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Buy-to-Let: Avoid mistakes that may mean your investment might not pay

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 rentals@foywilliams.com.

julieRegards, Julie

FoyWilliams

Tenants ….. this is why you should use a good professional Letting Agent

julie
Julie Murray – Rentals Team Manager

I pride myself and my rental team members on our professional, friendly service.  We have experienced and appropriately qualified staff who are members of the Association of Residential Letting Agents (ARLA) who can guide you through the rental process.  We adhere to The Property Ombudsman’s code of practice, so you can be sure you, and your money, are safe in the hands of true professionals.  All our staff are trained and certified lettings and managing agents under Rent Smart Wales. FoyWilliams is an agent

rach
Rachel Broom – Rentals Team

licensed under section 21 of the Housing (Wales) Act 2014.

We provide full transparency of costs involved in renting and these are clearly displayed on our webpage and branch advertising and all tenancy deposits are protected in an approved

protection scheme in compliance with the law.

chloe
Chloe Davies – Rentals Team

We aim to make things as smooth as possible for you whether you are applying for a new tenancy, extending your stay or moving out – you can count on our professionalism at all times.

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Sarah Creed-King – Rental Repairs

Here are a few questions which we are often asked by potential tenants…

I have been told that I need to pay an administration fee when applying for a tenancy on a property. What is this for?

It is a fee taken from the applicant to ensure the property is reserved for them subject to referencing being acceptable. This fee usually includes the cost(s) of referencing each adult who will be moving into the property, together with the administration cost(s) involved in preparing for the tenancy commencement and legal documentation required.

Why is referencing needed?

References are used to check all applicant’s credit history and also a reference from a former landlord, current employer and previous employer. These references are necessary for us to ensure that you have the means to pay the rent. We check your credit history to check whether you have had any court orders or CCJs against you in the past. The landlord reference is to help us ensure that you are a reliable tenant who pays on time and doesn’t damage the property. You employer reference is to ensure that you are in the employment that you have stated on your application form. However, if you have a bad credit history you may still be able to apply for the property, as long as you tell us beforehand so we can disclose this to the landlord to decide to proceed, and if so, whether a guarantor is required.

What ID do I need to show, before I can move in?

We require proof of residency and proof of identity:

  • For residency, we accept a recent (within the last 3 months) utility/ council tax/ mobile phone bill or a current tenancy agreement.
  • For identity we require a photo style driving licence or passport. If you are not a UK citizen of the European Economic Union then you will need to provide evidence of official permission to live in the UK for the term of the proposed tenancy.

In some circumstances, additional ID will be requested by the credit referencing agency.

Do I have to pay a deposit?

Yes, a deposit or bond is required in case of any damage or dilapidation of the property during your tenancy. We hold all deposits within The Deposit Protection Service or (“DPS”). The administration of this and registration of the deposit is also included in the administration fee.

Is my deposit refundable?

Your deposit will be held for the duration of the tenancy. At the end of the tenancy, you will be checked out of your property and an assessment of damage/dilapidations will be made. Your tenancy agreement will state what can be claimed from the deposit. If any of these items are identified, then we will contact you to discuss the proposed deductions after obtaining an agreement with the landlord. We would prefer to be able to agree to refund the full deposit to you after the assessment, but it will be your responsibility to ensure that you have fulfilled the terms of the tenancy, left the property in accordance with the inventory and schedule of condition on the move out date, followed the move out notes and ensured that your rent is paid up to date.

When can I pick up the keys to my new home? 

We will not release any keys to you until the commencement date of the tenancy agreement. You will be required to visit the office a few days beforehand in order to finalise any paperwork, such as taking time to read and sign the tenancy agreement, receive your tenant’s information booklet, a copy of the gas safety certificate & EPC and completing a standing order form. Your tenancy agreement may be a bit lengthy but it’s important that you read it. The agreement will lay out explicitly what is and isn’t expected of you while living in the property. For example, some agreements will state that you cannot hang pictures on the walls, or that you must cut the grass regularly. Stick to the agreement and the rules set out by your landlord. If you are unsure about any of the conditions make sure that you discuss these with us before signing.  Once all of these have been completed and deposit made of the required bond and the first month’s rental payment is made (rent is always paid one month in advance), an appointment will be made on the commencement date to move you into the property and go through the inventory, take utility meter readings and introduce you to your new home.

As a tenant, what am I responsible for? 

As a tenant you are responsible for:

  • Prompt payment of rent
  • Prompt payment of gas, electricity, telephone and internet bills.
  • Reporting any damages and repairs to the property as early as possible.
  • Carrying out odd jobs in the property in a tenant-like manner such as changing light bulbs etc.
  • Repairing any damage caused by you at the property, which includes unblocking a sink or toilet which has been blocked due to your misuse.

What is my landlord responsible for?

This largely depends on the level of service the landlord wants FoyWilliams to do but generally, our landlords will have appointed us to act for them regarding day to day matters (ie fully managed). Therefore, you would contact us on all occasions. There may be times we need to get authorisation from the landlord for certain requests, but we will then act promptly in accordance with the landlord’s instructions.

Rent Receipt

The landlord will have appointed us to set up the tenancy and then to receive your rent on the rent due date for the duration of your tenancy.

What other costs will I have besides the rent?

These will vary but are most likely to include gas, electricity, telephone, water rates, council tax, TV licencing and contents insurance to cover your own personal possessions.

What maintenance is the landlord required to complete?

The landlord has statutory obligations to maintain and repair certain areas and items in the property. The landlord must ensure that:

  • The gas appliances and pipework at the property are safe and is legally obliged to have a qualified engineer to test these on an annual basis. Tenants will be provided with a copy of this certificate which should indicate that all of the appliances and pipework are safe.
  • The electrical appliances that have been supplied at the property are safe. They will require access to the property in order for a qualified engineer to conduct this check on an annual basis.
  • The structure of the building is maintained to include walls, drainpipes, guttering, roof and windows.
  • The hot water and heating are operational. If they should malfunction, then the landlord is responsible for ensuring that it is fixed, once you have reported this, in the shortest time as reasonably possible.

The landlord or his agent is not responsible for repairing any damage that you have caused at the property – this is your responsibility.

What is classed as reasonable wear and tear?

Fair wear and tear is the normal deterioration of an item in normal use, however, it is a landlord’s decision on what is reasonable wear and tear and what is excessive dilapidation. Fair wear and tear is generally based on the length of the tenancy, the number and ages of the tenants, the condition and the ages of the items and the expected lifespan of these items.  FoyWilliams ensure that the condition of any property is noted down in the inventory (floor covering, curtains etc) prior to the tenancy beginning for reference to the condition of items at the move out assessment.

Can the landlord or agent enter the property without my permission?

The answer to this is usually stated in the tenancy agreement. In most cases, a landlord cannot enter the property without giving the tenant reasonable notice beforehand, usually no less than 24 hours. However, in the event of an emergency which may affect the safety of the occupants or the property, it may be necessary to gain access without this notice.

Can my landlord increase my rent at any time?

No, the tenancy agreement determines when and by how much your rent can be increased. If the agreement does not specify an amount or time, then the landlord/agent must negotiate this with the tenant. Neither the landlord nor the tenant can alter the original tenancy agreement without the other party’s consent.

Can my landlord refuse to give me back my deposit?

Under an assured shorthold tenancy agreement in England and Wales, the return of the deposit is subject to tenancy deposit protection. These schemes provide an alternative dispute resolution process whereby an independent adjudicator will make a final decision on the disbursement of the deposit money should a dispute arise.  The landlord cannot just “take” your deposit without showing good reason to claim it wholly or a proportion of it.

In short, using a professional letting agent firstly ensures the rental property is legally compliant and fit for habitation.  Proper tenancy agreements will be drawn up, deposits registered appropriately, repairs done quickly by professionally qualified trades and annual safety inspections carried out timely and the agent is experienced, qualified and licensed to deal with all matters of your tenancy and property maintenance.  If you have any further questions, get in touch for a chat or advice.