Thursday 23 May 2024

Should you buy a developer’s show home?


With all the new housing developments springing up around Chichester recently, and with many more planned in the future, an interesting investment opportunity was raised by one of my landlords a while ago - should he buy the developer’s show home and rent it back to them whilst the housing development is being built?

This is not a new practice and has been a popular investment with some for many years - particularly when house prices were booming and it was a reasonably safe bet that come the end of the development the show home would be worth far in excess of what the investor had originally paid.

It can be difficult to get a mortgage on a property that you buy and intend to rent back to the builder (particularly when it is a corporate lease that might run for several years). This therefore means you cannot leverage your funds and thus it tends to appeal to more risk averse ‘cash-rich’ investors who aren’t seeking mortgages to turbo-charge their returns.

The concept of being able to lease back the property from day one on a long-term contract at a reasonably generous fixed return, is quite appealing. Particularly when you factor in that you won’t need to market for, or manage, live-in tenants and the builder will maintain the property.

It’s not without its downsides though.

Besides checking the developer’s credit worthiness to pay the rent, you need to be confident of what the property is actually worth. This can be difficult when it is the first home to be built on what will be a building site for often many years. New-build properties are normally sold at a premium, so it can be hard to find comparables that justify the price, as existing homes nearby are likely to be cheaper in comparison.

There seems to be a flurry of developers right now who are overpricing such offerings and simply paying the rental return from the overinflated price. This is predominantly happening in the North and North-East of England, where developers are largely marketing the properties to ‘Southerners’ who aren’t perhaps familiar with the local housing market and their accompanying lower house prices.

Unfortunately, at the end of the term the investor is likely to find the achievable market rent is far below what they had been used to and the property hasn’t necessarily increased (or retained) the value they originally paid.

As ever it is buyer beware in regards to how good the ‘deal’ actually is. It is also ‘horses for courses’ in regards to what you are trying to achieve as to whether buying a developer’s show home is right for you.

As it happens, for this particular landlord it seemed to make sense. It was a national housebuilder and the property price and rental return seemed reasonable. The landlord was a cash investor and for the next few years he needn’t worry about tenants or property maintenance and he won’t have to pay a letting agent their management fees! ……oh.


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Monday 13 May 2024

BUY-TO-LET DEAL OF THE WEEK: 3 bed house in Chichester, £400,000, 4.5% yield


Summary
3 bed house in Chichester
Listed for sale on 12/04/24 @ £415,000
Now = £400,000
Rent = £1,500pcm
Yield = 4.5%
Last sold for £340,000 in 2015 (+18% in 9 years)

The property is on the market with White & Brooks and full details can be found on Rightmove via the following link: www.rightmove.co.uk/properties/146763626







Thursday 9 May 2024

£585m spent on property in Chichester in 2023

…£585,653,350 to be precise.

That was the huge amount of money spent on property in Chichester in 2023, according to recently released Land Registry data. That figure is, however, a whopping 29% lower than the total spent in 2022 (£820m).

Interestingly, that decrease was primarily down to the 23% decline in the number of transactions, although the average property also sold for 4% less in 2023 (£447,465) than in 2022 (£466,171). The number of transactions has now been declining each year since 2014 (with the sole exception of 2021).                                                                                                                           Last year I predicted that a decline in prices towards the end of 2022 would continue into 2023 (correct), although the data suggested there would be little change in the number of transactions (incorrect), which would lead to an overall decrease in the total spend in 2023 (correct).                                                                                                                                                              When you consider that an average of 2,525 properties were sold in Chichester each year between 2000-2007 (the last ‘boom’ phase for property), it did not seem unrealistic to expect the number of property purchases to remain steady at 2022’s relatively low 1,758. Instead, 2023 marked the lowest number of property sales in Chichester this millennium, with just 1,309 changing ownership!

This market slowdown has directly correlated with the sudden increase in interest rates. It seems the health of the market, both in terms of price and volume, rests largely on the action taken in this regard. The economists’ consensus had been for interest rate drops to have started by now, then pushing this prediction back to June and now being unsure whether it will happen even then. They also believe the drops will be more gradual than previously thought, which is why mortgage rates have again risen a little in recent weeks.

There is also the political uncertainty of a pending General Election adding to peoples’ reservations of buying right now. You may also have noticed there are quite a few new homes being built around Chichester too, for which we are already seeing developers having to reduce prices to sell and/or slowing down their build rates.

That is why I believe Chichester’s property market in 2024 already looks set to come in lower in terms of both price and volume than last year, resulting in another (albeit probably less steep) decline in the total amount spent on property overall.

To keep on top of the latest happenings in Chichester’s property market, you can sign up to the free weekly Chichester Property News e-mail at www.bit.ly/ChiPropertyNews

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If you are looking for an agent that is well establishedprofessional and communicative in Chichester, then contact us to find out how we can get the best out of your investment property.

E-mail me on clive@crjlettings.co.uk or call 01243 624 599.

Don't forget to visit the links below to view my previous buy-to-let deals and Chichester Property News articles:

c/o CRJ Lettings, 30B Southgate, Chichester, West Sussex, PO19 1DP



Chichester rental valuation

Monday 29 April 2024

BUY-TO-LET DEAL OF THE WEEK: 2 bed flat in Chichester, £220,000, 6.0% yield


Summary
2 bed flat in Chichester
Listed for sale on 23/04/24 @ £220,000
Rent = £1,100pcm
Yield = 6.0%
Last sold for £223,000 in 2021 (-1% in 3 years)

The property is on the market with Sims Williams and full details can be found on Rightmove via the following link: www.rightmove.co.uk/properties/141242669







Thursday 25 April 2024

How much are Chichester’s landlords spending on property maintenance?


As another tax year recently came to a close, annual account statements were sent out to all of my landlords who use my fully managed service. It’s something I include (free of charge) as part of my lettings service, but I think it will make my landlords (or their accountants!) lives easier come self-assessment time.

The statement breaks down the total rent they have received in the tax year for each property, along with any deductions that were made i.e. CRJ Lettings’ management fees and any maintenance costs. It’s similar to what they receive each month when the rent comes in, but this time for the whole tax year.

Not only is this a nice overview for the landlord, whilst again demonstrating my complete transparency in regards to fees, but it also ensures all costs are accounted for so that they can claim the maximum tax relief. This is increasingly important when the deduction of mortgage interest has been taken away, having been replaced by a (often lesser) ‘tax credit’.

It also gives me some great figures to analyse, which I wanted to share with you.

The average rent my landlords are achieving is £1,140pcm, which means the bulk of my managed properties are cheaper than the current average rental property available in Chichester (which costs £1,395pcm). More telling is the fact my landlords have received all of the rent due to them. Each year I question whether I will repeat this achievement, such is the economic landscape and frequent tales in the press of non-paying tenants. 

What’s more is that my unique fixed-fee structure is proving to be excellent value for my landlords; demonstrated by an average charge of just 8.7% for an award-winning full management service. One landlord is paying just 5.6% as their property achieves a particularly high rent, meaning my fixed fee proves to be even better value for them.

What is also interesting to see is that my landlords are spending an average of just £414 a year on property maintenance, which is only 3% of the total rent they receive. Common lettings advice is to set aside 10% of your annual rent to account for property maintenance, so it seems my landlords are doing far better than this. 

I suspect this is partly because I tend to manage more modern properties, which should inherently have fewer issues, but also because I tend to endorse the attitude of ‘prevention being better than cure’ i.e. spending a little in the short-term to save a lot in the long-term.

I hope it’s also partly down to the carefully selected maintenance contractors I use, who offer reasonable value for money, plus the fact I don’t add a mark-up to maintenance costs or charge additional commission on such works. I’ll also typically run through a few simple steps with tenants when issues do occur, in case we can resolve them without the need for paid help.

Landlords; let me know how much you’re spending on maintenance and where you’re spending it (boiler repairs made up a good chunk of our maintenance spend this year!). And if you’d like to discuss the ins and outs of how I can make the management of your rental property a little bit easier and perhaps more cost-effective, please get in touch.

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If you are looking for an agent that is well establishedprofessional and communicative in Chichester, then contact us to find out how we can get the best out of your investment property.

E-mail me on clive@crjlettings.co.uk or call 01243 624 599.

Don't forget to visit the links below to view my previous buy-to-let deals and Chichester Property News articles:

c/o CRJ Lettings, 30B Southgate, Chichester, West Sussex, PO19 1DP



Chichester rental valuation

Monday 15 April 2024

BUY-TO-LET DEAL OF THE WEEK: 2 bed flat in Tangmere, £230,000, 5.5% yield


Summary
2 bed flat in Tangmere
Listed for sale on 01/03/24 @ £245,000
Now = £230,000
Rent = £1,050pcm
Yield = 5.5%

The property is on the market with White & Brooks and full details can be found on Rightmove via the following link: www.rightmove.co.uk/properties/145307102







Thursday 11 April 2024

Five things to check when choosing a letting agent

Using a letting agent to manage your rental property should relieve you of hassle, whilst improving your return on investment. Here are five things to look out for though to prevent you being stung by a poor performing or sneaky letting agent.

1. Legal requirements
It is a legal requirement for all letting agents to be a member of a property ombudsman or redress scheme, which ensures you have a port of call if you have reason to complain about their service. Letting agents should also have indemnity insurance to protect you against any mistakes, as well as Client Money Protection insurance, which will compensate you if the agent should misappropriate your funds. Certificates for all of these should be provided upon request and be available on their website - if they don’t have them, they are breaking the law!

2. Service
Ensure you understand what level of service you expect from a letting agent and whether they can deliver it. Discuss what options are available and what the proposed service includes as letting agents’ interpretation of ‘fully managed’ can vary, and this can be at odds with landlords’ expectations. Ask what marketing the agent will undertake, what tenant referencing they perform (and if they’ll supply you with copies) and what the move-in process entails (including which deposit scheme they use and the level of detail to their inventories). Ask how often they will undertake inspections at your property and what their process is if rent isn’t received on time.

3. Fees
A major factor in choosing any service is its cost (although I’d argue value for money is more important than ultimate price). Fortunately, it is a legal requirement for letting agents to list all their fees on their website and in their offices. You should question those who aren’t doing this - firstly because it’s illegal not to, but secondly…what are they hiding?! A myriad of extra fees hidden away in the small print of their management contract can soon add up. Also, ask if they add commission to maintenance invoices; this isn’t illegal (if it’s made clear), but you might wonder why organising repairs isn’t simply part of their management fee.




















4. Reviews
Perhaps the best way to choose a letting agent (like with any service) is by seeking a recommendation or referral from someone you trust. Failing that, letting agents are likely to offer up testimonials from their current clients, although it’s perhaps better to seek them out for yourself by looking up their reviews online.

5. Contracts
Whichever agent you decide upon, make sure you receive a written management contract. This should set out the service the letting agent will undertake for you, whilst clearly listing all the fees you’ll ever need to pay. This will provide clarity for both parties and should help avoid any mis-understandings or disputes at a later date. Be sure to carefully read the contract and raise any terms you are unhappy with before you sign it and the agent starts working for you.

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If you are looking for an agent that is well establishedprofessional and communicative in Chichester, then contact us to find out how we can get the best out of your investment property.

E-mail me on clive@crjlettings.co.uk or call 01243 624 599.

Don't forget to visit the links below to view my previous buy-to-let deals and Chichester Property News articles:

c/o CRJ Lettings, 30B Southgate, Chichester, West Sussex, PO19 1DP



Chichester rental valuation