Landlords: Don’t make these rookie mistakes
Becoming a buy-to-let landlord can be profitable but it’s not easy, according to Arbuthnot Latham.
The private and commercial bank has published some simple steps to help landlords avoid mistakes, and save time, stress, and ultimately money.
It said the best approach is to work through a checklist of considerations and, to help you plan, it has listed below some of the common mistakes people make when they invest in property.
1. Not keeping records
Whether you are doing it for the first time or you are a portfolio landlord, it is important you keep on top of your record keeping.
Good record keeping not only helps you keep track of income and outgoings, but it is also important for staying on top of administrative tasks, like when insurance renewals are due. It can also be a lifesaver if you are unfortunate enough to face a tenant dispute.
2. Forgetting to plan for voids
It is fair to say you will experience periods when your property is vacant; generally this is after one tenancy has ended and you are advertising the property for new tenants. If you manage it well, you may have a new tenant lined up to move in soon after the previous tenant leaves, but you cannot assume this will happen. On average, a house will be vacant for up to four weeks a year.
You need to allow for this either by holding a contingency sum in your bank account or by retaining the surplus rent, after mortgage and other costs, in the account to cover you when no rent is coming in. As a minimum, it is worth holding the equivalent of three months’ rent to help you through these periods.
3. Neglecting to save for unexpected costs
You need to think about all the costs associated with a rental property. Not just the mortgage, but insurance, maintenance and the costs involved with keeping up-to-date with legislation; such as current energy efficiency requirements and gas safety certification.
Have your contingency fund available to cover this, and as with vacant periods, think about keeping it topped up by retaining surplus rent in your bank account.
4. Not using a tenancy deposit scheme
If you do not deal with the tenant deposit correctly you open yourself up to being fined. Legislation is strict, so it is important you are familiar with procedures and the paperwork you need to provide to your tenant.
Make sure you have thoroughly checked the property before handing it over to your new tenant. Draw up a detailed inventory (take photographs) of the property and any contents included in the rental agreement. Provide a copy to your tenant before they move in.
5. Failing to regularly inspect the property
By undertaking a regular inspection, you have the opportunity to check the property to ensure it is being looked after, but this can also give you the opportunity to catch up with your tenant.
Not only does this allow them to draw any issues to your attention, so you can deal with them before they become a major problem, but also gives you the chance to check on them, find out about their work situation and any plans for the future. You may come away with a view that they are planning to stay longer term or may be struggling financially.
6. Failing to plan for tax
You should be aware of tax changes brought in over the last few years and how this may impact your income or ability to raise the level of mortgage you are seeking.
Taking advice from a specialist tax accountant before you commit to buying a property is crucial. Not only will this help you understand your allowances and liabilities but may also help you decide how you buy the property (in personal names or a limited company vehicle) and any potential implications on your other income.
7. Choosing the wrong location
Location, location, location – it’s a fact that you need to think about the location when purchasing a property to rent. Get to know the area and its reputation. Think about your future tenant and if the property is right for renting in that area.
If you choose an area with a poor reputation or poor transport links, you may struggle to achieve the rent you are aiming for.
8. Failing to vet your tenants
You have invested a large sum of money in your property and are about to entrust it to a stranger. If you are using an agent, do your research. Are they reputable? If the tenants are happy, they’re likely to take better care of your property. Similarly, it is good practice to make sure potential tenants are vetted properly, ideally you should meet them yourself before you commit to the tenancy.