The Complete Guide to Property Investment

by Rob Dix

  So if yours is a cash offer and you can move quickly, make that clear when you’re putting the offer forward: this isn’t just an offer of 20% below the asking price – it’s an all-cash offer of 20% below the asking price, with the intention of completing inside six weeks.

  Still, however you put your first offer forward, it should be rejected – which is great, because you know you’re below the vendor’s lower limit, so now you can gradually work up towards your maximum price.

  How you proceed from there depends on your attitude and how determined you are to get the lowest possible price. Personally, as long as the deal still stacks up, I’m always inclined to pay a little more than I suspect is the absolute bottom line just to get the deal locked down. I have a lot going on, and getting the deal done and moving on is more important to me than the money. (And now I sincerely hope I never end up trying to buy a house from you.)

  Other people view negotiation as a game, and they love the thrill of pushing for the lowest price they can. There’s no right or wrong way, but you must be aware of the single fact that determines the outcome before you start: the person who needs the deal to happen will end up losing. In other words, the best negotiation tactic is to look like you’re willing to walk away – and the easiest way to pull that off is to genuinely be willing to walk away.

  I don’t mean to make that sound easy, because it’s not. If you really want to get started or secure your next property, but you have limited time for viewings and you’ve already missed out on three deals this year (maybe even after having offers accepted only to fall through later), it’s extremely difficult to remain dispassionate. You might, of course, choose to take my view: what does it matter if you get chased a bit higher than rock bottom as long as the numbers still work? That’s fine, as long as you absolutely don’t give in to the temptation to relax your numbers by paying more than you should.

  So what do you do if you reach your maximum offer and it’s still refused? My approach is to leave the offer on the table, but make clear that I’m looking at other opportunities and may need to withdraw it if I get an offer accepted elsewhere. The passing of time casts the same offer in very different lights: it’s easy for a vendor to be greedy when the property has just gone on the market, but it can look very different just a couple of weeks later.

  Appointing a solicitor

  Once you’ve had an offer accepted, it’s time to appoint a solicitor to act on your behalf. Your solicitor will take care of gathering all the necessary paperwork, making sure everything is in order with the sale contract, and dealing with your mortgage company if necessary.

  If you’ve found a solicitor who is a delight to work with in every way, treat that person better than you do your own mother. I’ve already made comments that will fail to endear me to any solicitors who are reading, but every single one I’ve worked with has been annoying in at least one respect.

  Annoyances include being hard to get hold of, missing important details, and being overly combative and turning even minor points into point-scoring against the other side – but the most noticeable flaw is that they’re slow. This is a major issue for you, because a transaction that would take four weeks if they were proactive could end up taking 12 – and the more time that passes, the more chance there is for the vendor to change their mind or for something else to kill your deal.

  As far as I can figure out, the main challenge is that solicitors are working on a lot of cases simultaneously – the majority of which are stuck as a result of waiting for the results of searches or answers to questions they’ve asked of the other side. As a result, unless someone is leaning on them heavily to get something done, they’ll be reactive rather than proactive – meaning that if they fail to get a response to a query they’ve raised, weeks could go by without them noticing.

  In terms of finding a solicitor, referrals are (as usual) the best way – and asking local estate agents for their recommendations might not be a bad idea either. They’ll have worked with every local firm, and will have some insights into who is quick and who really, really isn’t. In general it’s just a case of kissing a lot of frogs before you find someone you can work well with – although if you’re buying a property with very specific circumstances (like a short lease, or requiring a very fast completion), you should seek out recommendations for specialists in that situation.

  You’ll want to obtain a fixed price quote for the transaction (most firms offer this by default), which will be dependent on the purchase price and involve an extra cost if the property you’re buying is leasehold (because there’s more work involved). While there isn’t a perfect correlation between quality and price, I’d advise staying away from “sausage factory” companies with names like SuperCheapConveyancing4U.biz. It’s likely that they’ll be slow and lack specific expertise, and – because your case will be handled by multiple people – you won’t be able to call and speak to a single person who’s been following the situation closely. The difference in price is never going to be huge (especially compared to the total amount of money that’s at stake), so in my opinion it’s a corner not worth cutting.

  Surveys

  If you’re using a mortgage, your lender will undertake a valuation survey of the property before formally approving your mortgage offer and releasing the funds. While lenders are more cautious now than they were in the mid-2000s (when they’d sometimes do a “drive-by” valuation rather than bother to go inside), their surveys are still somewhat cursory. They’ll assess the property’s value by comparing it to other properties that have sold recently (in the same way that we assessed the property’s value for our own purposes earlier), and also give their opinion about how much rent the property could achieve.

  The aim is to give the lender confidence that their money is safe – that you’ll be able to meet the monthly payments based on the rent the property can achieve, and that if they need to repossess, they know how much they can sell it for. It’s worth noting that unless they down-value the property from the proposed purchase price, they will value it at the purchase price: if the property is widely marketed and the vendor accepts your offer of £80,000, that by definition sets the market price. It’s irrelevant that a slow market, the vendor being in a rush and your suave good looks have encouraged them to accept a low offer, and you believe the property to be worth £95,000.

  So the lender will want to conduct a valuation survey for their peace of mind, but before matters get that far – as soon as you’ve had an offer accepted and instructed a solicitor – you’ll need to decide whether to also carry out a more detailed survey for your peace of mind. Your survey will have no bearing on what the lender will offer you (their own valuation is all that matters), but it will investigate the condition of the property in more detail so you can be more confident that you haven’t missed anything.

  When it comes to surveys, you’ve got a few options. The most comprehensive is a full Building Survey (formerly known as a Structural Survey), which is only really necessary for old properties, listed buildings or those built using non-standard construction methods. The survey will look into concerns around damp, drainage, woodworm, timber condition and more. Alternatively, rather than undertaking a full Building Survey, you could instruct an expert (found via Google or the relevant professional body for that type of work) to conduct a specialist investigation into a particular aspect of the property’s condition if you have some reason to be concerned – such as drains or damp.

  A suitable middle ground for most properties is the HomeBuyer Report (with a typical cost somewhere around £300–£500), which inspects the main aspects of the property and comments on whether repairs are required to them immediately, at some point, or not at all. Because the surveyor is acting for you rather than the lender, they will also be able to make a judgement about what the property is actually worth in its present condition.

  The downside of a HomeBuyer Report is that surveyors can sometimes tend towards covering themselves by commenting
on every peril that could possibly befall a property, even if there’s no sign that it might happen. Sentences like “There is no evidence that the house is about to fall down, but houses have been known to fall down in some situations so this must be taken into account” (OK, slight exaggeration) aren’t overly helpful, and I’ve seen many buyers become freaked out when presented with a giant list of possible catastrophes and no way of knowing which are legitimate concerns and which are just backside-covering.

  Another limitation is that the surveyor won’t risk doing anything to damage the property (such as lifting up carpets to check for damp), and often won’t be able to gain access to all areas. This makes a survey pretty useless (in my opinion) for purpose-built flats, because they won’t be able to comment on the most expensive things that could go wrong, like the roof and the heating.

  So is it ultimately worth it? For flats I’d say “no” unless you want reassurance or there’s particular cause for concern, and “probably yes” for houses if you don’t consider yourself to be experienced in matters relating to a property’s condition. You might also find it useful as a sanity-check if you’re buying without a mortgage: as a lender won’t be conducting their own valuation to check that it’s worth what you’re paying for it, you could consider a survey to be worthwhile as a second opinion. In this scenario, the survey would also be a valuable bargaining chip: if it values the property at £5,000 less than you’ve agreed to pay for it, you’ve got a very good chance of getting that sum taken off the purchase price because the vendor will assume that any other buyer would come to the same conclusion.

  If you do decide to get a survey done, you can either ask an estate agent for a recommendation or search the database of Royal Institute of Chartered Surveyors (RICS) members at ricsfirms.com. Once the report comes back, don’t be afraid to call the surveyor if you have any follow-up questions: you’re entitled to make sure you understand it fully, and they may be less circumspect on the phone than they were in the official report.

  The legal process

  We can’t put it off any longer: let’s take a deep breath and go through the full conveyancing process…

  Your offer will be verbally accepted, and you’ll give the estate agent (assuming you’re buying through an agent) your solicitor’s details.

  The agent will write to all parties with confirmation of the price and any conditions of the offer.

  You will give your solicitor’s details to your mortgage lender (unless you’re buying with cash), and the solicitor will act for you in the process of arranging that too. At this point your solicitor will send you a bunch of forms to fill in, and you’ll generally have to advance them a few hundred pounds or so to cover the costs of local searches.

  As we’ve seen, you might decide to undertake a survey before taking things any further.

  Your solicitor will request local searches for various matters like planning, flooding, contamination, the presence of mines, and other fun things.

  The vendor’s solicitor will send over a draft contract, along with an information form completed by the vendor with answers to all manner of questions about the property. Your solicitor will check all this over, and “raise enquiries” of the other side.

  If the property is leasehold, your solicitor will request documents from the managing agent relating to the lease, the service charge accounts, and so on.

  If you’re using a mortgage, the lender will instruct a valuation. Once they’re happy with the valuation and the other circumstances surrounding the sale, they will issue a mortgage offer and your solicitor will go through it to check the terms.

  If the property is being sold with a tenant in situ, your solicitor should request a copy of the tenancy agreement and proof that the deposit has been protected in an approved scheme (we’ll see more about deposit protection in the “Management” chapter).

  Eventually, everyone will be ready to agree dates for exchange and completion.

  In time for exchange, you’ll need to send the agreed deposit (typically 10%) to your solicitor. On the date of exchange, they will send this to the vendor’s solicitor – at which point you’ll be legally committed to the purchase.

  In time for the day of completion, you’ll need to send your solicitor the balance of funds that aren’t covered by your mortgage (so if you’ve got a 75% mortgage and you’ve already paid 10%, you’ll have to transfer the remaining 15%). Your solicitor will draw down the mortgage, and transfer all the funds over to the vendor. At this point, the property is legally yours and you can collect the keys.

  Your solicitor will submit a Stamp Duty Land Tax return, and update the Land Registry.

  That’s an abridged and non-comprehensive version of the process – and it will vary depending on the particular circumstances of the sale – but it’s enough to give you the gist. There are two things to note about the process:

  The sequence above doesn’t show the massive, honking great gaps that will open up at every possible stage given half a chance. For a mortgage-dependent transaction, 8–12 weeks is typical – and it could be longer if there’s a chain involved or you’re just plain unlucky. The more people you invite to the party, the more potential there is for delays – so you can expect a leasehold transaction of a tenanted property with a mortgage to take the longest, and a cash purchase of a vacant freehold property to be the fastest.

  If you’re sharp-eyed, you might have noticed that nobody is legally committed to the sale until the point of exchange – almost at the end of the process. Yes: it’s possible that you’ll incur all the costs of searches, surveys, valuations and legal fees, only for the vendor to change their mind at the last minute – or you might need to pull out after something nasty is uncovered that means you don’t want to go ahead anymore. (Once again, congratulations to the fine nation of Scotland who require all relevant information to be publicly available at the point of the property being offered for sale, and accordingly all bids are legally binding.)

  There’s not a great deal you can do about the second point. If it turns out there are plans to build a motorway at the bottom of the garden, or the lease is shorter than you believed, or there’s a looming major works bill, or the tenant in occupation is on a protected tenancy, you have little choice but to attempt to renegotiate the price in the light of this new information and pull out if you can’t obtain enough of a deduction to make it worthwhile. It’s immensely frustrating, but it’s better to lose a few hundred pounds in costs than to push ahead with a property you wouldn’t have bought if you’d known all the facts from the start.

  Regarding the slowness of the whole process, the solution is to take control. Don’t be unnecessarily bolshy and have unrealistic expectations, but also don’t be afraid to check in with your solicitor regularly and put in calls to the estate agent. If done with suitable charm and reasonableness, you can turn the estate agent into an ally: they have a vested interest in getting the deal done so that they can get paid, and by showing that you’re on top of things you can encourage them to ask their client to nudge their solicitor into action.

  You might feel like you’re annoying all and sundry, but being a pest can mean picking up the keys weeks earlier than you otherwise would have done. And as well as it being good to crack on so you can start making money, speeding things up also reduces the chances of something going wrong. Time is the killer of deals: the longer things drag on for, the more chance there is for the vendor to get greedy, change their mind, die… it sounds dramatic, but these things happen.

  Leasehold and tenanted property

  As if the legal process wasn’t challenging enough, there are a couple of situations where there’s even more to think about: buying leasehold property, or a property that’s being sold with tenants in occupation.

  Leashold property

  The most important factor to consider in the purchase of leasehold property is the remaining length of the lease. Leases are issued for long periods (often 125 or 199 years, but sometimes a
s many as 999 years), and when that lease runs down to zero it will revert to the freeholder – meaning that the property isn’t yours anymore and you have to give the keys back.

  That’s what “leasehold” means: you’re effectively “renting” the property from the freeholder for a very long period of time. This sounds bad, but in practice the leaseholder has an automatic right to extend the lease so it will only expire if they don’t notice it drop to zero or can’t afford the cost of extending. The price of extending the lease is for you and the freeholder to agree on, but if you can’t reach agreement you can insist on going to a tribunal – where a set formula will be used to determine the price.

  The cost of lease extension increases dramatically once there are less than 80 years remaining, for reasons that I won’t go into right now. And once there are less than 60-ish years remaining, it will become very difficult to get a mortgage on the property. Buying a property with a short lease can be a valid strategy for picking up a bargain because it’s going to deter so many potential buyers, but it’s something you need to go into with eyes open – so checking the length of the lease is critical.

  If you want the least hassle, a remaining lease term of at least 125 years is beneficial: even if you keep it for an entire mortgage term of 25 years, you won’t have any issues selling it because there will still be 100 years left. The vendor or estate agent should be able to tell you the length of the lease at the outset before you make an offer, and your solicitor will check it as part of the conveyancing process.