Should You Invest in Real Estate or Pay Off Your Student Loans?

Someone once asked us, should you invest in real estate or pay off your student loans? Many people who have student loans wonder whether they should focus on repaying their student loans or use any additional money to invest. One type of investment that often comes up is real estate. That’s partly because many people dream of owning their own home or of buying investment properties to rent out in order to generate income.
But does it make sense to do this before being debt-free?

Investing vs. Repaying Student Loans

Most financial advisors will tell you it doesn’t make sense to wait to until you’ve repaid your student loans. That’s because student loans generally charge a relatively low-interest rate while many types of investments provide greater returns than that.

Here is an example. If your student loan is charging 5% interest, but you can make 7% by investing in the stock market – then it makes more sense to repay your student loans slowly and invest any additional funds in the stock market or another investment opportunity. 

Is Real Estate a Good Investment?

Real estate is an investment that has the potential to offer great returns. How big those returns will be, depend on the market you’re buying into and the purpose of your investment. If the real estate market is growing in value at a rate greater than the interest charged on your student loans, than investing in real estate makes sense. Unfortunately, real estate is cyclical and so it’s hard to know whether that growth will continue.

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If you plan to live in the home that you’re buying, such as a duplex, your return could be greater. The money that you would otherwise have been putting towards rent would now go to your mortgage. This would reduce the real cost of your investment and the equity you build would mean that your return will be better.

But when you’re investing in real estate, there are a number of other costs involved which could reduce your return. For example, you’ll have to pay taxes, buy insurance, and cover repairs on the house. Each of these expenses will increase your cost. That means even with a 5% price increase on your property annually, the actual return on your investment is less. 

One of the safest approaches to this technique is to buy strictly relying on the cash flow the rental property will generate. This way if the home value fluctuates, you will still be able to pay for all your expenses and weather the market changes. The real estate market will vary greatly depending on which part of the country you live in.

It is critical that you do your due diligence and run the numbers to ensure your rental property is generating positive cash flow at the end of each month. This will pay great dividends later on. The more times you run the numbers, the better you will be at understanding your local real estate market.

Ultimately, the only way you will really know if you should buy real estate or pay off your student loans is to run scenarios. Use our free Student Loan Vs Rental Property Analysis tool by clicking on the image below or using the menu by clicking the Tools -> AssetRover Downloads link, to help you decide which scenario makes the most sense for you.


Fees and Interest Rates

Another important factor to take into account is how long you plan to hold the investment. Unlike stocks, it is sometimes difficult to sell real estate investments quickly. There are also high costs involved in buying and selling real estate such as agent fees, taxes, and closing fees. If you don’t plan to keep the property for a long time, then those fees could eat into your returns.

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If you have a high-interest rate on your student loans, it could also make it more difficult to make enough by investing in real estate. Should that be the case, you should think about refinancing at a lower rate. This could save you thousands of dollars and make it more beneficial to invest rather than repay your loans.

The Bottom Line

Many people who have student loans want to repay their debt as soon as possible. But if you wait and repay your student loans before investing, you lose valuable time that could be used to grow your net worth. In the end, you need to take your time, and do your analysis to make sure you are making the right decision to invest in real estate or to pay off your student loan.

Happy Investing,


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With summer in full flow, thousands of British landlords will soon be waving goodbye to their tenants for another term… Whilst they’re gone, a refit may be desirable. It’s as good a time as any to raise the value of your property.

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Real Estate 101: How to Tell the Difference Between a Buyer’s or Seller’s Market

What is the difference between a buyer’s or seller’s market?

Are you in search of a new home, investment property, or the perfect office space for your business? Before looking for a property that will meet all of your needs, be sure to determine whether you’re currently in a buyer’s or seller’s market. Knowing what type of market your area currently has will give you insight as to how much bargaining power you will have.

To save you time, we’ve put together some of the best pieces of advice we can think of when it comes to determining your current market status.

Know the difference between a buyer’s or seller’s market

According to Certified Commercial Investment Member (CCIM) Brian Rosteck, “there is not a universally accepted upside to either [market].” While there are perks and challenges to each market, knowing the status of your area’s real estate market can be crucial when scoring the property you’re looking for. Your realtor is the best source for this information and you can ask them directly for this.

Buyer’s market

Before you can determine what type of market you’re in, you have to first know the difference between the two types. In a buyer’s market, there is more supply than demand in a neighborhood. In this type of market, you’ll have great negotiating power since there will be a need for properties to sell. When making offers, you’ll find that the seller is more likely to work on your terms in a buyer’s market. Essentially what you find is:

  • Inventory is higher than when compared to previous months or years
  • There is more than 6 months or more of inventory available on the market. You can determine this through the absorption rate and the month’s supply of inventory calculation. Your realtor can help you with this information.
  • Listings stay up longer and you will see higher Days on Market (DOM) numbers
  • Current listing prices are lower than previous comparable sale prices
  • Overall housing prices are falling
  • Likely to see more advertisements and bigger advertisements
  • It takes a long time for the “Sold” sign to go up

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Seller’s market

Conversely, in a seller’s market, there’s more property demand than supply and you will see the following characteristics:

  • Inventory is lower than when compared to previous months or years
  • There is less than 3 months of inventory available on the market. You can determine this through the absorption rate and the month’s supply of inventory calculation.
  • Listings do not stay up as long and the DOM is generally lower
  • Current listing prices are higher than previous comparable sale prices
  • Overall housing prices are rising
  • Likely to see fewer advertisements
  • “For Sale” signs don’t stay around long

What to do as a buyer for a seller’s market

As a buyer in a seller’s market, you’ll have a difficult time low-balling offers during negotiations. By doing so, you may lose the property you’re interested in. Because there is a limited supply of properties, sellers can turn to other buyers very easily without entertaining your offer. For more information on what mistakes to avoid during a seller’s markets check out this article by Trulia.

Most often people hear the two terms applied to real estate, but in reality, they apply to any type of product market.

Do your research

Now that you know the difference between the two definitions, an effective second step is to do your research on the property that’s captured your attention. For instance, you’ll want to take a look at how many days the property has been on the market. In a buyer’s market, it’s common for properties to stay on the market for some time since there is a lot of competition. However, if you’re in a seller’s market and you notice that a property has not sold after a significant amount of time, that could be a good sign to stay away. In this case, it’s possible that the seller overpriced the property. As a result, it became stale. People then assume there’s a problem with it. If you’re unsure about a property or your current market, ask your realtor. They can provide more information and advice before you make your offer.

If you’re concerned about how long a property has been sitting on the market, check with your real estate agent. He or she can give you an idea as to how long their properties typically sit on the market before being sold.

You’re also going to want to look at the neighborhood – are price cuts common in this neighborhood? In a buyer’s market, price cuts will be common and the competition will be few and far between. Whereas in a seller’s market, properties may maintain their selling prices or they may be sold for more than their asking price.

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Let interest rates be your guides

Ah, interest rates, the least fun part about purchasing a home or building. Interest rates are important not only because they can indicate how much cost will be added to the property, but also because they can indicate the type of market your area currently has.

If interest rates are high, buyers will have a difficult time getting mortgages. In this case, you’ll most likely find a lot of properties at discounted prices. You’ll also notice that prices will decline, indicating a buyer’s market.

When interest rates are low, however, money will be easier to come by, therefore buyers will be flooding the market.

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Check in with Freddie Mac and Fannie Mae

Government entities are great tools when it comes to determining the current status of your real estate market. Buyers can always rest assured that it’s a good time to purchase a home when Fannie Mae becomes involved. Fannie Mae pushes first-time homebuyers to take the property plunge by offering incentives for them. If you see Fannie Mae and Freddie Mae becoming involved, you’ll know it’s a good time for homeowners to buy.  

To better assist homeowners, Freddie Mac launched a financing program called HomeSteps, and another called HomePath. Both participate with a 3% closing cost assistance and lower money down. Whenever these two Government-sponsored enterprises become involved in your market, you’ll discover that it’s best for sellers. And in case you have any doubts, these deals were not around during the housing crash of 2008. Sadly the Freddie Mac and Fannie Mae programs do not apply to property investors, but they are great resources to recommend to homebuyers you work with.

Pay attention to your submarket

When looking for the perfect property, it’s important to know how either type of market will apply to you. When people are on the benefitting side of a market, they “can get cocky and overplay their hand,” says Rosteck. Ultimately, this will lead to losing the property you’ve had your eyes on.

If you’re a buyer and you’ve determined that your area currently has a buyer’s market, it’s possible that things “can be measurably different in the submarkets,” according to Rosteck. An example of this would be your local office space market.

Take the office market in the downtown Cedar Rapids area, for example. Rosteck says that when examining it closely, you’ll find that “the office market as a whole is a buyer’s market with an abundance of properties to look at.” This means that the downtown submarket can be even more competitive than other areas of the city.

In looking at office spaces in the New Bo district or on the northeast side, it’s important to keep in mind that it’s “less of a buyer’s market,” says Rosteck. In these areas, “properties are a little harder to find with owners a little less likely to deal.” In other words, if you’re taking a serious look at an office location in the downtown area, you may want to put in your offer sooner rather than later to avoid losing your chance.

Keep track of the months of inventory

Another way of determining your area’s market status is to look at the months of property inventory. In a buyer’s market, there is typically six or more months of inventory. In a neutral market, you’ll find three to six months of inventory, and in a seller’s market, you’ll discover less than three months of inventory.

Whether you’re a buyer in a buyer’s market or a seller’s market, it’s important to know that either market can work for you as a property investor. Before making an offer on a property, be sure you’ve conducted research on the neighborhood as well as the property itself. It will also be beneficial to keep track of whether or not governmental agencies are making special offers to homebuyers, as this can indicate a buyer’s market. As always, we highly recommend you run the numbers before making any purchase.

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Please note this article will be updated regularly to reflect updates in the movement of the Tenant Fees Ban legislation through the Government.

November 2017 Update

Since the tenant fee ban was debated in Westminster last month, draft legislation was released this week to reveal the finer points for the implementation of the ban. Landlords will face a fine of up to £5000 for charging tenant fees and if they breach the ban twice in 5 years, they could face criminal prosecution or a civil penalty of up to £30,000.

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As a landlord your income is the rent you receive. It can also cover any other payments received from tenants for services which have been provided by the landlord – these included:

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Being stuck with an uncommunicative douchebag tenant that’s fallen deep into arrears is probably the most frustrating and terrifying scenario for a landlord. It’s truly gut-wrenching.

But what about second place? I’d say that being pinned down with a property that won’t shift for months on end is a strong contender. I’ve personally never been in that situation, but I know many landlords that have, and the root cause is almost *always* the same.

Most landlords and experts will instinctively say it’s because of one or more of the following reasons:

  • Price – the asking price isn’t competitive.
  • Supply – there’s an oversupply of properties in the local area.
  • Photography – poor photography being used to advertise.
  • Rightmove/Zoopla – property isn’t being marketed on the two biggest UK portals.
  • Condition – poor decor, unsavoury odours, general uncleanliness, and cheap and ghastly fittings.

If you are struggling to rent your property, I’d strongly encourage you to investigate each of those areas. However, while they are the most common contributing factors to prolonged vacancies, they’re often not the makeup of the actual cause.

The real reason many landlords struggle to rent their property is often a lot more difficult to resolve, because it’s psychological, and it’s based on ingrained standards. We all have standards, and some are notably lower and higher than others. But the problem is, our standards are based on our own experiences and perception, so it isn’t easy to reason or negotiate with.

The reality is, many landlords put properties onto the market after running a quality assurance assessment based on their own standards, which often doesn’t align with the expectation of the market. It’s easy for me to tell someone their standards are piss-poor, but it’s difficult to convince them I’m telling the truth when their reality is telling them something completely different.

It’s no one’s fault, really. But it’s still a problem that should be recognised.

I remember 5 or so years ago, when I had a couple of school teachers for tenants. They were a pleasant enough couple, but filthy as fuck. The whole place was just cluttered with crap, and they had crammed each room with oversized furniture. Lord only knows how they manoeuvred around the place. On a sidenote, is it just me, or are teachers notoriously messy?

Anyways, when they vacated, the hubby said to me, “The Mrs has been cleaning the place thoroughly for days. She’s got OCD, she’s obsessed with cleaning, it’s spotless. You won’t have to do a thing.”

When I conducted the final inspection it quickly became apparent that their definition of cleanliness was total bullshit. There was dust and cobwebs in plain sight, literally everywhere. The cooker was also smothered in congealed jizz. Either they were severely visually impaired, or their standards were lower than a tramp living under a bridge… and every other person that considers copious amounts of dust inadequate.

In any case, I evacuated them from the premises as quickly as possible (without making physical contact, of course) and called in a professional cleaning company immediately.

Test Case: The property that won’t rent

It must be noted that I’ve been umm’ing and errr’ing for the past 30 minutes on whether or not to use a real example, because it could be it’s directly offensive to someone that probably doesn’t deserve the heat.

But screw it, I’ve decided to bite the bullet, because landlords stuck in this rut can learn from this, even if it’s a bitter pill to swallow. My only hope is that the chap I’m using as an example doesn’t cross paths with this blog post, and if he does, I hope he doesn’t take it entirely the wrong way!

Today I stumbled across a thread on the PropertyTribes forums, where a landlord has been struggling to let his 2 bedroom flat since July. Considering it’s September now, that’s one hell of a long stretch- his pockets must be bleeding.

This is what the landlord said about his property:

It was renting for £975pm. The mortgage, service charge and management fees came to nearly £750pm. It has been vacant since July. I have dropped the rent to £895 but have only have an offer of £800.

I have aranged to meet my agents on Friday.

I am trying to decide what to do with it.

He then shared a link to his rental property on Rightmove, which you can view here.

Bit dingy, ain’t it?

Without trying to sound like a condescending, snobby dick-face… if the landlord is not understanding *why* his property isn’t being swept off the market (which clearly is the case), it indicates to me that his standards aren’t particularly high, or at least, inline with the market’s expectation.

The property is glaringly out-dated, from the grubby bathroom to the lackluster carpets, so the initial £975PCM asking price is scary. Even the revised £895PCM price is a little awkward. But the issue is, he’s not seeing what I’m seeing, otherwise he wouldn’t have created the forum thread in the first place, and contemplating “what to do”

Right? Right.

It would be another discussion if he just openly confessed, “I know the property looks dated, but I just don’t have the money to invest.”, or something along those lines.

The landlord also mentions the following, “The best thing about the flat IMO is its size – it has 50% more floorspace than the flats on the lower floors. Some of that is wasted on a very large bathroom. That is not mentioned in the description.”

To me, that’s another indication that he’s missing the obvious and living in cuckooland; the poor schmuck is under the impression that if he informs people that there’s more square footage of that crap he’ll encourage enquiries! *sigh*

His comment implies he’s not actually getting the enquiries, let alone the viewings, which means protective tenants aren’t liking what they’re seeing from his advert! It’s a proven fact that photos usually do the majority of the leg work when generating enquires, but if your centre-piece is a gloomy kitchen and bathroom from the 90’s… there’s very little gravitation pull, and highlighting more of ‘it’ is just suicide!

It’s not a terrible property by any means, and it’s arguably better than a lot of crap other landlords serve… but is it actually worth £975PCM in its current condition? Bitch, please!

Most people will say, “The problem is the condition of the property, specifically the out-dated kitchen and bathroom (two key areas which notoriously sell properties).”

But that’s not the real problem, is it? The real problem is that the landlord perceives the condition of the property to be acceptable and essentially worth the £975PCM price-tag. And that’s my point; it’s a mindset issue, based on ingrained standards. He’s seeing one thing, and I’m seeing something completely different.

So, so, so many landlords have this issue. I’ve seen genuinely good landlords, who aren’t tight-fisted at all, and have their tenants best interest at heart, that struggle to let their property simply because they’re being guided by their own standards, which is often lower than required.

On a sidenote, I think the letting agent he’s using is providing an embarrassingly poor service, but that’s another issue altogether.

Comparing the market

I did a quick search on Rightmove for 2 bedroom properties with in close proximity and similar price range, and the first result that landed on my radar was this 2 bedroom apartment, £900PCM.

When comparing the two properties, I know which I’d rather snap up. There’s an obvious difference in quality, not to mention photography (which has been proven to make all the difference).

I don’t know the Reading area, so I don’t know if one property is situated in a more premium location than the other. But it’s irrelevant, because I’d be willing to move a little further afield from my desired location if it meant living in a significantly better conditioned property, and I think that’s a general consensus among most folk.

If your property isn’t renting after doing the basic/common checks…

I strongly encourage you to consider that your standards might be lower than the current markets’, even if that’s a kick in the nuts. Like I said, it is a tough pill to swallow. I’m not saying you need to offer high-end properties, I’m saying the price-tag needs to reflect what you’re offering. So if you’re offering a plate of steaming shit, you should be asking for the going rate for said plate of shit!

I would say “check out the competition for a reality check”, but that’s unlikely to work if it’s an issue of misaligned standards. Even if a landlord independently scopes out the competition, he probably won’t recognise the difference in standards, or at least, the gaping holes in their own proposition. That’s the problem.

To clarify, I’m not trying to shit on anyone’s standards here. People should live how they want to live, and I have no qualms with that. But this isn’t about how YOU live, this is about how your tenants live, and it’s about maximising your profits by providing tenants with actual value (i.e. not your perceived value). If you fail to provide, a few outcomes will most likely occur:

  • Excessive vacant periods.
  • You’ll eventually be forced to significantly lower your rent after you’ve wasted time ‘testing the market’.
  • You’ll get dog shit tenants with equally low standards (trust me, you don’t want that).
  • You’ll find tenants that won’t stick around for long because they’ll eventually cotton onto the fact their money can go further. Bear in mind, a high tenant turnover rate can be equally as expensive as long vacant periods, if not more.

It’s also worth noting three other points:

  • The landlord may have made more money if he accepted the £800 offer (of course, it depends on the date he received the offer, and how long it eventually takes to find tenants). This goes back to another big mistake landlords often make: prolonging the vacant period to hold out for ‘top-end’ prices (especially when you don’t have a comparatively top-end product).
  • Generally speaking, if a property isn’t receiving serious offers with in a week or so (especially in today’s booming rental market), it’s safe to assume there’s a glitch somewhere! If there isn’t a serious offer in 3 months, that usually means there’s a fundamental issue with the property, which goes way beyond correcting the basics.
  • It’s common for some landlords to have the complete opposite problem, where standards are so elevated that overspending occurs! But in this instance, you’re unlikely to struggle to occupy your property! In any case, understanding your market is crucial.

In conclusion, don’t be ruled or clouded by your own standards… especially if they’re out of sync with the market!

So why do YOU think the property is struggling? Thoughts & comments all welcome, as usual xo

A quick head’s up for anyone that’s in the market for a BTL Mortgage!

Property Master is a FREE online buy-to-let specialist mortgage brokers, who typically save borrowers £1,800 (based on current annual outgoings per property).

Get results in 10 minutes!

Fast BTL Mortgage Quotes

I first across Property Master a couple of months ago, when I received a promotional email from LandlordZone.

Normally, my eyes glaze over junk promotional emails of similar nature, but for some reason or another – perhaps my corpse was low on caffeine and having a slow day – the catchy headlines managed to snatch my attention milliseconds before I hit the “delete” button.

Yup, the flashing lights got me (just as they intended): “You won’t get quotes this precise anywhere else – faster and better than a broker.

Ok, so you managed to grab my interest. What else you got for me?

The perks of Property Master’s BTL mortgage brokerage service:

According to their sales spiel…

  • Free unbiased scan of 2000+ live deals (many of which are not available for direct application to the lender)
  • No need to speak with a broker
  • Fast results in 10 minutes
  • Typical saving of £1,800 based on current annual outgoings per property
  • Expert support always on hand
  • Lender criteria updated daily
  • 5 Star Trust Pilot Reviews (9.5 TrustScore at the time of writing this blog post)

If you’re interested (or want to find out more)…

Start your BTL Mortgage Search →

Or, if you want to know more…

Online BTL mortgage broker Vs Local high-street mortgage broker

You mean, besides from the fact it’s a butt-ton more convenient and quicker to use an online broker? I honestly can’t think of any other notable difference. At least, nothing that affects the quality of the end product (i.e. the mortgage). That’s pretty much the basis of why I’m sharing this service, because it’s a quick and easy way of accessing quotes from a specialist BTL mortgage broker.

I appreciate the fact that a lot of folk are old-school, so they like the physical interaction of dealing with someone. Old-school habits die hard, I get it. No judgement from me.

I, on the other hand, am the type of fellow that orders bog-roll off Amazon because of the convenience factor, so using an online broker to establish a few quotes is a no-brainer for me.

However, something to bear in mind when dealing with any mortgage broker, whether it be a local high-street broker or an online one, is that they generally don’t have access to the same deals. So, that means not all brokers will show you the same mortgage deals available. Some brokers will have access to more and/or better products than others.

Property Masters say they have access to 2000+ live BTL mortgage deals, which ain’t bad at all.

One last important factor to bear in mind is that not all mortgage brokers are free. So before you decide to work with one, get clarity on their fees!

More about Property Master & their BTL mortgage service

Up until I got suckered into the promo email from LandlordZone, I had never heard of Property Master. But then again, I really couldn’t name any other online mortgage broker, so my ignorance means absolutely nothing, other than the fact I’m not a mortgage broker boffin.

However, the fact that LandlordZone – a reputable landlord… err… zone – were promoting them, I already came to the conclusion they were legit. Of course, that didn’t stop me from undertaking my own due diligence.

As already mentioned, they’ve accumulated some raving reviews on TrustPilot. Beyond that, there’s a lot of guff about the company on the SEEDRS website, where they successfully crowd-funded £286,983.

But since the job of a legitimate broker is to simply provide a selection of products to choose from, there’s typically very little danger. In the worst case scenario, they won’t connect you with the most competitive BTL mortgage.

In the past, I’ve just scoured through the usual suspects for mortgage deals, including my local high-street banks and building societies and the obvious comparison websites. But next time, I’ll definitely give Property Master a spin as an addition. Operative word being “addition”

Get your BTL Mortgage Quote →

If anyone decides to get any quotes off them, please let me know the outcome, good or bad…

In strong markets even forced sales are ‘very likely’ to deliver capital gains to vendors who can’t service their mortgage.

That’s the message from RIskWise Property Research following analysis of the housing market in Australia.

In strong housing markets, such as Victoria and NSW, the vast majority of postcodes that had high default rates in 2015 had delivered ‘very healthy capital growth’ which exceeded the Australian benchmark. Property Market

And this means the risk of forced sales and the inability to refinance is much lower.

Our research shows that a large number of postcodes in NSW and Victoria which had high default rates also had strong capital gains.

This means that in strong property markets high rates of credit defaults do not lead to price reductions.

While loan applications should definitely be thoroughly reviewed, the default rate, by itself, does not necessarily mean projected price reductions.

The impact of high default rates needs to be assessed jointly with many other factors that set the overall strength of the market.

The table below shows the capital growth for houses and units in the past three years for high credit default postcodes:

Aus Top 100 Postcodes Loan Default

For example, in Victoria, 15 out of 18 postcodes, outperformed the national benchmark for capital growth for houses and for units 13 out of 18.

Victorian postcodes such as Broadmeadows, Endeavour Hills, Gladstone Park, Mt Evelyn and Bunyip all suffered from high default rates but can be seen to deliver ‘very strong’ capital growth.

Vic Loan Default High Growth

Analysis showed it was evident the majority of the postcodes with high default rates had achieved capital growth of at least 3 per cent per annum which exceeded the CPI benchmark by 1 per cent.

This included Tasmania where houses in 18 of the 23 postcodes with high default rates had outperformed this benchmark. 


However, he said it was important to note there was a significant difference between houses and units in some areas and in Tasmania only four postcodes for units had outperformed the benchmark.

This is because houses and units are not fully substitute products and units do not have the same appeal for families looking for at least three bedrooms, two bathrooms and a decent-sized block.

In postcodes with weak property markets, oversupply and overall poor demand for housing, there was a strong connection between poor or negative capital growth to high rates of default, particularly in mining areas following the end of the mining boom.

This left many owners exposed to significant equity risk as well as cashflow risk due to very low rental incomes and very high vacancy rates – a major factor in mortgage stress and defaults.

Aus Loan Default Low Growth

So, while it’s true that if there are arrears you can have forced sales and therefore price corrections, this is not necessarily the case in all property markets.

In fact, the number one factor that will determine price corrections or not is the strength of the housing market, combined with the accrued equity of the mortgage holders. Mortgage Concept By Money House From The Coins,business Finance And Money Concept,saving Money Concept To Buy A House.

In other words, if you look at Australia’s worst performing regions for credit defaults in poor markets compared with the worst performing regions for defaults in strong markets with good equity, you will see there is a marked difference between the two.

If you have negative equity combined with a weak market obviously defaults have an impact, but if the market is strong and equity is high in dollars and percentage, you will probably not see price reductions as a direct result of credit defaults.

Most property experts took a blanket approach to credit defaults with no distinction between strong and weak markets.

However, he said when there was a strong market, such as in Greater Sydney and Greater Melbourne in 2015 there was solid capital growth, which meant most property owners would now enjoy good levels of equity.

Sydney Melbourne Median Equity And Holding Period

In addition, in 2015 lending standards were by far more relaxed, at least until the first half of 2017.

While there were some lending restrictions, overall credit standards were relaxed and there were no major significant restrictions, so overall it was very easy to get refinance.

So, in strong markets it is likely if some property owners were struggling they could either find a way to refinance or sell for a profit – and often a very nice one.

Perhaps you’ve made the decision become a buy-to-let landlord. You’ve done all your homework and you’re now the proud owner of a rental property. On the other hand, perhaps you’ve been a landlord for many years and there’s little you don’t know about effectively managing each new tenancy.

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HMO Tenancy Agreements

There’s nothing fancy or different about creating a tenancy with a HMO (Houses in multiple occupation) tenant – the legal agreement between you and your tenants should be an Assured Shorthold Tenancy (AST), just like if you were letting a property to a single family (i.e. a single let).

AST’s are the most common form of arrangement between private residential landlords and tenants – including HMO tenants – in the UK.

Page contents:

Introduction to HMO Shorthold Tenancy Agreements

I’ve already discussed Assured Shorthold Tenancy Agreements in depth, and everything in there – including the best practices, rules and legislations governed by the relevant Housing Act(s) – will apply to HMO tenancy agreements, including:

However, while I’ve been through much of the details already, there are a few specific points I want to highlight and cover in regards to creating an ASTs for HMO’s, which typically aren’t as relevant for regular single let situations:

You probably won’t have an AST if…

  • you share the accommodating with your tenants. In this case, your tenants are most likely lodgers, and you shouldn’t use an AST, because a lodger agreement comes with a whole different set of more lenient rules and legislations.
  • you charge more than £100,000 a year for rent. While this will be unlikely for most landlords, I wouldn’t be surprised if some HMOs exceed the threshold.

To check what kind of tenancy you have (if you’re unsure), you can use this nifty little tool by Shelter.

HMO tenants and utility bills

As mentioned, the tenancy agreement should stipulate who is responsible for what bills e.g. electricity, gas, council tax etc. Generally speaking, in shared accommodation situations, the landlord takes care of all the bills – especially if each room has a separate AST (more details in the section below) – and takes that into consideration when setting the rent. From my experience, most HMO tenants and landlords prefer that. It’s, of course, the most simple way of handling bills.

It is possible to assign one ‘responsible’ tenant to be in charge of all the bills, which means he/she will have to collect the money from the other tenants and then make payment. But this option is less desirable for a couple of reasons:

  • if the assigned tenant decides to leave, someone else will need to be assigned, which isn’t always an easy process
  • it can be the root cause of tension between tenants:
    • If a tenant refuses to pay, or frequently pays late
    • It’s difficult to measure exactly how much of the utilities is used by each tenant, so if one tenant feels they use less electricity, for example, they may begrudge paying an equal share once having seen the bill total.
  • Landlords often charge a little extra for covering the bills, so they make more money from it.

HMO tenancies can be Joint or Sole/Separate

There are generally two common ways of implementing tenancy agreements for an HMO property: by using individual contracts for each tenant, or using a single ‘joint and severally liable’ agreement.

The tenancy agreement’s terms and conditions should state whether the tenancy is a Sole or Joint agreement:

  • Joint tenancies: this is a common arrangement for student properties, or a HMO comprised of friends moving in together, and work best if the tenants know one another and are likely to move in and leave at the same time.

    The tenants are jointly liable for both the rent and the care of the property; responsibilities are shared between tenants (like a single let arrangement, where the lead tenants, as stipulated in the tenancy agreement, are responsible). For example, if one tenant doesn’t pay rent, then the other tenants will be required to cover the shortfall. Also, usually the remaining tenants are responsible for finding a tenant(s) if a room becomes available.

    By nature, a joint tenancy requires less administration, as there is one overall agreement with one single rent payable (and one deposit to protect, should you decide to take a deposit).

    All tenants names should be on one tenancy agreement in this case.

  • Sole/Separate tenancies: HMOs comprised of adults, who usually don’t know one another and don’t want to assume responsibility for other tenants, are usually issued separate (Sole) AST’s for each room.

    Each tenant is responsible for them self i.e. they pay their own rent, and the behaviour of other tenants does not affect their tenancy. For example, if one tenant does not pay rent, or has fallen into arrears, the remaining tenants are not required to cover the shortfall.

    This requires more admin work as each room should have their own individual tenancy agreement, and each and every deposit should be individually protected when one is taken.

    As briefly mentioned above – in the utility bills sections – if there is a separate AST per room, it usually means the landlord will be liable for council tax and utility bills (it just makes more sense that way, practically speaking).

HMO Tenancy Agreement Contracts/Forms

There’s certainly no short supply of tenancy agreement contracts around the web (a swift Google’ing session will attest to that), many available for free download, which I understand can be an extremely compelling proposition.

My first word of warning is to use a reliable outlet, and use a contract that is specifically for HMO’s that meets the demands of your setup. While, in almost all cases, HMO tenants are given an AST – most AST contracts available from stationers and online are intended for Single let situations. Do NOT use those for HMOs as they won’t be suitable.

My second word of warning is not to butcher existing tenancy agreements by adding and modifying clauses to meet your specific set of circumstances. It’s something many landlords have done only to regret shortly after. You could end up in a legal bind if any of the additional clauses were to be challenged and they weren’t drafted properly, or aren’t legally enforceable in the first place.

The best thing to do is contact a specialist landlord law solicitor, and get them to draft a contract specifically for your HMO. Yup, it may cost a couple of hundred quid, but it’s definitely a sound investment if you’re serious about doing HMOs right.

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