Why use property to become wealthy?

Property Management

Everyone knows house prices can increase or decrease in value, however, history and experience shows that in the medium to long-term, house prices will increase an average 5-8% year on year. In real terms, a property will double in value every 7 to 12 years. It is important to understand the factors that influence the price increases.

Why do house prices increase in the long term?

Government figures show a massive shortage of good quality housing in the right locations in the UK.

a) This in the main is due to demographic and social changes such as smaller family units, more people living alone, high divorce rates and more of our senior citizens living longer without the appropriate funds.

b) With the continuing expansion of the European Union, larger numbers of immigrants and asylum seekers are being allowed into the UK, thus creating far greater need for more housing.

c) There is a definite increase in the number of people who are upgrading to larger premises and no longer wished to sell their old home, but would rather rent out their home to create a monthly income, thus realising an asset they can leave to their siblings.

d) Strict control of the green belt restricts the amount of property developments throughout the UK. The construction of new homes has been vastly reduced, pushing up prices of existing property. The government prefers to encourage the regeneration of our inner cities, unfortunately we are slowly running out of land to build on.

e) Mortgage lenders are increasing the amount of personal borrowing and extending the time to repay the loan, falling in line with the increased house prices. This situation increases the confidence in the housing market as the leading institutions are prepared to take on more risk.

Why do house prices fall in the short term?

There will always be times when even with a housing shortage, prices can fall.
Here are some reasons to explain why.

a) When there is a threat of interest rate rises on the horizon, buyers can hold off buying until the interest rates have been reduced. This will reduce the number of sales and some will be forced to reduce the house price accordingly.

b) A rise in prices for utility services can influence the house prices as buyers on tight budgets will postpone purchases for more favourable times.

c) If a leading manufacturer has closed down or moved overseas to cut costs, then this has an effect on the local housing market as employees may be forced into repossession or down grade. This in turn will create an abundance of houses for sale in a specific area, over a short period of time.

d) Lack of regeneration in depressed areas of the country will force people to sell and move out. If this is not addressed by the government then there will be wave of houses being placed on the market creating an over supply.

e) In every property cycle of 7-12 years there is a short term dip in house prices brought on by several economic factors such as recession, tightening of lending, natural disasters etc.

Borrowing money to buy your assets

Unlike the stocks in the shares market, a bank will allow you to borrow large sums of money to purchase your properties. The lenders (banks) are knowingly confident that should you ever fall behind on your repayments, they can repossess the property and still make a handsome return on their investment. For this reason banks encourage the lending on properties.

Let’s look at a simple investment equation.

You wish to buy a property worth a £80,000 with a buy-to-let mortgage. You approach the lender (banks ) with a deposit of £12,000 which is approved. Once you’ve purchased your property, its value increases by an average of 8% to £86,400.

You have now made £6,400 profit from an initial investment of £12,000 pounds. That is over 50% return on your investment.

Tenant pays for your investment

The tenant provides the rental income for your investment properties, providing ample financial cover to meet the initial mortgage payment, management and maintenance each month. In real terms, you have any appreciating asset that has been purchased in the main through someone else’s money,and is maintained on a monthly basis by the income from your tenant.

Obtaining A House Possession Order

Property Management - House Possesion Order

A house possession order is a court order that permits a landlord to evict his or her tenant thereby ending the tenant's legal right to live on the property. The process of obtaining such an order is referred to as applying for possession. The decision to issue a possession order usually depends on the type of tenancy and the circumstances of the case.

Whenever a landlord makes an application for possession to the county court, the judge may take any of the following actions

Issue an Outright Possession Order. When a court issues an outright possession order, the tenant has to leave the property by the date indicated on the order. Usually this date is 14 days from the day when the court order was issued. However, in special cases such as when the tenant is ill or has young children, the judge can delay the eviction by up to six weeks.

Issue a Suspended Possession Order. If the judge decides that the landlord has the right to evict the tenant but it would not be fair to do so at that time, he or she may issue a suspended order. This allows the tenant to remain in the house as long as he or she abides by certain conditions outlined in the court order. For instance, the tenant may be ordered to pay off the rent owed by a certain amount each week.

Adjourn the Case. As far as court orders are concerned, the adjournment of a case occurs when a judge decides to delay the hearing of a case either indefinitely or for a specified period of time. For instance, if the judge needs more information before making a ruling, then he or she can adjourn the case. When a case is adjourned, the court either specifies a date for another hearing or asks the landlord to reapply for possession after a certain period of time.

Dismiss the Case. If the judge decides that there is not enough reason to evict the tenant then he or she may dismiss the case. This may happen where the landlord has no right to apply for possession.

In addition to the above mentioned actions, the judge may order the tenant to pay the rent arrears. Such an order is known as a money judgement. Remember, the decision to issue an outright or suspended house possession order or adjourn or dismiss the case depends on the type of tenancy and the circumstances of the case.

When to Hire Third Party for Property Management

Property Management

Very often, home owners find their homes stagnant in a slow home market. They find limited options to use their property. Their options are limited as they can either rent their house or compromise with the loss if the house is vacant. Renting is a great option if done properly. The largest drawback of renting is that sometimes you get tenants who do not take care of your house or do not pay rent. Sometimes, this situation ends up in costly litigation. The only way to avoid such cases is to give your home on rent only to those people whom you know personally. A more realistic approach to this situation is to hire the services of some property management company.

The task of a property management company is to check the credit worthiness of all the potential tenants. It also takes care of the repairs work of the house during the tenancy period. It will collect rent from the tenants, will enforce rules and make sure that the interests of home owners are protected. They take the suitable decisions in the absence of homeowners.

You should carefully select the property management company. First of all, you should consult your real estate agent who is handling the sale of your property. It is trickier to rent a home that is for sale. It means that some tenants do not like potential buyers to walk through their home while they are living there. Secondly they also do not like the idea that they may have to vacate the house unexpectedly. In case, you are facing the same problem, your real estate agent can act as property manager for you. The agent has all the information about your house and he can arrange such tenants for you who will be cooperative while potential buyers visit the house and they will also maintain the house in good condition.

In case, your real estate agent is not working with some real estate agency or he do not do rental management, then you should hire the services of some trusted property management company. It is your decision to hire the services of real estate agent or property management company. However, you must understand the serviced offered by them. You should know how they arrange tenants and screen them, how they handle the collection of rent and repair issues of home. You should make proper agreement with them about how they should act in your absence.

You will have to pay a portion of your rental income to your property manager in return of his services. However, it is better to give a portion of income rather than sacrificing the whole income, if the house remains vacant. It gives you the chance to earn some income by the time you find suitable buyer for your property.