ASK506: Does this cash buy make sense? PLUS: How much should I increase the rent?

0:02Hi, I'm Rob. And I'm Rob. And this is Ask Rob and Rob. Happy New Year, everyone. Welcome back to Ask Rob and Rob. It's been too long. Yes, you've had lots of other stuff from us, but we love doing this. We've got two great questions to kick off the year. Can't wait to get into them. But before we do, let's remind you in 2026 how you can get your question in to ask rob and rob and spoiler the system has not changed it's still very easy you have it's not broke why fix it so all you have to do is go to propertyhub.net slash ask and you'll be able to leave us a written question for our sunday times column if you want to or you could be one of our favorites you can leave us a voice note so we can hear you right here on ask rob and rob just like ed has done hi rob and rob it's ed from kent here thanks again for all the advice and help you give everybody on your channels of course youtube and your podcast it's absolutely invaluable my wife and i have recently fulfilled our dream of wanting to go into property development we've wanted to do about 20 years and we're finally in a position where we've managed to release about 100 grand from our own home in order to start purchasing a couple of vitalettes or flips which has become increasingly hard to find so we're looking at low value flats in our area of kent maystone medway which i know you say don't do close to home but i feel the first one needs to be something that we can control for a year or so and then get our heads around maybe going further away from where we live and investing there but i wanted some advice around a flat that we looked at on the weekend which is a residential flat it's a two bed it's only 16 years old it's three stories high but on the ground floor are some shops including the domino's pizza and when somebody tried to buy this flat a couple of months ago they tried with a couple of residential mortgage companies high street banks who flatly refused to mortgage from research I've done, it's obviously because of the Domino's and other shops below it.

1:51They don't like this part commercial, part residential premises. And the fact that it's a Domino's pizza doesn't help either. The flat's not directly affected by it. It's on the second floor. It's a good size. It would rent with absolutely no issue at all for about$1 ,300 a month. It's by a hospital, so there won't be an issue finding a tenant whatsoever, according to the estate agent. My issue is, is that this flat is probably 40, 50 % cheaper than other two bed flats in the area and that's probably because of this issue well it's because of this issue and i wanted to know and get your take on it because the yield is you know 11 12 and if i could get some more money off it would be even higher so the monthly income is great the investment in that terms is great however what i do worry about is with a buy to let mortgage if i refresh this and try and get it revalued in five to ten years obviously it's going to remain lower than other flats in the area but is it going to become difficult to remortgage this even on a buy to let and release some money and some equity so we can carry on our journey of building our portfolio?

2:44And do you think something like this is going to continue with residential mortgages as the population increases within London and Kent and the UK? Do you think high street banks are going to remain stringent around these sort of investments, even if the loans are values low, etc.? But is this something you flatly refuse to do or would you take a chance on the investment in terms of monthly income and releasing some equity down the line? Or is it something you just walk away from any help is appreciated thank you ed thank you very much for this question because i feel we can not just help you but many others with this i think a lot of people will listen to this ed i'm going oh no what are you doing and i think they're right you know what i think if you listen to this from somebody else you probably say the same because you're going against so many of the core principles that we talk about on this podcast first of all you are investing in an area that probably isn't the strongest right now for capital growth prospects and you know that you're kind of acknowledging that you could go slightly further afield you don't need to go to carlisle but just being wedded to that area is going to cost you financially also especially when investing further afield gets easier and easier with the way the world is these days it used to be a little challenging but now it's not that hard it requires a bit of effort, but it's not as hard as you'd think.

4:01So maybe that's something you need to get over. But what really concerns me here is that you are looking at buying this cash because you cannot get a mortgage or you would find it very hard to get a mortgage on this property. Now you've asked, is this something that we expect to change in the future? No, this is something that's been in place for many, many years. At Property of Invest, we always turn down deals like this when properties are built above these types of shops because we know that mortgageability is really, really hard. And you may be able to eventually find a niche lender to allow you to get a mortgage, which then will help you improve your returns.

4:39But when you sell it, it will be difficult for the purchaser. So that will impact the capital values. And that's why that property is so much cheaper than everywhere else. It's not below market value. It's fair price. It's discounted for a reason. there are issues with this as an investment for me major issues the lack of leverage is a big part of that so you want to be looking at an investment that you take advantage of leverage this doesn't allow you that you want to even if it's just slightly expand the radius of where you're prepared to invest in to open up different opportunities in different areas you can i'm sure get a property that's only a couple of hours away you will not be going there every week you almost certainly won't be going there every month.

5:23It might be just a few times a year if you're unlucky. I've got many properties in my portfolio I have never seen and I've owned them for multiple years. Never seen them. Never want to see them. I'm not saying you need to get to the level I'm at straight away but you should aspire to move in that direction because when you do you become such a better investor. The returns improve dramatically and you're worried about creating problems by doing that but look at the problem property you're looking at because you're making that compromise so i really encourage you to expand your area take advantage of leverage use the magic formula principle that we talk about on the podcast so frequently and change your approach because i feel like you're going down the wrong path ed i'm so glad your question is the first one of the year because so many people will go through similar circumstances and have to make tough decisions like you are right now but i believe that if you can navigate through this tough path, get out your comfort zone, you will do a lot better.

6:20Good luck. Great advice for Ed there. Let's see what we can do now for Paul. Hi there, Rob and Rob. Thanks for your excellent content. Now, I have a bit of a dilemma. I have been letting my two-bedroom terrace house in Chelmsford out for probably five years, and I have an excellent tenant. She always pays on time, super cooperative and all the rest of it. However, she is paying around£1 ,200 a month. And since the lease was signed one and a half years ago, the market rents are now something like£1 ,800 a month. So it's going for renewal next June. And I'm in a bit of a dilemma where to actually set the rent.

7:04I'm thinking of somewhere between where it is now and the market rent. So it's like 50-50. I don't want it to turn into an adversarial relationship. And I do want to reward her for her excellent communication and how she's treated the property, etc. So what's your advice on this? Thank you very much. Bye bye. This is such a great first episode of the year because this is another situation that so many people will be confronting at the moment, especially this year because of the Renters Rights Act coming in from May. And Paul, that's some incredible rental growth over five years. great for you except not great for you yet because you're not collecting that rent and you've done what so many landlords do me included for many many years so while everyone in the media seems to imply that landlords are constantly cranking up the rent to ridiculous greedy levels no so many people do the same as you just start the rent at a certain amount and then leave it there and that's fine until it isn't and you get to a point where all your other costs are going up your repairs costing a bit more, your insurance is costing a bit more.

8:05And it's like, oh, actually, I'm making less money now. You could be making so much more. But the jump is so huge. What do I do about it? So what do you do about it? Well, the timing is important this year, because you said that it's coming up for renewal in June. And that means that it will be taking effect after the Renters Rights Act has come into force. That doesn't mean that you can't increase the rent. You can increase the rent. You can increase the rent once per year. But what it means is that if tenants believe that you are increasing it to above the reasonable market rent, then they can take it to tribunal and appeal that rent.

8:38And we don't yet know, because it hasn't happened, how tribunals are going to be making their decisions. Just what's their interpretation of market rent going to be? We don't know. But what we do know, because it's just common sense, is if you make a giant leap, if you suddenly try to go up from 1200 to 1800, then all else being equal, your tenant is far more likely to appeal that because it feels like such a giant jump. They're not necessarily going to appreciate that, well, this is five years worth all at the same time and market rents are at that level now. So what should you do about that?

9:13Well, if your renewal had been before May, then I'd say we'll try and work it up by as much as you can before that happens, before it gets to that point. See if you can get through a bigger increase to get you closer to market rent before May. as that's not an option for you what i would recommend doing is if you have a relationship with a tenant which it sounds like you do it sounds like you self-manage from what you've said then i'd start having open conversations about the rent so when it comes up you will want to put through an increase but you probably won't want to crank it all the way up to market rent because that would be such a jump for the tenant so i'd have a conversation about it i would show them what market rents for the area are and say in a nice way if you moved anywhere else this is what you'd be paying right now.

9:54So from now on every year, the rent will go up until we get to closer to that market rent. You don't have to get all the way there because you want to reward them. That's fine. But you will need to close the gap. Otherwise, the gap will just keep getting bigger and the situation will keep getting worse. So I'd have that conversation, then let the details depend on how that situation goes. But basically aim to put through some kind of increase. Maybe you go from 1200 to 1400, if that makes sense for the tenant, just as an example, maybe do that in June. But by that point, you've laid the groundwork.

10:21So it can go from 1400 to 1550 the next year or whatever. But the point is, you've made clear that this is going to keep happening. You need to be prepared for it and that you're not being unreasonable by doing it because you basically showed what a great deal she's already getting. And you showed that you're going about this in a reasonable, respectful kind of way. You're obviously not trying to force her out by doing something ridiculous. So Paul, thank you for asking this question because it gives us an opportunity to answer this for the many many people who will be in this situation right now and i hope that helps well that's just done for another week we've started 2026 strong there's loads of content out on the podcast feed at the moment make sure you are consuming it or and taking advantage of our youtube channel as well loads going out there we'll be back with another ask rob and rob same time same place next week so until then take care have fun bye-bye bye-bye