Advice Needed For Newby Landlady!

[rorypops]

Hi. I'm away to dip my toes into being a Landlady for the first time and am looking for some advice. I am in the process of preparing a 3 bed ex-council house for rent and am pretty naive to the whole business. I could probably find the answers to my questions somewhere on this forum, but was just wondering if someone would be so kind as to reply to my questions.

The house currently has a very basic kitchen in it, replaced by the council before my mum purchased it 4 years ago. Would this be suitable or would it have better 'rentability' with an updated one??

The house has electric Total Heating with Total Control (storage/panel heaters), which were fitted approx 8-10 years ago. Would it be better to replace it with gas central heating at a cost of around £4k including labour and parts?? (my husband would be able to do alot of the work himself as he is in the trade)

Am I better to use a letting agency or rent it out myself??

I believe it will be a family who will rent - it will not attract professionals/single people due to its location and size. Is there anything esle I can do to increase its rentability?? I intend to replace all the floor coverings and re-decorate.

Should I rent it unfirnished or part furnished?

Apologies for all the questions - I admit I am completely naive to this. This is just an opportunity which has arrisen due to my mum going into semi-sheltered accomodation and this is to assist her with her fees.

Thank you for your help.

[cartimandua51]

Hi. I'm away to dip my toes into being a Landlady for the first time and am looking for some advice. I am in the process of preparing a 3 bed ex-council house for rent and am pretty naive to the whole business. I could probably find the answers to my questions somewhere on this forum, but was just wondering if someone would be so kind as to reply to my questions.

The house currently has a very basic kitchen in it, replaced by the council before my mum purchased it 4 years ago. Would this be suitable or would it have better 'rentability' with an updated one??

The house has electric Total Heating with Total Control (storage/panel heaters), which were fitted approx 8-10 years ago. Would it be better to replace it with gas central heating at a cost of around £4k including labour and parts?? (my husband would be able to do alot of the work himself as he is in the trade)

Am I better to use a letting agency or rent it out myself??

I believe it will be a family who will rent - it will not attract professionals/single people due to its location and size. Is there anything esle I can do to increase its rentability?? I intend to replace all the floor coverings and re-decorate.

Should I rent it unfirnished or part furnished?

Apologies for all the questions - I admit I am completely naive to this. This is just an opportunity which has arrisen due to my mum going into semi-sheltered accomodation and this is to assist her with her fees.

Thank you for your help.

A lot depends on the area; you may find there is a local landlords association who might give advice (try http://www.landlords.org.uk/index.htm for starters.

Tenants ( & the Government) hate storage heaters because of the expense & lack of flexibility; the general consensus is that you can just about get away with them in a small flat, but a house really needs central heating. DON'T economise on the boiler unless your husband is corgi registered & prepared to be called out at obscure hours!

If it's a family let, probably unfurnished but with fully equipped kitchen. If a prospective tenant wants beds then new basic beds can be bought for £100ish each.

Make sure the garden is child-friendly & low maintenance and look at security - suitable locks on the windows / external doors.

Put together a "house book" as you go; containing all the instruction manuals for equipment, location of stop-cocks, meters etc and a brief guide to local shops & transport if you can.

That's just off the top of my head; the NLA probably has more detailed advice.

[redwing]

Hi. I'm away to dip my toes into being a Landlady for the first time and am looking for some advice. I am in the process of preparing a 3 bed ex-council house for rent and am pretty naive to the whole business. I could probably find the answers to my questions somewhere on this forum, but was just wondering if someone would be so kind as to reply to my questions.

The house currently has a very basic kitchen in it, replaced by the council before my mum purchased it 4 years ago. Would this be suitable or would it have better 'rentability' with an updated one??

The house has electric Total Heating with Total Control (storage/panel heaters), which were fitted approx 8-10 years ago. Would it be better to replace it with gas central heating at a cost of around £4k including labour and parts?? (my husband would be able to do alot of the work himself as he is in the trade)

Am I better to use a letting agency or rent it out myself??

I believe it will be a family who will rent - it will not attract professionals/single people due to its location and size. Is there anything esle I can do to increase its rentability?? I intend to replace all the floor coverings and re-decorate.

Should I rent it unfirnished or part furnished?

Apologies for all the questions - I admit I am completely naive to this. This is just an opportunity which has arrisen due to my mum going into semi-sheltered accomodation and this is to assist her with her fees.

Thank you for your help.

I don't think you've got the hang of this site, have you?

SELL!!!!!!

[asquithea]

I tend to agree with redwing; your questions are signalling to me that you haven't done the maths around letting. Do the calculations now, but I think you might find it's a close run thing between keeping the property and going for a quick sale. In your position, I'd be leaning toward the sale to save the hassle. Factor in a 20%-30% drop in prices over the next five years, if you're thinking seriously about holding on to it.

Also worth visiting LandlordZone.co.uk -- where you will find a higher proportion of landlords to give you advice.

[rorypops]

Thank you all for your replies. You are quite correct, I am absolutely new to the renting business, and hence I appreciate everyones different opinions.

My mum bought the house 4 years ago for £35k (she had been a tennant for 20+ years and received the maximum discount from the Council). It's now valued at £110k approx, and it's mortgage free. I'm looking upon this as a very long term project. Houseprices in this area (North East Scotland) have levelled out recently, but there has been no sign of a drop.....yet.

Would the opinion still be more towards sell if I intend to hold onto it for the long haul??

Thank you.

Ps we've done a couple of renovations (ex local authority) so we are no strangers to costings/budgeting. A two bed ex local authority (which we bought to live in while we built a self build) cost us £9k in total for central heating, new kitchen, bathroom, downstairs toilet, added 3rd bedroom (with necessary planning consents etc), new internal/external doors and new skirting boards etc. Ok, it wasn't the Ritz, but it was done to a high standard and was 100 times better than we bought it! I'm not totally useless!!

[asquithea]

Halifax reckon that properties in Scotland are more likely to hold their value; you might be looking at little or no loss in the short term, and you could benefit when the market eventually picks up again (maybe 7 or 8 years time). Mortgage-free means that you're insulated against void periods -- the bane of most landlords with only a few properties. Sounds to me like you're much better placed, financially, than most landlords these days. I therefore see no particular reason not to rent the property, if you're willing to treat it as a business, and accept the hassles and bad tenants that inevitably come with it.

In answer to your other questions, as a tenant I'd find your property much more attractive if you did get rid of the storage heaters. They have a reputation for being expensive and inadequate -- not something you want for a property in the north of Scotland! You won't be able to charge more rent, but you'll let the property more quickly and add value for a future sale.

A letting agency will cost you about 10% of the rent for a find-only service. However, if you don't live locally or you both work full time, you should seriously consider going fully managed.

I would let the place unfurnished with white goods. When you do the floors, beware of cream carpets and cheap laminate flooring!

[Now or never]

'as a tenant I'd find your property much more attractive if you did get rid of the storage heaters. They have a reputation for being expensive and inadequate -- not something you want for a property in the north of Scotland!'

As a tenant you may prefer gas central heating, cheaper unit cost and more controllable, however, as a landlord keeping the current total heat system will have no cost now to change, nor would their be any annual gas inspections which come with a cost; this saving could be passed on to the tenant.

Also, one thing you may want to note is that the cost of energy is rising sharply, however, on a total heat tariff, the cost only goes up at a rate of 30% for each unit, so if the cost of one unit went up by 10p in 5 years time, you would only pay an extra 3p per stored kW.

I have experiances with both gas and total heat, and I believe over a period of time electric is a much cheaper option, but it really does come down to utilizing as much storage heat as possible. The real key is insulating the property as best as possible, wouldn't cost nowhere near £4,000 and you can apply for grants too!

Note, the reason why people think storage heaters are inadequate is because they dont turn them on; they dont realise that they operate on an off peak tariff!

[redwing]

My mum bought the house 4 years ago for £35k (she had been a tennant for 20+ years and received the maximum discount from the Council). It's now valued at £110k approx, and it's mortgage free. I'm looking upon this as a very long term project. Houseprices in this area (North East Scotland) have levelled out recently, but there has been no sign of a drop.....yet.

Would the opinion still be more towards sell if I intend to hold onto it for the long haul??

All this is opinion - it's not advice.

Long Haul? The last crash saw nominal values in my town return from the peak in 1989 in about 1998/1999. If this crash is going to be as mild as the last one, then don't expect to get a sale for more than you could get now until about 2018. If we get a crash like the one in Japan, then consider settling in for a long haul of about 15 - 20 years.

Your Mum got a bargain, bless her. If you could sell now for, say, £90,000, then you'll be looking at a return before tax of around 6% now. Remember that you can squirrel away £3600 pa into a cash ISA and if you're in it for the long term then look at NSANDI tax free bonds and using up the share/strusts part of an ISA. In no time at all you'll find you're building up a quite nice tax-efficient portfolio. If you're still working, then think about upping your pension contributions and using the cash from the sale to subsidise the loss of income from your job. And remember that if you keep the interest in savings then you'll be benefitting from compounding. And the value of your capital won't go down.

Do the maths on the letting business.

Take the gross rent and deduct the following:

1 month's void per annum.

maintenance on the house.

insurance.

letting agent fees.

replacement of those white goods every now and then.

and if you don't use an agent figure in your own opportunity cost in terms of management time.

I have a mate who owns a rented house and he spends quite a bit of his leave and weekends fixing things, redecorating bits between tenants, chopping down the garden (he's always complaining that they do the absolute minimum, and I can't figure out why his tenants would want to anything more than the absolute minimum on a garden they have no interest in).

My guess is you'll need a gross rent of about 8-10% of the house's value to make it worthwhile.

That means getting a rental of £8000-£10000 per year or between £650 and £850 pcm.

here's a nice looking detached not-ex-council in Dundee for £680 pcm

Edited May 5, 2008 by redwing

[rorypops]

Thank you all so much for taking the time to reply. Forum's like these are an invaluable source of information!

Redwing, I take your point. I'm probably looking at spending £6k upfront (this would include replacing the bathrooms and gas central heating etc) so with an expected rental income of £550, it would take me a years rental income just to recoupe that monies.

It really am unsure as to what to do for the best?? I borrowed £87k to purchase my mum's over 55's flat, and in return, she is giving me her house which is mortgage free. It's a long story but basically these flat's don't come up for sale very often, so I raised the capital on my existing house. Should I sell and reduce my own mortgage or take the gamble?? If my mum sells however, she won't incurr capital gains as this has been her main residence for 25+ years.

Thanks again guys, I really appreciate your opinions!

[redwing]

Thank you all so much for taking the time to reply. Forum's like these are an invaluable source of information!

Redwing, I take your point. I'm probably looking at spending £6k upfront (this would include replacing the bathrooms and gas central heating etc) so with an expected rental income of £550, it would take me a years rental income just to recoupe that monies.

It really am unsure as to what to do for the best?? I borrowed £87k to purchase my mum's over 55's flat, and in return, she is giving me her house which is mortgage free. It's a long story but basically these flat's don't come up for sale very often, so I raised the capital on my existing house. Should I sell and reduce my own mortgage or take the gamble?? If my mum sells however, she won't incurr capital gains as this has been her main residence for 25+ years.

Thanks again guys, I really appreciate your opinions!

In your OP you said the house was mortgage free. You own it. Your Mum owns an over 55s flat. You have a mortgage on your Mum's flat.

It sounds to me you and your family are getting yourselves into a mess. It's not clear to me who owns what and who has what debt where.

Get professional advice soon. Don't ask any financial salesman/woman who doesn't charge a fee because all they'll do is try to sell you some 5hit 'products'. Try CAB or similar. Ask around.

[Si1]

In your OP you said the house was mortgage free. You own it. Your Mum owns an over 55s flat. You have a mortgage on your Mum's flat.

It sounds to me you and your family are getting yourselves into a mess. It's not clear to me who owns what and who has what debt where.

Get professional advice soon. Don't ask any financial salesman/woman who doesn't charge a fee because all they'll do is try to sell you some 5hit 'products'. Try CAB or similar. Ask around.

Redwing - this is some excellent cool-headed advice. I'm not in this predicament, but find the way you have put everything enlightening.

to the OP - you sound out of your depth, sorry but you clearly haven't understood the cash-flow implications of redwing's 2nd post. You replied by explaining the money you plan to splash on this property, whereas a more appropriate response would be, having worked out capital opportunity etc, to say - whoops, numbers don't add up, to hold on to this house will probably lose a lot of money, but depending on x, y, z.

If you hang on to the 'in the long term property is a magic investment that will make me rich' view then good luck to you, but you need to justify it better as currently it sounds an emotional decision without sensible rationale. Well done for trying to work it out tho, you've come to a good place.

[cartimandua51]

It really am unsure as to what to do for the best?? I borrowed £87k to purchase my mum's over 55's flat, and in return, she is giving me her house which is mortgage free. It's a long story but basically these flat's don't come up for sale very often, so I raised the capital on my existing house. Should I sell and reduce my own mortgage or take the gamble?? If my mum sells however, she won't incurr capital gains as this has been her main residence for 25+ years.

Thanks again guys, I really appreciate your opinions!

If I correctly understand you:

1)The ex council house is legally yours (I take it that it has been properly conveyed by a solicitor?) and is worth c. £110K

2) This house is mortgage free

3) Your mum's retirement flat is mortgage free and is legally hers

4) In order to fund that flat you increased the mortgage on your own personal home by £87K

So, you can

1) sell the house and reduce your outgoings on your own mortgage forever by whatever the sales proceeds are

2) get into the rental business, having carefully calculated the return on the £110 investment in the house and compared it with the savings you'd make on your mortgage

or

3) Sell and stick the money in the highest paying safe investment you can

(1) is the safest, (2) is the riskiest but might, just might give you a long-term capital gain as well (3) gives you the most options.

Three things you haven't mentioned

1)Your own cash flow situation - is your ( & your spouse's, if any)job secure? Would you be adversely affected by any future hike in mortgage interest rates? Are you on a fixed rate that's coming to an end?

2)Care fees -if you lived in England I would be worried about the council's attitude to this house transfer if your mother has to go into a nursing home at any stage. I believe it is different in Scotland? But check this angle.

and

3) Does the conveyance / other legal documentation relating to the transfer of the council house to you specify that you gave consideration of £87K for it? Again, this would me more relevant in England for the council, but I'm concerned about the situation if your Mum died suddenly & you got into an argument with any siblings about inheritance shares.... People can get very nasty when it comes to wills!

[Matt Henson]

Thank you all for your replies. You are quite correct, I am absolutely new to the renting business, and hence I appreciate everyones different opinions.

My mum bought the house 4 years ago for £35k (she had been a tennant for 20+ years and received the maximum discount from the Council). It's now valued at £110k approx, and it's mortgage free. I'm looking upon this as a very long term project. Houseprices in this area (North East Scotland) have levelled out recently, but there has been no sign of a drop.....yet.

Would the opinion still be more towards sell if I intend to hold onto it for the long haul??

Thank you.

Ps we've done a couple of renovations (ex local authority) so we are no strangers to costings/budgeting. A two bed ex local authority (which we bought to live in while we built a self build) cost us £9k in total for central heating, new kitchen, bathroom, downstairs toilet, added 3rd bedroom (with necessary planning consents etc), new internal/external doors and new skirting boards etc. Ok, it wasn't the Ritz, but it was done to a high standard and was 100 times better than we bought it! I'm not totally useless!!

New kitchen and bathroom don't always mean a lot more rent but they do mean you get tenants more easily and quickly. It sounds like you have done it before but Jewson do a range of "rental" kitchens which are bomb proof but cheap and although rather plain they look smart and refreshed.

Having lived in Fife, gas central heating is a must as a tenant up there, it gets bloody cold when the wind blows off the north sea....

[The Ayatollah Buggeri]

Jewson do a range of "rental" kitchens which are bomb proof...

Designed for LLs who rent their run-down hovels in Headingley to Islamic terrorists to 'cook' chapatti flour bombs in, in case of accidental detonation?

[Matt Henson]

Designed for LLs who rent their run-down hovels in Headingley to Islamic terrorists to 'cook' chapatti flour bombs in, in case of accidental detonation?

Absolutely.....! you don't know my tenants, no they are a lovely couple one French and one Ukrainian

[rorypops]

Redwing - this is some excellent cool-headed advice. I'm not in this predicament, but find the way you have put everything enlightening.

to the OP - you sound out of your depth, sorry but you clearly haven't understood the cash-flow implications of redwing's 2nd post. You replied by explaining the money you plan to splash on this property, whereas a more appropriate response would be, having worked out capital opportunity etc, to say - whoops, numbers don't add up, to hold on to this house will probably lose a lot of money, but depending on x, y, z.

If you hang on to the 'in the long term property is a magic investment that will make me rich' view then good luck to you, but you need to justify it better as currently it sounds an emotional decision without sensible rationale. Well done for trying to work it out tho, you've come to a good place.

Hi all,

Thanks again for replying and letting me know your different opinions. I admit, I am out of my depth, but am slowly trying to make sense of the situation, and am trying to make the best possible long term decision I can.

With regards to Si1's post, yes the decision to buy my mum a flat was an emotional one. She was struggling in a 3 bedroom house with stairs, and couldn't yet sell it because it was still under the council's 4 year clause under the right to buy. This clause finishes in July of this year, and it's then we are free to do what we wish. As I said in a previous post, the over 55's flats don't come up very often (only 12 in total in the city we live), so I just raised the capital on my own mortgage and bought. From an investment point of view, it would have been better to wait until the Council clause had lapsed, because her old house is lying empty - yes, I know, not a prudent investment decision but my mum is happy and settled and I was willing to take the hit on my mortgage over the 4 months of no income to help her.

cartimandua51 asked the question as to our own situation - we are both working, and in secure jobs. My husband has a trade behind him so is never (should never say never I supose, might tempt fate!) stuck for work. We only have a very small mortgage on our own house, so were in the fortunate enough position to be able to borrow the £87k. The flat was purchased in my mum's sole name, with a minute of agreement drawn up by the solicitor for the £87k, should any eventualities occur before the sale of her existing house. If I do go ahead and purchase it, it will be done through the solicitor as a proper sale, and this will erradicate any confusion as to a transfer.

Anyway, I did a few calculations today, here are my thoughts (remember I admit, I'm a complete novice at this so please bear with me)

Mortgage of £90k, interest only at 6.5% = £5,850 interest per annum

Landlords insurance (guestimate, £30 per month??) = £360 per annum

One months loss of rent = £550 per annum

Maintenance (£50 per month??) + £600 per annum

Letting fees = NIL (We live in the same town so would just rent it ourselves)

TOTAL EXPENDITURE = £6,640

Rental Income based on achieving £550 per month = £6,600 = LOSS of £40.

I had a couple of estate agents round today who all basically said the same thing - people are beginning to panic sell and the market is slowing down because of this. They haven't seen any sign of prices dropping, however its a buyers market and things aren't moving so fast as buyers now have a choice. It might not sell quickly, but will sell at some point, as it's an afordable family home. I spoke to a couple of letting agents (as a potential renter, was worried might get biased view) who advised there are not a lot of properties for rent. The estate agents said if I can afford to hold off and ride the storm and rent it, then do so. They have no invested interest ie letting agents etc, by the way.

One thing in the house's favour is it's 2 minutes walk from a new shopping centre, sports complex and health centre being built. There is also a large Barratt development going up (cheapest one is £180k) so it's not in competition with them.

Am I just being stupid considering renting?? I would just be relying on capital growth I think?? Apologies for my ignorance on this - everyone has to start somewhere with their learning I supose!!! Thanks guys!

Edited May 6, 2008 by rorypops

[NorthamptonBear]

Am I just being stupid considering renting?? I would just be relying on capital growth I think?? Apologies for my ignorance on this - everyone has to start somewhere with their learning I supose!!! Thanks guys!

My view (and most of the others on the site, I guess) would be to sell, clear your mortgage and invest any extra.

That way your OWN house is safe, your Mum's flat is safe and you have some money put away.

Renting out is a business. I think it's a terrible time to start such a business.

I am waiting for at least 2 years before buying my own house. I advise others to do the same. You might be able to buy a similar house in a few years for 60k. But ultimately it is your decision.

[subby]

interest only mortgage?? Where you going to get the capital to buy the rest of the house off?? Or do you plan on selling it?

[heather5]

Hi there you might want to take a look at landlordzone.co.uk - it's full of landlords of experience - solicitors - and also new people to the lettings market and full of other info for people in your situation - and very friendly and fast advice.