Often, when we consider becoming involved in property investing, we may think that it’s all about two main things: properties themselves and money. As much as it is about these things, there is another aspect to this business that we simply cannot overlook and that is: people. I would go as far as to say that people in and around our property business can make or break it. So, in today’s show we consider where people are likely to play a part and consider some of the implications of this for our property investment business.
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Today’s must do’s
Stop and evaluate the people within your property business under the following headings:
- Tenants & guests
- Business advisors, professionals & agents
- Trades & suppliers
- Staff & contractors
- Owners & equity business partners
Are they (and you) fully measuring up?
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Transcription of the show
Hello and welcome to another edition of The Property Voice Podcast, my name is Richard Brown and as always it is a pleasure to have you join me again on the show today.
Often, when we consider becoming involved in property investing, we may think that it’s all about two main things: properties themselves and money. As much as it is about these things, there is another aspect to this business that we simply cannot overlook and that is: people. I would go as far as to say that people in and around our property business can make or break it. So, in today’s show we consider where people are likely to play a part and consider some of the implications of this for our property investment business.
Later, I will share some stats on our listener numbers and express my sincere gratitude for you and the great many of people like you that choose to tune in and listen to my ramblings each and every week…thank you very much for that.
Finally, news of a short break in the schedule, as I myself look to take a break from recording before returning with a bang with series three on creative financing in property in a few weeks.
Lots to cover then, so here we go…
Property Chatter
Property is actually a people business…and people can make or break our business too.
The people involved in our rental property business fall into a number of general categories:
- Tenants & guests
- Business advisors, professionals & agents
- Trades & suppliers
- Staff & contractors
- Owners & equity business partners
Looking at each of these in turn, let’s consider some of the people issues that we may need to be aware of.
Tenants & guests
First and foremost, tenants in long-term rental property or guests in short-stay rental property are customers. However, given that we use terms such as tenant, we sometimes forget this fact and as a result can adopt something of a false picture of the relationship instead.
The terms landlord and tenant does suggest that there exists a balance of power, in favour of the ‘lord’, particularly from a historical perspective. Whilst, to some extent this is true…for example, we can serve notice on a tenant and ask them to leave. However, the reality of the situation under the modern day law has redressed the apparent imbalance of power quite a lot, since the old Roman Manorial system and in particular the British Feudal system when such terms came into use.
For example, we need the permission of a court before a tenant can be legally evicted from our property. I have recently seen a case where this has taken a year to conclude, which does not sound like a very powerful position to be in from where my point of view!
In other cases, whilst we may have a tenancy agreement, or similar with a short-stay guest, the reality is that we may be open to issues of non-payment, a breach of the terms such as having pets without permission or in some extreme cases damage to our property that we cannot recover through a deposit.
If we know these things or risks to be true, then we should ensure that we think about two main points when to comes to selecting someone to live in one of our properties:
- Tenants are in fact customers to our business. This means attracting the good tenants that are likely to pay our rent on time, stick to the terms of the agreement and look after the property. This is, therefore, a customer attraction task…or marketing in other words. Therefore, it should follow that we need to present our ‘product’ to our ‘customer’ in the best possible light in order to attract those better tenants that do in fact have a choice.
- Bad tenants have legal protection that could cost us both time and money to overcome. Avoiding the bad tenants, which are likely to do the exact opposite to the good tenants we have just described is probably a wise thing to do then. This is, therefore, a customer qualification and selection task in reality. How do we do this? Once we have the good marketing in place to attract them, we need a filtering system that helps us to avoid as much of the downside risk as possible. Some good practices include: gathering full information on a tenant in the form or an application. This should capture their current address and previous landlord (where applicable), former addresses for the past 3 years, their employment & earnings details, their creditworthiness, their income and expenditure and ability to afford the rent payments, their nationality and right to remain in the UK and if possible their next of kin and / or guarantor details to assist with tracing them later if required. We should confirm this information to be true and accurate, often by using a referencing service. In addition, we may choose to visit them in their current home, or at least in person to verify they are who they say they are. Regular property inspections once they are in the property should help to flush out any potential problems that could arise, sooner rather than later. Finally, financial protection in the form of deposits and insurance is a must given the potential costs of any damage, non-payment of rent and strung out eviction processes.
Business Advisors, Professionals & Agents
We can start to rent property with a simple set of advisors, professionals and agents around us. Initially, we may only need a legal conveyancer to help us through the legal process of buying a property. We may decide to self-manage the property, although, in the current climate of regulation and compliance, we must ensure that we fully understand our responsibilities here – lots of resources exist, but my recommendation would be to become accredited with one of the major landlord associations.
Beyond the basic approach, other third-parties that we can engage to support us in our property rental business include:
- Solicitors – not just a simple conveyancer to offer more in-depth advice on property issues and risks
- Accountants & tax advisors – to guide us on the best way to structure our affairs
- Mortgage brokers – to get the most appropriate deal for us when we use finance to help acquire a property
- Letting agents – to transfer the tasks if not the liability of letting out our property to a specialist
There could be others as we grow, however, selecting the right people to work with can help or hinder us as these examples will illustrate:
Solicitor – I recently heard of a property buyer who managed to buy a property where some garages were built within the grounds without the required planning permissions in place from the seller. That now leaves the new owner open to additional risk and cost. Conversely, a good solicitor can help to complete a deal quickly, which is very useful in a competitive situation where speed is important.
Accountant – I heard of an accountant advising their client that the second home stamp duty premium would not apply to them when they convert their existing home to a BTL and then buy a new home to live in. This is incorrect advice and would cause the client to incur a 3% premium on the second purchase that they weren’t expecting. On the other hand, having the correct legal status from the outset can save thousands in income tax and inheritance tax in particular.
Mortgage broker – some brokers believe that the so-called ‘six-month rule’ is an unavoidable rule that cannot be overcome. This is not true and a refinance or even under the right conditions a sale within 6 months is entirely possible. Equally, some brokers are specialists in their field and so if you have a commercial loan, short-term bridge, or conventional BTL requirement…there may be a specialist broker best placed to look after your interests here. Personally, I have several broker contacts for this very reason.
Letting agents – I could say quite a lot here but a good letting agent is worth their weight in gold and can save hours of painstaking time on nitty gritty issues in managing a property. The opposite can also be the case, however! I have had agents advise me on my legal requirements, helping me to avoid potential risks and recourse. On the other hand, I have also had a letting agent fail to properly protect a tenant deposit, which left me in a very exposed position legally.
In conclusion then, it is a good idea to have a suitable team in place, one that can evolve over time, remember that decent advisors will command decent fees too, so don’t expect a premium service from a cheap service provider either.
Trades and suppliers
Whether for refurbishment works pre-let or maintenance & repairs post-let, either way, we will need a collection of reliable trades people to support our property business. Finding good trades people that are both trustworthy AND available at the time we need them can be a tricky business, however. This is one reason why concentrating our portfolio in a specific region can yield dividends. An alternative is to seek referrals and recommendations from letting agents, local landlord association reps and fellow investors.
Just to illustrate their importance, I have had an electrician certify a property as having a full rewire, fully tested, when in fact sections of the property were missed off, out of date and unsafe practices were adopted and they were no longer registered with their trade body at the time the certificate was issued. In any property, but especially in the HMO concerned, this could have left me dealing with a potential serious accident and even a prison sentence had things have gone the wrong way. Therefore, always check on a suppliers trade registrations and insurance as a part of your basic due diligence.
Staff & contractors
Probably by now we are getting the picture that we need to have good people around us to help our business to grow and develop. Success depends on getting the right people of course.
As we grow as property investors, we may decide to take on additional support in-house, be that by directly employing people or by having contractors instead.
Proper recruitment and legal procedures from the beginning, including application forms, interviews, short tests and references are highly recommended practices for us to adopt.
There are now lots of ways that we can recruit people, many of them online and some even virtual. Tools and apps such as virtual assistant websites allow us to access highly educated staff from places like The Philippines, where the cost of living and the cost of labour is much lower.
However, nothing replaces the best practices of getting involved in the process ourselves. Never underestimates the value of a gut feeling either…as long as we can trust our gut that is! However, relying completely on our guts is potentially leaving us open to unnecessary exposure.
Owners & equity business partners
Finally, this relates to us and the others who have an equity interest in our business.
Starting with the others – I will say this, regardless of financial or other resources that a potential partner can bring to our property business, it is their ethics and values that count the most in my experience.
Do they see the world in a similar way to us? How would they react in various situations where a choice needs to be made between principle and money? For example:
- Releasing a tenant early from their lease
- Ensuring that a property is maintained to a safe and comfortable standard
- Refusing to hold a distressed seller to ransom by threatening to withdraw from a sale without a further price reduction a day before completion
These are the sorts of issues that are important considerations when working with someone else as an equity partner in our property business.
As for us, yes we too are people and as such are prone to many of the factors that I have touched on over this discussion. Are we committed to our business, are we prepared to educate ourselves to ensure that we stay current and compliant, will we put in the hours required to maintain and grow our property business to meet our goals and so on?
There is much I could say about the personal development side of things. However, ultimately we need to be good stewards of our business, and indeed of ourselves, if we are to realise the hope and promise that we set out at the onset. This may mean taking a frank and honest inventory of ourselves to identify any gaps or shortages in certain areas and then to set about plugging these gaps. One thing is certain, in achieving what I like to call our ‘Someday Goal’ we will probably need to be different people with different skills, experience and knowledge by the time we get there as opposed to where we start out.
So that’s this week’s show then – an assessment of how essential a part of a property business people will be to us.
I particularly wanted to leave this topic here for you to perhaps reflect upon or re-evaluate how the people aspect of how your property business is performing. This may start with you of course, or you may take a step back and consider that some other aspect of what I have spoken about requires attention or even change.
As for me, I plan to take a few weeks off from the podcast in order to take a holiday and enjoy the Olympics with family and friends. Therefore, the next scheduled podcast that I will release will be available on Wednesday 24th August. This will also signal the start of the next series of the podcast, which is all about property finance and in particular creative financing in property.
I have already lined up a good many subject matter experts in their fields to join me in this series, so I am looking forward to sharing that with you very much indeed.
In the meantime, I wanted to acknowledge and thank you for your commitment to the show. We have had over 50,000 downloads and are now averaging over 5,000 downloads per month now. I know that this podcast is more like a staple diet meal than a dinner and a show experience, so I understand that to achieve these sort of numbers with this type of approach to content and format means that you are serious about your own property knowledge and personal development. Thank you for joining me each and every week and please do come back in three weeks when I get back after my jollies won't you?
If you are lost for something to do over the next few weeks, then I can certainly highly recommend a book for you to read. The portrayal of the life of Warren Buffett is captured in a book called The Snowball, written by Alice Schroeder. If you need an audio fix over the next three weeks, then you won’t go too far wrong by having a listen to this I can tell you. It is fascinating to get the insights into how this man became a self-made billionaire, starting from odd jobs and simple trading strategies from his childhood. So, maybe check that our for some summertime reading.
Finally, you can stay engaged with me by dropping me a note to podcast@thepropertyvoice.net with any ideas for the show, or to share personal property questions, stories or challenges…I will still be around even if not recording these next few weeks. It would also be of great value to me if you could see your way to leaving a glowing review of the show on iTunes, as that really does help to grow the reach of the show for others just like you.
But for now and in the famous words of Arnie…I’ll be back. So, thank you very much for joining me on the show today and until next time on The Property Voice Podcast…it’s ciao ciao!