Legal compliance is something that I have been preaching in DUFFMONEY. So, with rental No. 5, I have tried to practice what I preach.
Before getting a tenant moved in, I had to get some work done. If I wasn’t aware of my legal obligations as a landlord, this work might have been ignored. This could have led to pain for me and the tenant.
For more information on what needs to be in-place before a tenant move in, see below:
The log burner
From a safety point of view, this was a disaster.
The log burner had been installed for well over 10 years and had never been serviced or cleaned out.
It needed a new flue liner installing. There was no data plate. To be honest, I had no idea they needed a data plate.
You normally have a register plate kit which seals the bottom end of the chimney. This had what looked like plaster board sealing the bottom end of the chimney. It ended up being fire board but still a fire hazard. The builder replaced the fire board with the required register plate kit.
Another fire hazard was the fact that the wooden beam was touching the enamel flue. Again, the builder pulled the beam forward, so it wasn’t touching the flue. And it was the correct distance away from the flue.
The builder charged £890 for parts and labour. Now I know the log burner is legal and it is a feature of the property.
Landlords and agents will need to ensure electrical installation inspections and testing are carried out for all new tenancies in England from 1 July 2020 or from 1 April 2021 for all existing tenancies.
What this means for Landlords is that they must ensure every fixed electrical installation is inspected and tested every 5 years by a qualified Electrician.
For any new tenants moving in after the 1 July 2020, us Landlords will have to provide an Electrical Safety Certificate.
Whilst reading ‘The Electrical Safety Standards in the Private Rented Sector (England) Regulations 2020’ something grabbed my attention under the ‘Enforcement’ section. Proven breaches of the Regulations can result in the local housing authority imposing a financial penalty of up to £30,000.
Despite being an electrician, I got the professionals in. 1) I am not NIEIC registered 2) I am more industrial – just an excuse if I’m honest 3) I am a poor electrician who struggles to install a light fitting in his own home.
The professionals came in. They installed x6 smoke alarms hard wired to the distribution board; moved some outside lights; replaced x10 spotlights with energy efficient lights; and carried out the testing and inspection that brought with it the all-important electrical safety certificate.
This cost £700 and was well worth it.
This wasn’t needed as there was still 3 months left on the existing certificate.
Now I am an anal landlord, I got a plumber in to check the boiler out and do some repairs on the toilet.
The plumber I normally use, wasn’t happy with the boiler and wasn’t convinced it had been properly serviced. So, he serviced it and I had a gas certificate valid for 12 months.
Gas certificate and repairs, total cost of £125.
ROI (Return on investment)
Now that I have spent the required money on legal compliance, I can work out the ROI of rental No.5.
With a few other jobs like painting, the total spent after I got the keys was £2000.
- Annual profit / Total investment
- Profit per calendar month = Rent – (Mortgage + Management + Maintenance + House insurance) x 12 to get the annual profit
- Rental No.5 profit = 550 – (175 + 55 + 55 + 25) = 240 profit (we will ignore tax to simplify things)
- The management is normally 10% of the rental income
- The maintenance contingency is normally 10% of the rental income
The 240 is now x by 12 to get annual profit of £2880
- Total investment = Deposit + Legal fees + renovation costs
- Deposit is £20,000 (25% of £80,000 purchase price)
- Legal fees where £2,500 (stamp duty, solicitors etc)
- Renovation work required came to £2000
The total investment came to £24,500
ROI = (2880/24500) x 100 = 11.76%
From property networking over the last few months, it is clear that this isn’t the best ROI. Many investors who are further down the line than me, regularly achieve 20% and above.
Nevertheless, I am looking at rental No. 5 as a win. That 11.76% is better than any interest I would get by keeping money in a high street bank.
Even with the added costs of legal compliance, your ROI is still likely to be high. If you are interested in property investment, learning how to stack the deal is a must.
If you can do some basic calculations, you will quickly identify the interest you will earn. This will help you decide on how much you are willing to bid for a particular property.