ASK485: Buy a home or invest? PLUS: Can tenants object to upgrades?

0:02Hi, I'm Rob. And I'm Rob. And this is Ask Rob and Rob. Yes, it is Ask Rob and Rob. Welcome to the show where we answer two of your property questions every week without fail. And the reason this works is because you send in really interesting questions. And Rob, the way to do that is so, so easy. It's so easy whether you want to leave a voicemail, you want to leave a recording via your computer, or you want to get in touch to maybe see yourself in the Sunday Times where we answer your questions every week as well. You can go to the one place. It's propertyhub.net forward slash ask. Go there, submit your question however you please and from that you may see your question in the Sunday Times or hear yourself on the podcast.

0:45First up we've got a question in from Sam. Hi Rob and Rob. My name is Sam. I'm a big fan of all the content you produce so thanks for keeping us well informed. My question is around the end of low-fault evictions and tribunals for rent disputes, potential legors are unlikely going to bring in. As an example, we have a property that we would like to renovate and improve the condition of, for example, the carpet to be replaced, we'd like to fit a new kitchen, things like that. Currently, the rent is quite low. When low-fault evictions come in and when the rent disputes go to a tribunal, if the tenant turns around and says, actually I don't want these renovations to take place.

1:26Am I going to be in a bind where we'd like to try and improve the property to increase the value so that we can draw out some equity from it at remortgage but also just come under higher rent? If the tenant turns around and said he doesn't want these improvements because he wanted to pay a low rent what can we do about that? Thank you. Sam thank you for your question and the good news is when the renter's rights bill comes in, I think you're going to be fine. And I'll explain why. If you upgrade a property, and then you can demonstrate that it now deserves an uplift in rent, not because you wanted to, because you spent money, but you can demonstrate it with evidence in the local market, then you could request for your rent to go up.

2:06Now, the tenant can object to that. A tenant can object to any rental increase moving forward. And they can then go through a tribunal. But it doesn't mean they're going to win and based on how the law looks like it's going to be written you should be fine it should be well i can demonstrate this is the rent so therefore i can charge that rent the scale of the refurb is interesting that you talk about for me if you're going to do a major refurb you'd want to do that between tenancies anyway it depends on what you're talking about if you're talking about painting a bedroom then fair enough but if you're looking at replacing a bathroom or a kitchen that's really done best outside of a tenancy agreement and then you wouldn't have this problem anyway.

2:49You could just bring it to market, put the rent that you want and then go from there. But even if you did do a lighter refurb, you really felt there was justification for a rental increase off the back of that, you should be fine. Yes it can be contested but any rental rise could be contested but it doesn't mean just because it's contested the tenant will win. It's what the tribunal would deserve to be fair and hopefully if you can evidence it you'll be absolutely fine good luck okay let's hear it from tom hi rob and rob this is tom from nottingham i listen to your show every week this year and last year as well and i've read rob d's new book seven myths about money and it's excellent my scenario and my question is i own a property which is a cladding issue and i wanted to sell about five years ago, but that's around about the time that all this kicked off, and I haven't been able to sell it due to that cladding issue.

3:46The good news is that the company who own the flats have now got funding to remove the cladding and clean up all of the safety issues to get the EWS one form. However, that will take about a year. I don't live in the flat anymore. I do rent it out, but within about a year I should be able to sell it hopefully. So over 10 years that I've had it I could sell and possibly make about 200k equity because of the mortgage I've paid down and the increase in value that will have gone up. So once we do sell with my family I had been thinking we'll buy our own house and maybe have enough left over to get a first investment property up north through my limited company.

4:33But listening to you guys more and more and thinking about Rob D mentioning not owning the property he lives in made me think, should I use, say, that potential 200k to invest in, for instance, four properties up north, 50k each roughly, and not buy our own property? And instead of that, with those four investment properties, or one of them could be further down south where I now live, and could we potentially live in one of my own investment properties? So I want to understand the implications of potentially living within a property that my limited company owns and I rent it, our family rents it.

5:17I did try looking and asking to chat GBT. So I know there are some financial implications to consider, but I can't quite work out how important those implications are so I wanted to ask you guys from your point of view what those implications are and if this is a potential strategy you think or it's a no-go it just wouldn't work that's my question thanks very much Tom thank you for your question thank you for your kind words as well so let's have a look at your situation so let's say you've got 200 ,000 pounds to invest so you're talking about buying four properties putting 50k into each. And if you're doing that in the north, which you're talking about, then that is plausible.

5:56However, remember that that is stamp duty and there are transaction costs. So you're either going to end up putting more than 50 into each property. And so you'd only be able to get three rather than four. Or if you are getting it four, then they'll have to be cheaper properties than you are estimating based on that number, because your 50 that you're willing to put into each will need to include your stamp duty and your transaction costs. So yes, you could take that equity that you've got and transform it into three or four investment properties. When it comes to the part of your question about living in one of your investment properties, there's a reason why you can't and I'm also not sure why you'd want to.

6:28So the reason that you can't is not necessarily to do with tax but to do with mortgages. So if you're getting a mortgage as an individual or as a company, there'll almost always be a clause in there about how you or close family members can't live there. So you'd be in breach of your mortgage terms if you did that. But even so, I don't know why you would want to buy it as an investment property rather than a home if you're going to live there because if you're going to be buying it as a home then the deposit that you need to put in would be lower because if your borrowing supports it you might be able to borrow 90 % rather than just 75%.

7:00But if we zoom out from all this the real question is should you buy another home and then put the extra into buying maybe a property or should you rent your home and put the money into buying three or four investment properties and for that you obviously could work out the maths of which one leaves you with more money in your pocket each month, what position each of those paths would leave you in in 10 or 20 years based on a set of assumptions. You could do all that. But for me, it should come down to, well, what do you want the status of your own home to be? Because personally speaking, what I want is flexibility.

7:31I don't know where I'm going to want to live, what kind of home I want to live in in five years time. Therefore, buying and incurring all the costs of buying and all the stress of buying would make absolutely no sense. You could show me all the projections in the world, but I'm not going to change my mind. Flexibility is what I want. For most people, what they want in their home is not flexibility, it's certainty. They want to know it's their place, they can live there for as long as they want, no one can kick them out, etc, etc. So most people have a pretty strong view about wanting one or the other.

8:00And I think that's important enough that that should take precedence over any numbers that anyone can throw at you. The reason I make the case for renting in my book is that I want to point out that it is an option for some people. I think it gets written off so quickly as it's a complete waste of money, it's throwing money away, you're just paying someone else's mortgage. And the case that I build is when you actually work it all out, it's not the case. Assuming you do invest in something, then renting can work perfectly well. But that doesn't mean everyone should do it. It might be right for you, Tom, it might not.

8:31I don't know enough about your situation. but I would start with that. I would start with psychologically, what do I want? And use that as your starting point before going on to make all these other downstream decisions about how many properties, where should they be, and so on. If you do ultimately decide to buy a home and you can only afford to buy one investment property, that's okay. That is perfectly fine. I know it's really attractive to leap straight to three or four. It would feel great, but it may not be the right thing for you to do. And property is a long-term thing. Either way, you'll get there in the end.

9:00So good luck. And we hope it's helped many of you, the advice that we've given to our two listeners this week. And do you know what else will help? Returning on Thursday for the Property Podcast and then picking up the Sunday Times, flicking through to the home section and see our beaming faces smiling back at you answering questions there. If you do all that, then I'm sure your property knowledge will go even further. So make sure you enjoy us for those wondrous events. Until then, take care, have fun. Bye-bye. Bye-bye. Thank you.