While the quality of landlords and their understanding of the Buy-to-Let market has undoubtedly improved in recent years, there are still some fundamental mistakes that are made - both by those who are new to the business and by landlords who would consider themselves experienced. Here are five of the most common:
Not planning properly for larger costs
While most landlords these days know that they should be budgeting as accurately as possible for their refurbishment and annual maintenance costs, many continue to underestimate the full cost of larger jobs that they will incur over the lifetime of their investment.
The standard that tenants demand these days is much higher than a decade ago and it’s likely that kitchens and bathrooms will need refurbishing every 10 years or sooner. Boilers and white goods should also be factored in to the 10-year plan; full redecoration every 5 years; new carpets every 5-10 years and replacement of furniture around every 5 years. In terms of the fabric of the property, guttering, window frames, roofing and pointing are all likely to need some work every 5-10 years and, if it is an older property, a damp course may need renewing.
Not factoring in these costs at the outset of the investment could not only mean you struggle to pay for larger jobs when they become necessary, but also it may mean that your investment is simply not as good as you thought.
Relying on market growth
Although it’s well-publicised and well-known that the days of rapid market growth are almost certainly behind us, there is something of a lingering belief among Buy-to-Let investors that their money is ‘safe’ and property will always be a good investment, no matter what.
Buy-to-Let can certainly still give good returns, but it is no longer enough to simply buy, let, wait and then sell. While prices across the UK have generally heading upwards, that’s not happening in every area and, even where the area is reporting growth, it doesn’t necessarily apply to every property. Even with all the excellent information and support out there for landlords, some are nevertheless having to subsidise their investment because they didn’t prepare well enough before they made the purchase.
To ensure your investment gives the returns you want and need, you must research your local market properly and take expert advice, so that you’re able to put together accurate budgets and forecasts, with figures for prices, rents, expenditure and tax. And, even if you are investing primarily to secure capital growth, you should make sure that the rental income for your property at least covers all the associated expenditure, with a ‘cushion’ that protects you against void periods and mortgage interest rate increases.
Not researching agents properly, or not using one at all!
Until the lettings market becomes regulated, the best way to protect yourself as a landlord is to engage the best agent you can find in your area. Firstly, they should be a member of a recognised industry body or association, such as ARLA, NALS or RICS. These agents must adhere to a code of conduct and will undergo ongoing training, so you can be much more confident they are operating to the highest standards. The second thing you should check is that they have client money protection insurance, so that if anything happens to their business, your money and the rent your tenant has paid is protected. And they should be members of a property ombudsman, so that you have an independent third party to complain to, if necessary.
A good managing agent will not be cheap, but should nevertheless represent good value and of course, their costs are tax deductible. Training staff, marketing, ensuring a property is legally let, vetting tenants, carrying out inspections and ensuring maintenance is carried out properly and cost effectively needs to be paid for. Sadly, some landlords continue to take the cheapest option, which is generally offered by the least capable agents or not using and agent at all and therefore not letting a property safely or legally or looking after the tenant as they should be cared for.
Not having the right insurance
It may be common knowledge that landlords require specialist insurance for the property they are letting, but there is still often a lack of clarity on exactly what cover is needed and what it is advisable to take out. And it is often not until there is a problem that landlords realise the hard way that their policy is inadequate.
If you don’t have the right cover, you could find yourself not only out of pocket for repairs, but also with lost income from rent arrears and a heavy legal bill if you happen to be prosecuted for any accidents that occur in your property.
So, in addition to buildings insurance and accidental damage cover, your landlord policy should include:
- Public liability insurance, in case someone injures themselves in your property
- Cover for malicious damage and theft by tenants
- Alternative accommodation cover, in case you need to temporarily re-home your tenants while repairs are carried out
- Legal expenses.
It is also worth considering taking out additional cover for:
- Employer’s liability insurance, to cover contractors working in the property
- Rent protection, which will guarantee your income for a period of time if your tenant defaults
- Glass & locks replacement
- Boiler repair or replacement
- Equipment breakdown – if white goods are included in the let.
If you have several properties, you should look at portfolio insurance policy options, as they generally reduce the cost per property, not to mention simplify your administration.
Waiting too long to start the eviction process
If you have a managing agent, the good ones that know the legal process will help you with this – and this is just one reason why it’s advisable to have a professional to manage your let. When a tenant falls behind in their rent, it’s usually a sign that either they can’t really afford it or they’re simply the kind of tenant who wants to avoid paying. In both cases, the matter needs to be addressed immediately and if the rent is not made up right away, the eviction process needs to be started. If the tenant refuses to pay and refuses to leave, it can take several months to evict them through the courts, so it’s important to keep your financial losses to a minimum and get them out as soon as possible, so a new tenant can be moved in.
Too many landlords who manage lets themselves tend to take too long to too take action, forgetting that if things are sorted by the tenant the process can be stopped which can result in missed rent, causing financial problems for the landlord.
This information has been provided by our partner Mortgage Advice Bureau. For more information relating to Mortgages or for Mortgage Advice please visit Mortgage Advice Bureau.