Net Rental Yields and how to increase them

by Mark Alexander

9:00 AM, 17th October 2012
About 6 years ago

Net Rental Yields and how to increase them

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Net Rental Yields and how to increase them

Net Rental Yields and how to increase themThere are two obvious ways to increase net rental yield; 1) reduce outgoings 2) increase income – but how?

In this article I will explain how by using the “deed of assurance” legal document template, which is available to all members of The GOOD Landlords Campaign, you can achieve both.

This is a brand new strategy which can be used by landlords and letting agents.

Improving net rental yields by reducing costs

There are three very good reasons why lots of letting agents and landlords choose to renew tenancy agreements. The first is to offer tenants extended security of tenure. The second is to test whether tenants have any intention of moving on. The third is to create an opportunity to charge extra fees. However, providing a new tenancy agreement certainly creates extra administration and can also result in increased cost if deposit protection is purchased as an alternative to utilising a custodial scheme. It is important to note that whenever a new tenancy is created (even for an existing tenant) that the deposit must be re-protected and a new deposit protection certificate must be issued. Failure to do this within 30 days of creating a new tenancy could result in a fine of up to 3 times the deposit and the inability to serve a section 21 notice. The alternative to creating a new tenancy is to provide a Deed of Assurance. A new tenancy is NOT protected, hence there is no need for the additional administration and cost associated with re-protecting the deposit. However, the Deed of Assurance can provide the tenant with peace of mind in respect of being able to remain in the property and a fee can be charged. Payment of that fee will also let the landlord know that the tenant has no intention of leaving.

Improving net rental yields by increasing income

Offering a tenant a Deed of Assurance provides an opportunity to charge a fee which tests the tenants commitment to remain in the property. There is no reason why such a fee can not be similar to a tenancy renewal fee, however, the administration is significantly less.

Improving net rental yields through a unique offering

Like most landlords I have recognised that rental voids and tenant changeovers are one of my biggest expenses. This is because I have to re-decorate to bring my properties back to optimal letting condition. The associated voids and cost of re-letting can be substantial.  Therefore, I work very hard to find tenants who will want to rent my properties long term. My lettings strategy is to advertise rents slightly below the market average in order to attract the maximum number of prospective tenants. I then choose the best ones and sometimes I ask them to bid against each other if I have several perfect candidates.  Offering a Deed of Assurance in return for a premium rent or fee enables me to test a prospective tenants true desire to rent long term.

The Deed of Assurance is a concept I came up with personally. I’ve had a document template professional drafted and it’s simplicity has been commended by the, Chief Ombudsman Lewis Shand Smith and has even been referred to in a blog written by Robbie de Santos, Policy Officer at Shelter. I share this template with all members of The GOOD Landlords Campaign.

Links for more details about The GOOD Landlords Campaign and the Deed of Assurance document template referred to above.



Comments

16:44 PM, 17th October 2012
About 6 years ago

I've never heard that you have to re-protect a deposit when a tenant renews. For example with the DPS the deposit is protected for the life of the tenancy.

16:55 PM, 17th October 2012
About 6 years ago

To explain my previous comment I should have added where I read this: In Mark Alexander's articel above, dated 17/10/12, where he states:"It is important to note that whenever a new tenancy is created (even for an existing tenant) that the deposit must be re-protected and a new deposit protection certificate must be issued. Failure to do this within 30 days of creating a new tenancy could result in a fine of up to 3 times the deposit and the inability to serve a section 21 notice."
I am sure this is not the case.

18:34 PM, 17th October 2012
About 6 years ago

Of course the deposit has to be re-protected when a new tenancy agreement is signed. This has always been the case.

18:49 PM, 17th October 2012
About 6 years ago

@Patman. Mark is saying deposits have to be re-protected when a tenant renews. I have never heard that and cannot find that rule anywhere on any of the deposit scheme websites.

19:07 PM, 17th October 2012
About 6 years ago

@Patman. I take it back. Just read FAQ's on Mydeposits and it reads:
"If you renew, extend, amend or reissue the AST Agreement (by whatever means) you will need to purchase a further deposit protection from my|deposits"
So Ihave just gone onto the DPS (the free'custodial' scheme) which I use and yes, the deposit does not need to be re-protected on renewal or extension.
It seems that Mydeposits are pulling a fast one here, just to get extra revenue.

19:57 PM, 17th October 2012
About 6 years ago

Ok 6 month tenancy protected.
New 6 month tenancy is a new tenancy agreement even if nothing has changed apart from new dates.
A new AST needs deposit protection certificate and PI to be issued.
The deposit regulations should be the same for ALL deposit schemes; it is a nearly national scheme.
I can't believe that a national scheme can have different regulations for each scheme member.
I think you need to be very careful about not reprotecting if a new AST is produced.
A 6 month AST or a 12 month AST with a 6 month break clause does not give much security of tenure for the tenant.
A LL just has to issue a Section 21 to expire no later then the last day of the fixed 6 month period.
What security of tenure is that!?
Only a 12 month AST without a break clause gives a tenant at least a year of security.
Not many LL want that.
So why bother with all these renewal fees and deposit reprotections!?
LA make a fortune out of these totally unecessary fees; which by the way I think have been banned in Scotland; no doubt to work their way down to us
The Deed of Assurance would go some way to allay a tenant's concerns but renewing an AST is a very short term guarantee of tenancy contuation.
The best way a tenant can guarantee the LL not wishing them to vacate is to pay the rent on time.
This is what a lot of tenants fail to do and consequently having tenants on a SPT gives far more power to remove a non-rent paying tenant.
Conversely it also gives flexibility to the tenant.
Personally I have never issued anything more than a 6 month AST which has subsequently rolled onto a SPT.
None of my tenants has ever requested a new AST; I would not give them one as I think that might indicate they were going to work the system in obtaining a new AST and then stop paying rent.
Then only Section 8 can be used; which we all know can be beaten just by a tenant keeping 1 month in arrears.
Court costs mount up every court application for possession under Section 8 process.
Of course there will be the deposit; but that might be needed for damages and there would be insufficient for rent payments not made.
Most LL want the tenants who pay rent to remain.
I don't think tenants have any reasion to be fearful that their LL might wish to remove them.
I have NEVER wished to remove ANY of my tenants except the ones that refused to pay rent.
So tenants in most cases know what they have to do to retain a tenancy...............................................................pay the rent on time and for the contractual amount................................not really that hard is it!!!???

Puzzler

11:15 AM, 18th October 2012
About 6 years ago

The Deed of Assurance seems to me, as a good landlord, an unnecessary cost to whoever pays it and the same goes for the Good Landlord campaign as well. Bearing in mind that in Scotland ALL tenants' fees apart from deposit and rent are now illegal and the rest of the UK may follow, meaning that all costs will fall back on the landlord and you will be hoist on your own petard, as they say. All tenants need to do is ask the landlord or agent what their intentions are. The deed of assurance gives no more protection. I just tell them I have not given anyone notice in over twelve years. The tone of this article is rather in contradiction to being a Good Landlord (how much can we screw them for?) and given the bad press surrounding agents charging excessive fees lately, I find it surprising. Being a good landlord isn't just about tenure, it's providing good accommodation and service for a fair and reasonable price. All these spurious extra charges as a means of increasing income give landlords a bad name and no-one who does so should call themselves a good landlord.

Mark Alexander

16:56 PM, 19th October 2012
About 6 years ago

Promises, promises, promises -that's all tenants get when they ask a landlord about their intentions. I know this as my PA has had to move her family twice in 14 months due to meaningless promises from landlords. A deed of assurance is a promise with value. I too believe in providing good property at a fair price. However, I'm not a charity and if demand from tenants is high for the product I'm offering I will capitalise on that, that's good business. Lots of tenants want a meaningful promise of not being asked to vacate. I prefer to reflect that in the rent I charge so I would be operating perfectly legally in Scotland too. In England and Wales fees and premiums are very much the norm and if landlords and agents choose to charge them that's good business too. I don't accept this is unfair profiteering any more than charging rent is unfair profiteering. In fact, a deed of assurance involves less admin and cost and a lot more security and fairness for both landlords and tenants in my opinion.


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