tax Benefits: In addition to depreciation, an investor can usually claim the interest portion of his monthly mortgage payment as a tax deduction.

Leverage: Leverage is a very powerful reason for investing in property. If an investor uses 100% cash to acquire a house worth $100,000, and the house increases in value by $5,000 in one year, then the investor makes a return of 5% (assuming no other costs in this case). However, if the investor obtains 80% financing, only $20,000 cash would be required at the closing table, and a bank or other lender would loan the remaining $80,000 to acquire the property. Assuming the same $5,000 increase in value, the investor’s cash contribution of $20,000 would yield a 25% return on investment ($5,000 increase in value divided by the $20,000 investment) in the same one year period of time.

Using the above example, if the investor is able to net even a conservative cash flow of $200 per month, this will result in an additional $2,400 per year added to the increased appreciation. The return for the year would now be $7,400 ($5,000 appreciation plus $2,400 cash flow) and the return on investment would now be 37% ($7,400 divided by $20,000). Even if the property value remained stable with no appreciation, there would still be a positive return of the $2,400 in cash flow with a return on investment of 12%.

Considering these benefits in addition to the low interest rates for financing, you can see how easy it is to accumulate wealth and become a successful investor.

Other Reasons Why People Invest in property
Now let’s look at other reasons why people invest in property. First, let me ask you a very simple, yet provocative question: Why would you invest in property? Understanding the answer or answers to this question will help you along your investment career. Following are the most common answers I have heard during the course of my property career:

Freedom: Frankly, this is why most people start investing in property. They get star struck with the idea of riches that would give them the freedom to stop working for someone else. They may have a great job that they absolutely love that pays the bills, but they still want to achieve long-term freedom. They can see that by buying and holding cash flow properties over time (and sacrificing and delaying gratification), in five, ten or twenty years, they can have a pile of monthly cash flow and have gained the freedom they desire.

Control: Some investors I speak with want property in order to gain some degree of control over their financial lives because, let’s face it; we have zero control in financial investments outside of property investing. If you invest in the stock market or money market funds, you have no control over the return you will make. With property, there are things that you can do to control your return on investment as shown above.

Alternatives: Some investors will admit that property is nothing more than a portion of their overall investment portfolio. Perhaps they have divided their portfolio to include mutual funds, stocks, property, etc. Or they may be looking to achieve higher returns from their cash through active management.

Job Escape: A few investors look at property investing as a career, or a chance to own their own company. Others may look at property as a means to eventually replace the job or career they currently hate. Creating Value or Thrill of the Hunt: Many investors love the thrill of the hunt, chasing down a deal or cashing in on their last remodel. They pursue that addictive feeling and are always looking for the next rush or opportunity to turn an ugly duckling into a beautiful swan.

Options: After many years of property investing, I have come to realize that in the end people love investing in property because it has given them so many more options. They have the options to keep working their current job, to buy property as a full time career, to have the time and money to travel, etc. The more they invest, the more option doors are opened.

The Real Reason to Invest in property
People fall hard for the sexy pitch of earning freedom. Frankly, freedom is good but I think what people really want is options. That is why they keep working so hard to find the next deal, to find the next investor, and to keep building their growing portfolio. Some might think freedom and options are the same things. But freedom is more sustained while options are more temporary. But to me, freedom means that a person can stop doing something while options mean a person can do other things. I can tell you firsthand that having options is better than having freedom. I would say you get freedom first and then you build or acquire options.

Before you take the plunge in investing in property

Many potential investors are asking whether, given current market conditions, it is the right time to invest in property development. This is because property prices are falling in many parts of the United Kingdom and people are beginning to worry about the ‘credit crunch’ and the effect this will have on their family finances. To be able to answer this question it is important to understand the relationship between the UK economy and the housing market, consider short- and long-term trends and undertake a full assessment of market conditions. It is also important to consider possible benefits for investors of the current market position, especially in terms of the availability of bargain properties such as repossessions and failed buy-to-let investment properties. Once you have considered these issues you can then ask whether it is prudent to invest in property development at this time.

If you are thinking about investing in property development you need to have a thorough understanding of current and future economic and market conditions, and understand how they relate to the housing market. As we have seen in the United States, when the economy expands, lenders tend to extend too much credit and consumers are happy to accept this credit, usually because they have confidence in the housing market. This results in many people taking out larger mortgages than they can realistically afford, and leads to much greater borrowing on credit cards and hire purchase agreements. However, when economic conditions worsen, excessive borrowing means that people are unable to meet their payments, confidence in the housing market slumps, property prices begin to fall and homes are repossessed.

The International Monetary Fund (IMF) believes that the UK housing market will follow the US market, but on a two-year time lag. Experts fear that many homeowners in the United Kingdom who have overstretched their borrowing will suffer as a similar credit crunch begins and inflation rises. Indeed, recent figures indicate that the number of repossessions in the United Kingdom reached 27,100 in 2007, up from 22,400 in 2006 according to the Council of Mortgage Lenders (CML), and experts fear that this figure will rise to more than 45,000 in 2008. This has prompted the UK Government to begin talks with mortgage lenders to try to avert the crises and deal more favourably with homeowners who find themselves in arrears and facing repossession.

Some experts, however, think that the media in particular are over-emphasizing the financial problems being faced by the United Kingdom and that, in doing so, they are making a bad economic situation worse. Financial crises are always big news and the media has had some spectacular financial stories to report recently, including problems with rogue traders and bank collapses. Some people believe that this type of scaremongering could lead to people reducing their spending and saving money, which means that less money is spent and large amounts of money are removed from the economy. This can help to increase the likelihood of a recession and a property market crash.

One view is that buyers are being manipulated by stories in the media that do not reflect reality. This is because the media need to tell a story, but they also need to entertain, which often leads to a concentration of personal stories that do not reflect what is happening in reality. However, despite stories in the media not always reflecting reality, the media do have considerable influence on the public. Indeed, the Royal Institution of Chartered Surveyors (RICS) found in a recent survey that 23 out of 200 surveyors cited media gloom as having an impact on confidence in their local property market. If people are new to a particular market, such as property development, it is understandable that they will take note of the media when making investment decisions. However, you should balance this information with your own research.

The economy in the United Kingdom is suffering, and there is potential for a property market crash, but this does not mean that property development is not still a viable investment opportunity, as long as careful decisions are made backed up by thorough personal research.

If you are thinking about investing in property development, it is important to monitor inflation and interest rates carefully to make the most of your investment. At this present time, the UK inflation rate is well above the Bank of England’s 2 per cent target and above average for the European Union as a whole. Inflation determines the real return on any investment that you make and can have a major impact on the value of your investment in the future. This is of particular importance when viewing property investment as a long-term strategy. Therefore, you need to make sure that if you decide to invest in property development, your plans are not at the mercy of inflation and any future rises that may occur.

In the United Kingdom the Consumer Prices Index (CPI) measures changes in the prices of selected household goods and uses this to determine the rate of inflation. For more information about the CPI and for up-to-date figures, visit www.statistics.gov.uk.

When economic growth is strong more money chases fewer goods and services, which pushes up prices and leads to higher inflation, which is what we have seen over the past few years in the United Kingdom. When this occurs, interest rates are used to keep growth broadly in line with its long-run trend of around 2.5 per cent each year.

This is one of the reasons why interest rates rose in 2006 and 2007. Higher interest rates tend to discourage borrowing and encourage saving, which should slow the economy. Lower rates encourage borrowing and should have the opposite effect. This is one reason why we have seen the recent cuts in interest rates. Movements in interest rates affect the overall level of demand in the economy and so can have a powerful influence on the inflation rate. Although higher inflation rates tend to be good for borrowers and bad for investors, you need to consider this link between inflation and interest rates when making your investment. If you intend to take out a mortgage on a property, the real value of your mortgage could be reduced considerably in times of high inflation, so this could work in your favour, but only if interest rates are favourable. Therefore, if you have cash to invest it may not be prudent to invest all of it in property by buying outright when inflation is high. Instead, you could decide to borrow on the property, or you could look to other types of investment.

When doing this you need to consider the trends and prospects of other types of investment. Other assets, such as shares, can produce better returns than the property market, but this type of investment is much more volatile. In general, bonds and high-interest savings accounts will not provide as good a return as property has done over the last 35 years, but, in general, they are much safer options. If you are interested in other types of investment, you should seek the advice of an independent financial advisor.

To gain a better understanding of the trends and prospects of the housing market it is useful to look at how the market has performed in the past. Two useful house price surveys are produced by the Halifax and the Nationwide Building Society. The Halifax House Price Index was first produced in 1983. It shows that since then house prices have increased by 8 per cent a year, while inflation has increased by 4.5 per cent a year. The Nationwide house price survey began in 1973 and in that time house prices have increased by an average of 9 per cent a year. This compares to an average rate of inflation of 7 per cent a year over the same period. These figures show that house prices have beaten inflation over the last 25–35 years, and that therefore buying property has represented a good long-term investment.

Where investors can lose out is when they view their investment as a short-term strategy during times of market uncertainly. For example, in the five years from 1990 to 1995 house prices fell by around 10 per cent. Short-term investors who spent large amounts of money on properties and then tried to sell them lost out considerably during this time because prices were falling so quickly. However, in the 13 years since 1995 house prices have more than trebled in many parts of the United Kingdom. This means that, during this period, short-term property development strategies did prove to be very lucrative. Even people who bought properties that they sold on without doing any work were able to make a profit as prices were rising so quickly.

Currently we are experiencing another drop in the market. Therefore, there will be less opportunity for short-term developers to make a profit, whereas long-term developers can buy properties cheaply and keep hold of them until prices begin to rise again. If you are only interested in short-term development you must be very careful in your property choices if you are not to lose money on your investment.

Opinion is divided about whether we will experience a property market crash. Experts have predicted that house prices will fall over the next two years anywhere between 5 and 40 per cent. As we have seen above, short- and long-term fluctuations in the housing market have always occurred and it is inevitable that an adjustment to the housing market will take place after the boom of the last decade. House prices have more than trebled in certain parts of the United Kingdom over that time and it is impossible to sustain this type of growth.

In March 2008 the Halifax reported that house prices fell by 2.5 per cent, which is the biggest single drop since the property market crashed in 1992. However, these figures do not reflect the whole story, as this kind of drop is not occurring in all parts of the United Kingdom. Indeed, house prices are still rising in some areas, such as parts of London, the East Midlands and parts of the South West. However, as a potential investor you must be aware of the types of property that are rapidly losing their value and the areas that are dropping at a higher rate than others.

For example, over the past decade buy-to-let investment has become very popular for part-time, amateur investors. Unfortunately, many of these people felt that it would be an easy way to make a large profit without putting in the required amount of work, again fuelled by over-the-top success stories reported in the media. This has led to investors making inappropriate decisions about when, where and what to buy, and many have paid too high a price for a property that is difficult to let. Many of these investors are now getting the jitters, again due to media reports about a property crash. They, along with other buy-to-let investors, are trying to sell their properties. This has led to a number of similar properties appearing on the market at the same time, which has pushed prices down further and made the properties harder to sell. Although this is unfortunate for the people trying to sell, it creates more opportunities for potential buyers who can negotiate considerable price reductions. However, you must understand why the venture has failed in the past and make sure that you don’t make similar mistakes. This involves undertaking a careful assessment of the current and future rental market in the area.

With all the current and potential financial problems we are experiencing in the United Kingdom such as rising inflation, the increasing costs of mortgages and credit, and the rising cost of food and fuel, you are bound to be asking whether the present time is really the time to invest in property development. Investing in property development can no longer be viewed as an easy way to make a quick profit, especially given current market conditions. However, it can be a lucrative and fulfilling venture if you are prepared to put in the required work and conduct all the necessary research. The property market is facing uncertainly over the next few years, but wise investors and full-time professionals who are in for the long haul know that property investment is safe and secure if they treat it with the respect it deserves. As long as you are careful, do your research and make wise decisions, then the time can still be right to invest in property development. Indeed, recent movements in the market, fuelled in part by the media scare stories mentioned above, has meant that there are more bargains available, if you know where to look and know how to compete with other property developers.

At the moment it is a buyer’s market and there are plenty of bargains available. You need to undertake a careful assessment of your present and future finances when you think about investing in property development. It is important to consider these in terms of the amount you can afford to borrow, the interest rates you will have to pay and how these may rise or fall in the future. As the housing market begins to slow down, how will this affect your financial investment, over both the short and the long term? You must make sure that you do not put your family and your home at risk through unwise investment choices.

Short- and long-term trends need to be taken into account when you consider your investment strategy. Although short-term strategies may still work in areas where property prices are rising, they will not work in areas where prices are falling. You must bare this is mind when developing your investment strategy.

In conclusion, to invest successfully in property you must understand the relationship between the UK economy and the housing market, consider short- and long-term trends and undertake a full assessment of market conditions. While present market conditions may not be so favourable for property developers who wish to renovate and refurbish to sell on, there is still plenty of potential for developers who see their investment as a long-term strategy. If you are hoping to invest in property development, there are a number of different strategies that you can adopt, depending on your family circumstances and finances, your skills, the property market and the area in which you live.

Building a Property Portfolio? Some considerations

The overall demand for private rented property is now stronger than ever, with the mortgage market restricted for purchasers and house price inflation, particularly in the south east, creating the need for high deposits which people cannot find. Lending has become far more stringent, owing to the onset of the credit crunch and the banks unwillingness to loan money, particularly to property investors. Essentially, accessing finance has become a big issue. The banks favour those with large cash deposits. This is the same in the buy-to-let sector as for domestic mortgages.

However, if finance can be arranged then the yields that one can expect from buy-to-let properties are high by comparison, currently standing at 6%. Of course, this depends on where the property is located. See overleaf for a table indicating the best buy to let areas in the UK. A yield is a portfolio’s annual rental income as a percentage of total value. The reason is that demand for private rented property is high, particularly as first time buyers cannot get a toehold in the market. They are instead turning to the private rental sector. Therefore, investing in property, for the longer term, as opposed to investing for short-term gain, is still a viable option.

Rental returns on buy-to-let are biggest in regional centres like Southampton, Manchester and Nottingham – where one in four homes are now privately rented. Property investors are looking way beyond London and identifying regions where yields are almost three times as high as in the capital. Cities offering the greatest yields – rental income measured against the property cost – include Southampton, Blackpool, Nottingham and Hull.

The latest data on buy-to-let returns, from lender HSBC, also shows the proportion of property in each area already owned by landlords. And in many of the top-yielding areas private landlords already own one in four properties, or more. Southampton, with rental yields of 8.73pc, currently tops the list for rental returns. Manchester, Nottingham, Blackpool and Hull complete the top five locations with the best rental yield at 7.98pc, 7.67pc and 7.47pc respectively.

In all of those areas, except Hull, private landlords already own one in five properties, or more. These areas also offer the characteristics that make for excellent buy-to-let investment, the experts say: relatively low house prices coupled with strong demand for rental property from large student and young professional populations.

The lowest yields were registered in areas such as London where recent price rises have been large and rapid, outpacing the growth in rents. In London in particular, there is a higher proportion of rental property than elsewhere, with 38pc of property in Westminster, for example, being privately rented.

Rental yields
Investment properties which are rented out receive an income from tenants. In order to calculate the gross rental yield the annual rental income is divided by the purchase price of the property (annual rent÷price) × 100 = Gross rental yield).

So, if the property was purchased for £75,000 (total) and the rent received is £450 per month the yield would be: £5400 (annual rent) ÷ £75,000 × 100 which equals an annual yield of 7.2. This is a very respectable return on your capital. Of course if you are a landlord then you will want to factor in the costs of being a landlord, such as maintenance, insurance, loan costs, empty periods etc.

Capital yields
If and when a property increases with time, this is known as capital growth. A simple example is if you buy a property for £75,000 and it increases by 25% there will be a capital appreciation of £18,750. It is a rule of thumb that low price properties might produce a high rental yield and low capital growth and vice-versa, although this is not always the case. Again, each case differs and many factors will play a part but as long as you know what you want then you should be safe with your investment.

If you are interested in averages, landlords receive £678 in rent each month as a national average. However, as always, averages don’t give the whole picture. Landlords in London and the South East collect the highest rents, with £1,079 and £816 respectively. In the west Midland rents average £678 and in East Anglia £676. Approximately 60% of this is spent on borrowing and management costs, leaving landlords with a healthy 40% profit on average.

With buy-to-let mortgage rates so cheap (at the moment) now is the time to expand your portfolio releasing equity and raising deposits to buy new properties. However, when expanding your portfolio it is important to be realistic and ensure that you invest in properties that can be sold on easily, as there may come a time when you need to get your hands on the capital that you have tied up. As with everything, property is a good investment as long as it is managed well.

Too many would-be landlords buy property and neglect it which has a negative impact on the environment and also a negative impact on the investment as a whole. A run down property will decrease in value and the possibility of renting it out for a full market rent will also diminish.

What kind of property is suitable for letting? Obviously there are a number of different markets when it comes to people who rent. There are those who are less affluent, young and single, in need of a sharing situation, but more likely to require more intensive management than older more mature (perhaps professional) people who can afford a higher rent but require more for their money. The type of property you have, its location, its condition, will very much determine the rent levels that you can charge and the clients that you will attract. The type of rent that a landlord might expect to achieve will be around ten per cent of the value of the freehold of the property, (or long leasehold in the case of flats). The eventual profit will be determined by the level of any existing mortgage and other outgoings.

If you are renting a flat it could be that it is in a mansion block or other flatted block and the service charge will need to be added to the rent. When letting a property it is necessary to consider profit after mortgage payments and likely tax bill plus other outgoings such as insurance and agents fees (if any).

Factors involved in residential property valuation

The residential market is imperfect. There is no central market place as a result buyers and sellers are relatively uninformed and even their professional advisors, valuers and agents, only have a limited knowledge of what is available for sale and of what is happening in the market.

Every house, flat, bungalow or other unit of residential accommodation is unique in some respect. Even a pair of semidetached houses differ as between right-hand and left-hand units.

This makes the task of valuation much more difficult than in those markets where there are standard units or products such as stocks, shares, gold, apples and cars. It is further complicated by the fact that there is no acceptable unit of comparison.

Residential property can occasionally be compared on the basis of a price per m2 (or sq ft) of floor space, but issues such as the number of bedrooms, reception rooms, car spaces, circulation space, views and the like can all vary between properties of precisely the same floor area, thus making the total unit of accommodation the only acceptable unit of comparison.

In the past the market had seasonal fluctuations, with greater activity and steadier, possibly rising prices, in spring and early summer, a quiet period in August followed by a mini-spur in September. These seasonal movements are less pronounced today but can still be detected. They can be different in different parts of the country and significantly different between London and popular holiday areas such as the Lake District. They can be affected by significant changes in market forces such as a change in mortgage interest rates.

In addition to seasonal movements, there are cycles of under-supply and over-supply and other movements of a migratory nature such as the desire to balance proximity to work with proximity to the country, and leisure activities with travel time and cost.

In most markets increases in effective demand against a fixed supply will lead to an upward movement in price. The upward movement in price encourages suppliers to produce more and for more suppliers to enter that market. In the residential market the response to such a shift in demand is slow.

It is argued that planning controls impede the supply of land and hence the supply of new houses coming on to the market. Even without such controls there would be a delay caused by the inability of the house-building industry to raise productivity in the short run. It is difficult for the market to respond precisely to match an increase in demand in an area because land becomes available in sizeable chunks and house-builders tend to be market followers, not market creators. The result is that an increase in demand in an area may in time be followed by an over supply.

The valuer’s task is to interpret the state of the market in an area at a point in time. Currently the residential market in the UK is experiencing a period of continuing price growth which is seen to be a reflection of: people living longer, greater single occupation of property, migratory growth in population and increased demand by individuals and investment companies to acquire property on a ‘buy to let basis’. The residential sector has been identified by many, at least in the short term, as a safe place for capital.

Over a number of years changes in consumer preferences occur which can be incorporated in new home design but are more difficult to incorporate in the existing housing stock. These style changes can shift the demand and hence value patterns of an area and must be monitored. The upper end of the market can be particularly vulnerable to these changes of fashion.

Residential property has a fixed location and can only be enjoyed at that location. The enjoyment of a property will depend upon general environmental factors and specific local factors. In the case of owner-occupation, the market reflects the relationship between employment opportunities, communications, general facilities of an area and the environmental factors. Growth in economic activity, more jobs and better pay, tends to cause a rise in values because of the relatively fixed level of supply.

Analysis of the economic opportunities of an area is essential if house buyers are to make sound house purchase decisions. Current concerns of global warming may begin to affect values in areas identified as liable to increased flood risk, coastal areas at risk and greater concerns by discerning buyers for environmentally sound energy efficient homes.

Total home demand has to be translated into effective demand. Effective demand is a function of the national economy and gross national product. The valuer needs to know and to consider what is happening to base indicators such as the level of unemployment, the way employment is changing, current wage levels, and the propensity of the population to save and to invest in their own homes.

The reduction in employment during the early 1990s caused by cutbacks and closures led in some areas to reductions in value both in real terms and in money terms. Money in bricks and mortar will not always be safe.

The housing market and levels of home ownership are closely connected with the availability of credit. Effective desire can only be translated to effective demand through the availability of credit, largely in the form of funds for mortgage loans offered by the building societies, the banks and the insurance companies. Availability of, and the cost of, finance are socioeconomic elements in the market-place, as are the loan terms of such organisations. Lenders are very competitive but changes in lending policy can increase demand. Thus increases in income multipliers or joint income multipliers can increase the number of potential buyers or their potential price range.

Credit for house purchase offered by banks and building societies is dependent upon two factors: the security of the property offered against the loan, and the financial status of the borrower. Very simply, the more one earns the more one can borrow. Thus in a housing market where demand exceeds supply higher salaries and wages will provide purchasers with greater purchasing power: this balanced against the fixed supply leads to higher property prices through competition between buyers. The cost of buying, the interest payable on house purchase loans (mortgages), is outside the control of the banks and building societies in that to maintain a flow of savings to sustain a flow of loans they have to compete in the money market. As a result, mortgage interest rates can rise and fall with the world’s changing view of the British economy and with changes in the Bank of England’s base rate. Many mortgage interest rates are linked formally or informally to base rate. A rise in base rate will generally give rise to an increase in mortgage interest rates and a fall to a fall in interest rates.

The government can influence the economy, finance and hence the marketplace. Governments set minimum standards for new homes, through planning control, building, energy and health regulations. These standards affect costs, which influence developers’ attitudes as to feasibility and influence the volume of new houses in the market-place. EU regulations may also influence market forces. The requirement for a statement as to the energy rating of a property may impact on the value of low rated properties in the same way as energy ratings have led to the disappearance of most non A rated electrical goods.

The government can and has influenced the market in other ways, such as by encouraging public sector tenants to purchase their homes, by imposing rent control and protection on the private rented sector, and by changes in taxation.

The general level of values depends upon the general and area-specific levels of economic activity, community income and wealth; the existing quality and quantity of residential property in an area; the rate of addition to that stock; the point at which a local market happens to be in a particular cycle, and the underlying confidence that people within and outside a particular area have in the economic future and prosperity of that area.

The fixed location of property means that the nature of the neighbourhood and the immediate surrounding properties are crucial factors in terms of buyers’ attitudes and hence in determining a value for a property within the level of values for that area.

A number of factors affect the attitude of buyers. These factors in turn determine whether an area at a point in time is considered to be desirable with rising values, acceptable with stable values, or depressed with falling values. A similar house in each such area could have very different values.

People need property, in this context people need somewhere to live. The size and composition of the population is an indication of the number and possible size of houses required by that population. But the residential market is a local market so it is important to consider the population within a definable area and to know its composition and the extent to which it is changing. Is it an ageing population, is it growing or declining naturally and/ or by migration into or away from the area? Demand characteristics can change both across the country and within local areas. Over recent years developers have become niche operators, seeking to satisfy current demand.

Market analysis identifies the need for, say, starter homes, single-person homes, family homes, luxury homes, retirement homes, student villages. Market analysis will also identify preferences in terms of type of accommodation, design, materials, construction, internal layout and facilities.

The socio-economic composition of a neighbourhood has a major impact on values. A socially deprived or underprivileged area will display that fact in the deterioration of the urban fabric, including the deterioration in physical condition of homes. Deprived means depressed, which signifies low incomes, multiple occupations and low values.

In time, however, a combination of other factors, including the architectural and historic nature of an area, may draw in a wealthier class who will gentrify or reinstate the properties to their original condition and turn such an area into a high value area. Such movements are observable but not always predictable.

In a similar way areas historically noted for housing the wealthier owner-occupier may go into decline as large units or large plots become a financial burden and are sold for conversion and multiple letting. In time the same area may revert back to single family ownership or be substantially redeveloped for low-cost housing or high-value housing, depending upon the level and nature of demand at a point in time when redevelopment is seen as the proper solution for a declining neighbourhood.

The level of vandalism and crime are regrettably indicative of an area’s undesirability. Such changes are partly attitudinal and, like a disease, can spread very rapidly If a community senses that no one cares about an area, in particular the authorities, then the residents cease to care. The result is decline, which is immediately reflected in falling property values.

Active residents’ associations and neighbourhood watch committees show concern by the community for their neighbourhood which can stimulate pride in an area and lead to rising values. The market and market values are obvious reflections of social desirability.

The extremes of social deprivation and social well-being coincide with the extremes of values to be found within a defined geographic area. The residential valuer must be alert to the potential for change and be aware that within broadly defined residential groupings there will be pockets of properties which appear to defy logic but nevertheless maintain high values in areas of low values or areas of low values in an area dominated by high values.

Once a change in an area is signaled the value movement tends to be fairly fast as the new socio-economic group moves in to replace the higher or lower socio-economic group.

These social features are closely related to the income profile of the population and the underlying economic activity of that section of the population that predominates in a given residential area. This is further reflected in market activity. Properties in desirable areas change hands quickly, with a minimum of properties remaining vacant. Properties in declining areas tend to remain on the market for longer periods, tend to become vacant and remain vacant, deteriorate, shift to multiple occupation, and may finally be condemned.

Local politics are a reflection of and a response to these changing social and economic forces. The future of a neighbourhood can be affected by the strength of the community in political terms. Strong representation can produce improvements to schools, health and community services and dictate the attitude of the authorities to that area. Small changes on their own have little impact, but in combination can strengthen a neighbourhood. Thus the attention of the authorities to street cleaning, refuse collection, repair and maintenance of roads and footpaths, street furniture, local schools etc will all become part of the environmental picture which impacts upon buyers’ attitudes and hence on their willingness to commit themselves to a purchase at a particular price.

Physical and environmental factors help to define the neighbourhood. Those areas which are, in physical terms, well maintained and environmentally most attractive are those which are likely to become socially most desirable and hence in time occupied by the economically stronger. This tends to create a community with political strength which becomes protective and perpetuates the status of the area.

Natural and man-made features may provide the boundaries to identifiable residential areas. In some cases there may be a spill-over effect, with values declining gradually from high value areas to low-value areas. In other locations there can be pronounced changes in value either side of a building or road. Roads, particularly motorways and main commuter routes, railways, rivers, lakes, village greens, sports fields, parks may all act as boundaries.

Proximity to one or another may give rise to higher or lower relative values depending upon the desirability or otherwise of being close to such a feature. There are rarely any hard and fast rules about the behavioural attitude of the residential property market. This is because it is often the combination of many factors that creates good or bad in the eyes of the buyer. Some river locations are highly sought after, others far less so given the current increased awareness of flood risk.

Motorways and railways may act as boundaries but the combination of ease of access, visual intrusion and noise, together with other environmental factors, will determine whether they add to, or take away from value.

Soil, subsoil, natural drainage, probability of flooding, micro-climate, topography and aspect are all physical factors which historically may have determined the desirability of building in an area and may still today have an impact on values. Proximity to the right schools, shops, libraries, golf courses, country club, leisure facilities, may add to value.

But on the other hand, proximity to anything likely to cause a nuisance such as factories, sewage-works, football grounds, bingo halls, discotheques or anything that might give rise to rowdyism and general misbehaviour will tend to depress values.

Communications to the rest of the area, surrounding public open space, motorway linkages and places of employment are all very important location factors. So too, is the existing quality of development, road patterns and standard of property maintenance in determining the good, the bad and the indifferent areas of a defined residential market. Nor would it be a complete story without mentioning the importance of pressure groups in the form of conservationists, environmentalists, ecologists and politicians.

All of these have an impact on the market for residential property. Thus at a given point in time these various forces will have combined together to create a particular level and pattern of values in an area. A change in one or more of any of the forces or components mentioned will alter the supply of, or the demand for, all residential property; or for a sector of the market or just for one specific property; the result being an increase in supply or a decrease in demand or a decrease in supply or an increase in demand and a corresponding change in prices and hence in values. It would be rare indeed for only one force to be moving, so interpretation of cause and effect can be very complex. The general economic climate together with the quality of different residential areas creates a pattern of values for a defined market. Within that market the valuer must now consider the site-specific qualities of a house and its physical condition in order to assess its market value.

Thinking of buying to let? Some points to consider before you take the plunge

The overall demand for private rented property is now stronger than ever, with the mortgage market restricted for purchasers and house price inflation, particularly in the south east, creating the need for high deposits which people cannot find. Lending has become far more stringent, owing to the onset of the credit crunch and the banks unwillingness to loan money, particularly to property investors. Essentially, accessing finance has become a big issue. The banks favour those with large cash deposits. This is the same in the buy-to-let sector as for domestic mortgages.

However, if finance can be arranged then the yields that one can expect from buy-to-let properties are high by comparison, currently standing at 6%. Of course, this depends on where the property is located. See overleaf for a table indicating the best buy to let areas in the UK. A yield is a portfolio’s annual rental income as a percentage of total value. The reason is that demand for private rented property is high, particularly as first time buyers cannot get a toehold in the market. They are instead turning to the private rental sector. Therefore, investing in property, for the longer term, as opposed to investing for short-term gain, is still a viable option.

Rental returns on buy-to-let are biggest in regional centres like Southampton, Manchester and Nottingham – where one in four homes are now privately rented. Property investors are looking way beyond London and identifying regions where yields are almost three times as high as in the capital.

Cities offering the greatest yields – rental income measured against the property cost – include Southampton, Blackpool, Nottingham and Hull.

The latest data on buy-to-let returns, from lender HSBC, also shows the proportion of property in each area already owned by landlords. And in many of the top-yielding areas private landlords already own one in four properties, or more. Southampton, with rental yields of 8.73pc, currently tops the list for rental returns. Manchester, Nottingham, Blackpool and Hull complete the top five locations with the best rental yield at 7.98pc, 7.67pc and 7.47pc respectively.

In all of those areas, except Hull, private landlords already own one in five properties, or more. These areas also offer the characteristics that make for excellent buy-to-let investment, the experts say: relatively low house prices coupled with strong demand for rental property from large student and young professional populations.

The lowest yields were registered in areas such as London where recent price rises have been large and rapid, outpacing the growth in rents. In London in particular, there is a higher proportion of rental property than elsewhere, with 38pc of property in Westminster, for example, being privately rented.

Investment properties which are rented out receive an income from tenants. In order to calculate the gross rental yield the annual rental income is divided by the purchase price of the property (annual rent÷price) × 100 = Gross rental yield)

So, if the property was purchased for £75,000 (total) and the rent received is £450 per month the yield would be: £5400 (annual rent) ÷ £75,000 × 100 which equals an annual yield of 7.2.

This is a very respectable return on your capital. Of course if you are a landlord then you will want to factor in the costs of being a landlord, such as maintenance, insurance, loan costs, empty periods etc.

If and when a property increases with time, this is known as capital growth. A simple example is if you buy a property for £75,000 and it increases by 25% there will be a capital appreciation of £18,750. It is a rule of thumb that low price properties might produce a high rental yield and low capital growth and vice-versa, although this is not always the case. Again, each case differs and many factors will play a part but as long as you know what you want then you should be safe with your investment.

If you are interested in averages, landlords receive £678 in rent each month as a national average. However, as always, averages don’t give the whole picture. Landlords in London and the South East collect the highest rents, with £1,079 and £816 respectively. In the west Midland rents average £678 and in East Anglia £676. Approximately 60% of this is spent on borrowing and management costs, leaving landlords with a healthy 40% profit on average. With buy-to-let mortgage rates so cheap (at the moment) now is the time to expand your portfolio releasing equity and raising deposits to buy new properties. However, when expanding your portfolio it is important to be realistic and ensure that you invest in properties that can be sold on easily, as there may come a time when you need to get your hands on the capital that you have tied up.

As with everything, property is a good investment as long as it is managed well. Too many would-be landlords buy property and neglect it which has a negative impact on the environment and also a negative impact on the investment as a whole. A run down property will decrease in value and the possibility of renting it out for a full market rent will also diminish.

What if the property you are considering is a listed building? Whether or not it is a good investment depends. You may or may not be able to make structural changes to the building, so you may choose to invest elsewhere. But some people like period features, such as Baroque cornices, so you may find a long term tenant on the basis of your property alone without any upgrading.
Obviously there are a number of different markets when it comes to people who rent. There are those who are less affluent, young and single, in need of a sharing situation, but more likely to require more intensive management than older more mature (perhaps professional) people who can afford a higher rent but require more for their money. The type of property you have, its location, its condition, will very much determine the rent levels that you can charge and the clients that you will attract.

The type of rent that a landlord might expect to achieve will be around ten per cent of the value of the freehold of the property, (or long leasehold in the case of flats). The eventual profit will be determined by the level of any existing mortgage and other outgoings. If you are renting a flat it could be that it is in a mansion block or other flatted block and the service charge will need to be added to the rent.

When letting a property it is necessary to consider profit after mortgage payments and likely tax bill plus other outgoings such as insurance and agents fees (if any). Of course there are other factors which make the profit achieved less important, that is the capital growth of the property.

As a (would be) private landlord, a person considering letting a property for profit, or already doing so, it is vital that you are very clear about the following:

What kind of approach do you intend to take as a landlord? Do you intend to purchase, or do you have, an up market property which you are going to rent out to stable professional tenants who will pay their rent on time and look after the property (hopefully!).

What are the key factors that affect the value of a property in rental terms? Is the property close to public transport, does it have a garden, what floor is it on and what size are the rooms? Is it secure and in a crime free area? If you are acquiring a property you should set out what it is you are trying to achieve in the longer term, i.e. the type of person you want and match this to the likely residential requirements of that hypothetical person. You can then gain an idea of what type of property you are looking for, in what area, and you can then see whether or not you can afford such a property. If not, you may have to change your plan.

Do you intend to let to young single people, perhaps students, who will occupy individual rooms achieving higher returns but causing potentially greater headaches? Are you aware of the headaches? It is vitally important that you understand the ramifications of letting to different client groups and the potential problems in the future.

Are you clear about the impact on the environment, and to other people, that your activities as a landlord may have? For example, do you have a maintenance plan which ensures that not only does your property look nice and remain well maintained but also takes into account whether the plan, or lack of it, will have an impact on the rest of the neighborhood? Will the type of tenant you intend to attract affect the rest of those living in the immediate vicinity.

What are the aims and objectives underpinning your business plan? Do you have a business plan or are you operating in an unstructured way? Taking into account the above, it is obviously necessary that you have a clear picture of the business environment that you intend to operate in, the legal and economic framework that governs and regulates the environment.

It is vital that you are very clear about what it is you are trying to achieve. You should either understand the type of property that you already own or have an idea of the property you are trying to acquire to fit what client group. These goals should be very clear in your own mind and based on a long-term projection, underpinned by knowledge of the law and economics of letting property.

Increasing numbers of buy to lets by cash buyers

According to Countrywide, nearly two thirds of the properties purchased by landlords were made using cash buyers. This is in contrast to the other third, which were completed using arranged mortgages. The value of properties purchased for the purpose of buy to lets totalled £31.5 billion, and of these, those made using cash payments accounted for a staggering£21.0 billion.

What can we glean from these financial statistics? The first we can deduce from the smaller percentage share is that some landlords are leveraging their existing properties in order to expand their portfolios. The one third of properties purchased are to have been based on buy to let mortgages, where perhaps an existing mortgaged property is remortgaged to release equity that goes towards a second property intended for lease. It reflects the thinking that buy to let is increasingly seen as a better investment than traditional bank investments. And while buyers are aware that a fall in house prices may result again in the future, they seem to be banking on the annual percentage gain to negate that loss.

Slightly more worryingly is the fact that two thirds of purchases were made outright with cash buyers. This highlights the fact that landlords are increasingly getting richer through the housing market, increasing their financial wealth considerably enough to afford such purchases in cash. And it points towards a worrying trend where those who have capital find it easier to accumulate even more capital, while thousands of young buyers are increasingly priced out, and have to resort to one of the following options:

Commuting to work in an area where salaries are higher and living in an area where the house prices are lower; this commute length is likely to increase as the property prices and rents increase;

Paying high rental rates and not being able to save for a deposit towards a house until significantly later in life, or not at all;

Having to make do with a lower standard of rental housing, to be able to afford to live in a particular area;

The figure of two thirds of landlord purchases by cash surpassed the three in five figure in 2011. In 2007, this figure was only two in five. In other words, the proportion of landlords buying in cash has increased by 26% in ten years, from 40% in 2007.

A favourable location for outright buy to lets is in the North of England and Scotland. While that may be good news for home owners, in that it drives house prices up as well as rentals, tellingly, the majority of purchases made are not made by people within the area, but by landlords outside of it. And this cannot be good news for the people who live in these regions. The ideal scenario for most people is to work in an area where salaries are higher, to have an income that outstrips living costs such as rentals or mortgages. But with landlords buying in Northern England and Scotland, turning it into an investment hotspot, the people in the area are trapped in a cycle of comparatively lower salaries and high prices.

Nearly four out of every five homes in the North East of England were bought by outright cash buyers, an astounding figure.

The trend was however reversed in the capital. It can be surmised that property prices in London were too high for many outright cash purchases. Landlords buying in London were the most likely to use a mortgage and London was the only region where statistically, two out of five purchases were cash-backed, well under the national average. Of course, this suggests that in some areas the proportion of outright cash buyers was even higher.

What inferences can we draw from the data? The first is that investment properties are on the rise. For estate agents, a registration with The Ombudsman Property Service is a sign that you work within a framework of established rules and regulations, which may be the distinguishing factor in determining if landlords choose to entrust their properties to you to manage or not.

Young professionals seeking to rent a property should choose one managed by a landlord or agent signed up to The Ombudsman Property Service. This means they are obliged to work to professional standards. You may get the offer of a cheaper rental property from a private landlord, on fairly informal terms, but accepting this may mean you have no means of redress when disputes arise.

The news that rental costs are increasing are not good. What can young professionals do in order to get on the property ladder? No one wants to be committed to a lifetime of renting, if they could help it, because while the ability to move from place to place and lead a bohemian lifestyle may seem idyllic in your twenties, having no roof over your head when you’re in your sixties is hardly a thrilling nomadic existence. And when you can see it coming from the vantage point of your forties and fifties, these thoughts will continually prey on your mind.

A recent report suggested young professionals could give up certain luxuries in order to accumulate enough capital to form a substantial deposit. The deposit for a London property is approaching £80,000 or £90,000. Taking the average annual salary of £26,000, minus rent, the average person would be in their forties by the time they got a foothold on the ladder. The report suggests that a foothold might be more quickly established if nights out, takeaway sandwiches and coffees were forgone, among other expensive luxuries like cigarettes. But it would be difficult to live a life that seems devoid of any entertainment, even though it may be a sacrifice the first time buyer may have to make.

The difficulty with reconciling what one wants from life with what one can afford is one of the difficulties we all have to overcome. Young people have aspirations of how they would like their lives to turn out, and aspirations of lifestyle that they have to manage. But perhaps the notion of doing without luxuries for a few years is a step too far, and those that have their eyes on the gulf between house prices and salaries have decided they cannot bridge the gap, or commit to closing the gap, and have decided to enjoy life and all its luxuries while they can.

The divergence between salaries and house prices has also inadvertently fuelled another trend. This trend is the currency of hope. Young professionals, unfortunately, are increasingly seeking an outlying factor to help them expand their savings enough to meet their dream property. An outlier is an event that lies outside traditional empirical data, what might call a one-off that defies evidence. An example of an outlier might be a lottery windfall. There is no past evidence that points towards a future win, but when it happens suddenly a sudden restructuring of the status quo results. Another outlier is perhaps an inheritance; a sudden unexpected sum of money would help make up the gap for a deposit. First time buyers are relying also on parental help. But there is also an increasing number of young professionals who are turning towards reality television, singing competitions and all kinds of sudden fame in the hope that it would suddenly lift them out of the existing situation, and provide some additional financial boost into their dream one.

Are others relying on property as their hope?