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General: The Landlord's Energy Dilemma

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    • CommentAuthorArtiglio
    • CommentTimeNov 18th 2016
     
    Tenants are rarely interested in energy costs ,condition of, decor,carpets, kitchen and bathroom will always be a much more important. Tenants living in a geuinely D rated property will be oblivious to costs. When I do get complaints about how much gas they are using , it'll be during a cold snap, i'll turn up to be greeted by a family in t shirts and shorts basking in sub tropical splendour. They'll also have no idea what they have spent over the course of a full year. Lifestyle choice would make a much greater difference to them. Not uncommon to see windows opened rather than controls turned down.
    I have a building with 4 flats , built 1890 , mid terrace, i converted it to the then regs in 2000, added rockwool to internal walls ,300mm to loft and extra in the floors. Over the years problem rooms have had 50mm of celotex added internally and noisy party walls have had insulated stud walls added. Probably the most important energy wise is changing upvc window hinges every 5 years or so along with seals to keep out draughts and putting stickers on bathroom fan isolators and kitchen extractors asking them to be used, plus led lighting all round. All simple , not overly expensive but has quite an effect on tenant comfort and energy costs.
    Rents in my area will never justify doing more , but neither would tenant behaviour make most of more investment.
    As for housing supply, already where i am, housing benefit tenants have NO chance of finding half way decent accomodation for what HMG gives them. The current freeze on benefits till 2020 ( more to do with meeting political goal of defecit reduction that forcing people into work) is making matters much worse, I'm on the kent coast and there is a flood of working tenants giving up the struggle to live in london , preferring the commute and paying 1/3rd of the rent for much larger accomodation. The housing crisis will be getting much worse yet.

    The market is being prepared for the entry of big corporate entities, yet another short term fix which will cost the country dear in years to come, social housing though much lauded ( often rightly so) in the form of housing associations are incredibly expensive to the public purse once central and local govt. grants/gifts are added in and the quality of the housing provided take into account ( much of the modern stock will not last 50 years). The quantity over quality ratio has gone way toovfar to quantity.
    • CommentAuthorringi
    • CommentTimeNov 18th 2016
     
    In energy the profits of a developer does not go from -50% to +200% based most on the state of the market at the time they are ready to sell.

    As the market state cannot be predicted, but sensible automated build methods need investment over many years, the large developers are just building a few homes at a time, then not building any more on their large sites until the first batch is sold.
    • CommentAuthorringi
    • CommentTimeNov 18th 2016
     
    After seeing the effect of moving the BBC to Salford and how properties in that area are now being improved due to increase demand, I now think the issue is more jobs then housing standards. When people have money and are able to affect the quality of homes in there are by paying more rent for better homes, homes get improved.

    Therefore why not relocate the Patent Office, High Court etc out of London to an area with low employment. Just like the BBC 101 private companies will also move at their own cost.
    • CommentAuthorDarylP
    • CommentTimeNov 18th 2016
     
    +1... that is the root of the problem... people move to where the jobs are.
    Eventually companies will migrate North, when they cannot get enough workers in SE England, & improved housing stds. will follow.
    • CommentAuthorringi
    • CommentTimeNov 18th 2016
     
    But they can import single workers into the SE who are willing to live 4 per room for a few years, so as to save enough money to buy a house for cash in their home country. (OK, the Australian computer programmer tent to only have 2 per room.)
  6.  
    Posted By: VictorianecoRental Properties

    I'm looking to buy a property as an investment (BTL) and wondering if you can offer any advice?

    I own my own home (mortgage Ă‚ÂŁ84,000 - Value Ă‚ÂŁ170,000) and hoping to remortage in the ocming year to take out some equity and try to get a few properties.....

    Can you offer any pointers? Yield Calculators? When is a property worthwhile to buy/sell etc?

    Thanks


    I think the thing is so complex and changeable these days that the first I would say is to do some extensive research, and probably on places such as landlordzone.co.uk or property118.com rather than here. There are many threads and intro guides and calculator in those places that will be better than anything we will say here.

    There is also great value in talking to the HOG at one of your local estate agents (even if it costs you a good lunch). HOG = Hoary Old Git who has been around the block many times. If they don't start off by explaining all the things that can go wrong then you are talking to the wrong person.

    It has all tightened up in umpteen ways in the last very few years - as much as eg the Planning System has changed, from Osborne's extra Stamp Duty of 3% (= your first 1-2 years profits) to many councils who now charge full or extra Council Tax if you do not have it occupied within a month to LL Licensing to the 60-100 pages of documentation that you will give to the T if you do the works (deposit, inventory etc). And many criminal offences if you get it wrong and someone notices.

    Now it really *is* a long term professional business.

    And I think that the various LL organisations do Introductory Day Courses.

    The only comments I will make here will be generic:

    1 - Start with something you understand for type of property and type of tenant.
    2 - I would advocate single family lets or lodgers.
    3 - Avoid anything at extremes of the rental or property market. Don't chase high yield until you have cut your teeth, and perhaps not then.
    4 - Don't rely on capital growth. If the rent won't make you a profit without capital growth, avoid.
    5 - Start with one to make sure you want to do it long term. It is a people business.
    6 - Don't rent to anyone you would hesitate to evict if they stop paying. Friends and family - NO NO NO.
    7 - Have enough cash reserves. Suggest 10-20k in cash *plus* I year's rent or 2 years's mortgage payments available. That is after you have renovated your property. ie House renting for 8k I would want 18-28k of cash reserves on top to hand.
    8 - Don't rely on the income when you cannot spread your risk. It is a bonus or a pension. If you have one house it can be burnt down or have a bad 'un tenant who will take 6 months and 3k to evict, and that on top of a loss of say 12 months of rent.
    9 - Get to know your market segment.
    10 - Do not risk your own home to the point you cannot cope with.

    Ferdinand
  7.  
    It is probably also worth mentioning alternatives, including

    1 - Property funds.
    2 - Funds which are linked to build-to-let.
    3 - I bet there are ISAs if you look.
    4 - Some things can be done inside a SiPP (not individual residential property).

    Ferdinand
    • CommentAuthorringi
    • CommentTimeNov 18th 2016 edited
     
    Posted By: ferdinand2000I think the thing is so complex and changeable these days that the first I would say is to do some extensive research, and probably on places such as landlordzone.co.uk or property118.com rather than here. There are many threads and intro guides and calculator in those places that will be better than anything we will say here.


    Agree also look at www.propertytribes.com and you MUST understand the changes to tax relief on mortgages.

    Do the NLA Foundation Course as well, as there are a 101 legal issues you need to know about even if you are using an agent - if the agent gets it wrong the landlord goes to jail.....

    The only easy money is to buy a “main home” that is larger then you need and take in two lodgers, this can mostly be done tax free.

    Most people selling training courses make it sound easy so they can sell more training, if they were good at property, they would not need the money from selling the training courses…… Hence don’t pay £xxxx for courses on things like “lease options”.
    • CommentAuthorArtiglio
    • CommentTimeNov 18th 2016
     
    Further regarding BTL, Best advice above was buy a bigger house for yourself and have lodgers, 7.5k tax free and no capital gains.
    Avoid leashold like the plague unless the return is around 12%. Lots of property is being sold with yields around 5%, you'll make nothing on it in the longterm other than capital growth ,which as per above should be seen as a bonus not counted on. If you only expect to have one property in the short-medium term go for a house however small over flats.
    The tax changes and current high values are encouraging quite a few landlords to sell, any good value deals will likely not make the estate agents window, btl is in no way the road to riches manybwould have you believe, proceed cautiously and eyes wide open.
    • CommentAuthorringi
    • CommentTimeNov 18th 2016 edited
     
    Remember it is “get rick very slower”……..
    You get a good property; make maybe Ă‚ÂŁ200 per month profit from it. Assuming inflation at 3%, in 20 years time you are making about Ă‚ÂŁ600 per month profit. (As your mortgage has remained the same, but rents have gone up.)

    Over the long term rents will tent to track wages unless there is a drop in employment.
    •  
      CommentAuthorSteamyTea
    • CommentTimeNov 18th 2016
     
    Posted By: DarylPEventually companies will migrate North
    Don't forget the far West.
    I was up in Shropshire at the beginning of the week, about 40 minutes from the Jaguar Engine plant. There are jobs there within easy commuting distance, but property prices are are 2/3rd of down here.
    It is not all about accesses to work.
    • CommentAuthorDarylP
    • CommentTimeNov 18th 2016
     
    I was born in Shropshire...:-) Altho' the LRJ Engine plant is in Staffordshire...
    I know what you mean. That is why the HMRC relocated it's development centre to Telford....
    All it might take is a couple of big/brave corporations....:bigsmile:
    •  
      CommentAuthorSteamyTea
    • CommentTimeNov 18th 2016
     
    It is about time that someone pointed out to the large car manufacturers that there are two deep water harbours down this way.
    Just like Birmingham and Swindon
    • CommentAuthorbillt
    • CommentTimeNov 18th 2016 edited
     
    Posted By: SteamyTea
    I was up in Shropshire at the beginning of the week, about 40 minutes from the Jaguar Engine plant. There are jobs there within easy commuting distance, but property prices are are 2/3rd of down here.
    It is not all about accesses to work.


    You obviously didn't see much of Shropshire. There is one reasonably good road, the M54. It joins Telford (just inside the Shropshire border) to the M6, with a good dual carriageway extension to Shrewsbury. That's it. The transport in the rest of Shropshire is bad, which is why few people commute from Shropshire and why house prices are relatively low, as local wages are also low.
    • CommentAuthorDarylP
    • CommentTimeNov 18th 2016
     
    alas, true... That's why all my peer group left when we could...:cry:
    •  
      CommentAuthorSteamyTea
    • CommentTimeNov 18th 2016
     
    I used the A41 to get to my mates in Whitchurch. Really not that bad compared to some of the commutes I have done in the past. It has to be kept in perspective though. Look at my 2 major roads A30 and A38.
    • CommentAuthorconverse
    • CommentTimeNov 20th 2016
     
    The solution is to cut the costs required to get to passivhaus levels. Practically, that means newbuild, and really also the planners being prepared to offer consents on marginal sites to developers building to better energy standards.

    Try selling a house that has a 10% price premium to a landlord. I have, and it doesn't work - landlords always expect to buy new houses at a significant discount and simply won't pay more for better performance. I now refuse viewings for buy to let purchasers - it's a waste of my time. My experience is that no one is prepared to pay anything up front for a new house that is built to better than building regs energy performance. However, once they have bought one of our houses, they won't consider losing the low bills and comfort they've been getting. I'm hoping this will slowly translate into a motivated marketplace, but I'll probably be dead before it happens. In our passivhaus standard rental for example, we have almost zero turnover in tenants, so hopefully buyers are slowly getting the message.
  18.  
    @converse

    >Try selling a house that has a 10% price premium to a landlord.

    Thanks for the comment, but surely that is childsplay.

    All you have to do is demonstrate that it has a 10% rent premium ! You can do that, surely, if you are asking for 10% more purchase price?

    ;-)

    (ie This is actually another aspect of the problem that this thread is partly about - energy efficiency benefits are not visible or valued in the marketplace. Your education by experience process sounds like the one that happens to my Ts when their next move is into a colder house).

    My exprience of roughly comparable newbuild round here would be that a new/nearly new 2 bed terrace (say) may well have a 10-15% rent premium over a trad 2 bed terrace (eg 525-550 pcm not 460-480 pcm), but that the headline price premium may well be 25-30% after upgrading the older one (eg 115-130k not 75-90k). The benefit would be little maintenance for say 10 years, and offstreet parking, and a different type of tenant if you want that type of tenant. The benefit of the older one would be that I know what is in it, and perhaps more space for the T.

    Will address your other points later.

    Ferdinand
  19.  
    Posted By: converseThe solution is to cut the costs required to get to passivhaus levels. Practically, that means newbuild, and really also the planners being prepared to offer consents on marginal sites to developers building to better energy standards.


    I promised to address your comment.

    I would be interested to know what you mean by "cut the costs required to get to passivhaus levels". AFAIK the premium is already minimal for new builds, especially if you don't go the full cert route and waste spend money on PHI Certified Loo Seats or Self-Sealing Stem Bolts etc.

    Try selling a house that has a 10% price premium to a landlord. I have, and it doesn't work - landlords always expect to buy new houses at a significant discount and simply won't pay more for better performance. I now refuse viewings for buy to let purchasers - it's a waste of my time. My experience is that no one is prepared to pay anything up front for a new house that is built to better than building regs energy performance. However, once they have bought one of our houses, they won't consider losing the low bills and comfort they've been getting. I'm hoping this will slowly translate into a motivated marketplace, but I'll probably be dead before it happens. In our passivhaus standard rental for example, we have almost zero turnover in tenants, so hopefully buyers are slowly getting the message.


    Well, the simple logic is that if the market won't give you your 10% premium then it is overpriced or you have the wrong market, so ignoring Buy to Letters may well be the wrong market, and your decision rational.

    I would be interested if you have managed to take a higher rent on the basis that you are saving them money on energy bills. Also what is your gross return on the house as a passive house, and was it designed as a rental or are you an accidental LL for that one?

    I find that some people will pay extra, but not very much. I would say that in theory if LL investment reduces T bills by eg Ă‚ÂŁ600 per year, then a rent increase of Ă‚ÂŁ300 per year should be defensible and fair. I have had a certain success moving in that direction when investments are made at T request, but not to the 50% split figure. If it is already in place at the start they will properly expect the full information up front.

    I am also geared up for long-term lets, and find that 5 years plus is perfectly normal. I tend to offer either a fixed rent for 3 years (ie no increase clause) starting at a figure towards the top of market estimate, or a more average figure plus inflation increases.

    Ferdinand
    • CommentAuthorconverse
    • CommentTimeNov 21st 2016
     
    Hi Ferdinand,

    No, it's not the case that building to passivhaus levels is a minimal additional cost compared to building regs in a new build, at least in our area. Its changing all the time, as building regs get tighter, but as an example at the moment we are building 3 story 100m**2 semis to roughly passivhaus standards, and a slightly better than usual level of finish. Construction costs to me is about Ă‚ÂŁ90k per house, all in based on 5 houses, and thats for a completely landscaped finished site. To that you need to add land costs of about Ă‚ÂŁ35k per house, and some management overhead.

    Now those houses built to building regs would still offer pretty decent performance, but would be at least Ă‚ÂŁ20k cheaper each to build.

    The only areas where the extra 20k wouldn't be pretty significant are going to be places where land values are a much more significant part of the equation. So, sure, I can see in London that you could claim that passivhaus standards are a minor additional cost.

    In order to build to these standards commercially, I need there to be some recognition from the planning system, or i'ts frankly unsustainable. It is frustrating that planners see no difference between an architect designed passivhaus and major house builder box.
    • CommentAuthorgravelld
    • CommentTimeNov 21st 2016
     
    Are you following standard construction practices though? AIUI the argument that Ph is the same/ only marginally more expensive is when you go back to the drawing board, so to speak, and adopt some non-standard design approaches.
    • CommentAuthorconverse
    • CommentTimeNov 21st 2016
     
    I'm not sure what you mean by "non-standard design practices", but basic spec we follow is:

    Ventaxia MVHR
    Waste water heat recovery
    Thin Joint 215mm blockwork with 200mm EPS EWI
    Wet plaster
    Underfloor heating
    Triple glazed Argon windows, mounted in insulation layer.
    SIPS roof

    If you know a cheaper way to build them please make suggestions - this is a consensus view from architect, me, and the people doing the work.
    • CommentAuthorconverse
    • CommentTimeNov 21st 2016
     
    I should add that above spec is as far from mainstream as I'd care to go. Its a hard enough industry without adding construction that is seen as anything other than simple.
  24.  
    I had the numbers as an extra build cost being 6-8% a couple of years ago, but it is good to have some real example information - thanks. And I thought that that 6-8% was dependent on particular best practice.

    One report is here:
    http://www.passivhaustrust.org.uk/UserFiles/File/Technical%20Papers/150128%20PH%20Capital%20Costs.pdf

    Are your projects subject to much Planning Gain?

    Ferdinand
    • CommentAuthorgravelld
    • CommentTimeNov 21st 2016
     
    Posted By: converseI'm not sure what you mean by "non-standard design practices", but basic spec we follow is:

    Ventaxia MVHR
    Waste water heat recovery
    Thin Joint 215mm blockwork with 200mm EPS EWI
    Wet plaster
    Underfloor heating
    Triple glazed Argon windows, mounted in insulation layer.
    SIPS roof

    If you know a cheaper way to build them please make suggestions - this is a consensus view from architect, me, and the people doing the work.
    I'm not sure either - just the general gist I've taken.

    TBH I always raise my eyebrows when people say doing something non-standard makes it cheaper!

    Maybe offsite construction and the like help.
    •  
      CommentAuthordjh
    • CommentTimeNov 21st 2016 edited
     
    Posted By: converseI'm not sure what you mean by "non-standard design practices", but basic spec we follow is:

    Waste water heat recovery

    Isn't necessary for PH.

    Underfloor heating

    Shouldn't be necessary for PH. I believe the generally accepted cheapest heating is a gas boiler with a couple of radiators.

    Might shave a few pounds off, but substituting radiators for the UFH in particular might be perceived as lower value. So I'm not sure you'd want to make the change.
    • CommentAuthorconverse
    • CommentTimeNov 21st 2016
     
    djh -
    I've found UFH minimally more than rads (few hundred pounds per house), and a much neater solution in a low energy house. Customers love it, and I'm convinced it helps lower emissions by getting the boiler running most efficiently.

    I think waste water heat recovery is probably relatively good value - we shaved the cost of windows and EWI a bit to help pay for it.

    I'm mostly motivated by spending money effectively so I'm happy to include things that aren't needed for passivhaus, and leave stuff out that strictly is.
    •  
      CommentAuthorSteamyTea
    • CommentTimeNov 21st 2016
     
    Does the PassivHaus Institute, or whatever they call themselves, still specify the types of fridges/freezers, washing machines, dishwashers, TVs that they find acceptable to have in a property?
    • CommentAuthortony
    • CommentTimeNov 21st 2016
     
    No but the do talk about maximum energy use and maximum heating demand
    • CommentAuthorconverse
    • CommentTimeNov 22nd 2016
     
    <blockquote>I'm not sure what you mean by "non-standard design practices",
    Maybe offsite construction and the like help.</blockquote>

    I've periodically got quotes in for off site construction techniques, and have always found them much more expensive, even taking into account likely timesavings. The cashflow is also pretty scary.

    An option that looks promising for us as very small niche developers insulated concrete formwork, but I haven't applied it to a project yet.

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