Crowdfunding – Two Sides

Apart from setting up some direct debits for various charities, I’ve not withdrawn or used any of the profits that I’ve made via matched betting. I’ve just let the funds accumulate across my current account, my exchange accounts and the various gambling accounts.

In June, I finally invested £100 of the profits but I opted to do something different. theFIREstarter’s post reminded me of something that I had looked at previously but not gone for – I decided to invest a little in property crowdfunding.

Property crowdfunding “allows people to invest in buy-to-let properties without having to take on the additional responsibilities that come with being a landlord”. So says the blurb. Anyway, here’s a better explanation of what property crowdfunding is all about.

If I had a wedge of spare capital, I would probably be tempted to buy another little BTL property but I don’t, so property crowdfunding interested me when I first heard about it.

Some of the property crowdfunding websites required a minimum of £1000-£5000 investment but I went for Property Moose*, where the minimum investment is just £10.

propertymoos

So basically, you pick an available property from the website, invest your money with a load of other people to buy ‘shares’ in the property. When the property is tenanted, you start earning ‘monthly rental’ based on the number of shares you own.

Rental income seems to vary from around 5% – 7%. With Property Moose, most properties tend to be in the north/northwest, with only a few in London. Said properties tend to be ones which require renovation and you are able to see the progress of the renovations via photos posted on the website.  At the end of the fixed investment term (ranging from 1-3 years), the property is sold and proceeds are shared amongst the investors (subject to their share and less costs and expenses), although it appears that investors are able to vote to retain the property for a further year.

Property crowdfunding is not without its risks – I view it along the same lines as P2P  – still pretty new, regulated but not covered by the FSCS (Financial Services Compensation Scheme) so I’ll not be investing a huge amount in this.

Since that initial investment, I’ve chucked some more matched betting profits at Property Moose.  I think there’s still some life left in investing in property (yes, despite Brexit and the doom and gloom about property bubbles) so will be continuing to build on this investment bit by bit and will update with the rest of my portfolio.

Another Side to Crowdfunding

I came across Kiva a while ago but decided to revisit when I was looking for charities to support recently.

kiva

Kiva is a charity platform which aims to support people from poorer countries via crowdfunding loans. Deki is another platform, which I hope to have a look at again.

So how does it work? First, a borrower applies for a loan. Usually, loans are to start or grow a small business, used to go to school/further education or simply to be able to live in better conditions.

The loan, after it’s approved is crowdfunded by other lenders, in $25 increments.

Repayments of the loan are made on a monthly basis and such repayments can then either be withdrawn or used to fund other loans.

My first Kiva loan was to a woman from the Philippines who wanted to build a sanitary toilet for her family…. such things that we take for granted…

So, different sides to crowdfunding – I hope to make some money on the one side, and hope to help improve someone’s life a little on the other.

[*Referral Link – edited 16/09/16]

My Rental Property – Part II

As with Part I, I stress that this is just an account of what I did (as a complete novice) and that there are most likely other/better/cheaper ways of doing what I did!
So having bought my property, I needed to get it ready for tenants and start being a landlord.

I got my Keys!

The first thing I noticed was that the post box for my apartment (to which I had no key as it wasn’t part of the set I was given on handover) was damaged. The likely explanation was that the previous owner, having lost their key, had tried to crowbar it open, thus damaging the front panel. I had a locksmith come open it up properly, fix the panel and fit a new lock.  £125 bill after less than 24 hours – hmm, not a great start!

The box itself was jammed full of 2 years’ worth of fast food flyers, spam post and lots of red unpaid bills

So I arranged for the water and electricity meters to be read, and contacted the local authority about the unpaid council tax bill.

Residential Management

As with most apartments in this country, my property is leasehold, not freehold.  The ultimate owner of the property charges me annual ground rent and also employs a residential management company who is responsible for the maintenance and repairs of the entire block of apartments, eg cleaning, care-taking duties, lift maintenance etc. They in turn charge each leaseholder (including myself) a proportion of such maintenance and repairs in the form of an annual invoice, accompanied by their estimated annual budget. Sadly, said residential management company certainly lives up to the reputation that such companies are largely incompetent and charge high fees.

As well as unpaid utility bills, when I took over the property, there were also unpaid residential management fees. Dealing with the company (I don’t even want to link to their website here to give them any sort of promotion) was like pulling teeth! They are one of those companies that have a premium telephone number and it is guaranteed that you will be put on hold every time you call them no matter how simple the request – that is a fact. For two years, they tried to charge me for a car parking space that I didn’t have – this has finally been resolved after numerous emails (not calls!).

Anyway, my solicitor sorted out the unpaid bill so I was finally registered with them as the new landlord.

Landlord Safety Obligations

Gas – If supplied (not in my apartment), landlords must have a gas safety certificate.

Electricity – An electrical safety certificate isn’t currently a legal requirement but ensuring the electricity is safe in your property is, so I had an electrician in to test all the appliances, sockets etc. He charged £72, but the highest quote I got was over £240 – definitely worth ringing round for quotes!

Fire/Smoke alarms – one must be fitted as standard and it’s recommended that a mains operated smoke detector be fitted (as it’s been known for tenants to remove batteries when detectors start bleeping, eg if they want to smoke in a no-smoking building or if the batteries start running low…very stupid I know but some people…). There was one fitted already in my apartment and I had the above electrician check that it was working.

Energy Performance Certificate – not really a safety issue but you’re required to produce one of these as a landlord. You should get it from the person you bought your property from.

Furnished or Unfurnished?

Somewhere in my research, I read that it’s often easier to find a tenant for furnished properties and you can generally charge higher rent for such properties (although there is a third option, ‘part-furnished’).  Also, tax wise, you get to deduct a percentage of the cost of the furniture that you provided in the property from your tax liability.
Inside my apartment!
I spent just under £2k in total kitting out the entire apartment, including installing hard wearing laminate flooring throughout (a friend’s other half fitted it), a double bed, wardrobe, side cabinet, dresser, sofa, coffee table, dining table and 4 chairs, mirrors, a couple of lamps,  vacuum cleaner, curtains and a couple of pictures/canvasses. 
Most of the furniture I got from this place that specialises in furnishing rental properties, others I picked up from Argos, B&Q and John Lewis on special offer. Note, for rental properties, all upholstered furnishings must be fire resistant, so you can’t just pick up any old cheap furniture, unless it carries the fire resistant symbol. I had to return the cushions I originally bought as they didn’t have the fire resistant label, I bought them before I read about the requirement.

So what about a Letting Agent?
Despite reading about landlords (and tenants) being ripped off by unscrupulous letting agents, I decided that I was going to employ one for full property management services. This was because I could not see myself being a good landlord whilst working in my full-time job, in a busy open office, where I can barely take, much less make personal calls (except during my lunch break). When would I have time to look for and vet potential tenants? What would happen if something needed fixing asap or the tenant had a problem? I would sooner pay someone to handle such events on my behalf. Plus, letting agents can’t all be that bad, can they?
I contacted six letting agents, choosing ones who were members of either ARLA (Association of Residential Letting Agents) or NAEA (National Association of Estate Agents).

Two didn’t bother to return my call and one didn’t have anyone available to talk to me. The other three, I made appointments for face to face meetings. I basically asked them all the same questions – I had a list on a spreadsheet where I could fill in their answers so they could be compared easily. Two of them I could see were quite impressed that I was so organised with my questions; the third one seemed a little uneasy and passed the comment “Gosh, you’ve done a lot of research!” Indeed, I had!

The letting agents* I chose in the end had competitive fees and I was most satisfied with their answers. I was able to negotiate on the initial letting fee (fixing it) but they wouldn’t budge on the removal of the fee for extending an existing tenancy – seems like this is an ‘industry’ standard fee in a (currently) unregulated industry.

My questions included: (actual fees from my letting agents in red)

– What they charged for:

  • initial letting fee (£400 – highest fee was £650, lowest was £300)
  • monthly fee (10% of rent – this seems to be average in the Northwest)
  • completing an inventory (free – highest was £125)
  • keeping a deposit (£25 – highest was £45)
  • extension of an existing tenancy (£95 – highest was £120, lowest was £75 )

– Which deposit scheme they used (Tenancy Deposit Scheme) – more on this later under ‘Deposits’.

– What rent did they think my property could secure (£450-£495 pcm)

Property management services included advertising the property (online and also on the agents’ office boards), vetting and checking in tenants, reading meters and contacting the various authorities, being the first point of contact for tenants, liaising with workmen for repairs, collecting the deposit and rent and chasing late rent as applicable.

Anyway, within a few days of my property being on their books, a tenant was found on a 12 month tenancy. What was even better was that the rent secured was £525 pcm. Happy days!

Deposits

Gone are the days when a landlord could just put a tenant’s deposit in their back pocket and refuse to pay the full amount back at the end of the agreement on some poor excuse (this happened to me as a student – apparently we didn’t clean the carpets, even though it was obvious that the carpets were already filthy when we moved in and had clearly not been cleaned in years).

All rental deposits must be registered by a landlord (in my case, my letting agent) with a government-backed deposit scheme, within 30 days of receipt of said deposit. If not, a landlord can be fined up to three times the deposit.

Any disputes are sorted via the scheme, so it’s generally fair and above board. 

Insurance

Normal home insurance is not valid for rental properties – you have to buy landlord insurance. In the case of my apartment, I don’t own the building (the freeholder does and has his own buildings policy), so all I need is contents insurance. I always obtain lots of quotes – average I’ve paid is £60 per year but the prices range dramatically – as with your own home/car insurance, check the details and only pay for what you need. You can purchase rent guarantee insurance too (to cover non-payment of rent and void periods) but I decided not to bother with that.

Tax and stuff

You’ll no doubt come across companies offering professional services to sort out “the maze of accounting and tax issues encountered in the property business”.

This is a myth as there is no ‘maze’, certainly not if you only have one property to let – perhaps it’s a little different if you have a portfolio of properties. These companies try to make out that tax for landlords is complicated so that you feel compelled into employing them to do something you can do yourself.

Keep all your receipts, invoices and bank statements – log all stuff relating to your property onto a simple spreadsheet.

Register for Self-Assessment (if you’re not already set up for this). Make sure you read the government’s website so you know what can be deducted against your tax liability, such as mortgage interest payments, letting agent fees, repairs etc. You’ll also need to have a copy of your P60/wage slip and know your tax code for the year.

Complete your self-assessment when you get the reminder – make sure you do it on time so you don’t get fined £100.

Pay any tax that is due.

See? No maze!

Fast forward nearly 3 years


Thus far, I’ve had a relatively stress-free time as a landlord – the hardest bit was all the legwork required to get it all going.  I’ve only had one void period of just under 2 weeks so far. The boiler has broken down once (I now get it annually serviced) and recently, there was an electrical problem, which my letting agent sorted out while I was on holiday.
My mortgage is now out of its 2 year fixed period and is on a variable rate of 4.5% – yes, I know, lower than the fixed rate of 5.2% I was on but who knew the interest rates would continue to drop?

Greedy?

The press is full of stories about ‘greedy’ landlords charging sky-high rents for poorly-maintained properties and ignoring their tenants’ needs.  I like to think that I’m not that kind of landlord, that I am providing someone with a good, affordable home because they are not yet (or don’t wish to be) on the housing ladder.

My current tenant (who is a teacher) has just renewed for another 12 months, at £550 pcm. I’ve advised my letting agent not to increase rent for tenants wanting to renew – why do that if they’ve been good tenants? (although if my other costs go up by a lot, eg management fees, interest rates, I may have no alternative). I’ve also dropped the rent before to encourage a tenant to sign a 12 month tenancy as opposed to a 6 month tenancy.

Although obviously not always the case, I’m of the view that if you maintain your property to good standards and treat your tenant right, your tenant is more likely to look after your property, their home but ultimately, your investment.

There – I think I’ve covered most of the points!

Like any kind of investment, BTL is not for everyone – MoneySavingExpert recently produced a handy guide here as to whether BTL is right for everyone.

I could have done with this guide in the early days, instead of going all over the internet looking for my info but I got there in the end!

(*No, I’m not getting any commission for linking my letting agent, but they’ve done a good job so far for me, so worth a mention)

My Rental Property – Part I

Thanks to theFIREstarter who suggested that I do a post or two about how I got into buying my rental property  – please note that this is just an account of what I did (as a complete novice) and that there are no doubt other/better/cheaper ways of doing what I did!  All the advice/info I got, I got from the internet and the  local library – I did not seek out professional advice.
Why BTL?

As very briefly described somewhere here, following my split with the ex, I moved into the empty family home and the house that I shared with the ex was sold, with the funds split 50/50. My share was around £43k. The first thing I did was use £4k to finally clear the last of my credit card debts. The second thing I did was to transfer the rest into a high interest savings account. 
My parents suggested that I live in the family home on a permanent basis if I wished, paying them a ‘nominal rent’ and for the upkeep and repairs on their house. I agreed, and so, my funds sat untouched in my account for nearly a year.

It was in April 2011, during my annual trip to Hong Kong that my mum suggested that I buy a property to rent out and I said I’d look into it. At the time, I don’t think I was actually being serious about it, I was just agreeing to stop her nagging!
Research

Anyway, when I returned home after my holiday, I did some research and homework on letting properties as I knew absolutely nothing about the renting business, apart from renting digs myself as a student and all I recalled was that my landlord was rather dodgy and elusive!
I borrowed some books from the library on the subject and spent a lot of time online, reading everything I could find. I even joined a ‘landlord’ forum to get a feel of the kind of issues they faced, asking a few questions myself, which were answered by experienced landlords. There were some real horror stories on the forum about nightmare tenants, evictions etc but I continued with my research, reading up on costs, looking through sites like Zoopla and Rightmove to see what the going rate was for rent in the areas I was interested in, the perils of void periods (ie when there are no tenants in the property), non-payment of rent, obligations of the landlord etc. There was a lot to read!

From my research, I found that there were lots of things to consider for BTL, some of which I list here:

  • Location – is the property in an area with a good rental market, is it close to amenities and convenient for public transport?
  • Property type – house or apartment/flat? The latter will generally require the payment of management fees for the upkeep of the apartment block/facilities.
  • Target tenant –  who do you want to rent out to? Young professionals? Students? People on benefits? Families?
  • Rental yield – rental yield is the annual rent received as a percentage of the purchase price of the property, eg, a property bringing in £10k worth of rent that costs £200k has a 5% yield, a useful guide to compare different properties and their potential as BTLs. Usually, the higher the yield, the better the opportunity but all other factors need to be considered.
  • Landlord duties – be a hands-on landlord, seeking out tenants, dealing with and sorting out tenancy issues, be on call should boiler etc need repairing, or employ a letting agent to handle all the hassle but at a cost?
  • Size of the mortgage – how big/small, what is affordable?
  • Tax implications – rental income is taxable, but can be offset by mortgage interest etc. Self-assessment is required

After nearly a month of research, I’d made up my mind that I was going into Buy To Let! A big decision, as I was doing this all on my own – it was very scary yet very exciting!

So, what was I looking for?

1. A one bedroom apartment, close to Manchester city centre.
2. My budget was £65k (to any Southern folks reading this, this is still pretty much average price for a good but basic one or even two bed apartment in many areas of Manchester).
3. The purchase would be made using my funds and a small mortgage.
4. Target tenants – young professionals

After ringing around several estate agents, I finally found one that was going to be open on the Bank Holiday so I made an appointment to view several properties that day.

Of the four that we looked at, one was out of my price range and the other three, whilst decent, needed quite a bit of work doing, ie more than just a lick of paint required. On the way back to the office, the estate agent said that there was a property that wasn’t yet on the market as the owner wasn’t sure if he wanted to sell or let. I agreed to have a look.

Property Found!

As I walked into the apartment, I knew immediately it was what I was looking for! I tried very hard to hide my enthusiasm from the estate agent as I asked him what the asking price was. He said offers over £60k would be considered and I nearly laughed out loud that it was within my budget! I asked what rent could be expected and he said £450 pcm was the going rate in the area, so the yield would be 9%.  Ground rent was £250 pa, management fees around £900 pa. I said I would call him about an offer when in fact, I wanted to make the offer then and there!

When I got home however, my excitement somewhat cooled – I wasn’t sure that I should just choose the first property that I liked and so quickly after only viewing a few other properties. I mulled it over for a week and finally, gut instinct prevailed so I decided to jump in with both feet and made an offer of £60k, which was accepted!

Property Details

  • Modern one bed apartment, 6th (top) floor, lounge opening onto the kitchen, with a small balcony.  
  • Located 3 miles from city centre, walking distance to a bus stop and two tram stops.  Also walking distance to Old Trafford football ground. 
  • 2 years old but had never been lived in so it was like NEW!
  • Brand new quality fitted kitchen – oven, fan extractor, fridge freezer, washing machine and dishwasher, all still wrapped in plastic sheet and the polystyrene they were shipped in!
Apparently, the owner had planned on buying several apartments in the same block but had run out of funding, so for two years, the apartment had been left empty and forgotten! 
Mortgage

Anyway, the next step was to get a mortgage. BTL mortgages are not the same as standard residential mortgages as generally, the interest rates are higher, a higher deposit is required, arrangement fees are higher, proposed monthly rental income needs to be 125% of mortgage payments and often, the best mortgages can only be obtained via a mortgage advisor. However, unlike residential mortgages available these days, BTL mortgages can also be interest only.
I ended up borrowing £25k on a 2-year fixed interest only mortgage at 5.2% over 20 years with NatWest – this was the best mortgage available to me because at the time, my salary only just about scraped the £25k minimum salary requirement for BTL mortgages! Although interest only, the mortgage allows me to repay up to 10% of the capital every year if I wish.

Fees: Mortgage fee – £499, mortgage arrangement fee – £995

Legal Stuff

I decided to use the solicitor who managed the sale of my house since she had been fairly competent, easy to contact and good with her communications, although her fees were above average.

Fees: £840 (Conveyancing, etc)

Inspections

My mortgage provider NatWest conducted their basic survey of the property. I also paid for an independent snagging inspection (as the apartment was still classed as a new build), which highlighted defects such as kitchen cupboard doors that didn’t shut properly, light switches on the wrong way round, untidy paintwork etc. These things were all rectified by the builders at no extra cost.

Fee: Standard inspection £150, snagging inspection £185

My apartment on the 6th floor

And So…

..a little over two months after I initially started looking into it, I surprised everyone (including myself) by becoming the owner of a buy to let property! Woo hoo!

Perfect?

Of course not. It’s certainly not in the posh end of town but over the years, the area has seen a lot of improvement and the council has pumped in a fair amount of investment to regenerate the area.

There was a big patch of land over the road from my apartment being renovated for something, either more residential or perhaps business properties (nothing serious or untoward, according to my solicitor’s conveyance report) and the boards surrounding the area depicted some rather colourful graffiti:

Graffiti just down the road from my apartment

In Part II, I’ll talk about how I got my apartment ready for tenants and my experiences thus far as a landlord.