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.

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.

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.

A quick summary of what mediation entails

Mediation is a voluntary process in which the people involved in a dispute agree to sit down together with a neutral third party – the mediator – and discuss their mutual problem. They then work together, seeking a solution to the problem with which they can all live. Most often there are two people involved in a dispute, but there is no limit to the number that can be involved, or to who can attend a mediation to help resolve the dispute. While the mediator facilitates this process, the solutions that the people in the dispute come up with are entirely their own.

Mediation is voluntary because if someone absolutely does not want to attend a mediation, trying to force them to do so is unlikely to help in reaching resolution. You may have all kinds of misgivings about the party or parties with whom you are in dispute as you go into mediation, but essentially you must want to at least try to solve the problem. Mediation cannot work in any other way.

Generally, as the first step in the mediation process one party will contact the mediator expressing his or her desire to explore the options for mediation. If the dispute has reached a point where the parties are no longer in communication, most mediators are happy to speak to each person individually and confidentially, and to handle all contact in setting up the meeting between them if that facilitates the process. What the mediator cannot do is to force or coerce the other party to attend. All he or she can do is to talk to them and to explain the principles and processes of mediation, taking care to answer all their questions. Once the parties agree in principle to mediation, and before they’ve even sat down with the mediator, they are showing a willingness to resolve the dispute.

Mediation’s emphasis is on moving forward – not on looking back. Your dispute has got to where it is now and, however it got there, focusing on that part of the problem usually does not help anyone come to a resolution. Mediation’s purpose is to focus on the future and to progress on new terms with which everybody can live.

When you go to court, the focus is always on the past: who has been at fault, who has broken a contract, who has done something wrong, who has done what to whom. At the end of the court process a decision is handed down by the judge which attributes blame and prescribes a remedy. The court generally makes no attempt to give direction on how the parties should proceed in the future, and certainly does not want to involve itself in any ongoing supervisory role. This can be particularly difficult if the parties have to remain in any sort of relationship with each other such as in family cases or in cases involving relatives or work colleagues.

Mediation’s focus is on how to move forward and this is achieved by directing attention on how to solve the problem. It can also contain agreed terms for the future conduct of the relationship, if that is what the participants want.

Disputes in any context tend to generate a lot of bad feeling and high levels of stress. Have you ever been in a dispute with anyone? Most of us have. No matter how small the argument, feeling angry, unheard and misunderstood does not feel good, even if you are convinced that you are 100% in the right. Relationships of all kinds can be heavily damaged by dispute. The longer people remain in dispute with each other, the more they look for evidence to support their point of view in the argument and they therefore focus on the dispute. They fixate on this and focus all their energy on it to the extent that finding a workable and amicable solution that helps find a way out could not be further from their thoughts.

When people are in conflict, stress levels can rise sharply, and this is not healthy for anyone on either side of a dispute. Relationships outside the argument can also suffer when someone is very angry for such a very long time. When an amicable, acceptable resolution is reached, stress levels immediately drop and people feel much more positive and much lighter. A weight is lifted from their shoulders and the time and energy they once focused on the argument can now be used for things that are helpful and enjoyable to them.

Mediation is entirely confidential. This is another very important point and must be strictly observed by the mediator and by all parties to the dispute. Anything that is said or done in a mediation cannot be revealed to outside parties either during or after the mediation.

Mediation is also ‘without prejudice’. If your mediation is one of the few that is unsuccessful, and the decision is taken to proceed to court, whatever was said in the mediation may not be relied on in court by either party without the express permission of the party that made the statement. This means that if something new comes to light in an unsuccessful mediation, this information cannot be brought into the legal arena. Neither can the mediator be brought into the legal arena as a witness, save on the orders of a Judge.

The description of the mediation process as without prejudice means that anything said during the mediation cannot then be used as evidence in any legal proceedings which are being considered or already started. This allows parties to talk openly about options for agreement. Parties are able to suggest new and creative possibilities for agreement without jeopardising their chance to go (or to go back) to court if an agreement isn’t reached. A mutually agreeable outcome is often one which could not have been reached in court.

With the exception of family mediations, where some records must be kept, the mediator destroys all notes and information relating to the meeting apart from the agreements to mediate and the record of the attendees at the meeting. This further protects the confidentiality of all who attend as there is then no danger of any information falling into the wrong hands.

The voluntary and non-binding nature of mediation means that parties are not compelled to reach an agreement and options for an agreement can be discussed without binding themselves to a particular outcome. There is no consequence on the parties if they are unable to agree (other than financial loss where the mediation is self-funded). Mediated agreements are only binding if both parties wish them to be.

During a mediation, while the mediator assists and facilitates the process, the parties are responsible for generating options for agreement and the terms of any settlement reached. The mediator does not offer their opinion on the merits of either party’s case or seek to determine or impose any outcome. They do not make suggestions or recommend proposals for agreement (but may pass offers between the parties if requested to do so). Any agreement reached must be mutually acceptable to all parties and will have been created by them.

It is integral to the mediation process that parties are able to make informed choices, about what to propose by way of agreement and whether to reach a settlement. Mediators encourage parties to explore their positions so that any agreement reached can reflect their needs and interests. Mediators also encourage parties to consider the likely alternatives to reaching a mediated agreement to objectively assess any offer on the table. When a dispute involves legal rights and entitlements, parties should seek legal advice before commencing mediation. Parties may have a legal adviser present during the mediation (or available on the telephone), or be given the opportunity at the end of the mediation to consult a legal adviser before reaching a legally binding agreement.

Mediation invites parties to widen the potential options for agreement and explore new possibilities and ideas. Mediated settlements can be reached where direct negotiations have failed by getting the right people in the same room and breaking down barriers to communication. The time spent by a mediator encouraging parties to explore their own needs, as well as those of the other party, enables participants in mediation to make practical proposals. Such offers may have added-value as they may have huge significance to one party but can be provided with minimal inconvenience to the other. It may involve looking at previously unconsidered options and widening the options for agreement.

The Property Ombudsman offers free, impartial and independent service for the resolution of unresolved disputes between consumers and property agents. The scheme has been providing consumers and property agents with an alternative dispute resolution service for 27 years. A member agent signed up with The Property Ombudsman is obliged to adhere to a code of practice which consumers can take confidence from.

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.

Property Investment Appraisal

What exactly does the ‘appraisal’ of property mean? There are two distinct applications in mind. By ‘appraise’ we could mean

a. To fix a price for (an asset);
b. To estimate the amount, or worth or value, of (an asset)

The first of these meanings implies what is known, in the UK, as the valuation process or, in the US, as the appraisal process: the estimation of market value or the prediction of the most likely selling price. There is now widespread acceptance of the international definition of market value set out in the valuation standard of the International Valuation Standards Committee, commonly known as ‘the White Book’ (IVSC, 2005), which is now in its seventh edition.

This definition is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion.

Many nations also feel the need to have their own valuation standards, not least the UK, whose standards [maintained by the Royal Institution of Chartered Surveyors (RICS)] have been through a number of editions of what is commonly referred to as ‘the Red Book’. The latest edition (RICS, 2003) is the fifth and has adopted the aforementioned basic international definition.

There are even attempts to create regional standards (such as the European ‘Blue Book’, published by TEGOVA, The European Group of Valuers of Fixed Assets), and this has created some tension and rivalry between international, regional and national bodies, particularly in Europe.

However, there is now very little disagreement, if any, on the general wording of the market value definition, even if there are some differences in interpretation. These differences will continue to diminish as the property investment market becomes more and more international.

The second of the two meanings, the estimation of worth or value, is not necessarily market-based. Since 1995 this concept has been developed and institutionalised, having entered UK valuation standards in the 1990s as the ‘calculation of worth’, and now defined in the White Book under the term ‘investment value’.

The term ‘calculation of worth’ has now – happily – been dropped by the RICS in favour of the international definition.

The definition is as follows: the value of the property to a particular owner, investor or class of investor, for identified investment objectives. This subjective concept relates specific property to a specified investor, group of investors, or entity with identifiable investment objectives and/or criteria. This definition does appear to fudge a major issue, specifically whether worth or value is to an individual investor or to a group of investors. This has significant implications about how it might be assessed in practice, as the value to an individual and the value to a group may not be the same.

Individual investors are influenced by a set of criteria by which the value of an asset might be assessed. For example, their tax situation, the rate at which they can borrow, how much equity capital they have to spare, what adjoining assets they own and the strengths and weaknesses of their existing investment portfolio are all factors that may lead them to perceive value in a particular property.

Hence, while all investors may agree upon such important variables as the size of the asset being appraised, the cash-flow implications of the lease and the likelihood of achieving planning permission for a change of use, individual investors will always be subject to different motivations.

The distinction between value and worth can be important. Further, it is possible that a group of investors will use the same criteria and share the same characteristics, and would as a result attach a similar value to a property asset. Identifying the possible buyer group is very relevant to appraisal, which is therefore the process of identifying a mixture of objectively measured market variables and the prospective owner’s (or group of owners’) subjective estimates of other relevant factors.

We could use the term ‘appraisal’ to cover the process of estimating either market value (the prediction of the most likely selling price) or investment value (the estimation of worth to an individual or to a group of individuals).

We could therefore encourage the use of the term ‘market valuation’ or ‘valuation for pricing’ for the former, and we would prefer to use ‘investment value’ for the latter. We hope this will not cause too much confusion, but the possibility of confusion unfortunately exists, grounded in the fact that the development of property terminology has been influenced by the isolation of the property world from the securities markets.

There is no doubt regarding the meaning of valuation in the securities markets: it means the estimation of worth.

Pricing is a function that is carried out by buyers, sellers and market makers. The price of a particular company in the stock market is publicly quoted, and large numbers of identical shares in that company can be bought and sold. In property, however, there are no market makers.

The price at which a transaction will take place has to be influenced by an expert opinion – a ‘valuation’ – because there is both insufficient market evidence and insufficient homogeneity of product for traders to be able to fix prices. It is therefore to be expected that at any one time different views of worth will be held by different individuals and these differences will fuel market turnover.

In addition to the main concepts of market value and investment value, ‘sustainable value’ (mortgage lending value), a relatively new phenomenon used in the bank-lending process, has been developed in mainland Europe. It has found some favour, particularly within German banking systems, and the mortgage lending value basis has been adopted, along with market value, within the international banking regulatory process known as Basel.

The concept sustainable value has been subject to intense criticism, as of it does not conform to any recognised economic concept of value and the definition is virtually incomprehensible. The implications for investors can be damaging and may have had some impact on the German open-ended fund crisis of 2005/2006. But it is arguably of no merit and should be abandoned.

The stock (property) selection policies of both major and minor property investors often include an examination of the mismatch between estimates of market value and investment value in order to spot pricing anomalies, and any investor or advisor will benefit from a clear understanding of the difference between the market value of an asset and its worth to an investor or group of investors.

If there is a difference, is this evidence of poor-quality appraisal? It is widely believed that market valuations should primarily be accurate; that is, they should closely predict selling price.

Accuracy may therefore be a relevant and useful test of the quality of a market valuation. Investment valuations, on the other hand, should primarily be rational; they should be professional and expert reflections of a combination of objectively measured market variables and the prospective owner’s subjective estimates.

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.

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?

What the terms for different property buyers can reveal to you

There are many terms familiar to estate agents that come to categorise buyers. Take for example the term “first time buyers”. The term itself may or may not be accurate in the impression it conjures – it makes us think of a young couple with no children, but of course it could equally apply to a couple with children, or an older couple, or a single person who has been renting for a long time. So the term does not really paint a useful picture of the individual’s age. What it does, though, is give some inkling of the buyer’s position. A first time buyer has no previous property to sell and is hence chain free, and has that benefit on his side.

If an individual is identified as a “next- time buyer” in estate agent parlance that means he is hoping to move up, but the purchase of the next property may be complicated if there is an existing property still on the market. A next-time buyer, however, is likelier to have a more sizeable deposit, if the sale of the existing property goes to plan. Next-time buyers will be seeking properties with more rooms, possibly garden space, better schools around, because the move may be motivated by children, or the thought of preparing the nest for the arrival of children.

Empty nesters is a term that is increasingly common in usage. What is an empty nester? It is a couple whose children have left the family home and are hence looking to buy a different property – with a difference. While most people keep buying bigger properties as they go along, empty nesters are looking to downsize.

It makes sense to downsize in your latter years. Firstly, it frees up equity that can be used towards retirement. Secondly, the upkeep of a smaller property is easier, rather than one with lots of rooms. Thirdly, it means you do not need expend finances to keep heating unused rooms, just to keep away mould.

The government feels that empty nesters could make up one in five home buyers, and it would help relieve the housing crises if existing family homes were sold to growing families while grown families reverted to smaller homes. The empty nesters market is expected to grow and for that reason financial products catering to the elderly may be in greater demand; estate agents may also find it beneficial to have a greater number of downsizing properties on their books.

Making it as an estate agent in a world of dwindling commissions

If you are an estate agent, and have been at it for a fair while, you may remember the days when a commission of 2-3% for each sale of property was pretty standard. Then as the years went by you may recall how this figure gradually dwindled by percentages, almost like the Bank of England base rate, until it gradually became as low as 1%.

And just when you thought it couldn’t get any lower, the internet continued to slash commissions further, and periodically you had to do special promotions to get people to list their properties with you.

Could margins be squeezed any tighter? It certainly seems so. A quick Google search for the term “estate agents” will now see online agents offering to sell for fixed rates of around £650, or offering no sale no fee guarantees. How can you make it as a property agent?

Determine your minimum
The first thing you must firmly establish, and hold on to, is the minimum sum you want to make from each property sale. Never let the client bargain you down below that figure, even if they say there is another agent they are considering. If you go below what you can accept, you will find yourself unmotivated to make the sale, or to arrange property viewings. In other words, if you accept less than what you normally would, the property is a white elephant on your books, and would only take up display space in your store front. You might as well not bother. And if you show you can be pushed, you will only attract the kind of clients who want to squeeze out every pound’s worth out of you, never mind that you are already working at the bare minimum.

Emphasise what you can offer
Even if you commission rate is higher than other agents in your area, or more than the fixed fee online agents, all is not lost. You are hardly disadvantaged. Mention what you can offer for the price you charge. After all, it is not the lowest price that is important, it is value for money that people go for when it comes to deciding which estate agent to list with. In other words, if you charge more than the other agents, make sure you show how you can offer more.

Play to your strengths
Competing against an online agent? Emphasise your local presence. Emphasise to a potential client how they can walk in to your branch to chat about the property sales progress. They can’t do that with an online agent. An online agent may be willing to respond to emails, but mention how a prospective buyer can walk to your branch, discuss the property for sale and see it all in one fluid motion. You can’t do that with an online estate agent.

How do you compete with other estate agents? Find a way to use facts to your advantage. If a prospective client mentions your lack of clientele as an indication of a lack of trust, suggest how it means you will be more focussed on selling their property. If a client worries about listing with you because you have too many properties on your books, mention how your branch attracts large number of buyers because of this and the right buyer will come along.

Also emphasise your experience if it is an advantage. Show how knowledgeable you are in your field or in other areas. Always take the change to demonstrate your knowledge beyond the immediate sale, to show the buyer or seller you know about things such as flying freeholds or right to manage.

Be more prominent in your local community
Know any local events? Sponsor a stall or an annual fun run. Some estate agents sponsor school summer fairs. But why not sponsor a monthly competition, such as an art or story writing competition, where the prize is a grocery shopping voucher? Have different categories for children and adults. Parents will be urging their children to enter, and adults will be trying their luck in their own category too. Every one will be talking about your competition, and you’ll be the buzz of the town!

Or sponsor a singing competition or talent competition at a local fete where the judges are prominent members of the community. You can be fairly creative with your efforts and generate a great deal of publicity for yourself in the process!

It may pay to be more involved in your community. Elderly buyers will come to recognise your brand as a mark of trust. A word about trust though – make sure your practices build on these too. For example, try to avoid using sealed bids as a means of eliciting an offer from a group of bidders, because it leaves all but one buyer disappointed, and if you become known as the “sealed bid” estate agents for resorting to it, it does your name no good.

Be personable
Being an estate agent doesn’t mean sitting at your computer, checking emails, editing listings of properties or checking social media accounts. Get out there and be seen. Buying a newspaper? Chat to your newsagent. Make sure the people in the community know who you are by your live presence, and not just your avatar or twitter handle!

Valuing a residential property

The first aspects of a property to be considered by the layman are usually the location, the appearance and the physical condition. Where it is, what it looks like, its accommodation, services and condition are all important factors when considering value, but for the valuer the most important initial considerations are legal. This is because it is the legal title to property with all its encumbrances that is bought and sold. ‘Every man’s home is his castle’summarises most people’s aspirations for home ownership, to own something which is theirs and which is defensible against all-comers. In practice, the main line of defence is title; if the title is in any way limited, then solid walls may not prove to be the best defence.

In England and Wales the titles to be valued will either be freehold or leasehold, but it is also possible to own no more than an interest for life in a particular parcel of land.

The legal term for a freehold interest is fee simple absolute in possession. This just means that the whole estate, or any part of the estate can be transferred by the freeholder at any time, either during the owner’s lifetime or on their death by will or under the rules of intestacy.

A freeholder has the right to occupy and use the land, create lesser interests out of it such as long leases, periodic tenancies and life interests. In theory the Crown owns all of the land so a freehold interest is the closest that a person can come to absolute ownership of land. This is illustrated by the fact that if a freeholder dies without making a will and without any living relatives to inherit the land, then the title will revert to the Crown.

Although the freeholder has in theory absolute rights over the land, this ownership is secondary to other common law and statutory rights.

Civil and military aircraft can enter the airspace over a land, subject to limitations.

All gold, silver and coal belongs to the Crown who grant licences for the excavation of such minerals. Items of historic interest that are found on land may also belong to the Crown, but compensation can be paid to the owner of the land on which the items are discovered.

Ponds and lakes that fall within the boundary can be owned, but control and use of larger water bodies is strictly regulated. Ownership of river frontages may or may not include fishing rights and the riparian rights of others must be respected. Two other title restrictions require special mention.

First, on transfer of title it is possible for an owner to impose on a purchaser specific restrictions known as restrictive covenants. From a valuation viewpoint the most important are those covenants that restrict the use: development may be restricted to a specific number of houses, occupation restricted to family occupation, use may be restricted to public open space, and there may be restrictions on parking of caravans. These restrictions may remain enforceable for many years, but the right to enforce may be lost if the person enjoying the benefit of that covenant has permitted breaches to occur.

In other cases it may be necessary to apply to the Lands Tribunal under the Law of Property Act 1925 for the restrictions to be modified or discharged. Clearly such restrictions may hold values up where they help to maintain an environment, but they may also depress values where they prevent the land being used to its highest and best use in today’s market. Thus land suitable for building 10 houses may be restricted to one house by a covenant created in the 19th century.

Second, it was possible for a freehold title to be made subject to a rent charge. This entitled a party with no legal interest in the land to receive an annual payment. The Rent Charges Act 1977 prohibits the creation of new rent charges and contains provisions for the gradual extinguishment or voluntary redemption of such charges as currently exist (see Appendix IA). Rent charges will cease to exist from July 2037.

A freeholder is subject to the general laws of the land when it comes to determining what he can do with his land. There aver various acts that determine use of the land, such as the Town and Country Planning Acts, Environmental Protection Acts and the Building Regulations.

The police may also override the freeholder’s legal position to enter the property to enforce the law.

Freehold property also includes improvements to the land such as buildings and those things so attached to the land that they are held to be fixtures and so part of the land. The distinction between personal property that is movable and personal property which has been so attached to the land as to become a fixture is often very fine and has given rise to a branch of law known as the law of fixtures. In the residential market it has become the custom for questionable items to be listed as being included or excluded from the sale. The valuer will take the obvious fixtures into account in a valuation as they may add to the value of the property. Clearly an item such as a central heating boiler is a fixture, but it is less certain whether a built-in hob and oven in a kitchen will be classed as a fixture. When in doubt the valuer should make it clear in a valuation report which items have been included in the valuation of the property.

Until the passing of the Leasehold Reform Act in 1967 it was quite common practice for residential property to be sold on a leasehold basis and in the case of blocks of flats, house conversions, sheltered housing or whenever property management may be a major issue it is still common practice to sell on a leasehold basis with a share in a specifically created management company which owns the freehold.

In September 2004 a new form of land tenure was introduced. It is called commonhold and it is a way of owning freehold land. It is intended to be an alternative to the leasehold system for multi-owned, interdependent properties with common parts. Its most obvious application is to blocks of flats and apartments, but it could be used for developments of houses or mixed use buildings where there are communal areas. A commonhold association must be formed as a private company limited by guarantee. This owns the common parts and all individual unit owners are members of the association and so they can control those common parts. The individual unit owners will own the freehold of their unit.

A leasehold estate in property will be for a definite term. This is an important value factor.

Traditionally such leases in residential property have been for terms of 99 years or 999 years. But in addition to the covenant to pay rent there may be covenants to repair, insure, pay local taxes, to clean, to maintain grounds and gardens or to meet some or all such costs through a service charge levied by the landlord. In most instances these covenants impose a contractual requirement on the leaseholder to undertake everything that one would expect from a reasonable freehold owner of residential property. However, a freeholder has a choice of whether or not to paint the property, to clean the windows and to maintain the garden; the leaseholder will not necessarily have that choice. Further, the leaseholder may be specifically restricted in terms of the use and enjoyment of the property. There may be covenants about music after 11.30 pm, about hanging out clothes to dry, about erecting TV and radio aerials and satellite dishes and a requirement to obtain the freeholder’s consent for all alterations and for any sale (assignment) or further sub-leasing of the property. A licence fee may have to be paid to the freeholder whenever the freeholder’s consent is required under the terms of the lease.

A valuer when instructed to prepare a valuation must be satisfied by inspection and enquiry as to the nature of the title to be valued and any restrictions or other encumbrances that attach to the title. However, because of the time-limits imposed upon the valuer by many clients, valuations are often prepared on the basis of an unencumbered freehold or on the basis of minimum information relating to a lease. A valuer is valuing on the basis of information supplied and will naturally reserve the right to review that valuation if that information is subsequently found to be incorrect. Nevertheless valuers are trained to observe and should therefore account for the obvious, such as signposted public footpaths, unmade and un-adopted roads, shared driveways and shared areas in blocks of flats.

Some things to consider before investing in commercial property

Commercial property is property that is not designed or used for residential purposes, or for purposes associated with the primary industries such as agriculture and mining. The three main types of commercial property are offices (single office buildings and business parks), retail (individual shops, shopping centres, retail warehouses and supermarkets) and industrial (factories, warehouses and distribution centres). The remaining properties are those used for leisure (pubs, restaurants and hotels), sport, education, the provision of utilities and healthcare (hospitals and nursing homes).

The value of UK commercial property at the end of 2015 was £ 871 billion, about 10% of national net wealth, almost half of the value of government bonds and 40 % of the UK’s stock market. Within that figure of £ 871 billion, retail accounted for £ 360 billion (41%), offices £ 270 billion (31%), industrial £ 168 billion (19%) and other commercial properties £ 73 billion (9%). Commercial property activities employed almost 1 million people and the sector contributed about £ 68 billion (4.1%) to the UK’s Gross Value Added. (The figures quoted are taken from the Property Data Report 2016, produced by eight members of the Property Industry Alliance.) Although the residential property sector is over six times larger (by value) than the commercial property sector, the vast majority of residential properties are owned by private householders, so there is not as much scope for residential property investment as there is for commercial property investment.

About 45% of all commercial property is bought by owner-occupiers, who need land and buildings from which to conduct their business. Some of these occupiers want to buy a freehold or long leasehold interest in the property because they need certainty and complete freedom to deal with the property as the business dictates, but it does means that a lot of capital is tied up in the building. Other occupiers prefer to take a so-called ‘rack rent lease ’, where the occupation cost is paid, usually quarterly, over the period of the lease by way of rent, rather than all at the beginning. In recent years, particularly among the large food retailers, there has been a move away from freehold ownership through ‘sale and leaseback’, where the freehold interest in the property is sold to an investor (thus releasing capital for use in the operating part of the business) and the occupier takes a rack rent lease instead.

The other 55% of all commercial property is bought by investors, who buy property to let out to others so that they can make an income from the rent and a profit from any increase in the capital value of the property. Although the capital value of commercial property suffered a considerable fall in 2007 and 2008, it remains popular with certain types of investor because the average lease offers an income stream of about seven years. So the income return (or ‘yield’) from commercial property is reasonable (13.1% for directly-owned commercial property in 2015, better than UK equities and bonds). Over the 44 years prior to 2015, commercial property produced annualised returns of almost 10.9%, somewhere between gilts and equities (see page 18 of the Property Data Report 2016). Commercial property has tended not to track the performance of gilts and equities particularly closely, so including some commercial property in your investment portfolio is a way of diversifying and spreading risk. Moreover, by good management of tenants and/ or refurbishment of a tired building, a property investor may be able to enhance the value of the asset, even in times of economic downturn.

There are two ways to invest in commercial property, directly or indirectly. Direct property investment involves buying a property in your own name or in the name of a group company, letting it out, taking responsibility for managing it and selling it on when you no longer require it. Although you can employ surveyors and other professionals to assist you, this still uses up a considerable amount of time and effort. It also means that you have to find a considerable amount of cash, or a loan, or a combination of both, to fund the initial purchase. An alternative way is to buy shares or units in a company that invests in a range of commercial and residential property, such as a real estate investment trust (REIT) or an offshore property unit trust (PUT). These indirect property investment vehicles offer opportunities for smaller levels of investment, some taxation advantages, less management responsibility and, arguably, greater flexibility as it may be easier to trade units than to sell a property. However, indirect property investment is beyond the scope of this book.

So who invests in commercial property? According to figures in the Property Data Report 2016, overseas investors held the largest block of directly-owned investment property (28%); UK insurance companies and pension funds held 17%; UK collective investment schemes held 16%; UK REITs and listed property companies held 15%; and UK private property companies held 12%. Traditional estates and charities and private investors held 5% and 3% respectively. Some of the units in the UK collective investment schemes are bought by private individuals, but many are bought by the investors who also buy property directly. For example, in 2015 the UK insurance companies and pension funds invested £ 84 billion (2.8% of their total investments) in directly owned UK property, £ 57 billion (1.9%) in collective investment schemes and £ 37 billion (1.2%) in UK and overseas property company shares.

Buying a leasehold property? Understanding a bit more about leases

A lease is a legal term used in property law to describe a particular type of property contract. In many respects, a lease is similar to any other type of contract: it is a written agreement between two or more parties recording the basis on which the bargain between those parties has been agreed. Although, in practice, leaseholders may feel that they did not have much bargaining power when agreeing the terms of their lease, in law, the lease is a written record between the two parties reflecting their agreed relationship.

Usually, the leaseholder will pay the freeholder a sum of money (“consideration”) in return for the exclusive use of the property. This will be in addition to any other sums that the leaseholder may have to pay during the course of the lease. Such charges (of which service-charges – see Chapter 3 – are one example) will themselves be governed by the terms of the lease.

The usual parties to a lease are the lessee (the leaseholder) and the Lessor (commonly the “freeholder” or “landlord”). In some cases, tripartite leases include the management company too. These are commonly set up by the developer in new-build blocks of flats as a method of securing the management for as long as possible. If the lessees are dissatisfied with the management of the building, tripartite leases make it more difficult to change the management. Ultimately, this would be a lengthy and potentially costly process. Finally, there are some buildings where a separate lease has been granted to the managing agents of the common parts alone. Situations such as these can also cause difficulties for the leaseholders when faced with unsatisfactory management. The solution in such circumstances is for the lessees to exercise their collective right of enfranchisement and purchase the freehold. Recent guidance from the Leasehold Advisory Service (LEASE) advises purchasers of flats to investigate the parties to the lease in advance and to consider with care any purchase involving a tripartite lease or a building where the common parts have a separate lease.

In simple terms, a lease grants the leaseholder the right to enjoy the exclusive use of a property for a fixed period of time, and it is conditional upon the observance of certain express and implied terms contained within the lease itself. Leases come in different lengths commonly 99 years, 125 years or nowadays even 999 years (sometimes also referred to as “virtual freehold”). When the time prescribed by the lease expires, the ownership of the property reverts back to the freeholder (called “freehold reversion”). The freeholder is then at liberty to deal with the property as he pleases (which may include the grant of a new lease). The freeholder is sometimes referred to as having a “reversionary interest” in the property, meaning the freeholder’s right to take possession of the property on expiry of the lease term. A reversionary interest is a valuable asset that can be traded.

If your lease is about to expire, do not panic! It is unlikely you will be automatically turfed out into the street. Rather, the law (which is primarily contained in Schedule 10 to the Local Government and Housing Act 1989) will usually provide you with an opportunity to remain in occupation as a tenant. More commonly, however, you will have the opportunity to negotiate the purchase of your freehold or negotiate an extension of your lease. Although the law will afford you some protection in these circumstances, it is a technical and specialised area and it is advisable to seek professional legal advice.

At this point, it is extremely important to highlight a common misconception often held by leaseholders: a lease does not provide the leaseholder with entire ownership of the property. If there is only one piece of information you remember from reading this book, then that should be it. All a leaseholder “owns’ is the lease contract; the property is ultimately owned by the freeholder. Shocking as it may seem, a leaseholder only has the right to use the property that is the subject of the lease for the period of time prescribed in the lease. The length of the lease can be spotted when reading the lease by the words “to hold” which will be located nearby. Think of a lease as a form of “virtual ownership” of the property for a period defined by the lease length, accompanied by legal protection of the leaseholder’s enjoyment of the use of the property during the lease term.

Leases are valuable assets. They can be bought and sold for significant sums of money. Despite the imperfections of the leasehold system, some leases are worth millions of pounds. When a lease is sold, it will need to be “assigned” to the new owner.

Buying to let? Some issues you may wish to consider

Property is great whether you’re looking for a steady supplement to your retirement income or a secure financial future. Most buy-to-let landlords want to become financially independent, and property is a proven investment strategy for achieving that goal. But after you sign your name on the dotted line and officially enter the world of owning rental property, you face some tough decisions. One of the very first concerns is who will handle the day-to-day management of your rental property. You have properties to let, rents to collect, tenant complaints to respond to and a whole host of property management issues to deal with. So you need to determine whether you have what it takes to manage your own buy-to-let property or whether you should employ a managing agent.

A great advantage to building wealth through property is the ability to use other people’s money – both for the initial purchase of the rental property and for the ongoing expenses. Although the availability of buy-to-let mortgages has suffered since the downturn, more lenders are re-entering this market, so choice is increasing all the time. You will need to raise a deposit and then borrow the rest of the money from a mortgage lender.

The deposit required for a buy-to-let mortgage tends to be higher than that needed for a residential mortgage, and is significantly higher since the downturn. Expect to pay at least 25 to 30 per cent of the purchase price for the best rates, although some lenders request as little as 15 per cent.

The ability to control significant property assets with only a relatively modest cash investment is one of the best reasons to invest in bricks and mortar. For example, you may have purchased a £100,000 buy-to-let property with a £20,000 cash deposit and a mortgage for the remaining £80,000. If the property’s value doubles in the next decade and you sell it for £200,000, you will have turned your £20,000 cash investment into a £100,000 profit. This is an example of capital appreciation, where you are able to earn a return not only on your cash investment but also on the entire value of the property.

Rental property also offers you the opportunity to pay off your mortgage using your tenant’s money. If you’ve been prudent in purchasing a well-located rental property in a stable area, you’ll have enough income to pay the interest on your mortgage, as well as all the expenses, maintenance and insurance.

Over time, your property should appreciate in value while your tenant is essentially paying all your expenses, including the interest on your mortgage.

Your lender and tenant aren’t the only ones who can help you with the purchase of your rental investment property. Even the government is willing to offer its money to help your cash flow and encourage more people to become landlords. In calculating your income tax obligations each year, the government allows buy-to-let landlords to offset their rental income against interest payments on their mortgage and certain expenses. For example, you can claim 10 per cent of the annual rent for wear and tear on fixtures and fittings in furnished properties.

Over time, rental income generally outstrips operating expenses. And after your tenants have finished paying your mortgage for you, you’ll suddenly find that you have a positive cash flow – in other words, you’re making a profit.

One of the first steps in determining whether to completely self-manage your rental property or delegate some or all of the duties to other people is to analyse your own skills and experience. Many very successful property owners find that they’re better suited to deal-making, so they leave the day-to-day management for someone else. This decision is a personal one, but you can make it more easily by thinking about some of the specifics of managing property. Property management requires basic skills, including marketing, accounting and people skills. You don’t need a university degree or a lot of experience to get started, and you’re sure to pick up all kinds of ideas on how to do things better along the way.

If you’re impatient or easily manipulated, you aren’t suited to being a property manager. Conveying a professional demeanour to your tenants is important. You want them to see you as someone who will take responsibility for the condition of the property. You must also insist that tenants live up to their part of the deal, pay their rent regularly and refrain from causing unreasonable damage to your property.

Good management leads to good financial results. Having tenants who pay on time, stay for several years and treat the property and their neighbours with respect is the key to profitable property management. But, like most things, it’s easier said than done. One of the greatest deterrents to financial independence through investing in rental property is the fear of management and dealing with tenants.

If you choose the wrong tenant or fail to address certain maintenance issues, your buy-to-let investment may turn into a costly nightmare. By doing your homework in advance, you can reduce those beginners’ mistakes. Experience is a great teacher – if you can afford the lessons. If you already own your own home, then you already have some basic knowledge about the ins and outs of owning and maintaining property. The question then becomes how to translate that knowledge into managing rental property.

As a landlord, you may choose to handle many responsibilities while delegating some of them to others. Look at your own set of skills to determine which items you should delegate. A contractor may be able to handle the maintenance of your rental property and garden more efficiently and effectively than you can.

The skills you need to successfully manage your own rental properties are different from the skills you need to handle your own property maintenance. Most buy-to-let landlords find that using trusted and reasonably priced contractors can be a valuable option in the long run.

Ultimately, you can delegate all the management activities to a professional managing agent. But hiring a managing agent doesn’t mean you’re off the hook. Depending on the arrangement you have with your agent, you may still oversee the big picture. Most agents need and seek the input of the property owner before they start so that they can develop a property management plan that meets the owner’s investment goals.

Keep in mind that no one else will ever manage your rental property like you will. After all, you’re more motivated than anyone else to watch out for your buy-to-let investment interests. Only you will work through the night painting your property for the new tenant moving in the next day. And who else would spend his annual leave looking through the local newspaper classifieds for creative ad ideas?

You may find that a managing agent can run the property more competently than you can. Many buy-to-let landlords possess the necessary skills and personality to efficiently and effectively manage their rental properties, but they have other skills or interests that are more financially rewarding or enjoyable. Hiring professionals and supervising them is often the best possible option.

Considering property management? Hone your people skills first

Real estate is a great source of income, whether you’re looking for steady, supplemental retirement income or a secure financial future. Most residential rental property owners want to become financially independent, and real estate is a proven investment strategy for achieving that goal. But after you sign your name on the dotted line and officially enter the world of rental property ownership, you face some tough decisions.

One of the very first concerns is who handles the day-to-day management of your rental property. You have units to lease, rents to collect, tenant complaints to respond to, and a whole host of property management issues to deal with. So you need to determine whether you have what it takes to manage your own rental property or whether you should hire and oversee a professional property management firm.

Owning investment real estate and managing rental units are two separate functions, and although nearly everyone can invest in real estate, managing it takes time, special skills, and the right personality. The importance of relationships with people cannot be neglected because property management is really people management? There are advantages of owning rental property and you should assess whether you have what it takes to manage your own property.

Some rental property owners find themselves managing their own properties without even knowing what management requires. Managing the physical aspects of your properties (the buildings) and keeping track of your income and expenses are fairly straightforward tasks. However, many rental property owners’ most difficult lesson is the management of people.

Rental management requires you to deal with many more people than you may think. In addition to your tenants, you interact with rental prospects, contractors, suppliers, neighbours, and government employees. People, not the property, create most rental management problems. An unpredictable aspect always exists in any relationship with people. As with most businesses, the ability to work with people is one of the most important skills in being a successful property manager. If you enjoy interacting with people and are adept at working with them, you’re off to a good start toward becoming a prosperous property manager.