Landlord Inventories - top tips

I’ve been sent a review copy of Toby Hone’s excellent ebook this week. (More about that in a few days, when I’ve finished my comments to him.)

I’ve made a couple of suggestions to Toby about adding to the section he writes on page 42 about the importance of decent inventories, so I thought I’d blog about this subject.

If possible, I always carry out check-in inventories myself. I’m afraid that I’ve yet to find an agency who carries them out to the level of detail I expect. I regularly get feedback from agents along the lines of “I’ve never seen an inventory that detailed.” There are two things I include that virtually no-one else does, but that have certainly been worth their weight in gold.

1. If I include appliances, I include the make and model, as well as age. It is not unknown, alas, for an inventory to read “a fridge”, and find that the fridge returned at the END of the tenancy is smaller / older than the fridge provided
2. If possible, take round a digital camera, and photograph the condition. This is, again, particularly important for any furniture / appliances you include, since it provides proof (once the tenant has signed the inventory) of what was left.

Obviously, none of this removes the fact that you CAN’T claim against a tenant for “reasonable wear and tear”, but this isn’t about protecting yourself from good tenants (the vast majority) - it’s about protecting yourself from bad!

For the record, in 14 years, I’ve only ever made a deposit deduction twice, and one of those was made by an agency I used on a full management basis from the days before I learnt to manage my own properties.

[Declaration - if you buy the ebook as a result of clicking the link above, I will receive a small commission. This does not affect the price you pay. Our policy is always to declare commission/affiliate links, but only to recommend products based on personal experience.]

NFRL / NLA merger - what on earth?

On the 25th July, I announced that I had been appointed a Director of the National Federation of Residential Landlords.

Shortly after that, I was contacted by the Vice-Chairman of the NFRL, to express surprise at this! Apparantly, rather than have a full board meeting, three of the Directors phoned on the evening of the 23rd, proposed me as a Director, and asked her to “vote”. Four Directors (those three plus the Vice-Chair) would have made a quorum.

She said she wasn’t happy with this, and said “no”. Her view is that a phone call out of the blue isn’t a board meeting, even if three other Directors happen to be on the end of a phone!

[Update: Later on the 9th July - as a result of this, it's not clear whether I ever was a Director - sigh.]

However, on the 25th, the three Directors in question then told me that they’d held a Board Meeting, and co-opted me. They told me that the Vice-Chair wasn’t around because her daughter was ill. I was expecting to go along, but as an “advisor” to the Board, not as a Director. In fact, much of my purpose of being there was to help me decide whether I wanted to be proposed as a Director at the next General Meeting (which, to be fair, might have involved co-opting me at the end of the meeting for a month or two to help prepare for the AGM.)

Once I discovered that something funny had gone on, I figured that the only right thing to do was resign, so on the 29th June, I resigned as a Director. I offered to stand for election by the members at the AGM, but wasn’t happy to be pulled into the middle of something odd.

At the one board meeting I attended, there was a presentation from the National Landlords Association (NLA) about a possible merger. After the presentation, I said that I was personally in favour, but felt that the only correct path was to present the merger offer to the members. At that board meeting, the board also co-opted another Director.

I have now learnt that the board met on the 30th June, the day after I resigned, and agreed to NOT ask the members - but instead move straight to merger. (They have the power to do this under the terms of a Resolution passed by the members at the last General Meeting.)

Berkshire Property Networking - 14th July with Rob Moore

Juswant & Sylvia Rai have asked my help in promoting a Property Networking meeting they’re having next week. I’m happy to do so… (If any other UK people want help in promoting their meetings, just mail me - let me know the date, and what’s happening.)

Their text follows:

I just wanted to keep you informed about the Berkshire Property Meet the UKs Leading Property Networking event with upto 200 guests every month, which is being held on Monday 14th July. The event attracts property experts, investors and professionals from all over the UK. The event is hosted by Juswant & Sylvia Rai.

This months speaker is going to be Rob Moore of Progressive Property

Who is Rob Moore?

Rob is a self made businessman, Full time Property Investor & Best selling Author of “The 44 Most Closely Guarded Property Secrets” and “Make Cash in a Property Crash”.

He regularly speaks at events on business, property and personal development both on the platform and on TV, where he featured in a prime time TV Show for Living as a Mentor. He also recorded an interview on the business channel with Christopher Howard and recorded a Property Documentary with Channel 4.

2005 - 2007:
Rob became director of a new build property investment company previous to Progressive after realising the potential of property, and learnt a huge amount about ‘what really works’ in Property Investment. Rob is master trained in NLP and Platform presenting and reads a book every 8.3 days on business related areas [is it sad to know that?!]
Rob is head of marketing within Progressive.

Rob Moore & his business partner have been regularly buying below-market-value property with great success for themselves and fellow investors. They share what their experiences are of the current market and how they are turning this to their advantage.

There will be a chance to Win 20 copies of “The 44 Most Closely Guarded Property Secrets” and “Make Cash in a Property Crash” and an IPOD Nano packed with great audios to help you succeed.

Some of the regular experts who attend the Berkshire Property Meet:-

Glenn Armstrong - Bought and traded nearly 500 properties
Barry Danser - Finance / Rent Rescue
David Lee - Cash Flow Investor
Richard Sheppard - Property Tutor / Investor
Abdul Malik - Lease Options
Nick Pedrithes - BMV / HMO Expert / Finance
Sonny Walia - Meet the Surveyor
Darren Hunt - Property Sourcer / Investor
Simon Zutshi - Property Investor Network
Jim Haliburton - HMO Daddy
Kevan Keegan - Rent Back Charter Association
Plus many many more active investors, experts & professionals

BMV Clinic
There is also the regular BMV clinic run but our good friend and everyone’s mentor Nick Pedrithes. This is very informal and runs from 5pm until 6:45pm ish. Come along with any questions you may have Juswant & Sylvia and Nick with gladly discuss your options with you.

For more information contact
Juswant & Sylvia Rai via mrandmrsrai@googlemail.com

Facebook Group:-
http://groups.to/berkshirepropertymeet/

Five ways to make money in a property crash - the sixth way

About two weeks ago, I wrote “Five ways to make money in a property crash” - and the feedback (particularly on the more detailed version available to subscribers at yourpropertyexpert.com has been mostly positive.
However, one important bit of feedback to me was that, actually, I’m making things too complex. This was really brought home last week in a series of phone calls with a friend who runs a hedge fund - while the conversation was mostly technical (about under-water rights issues from financial institutions and inefficiencies in the secondary rights issue market), one key phrase that came through from him was:

One of the key attributes of a succesful trader is patience

Now, I don’t consider that Property Investment is trading - since I think it’s wider than that… but the point was well made.

There are two schools of thought about buying property now.

1. In the current market there are a lot of bargains to be picked up.
2. In six months time, it’s likely that there will be EVEN MORE bargains, at better prices.

The question then for property investors is “wait” or “buy now”?

Now, IF (and it’s a big “IF”) you could buy now in a way that had insulation from future market falls, good positive cashflow, didn’t use any of your own capital, and didn’t affect your ability to borrow more in the future, then it would be a good time to buy…

… but I don’t see it.

Yes, I see deals that would be cash-flow positive. I see deals that could (reasonably quickly - in a few months rather than a few hours) be re-financed to return my working capital… but the last point is key - Forget what lenders are doing today. Things are going to get worse for them before they get better, and they are going to look EVEN MORE CLOSELY at borrowers before they start relaxing again. That means that lenders are going to start reviewing entire portfolios and what would in stock- terms be called “marking to market.” That’s to say that, if they think you have borrowed too much on your existing properties, they won’t lend as much (or anything) on additional deals. (I’ve also got a draft article waiting to be finished about what “marking to the market” means in the context of Below Market Value purchasers in a very slow market… which, the more I work on, looks scarier and scarier.)

So, I’m no longer buying. I’m off to do some more interesting things (from a personal / professional perspective) for at least six months. Of course, I’m still a landlord - I’ll still be blogging, and running the newsletter, and my mentoring scheme… but, in my personal circumstances, I think that waiting for a few months is now a good strategy.

Photo copyright Brainware3000 - used under Creative Copyright licence.

Why do we count retail sales differently?

Time for a bit of a rant.

I suspect that you, like me, are feeling some impact of the credit crunch, or at least the rate of inflation. We know that the “official” figures on inflation only show about 4%, but the real figure seems much higher in most things we buy regularly. (I don’t know about you, but I buy petrol a lot more often than I buy plasma TVs.)

However, about a week ago, the Office for National Statistics published the latest retail sales figures, which show that we’re buying more.

The problem is, we count those figures very differently from the way the rest of the world does, and that the fact that many goods (electronics, DVDs, etc) are falling in price confuses matters.

Supposing you have the following sales figures.

• 2007, bought 20 DVDs at £10 each, so spent £200
• 2008, bought 25 DVDs at £5 each, so spent £125

If you were in any G8 country apart from the UK, that would show as a decline in sales of 37.5%, because £125 is a lot less than £200.

In the UK however, that shows as an increase of 25%, because you bought more DVDs this year!

Hence, it looks like figures are booming.

The problem is, central banks around the world use figures like this to decide interest rates. I know that (in principle), Central Bankers are sophisticated enough to understand the issue… but why, oh why, does the UK insist on measuring things differently. A lot of inflation is imported, and knowing how interest rate changes will strengthen or weaken Sterling is something the MPC have to take into account - surely everyone publishing figures in the same way would make things clearer?

Photo credit: Copyright akeg - used under Creative Commons licence.

National Federation of Residential Landlords…

At the risk of blowing my own trumpet, I’ve just been appointed a Director of the National Federation of Residential Landlords (NFRL.)

The way it happened was slightly odd - back in April, at the last General Meeting, the Board had put a resolution in front of members asking for permission to enter into merger discussions with other landlords associations. (Technically, to renew this permission, which was granted in, I think, 2004.)

Because of the way the motion was worded, I spoke out against this motion (as did Mike Stimpson, one of the Directors!)

The meeting wasn’t fun and games - the majority of people who had turned up in person voted against, but an overwhelming majority of members who’d filled in a postal vote had voted for, hence the motion was carried.

Bizarrely, however, after the meeting, three of the Directors (the pro camp) came and found me, said that they’d been impressed at the way I’d argued against them… and asked whether I would be interested in becoming a Director!

A couple of weeks later, I managed to get together with Mike Stimpson, and ask what he thought, and he advised me to accept their offer if they made it formally.

Well, this morning, they made the formal offer, so I have just accepted the Directorship, and attended my first board meeting.

Interesting times ahead for UK landlords - the regulatory environment is changing, and while it’s making some great steps to protect the most vulnerable members of society, there’s always the danger that the wording of legislation intended to protect the few will, in fact, place onerous obligations on the many that were never intended. It’s part of our job as a UK Association, to lobby on behalf of private landlords to ensure that the right balance is struck. Fortunately, in Mike, the NFRL has a master of the game, and it’s an honour to work alongside both him, and a board who sought out a dissenting voice to give better balance!

Image Copyright: umjanedoan - used under Creative Commons licence

Matthew Bretherton’s take on the mortgage issues…

Matthew Bretherton, a freelance writer (and not, to my knowledge) an investor, has written a great article about what the current credit crunch means to a typical UK homeowner.

You can read his article, “From Smug To Mug”, here at money.co.uk

I like his conclusion:

But there’s not a lot of point moaning about it. We’ve had it relatively good for years, so we’ve all been saving like mad for just this eventuality right? No, me neither. We’ve all been busy taking part in an orgy of high street spending without a giving the future a second thought. Now we just have to be terribly grown up about paying for it all.

Personally, I’ll probably do what I always do. Start looking early and hope to find a good deal (remember, once you secure a mortgage offer it is valid for three months). I don’t know if it will be a two year fixed this time, but I do know I’ll be feeling a lot less smug this time round. More mug in fact.

And that really sums up the problem that “middle England” is now facing - easy credit meant that people borrowed more, and then spent it, rather than saved. Suddenly, cash is not so much King as God-Emperor.

Matthew’s point about looking for finance as early as possible is very well made - don’t leave financing to the last minute!

Why I no longer use Yahoo! answers…

Over the past six months, I’ve been trying to help people on Yahoo! Answers UK, specifically when they ask questions about Property and Renting.

Today, I had three emails telling me that I’d violated their “guidelines” and that my answer had been deleted…

I wrote to them asking “why?”, but rather than replying, they sent me a few more, and then a message telling me that my account has now been suspended because I’d caused too many breaches.

Let’s have a look at the naughty things I’ve been doing:

A sample question:

I have spilt a drink on my carpet and it wont come out - i have even called in a professional carpet cleaning company. Where do I stand with my deposit? I have been a tenant for over 1.6 years, the stain is faided but would this be considred fair tear and wear or will i lose my deposit? If this is the case my insurance covers accidental damage will this be on to use? thanks all

My answer:

It would depend on the condition of the carpet at the time you moved in and how long you have been in.

If there were already stains, then you may find the landlord (or agent) doesn’t charge, or charges a nominal amount.

Likewise, if you have been in for several years, then the view might be taken that normal wear and tear would have required replacement anyway.

If, however, the carpet was in “top notch” condition, and you’ve had 6-12 months in the place, then you could be charged for the replacement cost of a carpet WHETHER OR NOT the landlord actually fits one when you move out. (The landlord has the choice of either spending the money, or accepting a lower rent for letting a shabbier place.)

In any case, your check-in inventory should show the condition of the carpet at the time you moved in. If it doesn’t, the landlord is a fool! If it does, and you’ve signed it saying the carpets are in great condition, then I’m afraid there’s a deduction coming your way.

It is worth speaking to your insurance company sooner rather than later - if they’ve sold you a policy that covers for sorting out “accidental damage”, and you’ve paid them the premiums, then they should pay out!

Yahoo wrote me the following:

Violation Reason:Community Guidelines and/or Terms Of Service Violation

That’s it - no explanation of what guideline that answer might possibly have violated.

So, that’s it, I’m afraid. I find that Yahoo!’s system is just too much hassle. I’ll now only be answering questions on this blog and to my newsletter subscribers and paying customers.

UK Interest rates are basically being kept down by hope…

There’s a lot of debate raging in the blogosphere at the moment about where interest rates should be.

Some of the arguments are, (like this one by William Buiter of the FT) to put it mildly, very technical.

Basically, though, there are two schools of though:

1. We should set interest rates based on what we know about the present
2. We should set interest rates based on what we believe about the future

There is something called the Taylor Rule (see here) which is broadly accepted by economists as “what you should do if you want to base your decisions on the present”.

Now for the bad news - if we apply the Rule to the UK, we see that Base Rates should go up to about 7% - which would imply that investors were paying about 8.5% for their mortgages, and home-owners a little less.
However, the Bank of England clearly don’t want to do this - because (among other things) of the knock-on effect it would have on the cash-flow of most of the UK’s working population. Instead, they are basing their interest rates on the Treasury’s predictions of the future…

… which is to say that 2008 will be a ghastly year for, well, everyone… but that 2009 will be a lot better, with rates being a bit LOWER than they are now.

Here’s hoping!

I find it interesting that the fact that you have to pay a LOT more than the base rate to get a mortgage actually suggests that the “markets” believe that rates should be higher than they are now (and the jump to fixed rates suggests that the markets believe that rates will go higher.)

Photo copyright Katie Tegtmeyer - used under a Creative Commons licence.

Inflation Alert from the ONS (gosh, is that meant to be a surprise?)

The Office of National Statistics has, today, announced what we all actually knew - namely that inflation is well ahead of the Government’s 2% target.

In fact, it’s currently running at either 3.3%, or 4.3% depending on which measure you take (the lower is the CPI, the higher the RPI.)
Leading the rise were food and non-alcoholic drinks, with energy bills and holidays also edging up (but DVDs still coming further down.)

The figure of 3% in the CPI is critical - the target set by the Government is 2%, and if the figure hits 3%, then the Bank of England have to write a letter to the Chancellor explaining the problem. The letter he’s written says that inflation will probably hit 4% by the end of the year, but then come back down again unless there are what Mervyn King (BoE Governor) calls “unexpected increases in oil and commodity prices.”
This, of course, begs the question, what expected increases are there going to be. I don’t see anyone predicting anything other than a continual upwards move in oil prices. (As a personal note, we got rid of the Bentley, which was costing well over £100/tank, and as of last Thursday are driving an LPG Volvo, and filling up at 61.9p per litre LPG prices!)

Of course, while house-price inflation is in some circumstances good for property investors (because you can take advantage of the Money Illusion), general inflation is generally bad news - the higher inflation goes, the more likely the BoE are to raise interest rates. Given that market rates are already a long way above BoE rates (compared to the last 20 years), you could argue that much of the impact of BoE changes has already disappeared - but them putting UP the rates is more upward pressure on mortgage rates.

Of course, in the long term, that’s good for smart investors - because it will push out of the market all the naive “passive income B2Lers” - leaving the market less crowded for sophisticated investors… but that’s a longer-term advantage, wheras next month’s mortgage bill will need paying, well, next month.

Photo credit: http://www.flickr.com/photos/gforce/207322823/ Copyright Graham McLellan, used under a Creative Commons licence