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Are you thinking of purchasing a buy-to-let property? Becoming a landlord can be a big step, and there can be no doubt that it can be financially lucrative for you. As long-term investments go, the property sector has always been a good bet, so it makes sense if you are looking for a way to make money back on your investment.
However, that doesn’t mean that property investment and being a landlord is a foolproof way to make money. In fact, there are always challenges and pitfalls that need to be recognised and overcome, as they can have a very serious impact on your ability to make a profit via buy-to-let property.
So, let’s take a look at some of the most common pitfalls that first-time landlords can struggle with, examine what makes them a problem and understand how they can be overcome.
If you are a first-time landlord, you may not fully appreciate the full extent of your responsibilities, particularly if you are embarking on this alongside a full time working role. A landlord needs to be available to handle any number of queries from tenants, potentially at all hours of the day or night. It’s therefore important you have sufficient spare time to offer such queries and issues or alternatively, look to a letting agent to assist you with the day to day management of the property.
Remember that this is your money tied up in the property, so you need to think of your operation as a business. Make sure you give it the importance that it deserves.
Open up a separate bank account to your personal account and run all of the financial aspects through that account. You should also utilise a bookkeeping system and work with tax professionals.
When you go into the business of being a landlord, you need to think carefully about your budget. The budget you set for this endeavour also determines what you need to make in terms of a return. Remember when you are thinking about the financial side of being a landlord that you will need to consider a lot more than just the cost of the property.
There are various different costs involved when being a landlord. From insurance and maintenance costs to the money you will need to keep in reserve to facilitate good cash flow, there can be a lot to think about. This is why it is vital to set a realistic budget – that means one that takes into account your spending but also takes into account the possibility of challenges.
Once again, this is where it can be very sensible to work with a trusted financial advisor. Specifically, look for a professional who has experience in the kind of investments you are interested in making.
During your first buying process, you are undoubtedly at the mercy of conveyancers as to how quickly it all goes through. A slow conveyancing service can mess with your schedule and leave you feeling frustrated. It is the last thing you need when you are starting out your journey as a landlord.
Ultimately, the way to overcome this pitfall is to opt for a conveyancing service that you know you can trust to get the job done quickly. Of course, not everyone has a personal recommendation for conveyancers, so it can be helpful instead to know the little details to look out for as you make your decision.
When you are looking for a conveyancing service, prioritise those that have an onboarding questionnaire, invested in automated processes, and a range of communication options available. An onboarding questionnaire allows them to get all of the information from you as quickly and easily as possible. Automated processes show this is a company that cares about efficiency and productivity. And having a variety of communication options means you can get in touch whenever you need to.
One problem that first-time landlords can face is that they are simply too trusting with their tenants. Most landlords take this route with the hope of providing quality housing for their clients while making a profit on their buy-to-let property. But that feeling of wanting to do right by the tenants can lead to problems.
Indeed, as a first-time landlord, it is essential that you should follow recommended procedures for taking on a new tenant. For example, you shouldn’t simply ‘trust your instinct’ that this tenant is a reliable individual. Your money is on the line, so you need to know that your tenant is going to be able to afford their monthly rental payments comfortably. You aren’t doing someone a favour by letting them rent a property that they don’t really have the budget for – you are potentially putting both them and you at financial risk.
It is generally recommended that tenants should not be spending more than 30% of their income on their rent. If this isn’t something that they can prove that they can do, you shouldn’t accept them as a tenant.
This is one area where involving a letting agency may be more beneficial to your peace of mind. At Julie Twist we always conduct a credit check and ask for a landlord reference if a potential tenant has previously rented a property. You can also opt to pay a professional referencing agency to handle tenant profiling and options such as rent guarantees.
If you have a property and you are gearing up for a tenant, it can feel essential to get them in as soon as possible. However, this can actually cause you problems further down the line. For example, you should always make sure that you take a full inventory of the condition of the property and its furnishings. This is known professionally as a schedule of conditions.
It can feel like a document of this magnitude is simply going into a level of detail that isn’t warranted. But an inventory is something that you are going to rely upon later on. When a tenant signs and dates an inventory they accept that this is a correct breakdown of the condition of the property.
At the end of the tenancy, if there is any damage to the property or furnishings that are missing, you will be able to make deductions from the tenant’s deposit in order to repair the damage and replace the items. Having the official document in place ensures that the tenant cannot dispute the changes.
Of course, normal wear and tear are to be expected to a certain extent, but when there is a serious problem it can provide complete peace of mind to have an inventory agreement already in place.
One common mistake that many first-time landlords make when they plan for their buy-to-let property is imagining that they will have a tenant in situ at all times. We talked earlier about the importance of creating a robust plan and understanding the budgets involved in being a landlord.
But too often, it can be completely overlooked that tenants are not always in place 100% of the time. You have to accept that even if your business plan revolves around long-term tenants, you will naturally have periods between one tenant leaving and another taking over.
There are two steps to overcoming this issue. The first is to ensure that you have a good system for finding new tenants. In some cases it can be necessary to act quickly to find someone new to take over the property; remember that every month the property sits empty is one where you are responsible for all of the payments yourself.
The second step is to factor this issue into your finances. Don’t assume that you’ll have someone paying the mortgage every single month – you need to have some extra funds ready to cover you in the event of losing a tenant unexpectedly.
Inspections are an important part of being a landlord. Some first-time landlords assume that carrying out inspections is just being nosy and isn’t really an important or fair part of the job. However, inspections play an important role, not just from your perspective, but for the welfare of the tenant as well.
Remember that it is common for tenants to feel like they shouldn’t bring up all of the problems that they find on the property. They worry about upsetting their landlord by bringing up issues. This can, unfortunately, result in those problems getting worse if they are not dealt with appropriately.
Inspections provide you with the opportunity to look around the property on a regular basis to check for damage or other problems that can be resolved.
For first-time landlords, these pitfalls can be financially damaging and they can cause you to lose interest in what you are doing. It can be a great idea to take advice from a professional with experience in managing properties to help you come up with a personalised plan to avoid these issues. Thankfully, by taking simple steps and focusing on the details, it is always possible to overcome these issues and avoid them altogether.
Posted by Simon on May 26th, 2010
Posted by Simon on November 8th, 2012
