So, what 10 things should you, as a woman, know before entering the property industry? Exactly what everyone else does and that is to be informed.
1. Be informed
Make sure you are informed, you need to understand what people are saying in the property market, what is happening in the Jobs market? Are banks’ lending? Is Joe Public PLC changing tactic slightly diversifying their investments into industrial warehousing?
Whatever it is, make it your business to know. Attend events, network, build your contact list and relationships making sure you are giving as much as you are taking as they will prove invaluable.
2. Choosing the right area
Data and research are important when starting anything new but most especially when picking a location to purchase or buy a lease. Dependant on your goal, knowing who lives in the area, adults, married couples, singles, students will give you the information you need to assess whether the area needs more family homes for example. So, you know it’s not the greatest idea to buy a one-bedroom flat in a family-oriented area.
3. Planning Policy
Getting to grips with planning policy is important, this should show you where to purchase.
Essentially planning policy creates Growth Areas, it identifies areas for investment and then lists what the area is lacking and what they feel the area needs. It tries to spread investment throughout the country with some logic and based on future population growth and statistics.
Looking at recently submitted planning applications is also a good identifier if Mr Joe Public has applied for 200 x 1,2 & 3 homes with retail units at ground floor with a huge team behind him, the benefit of relationships and privileged information. It’s saying something, I’m not saying just buy because of that, but know that they have not committed hundreds of millions for nothing. Add it to your portfolio of information to help you make an informed decision. It will also give you a good snapshot of what the area could look like in two or three years once the development is finished.
Most planning consultants for a relatively small fee can do the research and give you their opinion.
Now that we have dealt the location location location cliché, there are few other items on the list when it comes to commercial property. With a lot more investors adding commercial property to their usually strictly residential portfolios.
Here are a few more things to be careful of:
4. FRI or IRI?
FRI stands for a Full Repairing and Insuring lease. This is where the tenant is responsible for all external and internal maintenance, decorations, and repairs as well as the liability for insuring the building. Under an FRI lease, the landlord has no repairing or insuring liability [jA1].
Though the landlord is responsible for making sure the building is insured as ultimately if anything happens it will be his loss. The cost of this is what can be recovered from the tenant, so in effect, the tenant pays for the insurance.
IRI stands for an Internal Repairing Insuring lease. Where the tenant will have a narrower liability for maintenance, decorations, repairs, and insurance confined to the internal parts of the property occupied by him/her.
Now there are situations where you can negotiate these terms, for example, the landlord will be responsible for the roof and external walls. Sometimes if the landlord also uses the property, they will charge a service charge which will at times include a contribution to bills, insurance and any repairs that may or may not occur. This is usually paid monthly; it reduces your responsibility as a tenant, but it is something you need to keep an eye on as costs can add up.
5. Development Potential
I always look to the future when looking at property to buy or to lease for a client. There must be room for growth. Is there extra space surrounding the property, does it have a large car park, what is Mr Joe Public doing to his property down the road or what is happening to transport links. Ensuring you have the flexibility to maximise your investment should the opportunity arise is key.
Also don’t always think 300 flats when talking about development, you can start small adding a two-storey extension to the rear allows a vacant, cheap and run down 4-bedroom Family home to become 2 x two-bedroom flats and one with a small garden, always add Value.
Look out for new infrastructure projects, transport, hospitals, schools all of which attract footfall for new businesses, people looking for new homes, new homes, jobs and businesses.
This information is usually first indicated in planning policy somewhere at some point through London plans, local development plans, area action plans etc. The local council may say this area we will consider applications for the following: 1200 homes, 200sqm of commercial and outdoor space, retail outlet, educational facilities etc.
6. Banks like Development Potential
The potential for growth is music to their ears if you need to borrow and can show the development potential. You can open the world of development finance and lending against the value of future development rather than just the value of the site in its current state.
This does require some investment to prove the development potential which could possibly include getting a top-level valuation done, preparing a pre-application to the council with your ideas to get their opinion. The written positive response to this, along with visuals of your future plans, cashflows and projections will show the bank not only that you are serious, but you have done the work to show how both you and them will make money on that particular transaction.
Having someone on board that can understand the drawings, the cash flow, planning policy, connection to lending facilities as well as your legal responsibilities is invaluable. Wherever you can take advice.
7. Inside or outside the Landlord and Tenant Act 1954
There may be times where you can secure a long lease rather than purchase, in this case your lease terms matter. There is a HUGE difference when it comes to FRI or IRI, getting a commercial lease that is inside the Act is exceedingly rare and if you find one grab it with both hands!
When a lease is inside the Landlord and Tenant Act 1954, the tenant will have a statutory right to a lease renewal at the end of the contractual term.
This will severely limit the landlord’s grounds to seek possession at the end of the term, such as:
- Breach of covenant
- Persistent delay in paying rent
- If the landlord wishes to develop the property.
The landlord will need to get a court order to regain possession of their property. You essentially become a protected tenant.
Taking the time to understand the complexities of a commercial lease is highly recommended before investing in a commercial property. That and finding a good commercial agent and or lawyer who can advise on the pros and cons of such an investment.
8. Lending & Lending Criteria
There are various types of lending and each can be used in various ways, I’ve mentioned development finance, you have your standard mortgage loans, angel investment and bridging finance which is usually easier to arrange but expensive (high-interest rate) as arranging a mortgage with the more traditional lending facilities can take the time you may not have. Usually, the extra cost usually charged in the form of a higher interest rate can be recouped, and the lending facility refinanced within a short period of time.
Banks will only lend up to 4.5 times your salary, it may be more important to get the timing of this right because many of us take career breaks to have children. Making sure you get your mortgage secured prior to this could be important. Which leads me onto my next point.
9. Mortgages
Whilst in conversation with some mummy friends of mine, I noticed that there is a gap in the mortgage system. More specifically for those of you who are self-employed, you go on maternity leave, you then want to take out a mortgage and need to prove your income for a certain number of years.
This is a nightmare as the system cannot understand what maternity leave is or account for it. You may pick your business up right where you left it, with no significant loss of income despite your short break the system will just see less or no income.
In situations like this, the bank will look to the income of your partner to assess whether you can afford the mortgage and the outcome of this can vary depending on your personal circumstances. If you are in this situation its best to plan ahead and seek advice to ensure you don’t get caught out.
10. Service charge
If you are buying in a new build whether that is residential or commercial beware of service charges, service charge is a charge for services that are used by everyone in the building (for example lifts, concierge, maintenance of the grounds and parking areas.) It’s important to know what you are paying for and make sure you are not overpaying for services you do not use. E.g. You are on the ground floor, but you pay an equal share for lift maintenance.
