It is interesting to observe just how many novice landlords and investors have been persuaded by so called property experts e.g. property consultants, agents, finance brokers etc to pursue capital growth rather than cashflow investing which, of course, is a strategy which could work very well within a rising market, provided the investor or landlord has the correct exit strategy and sells before the downturn arrives.

However, the truth of the matter is that what really distinguishes the professional investors from the novice ones is that the former always focus first on cashflow, then capital growth later. This is often why the novice investor can take such a long time, if ever, to achieve the financial freedom that they wanted from property in the first place. You may well ask what are the risks associated with choosing the wrong strategy taken on by ill-advised novices? Well, there are several but the key ones include novices becoming vulnerable to increases in interest rates which then affects cashflow, receiving marginal cashflow during occupancy, or worse, experiencing negative cashflow during rental voids, coping with negative equity which means you can’t even sell, enduring long periods with minimal capital growth and finally, being forced to sell at a reduced or ‘wholesale’ price. One wonders why they bothered in the first place as they end up worse than they began, with zero profit and in debt!

It therefore really does makes sense to get your investment strategy right the first time i.e. cashflow investing. We will continue with this subject in the next article.  If you can’t wait until then, you can find more information by clicking on the link below.

 http://www.ukpropertyladder.com/assured-positive-cashflow.html

 Sudeshna Choudhury

Rent not Paid – Part 2

Paul: Before I read the e-book, I would like to know a bit more about Property Lease Options and how it is better than the usual tenancy agreements I have been signing all this time.

Karen: I would be glad to help you any way I can.

Paul: If I opt for Property Lease Option now, will I find tenants who would want to participate in this?

Karen: Yes, that is what makes Property Lease Options such a great arrangement. Both tenant and landlord have a stake in the property. It offers tenants a good deal, so you will not have trouble finding tenants.

Paul: From what I understand, the tenant leases property on condition that he or she will be able to buy the property at the end of three years.

Karen: It could be more than three years, though the minimum lease period is generally three years.

Paul: How exactly does it solve the problem of rent not being paid?

Karen: First, the tenant is interested in buying the property. You must understand that many of these people cannot afford to buy homes through any other method, property prices being what they are today. Besides, they are being offered the chance to live in the house before buying it. That is not an offer they get every day! That makes them eager to be in their landlord’s good books.

Paul: What about property management? How would I find the time to look after the property, or carry out repairs and renovation?

Karen: You don’t have to do any of these. Property Lease Agreement does more than solve your “rent not paid” difficulty. The tenants will take care of the property because they may want to buy it later. So no more trashed rooms, broken windows, or cigarette marks on expensive kitchen fittings.

Paul: How do I turn my negative cash flow into a positive one so that I can repay the mortgage?

Karen: First, you don’t have to spend on constant maintenance. Second, the rents keep coming in for a longer period than the general AST term. There will not be a time when you won’t have a tenant. So no more worrying about property lying vacant and rent not being paid. Third, you can ask for more rent, and the extra rent will be counted towards final payment for the purchase. Landlords often use this extra money for paying the mortgage. Fourth, most landlords ask for a down payment when signing the lease.

Paul: That brings me to another question. Will really not need the services of a “find me a tenant” agency anymore?

Karen: Once you have reached an agreement with a tenant, they will want to stay until the time the home can be theirs. If they like the property, they may buy it, and release you from the task of having to find tenants for it.

Paul: What if tenants don’t want to buy the property at the end of three years?

Karen: In that case, apart from having to look for another tenant, you don’t lose much. You get to keep the down payment on the property in most cases. The higher rents will help clear the negative equity on your home. You would have been able to rent out the property for a longer time than possible with usual tenancy arrangements.

Paul: How do I draw up the tenancy contract?

Karen: Go through the e-book published by UK Property Ladder. You will find answers to this question and many more. You can read through at your leisure and make informed choices. For details  click on this link below:-

http://www.ukpropertyladder.com/upl-apc-testimonials.htm

Rent not Paid – Part 1

Rent not being paid on time is one of the biggest concerns for property owners. A few days back, Paul, a landlord, had the following conversation with a property investor, Karen.

Paul (landlord): My tenant has not paid the rent, again.

Karen (property investor): This is the third time, I think?

Paul: Yes. What is more, he admits he will not be able to pay before two months.

Karen: Why do you not evict him? The AST period is about to end. You can have a Section 21-b notice served.

Paul: I know. I have served him the notice. But that does not solve the problem.

Karen: Why not?

Paul: First, I am tired of managing this property. I am new to property investment, and I am not an expert. I have not been able to find the right tenants either. I think selling the property would be the right thing to do, even though I was planning to invest in a few more properties and build a proper investment portfolio.

Karen: Have you tried tenant finding services? You can also hire property management services. That way, you can bring in rents without grappling with the problems of being a landlord.

Paul: Tenant finding services don’t guarantee right tenants every time. I have not found a satisfactory property management service. Until that happens, I am stuck with managing the property and tenants on weekends and after work.

Karen: Why don’t you sell the property?

Paul: That is the second problem. The property carries a negative equity on it right now. I thought the lease would help cover the deficit, but with rents not paid, I don’t see how that is possible. Unless I can get another ₤30,000, I won’t be able to sell the property.

Karen: It seems you have two problems on your hands. First, you are unable to manage the property and find the right tenant. Second, you are unable to sell the property because your property carries negative equity and you don’t have the money to repay your mortgage.

Paul: That just about sums it up.

Karen: Why don’t you try Property Lease Options?

Paul: I have heard other property investors mention it. Does it have anything to do with leasing with a view to buying the property later?

Karen: You are right. It offers a win-win situation for the landlord as well as the tenant. It is a pity so few landlords are aware of it, particularly those whose tenant has not paid the rent.

Paul: How do I find the right tenant through Property Lease Option? How will it help me deal with negative equity? Will it really help me make a profit on my property investment without having to spend 24 hours a day managing the property? What about problems such as rent not being paid?

Karen: Let me recommend this great e-book to you. It’s been published by UK Property Ladder, and has all the information you need about Property Lease Options.

Paul: Does it really cover everything I want to know?

Karen: If you are not convinced, why not read a free chapter from their e-book first? You can find it at this Web site:

http://www.ukpropertyladder.com/upl-apc-testimonials.htm

Most landlords have heard of or dealt with tenants from hell - freeloaders who do not pay their rents on time, rip off wallpaper and smash windows in a drunken state, have hidden criminal records, or own three dogs and four cats (or exotic animals) in complete violation of all “no pets” agreements. Some tenants try to earn a few extra pennies by subletting the premises to more problem tenants. Some tenants are demanding enough to contact their landlords at 2 a.m. to demand repairs to a leaking tap or a broken window.

As an experienced and shrewd property owner, you probably know how to avoid problem tenants. You have the names and phone numbers of all tenant finding services in your area. At the end of the AST cycle, you will probably contact your most trusted tenant finding agent and tell them, “Find me a tenant”. If you are not worried about payment of mortgages, you can probably find a reliable tenant through a tenant finding service.

Mortgage Problems? Read on…

However, the property market being what it is now, there are very few property owners who are not facing trouble repaying mortgages. Negative equity is a serious problem for many landlords. If you are paying more mortgage than your property is actually worth, then you are probably facing negative equity on your home. Negative equity prevents many property owners from selling their homes and getting rid of a property that is only creating financial loss for them. Last year, a Standard & Poor study found that property repossessions had touched a high of 19, 000 in the first quarter of 2008. This coincided with a drop of 35% in property prices. The prices are expected to further fall through 2009 and 2010.

Here is an example of how negative equity can hurt landlords: Suppose John purchased a house for ₤150, 000 in 1989, and paid ₤143, 000 through a mortgage. If, in the next three years, property prices decrease by around a quarter of 1989 prices, the house would be worth only around ₤112, 500. That is a deficit of ₤30500. While negative equity alone will not give the bank claim over the property, John might find it hard to make monthly payments on the mortgages from rent alone; because John’s tenant, found by a tenant finding service, does not pay enough to cover the monthly payments. Yet the landlord cannot evict them legally before 6 months. And if John has the misfortune to rent out to the “tenant from hell”, he will be facing a mortgage debt and damage to his property, which is already difficult to sell. Gradually, as John starts falling behind on his payments, his creditors will move in and take possession. That is not the end of his troubles. He is deprived of his property, and he is still under debt, because his property’s value does not completely cover the mortgage amount.

There is a solution to this problem…

It is known as Property Lease Option. John can draw up a contract that allows his tenant to buy the property at the end of a fixed term, usually a minimum of 3 years. Now he can rest easy - the tenants will take good care of the property they might wish to purchase later, he does not have to call up “find me a tenant” agents, and he does not have to find a tenant at the end of every AST period. The cash flow might ease John’s mortgage problems, enabling him to sell the house to his tenants.

If you are new to property investment or are a landlord worried about negative equity, find out how Property Lease Options can help you by reading the e-book offered by UK Property Ladder. You can read a chapter of the e-book before you buy - at no cost. Visit this page to find out more:-

 http://www.ukpropertyladder.com/upl-apc-testimonials.htm.