Buy a property they said, let it to a tenant and watch the money roll in!
Unfortunately first-hand experience has taught me the opposite is true. The legalities are complex, finding the right tenants is not easy, things do go wrong and it is easy to underestimate how much time you’ll need to spend on one property let alone a portfolio!
And the money? Well quite often you find the money rolling out faster than it is coming in!!!
So here are my top ten tips for landlords:
1. Become a professional landlord or engage the right letting agent
This has to be number one.
A few years ago I was working full time and looking after two rented properties. I didn’t really have the time to chase rents or deal with tenant problems but I did it anyway until one day I was on a tax course in Maidstone when I got an urgent message to call my office. I called the office in the coffee break and discovered to my dismay that the tenant had called and was screaming down the phone that his front room ceiling had collapsed and what was I going to do about it! I rushed round to find pandemonium. His wife and children were in a car outside the house refusing to go inside because they thought the house was unsafe. In the front room it looked like a bomb had exploded! A large part of the ceiling had fallen down and there was debris everywhere. What was I going to do? Fortunately I have a client who specialises in insurance works so I was able to get in touch with my insurance company and get my client out within an hour or so to tidy up the front room and ensure that it was made safe. I was lucky. No one got injured plus through my contacts I managed to get things dealt with quickly. But the whole episode made me take stock. I am not a professional landlord. I didn’t have the time or the knowledge to deal with the issues I knew about let alone those I didn’t.
Being a professional landlord is so much more than simply collecting the money as you will see below. If you are going to do it yourself make sure you read up on everything you can about being a landlord, join an organisation such as the National Residential Landlords Association, get your legals sorted and above all plan for all eventualities.
If you don’t have the time then appoint a letting agent. But be aware there are good letting agents and bad letting agents. A good letting agent will keep in touch with you and the tenant. They will set out clear guidelines and agree responsibilities. They will pay you and deal with tenant queries promptly. Be under no illusions not all letting agents are the same. Before using our current letting agent we engaged another who lied to us repeatedly about why our rents were being paid late. It was only when I visited the tenant myself that I discovered the letting agent was using our money to finance their business. We took legal action, got all our money out and then changed agents. Six months later the letting agent went bust owing hundreds of landlords thousands of pounds in rent. Another lucky escape!!
My advice is don’t necessarily go with the cheapest letting agent.
Go with the one you feel most comfortable with and who has a great reputation.
Letting agents will charge anywhere from 9% to 15% + VAT of the rents received. If you are looking for a great letting agent then please contact us.
2. Not running adequate checks on a potential tenant
This may seem obvious but make sure you rely on facts and numbers not words.
You meet your potential tenant and they seem lovely.
They pay your deposit, you meet the children (what a lovely family!)
They promise to be great tenants who will love your house and pay your rent promptly.
You believe them. Why wouldn’t you – the kids are so cute!
They pay your deposit, move in and then what happens?
They don’t pay the monthly rent! In fact they have a string of CCJs and an awful credit history.
So what actions should you take?
Ideally ask for references and if they provide them make sure you check them. Plus pay the money to obtain a credit report (to check on a history of late payments, delinquent accounts, etc.).
Don’t be pressurised into making a hasty decision. Take time to verify references including employers and former landlords.
3. Remember you are running a business and not a charity
Everyone falls on hard times occasionally but you have to be hard-nosed about slow or late payment.
It is easy to get into arrears.
Make sure you insist on prompt payment and only agree changes to terms if you are 100% confident about the tenant (i.e. you have dealt with them for years and they have always been good payers).
If all else fails don’t delay in evicting the tenant.
This is another reason why letting agents are great. It takes the emotion out of being a landlord and they have the expertise of dealing with matters when hard decisions need to be made.
Also when a tenant asks for a repair or replacement be pragmatic. Is it really necessary and how much do you really need to spend? Whilst you don’t want to necessarily buy cheap items which won’t last you don’t need to buy items which you would have in your own home.
Also don’t forget to increase rents regularly. It is amazing how landlords will leave tenants paying the same level of rents every year simply to “keep the tenant happy”.
Whilst you don’t want to charge too much keep reviewing the market and ensure your rent is competitive but increasing.
Don’t forget you also need to keep proper books and records.
If you have a mortgage remember that only the mortgage interest is tax deductible and not the capital repayment. Make sure you keep records of all expenditure (house insurance, repairs, gas safety checks, gardening, advertising, legals, mileage to and from properties etc…).
4. Don’t forget the taxman
The recent changes to mortgage interest and capital gains tax have really impacted landlords in recent years.
In order to avoid surprises you need a clear understanding of the tax system and the likely tax liabilities you will face.
Large property investment owners who are heavily geared can often find tax liabilities in excess of 100% of the rental profit generated!
Making sure you are aware of the liabilities and ensuring you buy your properties through the right legal entity can save thousands of pounds in taxation.
5. Remember there will be void periods
If you have a mortgage on your property you will incur monthly costs even when the property is unoccupied (void periods).
Make sure you keep your finances in order and put monies aside to cover say the costs of three month’s rent and the redecoration of the property prior to renting again.
Alternatively if it is key to cover the mortgage payments and you can’t afford to build a contingency fund you could consider taking out rent guarantee insurance as an added level of protection.
6. Get your legals sorted
Make sure you get the legals sorted:
A landlord who is renting a property with more than four tenants will also need to get in touch with their local council to check if they need to register for multi-occupancy.
In addition, get a lease drawn up and ensure the tenant signs it.
The lease is crucial as it will govern the payment terms and the behaviour you expect from the tenant in looking after your property.
If you run into issue the Courts will review your agreement. Make sure you take professional advice and get a solicitor to draw up the lease.
7. It’s your property- make sure you check it regularly!
Firstly, before the tenant moves in make sure you itemise everything in your home and take photos of the whole property.
This will give you the information necessary to ensure that when you do inspections you can identify and prove whether any damage has been caused.
You should inspect the property regularly, at least 1 to 3 times a year. Failure to do so could lead to a huge expense if a tenant failed to look after your property.
8. Beware family tenants
You may think that having a family tenant means that you are not a landlord, however they are not the property owners and therefore you need to ensure that whatever the terms are you still ensure all the legal formalities are carried out and even consider getting a standard tenancy agreement.
As much as you trust your family or friends to be good tenants things do go wrong and you could find yourself with a financial loss.
9. Keep the property in good order
Whilst you want to keep your tenant happy and deal with most repair requests you still need to view the property as your investment and therefore make sure you spend what is necessary to keep the property in good condition.
10. Pick the right properties
The final tip is probably the first thing you should always do.
Make sure you buy a rental property which is easy to rent!
Choose a good location such as near a university for students or a hospital for nurses.
If you are looking to attract families then make sure the property is near schools etc… Also check out rental returns on websites such as Rightmove or speak to letting agents and find out what areas are short of rental properties and what returns you can expect.
Being a landlord is not straight forward however if you are professional in your approach a property rental business can be a great source of income and a fantastic investment for the long term.
If you are a client of Friend & Grant and need help and advice regarding your accounts, taxation and financing then please contact us.
The content in this blog is correct as at 11 February 2022 See terms and conditions.