The buy-to-let sector has experienced a resurgence in recent years as investors look for income in the low-interest rate environment – and hunt for growth off the back of house prices rising again.
Buy-to-let has been a great investment for many people, but for some, it has been a disaster that has cost them thousands.
Those considering investing in buy-to-let, or hoping to improve the returns on their existing rental properties – need to make sure they aren’t making some common mistakes.
Solid rental returns should be the backbone of a successful buy-to-let.
There are still a lot of people who find themselves locked out of home-ownership and the most recent ONS English Housing Survey showed 19 per cent of people were renting privately. More potential homebuyers have been looking to rent, as they are put off or cannot yet afford a deposit for their first home, due to stagnant wages and lenders demanding larger deposits for the best mortgages. These factors, coupled with rising house prices, means a very strong rental market at the moment but it pays to be cautious and realistic.
Your properties need to be delivering a positive cash flow each month. This means rent comfortably beating your mortgage costs and avoiding costly void periods – months when your property isn’t rented out – that could see you lose thousands.
It is also important to have extra cash to cover maintenance or periods without tenants. If you are only just breaking even or making a loss, there are steps you can take.
Location is a vital factor when becoming a landlord. You need to consider the type of rental income you will get in an area as well as the overall return you will get on the property. It can be tempting to choose a property near where you live, as it would be easier to keep an eye on it. But your area may not be the best for property prices or rental yields. It may be worth looking further afield for better rental returns and appointing an agent to look after a flat or house if you cannot get to them.
It really pays to look after your tenants. Do this and they will look after you.
Keep up with maintenance, make sure your property is a nice place to live and try and build a good personal relationship with your tenants.
Speak to your letting agent about refurbishment standard of the property and what potential tenants will be looking for.
As a landlord, you have a choice of whether to use a lettings agent to manage your property and pay their fee. Obviously, I would always advise on using the services of a professional letting agent!
Alternatively, you could save on letting agents’ fees by becoming a DIY landlord. But remember, if you want to save on letting agent fees, you need to be willing to take on all the things such as compliance, safety, legalities, advertising, licenses etc and be able to chase up arrears and conduct this correctly. Being a landlord is like running a business. Your main source of income in this business is rent, so it is vital to make sure this is paid on time and is the right amount and not be a pushover. Believe me, I have heard every excuse invented…these are being saved up for a future blog!
It is also possible to take out an insurance policy against your tenant failing to pay the rent, usually known as rent guarantee insurance. This can cost as little as £50, and is available as a standalone product from a specialist provider.
If you want to let a property then it must be safe and in a good state of repair – and it has to stay that way. This means that if a pipe bursts, the boiler packs up, or a leak appears, you are likely to get a call to get it fixed. You can’t just leave these things until you can get round to them. They need to be sorted asap. This is a classic area of dispute between landlords and tenants, so try not to fall into the trap of not doing things that you should.
Maintaining a good relationship with your tenants is essential for running a good property investment and if you have to bite the bullet and pay for repairs, you need to just accept that as part and parcel of being a landlord. I would not tolerate living in damp or untidy conditions, so why should your tenants. If you do not respond to maintenance calls quickly your tenants may leave. For a repair that might cost £250 you could potentially lose £400-£650 plus in rent.
Five tips to be a better landlord
- Make sure the property is fit to rent on day one. This reduces maintenance and repairs throughout the year while tenants are in place.
- Agree with your letting agent that any maintenance requests concerning safety, heating, water or light up to a certain value are carried out immediately and reported to you.
- Consider moving your mortgage. Rates are near record lows at the moment and you could save hundreds of pounds.
- Establish a system where the letting agent sends you a copy of their inspection reports on a quarterly or half yearly basis.
- Adhere to compliance, your letting agent will advise you.
If you are considering property investment, we can point you in the right direction of financial planning experts who can advise the best way to structure this. For further information on the local residential lettings market, call or drop me a line and my team and I will be happy to assist you further. Telephone 01873 855503 or email firstname.lastname@example.org.