This episode of the Your Recipe for Financial Success podcast was first published on 8th October 2020. You can listen again by heading to our Episodes page, or on your favourite podcast player.

Becoming a Property Investor

If you’ve had the idea of becoming a buy-to-let investor simmering away in the back of your mind, listen up! In this episode, we welcome another Guest Baker, property management expert Sharon Machon from The Property Management Programme.

Sharon shares some interesting insights into how both the current coronavirus pandemic and Brexit have affected the rental market. But she’s also been cooking up a fantastic new Property Management Programme which could be just the thing to whisk you into action.

Here are some of Sharon’s tips for property management success:

1) Be clear on why you want to invest in property.

What do you want to gain? What’s your objective? Is property actually the right investment for you? A property portfolio can help you protect your financial future and leave a legacy for your family, but it’s not free money. You’ve got to work for it!

2) Learn as much as you can before you jump in

Property can be a good investment. But it can be very expensive if you get it wrong. Do your due diligence, research it, make sure you speak to an expert before you just go and buy something. Sharon’s Property Management Programme could be the perfect introduction.

3) Have a plan for managing your property

Do you really have the skills, capability and time to look after it yourself? If not, find a reputable property management company or letting agent to look after it for you.

4) Think about rental yield and be sure to take into account all costs

The definition of a rental yield is annual rent divided by your purchase price. But that ignores lots of other costs – letting agent fees, maintenance, gas safety certificates…

5) Have a strict application process for tenant

Look for someone with a stable job, or the offer of a job, who can afford the rent. Carry out credit checks and/or consider taking a guarantor as well.

6) Consider taking out rent protection insurance

If you have a tenant and you’ve taken out insurance on them, if they fail to pay the rent you can contact the insurance company and the insurance company will cover the rent for you, and then pursue the tenant for the debt.

7) Consider whether you should become a limited company

From April this year, mortgage interest relief is now not a taxable expense at all so if you own property in your own name. Instead, you get a 20% tax credit. If you’re in the higher rate income tax bracket, you’re paying considerably more tax than you would have been doing a couple of years ago, on the same income. These tax rule only applies to private individuals, not companies. So, if you purchase property through a limited company, you still can have the mortgage interest as an allowable tax expense.

Sharon’s Property Management Programme is designed to help fellow property investors who are may be new to the industry, and want to learn to self-manage. It takes you through the whole process of how to get yourself ready, including all the legal requirements. If you’d like to know more, email [email protected] thepropertymanagementprogramme.co.uk

Rediscover the conversation

Emma Knights
Today I’m here with Sharon Machon from Foxdog Properties, and she’s telling us about her new property management training programme. So today, we’re putting the toppings on our property management pizza. So really good to have you here, Sharon and really good to watch your launch the other night as well. You can tell us a little bit about that in a moment. So, if we start off today with you telling us a little bit about who you are, what you do and how you’ve got to where you are today basically.

Sharon Machon
Okay, I’ll give you the short version because otherwise who might be here a while. So, my original career was with a FTSE100 company. I spent 20 years climbing the corporate ladder at United Utilities where I started on the graduate scheme. Whilst there I got involved in property investing, and so at a point in my career, and I’d always wanted to set up and run my own business. And it got to the point where I had the opportunity to do so. So, I had a major career change and set up my own business, which was Foxdog Properties, which was helping me my husband, but also people that we knew to invest in property in the north west, and then we moved on to managing those properties for them as well.

Emma Knights
Wow. So, it sounds like you’ve had a lot of experience with property over the years.

Sharon Machon
Yes, we started investing in property around 15 years ago. And then we set up our own property management business probably about eight years ago. We’ve got quite a lot of experience between us, and also our previous corporate experience. Steve is an engineer by trade. Between us my business experience, and Steve’s engineering experience, really helps in our property business nowadays.

Emma Knights
You’ve got all bases covered there really?

Sharon Machon
I hope so, fingers crossed.

Emma Knights
Fantastic. Can you tell me what your earliest money memory is?

Sharon Machon
Oh, gosh, that’s a good question. And I’m really fortunate in that my parents taught me about money from a young age. I do remember having my own bank account for my pocket money from a very early age. And I remember my Mum taking me down to the bank, that was the time before cards and cash machines so to get money out the bank, you had to write a cheque to yourself to get money out of the bank. That’s probably one of my earliest memories. But as I say, very fortunate that my parents taught me to manage money very early on.

Emma Knights
So, obviously done you a favour in life?

Sharon Machon
It’s not hurt.

Emma Knights
So, what is it you do with Foxdog Properties and the Property Management Programme? Do you help your clients find tenants? How does it work exactly?

Sharon Machon
When we set up Fox Properties initially, what we were doing was helping investors all over the world actually. We’ve got clients overseas, and buy properties for investment purposes in the North West. We offer a management service for them as well to follow up on that.

As we got more and more people, more and more people asked us to help them manage their property. Property management is very local and to provide a high level of service, you do need to be very close to those properties. So, people further afield, we still wanted to help, but we couldn’t be their property managers day to day.

What we’ve done is we’ve documented all of our business processes, and made those available so that other people can either manage their own properties themselves, or they can use that information to make sure that any local agent they find is doing a good job, and to make sure that all their legal responsibilities are covered.

Emma Knights
What type of person is the kind of person that would normally come to you for help?

Sharon Machon
That’s very varied. I mean, it’s very interesting. In recent years, we’ve had calls from literally all over the world. I’ve had people from Hong Kong and Singapore and Dubai phone for advice about investing in the North West, which is quite random at first, but you get used to it after a while.

I suppose there’s no typical sort of person that comes to us for help. It’s more, I guess, a personality type. It’s people who have become aware that they want to protect their financial future, both for themselves in retirement, but also to create a legacy for their children and grandchildren. It’s not like it’s only bankers or lawyers that approach us. We have plumbers and tradesmen, we’ve got I.T. consultants from Hong Kong. We do have lawyers as some of our clients, but it’s very varied. It’s more about people who have become more financially aware. And, as I say, want to protect themselves and their children going forwards.

Emma Knights
Fantastic. So you’d say it’s probably more that they’re planning to invest for their future, but they don’t necessarily have the skills and capability to manage it all themselves? So obviously, some people might not know a huge amount about renting out properties and having their own buy to let or anything like that. So just really basically, let’s talk about rental yields and what they mean for people.

A rental yield is once you’ve taken out the cost of a mortgage, and all the letting agent fees and maintenance and gas safety certificates and all the other bits and bobs that you know that go with that what actually you have left at the end?

Sharon Machon
Yes, it’s interesting you mentioned all of those things. Most people ignore all of those. And now, rental yields do vary across the country. I’m actually working out how to quote rental yields is a bit of a blunt instrument to be honest, it doesn’t really tell you very much. The definition is your gross annual rent divided by your purchase price. But as you say, that ignores lots of factors and that rental yields do vary across the country. In London, it’s very difficult to get above single figures and low single figures which is why I think the north of the country does attract a lot of investors. I can only talk about the area that we specialise in, which is the North West for single buy to let property which we will say is effectively a family home.

When we’re looking at purchasing a property for our investors, you’re looking around 7% gross yield. But then obviously, when you’ve taken out all those costs that you talk about, you would be aiming for more like 4% or 5%. There are more specialist strategies with HMOs, which is a bit of a technical term which means houses of multiple occupation or effectively shared houses where you rent out the room individually. This means you can get higher gross yields on them but again, the costs are higher as well, and quite considerably higher. You’d be aiming for probably around 10% yield, after all your costs on something like that.

Emma Knights
There is money to be made there but obviously you need to take all of those things into account. From situations I’ve been in with clients, they often say, I’m making X percent on my property. And then you say to them, well, what about all the expenses and they all get forgotten about and don’t take those into account.

Sharon Machon
Exactly. Most people look at the high level or the top line numbers, and they don’t take into account everything else. I think that’s where it’s important to have a good financial understanding of all your investments and as property with anything else, you know, it’s risk and reward, how much work and effort you put in, the greater the yield. It’s not free money, and you’ve got to work for it.

Emma Knights
Definitely. And obviously, if you don’t know how to do that yourself is always good to get someone involved to help you do that. How would you say the coronavirus has affected the property management industry for you?

Sharon Machon
It has been very significant. When lockdown was announced it was unknown or unclear how that would affect the property management industry. We immediately did a risk assessment in terms of the worst-case scenario. What if all the tenants stopped paying their rent tomorrow? What impact does that have on us and our clients? We certainly advised people in our wider network to do that assessment as well so that they could understand any gap and financial gap that they needed to address.

Fortunately for us, it’s not turned out as bad as that. With the furlough scheme, most tenants have been able to meet their rent commitments so for us, that’s been fortunate. There have been other significant impacts, so suspension of viewings and suspension of people moving in. If you had a property to rent, you couldn’t fill it during lockdown. The other major impact is housing courts are closed. They’ve been be closed for about six months. Hopefully, they’ll reopen soon but if you are looking to evict a tenant, for example, for non-payment of rent, you’re basically in limbo for six months, which is a very long time and if that’s your main investment for your future, it’s a significant financial impact.

Emma Knights
Definitely. For everybody listening, and thinking about going into the process of buying a property at the moment, you might want to listen closely now because I know there’s a few changes that the government have made about stamp duty. And Sharon is going to tell us a little bit more about that now.

Sharon Machon
Yeah, so as a result of the coronavirus crisis, the government was worried about the housing market so they’ve actually reduced stamp duty for residential properties up to the purchase value of half a million pounds. Now if you are a property investor you are subject to a 3% surcharge as well. If you’re buying a property now up to half a million pounds, you only now need to pay the 3% rather than the 5% and that’s only until March 2021. But it has caused a stir in the property industry. And I’m definitely seeing more and more people taking advantage of that tax reduction in the short term.

Emma Knights
Lots of people are taking advantage of it, which is obviously a good thing and with property prices and the moment, everybody thought it was going to kind of collapse a little bit so obviously the government have done what they were intending to do and given that stimulus in the market.

Sharon Machon
Yeah, certainly from where we are, we’re actually seeing a bit of a mini bubble. I am seeing properties going for more than asking price at the moment. There’s definitely a lot of competition in the market at the moment.

Emma Knights
Something else I’ve heard about that others may have heard about too, is something called the Coronavirus Act. Can you tell us what that is? I don’t know enough about this to be able to share it but I’m sure you do.

Sharon Machon
This was brought in by the government at the start of lockdown. It’s a really extensive piece of legislation that actually impacts all aspects of society. If you remember the government’s daily briefings, when they would announce certain changes, all of the changes that were announced have to be backed up by primary legislation. The Coronavirus Act basically scoops up all of those government announcements and makes all of the changes that were announced in those briefings legal. That was brought into force in March and is actually in place for two years. Obviously, I’m interested because there is a property section to the Act, so all of the changes we’ve talked about, like the closure of housing courts, for example, is within the Act of Parliament.

Emma Knights
It’s basically what the government has put in place and all the details are basically in writing to say exactly how it works. That makes sense. We have the coronavirus, that’s the current issue in the world. But Brexit in the past has been an issue and moving forward could potentially be one as well. What impact do you think this is going to have on renting out property in the UK and also for your clients that are abroad?

Sharon Machon
This has been a hot topic for a good few years now, really, since the referendum. And when you look back, it has been going on for quite a long time. And obviously with the coronavirus crisis, it’s gone out of the headlines a little bit. I wouldn’t be surprised if much of parliamentary time has been spent dealing with the crisis this year rather than Brexit. The next main deadline is December of this year. Boris Johnson is quite adamant that he’s not going to move that deadline. And that’s a hard deadline. We will have to see but there will still be transition arrangements after that. The biggest impact in terms of the property industry will be on freedom of movement. We get a lot of people migrating across Europe to the UK for employment. The UK does attract a lot of people working in the lower paid jobs so we’ll have to wait and see what impact those changes have and if there are going to be any special allowances for those types of workers.

Emma Knights
Do you think it’s going to change the demand for rentals in the UK?

Sharon Machon
No, I don’t think demand will change, the fundamentals of the property market won’t change either. There’s definitely more demand and supply. I think that’s true going forwards. We have seen a change in the type of tenant applying through us as well though, so demand is about the same, but the sort of people applying are definitely changing. In recent months, we’re having more and more people from outside of the EU with appropriate right to reside documentation applying to rent with us. They are mostly people from overseas coming to work in the health sector in particular. I think demand is still there and the fundamentals are still there. It’s just the changing demographics of the sorts of tenants that we’ll be renting to in future.

Emma Knights
For people listening today, they may have obviously had a look online at different ways of renting property and they may have seen that you are able to buy a property for letting either by yourself or you could also set up your own limited company and buy it through a limited company. Can you tell us a little bit about the advantages, disadvantages and why you may or may not do that?

Sharon Machon
Yes. Okay. This really stems back from section 24 of the Finance Act 2015 not to get too technical. Essentially what that piece of legislation stated is that if you as a private individual own residential property in your own name, that’s not your principal residence then mortgage interest would no longer be an allowable tax-deductible expense. So those changes have been brought in gradually over the last few years. From April this year now, mortgage interest relief is now not a taxable expense at all so if you own property in your own name, you’re not given that allowance you’re effectively taxed on that as income. Instead, you get a 20% tax credit. So, if you are in the higher rate income tax banding, so the 40% or 45% tax bracket, you’re paying considerably more tax than you would have been doing a couple of years ago, on the same income. In certain circumstances, you might actually end up paying tax when you’re actually making a loss. It’s quite a serious situation. What’s happened over the last few years, is that people have set up limited companies through which to purchase property, because tax rule only applies to private individuals, not companies. If you purchase property through a limited company, you still can have the mortgage interest as an allowable tax expense.

Emma Knights
Well I’ve learned something very technical. Because after all this is a finance podcast I think we need to just talk a little bit about a product that’s more related closely to finance itself. Can you tell us a little bit about the rent protection insurance that you can get please?

Sharon Machon
Yes, this is very interesting. This has been a developing sector over recent years so essentially, in summary, what this is, is you can basically insure your tenant or your guarantor and mitigate the risk of them not paying the rent in future. If you have a tenant and you’ve taken out insurance on them, if they fail to pay the rent you can contact the insurance company and the insurance company will cover the rent for you, and then pursue the tenant for the debt. This is really the ultimate way that you can mitigate risk as a property owner for non-payment of rent in the future. It is becoming more and more popular because it’s getting more and more difficult to actually evict tenants that stop paying their rent.

Emma Knights
What is the ideal tenant then? Obviously, you’re wanting to pay their rent. But when you’re looking for tenants for your clients, what are you looking for from a tenant?

Sharon Machon
We have a very strict application process that we’ve developed over the years. What we’re looking for somebody who is in a stable job, or as you say, is coming to the country and has the offer of a job and can prove that and that they can afford the rent. The insurance companies ask for two and a half times income, two and a half times the rent, so we use that as a benchmark. Our benchmark’s actually slightly higher than that. But that’s a good indication. We also carry out credit checks to make sure that they’ve got a clear credit history, obviously, if you’ve got somebody who has defaulted in the past, they’re more likely to default on their rent in future. They’re the key aspects. You can also look at maybe taking a guarantor as well. This is somebody else that guarantees the tenants rent on their behalf. There are lots of things that you can do to mitigate that risk without actually taking out insurance. But I would say if you are a little bit nervous or worried or had a bad experience, insurance is definitely worth considering.

Emma Knights
Just out of curiosity, how much does this insurance cost generally?

Sharon Machon
That’s an interesting question. Before coronavirus, the prices I think were fairly reasonable, and I have actually used these insurance products myself in my own properties for my own tenants. When the coronavirus crisis hit, many insurance companies actually withdrew from the market altogether. At the height of lockdown, you couldn’t even buy rent protection insurance on any new tenancies. The insurance companies were just unclear how significant the impact of tenant default would be and how long it would go on for. There was lots in the press about rent holidays and all the rest of it. They obviously had to take into account risk to their business so they just withdrew from the market. As they started coming back to the market premiums went up. When the government announced the extension of the closure of housing courts for another two months, premiums went up again. I can only give you an indication from my current broker, but you are now looking at around £200 per year per tenant. Whereas before the crisis, the last policy I took out was £75 for the year. It’s a significant increase and that’s the insurance company looking at the risk of future tenant default as a result of the crisis.

Emma Knights
That’s absolutely incredible. Definitely worth thinking about, though, obviously it’s important to think whether you could you afford to take the risk of not having it.

Sharon Machon
Well, to be honest, when you’re looking now research showed that before the crisis, it could easily take six months to regain possession of your property going through the court. So that six months where you don’t have any rent coming in, all the indications are now that that is going to be extended even further because of the changes under the Coronavirus Act, the delays to the housing court as a result of lockdown, and various other changes that have been introduced. You could be looking at 9 to 12 months before you get your property back. I think in the grand scheme of things, £200 is not a big number compared to the amount of lost rent you might be looking at.

Emma Knights
I suppose a lot of people that invest in property may have a lot of their money tied up in physical assets rather than liquid cash. They need that rent coming in for their cash flow and it’s going to cause an issue. We’ve covered a vast variety of things today, which is really good. And I know we’re going to have you back again in future, Sharon, to tell us some more. But if I can just ask you for any hints and tips that you may be able to give to anyone that’s listening today if they’re thinking about investing in property and letting, where they should start?

Sharon Machon
My first suggestion would be to think about why you want to invest in property, what do you want to gain out of it and what’s your objective? Also is property actually the best thing for you in terms of the right investment. Don’t just jump on the bandwagon because everyone else is doing it. You need to understand why you’re doing it and what your long-term goals are. Then once you’ve decided it is the right investment for you, learn as much as you can first before you jump in. It can be a good return on investment. And it can be a good strategy but as we’ve seen, if you get it wrong, it can also be very costly as well. So do your due diligence. There’s lots and lots of information out there now, lots of books, lots of training courses, and there’s loads of stuff for free. Go and research it and take it seriously. Also make sure you speak to an expert before you just go and buy something.

Emma Knights
Fantastic advice there. While we’re on the topic of lots to read and lots to know, you’ve started the Property Management training programme recently. I watched your launch the other day which was good, very interesting, and I learned a lot. I can certainly tell you that there’s so many things that I didn’t know about and wouldn’t have even considered. Sharon, tell us a little bit about what your programme is and how it works.

Sharon Machon
Yes, thank you. As you say we’ve launched the Property Management Programme. This is really to help fellow property investors who are maybe new to the industry, and they want to learn to self-manage. But as we’ve said, there are lots of laws and regulations you need to be aware of which can be financially crippling if they trip you up. We’ve put together this nine-week programme whereby we explain the whole process of how to get yourself ready because there are some legal aspects around yourself and registration for handling client’s data, for example, getting your property ready, getting all the legal certifications in place, how to vet tenants. We talk about how to do your due diligence on tenants, how to manage your property and how to deal with ending the tenancy. It’s all laid out step by step. There’s lots of information out there. We’ve learned by trial and error ourselves in the past, but I haven’t found anything where it sets out step by step, not only what to do, but how to do it. Our guide has nearly 30 templates in there that you can use in your business straightaway.

Emma Knights
What exactly inspired this? Was it just a case of there was nothing in the market and it you could see people needed it?

Sharon Machon
We put it all together when we were growing as a business. I work with Steve, who is my husband and business partner, and it’s a family business. We had everything in our heads and we knew what we were doing, and we just got on with it. As we were growing as a business, we did start to recruit staff. It originally started as training for our staff on how to do everything. Everything that was in our heads, we documented and we put it down into processes, and we created templates for them to use so that we could have consistency across our business as we employed more staff. That’s how it started. Then when we started talking to other people, or the property investors through networking events, they were very interested, as you said, there isn’t anything else on the market that
is a step by step as this.

Emma Knights
Fabulous. If anyone listening wants to be able to get their hands on it, can you tell us how they can do that?

Sharon Machon
Yeah, probably the best way is just to drop me an email. The email address is [email protected] thepropertymanagementprogramme.co.uk. That’s probably the easiest way to get in touch and then we can just ship one out to you.

Emma Knights
Fantastic that sounds wonderful. Well, thank you so much for coming down to sunny Norfolk. Just before I let you go, we need to give our listeners one last tasty treat. So, can you tell us what’s your favourite recipe?

Sharon Machon
That’s a very good question. It’s a very simple recipe. I really like making shortbread biscuits. It’s really simple. There are just three ingredients. And the recipe card I have is one that I actually got during Home Economics at high school. It’s nice and simple and if you fancy a sweet biscuit but can’t be bothered going to the shops you can have the biscuits within 20 minutes. So I’m going to go for shortbread biscuits as my favourite recipe.

Emma Knights
Thank you so much for being with us today. We really look forward to having you back again in future to record some more episodes with us.

Sharon Machon
Great Look forward to it.