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Buy to Let

Landlords warned against get-rich quick schemes

paulajohn
Written By:
paulajohn
Posted:
Updated:
29/01/2014

Buy-to-let landlords have been warned to steer clear of unethical rent-to-rent schemes.

The National Landlords Association has raised concerns over the growing number of crash courses which have popped up teaching people how to make money from lettings without the cost of purchasing a property.

Legitimate schemes are offered through either a local authority or reputable companies to house people seeking asylum, victims of domestic abuse or vulnerable individuals due to a lack of social housing.

But Chris Norris, NLA head of policy, warned a rise in the number of “opportunistic get-rich-quick” schemes aimed at the rent-to-rent market are opening landlords up to a number of risks.

He said:

“Our concern is that some of these less professional ventures will only breed individuals that are simply focussed on making money fast.

“If property management standards are neglected purely in search of maximum gain then it will impact tenants’ rights, reduce security and further damage the reputation of private renting.”

Mary Latham, West Midlands representative for the NLA, said she has noticed an increase in the number of schemes in her area which teach individuals how to “chop up rooms and pack in tenants” to maximise the amount of rent which can be earned from one property.

Latham said the landlord, who is promised a guaranteed income by the rent-to-rent scheme, relinquishes responsibility of his property to the company and is often unaware of how the letting is managed.

She said:

“It is paramount that landlords carry out due diligence on the rent-to-rent company. They must take time and effort to make sure they are going into business with the right people.

“The landlord needs to know what assets the company has to support the guaranteed income promise and what strategy is in place to fill the property.”

Landlords face a number of risks by entering into an agreement with an unethical scheme such as a breach of their mortgage conditions, invalidating their insurance and breaking the terms of their lease.

Financial losses may be incurred, without the protection of the correct agreement, if the company struggles to generate the level of income it had expected. When faced with difficulties unscrupulous companies will fold up the operation and walk away.

And the risk of prosecution under section 72 of the Housing Act 2004 could follow if the property has been chopped up into an unlicensed House of Multiple Occupancy.

David Lawrenson, property consultant and director of property website LettingFocus, described the schemes as “a lot of hassle for very little money”.

“In property investment spammy companies touting get-rich-quick schemes are abound. Tread carefully with these schemes.”

Norris said: “Landlords who want a hands-off investment or choose not to manage their properties should enlist the services of a reputable letting agent or perhaps consider private-sector leasing which can both deliver competitive returns.”


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